-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Aq+k22aLUzfmQw/zAyNfiXD+gDYJtqI42hKyvzMcSdVrXzquyAw834IcN3PMWve0 172BIN+CIQj4HNeG+R1zpA== /in/edgar/work/0000950149-00-002110/0000950149-00-002110.txt : 20000930 0000950149-00-002110.hdr.sgml : 20000930 ACCESSION NUMBER: 0000950149-00-002110 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20000921 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000928 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXYS PHARMECUETICALS INC CENTRAL INDEX KEY: 0000913056 STANDARD INDUSTRIAL CLASSIFICATION: [2834 ] IRS NUMBER: 222969941 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-22788 FILM NUMBER: 730979 BUSINESS ADDRESS: STREET 1: 180 KIMBALL WAY CITY: SOUTH SAN FRANCISCO STATE: CA ZIP: 94080 BUSINESS PHONE: 6508291000 MAIL ADDRESS: STREET 1: 180 KIMBALL WAY CITY: SOUTH SAN FRANCISCO STATE: CA ZIP: 94080 FORMER COMPANY: FORMER CONFORMED NAME: ARRIS PHARMACEUTICAL CORP/DE/ DATE OF NAME CHANGE: 19931005 8-K 1 f65920e8-k.txt FORM 8-K DATED SEPT. 21, 2000 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (date of earliest event reported): September 21, 2000 AXYS PHARMACEUTICALS, INC. ----------------------------------------- (Exact name of registrant as specified in its charter)
Delaware 000-22788 22-2969941 - --------------------------------- ------------------------ ------------------------ (State or other jurisdiction of (Commission File Number) (I.R.S. Employer Incorporation) Identification Number)
180 Kimball Way South San Francisco, CA 94080 ----------------------------- (Address of principal executive offices) (Zip Code) (650) 829-1000 --------------------------------------------------- (Registrant's telephone number, including area code) 2 ITEM 5. OTHER EVENTS In a press release dated September 21, 2000, Axys Pharmaceuticals, Inc. (the "Company") announced that it has entered into agreements to sell $26 million aggregate principal amount of its new series of 8% Senior Secured Convertible Notes maturing October 1, 2004 (the "Notes"). In connection with this offering of Notes, the Company is also issuing warrants to purchase shares of its common stock (the "Warrants"). On September 22, 2000, the Company completed this offering of Notes and Warrants, under its shelf Registration Statement on Form S-3 (Registration No. 333-35828), as amended by Post-effective Amendment No. 1 thereto filed on May 22, 2000 and Post-effective Amendment No. 2 thereto filed on July 10, 2000, and the related Prospectus Supplement, dated September 22, 2000. The press release and execution copies of the note purchase agreements, warrants, indenture and supplemental indenture relating to the offering are filed herewith as exhibits. ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits. (c) Exhibits: The following exhibits are filed as part of this Report. 1.1 Note Purchase Agreement 4.1 Indenture 4.2 Supplemental Indenture 4.3 Class A Common Stock Purchase Warrant 4.4 Class B Common Stock Purchase Warrant 20.1 Press Release, dated September 21, 2000, of Axys Pharmaceuticals, Inc. 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned hereunto duly authorized. Dated: September 28, 2000 AXYS PHARMACEUTICALS, INC. By: /s/ William J. Newell ---------------------------------- William J. Newell Senior Vice President EX-1.1 2 f65920ex1-1.txt NOTE PURCHASE AGREEMENT 1 EXHIBIT 1.1 NOTE PURCHASE AGREEMENT DATED AS OF SEPTEMBER 20, 2000 BY AND BETWEEN AXYS PHARMACEUTICALS, INC. AND DELTA OPPORTUNITY FUND, LTD. ---------------- 8% SENIOR SECURED CONVERTIBLE NOTES DUE 2004 AND COMMON STOCK PURCHASE WARRANTS ---------------- AGENT: DIAZ & ALTSCHUL CAPITAL, LLC 2 AXYS PHARMACEUTICALS, INC. NOTE PURCHASE AGREEMENT 8% SENIOR SECURED CONVERTIBLE NOTES DUE 2004 AND COMMON STOCK PURCHASE WARRANTS TABLE OF CONTENTS
PAGE 1. DEFINITIONS..................................................................1 2. PURCHASE AND SALE; PURCHASE PRICE............................................8 (a) Purchase..............................................................8 (b) Form of Payment.......................................................9 (c) Closing...............................................................9 3. REPRESENTATIONS, WARRANTIES, COVENANTS, ETC. OF THE BUYER.................................................................9 (a) Note Purchase Agreement...............................................9 (b) Documents and Information.............................................9 (c) Buyer Status..........................................................10 (d) Absence of Brokers, Finders, Etc......................................10 4. REPRESENTATIONS, WARRANTIES, COVENANTS, ETC. OF THE COMPANY...............................................................10 (a) Organization and Authority............................................10 (b) Qualifications........................................................10 (c) Capitalization........................................................10 (d) Concerning the Shares and the Common Stock............................12 (e) Corporate Authorization...............................................12 (f) Non-contravention.....................................................13 (g) Approvals, Filings, Etc...............................................14 (h) Information Provided..................................................14 (i) Conduct of Business...................................................14 (j) SEC Filings...........................................................15 (k) Absence of Certain Proceedings........................................15 (l) Financial Statements; Liabilities.....................................15 (m) Material Losses.......................................................16 (n) Absence of Certain Changes............................................16
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(o) Intellectual Property.................................................16 (p) Internal Accounting Controls..........................................16 (q) Compliance with Law...................................................16 (r) Properties............................................................17 (s) Labor Relations.......................................................17 (t) Insurance.............................................................17 (u) Tax Matters...........................................................17 (v) Investment Company....................................................17 (w) Absence of Brokers, Finders, Etc......................................18 (x) Registration Statement, Indenture, Etc................................18 (y) ERISA Compliance......................................................19 (z) Concerning the Collateral and the Akkadix Shares......................19 (aa) Rights Agreement......................................................21 5. CERTAIN COVENANTS............................................................21 (a) Nasdaq Listing; Reporting Status......................................21 (b) State Securities Laws.................................................22 (c) Limitation on Certain Actions.........................................22 (d) Indenture; Supplemental Indenture; Financing Statements, Etc.............................................22 (e) Use of Proceeds.......................................................22 (f) Concerning the Registration Statement.................................23 (g) Best Efforts..........................................................24 (h) Debt Obligation.......................................................24 6. CONDITIONS TO COMPANY'S OBLIGATION TO SELL...................................24 7. CONDITIONS TO BUYER'S OBLIGATION TO PURCHASE.................................25 8. INDEMNIFICATION AND CONTRIBUTION.............................................27 (a) Indemnification.......................................................27 (b) Notice of Claim, Defense, Etc.........................................27 (c) Contribution..........................................................28 (d) Other Rights..........................................................28 9. MISCELLANEOUS................................................................28 (a) Governing Law.........................................................28 (b) Headings..............................................................28 (c) Severability..........................................................29 (d) Notices...............................................................29 (e) Counterparts..........................................................29 (f) Entire Agreement; Benefit.............................................29 (g) Waiver................................................................30 (h) Amendment.............................................................30
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(i) Further Assurances....................................................30 (j) Expenses..............................................................30 (k) Termination...........................................................31 (l) Survival..............................................................31 (m) Public Statements, Press Releases, Etc................................31 (n) Construction..........................................................31
DISCLOSURE SCHEDULE 4(a) List of Subsidiaries 4(c) Capitalization 4(f) Non-contravention 4(i) Conduct of Business 4(j) SEC Filings 4(k) Certain Proceedings 4(l) Liabilities 4(n) Certain Changes 4(q) Compliance With Law 4(r) Properties 4(z) Certain Filings and Notices ANNEXES ANNEX I Form of Indenture ANNEX II Form of Issuing Agent Instruction ANNEX III Form of Common Stock Purchase Warrants ANNEX IV Form of First Supplemental Indenture ANNEX V Form of Opinion of Latham & Watkins to Be Delivered on the Closing Date ANNEX VI Form of Opinion of William Newell, Esq. to Be Delivered on the Closing Date ANNEX VII Form of Prospectus Supplement 5 NOTE PURCHASE AGREEMENT THIS NOTE PURCHASE AGREEMENT, dated as of September 20, 2000 (this "Agreement"), by and between AXYS PHARMACEUTICALS, INC., a Delaware corporation (the "Company"), with headquarters located at 180 Kimball Way, South San Francisco, California 94080, and DELTA OPPORTUNITY FUND, LTD., a British Virgin Islands corporation (the "Buyer"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Buyer wishes to purchase from the Company and the Company wishes to sell to the Buyer, upon the terms and subject to the conditions of this Agreement, the Note (such capitalized term and all other capitalized terms used in this Agreement having the meanings provided in Section 1) in the principal amount set forth on the signature page of this Agreement and which will be convertible into shares of Common Stock; WHEREAS, the Company has filed the Registration Statement with the SEC relating to debt securities, warrants and Common Stock, which has been declared effective by the SEC, and is offering a portion of such securities to the Buyer to be purchased pursuant to this Agreement and the Prospectus; WHEREAS, on or before the Closing Date the Company and the Trustee shall execute and deliver, one to the other, the Supplemental Indenture in the form referred to herein, which provides, among other things, for the grant to the Trustee for the ratable benefit of the holders from time to time of the Note and the Other Notes of a first priority security interest in certain collateral upon the terms and with the effect as provided therein; and WHEREAS, in connection with the issuance of the Note, the Company is issuing to the Buyer the Warrants on the terms provided herein; NOW THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. DEFINITIONS. (a) As used in this Agreement, the terms "Agreement", "Buyer" and "Company" shall have the respective meanings assigned to such terms in the introductory paragraph of this Agreement. 1 6 (b) All the agreements or instruments herein defined shall mean such agreements or instruments as the same may from time to time be supplemented or amended or the terms thereof waived or modified to the extent permitted by, and in accordance with, the terms thereof and of this Agreement. (c) The following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Account" shall have the meaning to be provided or provided in the Supplemental Indenture. "Affiliate" means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with the subject Person. For purposes of this definition, "control" (including, with correlative meaning, the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise. "Akkadix" means Akkadix Corporation, a California corporation. "Akkadix Common Stock" means the Common Stock, par value $.001 per share, of Akkadix. "Akkadix Shares" means the 3,000,000 shares of Series A Preferred Stock, $.001 par value per share, of Akkadix registered in the name of the Company, any other shares of capital stock of Akkadix owned by the Company from time to time, and any shares of capital stock of Akkadix into which such shares shall be changed or reclassified. "Blackout Period" means the period of up to 15 consecutive Trading Days after the date the Company notifies the Buyer as provided in Section 5(f)(1)(B) as a result of an event or circumstance described therein relating to or affecting the Registration Statement, during which period, by reason of Section 5(f)(1)(B), the Company is not required to use its best efforts to maintain the effectiveness of the Registration Statement. "Business Day" means any day other than a Saturday, Sunday or a day on which commercial banks in The City of New York or the State of California are authorized or required by law or executive order to remain closed. 2 7 "California UCC" means the Uniform Commercial Code as in effect in the State of California. "Chattel Paper" shall have the meaning to be provided or provided in the Supplemental Indenture. "Claim" means, with respect to any Person, any losses, claims, damages or liabilities incurred by such Person. "Closing Date" means 12:00 noon, New York City time, on September 23, 2000, or such other date and time as is mutually agreed between the Company and the Buyer. "Code" means the Internal Revenue Code of 1986, as amended, and the regulations thereunder and published interpretations thereof. "Collateral" shall have the meaning to be provided or provided in the Supplemental Indenture. "Common Stock" means the Common Stock, par value $.001 per share, of the Company. "Common Stock Purchase Agreement" means the Common Stock Purchase Agreement, dated as of July 21, 2000, between the Company and Acqua Wellington North American Equities Fund, Ltd. "Contracts" shall have the meaning to be provided or provided in the Supplemental Indenture. "Conversion Price" shall have the meaning to be provided or provided in the Supplemental Indenture. "Conversion Shares" means the shares of Common Stock and the related Preferred Share Purchase Rights issuable upon conversion of the Note. "Disclosure Schedule" means the Disclosure Schedule prepared by the Company and furnished to the Buyer prior to the date of execution and delivery of this Agreement by the Buyer. "DPI" means Discovery Partners International, Inc., a Delaware corporation. "DPI Common Stock" means the Common Stock, $.001 par value, of DPI. 3 8 "DPI Contracts" shall have the meaning to be provided or provided in the Supplemental Indenture. "Encumbrances" means all mortgages, deeds of trust, claims, security interests, liens, pledges, leases, subleases, charges, escrows, options, proxies, rights of occupancy, rights of first refusal, preemptive rights, covenants, conditional limitations, hypothecations, prior assignments, easements, title retention agreements, indentures, security agreements or any other encumbrances of any kind. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder and published interpretations thereof. "Event of Default" shall have the meaning to be provided or provided in the Supplemental Indenture. "Holder" shall have the meaning to be provided or provided in the Indenture. "Indemnified Person" means the Buyer and its Affiliates. "Indenture" means the Indenture, to be dated as of September 23, 2000, by and between the Company and the Trustee in the form attached as ANNEX I to this Agreement. "Instrument" shall have the meaning to be provided or provided in the Supplemental Indenture. "Intellectual Property" means all franchises, patents, patent rights, trademarks, service marks, trade names (whether registered or unregistered), copyrights, corporate names, licenses, trade secrets, proprietary software or hardware, proprietary technology, technical information, discoveries, designs and other proprietary rights, whether or not patentable, and confidential information (including, without limitation, know-how, processes and technology). "Interest Shares" means the shares of Common Stock and the related Preferred Share Purchase Rights issuable in payment of interest on the Note. "Issuing Agent Instruction" means the letter from the Company to the Transfer Agent in the form attached as ANNEX II to this Agreement. "June 10-Q" means the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, as filed with the SEC. 4 9 "Lien" shall have the meaning to be provided or provided in the Supplemental Indenture. "Margin Stock" shall have the meaning provided in Regulation U of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 221). "Maturity Date" shall have the meaning to be provided or provided in the Supplemental Indenture. "Nasdaq" means the Nasdaq National Market. "NASD" means the National Association of Securities Dealers, Inc. "1999 10-K" means the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (including any information or documents incorporated therein by reference). "1934 Act" means the Securities Exchange Act of 1934, as amended. "1939 Act" means the Trust Indenture Act of 1939, as amended. "1939 Act Rules and Regulations" means the rules and regulations of the SEC under the 1939 Act. "1933 Act" means the Securities Act of 1933, as amended. "New York UCC" means the Uniform Commercial Code as in effect in the State of New York. "Note" means the 8% Senior Secured Convertible Note due 2004 of the Company to be issued or issued pursuant to this Agreement. "Other Buyers" means the buyers named in the Other Note Purchase Agreements. "Other Note Purchase Agreements" means the several Note Purchase Agreements, dated as of the date hereof, by and between the Company and the Other Buyers, relating to the Other Notes. "Other Notes" means the several 8% Senior Secured Convertible Notes due 2004 issued by the Company pursuant to the Other Note Purchase Agreements. 5 10 "Permitted Liens" shall have the meaning to be provided or provided in the Supplemental Indenture. "Person" means any natural person, corporation, partnership, limited liability company, trust, incorporated organization, unincorporated association, or similar entity or any government, governmental agency or political subdivision. "Placement Agent" means Diaz & Altschul Capital, LLC. "Pledged Securities" shall have the meaning to be provided or provided in the Supplemental Indenture. "Preferred Share Purchase Rights" means the Preferred Share Purchase Rights issued or issuable pursuant to the Rights Agreement (or any similar rights hereafter issued by the Company with respect to the Common Stock). "Prospectus" means the prospectus forming part of the Registration Statement at the time the Registration Statement is declared effective and any amendment or supplement thereto (including the Prospectus Supplement), including any documents or information incorporated therein by reference. "Prospectus Supplement" means the Prospectus Supplement in the form attached as ANNEX VII to this Agreement, to be filed with the SEC as provided in Section 5(f). "Purchase Price" means the purchase price for the Note set forth on the signature page of this Agreement. "register," "registered," and "registration" refer to a registration effected by preparing and filing a Registration Statement or Statements in compliance with the 1933 Act and pursuant to Rule 415, and the declaration or ordering of effectiveness of such Registration Statement or Statements by the SEC. "Registered Securities" means the Warrant Shares and any stock or other securities of any Person into which or for which the Common Stock may hereafter be changed, converted or exchanged by the Company or its successor, as the case may be, and any other securities issued to holders of such Common Stock (or such stock or other securities into which or for which the Warrant Shares are so changed, converted or exchanged) upon any reclassification, share combination, share subdivision, share dividend, merger, consolidation or similar transaction or event. 6 11 "Registration Period" means the period from the SEC Effective Date to the Warrant Expiration Date (or, such earlier date on which (x) the Warrants shall have been fully exercised, or (y) the Warrants shall no longer remain outstanding.) "Registration Statement" means the Registration Statement on Form S-3 of the Company under the 1933 Act (Registration No. 333-35828), as amended by Post-Effective Amendment No. 1 thereto filed with the SEC on May 22, 2000 and Post-Effective Amendment No. 2 thereto filed with the SEC on July 10, 2000, including any documents or reports incorporated therein by reference. "Repurchase Event" shall have the meaning to be provided or provided in the Supplemental Indenture. "Rights Agreement" means the Rights Agreement, dated as of October 8, 1998, between the Company and Computershare Investor Services LLC, as Rights Agent. "Rule 415" means Rule 415 under the 1933 Act or any successor rule providing for offering securities on a delayed or continuous basis. "Rule 144" means Rule 144 under the 1933 Act or any other similar rule or regulation of the SEC that may at any time provide a "safe harbor" exemption from registration under the 1933 Act so as to permit a holder of securities to sell such securities to the public without registration under the 1933 Act. "Rules and Regulations" means the rules and regulations of the SEC under the 1933 Act. "SEC" means the Securities and Exchange Commission. "SEC Effective Date" means May 5, 2000, which was the date the Registration Statement was declared effective by the SEC. "SEC Filing Date" means the date the Registration Statement was first filed with the SEC. "SEC Reports" means (1) the 1999 10-K, (2) the Company's definitive Proxy Statement for its 2000 Annual Meeting of Stockholders, (3) the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 and the June 10-Q and (4) the Company's Current Reports on Form 8-K, dated February 22, 2000, May 15, 2000, August 2, 2000, August 3, 2000 and September 13, 2000, in each case as filed with the SEC and including the information and documents (other than exhibits) incorporated therein by reference. 7 12 "Securities" means, collectively, the Note, the Warrants and the Shares. "Security Interest" shall have the meaning to be provided or provided in the Supplemental Indenture. "Shares" means the Conversion Shares, the Interest Shares and the Warrant Shares. "Subsidiary" means any corporation or other entity of which a majority of the capital stock or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Company. "Supplemental Indenture" means the First Supplemental Indenture, to be dated as of September 23, 2000, by and between the Company and the Trustee in the form attached as ANNEX IV to this Agreement. "Trading Day" shall have the meaning to be provided or provided in the Supplemental Indenture. "Transaction Documents" means, collectively, this Agreement, the Indenture, the Supplemental Indenture, the Securities, the Issuing Agent Instruction and the other agreements, instruments and documents contemplated hereby and thereby. "Transfer Agent" means Computershare Investor Services LLC, or any successor thereof, serving as transfer agent and registrar for the Common Stock. "Trustee" means U.S. Bank Trust National Association, as Trustee under the Indenture and the Supplemental Indenture. "Violation" means (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any post-effective amendment thereof or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in the Prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) 8 13 or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading, or (iii) any failure by the Company to fulfill any undertaking included in the Registration Statement or any post-effective amendment thereof. "Warrant Expiration Date" means the "Expiration Date" as defined in the Warrants. "Warrant Shares" means the shares of Common Stock and the related Preferred Share Purchase Rights issuable or issued upon exercise of the Warrants. "Warrants" means the Common Stock Purchase Warrants, Class A and the Common Stock Purchase Warrants, Class B in the form attached as ANNEX III to this Agreement to be issued or issued pursuant to this Agreement and initially entitling the holder to purchase the number of shares of Common Stock determined in accordance with Section 2(a). 2. PURCHASE AND SALE; PURCHASE PRICE. (a) PURCHASE. Upon the terms and subject to the conditions of this Agreement, the Buyer hereby agrees to purchase from the Company, and the Company hereby agrees to sell to the Buyer on the Closing Date, the Note in the principal amount set forth on the signature page of this Agreement and having the terms and conditions as set forth in the Indenture and the form of the Supplemental Indenture attached hereto as ANNEX IV for the Purchase Price. In connection with the purchase and sale of the Note by the Buyer, the Company shall issue to the Buyer at the closing on the Closing Date two Warrants, each registered in the name of the Buyer or its nominee, (1) one of which shall initially entitle the holder to purchase a number of shares of Common Stock equal to 25 percent of the quotient obtained by dividing (x) the original principal amount of the Note by (y) the Conversion Price at the time of issuance of the Note, which Warrant shall have an initial Purchase Price (as defined in the Warrant) equal to 125 percent of the Conversion Price at the time of issuance of the Note and (2) one of which shall initially entitle the holder to purchase a number of shares of Common Stock equal to 25 percent of the quotient obtained by dividing (x) the original principal amount of the Note by (y) the Conversion Price at the time of issuance of the Note, which Warrant shall have an initial Purchase Price (as defined in such Warrant) equal to 150 percent of the Conversion Price at the time of issuance of the Note. 9 14 (b) FORM OF PAYMENT. Payment by the Buyer of the Purchase Price to the Company on the Closing Date shall be made by wire transfer of immediately available funds to: Bank of America 345 Montgomery Street San Francisco, California 94104 ABA No. 121000358 For credit to account No. 14998-04747 For credit to the account of Axys Pharmaceuticals Concentration Account Reference: Delta Opportunity (c) CLOSING. The issuance and sale of the Note and the issuance of the Warrants shall occur on the Closing Date at the Law Offices of Brian W Pusch, Penthouse Suite, 29 West 57th Street, New York, New York. At the closing, upon the terms and subject to the conditions of this Agreement, (1) the Company shall issue and deliver to the Buyer the Note and the Warrants against payment by the Buyer to the Company of an amount equal to the Purchase Price, and (2) the Buyer shall pay to the Company an amount equal to the Purchase Price against delivery by the Company to the Buyer of the Note and the Warrants. 3. REPRESENTATIONS, WARRANTIES, COVENANTS, ETC. OF THE BUYER. The Buyer represents and warrants to, and covenants and agrees with, the Company as follows: (a) NOTE PURCHASE AGREEMENT. The Buyer has all requisite power and authority, corporate or otherwise, to execute, deliver and perform its obligations under this Agreement and the other agreements executed or to be executed on behalf of the Buyer in connection herewith and to consummate the transactions contemplated hereby and thereby; and this Agreement has been duly and validly authorized, duly executed and delivered by the Buyer and, assuming due execution and delivery by the Company, is a valid and binding agreement of the Buyer enforceable in accordance with its terms, except as the enforceability hereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting creditors' rights generally and general principles of equity, regardless of whether enforcement is considered in a proceeding in equity or at law. 10 15 (b) DOCUMENTS AND INFORMATION. The Buyer has received the Registration Statement and the Prospectus, including the SEC Reports incorporated by reference therein (but excluding certain exhibits thereto), and has had an opportunity to review and to ask questions of the Company regarding the Registration Statement and the Prospectus. 11 16 (c) BUYER STATUS. The Buyer is not a "broker" or "dealer" as those terms are defined in the 1934 Act which is required to be registered with the SEC pursuant to Section 15 of the 1934 Act. (d) ABSENCE OF BROKERS, FINDERS, ETC. (1) the Buyer has not dealt with any broker, finder or similar Person who is entitled to any commission, for or other compensation by reason of the transactions contemplated by this Agreement, other than the Placement Agent, and (2) the Buyer shall pay, and indemnify and hold harmless the Company from, any claim made against the Company by any such broker, finder or similar Person in the event of a breach of the Buyer's representation and warranty set forth in clause (1) of this Section 3(d). 4. REPRESENTATIONS, WARRANTIES, COVENANTS, ETC. OF THE COMPANY. The Company represents and warrants to, and covenants and agrees with, the Buyer that: (a) ORGANIZATION AND AUTHORITY. Each of the Company and PPGx is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, and (i) each of the Company and PPGx has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as described in the SEC Reports and as currently conducted, and (ii) the Company has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and the other Transaction Documents to be executed and delivered by the Company in connection herewith, and to consummate the transactions contemplated hereby and thereby; and the Company does not have any Subsidiaries or equity investment in any other Person other than the Subsidiaries and other Persons listed in SECTION 4(a) of the Disclosure Schedule. (b) QUALIFICATIONS. Each of the Company and PPGx is duly qualified to do business as a foreign corporation and is in good standing in all jurisdictions where such qualification is necessary except where the failure so to qualify would not be reasonably expected to have a material adverse effect on the business, properties, operations, condition (financial or other), results of operations or prospects of the Company and the Subsidiaries, taken as a whole. (c) CAPITALIZATION. (1) The authorized capital stock of the Company consists of (A) 50,000,000 shares of Common Stock, of which 37,086,800 shares were outstanding at the close of business on September 19, 2000 and (B) 10,000,000 shares of Preferred Stock, $.001 par value, of which 500,000 shares have been designated Series A Junior Participating Preferred Stock, none of which 12 17 shares were outstanding at the close of business on September 19, 2000; from September 19, 2000 to the Closing Date there will be (x) no material increase in the number of shares of Common Stock outstanding (except for shares of Common Stock issued upon exercise of options and warrants outstanding on the date hereof, or options or similar rights granted subsequent to the date of this Agreement pursuant to the Company's stock option plans currently in effect, in each case under the Company's stock option plans disclosed in the SEC Reports) and (y) no issuance of securities convertible into, exchangeable for, or otherwise entitling the holder to acquire, shares of Common Stock (except for securities issued pursuant to the Other Note Purchase Agreements and except for Preferred Share Purchase Rights issuable in connection with the issuance of shares of Common Stock issued in accordance with the immediately preceding clause (x). The 1999 10-K discloses as of December 31, 1999 all outstanding options or warrants for the purchase of, or other rights to purchase or subscribe for, or securities convertible into, exchangeable for, or otherwise entitling the holder to acquire, Common Stock or other capital stock of the Company, or any contracts or commitments to issue or sell Common Stock or other capital stock of the Company or any such options, warrants, rights or other securities and, except as set forth in SECTION 4(c) of the Disclosure Schedule or except as contemplated by the Common Stock Purchase Agreement, from December 31, 1999 to the date hereof there has been, and to the Closing Date there will be, no change in the amount or terms of any of the foregoing except for the grant of options to purchase shares of Common Stock pursuant to the Company's stock option plans in effect on the date of this Agreement, which plans are disclosed in the SEC Reports. (2) (A) As of September 19, 2000, the Company owned beneficially and of record 7,425,000 shares of DPI Common Stock and to the Company's knowledge the authorized capital stock of DPI consists of 100,000,000 shares of DPI Common Stock and 1,000,000 shares of Preferred Stock, par value $.001 per share; (B) As of September 19, 2000, the Company owned beneficially and of record 3,000,000 shares of Series A Preferred Stock of Akkadix and to the Company's knowledge the authorized capital stock of Akkadix consists of (x) 30,000,000 shares of Akkadix Common Stock (of which 1,710,106 shares were outstanding on such date) and 15,340,000 shares of Preferred Stock, $.001 par value, of which (I) 8,200,000 shares have been designated Series A Preferred Stock, (II) 3,350,000 shares have been designated Series B Preferred Stock and 100,000 shares have been designated Series C Preferred Stock. (3) The Company has duly reserved from its authorized and unissued shares of Common Stock the full number of shares required for (A) all options, warrants, convertible securities and other rights to acquire shares of Common Stock which are outstanding and (B) all shares of Common Stock and options and other rights to acquire shares of Common Stock which may be issued or 13 18 granted under the stock option and similar plans which have been adopted by the Company or any Subsidiary; and, immediately following the Closing Date, after giving effect to any antidilution or similar adjustment arising by reason of issuance of the Note, the Other Notes, the Warrants and the warrants issuable to the purchasers of the Other Notes, the total number of shares of Common Stock reserved and required to be reserved from the authorized and unissued shares of Common Stock for purposes of all such options, warrants, convertible securities, other rights, and stock option and similar plans (excluding the Note, the Other Notes, the Warrants and the warrants issuable to the purchasers of the Other Notes) will be 5,964,828. Each outstanding class or series of securities of the Company for which any such antidilution adjustment will occur is identified in SECTION 4(c) of the Disclosure Schedule, together with the amount of such antidilution adjustment for each such class or series. The outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable and all outstanding options, warrants, rights and other securities entitling the holders to purchase or otherwise acquire Common Stock have been duly authorized by the Company. None of the holders of such outstanding shares of capital stock is subject to personal liability solely by reason of being such a holder. None of the outstanding shares of capital stock or options, warrants and other rights to acquire Common Stock has been issued in violation of the preemptive rights of any security holder of the Company. The offers and sales of the outstanding shares of capital stock of the Company and options, warrants and other rights to acquire Common Stock were at all relevant times either registered under the 1933 Act and applicable state securities laws or exempt from such requirements. No holder of any of the Company's securities had any rights, "demand," "piggy-back" or otherwise, to have such securities registered by reason of the intention to file, filing or effectiveness of the Registration Statement, except as set forth in SECTION 4(c) of the Disclosure Schedule. (d) CONCERNING THE SHARES AND THE COMMON STOCK. The Shares have been duly authorized and (x) the Conversion Shares, when issued upon conversion of the Note in accordance with its terms, (y) the Interest Shares, if and when issued in payment of interest on the Note, and (z) the Warrant Shares, when issued upon exercise of the Warrants against payment, if any, therefor in accordance with its terms, in each such case will be duly and validly issued, fully paid and non-assessable and will not subject the holder thereof to personal liability by reason of being such holder. There are no preemptive or similar rights of any stockholder of the Company or any other Person to acquire any of the Securities. The Company has duly reserved at least 5,524,080 shares of Common Stock for issuance upon conversion of the Note and the Other Notes and exercise of the Warrants and the warrants to be issued pursuant to the Other Note Purchase Agreements, and such shares shall remain so reserved, and the Company shall from time to time reserve such additional shares of Common Stock as shall be required to be reserved pursuant to the Supplemental Indenture, the Warrants and such 14 19 warrants as long as the Note may be converted or the Warrants may be exercised. The Common Stock is listed for trading on Nasdaq and (1) the Company and the Common Stock meet the criteria for continued listing and trading on Nasdaq; (2) the Company has not been notified in writing since January 1, 1998 by the NASD or the Nasdaq Stock Market of any failure or potential failure to meet the criteria for continued listing and trading on Nasdaq and (3) no suspension of trading in the Common Stock is in effect. The Company knows of no reason that the Warrant Shares will not be eligible for listing on Nasdaq. (e) CORPORATE AUTHORIZATION. This Agreement and the other Transaction Documents have been duly and validly authorized by the Company; this Agreement has been duly executed and delivered by the Company and, assuming due execution and delivery by the Buyer, this Agreement is, and, when executed and delivered by the Company and the Trustee, the Indenture and Supplemental Indenture will be, and when executed by the Company, authenticated by the Trustee and issued to the Buyer against payment therefor to the Company of the Purchase Price in accordance with this Agreement, the Note will be and, when executed by the Company, the Warrants will be, valid and binding obligations of the Company enforceable in accordance with their respective terms, except as the enforceability hereof or thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting creditors' rights generally and general principles of equity, regardless of whether enforcement is considered in a proceeding in equity or at law and except as rights to indemnification and contribution under Section 8 of this Agreement may be limited by applicable securities laws or the public policy related to such laws. (f) NON-CONTRAVENTION. Except as disclosed in SECTION 4(f) of the Disclosure Schedule, the execution and delivery of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated by the Transaction Documents do not and will not, with or without the giving of notice or the lapse of time, or both, (i) result in any violation of any provision of the certificate of incorporation or by-laws of the Company or any Subsidiary, (ii) conflict with or result in a breach by the Company or any Subsidiary of any of the terms or provisions of, or constitute a default under, or result in the modification of, or result in the creation or imposition of any lien, security interest, charge or encumbrance (other than pursuant to the Supplemental Indenture) upon any of the properties or assets of the Company or any Subsidiary pursuant to, any indenture, mortgage, deed of trust or other agreement or instrument to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary or any of their respective properties or assets are bound or affected, in any such case which would have a material adverse effect on the business, properties, operations, condition (financial or other), results of operations or prospects of the Company and the Subsidiaries, taken as a whole, or the validity or enforceability of, or the ability 15 20 of the Company to perform its obligations under, the Transaction Documents, (iii) conflict with or result in a breach by the Company or any Subsidiary of the terms or provisions of, or constitute a default under, or result in the modification of, or entitle any party other than the Company to terminate, or require any consent or approval of any such party with respect to, any material agreement to which the Company is a party that relates to any Subsidiary, DPI or Akkadix, (iv) violate or contravene any applicable law, rule or regulation or any applicable decree, judgment or order of any court, federal or state regulatory body, administrative agency or other governmental body in the United States or in any other country having jurisdiction over the Company or any Subsidiary or any of their respective properties or assets which (x) relates to or affects the Collateral or (y) would have a material adverse effect on the business, properties, operations, condition (financial or other), results of operations or prospects of the Company and the Subsidiaries, taken as a whole, or the validity or enforceability of, or the ability of the Company to perform its obligations under, the Transaction Documents, or (v) have any adverse effect on any material permit, certification, registration, approval, consent, license or franchise necessary for the Company or any Subsidiary to own or lease and operate any of its properties and to conduct any of its business or the ability of the Company or any Subsidiary to make use thereof. (g) APPROVALS, FILINGS, ETC. No authorization, approval or consent of, or filing with, any United States or foreign court, governmental body, regulatory agency, self-regulatory organization, or stock exchange or market or the stockholders of the Company is required to be obtained or made by the Company or any Subsidiary for (A) the execution, delivery and performance by the Company of the Transaction Documents, (B) the issuance and sale of the Securities as contemplated by the Transaction Documents, (C) for the grant by the Company of the Lien on the Collateral pursuant to the Supplemental Indenture, (D) to perfect the Lien purported to be created by the Supplemental Indenture and (E) the performance by the Company of its other obligations under the Transaction Documents, other than (1) listing of the Shares on Nasdaq, (2) effectiveness of the Registration Statement under the 1933 Act, (3) qualification of the Indenture under the 1939 Act, (4) as may be required under applicable state securities or "blue sky" laws, and (5) filing of financing statements under the provisions of applicable state Uniform Commercial Codes. (h) INFORMATION PROVIDED. The Transaction Documents, the Registration Statement and the Prospectus, taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading, it being understood that for purposes of this Section 4(h), any statement contained in such information shall be deemed to be modified or superseded for purposes of this Section 4(h) to the extent that a statement in any document included in such information which was prepared or filed with the SEC 16 21 on a later date modifies or replaces such statement, whether or not such later prepared or filed statement so states. (i) CONDUCT OF BUSINESS. Except as set forth in the SEC Reports or SECTION 4(i) of the Disclosure Schedule, since June 30, 2000, neither the Company nor any Subsidiary has (i) incurred any obligation or liability (absolute or contingent), other than in the ordinary course of business, which individually or in the aggregate is material to the Company and the Subsidiaries, taken as a whole; (ii) canceled, without payment in full, any note, loan or other obligation receivable or other debt or claim held by it other than in the ordinary course of business, which individually or in the aggregate is material to the Company and the Subsidiaries, taken as a whole; (iii) sold, assigned, transferred, abandoned, mortgaged, pledged or subjected to lien any of its properties, tangible or intangible, or rights under any material contract, permit, license, franchise or other agreement which individually or in the aggregate is material to the Company and the Subsidiaries, taken as a whole; (iv) conducted its business in a manner different from its business as conducted on such date which individually or in the aggregate is material to the Company and the Subsidiaries, taken as a whole; (v) declared, made or paid or set aside for payment any cash or non-cash distribution on any shares of its capital stock; or (vi) consummated, or entered into any agreement with respect to, any transaction or event which would constitute a Repurchase Event. Except as disclosed in the Registration Statement or the Prospectus, the Company and each Subsidiary owns, possesses or has obtained all governmental, administrative and third party licenses, permits, certificates, registrations, approvals, consents and other authorizations necessary to own or lease (as the case may be) and operate its properties, whether tangible or intangible, and to conduct its business or operations as currently conducted, except such licenses, permits, certificates, registrations, approvals, consents and authorizations the failure of which to obtain would not reasonably be expected to have a material adverse effect on the business, properties, operations, condition (financial or other), results of operations or prospects of the Company and the Subsidiaries, taken as a whole. (j) SEC FILINGS. The Company has timely filed all reports required to be filed under the 1934 Act and any other material reports or documents required to be filed with the SEC since January 1, 1998. Except as disclosed in SECTION 4(j) of the Disclosure Schedule, all of such reports and documents complied, when filed, in all material respects, with all applicable requirements of the 1933 Act and the 1934 Act. The Company meets the requirements for the use of Form S-3 for the registration of the sale of the Securities as described in the Registration Statement. The Company has not filed any reports with the SEC under the 1934 Act since December 31, 1999 other than the SEC Reports. (k) ABSENCE OF CERTAIN PROCEEDINGS. Except as disclosed in the Registration Statement or the Prospectus or SECTION 4(k) of the Disclosure 17 22 Schedule, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board or body, or governmental agency pending or, to the knowledge of the Company and the Subsidiaries, threatened against or affecting the Company or any Subsidiary wherein an unfavorable decision, ruling or finding would have a material adverse effect on the business, properties, operations, condition (financial or other), results of operations or, to the knowledge of the Company or any Subsidiary after due inquiry, prospects of the Company and the Subsidiaries, taken as a whole, or the transactions contemplated by the Transaction Documents or which would adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, the Transaction Documents; and to the best of the Company's knowledge there is not pending or contemplated any, and there has been no, investigation by the SEC involving the Company or any director or officer of the Company. (l) FINANCIAL STATEMENTS; LIABILITIES. The financial statements included in the June 10-Q present fairly the consolidated financial position, consolidated results of operations and consolidated cash flows of the Company and the Subsidiaries at the dates and for the periods covered thereby, have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods covered thereby and on a basis consistent with the audited financial statements appearing in the 1999 10-K, and include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the consolidated financial position, consolidated results of operations and consolidated cash flows of the Company and the Subsidiaries at the dates of for the periods covered thereby. Except as and to the extent disclosed, reflected or reserved against in the financial statements of the Company and the notes thereto included in the SEC Reports or as disclosed in SECTION 4(l) of the Disclosure Schedule, to the knowledge of the Company after due inquiry, subsequent to June 30, 2000 neither the Company nor any Subsidiary has incurred any liability, debt or obligation, whether accrued, absolute, contingent or otherwise, and whether due or to become due which, individually or in the aggregate, are material to the Company and the Subsidiaries, taken as a whole. (m) MATERIAL LOSSES. Since the date as of which information is given in the Registration Statement and the Prospectus, neither the Company nor any Subsidiary has sustained any loss or interference with its business or properties from fire, flood, hurricane, accident or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, which loss or interference would be material to the business, properties, operations, condition (financial or other), results of operations or prospects of the Company and the Subsidiaries, taken as a whole. (n) ABSENCE OF CERTAIN CHANGES. Since June 30, 2000, except as disclosed or contemplated in the Registration Statement, the Prospectus and 18 23 SECTION 4(n) of the Disclosure Schedule, there has been no material adverse change and no material adverse development in the business, properties, operations, condition (financial or other), results of operations or, to the knowledge of the Company or any Subsidiary after due inquiry, prospects of the Company and the Subsidiaries, taken as a whole. (o) INTELLECTUAL PROPERTY. Except as disclosed in the Registration Statement and the Prospectus, each of the Company and each Subsidiary (1) to the knowledge of the Company and the Subsidiaries after reasonable investigation for the purposes hereof, owns, or possesses adequate rights to use, all Intellectual Property owned or used by it or in which it has an interest or which are necessary for the conduct of its business or which is described in the SEC Reports as being owned or used by it, except for such Intellectual Property the failure of which to own or possess such rights or have such interest would not individually or in the aggregate be reasonably expected to have a material adverse effect on the business, properties, operations, condition (financial or other) or results of operations of the Company and the Subsidiaries, taken as a whole, and (2) has not received written notice of any claim, that the conduct of its business will conflict with any Intellectual Property rights of others which conflict or claim is material to the business, properties, operations, condition (financial or other) or results of operations of the Company and the Subsidiaries, taken as whole. (p) INTERNAL ACCOUNTING CONTROLS. The Company maintains a system of internal accounting controls for the Company and the Subsidiaries which meets the requirements of Section 13(b)(2) of the 1934 Act in all material respects. (q) COMPLIANCE WITH LAW. Except as disclosed in SECTION 4(q) of the Disclosure Schedule, the Company and its Subsidiaries are in substantial compliance with all applicable statutes, laws and ordinances and all applicable rules and regulations of all governmental agencies and bodies and all applicable decisions and orders of all courts, domestic or foreign, and governmental authorities including, without limitation, those relating to the use, operation, handling, transportation, disposal or release of hazardous or toxic substances or wastes or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances or wastes, except where the failure to comply would not individually or in the aggregate be reasonably expected to have a material adverse effect on the business, properties, operations, condition (financial or other), results of operations or prospects of the Company and the Subsidiaries, taken as a whole; and neither the Company nor any Subsidiary has received written notice of any pending investigation which would reasonably be expected to lead to such a claim. (r) PROPERTIES. Except as disclosed in SECTION 4(r) of the Disclosure Schedule, the Company and each Subsidiary has good title to all 19 24 property, real and personal (tangible and intangible), and other assets owned by it which are individually or in the aggregate material to the Company and the Subsidiaries, taken as a whole, free and clear of all security interests, pledges, charges, mortgages, liens or other encumbrances, except for Permitted Liens. The leases, licenses or other contracts or instruments under which the Company and each Subsidiary leases, holds or is entitled to use any property, real or personal, which individually or in the aggregate are material to the Company and the Subsidiaries, taken as a whole, are valid, subsisting and enforceable with only such exceptions as do not materially interfere with the use of such property made, or proposed to be made by the Company or any Subsidiary. Neither the Company nor any Subsidiary has received written notice of any material violation of any applicable law, ordinance, regulation, order or requirement relating to its owned or leased properties. (s) LABOR RELATIONS. No material labor problem exists or, to the knowledge of the Company or any Subsidiary, is imminent with respect to any of the employees of the Company or any Subsidiary. (t) INSURANCE. The Company and each Subsidiary maintains insurance against loss or damage by fire or other hazard and such other insurance, including but not limited to, product liability insurance, in such amounts and covering such risks as the Company reasonably believes is adequate for the conduct of its business and the value of its properties. (u) TAX MATTERS. The Company and each Subsidiary has filed all federal, state and local income and franchise tax returns required to be filed and has paid all taxes shown by such returns to be due, and no tax deficiency has been determined adversely to the Company or any Subsidiary which has had (nor does the Company or any Subsidiary have any knowledge of any tax deficiency which, if determined adversely to the Company or any Subsidiary, would have) a material adverse effect on the business, properties, operations, condition (financial or other), results of operations, or prospects of the Company and the Subsidiaries, taken as a whole. (v) INVESTMENT COMPANY. Neither the Company nor any Subsidiary is an "investment company" within the meaning of such term under the Investment Company Act of 1940, as amended, and the rules and regulations of the SEC thereunder. (w) ABSENCE OF BROKERS, FINDERS, ETC. No broker, finder, or similar Person is entitled to any commission, fee, or other compensation by reason of the transactions contemplated by this Agreement, other than the Placement Agent, and the Company shall pay, and indemnify and hold harmless the Buyer 20 25 from, any claim made against the Buyer by any Person for any such commission, fee or other compensation. (x) REGISTRATION STATEMENT, INDENTURE, ETC. (1) The Registration Statement has been declared effective under the 1933 Act and no stop order or other proceeding relating to the Registration Statement is pending or threatened. The Indenture has been qualified under the 1939 Act. (2) The Registration Statement (including any amendments or supplements thereto and prospectuses contained therein), on the SEC Filing Date, on the SEC Effective Date, on the date of execution and delivery of this Agreement by the parties hereto and on the Closing Date (and each such amendment and supplement at the time of its filing with the SEC and on the Closing Date) did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. (3) The Prospectus as of its date(s), on the date of execution and delivery of this Agreement by the parties hereto, on the date(s) the Prospectus was first filed with SEC pursuant to Rule 424(b) under the 1933 Act, and on the Closing Date, did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they are made, not misleading. (4) On the SEC Effective Date, the date(s) the Prospectus was first filed with the SEC pursuant to Rule 424(b) under the 1933 Act, on the date of execution and delivery of this Agreement by the parties hereto, on the Closing Date and when any amendment or supplement to the Prospectus is filed with the SEC, the Registration Statement and the Prospectus (as amended or as supplemented if the Company shall have filed with the SEC any amendment or supplement thereto), did and will comply with the applicable provisions of the 1933 Act, the Rules and Regulations, the 1934 Act and the rules and regulations thereunder, the 1939 Act and the 1939 Act Rules and Regulations and will contain all statements required to be stated therein in accordance with the 1933 Act, the Rules and Regulations, the 1934 Act and the rules and regulations thereunder. (5) On the date of execution and delivery of this Agreement by the parties hereto and on the Closing Date, the Indenture and the Supplemental Indenture complied and will comply with all applicable provisions of the 1939 Act and the 1939 Act Rules and Regulations. (6) The Company meets the requirements for use of Form S-3 for registration of the offer and sale of the Securities to the Buyer in accordance with 21 26 Rule 415 of the Rules and Regulations. Copies of the Registration Statement and all amendments thereto and the Prospectus Supplement, a copy of which Prospectus Supplement is attached hereto as ANNEX VII, have been delivered to the Buyer. (7) The Securities conform to the description thereof in the Registration Statement and the Prospectus. (y) ERISA COMPLIANCE. The Company and each Subsidiary is in substantial compliance with all presently applicable provisions of ERISA except for such non-compliance as would not reasonably be expected to have a material adverse effect on the Company and Subsidiaries, taken as a whole; no "reportable event" (as defined in ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for which the Company or any Subsidiary would have any liability; neither the Company nor any Subsidiary has incurred or expects to incur liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Code; and each "pension plan" for which the Company or any Subsidiary would have any liability that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification. (z) CONCERNING THE COLLATERAL AND THE AKKADIX SHARES. (1) Each DPI Contract has been duly executed and delivered by the Company and, to the best of the Company's knowledge, DPI and the other parties thereto, and is a legal, valid and binding obligation of the Company and, to the best of the Company's knowledge, DPI and each other party thereto, enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws now or hereafter in effect relating to or affecting creditors' rights generally and general principles of equity, regardless of whether enforcement is considered in a proceeding in equity or at law. The Company is not in breach, and, to the best of the Company's knowledge, no other party to any such contract is in breach, of its obligations thereunder nor does any such party have any right to terminate any such contract. (2) Upon execution and delivery of the Supplemental Indenture by the Company and the Trustee and (A) in the case of the Collateral other than the Pledged Securities, to the extent that a security interest in such Collateral can be perfected by filing under the California UCC, completion of the filings referred to in SECTION 4(z) of the Disclosure Schedule, and (B) in the case of the Pledged Securities, to the extent a security interest therein can be perfected by possession, possession of the Pledged Securities by the Trustee or its authorized representative without notice of any adverse claim (as defined in the California UCC and the New York UCC, as applicable), the Trustee will have a perfected first priority security 22 27 interest in all of the rights currently held by the Company to the Collateral as provided in the Supplemental Indenture, free of adverse claims (as so defined). (3) Except for the Lien granted to the Trustee for the ratable benefit of the Holders pursuant to the Supplemental Indenture, the Company owns each item of the Collateral and the Akkadix Shares free and clear of any and all Liens or Encumbrances. No security agreement, financing statement or other public notice with respect to all or any part of the Collateral or the Akkadix Shares is on file or of record in any public office identified in SECTION 4(z) of the Disclosure Schedule, except such as may have been filed in favor of the Trustee, for the ratable benefit of the Holders, pursuant to the Supplemental Indenture. (4) At the time of the closing on the Closing Date, the Pledged Securities will be duly and validly pledged under the Supplemental Indenture in accordance with law, and the Company warrants and covenants to defend the Trustee's right, security interest and special property interest in and to the Pledged Securities against the claims and demands of all persons whomsoever. The Company is the exclusive record, equitable and beneficial owner of, and has good title to, all the Pledged Securities and the Akkadix Shares free and clear of all adverse claims (as defined in the California UCC and the New York UCC) (except for the Security Interest in the Pledged Securities created in favor of the Trustee for the benefit of the holders of the Notes and the Other Notes), and the Company has the unqualified legal right to pledge the Pledged Securities under the Supplemental Indenture. Each certificate evidencing any of the Pledged Securities is issued in the name of the Company and, except as stated on SCHEDULE I to the Supplemental Indenture, bears no restrictive or cautionary legend. The Company has delivered to the Trustee for each such certificate three stock powers duly signed in blank by the Company with all appropriate signature guarantees. The Security Interest created by the Supplemental Indenture or intended so to be represents a valid lien on and security interest in the Pledged Securities, and, so long as the Trustee maintains possession (within the meaning of the California UCC and the New York UCC, as applicable) of the Pledged Securities in the State of California or the State of New York, such Security Interest is superior and prior in right to the rights of all third persons. At such time as the Trustee is deemed to have received possession of the Pledged Securities for purposes of the Supplemental Indenture, no filings or recordings (including, without limitation, filings under the California UCC or the New York UCC, as applicable) will be necessary to be made to perfect, protect and preserve the security interest of the Trustee in the Pledged Securities created by the Supplemental Indenture or intended so to be; provided, however, that the Trustee may make appropriate protective filings to evidence such security interest under the California UCC and the New York UCC. (5) The DPI Contracts are the only agreements to which the Company or any Subsidiary is a party relating to the Pledged Securities (other than 23 28 the Transaction Documents) and, to the best of the Company's knowledge, constitute the only agreements or instruments by or among DPI, any stockholder thereof or any third parties relating to the rights of any stockholder of DPI to hold, pledge, dispose or vote any securities issued by DPI. (6) The Liens granted pursuant to the Supplemental Indenture (1) with respect to Collateral other than the Pledged Securities, to the extent that a security interest can be perfected by filing under the California UCC, will constitute upon the completion of all the filings or notices listed in SECTION 4(z) of the Disclosure Schedule and (2) with respect to the Pledged Securities, to the extent that a security interest therein can be perfected by possession, will constitute upon possession (within the meaning of the California UCC and the New York UCC, as applicable) of the Pledged Securities by the Trustee in the State of California or the State of New York, perfected Liens on all Collateral, which are prior to all other Liens on such Collateral and which are enforceable as such against all creditors of the Company. (7) No amount payable to the Company under or in connection with any Account that constitutes part of the Collateral is evidenced by any Instrument (other than checks in the ordinary course of business) or Chattel Paper which has not been delivered to the Trustee. (8) No consent (other than consents that have been obtained) of any party (other than the Company) to any Contract that constitutes part of the Collateral is required, or purports to be required, in connection with the execution, delivery and performance of the Supplemental Indenture. (9) The Company's chief executive office and chief place of business is located at 180 Kimball Way, South San Francisco, California 94080. (10) The Company has full power, authority and legal right to grant the Trustee the Lien on the Collateral pursuant to the Supplemental Indenture. (aa) RIGHTS AGREEMENT. Assuming that the Buyer does not hold any shares of Common Stock other than as acquired upon conversion of the Note and exercise of the Warrants, the execution and delivery of this Agreement by the Company, the issuance of the Securities as contemplated by the Transaction Documents and the other transactions contemplated by the Transaction Documents will not result in the Buyer becoming an "Acquiring Person," as defined in the Rights Agreement; and the holders of the Note and the Warrants will be entitled, with respect to the Conversion Shares and the Warrant Shares, and the holders of the Conversion Shares and the Warrant Shares will be entitled, in each case to the benefits available to the holders of Common Stock under the Rights Agreement. 24 29 5. CERTAIN COVENANTS. (a) NASDAQ LISTING; REPORTING STATUS. Prior to the Closing Date, the Company will file with Nasdaq an application or other document required by Nasdaq for the listing of the Shares with Nasdaq and shall provide evidence of such filing to the Buyer. So long as the Buyer beneficially owns any portion of any of the Securities the Company will use its best efforts to maintain the listing of the Common Stock on Nasdaq or another national securities exchange. During the Registration Period, the Company shall timely file all reports required to be filed with the SEC pursuant to Section 13 or 15(d) of the 1934 Act, and the Company shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would permit such termination. (b) STATE SECURITIES LAWS. On or before the Closing Date, the Company shall take such action as shall be necessary to qualify, or to obtain an exemption for, the offer and sale of the Securities to the Buyer as contemplated by the Transaction Documents under such of the securities laws of jurisdictions in the United States as shall be applicable thereto. In connection with the foregoing obligations of the Company in this Section 5(b), the Company shall not be required (1) to qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 5(b), (2) to subject itself to general taxation in any such jurisdiction, (3) to file a general consent to service of process in any such jurisdiction, (4) to provide any undertakings that cause more than nominal expense or burden to the Company or (5) to make any change in its charter or by-laws which the Company determines to be contrary to the best interests of the Company and its stockholders. (c) LIMITATION ON CERTAIN ACTIONS. From the date of execution and delivery of this Agreement by the parties hereto to the date of issuance of the Note, the Company (1) shall comply with Article Five of the Supplemental Indenture as if the Supplemental Indenture had been executed and delivered by the Company and the Trustee and the Note were outstanding, (2) shall not take any action which, if the Note were outstanding, (A) would constitute an Event of Default or, with the giving of notice or the passage of time or both, would constitute an Event of Default or (B) would constitute a Repurchase Event or, with the giving of notice or the passage of time or both, would constitute a Repurchase Event. (d) INDENTURE; SUPPLEMENTAL INDENTURE; FINANCING STATEMENTS, ETC. The Company agrees to execute and deliver to the Trustee on or before the Closing Date the Indenture in the form filed as Exhibit 4.1 to the Registration Statement and the Supplemental Indenture in the form of ANNEX IV 25 30 to this Agreement. The Company shall prepare and on or before the date that is two Business Days prior to the Closing Date execute and deliver to the Trustee Uniform Commercial Code financing statements on Form UCC-1 relating to the Collateral in which the Company is granting a security interest to the Trustee for the benefit of the holders of the Note and the Other Notes pursuant to the Supplemental Indenture for filing with the appropriate officials. (e) USE OF PROCEEDS. The Company represents and agrees that: (1) the proceeds of sale of the Note, the Warrants and the Warrant Shares will be used for general working capital purposes and in the operation of the Company's business; (2) none of such proceeds will be used, directly or indirectly (A) to make any loan to or investment in any other Person that is principally engaged in any business other than the types of business permitted by Section 5.04 of the Supplemental Indenture or that would otherwise fail to comply with the Indenture or the Supplemental Indenture or (B) for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any Margin Stock or for the purpose of maintaining, reducing or retiring any indebtedness which was originally incurred to purchase or carry any stock that is currently a Margin Stock or for any other purpose which would constitute the transactions contemplated by this Agreement as a "purpose credit" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System; and (3) neither the Company nor any agent acting on its behalf has taken or will take any action which would cause this Agreement or the transactions contemplated hereby to violate Regulation T, Regulation U or any other regulation of the Board of Governors of the Federal Reserve System or to violate the 1934 Act, in each case as in effect now or as the same may hereafter be in effect. (f) CONCERNING THE REGISTRATION STATEMENT. (1) (A) The Company shall use its reasonable best efforts to keep the Registration Statement effective pursuant to Rule 415 with respect to the Registered Securities at all times during the Registration Period, subject to Section 5(f)(1)(B). (B) Notwithstanding Section 5(f)(1)(A), if at any time the Company notifies the Buyer as contemplated by clause (C) of the first sentence of Section 5(f)(3) the Company also notifies the Buyer that the event giving rise to such notice related to a development involving the Company which occurred subsequent to the later of (x) the Closing Date and (y) the latest date prior to such notice on which the Company has amended or supplemented the Registration Statement, then the Company shall not be required to use best efforts to keep the Registration Statement effective during a Blackout Period; provided, however, that in any period of 365 consecutive days the Company shall not be entitled to avail itself of its rights under this Section 5(f)(1)(B) with respect to more than an aggregate of 20 Trading 26 31 Days, whether or not consecutive; and provided further, however, that at any time prior to the Maturity Date the Company shall be entitled to an aggregate of 20 Trading Days, in addition to those provided by the immediately preceding proviso, during which it is entitled to avail itself of its rights under this Section 5(f)(1)(B). (2) The Company will file the Prospectus Supplement, in the form attached as ANNEX VII to this Agreement, with the SEC within the time provided by Rule 424 of the 1933 Act Rules and Regulations. The Company will not, on or prior to the Closing Date, file any amendment or supplement to the Registration Statement or the Prospectus, or any document under the 1934 Act which would be deemed to be incorporated by reference into the Registration Statement Prospectus, unless in each such case a copy thereof shall first have been submitted to the Buyer within a reasonable period of time prior to the filing thereof. (3) The Company will notify the Buyer promptly, and will confirm such advice in writing (A) of any request by the SEC for amendments or supplements to the Registration Statement or the Prospectus or for additional information, (B) of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose or the threat thereof, (C) of the happening of any event that makes any statement made in the Registration Statement or the Prospectus untrue or that requires the making of any changes in the Registration Statement or the Prospectus in order to make the statements therein, in light of the circumstances in which they are made, not misleading and (D) of receipt by the Company or any representative or attorney of the Company of any other communication from the SEC relating to the Company, the Registration Statement, any preliminary prospectus or the Prospectus. If the SEC shall issue any order suspending the effectiveness of the Registration Statement, the Company will make every reasonable effort to obtain the withdrawal of such order at the earliest possible time. The Company will use its best efforts to comply with the provisions of and make all requisite filings with the SEC pursuant to Rule 430A and to notify the Buyer promptly of all such filings. (4) The Company will comply with all the provisions of any undertakings contained in the Registration Statement. (5) The Company shall make generally available to its security holders as soon as practical, but not later than 90 days after the close of the period covered thereby, an earning statement (in form complying with the provisions of Rule 158 under the 1933 Act) covering a 12-month period beginning not later than the first day of the Company's fiscal quarter next following the SEC Effective Date and the first day of the Company's final quarter next following the date the Prospectus Supplement is filed with the SEC. 27 32 (g) BEST EFFORTS. Each of the parties shall use its best efforts timely to satisfy each of the conditions to the other party's obligations to sell and purchase the Note and issue and acquire the Warrants set forth in Section 6 or 7, as the case may be, of this Agreement on or before the Closing Date. (h) DEBT OBLIGATION. So long as any portion of the Note is outstanding, the Company shall cause its books, records and financial statements to reflect the Note as a debt of the Company in its unpaid principal amount and, whenever appropriate, as a valid senior, secured debt obligation of the Company for money borrowed. 6. CONDITIONS TO COMPANY'S OBLIGATION TO SELL. The Company's obligation to sell to the Buyer the Note and to issue to the Buyer the Warrants on the Closing Date is conditioned upon satisfaction of the following conditions precedent on or before the Closing Date (any or all of which may be waived by the Company in its sole discretion): (a) On the Closing Date, no legal action, suit or proceeding shall be pending or threatened which seeks to restrain or prohibit the transactions contemplated by this Agreement; (b) The representations and warranties of the Buyer contained in this Agreement shall have been true and correct on the date of this Agreement and on the Closing Date as if made on the Closing Date (except for representations given as of a specific date, which representations shall be true and correct as of such date); and on or before the Closing Date the Buyer shall have performed all covenants and agreements of the Buyer contained in the Transaction Documents and required to be performed by the Buyer on or before the Closing Date; and (c) The Registration Statement shall have been declared effective by the SEC and no stop order or similar proceeding relating to the Registration Statement shall be pending or threatened. 7. CONDITIONS TO BUYER'S OBLIGATION TO PURCHASE. The Buyer's obligation to purchase the Note and acquire the Warrants from the Company on the Closing Date is conditioned upon satisfaction of the following conditions precedent on or before the Closing Date (any or all of which may be waived by the Buyer in its sole discretion): 28 33 (a) The Trustee shall have executed and delivered to the Company the Indenture and the Supplemental Indenture and copies thereof, as so executed and duly executed and delivered by the Company, shall have been furnished to the Buyer; (b) The Buyer shall have received customary search reports of the relevant Uniform Commercial Code filing offices, the content of which reports shall be reasonably satisfactory to the Buyer; (c) All filings of financing statements necessary or appropriate under the Uniform Commercial Code in connection with the Supplemental Indenture shall have been made and the Buyer shall have received reasonably satisfactory evidence of such filings; (d) On the Closing Date, no legal action, suit or proceeding shall be pending or threatened which seeks to restrain or prohibit the transactions contemplated by this Agreement; (e) The representations and warranties of the Company contained in the Transaction Documents shall have been true and correct on the date of this Agreement and shall be true and correct on the Closing Date as if given on and as of the Closing Date (except for representations given as of a specific date, which representations shall be true and correct as of such date and except for the approvals and filings referred to in clauses (3) and (5) of Section 4(g), which shall have been obtained or made on or before the Closing Date); provided, however, that the truth and correctness thereof on the Closing Date shall be determined without regard to any report or document filed by the Company with the SEC on or after the date of execution and delivery of this Agreement and on or prior to the Closing Date, notwithstanding that any such report or document may be incorporated by reference into the Registration Statement or the Prospectus; and on or before the Closing Date the Company shall have performed all covenants and agreements of the Company contained herein or in any of the other Transaction Documents required to be performed by the Company on or before the Closing Date; (f) No event which, if the Note were outstanding, (1) would constitute an Event of Default or which, with the giving of notice or the passage of time, or both, would constitute an Event of Default shall have occurred and be continuing or (2) would constitute a Repurchase Event or, with the giving of notice or the passage of time, or both, would constitute a Repurchase Event shall have occurred and be continuing; (g) No stop order or similar proceeding relating to the Registration Statement shall be pending or threatened; the Company shall have filed the Prospectus Supplement with the SEC; and, on or after the date of execution and 29 34 delivery of this Agreement but on or before the Closing Date, the Company shall not have made or filed with the SEC any amendment or supplement to the Registration Statement or the Prospectus other than the Prospectus Supplement; (h) The Company shall have delivered to the Buyer a certificate, dated the Closing Date, duly executed by its Chief Executive Officer or Chief Financial Officer, to the effect set forth in subparagraphs (d), (e), (f) and (g) of this Section 7; (i) The Company shall have delivered to the Buyer a certificate, dated the Closing Date, of the Secretary of the Company certifying (1) the Certificate of Incorporation and By-Laws of the Company as in effect on the Closing Date, (2) all resolutions of the Board of Directors (and committees thereof) of the Company relating to this Agreement and the Transaction Documents and the transactions contemplated hereby and thereby and (3) such other matters as reasonably requested by the Buyer; (j) The Transfer Agent shall have acknowledged in writing receipt of the Issuing Agent Instruction and a copy of such acknowledgment shall have been furnished to the Buyer; (k) On the Closing Date, the Buyer shall have received an opinion of Latham & Watkins, counsel for the Company, dated the Closing Date, addressed to the Buyer, in form, scope and substance reasonably satisfactory to the Buyer, substantially in the form attached as ANNEX V to this Agreement; (l) On the Closing Date, the Buyer shall have received an opinion of William Newell, Esq., General Counsel of the Company, dated the Closing Date, addressed to the Buyer, in form, scope and substance reasonably satisfactory to the Buyer, substantially in the form attached as ANNEX VI to this Agreement; (m) On the Closing Date, (i) trading in securities on the New York Stock Exchange, Inc., the American Stock Exchange, Inc., or the Nasdaq shall not have been suspended or materially limited and (ii) a general moratorium on commercial banking activities in the State of California or the State of New York shall not have been declared by either federal or state authorities; and (n) The Company, the Trustee and DPI shall have executed and delivered, one to the other, the agreement in the form of Schedule IV to the Supplemental Indenture and a copy thereof as so executed and delivered shall have been furnished to the Buyer. 8. INDEMNIFICATION AND CONTRIBUTION. 30 35 (a) INDEMNIFICATION. The Company agrees to indemnify and hold harmless each Indemnified Person from and against any Claim to which such Indemnified Person may become subject (under the 1933 Act or otherwise) insofar as such Claim (or actions or proceedings in respect thereof) arise out of, or are based upon any Violation, and the Company will reimburse such Indemnified Person for any reasonable legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such Claim; provided, however, that the Company shall not be liable in any such case to the extent that such Claim arises out of, or is based upon, an untrue statement made in the Registration Statement in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Indemnified Person specifically for use in preparation of the Registration Statement. The Company shall reimburse each Indemnified Person for the amounts provided for herein on demand as such amounts are incurred. (b) NOTICE OF CLAIM, DEFENSE, ETC. Promptly after receipt by any Indemnified Person of a notice of a Claim or the commencement of any action in respect of which indemnity is to be sought against the Company pursuant to this Section 8, such Indemnified Person shall notify the Company in writing of such Claim or of the commencement of such action, but the omission to so notify the Company will not relieve it from any liability which it may have to any Indemnified Person under this Section 8 (except to the extent that such omission materially and adversely affects the Company's ability to defend such action) or from any liability otherwise than under this Section 8. Subject to the provisions hereinafter stated, in case any such action shall be brought against an Indemnified Person, the Company shall be entitled to participate therein, and, to the extent that it shall elect by written notice delivered to the Indemnified Person promptly after receiving the aforesaid notice from such Indemnified Person, shall be entitled to assume the defense thereof, with counsel reasonably satisfactory to such Indemnified Person. After notice from the Company to such Indemnified Person of the Company's election to assume the defense thereof, the Company shall not be liable to such Indemnified Person for any legal expenses subsequently incurred by such Indemnified Person in connection with the defense thereof; provided, however, that if there exists or shall exist a conflict of interest that would make it inappropriate, in the opinion of counsel to such Indemnified Person, for the same counsel to represent both such Indemnified Person and the Company or any Affiliate or associate thereof, such Indemnified Person shall be entitled to retain its own counsel at the expense of the Company; provided further, however, that the Company shall not be responsible for the fees and expenses of more than one separate counsel (together with appropriate local counsel) for all Indemnified Persons in connection with such Claim or action. In no event shall the Company be liable in respect of any amounts paid in settlement of any action unless the Company shall have approved the terms of such settlement; provided that such consent shall not be unreasonably withheld. The Company shall not, without the 31 36 prior written consent of the Indemnified Persons, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnification could have been sought hereunder by such Indemnified Person, unless such settlement includes an unconditional release of such Indemnified Person from all liability on claims that are the subject matter of such proceeding. (c) CONTRIBUTION. If the indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless an Indemnified Person under Section 8(a) above in respect of any Claim (or actions or proceedings in respect thereof) referred to therein, then the Company shall contribute to the amount paid or payable by such Indemnified Person as a result of such Claim (or actions or proceedings in respect thereof) in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and the Buyer on the other in connection with the statements or omissions or other matters which resulted in such Claim (or actions or proceedings in respect thereof), as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, in the case of an untrue statement, whether the untrue statement relates to information supplied by the Company on the one hand or the Buyer on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement. The Company and the Buyer agree that it would not be just and equitable if contribution pursuant to this Section 8(c) were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to above in this Section 8(c). The amount paid or payable by the Company as a result of the Claims (or actions or proceedings in respect thereof) referred to in this Section 8(c) shall be deemed to include any legal or other expenses reasonably incurred by such Indemnified Person in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (d) OTHER RIGHTS. The indemnification and contribution provided in this Section shall be in addition to any other rights and remedies available at law or in equity. 9. MISCELLANEOUS. (a) GOVERNING LAW. This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York. 32 37 (b) HEADINGS. The headings, captions and footers of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. (c) SEVERABILITY. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction. (d) NOTICES. Any notices required or permitted to be given under the terms of this Agreement shall be in writing and shall be sent by mail, personal delivery, telephone line facsimile transmission or courier and shall be effective five days after being placed in the mail, if mailed, or upon receipt, if delivered personally, by telephone line facsimile transmission or by courier, in each case addressed to a party at such party's address (or telephone line facsimile transmission number) shown in the introductory paragraph or on the signature page of this Agreement or such other address (or telephone line facsimile transmission number) as a party shall have provided by notice to the other party in accordance with this provision. In the case of any notice to the Company, such notice shall be addressed to the Company at its address shown in the introductory paragraph of this Agreement, Attention: Chief Financial Officer (telephone line facsimile number (650) 829-1067), and a copy shall also be given to: Latham & Watkins, 885 Third Avenue, New York, New York 10022-4802, Attention: Robert A. Zuccaro, Esq. (telephone line facsimile number (212) 751-4864), and in the case of any notice to the Buyer, a copy shall be given to: Law Offices of Brian W Pusch, Penthouse Suite, 29 West 57th Street, New York, New York 10019 (telephone line facsimile transmission number (212) 980-7055), in each case with a copy to: Diaz & Altschul Advisors, LLC, 950 Third Avenue, 16th Floor, New York, New York 10022 (telephone line facsimile transmission number (212) 751-5757). (e) COUNTERPARTS. This Agreement may be executed in counterparts and by the parties hereto on separate counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. A telephone line facsimile transmission of this Agreement bearing a signature on behalf of a party hereto shall be legal and binding on such party. Although this Agreement is dated as of the date first set forth above, the actual date of execution and delivery of this Agreement by each party is the date set forth below such party's signature on the signature page hereof. Any reference in this Agreement or in any of the documents executed and delivered by the parties hereto in connection herewith to (1) the date of execution and delivery of this Agreement by the Buyer shall be deemed a reference to the date set forth below the Buyer's signature on the signature page hereof, (2) the date of execution and delivery of this Agreement by the Company shall be deemed a reference to the date set forth below the Company's signature on the signature page hereof and (3) the 33 38 date of execution and delivery of this Agreement, or the date of execution and delivery of this Agreement by the Buyer and the Company, shall be deemed a reference to the later of the dates set forth below the signatures of the parties on the signature page hereof. (f) ENTIRE AGREEMENT; BENEFIT. This Agreement, including the Annexes and Schedules, constitutes the entire agreement between the parties hereto with respect to the subject matter hereof. There are no restrictions, promises, warranties, or undertakings, other than those set forth or referred to herein and therein. This Agreement, including the Annexes and Schedules, supersedes all prior agreements and understandings, whether written or oral, between the parties hereto with respect to the subject matter hereof. This Agreement and the terms and provisions hereof are for the sole benefit of only the Company, the Buyer and their respective successors and permitted assigns and in no event shall the Buyer have any liability to any stockholder or creditor of the Company or any other Person (other than the Company) in any way relating to or arising from this Agreement or the transactions contemplated hereby. (g) WAIVER. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, or course of dealing between the parties, shall not operate as a waiver thereof or an amendment hereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or exercise of any other right or power. (h) AMENDMENT. No amendment, modification, waiver, discharge or termination of any provision of this Agreement nor consent to any departure by the Buyer or the Company therefrom shall in any event be effective unless the same shall be in writing and signed by the party to be charged with enforcement, and then shall be effective only in the specific instance and for the purpose for which given. No course of dealing between the parties hereto shall operate as an amendment of this Agreement. (i) FURTHER ASSURANCES. Each party to this Agreement will perform any and all acts and execute any and all documents as may be necessary and proper under the circumstances in order to accomplish the intents and purposes of this Agreement and to carry out its provisions. (j) EXPENSES. The Company shall be responsible for its expenses (including, without limitation, the legal fees and expenses of its counsel) incurred by the Company in connection with the negotiation and execution of, and closing under, and performance of, this Agreement. Whether or not the closing occurs, the Company will pay, or reimburse the Buyer for, the fees and expenses of the Buyer's 34 39 legal counsel not in excess of $50,000 in connection with the negotiation and execution of, and closing under, this Agreement and the Other Note Purchase Agreements. All reasonable expenses incurred in connection with registrations, filings or qualifications pursuant to this Agreement shall be paid by the Company, including, without limitation, all registration, listing and qualifications fees, printers fees, accounting fees, and the fees and disbursements of counsel for the Company but excluding (a) fees and expenses of investment bankers retained by the Buyer and (b) brokerage commissions incurred by the Buyer. The Company shall promptly pay upon presentation of reasonably satisfactory documentation all expenses incurred by the Buyer, including reasonable fees and disbursements of counsel, as a consequence of, or in connection with the negotiation, preparation or execution of any amendment, modification or waiver of any of the Transaction Documents. Except as otherwise provided in this Section 9(j), each of the Company and the Buyer shall bear its own expenses in connection with this Agreement and the transactions contemplated hereby. Nothing herein shall limit the rights of the Placement Agent under its Engagement Agreement with the Company. (k) TERMINATION. The Buyer shall have the right to terminate this Agreement by giving notice to the Company at any time prior to the closing on the Closing Date if: (1) the Company shall have failed, refused, or been unable at or prior to the date of such termination of this Agreement to perform any of its obligations hereunder; (2) any other condition of the Buyer's obligations hereunder is not fulfilled at the closing on the Closing Date; or (3) the closing shall not have occurred on a Closing Date on or before September 28, 2000, other than solely by reason of a breach of this Agreement by the Buyer. Any such termination shall be effective upon the giving of notice thereof by the Buyer. Upon such termination, the Buyer shall have no further obligation to the Company hereunder and the Company shall remain liable for any breach of this Agreement or the other documents contemplated hereby which occurred on or prior to the date of such termination. (l) SURVIVAL. The respective representations, warranties, covenants and agreements of the Company and the Buyer contained in this Agreement and the other Transaction Documents shall survive the execution and delivery of this Agreement and the other Transaction Documents and the closing hereunder and delivery of and payment for the Note and issuance of the Warrants, and shall remain in full force and effect regardless of any investigation made by or 35 40 on behalf of the Buyer or any Person controlling or acting on behalf of the Buyer or by the Company or any Person controlling or acting on behalf of the Company. (m) PUBLIC STATEMENTS, PRESS RELEASES, ETC. The Company and the Buyer shall have the right to approve before issuance any press releases or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of the Buyer, to make any press release or other public disclosure with respect to such transactions as is required by applicable law and regulations, including the 1933 Act and the rules and regulations promulgated thereunder (although the Buyer shall be consulted by the Company prior to the release or making of any such press release or other public disclosure that identifies the Buyer and shall be provided with a copy thereof). (n) CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. 36 41 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by their respective officers or other representatives thereunto duly authorized as of the date first set forth above and on the dates set forth below their respective signatures. Principal Amount of Note: $5,600,000.00 Purchase Price of Note: $5,600,000.00 AXYS PHARMACEUTICALS, INC. By: /s/ William J. Newell ---------------------------------- William J. Newell Senior Vice President Date: September 20 , 2000 DELTA OPPORTUNITY FUND, LTD.* BY: DIAZ & ALTSCHUL ADVISORS, LLC, AS INVESTMENT ADVISOR By: /s/ Christopher S. Mooney ---------------------------------- Christopher S. Mooney Chief Financial Officer Address: c/o International Fund Administration, Ltd. Suite 464 48 Par La Ville Road Hamilton HM11, Bermuda Facsimile No.: (441) 295-9637 with a copy to: 37 42 Diaz & Altschul Advisors, LLC 950 Third Avenue, 16th Floor New York, New York 10022 Facsimile No.: (212) 751-5757 Date: September 20 , 2000 * The Company also executed a Note Purchase Agreement with each of the following parties: Delta Opportunity Fund (Institutional), LLC Omicron Partners, L.P. Otato Limited Partnership Gatx Ventures, Inc. Alexander Enterprise Holdings, Corp. Cumberland Partners Cumber International S.A. Edwin L. Cox Longview Partners Charles V. Schaefer Jr. Longview Partners B, L.P. Delta Associates Limited Partnership Longview Partners C, L.P. Cumberland Benchmarked Partners, L.P. Longview Partners A, L.P. 38 EX-4.1 3 f65920ex4-1.txt INDENTURE 1 EXHIBIT 4.1 -------------------------- AXYS PHARMACEUTICALS, INC. TO U.S. BANK TRUST NATIONAL ASSOCIATION, AS TRUSTEE -------------------------- INDENTURE DATED AS OF SEPTEMBER 22, 2000 DEBT SECURITIES 2 CROSS-REFERENCE SHEET Certain Sections of this Indenture relating to Sections 310 through 318, inclusive, of the Trust Indenture Act of 1939: Trust Indenture Indenture Act Section Section ss.310 (a)(1) 609 (a)(2) 609 (a)(3) Not Applicable (a)(4) Not Applicable (b) 608, 610 ss.311 (a) 613 (b) 613 ss.312 (a) 701, 702 (b) 702 (c) 702 ss.313 (a) 703 (b) 703 (c) 703 (d) 703 ss.314 (a) 704 (a)(4) 101, 1004 (b) 1006 (c)(1) 102 (c)(2) 102 (c)(3) Not Applicable (d) 1501 (e) 102 ss.315 (a) 601 (b) 602 (c) 601 (d) 601 (e) 514 ss.316 (a) 101 (a)(1)(A) 502, 512 (a)(1)(B) 513 (a)(2) Not Applicable (b) 508 (c) 104 ss.317 (a)(1) 503 (a)(2) 504 (b) 1003 3 ss.318 (a) 107 NOTE: This cross-reference sheet shall not, for any purpose, be deemed to be a part of the Indenture. 4 AXYS PHARMACEUTICALS, INC. TO U.S. BANK TRUST NATIONAL ASSOCIATION, AS TRUSTEE Indenture Debt Securities TABLE OF CONTENTS
Page ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION.................................................1 Section 101. Definitions.........................................................1 Section 102. Compliance Certificates and Opinions................................8 Section 103. Form of Documents Delivered to Trustee..............................9 Section 104. Acts of Holders.....................................................10 Section 105. Notices, Etc. to Trustee and Company................................12 Section 106. Notice to Holders; Waiver...........................................12 Section 107. Conflict with Trust Indenture Act...................................12 Section 108. Effect of Headings and Table of Contents............................13 Section 109. Successors and Assigns..............................................13 Section 110. Separability Clause.................................................13 Section 111. Benefits of Indenture...............................................13 Section 112. Governing Law.......................................................13 Section 113. Legal Holidays......................................................13 Section 114. Indenture and Securities Solely Corporate Obligations...............13 ARTICLE TWO SECURITY FORMS.............................................................14 Section 201. Forms Generally.....................................................14 Section 202. Form of Face of Security............................................14 Section 203. Form of Reverse of Security.........................................16 Section 204. Form of Legend for Global Securities................................21 Section 205. Form of Trustee's Certificate of Authentication.....................21 Section 206. Form of Conversion Notice...........................................21 ARTICLE THREE THE SECURITIES.............................................................23 Section 301. Amount Unlimited; Issuable in Series................................23 Section 302. Denominations.......................................................25 Section 303. Execution, Authentication, Delivery and Dating......................26 Section 304. Temporary Securities................................................27 Section 305. Registration;Registration of Transfer and Exchange..................27
5
Section 306. Mutilated, Destroyed, Lost and Stolen Securities....................29 Section 307. Payment of Interest; Interest Rights Preserved......................30 Section 308. Persons Deemed Owners...............................................31 Section 309. Cancellation........................................................31 Section 310. Computation of Interest.............................................32 ARTICLE FOUR SATISFACTION AND DISCHARGE.................................................32 Section 401. Satisfaction and Discharge of Indenture.............................32 Section 402. Application of Trust Money..........................................33 ARTICLE FIVE REMEDIES...................................................................33 Section 501. Events of Default...................................................33 Section 502. Acceleration of Maturity; Rescission and Annulment..................34 Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee.......................................35 Section 504. Trustee May File Proofs of Claim....................................36 Section 505. Trustee May Enforce Claims without Possession of Securities.....................................36 Section 506. Application of Money Collected......................................37 Section 507. Limitation on Suits.................................................37 Section 508. Unconditional Right of Holders to Receive Principal, Premium and Interest and to Convert..........................38 Section 509. Restoration of Rights and Remedies..................................38 Section 510. Rights and Remedies Cumulative......................................38 Section 511. Delay or Omission not Waiver........................................38 Section 512. Control by Holders..................................................38 Section 513. Waiver of Past Defaults.............................................39 Section 514. Undertaking for Costs...............................................39 Section 515. Waiver of Usury, Stay or Extension Laws.............................39 ARTICLE SIX THE TRUSTEE................................................................40 Section 601. Certain Duties and Responsibilities.................................40 Section 602. Notice of Defaults..................................................40 Section 603. Certain Rights of Trustee...........................................40 Section 604. Not Responsible for Recitals or Issuance of Securities..............41 Section 605. May Hold Securities and Act as Trustee Under Other Indentures.......................................41 Section 606. Money Held in Trust.................................................41 Section 607. Compensation and Reimbursement......................................42 Section 608. Conflicting Interests...............................................42 Section 609. Corporate Trustee Required; Eligibility.............................42 Section 610. Resignation and Removal; Appointment of Successor.....................................42 Section 611. Acceptance of Appointment by Successor..............................44
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Section 612. Merger, Conversion, Consolidation or Succession to Business.......................................45 Section 613. Preferential Collection of Claims Against Company...................45 Section 614. Appointment of Authenticating Agent.................................45 ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY.................................................47 Section 701. Company to Furnish Trustee Names and Addresses of Holders...............................47 Section 702. Preservation of Information; Communications to Holders....................................47 Section 703. Reports by Trustee..................................................48 Section 704. Reports by Company..................................................48 ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE...................................................48 Section 801. Company May Consolidate, etc. Only on Certain Terms................................................48 Section 802. Successor Substituted...............................................49 ARTICLE NINE SUPPLEMENTAL INDENTURES....................................................49 Section 901. Supplemental Indentures without Consent of Holders..................49 Section 902. Supplemental Indentures with Consent of Holders.....................51 Section 903. Execution of Supplemental Indentures................................52 Section 904. Effect of Supplemental Indentures...................................52 Section 905. Conformity with Trust Indenture Act.................................52 Section 906. Reference in Securities to Supplemental Indentures..................52 ARTICLE TEN COVENANTS..................................................................53 Section 1001. Payment of Principal, Premium and Interest..........................53 Section 1002. Maintenance of Office or Agency.....................................53 Section 1003. Money For Securities Payments to Be Held in Trust...................53 Section 1004. Statement by Officers as to Default.................................54 Section 1005. Existence...........................................................54 Section 1006. Opinions as to Pledged Property.....................................55 Section 1007. Waiver of Certain Covenants.........................................55 ARTICLE ELEVEN REDEMPTION OF SECURITIES...................................................56 Section 1101. Applicability of Article............................................56 Section 1102. Election to Redeem; Notice to Trustee...............................56 Section 1103. Selection by Trustee of Securities to Be Redeemed...................56 Section 1104. Notice of Redemption................................................57 Section 1105. Deposit of Redemption Price.........................................58 Section 1106. Securities Payable on Redemption Date...............................58
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Section 1107. Securities Redeemed in Part.........................................58 ARTICLE TWELVE SINKING FUNDS.......................................................59 Section 1201. Applicability of Article............................................59 Section 1202. Satisfaction of Sinking Fund Payments with Securities...............59 Section 1203. Redemption of Securities for Sinking Fund...........................59 ARTICLE THIRTEEN DEFEASANCE AND COVENANT DEFEASANCE..................................60 Section 1301. Company's Option to Effect Defeasance or Covenant Defeasance..........................................60 Section 1302. Defeasance and Discharge............................................60 Section 1303. Covenant Defeasance.................................................60 Section 1304. Conditions to Defeasance or Covenant Defeasance.....................61 Section 1305. Deposited Money and U.S. Government Obligations to Be Held in Trust; Miscellaneous Provisions...................62 Section 1306. Reinstatement.......................................................63 ARTICLE FOURTEEN CONVERSION OF SECURITIES............................................63 Section 1401. Applicability of Article............................................63 Section 1402. Exercise of Conversion Privilege....................................63 Section 1403. No Fractional Shares................................................65 Section 1404. Adjustment of Conversion Price......................................65 Section 1405. Notice of Certain Corporate Actions.................................66 Section 1406. Reservation of Shares of Common Stock...............................67 Section 1407. Payment of Certain Taxes upon Conversion............................67 Section 1408. Nonassessability....................................................67 Section 1409. Provision in Case of Consolidation, Merger or Sale of Assets...............................................67 Section 1410. Duties of Trustee Regarding Conversion..............................68 Section 1411. Repayment of Certain Funds upon Conversion..........................69 ARTICLE FIFTEEN COLLATERAL..........................................................69 Section 1501. Releases of Collateral..............................................69
8 INDENTURE, dated as of September 22, 2000, between Axys Pharmaceuticals, Inc., a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company"), having its principal executive office at 180 Kimball Way, South San Francisco, California, 94080, and U.S. Bank Trust National Association, a national banking association duly organized and existing under the laws of the United States of America, as Trustee (herein called the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its secured and unsecured debentures, notes or other evidences of indebtedness (herein called the "Securities"), to be issued in one or more series as provided in this Indenture. All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities or of series thereof appertaining, as follows: ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 101. DEFINITIONS. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (2) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles, and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or 1 9 permitted hereunder shall mean such accounting principles as are generally accepted at the date of such computation; (4) unless the context otherwise requires, any reference to an "Article" or a "Section" refers to an Article or a Section, as the case may be, of this Indenture; and (5) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Act," when used with respect to any Holder, has the meaning specified in Section 104. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Appraiser" means a Person engaged in the business of appraising property who (except as otherwise expressly provided in this Indenture) may be employed by or affiliated with the Company. "Authenticating Agent" means any Person authorized by the Trustee pursuant to Section 614 to act on behalf of the Trustee to authenticate Securities of one or more series. "Board of Directors" means either the board of directors of the Company or any duly authorized committee of that board empowered to act for it with respect to this Indenture. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day," when used with respect to any Place of Payment, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in that Place of Payment are authorized or obligated by law or executive order to close. 2 10 "Commission" means the Securities and Exchange Commission, from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Stock" includes any stock of any class of the Company which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company and which is not subject to redemption by the Company; provided, however, subject to the provisions of Section 1409, shares issuable upon conversion of Securities shall include only shares of the class designated as Common Stock of the Company at the date of this Indenture or shares of any class or classes resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company and which are not subject to redemption by the Company; provided, further, that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. "Company" means the corporation named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board, its Vice Chairman of the Board, its President or a Vice President, and by its principal financial officer, its Secretary or an Assistant Secretary, and delivered to the Trustee. "Corporate Trust Office" means the corporate trust office of the Trustee at which at any particular time the trust created by this Indenture shall be administered, which office on the date hereof is located at 550 South Hope Street, Suite 500, Los Angeles, California, 90071. "corporation" means a corporation, association, company, joint-stock company or business trust. "Covenant Defeasance" has the meaning specified in Section 1303. "Defaulted Interest" has the meaning specified in Section 307. 3 11 "Defeasance" has the meaning specified in Section 1302. "Depositary" means, with respect to Securities of any series issuable in whole or in part in the form of one or more Global Securities, a clearing agency registered under the Exchange Act that is designated to act as Depositary for such Securities as contemplated by Section 301. "Event of Default" has the meaning specified in Section 501. "Exchange Act" means the Securities Exchange Act of 1934 and any statute successor thereto, in each case as amended from time to time. "Expiration Date" has the meaning specified in Section 104. "Fair Market Value" means, at any time with respect to any property, the sale value of such property which could be realized in an arm's length sale at such time between an informed and willing vendee, and an informed and willing vendor, under no compulsion to buy or sell, respectively, all as determined in good faith (a) in the case of any Officers' Certificate or other certificate delivered pursuant to Section 1501, by the signer or signers thereof and (b) in all other cases, (i) by the vendor's board of directors or (ii) in the case of any such property of the Company or any Restricted Subsidiary, by the Chief Executive Officer or the President of the Company, except as otherwise specifically provided in this Indenture or any Indenture supplemental hereto. "Financial Advisor" shall mean an investment banking firm of national reputation which (except as otherwise expressly provided in this Indenture) may be employed by or affiliated with the Company. "Global Security" means a Security that evidences all or part of the Securities of any series and bears the legend set forth in Section 204 (or such legend as may be specified as contemplated by Section 301 for such Securities). "Holder" means a Person in whose name a Security is registered in the Security Register. "Indenture" means this instrument as originally executed and as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, including, for all purposes of this instrument and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument and any such supplemental indenture, respectively. The term "Indenture" shall also include the terms of particular series of Securities established 4 12 as contemplated by Section 301; provided, however, that if at any time more than one Person is acting as Trustee under this Indenture due to the appointment of one or more separate Trustees for any one or more separate series of Securities, "Indenture" shall mean, with respect to such series of Securities for which any such Person is Trustee, this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof and shall include the terms of particular series of Securities for which such Person is Trustee established as contemplated by Section 301, exclusive, however, of any provisions or terms which relate solely to other series of Securities for which such Person is not Trustee, regardless of when such terms or provisions were adopted, and exclusive of any provisions or terms adopted by means of one or more indentures supplemental hereto executed and delivered after such Person had become such Trustee, but to which such Person, as such Trustee, was not a party; provided, further that in the event that this Indenture is supplemented or amended by one or more indentures supplemental hereto which are only applicable to certain series of Securities, the term "Indenture" for a particular series of Securities shall only include the supplemental indentures applicable thereto. "Independent" when used with respect to any specified Person means such a Person who (a) is independent within the meaning of the Trust Indenture Act, (b) does not have any direct financial interest or any material indirect financial interest in the Company or in any other obligor under the Securities or in any Affiliate of the Company or of such other obligor and (c) is not connected with the Company or such other obligor as an officer, employee, promoter, underwriter, trustee, partner, director or Person performing similar functions. Whenever it is herein provided that any Independent Person's opinion or certificate shall be furnished to the Trustee, such Person shall be appointed by a Company Order and such opinion or certificate shall state that the signer has read this definition and that the signer is Independent within the meaning thereof. "interest," when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity. "Interest Payment Date," when used with respect to any Security, means the Stated Maturity of an installment of interest on such Security. "Investment Company Act" means the Investment Company Act of 1940 and any statute successor thereto, in each case as amended from time to time. "Lien" shall mean any lien, mortgage, security interest, chattel mortgage, pledge, equity or other encumbrance (statutory or otherwise) of any kind, including, without limitation, any agreement to give any of the foregoing, any 5 13 conditional sales or other title retention agreement, any lease in the nature thereof, and the filing of or the agreement to give any financing statement under the Code of any jurisdiction or similar evidence of any encumbrance, whether within or outside the United States. "Maturity" when used with respect to any Security, means the date on which the principal of such Security or an installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "Notice of Default" means a written notice of the kind specified in Section 501(4). "Officers' Certificate" means a certificate signed by the Chairman of the Board, a Vice Chairman of the Board, the President or a Vice President, and by the principal financial officer, the Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee. One of the officers signing an Officers' Certificate given pursuant to Section 1004 shall be the principal executive, financial or accounting officer of the Company. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for, or an employee of, the Company, and who shall be reasonably acceptable to the Trustee. "Original Issue Discount Security" means any Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502. "Outstanding," when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (1) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (2) Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; 6 14 (3) Securities as to which Defeasance has been effected pursuant to Section 1302; and (4) Securities which have been paid pursuant to Section 306 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given, made or taken any request, demand, authorization, direction, notice, consent, waiver or other action hereunder as of any date, (A) the principal amount of an Original Issue Discount Security which shall be deemed to be Outstanding shall be the amount of the principal thereof which would be due and payable as of such date upon acceleration of the Maturity thereof to such date pursuant to Section 502, (B) if, as of such date, the principal amount payable at the Stated Maturity of a Security is not determinable, the principal amount of such Security which shall be deemed to be Outstanding shall be the amount as specified or determined as contemplated by Section 301, (C) the principal amount of a Security denominated in one or more foreign currencies or currency units which shall be deemed to be Outstanding shall be the U.S. dollar equivalent, determined as of such date in the manner provided as contemplated by Section 301, of the principal amount of such Security (or, in the case of a Security described in Clause (A) or (B) above, of the amount determined as provided in such Clause), and (D) Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent, waiver or other action, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor. "Paying Agent" means any Person authorized by the Company to pay the principal of or any premium or interest on any Securities on behalf of the Company. "Person" means any individual, corporation, partnership, limited liability company, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof. 7 15 "Place of Payment," when used with respect to the Securities of any series, means the place or places where the principal of and any premium and interest on the Securities of that series are payable as specified as contemplated by Section 301. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "Prior Lien" means any Lien on any of the collateral securing the Company's obligations with respect to Securities issued under this Indenture ranking prior to or upon parity with the Lien of this Indenture. "Property" means any interest in any kind of property or asset, whether real, personal or mixed, and whether tangible or intangible. "Redemption Date," when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price," when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Regular Record Date" for the interest payable on any Interest Payment Date on the Securities of any series means the date specified for that purpose as contemplated by Section 301. "Responsible Officer" means an officer in the Corporate Trust Office of the Trustee. "Securities" has the meaning stated in the first recital of this Indenture and more particularly means any Securities authenticated and delivered under this Indenture. "Securities Act" means the Securities Act of 1933 and any statute successor thereto, in each case as amended from time to time. "Security Register" and "Security Registrar" have the respective meanings specified in Section 305. 8 16 "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 307. "Stated Maturity," when used with respect to any Security or any installment of principal thereof or interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of principal or interest is due and payable. "Subsidiary" means a corporation of which at least a majority of the outstanding voting stock having the power to elect a majority of the board of directors of such corporation is at the time owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries and the accounts of which are consolidated with those of the Company in its most recent consolidated financial statements in accordance with generally accepted accounting principles. For the purposes of this definition, "voting stock" means stock which ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency. "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a Trustee hereunder, and if at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean the Trustee with respect to Securities of that series. "U.S. Government Obligation" has the meaning specified in Section 1304. "Vice President," when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president." SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee such certificates and opinions as may be required under the Trust Indenture Act. Each 9 17 such certificate or opinion shall be given in the form of an Officers' Certificate, if to be given by an officer of the Company, or an Opinion of Counsel, if to be given by counsel, and shall comply with the requirements of the Trust Indenture Act and any other requirements set forth in this Indenture. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include, (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his or her certificate or opinion is based are erroneous. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. 10 18 Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 104. ACTS OF HOLDERS. Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given, made or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. The Trustee shall promptly deliver to the Company copies of all such instrument or instruments delivered to the Trustee. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 601) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him or her the execution thereof. Where such execution is by a signer acting in a capacity other than his or her individual capacity, such certificate or affidavit shall also constitute sufficient proof of his or her authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. The ownership of Securities shall be proved by the Security Register. Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. The Company may set any day as a record date for the purpose of determining the Holders of Outstanding Securities of any series entitled to give, 11 19 make or take any request, demand, authorization, direction, vote, notice, consent, waiver or other action provided or permitted by this Indenture to be given, made or taken by Holders of Securities of such series, provided that the Company may not set a record date for, and the provisions of this paragraph shall not apply with respect to, the giving or making of any notice, declaration, request or direction referred to in the next paragraph. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities of the relevant series on such record date, and no other Holders, shall be entitled to take the relevant action, whether or not such Holders remain Holders after such record date; provided that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of Outstanding Securities of such series on such record date. Nothing in this paragraph shall be construed to prevent the Company from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be canceled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite principal amount of Outstanding Securities of the relevant series on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Company, at its own expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Trustee in writing and to each Holder of Securities of the relevant series in the manner set forth in Section 106. The Trustee may set any day as a record date for the purpose of determining the Holders of Outstanding Securities of any series entitled to join in the giving or making of (i) any Notice of Default, (ii) any declaration of acceleration referred to in Section 502, (iii) any request to institute proceedings referred to in Section 507(2) or (iv) any direction referred to in Section 512, in each case with respect to Securities of such series. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities of such series on such record date, and no other Holders, shall be entitled to join in such notice, declaration, request or direction, whether or not such Holders remain Holders after such record date; provided that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of Outstanding Securities of such series on such record date. Nothing in this paragraph shall be construed to prevent the Trustee from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be canceled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite principal amount of Outstanding Securities of the relevant series on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Trustee, at the Company's expense, shall cause notice of such record date, the 12 20 proposed action by Holders and the applicable Expiration Date to be given to the Company in writing and to each Holder of Securities of the relevant series in the manner set forth in Section 106. With respect to any record date set pursuant to this Section, the party hereto which sets such record dates may designate any day as the "Expiration Date" and from time to time may change the Expiration Date to any earlier or later day; provided that no such change shall be effective unless notice of the proposed new Expiration Date is given to the other party hereto in writing, and to each Holder of Securities of the relevant series in the manner set forth in Section 106, on or prior to the existing Expiration Date. If an Expiration Date is not designated with respect to any record date set pursuant to this Section, the party hereto which set such record date shall be deemed to have initially designated the 180th day after such record date as the Expiration Date with respect thereto, subject to its right to change the Expiration Date as provided in this paragraph. Notwithstanding the foregoing, no Expiration Date shall be later than the 180th day after the applicable record date. Without limiting the foregoing, a Holder entitled hereunder to take any action hereunder with regard to any particular Security may do so with regard to all or any part of the principal amount of such Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such principal amount. SECTION 105. NOTICES, ETC. TO TRUSTEE AND COMPANY. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing (or by facsimile transmissions ((213) 533-8729), provided that oral confirmation of receipt shall have been received) to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Department (Axys Pharmaceuticals, Inc. Debt Securities), or (2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company, Attention: Chief Financial Officer. 13 21 SECTION 106. NOTICE TO HOLDERS; WAIVER. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at its address as it appears in the Security Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. SECTION 107. CONFLICT WITH TRUST INDENTURE ACT. If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act which is required under such Act to be a part of and govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act which may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 109. SUCCESSORS AND ASSIGNS. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 110. SEPARABILITY CLAUSE. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 111. BENEFITS OF INDENTURE. Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the 14 22 parties hereto and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 112. GOVERNING LAW. THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. SECTION 113. LEGAL HOLIDAYS. In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security or the last date on which a Holder has the right to convert a Security at a particular conversion price shall not be a Business Day at any Place of Payment, then (notwithstanding any other provision of this Indenture or of the Securities (other than a provision of any Security which specifically states that such provision shall apply in lieu of this Section)) payment of interest or principal (and premium, if any) or, if applicable to a particular series of Securities, conversion need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day at such Place of Payment with the same force and effect as if made on the Interest Payment Date or Redemption Date, at the Stated Maturity or on such last day for conversion, as the case may be. SECTION 114. INDENTURE AND SECURITIES SOLELY CORPORATE OBLIGATIONS. No recourse for the payment of the principal of or premium, if any, or interest on any Security, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company in this Indenture or in any supplemental indenture or in any Security, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, employee, agent, officer, or director or subsidiary, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that all such liability is hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of the Securities. ARTICLE TWO SECURITY FORMS SECTION 201. FORMS GENERALLY. The Securities of each series shall be in substantially the form set forth in this Article, or in such other form as shall be established by or pursuant to a Board Resolution or in one or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this 15 23 Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or Depositary therefor or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution thereof. If the form of Securities of any series is established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Company Order contemplated by Section 303 for the authentication and delivery of such Securities. Any such Board Resolution or record of such action shall have attached thereto a true and correct copy of the form of Security referred to therein approved by or pursuant to such Board Resolution. The definitive Securities shall be printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities. SECTION 202. FORM OF FACE OF SECURITY. [Insert any legend required by the Internal Revenue Code and the regulations thereunder.] AXYS PHARMACEUTICALS, INC. ----------------------------------- No. $ -------- -------- Axys Pharmaceuticals, Inc., a corporation duly organized and existing under the laws of Delaware (herein called the "Company," which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to , or registered assigns, the principal sum of Dollars on [if the Security is to bear interest prior to Maturity, insert - -- , and to pay interest thereon from or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on and in each year, commencing , at the rate of % per annum, until the principal hereof is paid or made available for payment [if applicable, insert --, provided that any principal and premium, and any such installment of interest, which is overdue shall bear interest at the rate of % per annum (to the extent that the payment of such interest shall be legally enforceable), from the dates such amounts are due until they are paid or made available for payment, and such interest shall be payable on demand]. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at 16 24 the close of business on the Regular Record Date for such interest, which shall be the _____________ or _____________ (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture]. [If the Security is not to bear interest prior to Maturity, insert -- The principal of this Security shall not bear interest except in the case of a default in payment of principal upon acceleration, upon redemption or at Stated Maturity and in such case the overdue principal and any overdue premium shall bear interest at the rate of _____% per annum (to the extent that the payment of such interest shall be legally enforceable), from the dates such amounts are due until they are paid or made available for payment. Interest on any overdue principal or premium shall be payable on demand. Any such interest on overdue principal or premium which is not paid on demand shall bear interest at the rate of _____% per annum (to the extent that the payment of such interest on interest shall be legally enforceable), from the date of such demand until the amount so demanded is paid or made available for payment. Interest on any overdue interest shall be payable on demand.] Payment of the principal of (and premium, if any) and [if applicable, insert -- any such] interest on this Security will be made at the office or agency of the Company maintained for that purpose in ______________, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts [if applicable, insert --; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register]. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. 17 25 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. Dated: AXYS PHARMACEUTICALS, INC. --------------- By: ------------------------------------ Title: --------------------------------- Attest: -------------- SECTION 203. FORM OF REVERSE OF SECURITY. This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of _____________, 2000 (herein called the "Indenture," which term shall have the meaning assigned to it in such instrument), between the Company and U.S. Bank Trust National Association, as Trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture), and reference is hereby made to the Indenture and all indentures supplemental thereto for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof [if applicable, insert -- , limited in aggregate principal amount to $_____________]. [If applicable, insert -- The Securities of this series are subject to redemption upon not less than [If applicable, insert -- 30] days' notice by first class mail, [if applicable, insert -- (1) on __________ in any year commencing with the year __________ and ending with the year __________ through operation of the sinking fund for this series at a Redemption Price equal to 100% of the principal amount, and (2)] at any time [if applicable, insert -- on or after __________, 2000], as a whole or in part, at the election of the Company, at the following Redemption Prices (expressed as percentages of the principal amount): If redeemed [if applicable, insert -- on or before __________, _____%, and if redeemed] during the 12-month period beginning __________ of the years indicated, and thereafter at a Redemption Price equal to _____% of the principal amount, together in the case of any such redemption [if applicable, insert -- (whether through operation of the sinking fund or otherwise)] with accrued interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture.] 18 26 Year Redemption Price Year Redemption Price [If applicable, insert -- The Securities of this series are subject to redemption upon not less than [if applicable, insert -- 30] days' notice by first class mail, (1) on __________ in any year commencing with the year __________ and ending with the year __________ through operation of the sinking fund for this series at the Redemption Prices for redemption through operation of the sinking fund (expressed as percentages of the principal amount) set forth in the table below, and (2) at any time [if applicable, insert -- on or after __________], as a whole or in part, at the election of the Company, at the Redemption Prices for redemption otherwise than through operation of the sinking fund (expressed as percentages of the principal amount) set forth in the table below: If redeemed during the 12-month period beginning __________ of the years indicated, Redemption Price For Redemption Price For Redemption Through Redemption Otherwise Than Operation of the Through Operation of the Year Sinking Fund Sinking Fund and thereafter at a Redemption Price equal to _____% of the principal amount, together in the case of any such redemption (whether through operation of the sinking fund or otherwise) with accrued interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture.] [If applicable, insert -- Notwithstanding the foregoing, the Company may not, prior to __________, redeem any Securities of this series as contemplated by [if applicable, insert -- Clause (2) of] the preceding paragraph as a part of, or in anticipation of, any refunding operation by the application, directly or indirectly, of moneys borrowed having an interest cost to the Company (calculated in accordance with generally accepted financial practice) of less than _____% per annum.] [If applicable, insert -- The sinking fund for this series provides for the redemption on __________, in each year beginning with the year __________ and ending with the year __________ of [if applicable, insert -- not less than $__________ ("mandatory sinking fund") and not more than] $__________ aggregate principal amount of Securities of this series. Securities of this series acquired or redeemed by the Company 19 27 otherwise than through [if applicable, insert -- mandatory] sinking fund payments may be credited against subsequent [if applicable, insert -- mandatory] sinking fund payments otherwise required to be made [if applicable, insert -- , in the inverse order in which they become due].] [If the Security is subject to redemption of any kind, insert -- In the event of redemption of this Security in part only, a new Security or Securities of this series and of like tenor for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof.] [If applicable, insert -- The Indenture contains provisions for defeasance at any time of [the entire indebtedness of this Security] [or] [certain restrictive covenants and Events of Default with respect to this Security] [, in each case] upon compliance with certain conditions set forth in the Indenture.] [If the Security is convertible into Common Stock of the Company, insert -- Subject to the provisions of the Indenture, the Holder of this Security is entitled, at its option, at any time on or before [insert date] (except that, in case this Security or any portion hereof shall be called for redemption, such right shall terminate with respect to this Security or portion hereof, as the case may be, so called for redemption at the close of business on the first Business Day next preceding the date fixed for redemption as provided in the Indenture unless the Company defaults in making the payment due upon redemption), to convert the principal amount of this Security (or any portion hereof which is $1,000 or an integral multiple thereof), into fully paid and non-assessable shares (calculated as to each conversion to the nearest 1/100th of a share) of the Common Stock of the Company, as said shares shall be constituted at the date of conversion, at the conversion price of $__________ principal amount of Securities for each share of Common Stock, or at the adjusted conversion price in effect at the date of conversion determined as provided in the Indenture, upon surrender of this Security, together with the conversion notice hereon duly executed, to the Company at the designated office or agency of the Company in __________, accompanied (if so required by the Company) by instruments of transfer, in form satisfactory to the Company and to the Trustee, duly executed by the Holder or by its duly authorized attorney in writing. Such surrender shall, if made during any period beginning at the close of business on a Regular Record Date and ending at the opening of business on the Interest Payment Date next following such Regular Record Date (unless this Security or the portion being converted shall have been called for redemption on a Redemption Date during the period beginning at the close of business on a Regular Record Date and ending at the opening of business on the first Business Day after the next succeeding Interest Payment Date, or if such Interest Payment Date is not a Business Day, the second such Business Day), also be accompanied by payment in funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of this Security then being 20 28 converted. Subject to the aforesaid requirement for payment and, in the case of a conversion after the Regular Record Date next preceding any Interest Payment Date and on or before such Interest Payment Date, to the right of the Holder of this Security (or any Predecessor Security) of record at such Regular Record Date to receive an installment of interest (with certain exceptions provided in the Indenture), no adjustment is to be made on conversion for interest accrued hereon or for dividends on shares of Common Stock issued on conversion. The Company is not required to issue fractional shares upon any such conversion, but shall make adjustment therefor in cash on the basis of the current market value of such fractional interest as provided in the Indenture. The conversion price is subject to adjustment as provided in the Indenture. In addition, the Indenture provides that in case of certain consolidations or mergers to which the Company is a party or the sale of substantially all of the assets of the Company, the Indenture shall be amended, without the consent of any Holders of Securities, so that this Security, if then outstanding, will be convertible thereafter, during the period this Security shall be convertible as specified above, only into the kind and amount of securities, cash and other property receivable upon the consolidation, merger or sale by a holder of the number of shares of Common Stock into which this Security might have been converted immediately prior to such consolidation, merger or sale (assuming such holder of Common Stock failed to exercise any rights of election and received per share the kind and amount received per share by a plurality of non-electing shares). In the event of conversion of this Security in part only, a new Security or Securities for the unconverted portion hereof shall be issued in the name of the Holder hereof upon the cancellation hereof.] [If the Security is convertible into other securities of the Company, specify the conversion features.] [If the Security is not an Original Issue Discount Security, insert -- If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture.] [If the Security is an Original Issue Discount Security, insert - -- If an Event of Default with respect to Securities of this series shall occur and be continuing, an amount of principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. Such amount shall be equal to --insert formula for determining the amount. Upon payment (i) of the amount of principal so declared due and payable and (ii) of interest on any overdue principal, premium and interest (in each case to the extent that the payment of such interest shall be legally enforceable), all of the Company's obligations in respect of the payment of the principal of and premium and interest, if any, on the Securities of this series shall terminate.] 21 29 The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of more than 50% in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and premium, if any, and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and any premium and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of 22 30 transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or its attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $ 1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series and of like tenor of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made to a Holder for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. SECTION 204. FORM OF LEGEND FOR GLOBAL SECURITIES. Unless otherwise specified as contemplated by Section 301 for the Securities evidenced thereby, every Global Security authenticated and delivered hereunder shall bear a legend in substantially the following form: THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. SECTION 205. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION. The Trustee's certificates of authentication shall be in substantially the following form: 23 31 This is one of the Securities of the series designated herein referred to in the within-mentioned Indenture. U.S. BANK TRUST NATIONAL ASSOCIATION, as Trustee By: ------------------------------------- Authorized Officer SECTION 206. FORM OF CONVERSION NOTICE. To Axys Pharmaceuticals, Inc.: The owner of this Security hereby irrevocably exercises the option to convert this Security, or portion hereof (which is $1,000 or an integral multiple thereof) below designated, into shares of Common Stock of the Company in accordance with the terms of the Indenture referred to in this Security, and directs that the shares issuable and deliverable upon the conversion, together with any check in payment for fractional shares and any Securities representing any unconverted principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If this Notice is being delivered on a date after the close of business on a Regular Record Date and prior to the opening of business on the related Interest Payment Date (unless this Security or the portion thereof being converted has been called for redemption on a Redemption Date within such period), this Notice is accompanied by payment, in funds acceptable to the Company, of an amount equal to the interest payable on such Interest Payment Date of the principal of this Security to be converted. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect hereto. Any amount required to be paid by the undersigned on account of interest accompanies this Security. Principal Amount to be Converted (in an integral multiple of $1,000, if less than all) U.S. $ ----------------- Dated: ---------------------------- --------------------------------------- Signature(s) must be guaranteed by an eligible guarantor institution (banks, stock brokerages, savings and loan associations and credit unions) with 24 32 membership in an approved signature guarantee medallion program pursuant to Securities and Exchange Commission Rule 17Ad-15 if shares of Common Stock are to be delivered, or Securities to be issued, other than to and in the name of the registered owner. Signature Guaranty Fill in for registration of shares of Common Stock and Security if to be issued otherwise than to the registered Holder. (Name) Social Security or Other Taxpayer Identification Number (Address) Please print Name and Address (including zip code number) [The above conversion notice is to be modified, as appropriate, for conversion into other securities or property of the Company.] ARTICLE THREE THE SECURITIES SECTION 301. AMOUNT UNLIMITED; ISSUABLE IN SERIES. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more series. There shall be established in or pursuant to a Board Resolution and, subject to Section 303, set forth, or determined in the manner provided, in an Officers' Certificate, or 25 33 established in one or more indentures supplemental hereto, prior to the issuance of Securities of any series, (1) the title of the Securities of the series (which shall distinguish the Securities of the series from Securities of any other series); (2) any limit upon the aggregate principal amount of the Securities of the series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 304, 305, 306, 906 or 1107 and except for any Securities which, pursuant to Section 303, are deemed never to have been authenticated and delivered hereunder); (3) the Person to whom any interest on a Security of the series shall be payable, if other than the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest; (4) the date or dates on which the principal of any Securities of the series is payable; (5) the rate or rates at which any Securities of the series shall bear interest, if any, the date or dates from which any such interest shall accrue, the Interest Payment Dates on which any such interest shall be payable, whether and under what circumstances interest shall be payable in cash or another form of consideration and the Regular Record Date for any such interest payable on any Interest Payment Date; (6) the place or places where the principal of and any premium and interest on any Securities of the series shall be payable; (7) the period or periods within which, the price or prices at which and the terms and conditions upon which any Securities of the series may be redeemed, in whole or in part, at the option of the Company and, if other than by a Board Resolution, the manner in which any election by the Company to redeem the Securities shall be evidenced; (8) the obligation, if any, of the Company to redeem or purchase any Securities of the series pursuant to any sinking fund or analogous provisions or at the option of the Holder thereof and the period or periods within which, the price or prices at which and the terms and conditions upon which any Securities of the series shall be redeemed or purchased, in whole or in part, pursuant to such obligation; 26 34 (9) if other than denominations of $1,000 and any integral multiple thereof, the denominations in which any Securities of the series shall be issuable; (10) if the amount of principal of or any premium or interest on any Securities of the series may be determined with reference to an index or pursuant to a formula, the manner in which such amounts shall be determined; (11) if other than the currency of the United States of America, the currency, currencies or currency units in which the principal of or any premium or interest on any Securities of the series shall be payable and the manner of determining the equivalent thereof in the currency of the United States of America for any purpose, including for purposes of the definition of "Outstanding" in Section 101; provided, however, that prior to the issuance of any such Securities, the Company shall have obtained the written consent of the Trustee, which consent may be withheld in the sole discretion of the Trustee, to the currency, currencies or currency units so established; (12) if the principal of or premium, if any, or interest on any Securities of the series is to be payable, at the election of the Company or the Holder thereof, in one or more currencies or currency units other than that or those in which such Securities are stated to be payable, the currency, currencies or currency units in which the principal of or any premium or interest on such Securities as to which such election is made shall be payable, the periods within which and the terms and conditions upon which such election is to be made and the amount so payable (or the manner in which such amount shall be determined); provided, however, that prior to the issuance of any such Securities, the Company shall have obtained the written consent of the Trustee, which consent may be withheld in the sole discretion of the Trustee, to the currency, currencies or currency units so established; (13) if other than the entire principal amount thereof, the portion of the principal amount of any Securities of the series which shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 502; (14) if the principal amount payable at the Stated Maturity of any Securities of the series will not be determinable as of any one or more dates prior to the Stated Maturity, the amount which shall be deemed to be the principal amount of such Securities as of any such date for any purpose thereunder or hereunder, including the principal amount thereof which shall be due and payable upon any Maturity other than the Stated Maturity or which shall be deemed to be Outstanding as of any date prior to the Stated Maturity (or, in any such case, the manner in which such amount deemed to be the principal amount shall be determined); 27 35 (15) if applicable, that the Securities of the series, in whole or any specified part, shall be defeasible pursuant to Section 1302 or Section 1303 or both such Sections and, if other than by a Board Resolution, the manner in which any election by the Company to defease such Securities shall be evidenced; (16) if applicable, the terms of any right to convert Securities of the series into shares of Common Stock of the Company or other securities or property; (17) if applicable, that any Securities of the series shall be issuable in whole or in part in the form of one or more Global Securities and, in such case, the respective Depositaries for such Global Securities, the form of any legend or legends which shall be borne by any such Global Security in addition to or in lieu of that set forth in Section 204 and any circumstances in addition to or in lieu of those set forth in Clause (2) of the last paragraph of Section 305 in which any such Global Security may be exchanged in whole or in part for Securities registered, and any transfer of such Global Security in whole or in part may be registered, in the name or names of Persons other than the Depositary for such Global Security or a nominee thereof; (18) any addition to or change in the Events of Default which applies to any Securities of the series and any change in the right of the Trustee or the requisite Holders of such Securities to declare the principal amount thereof due and payable pursuant to Section 502; (19) any addition to or change in the covenants set forth in Article Ten which applies to Securities of the series; and (20) any other terms of the series (which terms shall not be inconsistent with the provisions of this Indenture, except as permitted by Section 901(5)). All Securities of any one series shall be substantially identical except as to denomination, certificate number and except as may otherwise be provided in or pursuant to the Board Resolution referred to above and (subject to Section 303) set forth, or determined in the manner provided, in the Officers' Certificate referred to above or in any such indenture supplemental hereto. If any of the terms of the series are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers' Certificate setting forth the terms of the series. SECTION 302. DENOMINATIONS. The Securities of each series shall be issuable only in registered form without coupons and only in such 28 36 denominations as shall be specified as contemplated by Section 301. In the absence of any such specified denomination with respect to the Securities of any series, the Securities of such series shall be issuable in denominations of $1,000 and any integral multiple thereof. SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING. The Securities shall be executed on behalf of the Company by its Chairman of the Board, its Vice Chairman of the Board, its principal financial officer, its President or one of its Vice Presidents, under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with the Company Order shall authenticate and deliver such Securities. If the form or terms of the Securities of the series have been established by or pursuant to one or more Board Resolutions as permitted by Sections 201 and 301, in authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Opinion of Counsel stating, (1) if the form of such Securities has been established by or pursuant to Board Resolution as permitted by Section 201, that such form has been established in conformity with the provisions of this Indenture; (2) if the terms of such Securities have been established by or pursuant to Board Resolution as permitted by Section 301, that such terms have been established in conformity with the provisions of this Indenture; and (3) that such Securities, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. 29 37 If such form or terms have been so established, the Trustee shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee's own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee. Notwithstanding the provisions of Section 301 and of the preceding paragraph, if all Securities of a series are not to be originally issued at one time, it shall not be necessary to deliver the Officers' Certificate otherwise required pursuant to Section 301 or the Company Order and Opinion of Counsel otherwise required pursuant to such preceding paragraph at or prior to the authentication of each Security of such series if such documents are delivered at or prior to the authentication upon original issuance of the first Security of such series to be issued. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. Notwithstanding the foregoing, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancellation as provided in Section 309, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture. SECTION 304. TEMPORARY SECURITIES. Pending the preparation of definitive Securities of any series, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. If temporary Securities of any series are issued, the Company will cause definitive Securities of that series to be prepared without unreasonable delay. After the preparation of definitive Securities of such series, the temporary Securities of such series shall be exchangeable for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or 30 38 agency of the Company in a Place of Payment for that series, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities of any series, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor one or more definitive Securities of the same series, of any authorized denominations and of like tenor and aggregate principal amount. Until so exchanged, the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series and tenor. SECTION 305. REGISTRATION; REGISTRATION OF TRANSFER AND EXCHANGE. The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency of the Company in a Place of Payment being herein sometimes collectively referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Trustee is hereby appointed "Security Registrar" for the purpose of registering Securities and transfers of Securities as herein provided. Upon surrender for registration of transfer of any Security of a series at the office or agency of the Company in a Place of Payment for that series, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of the same series, of any authorized denominations and of like tenor and aggregate principal amount. At the option of the Holder, Securities of any series may be exchanged for other Securities of the same series, of any authorized denominations and of like tenor and aggregate principal amount, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or its attorney duly authorized in writing. 31 39 No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 304, 906 or 1107 not involving any transfer. If the Securities of any series (or of any series and specified tenor) are to be redeemed in part, the Company shall not be required (A) to issue, register the transfer of or exchange any Securities of that series (or of that series and specified tenor, as the case may be) during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of any such Securities selected for redemption under Section 1103 and ending at the close of business on the day of such mailing, or (B) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part. The provisions of Clauses (1), (2), (3) and (4) below shall apply only to Global Securities: (1) Each Global Security authenticated under this Indenture shall be registered in the name of the Depositary designated for such Global Security or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor, and each such Global Security shall constitute a single Security for all purposes of this Indenture. (2) Notwithstanding any other provision in this Indenture, no Global Security may be exchanged in whole or in part for Securities registered, and no transfer of a Global Security in whole or in part may be registered, in the name of any Person other than the Depositary for such Global Security or a nominee thereof unless (A) such Depositary (i) has notified the Company that it is unwilling or unable to continue as Depositary for such Global Security or (ii) has ceased to be a clearing agency registered under the Exchange Act, (B) there shall have occurred and be continuing an Event of Default with respect to such Global Security or (C) there shall exist such circumstances, if any, in addition to or in lieu of the foregoing as have been specified for this purpose as contemplated by Section 301. (3) Subject to Clause (2) above, any exchange of a Global Security for other Securities may be made in whole or in part, and all Securities issued in exchange for a Global Security or any portion thereof shall be registered in such names as the Depositary for such Global Security shall direct. (4) Every Security authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a Global Security or any portion thereof, whether pursuant to this Section, Section 304, 306, 906 or 1107 or otherwise, shall 32 40 be authenticated and delivered in the form of, and shall be, a Global Security, unless such Security is registered in the name of a Person other than the Depositary for such Global Security or a nominee thereof. SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES. If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security of any series issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that series duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED. Except as otherwise provided as contemplated by Section 301 with respect to any series of Securities, interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to 33 41 the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. Any interest on any Security of any series which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security of such series and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be given to each Holder of Securities of such series in the manner set forth in Section 106, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2). (2) The Company may make payment of any Defaulted Interest on the Securities of any series in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee. 34 42 Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. Subject to the provisions of Section 1402, in the case of any Security (or any part thereof) which is converted after any Regular Record Date and on or prior to the next succeeding Interest Payment Date (other than any Security the principal of (or premium, if any, on) which shall become due and payable, whether at Stated Maturity or by declaration of acceleration prior to such Interest Payment Date), interest whose Stated Maturity is on such Interest Payment Date shall be payable on such Interest Payment Date notwithstanding such conversion and such interest (whether or not punctually paid or duly provided for) shall be paid to the Person in whose name that Security (or any one or more Predecessor Securities) is registered at the close of business on such Regular Record Date. Except as otherwise expressly provided in the immediately preceding sentence or in Section 1402, in the case of any Security (or any part thereof) which is converted, interest whose Stated Maturity is after the date of conversion of such Security (or such part thereof) shall not be payable. SECTION 308. PERSONS DEEMED OWNERS. Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of and any premium and (subject to Section 307) any interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION 309. CANCELLATION. All Securities surrendered for payment, redemption, registration of transfer or exchange or for credit against any sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold, and all Securities so delivered shall be promptly canceled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Securities held by the Trustee shall be disposed of as directed by a Company Order. 35 43 SECTION 310. COMPUTATION OF INTEREST. Except as otherwise specified as contemplated by Section 301 for Securities of any series, interest on the Securities of each series shall be computed on the basis of a 360-day year of twelve 30-day months. ARTICLE FOUR SATISFACTION AND DISCHARGE SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE. This Indenture shall upon Company Request cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Securities herein expressly provided for), and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either (A) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306 and (ii) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1003) have been delivered to the Trustee for cancellation; or (B) all such Securities not theretofore delivered to the Trustee for cancellation (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year, or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose money in an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal and any premium and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; 36 44 (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 607, the obligations of the Trustee to any Authenticating Agent under Section 614 and, if money shall have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of this Section, the obligations of the Trustee under Section 402 and the last paragraph of Section 1003 shall survive. SECTION 402. APPLICATION OF TRUST MONEY. Subject to the provisions of the last paragraph of Section 1003, all money deposited with the Trustee pursuant to Section 401 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal and any premium and interest for whose payment such money has been deposited with the Trustee. ARTICLE FIVE REMEDIES SECTION 501. EVENTS OF DEFAULT. "Event of Default," wherever used herein with respect to Securities of any series, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of any interest upon any Security of that series when it becomes due and payable, and continuance of such default for a period of 30 days; or (2) default in the payment of the principal of or any premium on any Security of that series at its Maturity; or 37 45 (3) default in the deposit of any sinking fund payment, when and as due by the terms of a Security of that series; or (4) default in the performance, or breach, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with or which has expressly been included in this Indenture solely for the benefit of series of Securities other than that series), and continuance of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities of that series a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (5) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 90 consecutive days; or (6) the commencement by the Company of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action; or 38 46 (7) any other Event of Default provided with respect to Securities of that series. SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If an Event of Default (other than an Event of Default specified in Section 501(5) or 501(6)) with respect to Securities of any series at the time Outstanding occurs and is continuing, then in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of that series may declare the principal amount of all the Securities of that series (or, if any Securities of that series are Original Issue Discount Securities, such portion of the principal amount of such Securities as may be specified by the terms thereof) to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal amount (or specified amount) shall become immediately due and payable. If an Event of Default specified in Section 501(5) or 501(6) with respect to Securities of any series at the time Outstanding occurs, the principal amount of all the Securities of that series (or, if any Securities of that series are Original Issue Discount Securities, such portion of the principal amount of such Securities as may be specified by the terms thereof) shall automatically, and without any declaration or other action on the part of the Trustee or any Holder, become immediately due and payable. At any time after such a declaration of acceleration with respect to Securities of any series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities of that series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (1) the Company has paid or deposited with the Trustee a sum sufficient to pay (A) all overdue interest on all Securities of that series, (B) the principal (or other specified amount in the case of Original Issue Discount Securities) of (and premium, if any, on) any Securities of that series which have become due otherwise than by such declaration of acceleration and any interest thereon at the rate or rates prescribed therefor in such Securities, (C) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate or rates prescribed therefor in such Securities, and 39 47 (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (2) all Events of Default with respect to Securities of that series, other than the non-payment of the principal of Securities of that series which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 513. No such rescission shall affect any subsequent default or impair any right consequent thereon. SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE. The Company covenants that if (1) default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the principal of (or premium, if any, on) any Security at the Maturity thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal and any premium and interest and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal and premium and on any overdue interest, at the rate or rates prescribed therefor in such Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM. In case of any judicial proceeding relative to the Company (or any other obligor upon the Securities), its property or its creditors, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise, to take any and all actions authorized under the Trust Indenture Act in order to have claims of the Holders and the Trustee allowed in any such proceeding. In particular, the Trustee 40 48 shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 607. No provision of this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding; provided, however, that the Trustee may, on behalf of the Holders, vote for the election of a trustee in bankruptcy or similar official and be a member of a creditors' or other similar committee. SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES. All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. SECTION 506. APPLICATION OF MONEY COLLECTED. Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal or any premium or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 607; and SECOND: To the payment of the amounts then due and unpaid for principal of and any premium, if any, and interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without 41 49 preference or priority of any kind, according to the amounts due and payable on such Securities for principal and premium, if any, and interest, respectively. SECTION 507. LIMITATION ON SUITS. No Holder of any Security of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of that series; (2) the Holders of not less than 25% in principal amount of the Outstanding Securities of that series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of that series; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all of such Holders. SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM AND INTEREST AND TO CONVERT. Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of and any premium and (subject to Section 307) interest on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date), to convert such Securities in accordance with Article Fourteen and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. 42 50 SECTION 509. RESTORATION OF RIGHTS AND REMEDIES. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 510. RIGHTS AND REMEDIES CUMULATIVE. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 306, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 511. DELAY OR OMISSION NOT WAIVER. No delay or omission of the Trustee or of any Holder of any Securities to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee (subject to the limitations contained in this Indenture) or by the Holders, as the case may be. SECTION 512. CONTROL BY HOLDERS. The Holders of a majority in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, with respect to the Securities of such series, provided that (1) such direction shall not be in conflict with any rule of law or with this Indenture and the Trustee shall not have determined that the action so directed would be unjustly prejudicial to Holders of Securities of that series, or any other series, not taking part in such direction, and (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction or this Indenture. 43 51 SECTION 513. WAIVER OF PAST DEFAULTS. The Holders of not less than a majority in principal amount of the Outstanding Securities of any series may on behalf of the Holders of all the Securities of such series waive any past default hereunder with respect to such series and its consequences, except a default (1) in the payment of the principal of or any premium or interest on any Security of such series, or (2) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 514. UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of such suit, and may assess costs against any such party litigant, in the manner and to the extent provided in the Trust Indenture Act; provided that neither this Section nor the Trust Indenture Act shall be deemed to authorize any court to require such an undertaking or to make such an assessment in any suit instituted by the Company or in any suit for the enforcement of the right to convert any Security in accordance with Article Fourteen. SECTION 515. WAIVER OF USURY, STAY OR EXTENSION LAWS. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any usury, stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE SIX THE TRUSTEE 44 52 SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES. The duties and responsibilities of the Trustee shall be as provided by the Trust Indenture Act. Notwithstanding the foregoing, no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. SECTION 602. NOTICE OF DEFAULTS. If a default occurs hereunder with respect to Securities of any series which default is known to the Trustee, the Trustee shall give the Holders of Securities of such series notice of such default as and to the extent provided by the Trust Indenture Act; provided, however, that in the case of any default of the character specified in Section 501(4) with respect to Securities of such series, no such notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Securities of such series. SECTION 603. CERTAIN RIGHTS OF TRUSTEE. Subject to the provisions of Section 601: (1) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (2) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order, and any resolution of the Board of Directors shall be sufficiently evidenced by a Board Resolution; (3) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (4) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and 45 53 protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (5) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (6) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company upon reasonable advance notice during normal business hours, personally or by agent or attorney; and (7) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES. The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and neither the Trustee nor any Authenticating Agent assumes any responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. Neither the Trustee nor any Authenticating Agent shall be accountable for the use or application by the Company of Securities or the proceeds thereof. SECTION 605. MAY HOLD SECURITIES AND ACT AS TRUSTEE UNDER OTHER INDENTURES. The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 608 and 613, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other agent. Subject to the limitations imposed by the Trust Indenture Act, nothing in this Indenture shall prohibit the Trustee from becoming and acting as trustee 46 54 under other indentures under which other securities, or certificates of interest of participation in other securities, of the Company are outstanding in the same manner as if it were not Trustee hereunder. SECTION 606. MONEY HELD IN TRUST. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company. SECTION 607. COMPENSATION AND REIMBURSEMENT. The Company agrees (1) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. SECTION 608. CONFLICTING INTERESTS. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. To the extent permitted by such Act, the Trustee shall not be deemed to have a conflicting interest by virtue of being a trustee under this Indenture with respect to Securities of more than one series. SECTION 609. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY. There shall at all times be one (and only one) Trustee hereunder with respect to the Securities of each series, which may be Trustee hereunder for Securities of one or more other series. Each Trustee shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has (or if the Trustee is a subsidiary of a 47 55 bank holding company its parent shall have) a combined capital and surplus of at least $100,000,000. If any such Person publishes reports of condition at least annually, pursuant to law or to the requirements of its supervising or examining authority, then for the purposes of this Section and to the extent permitted by the Trust Indenture Act, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee with respect to the Securities of any series shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. SECTION 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR. No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 611. The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 611 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to the Trustee and to the Company. If at any time: (1) the Trustee shall fail to comply with Section 608 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (2) the Trustee shall cease to be eligible under Section 609 and shall fail to resign after written request therefor by the Company or by any such Holder, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (A) the Company by a Board Resolution may remove the 48 56 Trustee with respect to all Securities, or (B) subject to Section 514, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Securities and the appointment of a successor Trustee or Trustees. If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, with respect to the Securities of one or more series, the Company, by a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of any particular series) and shall comply with the applicable requirements of Section 611. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 611, become the successor Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company or the Holders and accepted appointment in the manner required by Section 611, the retiring Trustee may petition, or any Holder who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition, any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series to all Holders of Securities of such series in the manner provided in Section 106. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office. SECTION 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. In case of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the 49 57 retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in the first or second preceding paragraph, as the case may be. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. 50 58 SECTION 612. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee (including the trust created by this Indenture), shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. SECTION 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). SECTION 614. APPOINTMENT OF AUTHENTICATING AGENT. The Trustee may appoint an Authenticating Agent or Agents with respect to one or more series of Securities which shall be authorized to act on behalf of the Trustee to authenticate Securities of such series issued upon original issue and upon exchange, registration of transfer or partial redemption thereof or pursuant to Section 306, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having (or if the Authenticating Agent is a subsidiary of a bank holding company its parent shall have) a combined capital and surplus of not less than $100,000,000 and subject to supervision or examination by Federal or State authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an 51 59 Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent (including the authenticating agency contemplated by this Indenture), shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall give notice of such appointment in the manner provided in Section 106 to all Holders of Securities of the series with respect to which such Authenticating Agent will serve. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. The Trustee agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section, and the Trustee shall be entitled to be reimbursed for such payments, subject to the provisions of Section 607. If an appointment with respect to one or more series is made pursuant to this Section 614, the Securities of such series may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternative certificate of authentication in the following form: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. U.S. BANK TRUST NATIONAL ASSOCIATION, as Trustee 52 60 By: -------------------------------------- As Authenticating Agent By: -------------------------------------- Authorized Officer ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS. The Company will furnish or cause to be furnished to the Trustee (1) semi-annually, not later than 15 days after the Regular Record Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders of Securities of each series as of such Regular Record Date, as the case may be, and (2) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; provided that no such list need be furnished by the Company to the Trustee so long as the Trustee is acting as Security Registrar. SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS. The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 701, if any, and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in Section 701 upon receipt of a new list so furnished. The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding 53 61 rights and privileges of the Trustee, shall be as provided by the Trust Indenture Act. Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the Trust Indenture Act. SECTION 703. REPORTS BY TRUSTEE. The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. Reports so required to be transmitted at stated intervals of not more than 12 months shall be transmitted no later than July 1 in each calendar year, commencing with the first July 1 after the first issuance of Securities pursuant to this Indenture. A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which any Securities are listed, with the Commission and with the Company. The Company will notify the Trustee when any Securities are listed on any stock exchange. SECTION 704. REPORTS BY COMPANY. The Company shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to the Trust Indenture Act; provided that any such information, documents or reports required to be filed by the Company with the Commission pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission. ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 801. COMPANY MAY CONSOLIDATE, ETC. ONLY ON CERTAIN TERMS. The Company shall not consolidate with or merge into any other Person (in a transaction in which the Company is not the surviving corporation) or convey, transfer or lease its properties and assets substantially as an entirety to any Person, unless: 54 62 (1) in case the Company shall consolidate with or merge into another Person (in any transaction in which the Company is not the surviving corporation) or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company substantially as an entirety shall be a corporation, limited liability company, partnership or trust, shall be organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of and any premium and interest on all the Securities and the performance or observance of every covenant of this Indenture on the part of the Company to be performed or observed and the conversion rights shall be provided for in accordance with Article Fourteen, if applicable, or as otherwise specified pursuant to Section 301, by supplemental indenture satisfactory in form to the Trustee, executed and delivered to the Trustee, by the Person (if other than the Company) formed by such consolidation or into which the Company shall have been merged or by the Person which shall have acquired the Company's assets; (2) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Company or any Subsidiary as a result of such transaction as having been incurred by the Company or such Subsidiary at the time of such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. SECTION 802. SUCCESSOR SUBSTITUTED. Upon any consolidation of the Company with, or merger of the Company into, any other Person or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety in accordance with Section 801, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities. 55 63 ARTICLE NINE SUPPLEMENTAL INDENTURES SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS. Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company, or successive successions, and the assumption by any such successor of the covenants of the Company herein and in the Securities; or (2) to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company; or (3) to add any additional Events of Default for the benefit of the Holders of all or any series of Securities (and if such additional Events of Default are to be for the benefit of less than all series of Securities, stating that such additional Events of Default are expressly being included solely for the benefit of such series); or (4) to add to or change any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the issuance of Securities in bearer form, registrable or not registrable as to principal, and with or without interest coupons, or to permit or facilitate the issuance of Securities in uncertificated form; or (5) to add to, change or eliminate any of the provisions of this Indenture in respect of one or more series of Securities, provided that any such addition, change or elimination (A) shall neither (i) apply to any Security of any series created prior to the execution of such supplemental indenture and entitled to the benefit of such provision nor (ii) modify the rights of the Holder of any such Security with respect to such provision or (B) shall become effective only when there is no such Security Outstanding; or (6) to secure the Securities of any one or more series; or 56 64 (7) to establish the form or terms of Securities of any series as permitted by Sections 201 and 301; or (8) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 611; or (9) to make provision with respect to the conversion rights of Holders or Holders of Securities of one or more series, pursuant to the requirements of Article Fourteen, including providing for the conversion of the Securities into any security (other than the Common Stock of the Company) or Property of the Company; or (10) to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture, provided that such action pursuant to this Clause (10) shall not adversely affect the interests of the Holders of Securities of any series in any material respect; or (11) to supplement any of the provisions of the Indenture to such extent as shall be necessary to permit or facilitate the defeasance and discharge of any series of Securities pursuant to Articles Four and Thirteen, provided that any such action shall not adversely affect the interests of the Holders of Securities of such series or any other series of Securities in any material respect. SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS. With the consent of the Holders of a majority in principal amount of the Outstanding Securities of each series affected by such supplemental indenture, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities of such series under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby, (1) change the Stated Maturity of the principal of, or any installment of principal of or interest on, any Security, or reduce the principal amount thereof or the rate of interest thereon or any premium payable upon the redemption thereof, or reduce the amount of the principal of an Original Issue Discount Security or any other Security which would be due and payable upon a 57 65 declaration of acceleration of the Maturity thereof pursuant to Section 502, or change any Place of Payment where, or the coin or currency in which, any Security or any premium or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or modify the provisions of this Indenture with respect to the subordination of such series of Securities in a manner adverse to the Holders of Securities of such series, or (2) reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or (3) modify any of the provisions of this Section, Section 513 or Section 1007, except to increase any percentage provided for herein or therein or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby; provided, however, that this clause shall not be deemed to require the consent of any Holder with respect to changes in the references to "the Trustee" and concomitant changes in this Section and Section 1007, or the deletion of this proviso, in accordance with the requirements of Sections 611 and 901(8), or (4) if applicable, make any change that adversely affects the right to convert any security as provided in Article Fourteen or pursuant to Section 301 (except as permitted by Section 901(9)) or decrease the conversion rate or increase the conversion price of any such security. A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Sections 601 and 603) shall be fully protected in relying upon, an Opinion of 58 66 Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act. SECTION 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES. Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities of such series. ARTICLE TEN COVENANTS SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST. The Company covenants and agrees for the benefit of each series of Securities that it will duly and punctually pay the principal of and any premium and interest on the Securities of that series in accordance with the terms of the Securities and this Indenture. SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY. The Company will maintain in each Place of Payment for any series of Securities an office or agency where Securities of that series may be presented or surrendered for payment, where Securities of that series may be surrendered for registration of transfer or exchange, where Securities of that series may be surrendered for conversion and where notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the 59 67 location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies where the Securities of one or more series may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in each Place of Payment for Securities of any series for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. SECTION 1003. MONEY FOR SECURITIES PAYMENTS TO BE HELD IN TRUST. If the Company shall at any time act as its own Paying Agent with respect to any series of Securities, it will, on or before each due date of the principal of or any premium or interest on any of the Securities of that series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal and any premium and interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents for any series of Securities, it will, on or prior to each due date of the principal of or any premium or interest on any Securities of that series, deposit with a Paying Agent a sum sufficient to pay such amount, such sum to be held as provided by the Trust Indenture Act, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company will cause each Paying Agent for any series of Securities other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will (1) comply with the provisions of the Trust Indenture Act applicable to it as a Paying Agent and (2) during the continuance of any default by the Company (or any other obligor upon the Securities of that series) in the making of any payment in respect of the Securities of that series, upon the written request of the Trustee, forthwith pay to the Trustee all sums held in trust by such Paying Agent for payment in respect of the Securities of that series. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by 60 68 Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of or any premium or interest on any Security of any series and remaining unclaimed for a period ending on the earlier of the date that is ten Business Days prior to the date such money would escheat to the State or two years after such principal, premium or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in each Place of Payment, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 1004. STATEMENT BY OFFICERS AS TO DEFAULT. The Company will deliver to the Trustee, within 120 days after the end of each fiscal year of the Company ending after the date hereof, an Officers' Certificate, stating whether or not to the best knowledge of the signers thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and, if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge. SECTION 1005. EXISTENCE. Subject to Article Eight, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence. SECTION 1006. OPINIONS AS TO PLEDGED PROPERTY. In the case of any series of Securities in respect of which the Company's obligations are secured pursuant to an indenture supplemental hereto, promptly after the execution and delivery of the supplemental indenture establishing such series of Securities, and in any event prior to the first issuance of any Securities of such series, the Company 61 69 shall furnish to the Trustee an Opinion of Counsel stating that, in the opinion of such counsel, such actions have been taken with respect to the recording and filing of this Indenture and such supplemental indenture relating to such series of Securities and with respect to the execution and filing of any financing statements and continuation statements as are necessary to make effective and perfect the Lien and security interest intended to be created by this Indenture and such indenture supplemental hereto in favor of the Trustee for the benefit of the Holders of Securities of such series, and reciting the details of such action, or stating that, in the opinion of such counsel, no such action is necessary to make such Lien and security interest effective. If after the first issuance of Securities of a particular series in respect of which the Company's obligations are secured pursuant to an indenture supplemental hereto the Company shall execute any other supplemental indenture or other requisite document relating to such series of Securities, promptly after such execution the Company shall furnish to the Trustee an Opinion of Counsel stating that, in the opinion of such counsel, such actions have been taken with respect to the recording, filing, re-recording and refiling of this Indenture and any such supplemental indentures other requisite documents relating to such series of Securities and with respect to the execution and filing of any financing statements and continuation statements as are necessary to make effective and perfect the Lien and security interest intended to be created by this Indenture, such indentures supplemental hereto and such other requisite documents in favor of the Trustee for the benefit of Holders of Securities of such series and reciting the details of such action or referring to prior Opinions of Counsel in which such details are given, or stating that, in the opinion of such counsel, no such action is necessary to make such Lien and security interest effective. On or before May 1, in each calendar year, beginning with the first calendar year commencing more than three months after the date of authentication and delivery of any Securities of any series that are secured by any Lien on property, the Company shall furnish to the Trustee an Opinion of Counsel either stating that, in the opinion of such counsel, such action has been taken with respect to the recording, filing, re-recording and re-filing of this Indenture, any indentures supplemental hereto and any other requisite documents and with respect to the execution and filing of any financing statements and continuation statements as is necessary to maintain the Lien and security interest created by this Indenture and any such indentures supplemental hereto with respect to the property pledged to secure such Securities and reciting the details of such action or stating that in the opinion of such counsel no such action is necessary to maintain such Lien and security interest. Such Opinion of Counsel shall also describe the recording, filing, re-recording and re-filing of this Indenture, any indentures supplemental hereto and any other requisite documents and the execution and filing of any financing statements and any other requisite documents and the execution and filing of any 62 70 financing statements and continuation statements that will, in the opinion of such counsel, be required to maintain the Lien and security interest of this Indenture and any such indentures supplemental hereto with respect to such property until May 1 in the following calendar year. SECTION 1007. WAIVER OF CERTAIN COVENANTS. Except as otherwise specified as contemplated by Section 301 for Securities of such series, the Company may, with respect to the Securities of any series, omit in any particular instance to comply with any term, provision or condition set forth in any covenant provided pursuant to Section 301(19), 901(2) or 901(7) for the benefit of the Holders of such series if before the time for such compliance the Holders of at least 50% in principal amount of the Outstanding Securities of such series shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such term, provision or condition, but no such waiver shall extend to or affect such term, provision or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such term, provision or condition shall remain in full force and effect. ARTICLE ELEVEN REDEMPTION OF SECURITIES SECTION 1101. APPLICABILITY OF ARTICLE. Securities of any series which are redeemable before their Stated Maturity shall be redeemable in accordance with their terms and (except as otherwise specified as contemplated by Section 301 for such Securities) in accordance with this Article. SECTION 1102. ELECTION TO REDEEM; NOTICE TO TRUSTEE. The election of the Company to redeem any Securities shall be evidenced by a Board Resolution or in another manner specified as contemplated by Section 301 for such Securities. In case of any redemption at the election of the Company of less than all the Securities of any series (including any such redemption affecting only a single Security), the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date, of the principal amount of Securities of such series to be redeemed and, if applicable, of the tenor of the Securities to be redeemed. In the case of any redemption of Securities prior to the expiration of any restriction on such redemption provided in the terms of such Securities or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with such restriction. 63 71 SECTION 1103. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED. If less than all the Securities of any series are to be redeemed (unless all the Securities of such series and of a specified tenor are to be redeemed or unless such redemption affects only a single Security), the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of a portion of the principal amount of any Security of such series, provided that the unredeemed portion of the principal amount of any Security shall be in an authorized denomination (which shall not be less than the minimum authorized denomination) for such Security. If less than all the Securities of such series and of a specified tenor are to be redeemed (unless such redemption affects only a single Security), the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series and specified tenor not previously called for redemption in accordance with the preceding sentence. If any Security selected for partial redemption is converted in part before termination of the conversion right with respect to the portion of the Security so selected, the converted portion of such Security shall be deemed (so far as may be) to be the portion selected for redemption. Securities which have been converted during a selection of Securities to be redeemed shall be treated by the Trustee as Outstanding for the purpose of such selection. The Trustee shall promptly notify the Company in writing of the Securities selected for redemption as aforesaid and, in case of any Securities selected for partial redemption as aforesaid, the principal amount thereof to be redeemed. The provisions of the two preceding paragraphs shall not apply with respect to any redemption affecting only a single Security, whether such Security is to be redeemed in whole or in part. In the case of any such redemption in part, the unredeemed portion of the principal amount of the Security shall be in an authorized denomination (which shall not be less than the minimum authorized denomination) for such Security. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed. SECTION 1104. NOTICE OF REDEMPTION. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more 64 72 than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed, at its address appearing in the Security Register. All notices of redemption shall state: (1) the Redemption Date, (2) the Redemption Price (including accrued interest, if any), (3) if less than all the Outstanding Securities of any series consisting of more than a single Security are to be redeemed, the identification (and, in the case of partial redemption of any such Securities, the principal amounts) of the particular Securities to be redeemed and, if less than all the Outstanding Securities of any series consisting of a single Security are to be redeemed, the principal amount of the particular Security to be redeemed, (4) that on the Redemption Date the Redemption Price will become due and payable upon each such Security to be redeemed and, if applicable, that interest thereon will cease to accrue on and after said date, (5) the place or places where each such Security is to be surrendered for payment of the Redemption Price, (6) if applicable, the conversion price, that the date on which the right to convert the principal of the Securities or the portions thereof to be redeemed will terminate will be the Redemption Date and the place or places where such Securities may be surrendered for conversion, and (7) that the redemption is for a sinking fund, if such is the case. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company and shall be irrevocable. SECTION 1105. DEPOSIT OF REDEMPTION PRICE. On or prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities which are to be redeemed on that date. 65 73 If any Security called for redemption is converted, any money deposited with the Trustee or with a Paying Agent or so segregated and held in trust for the redemption of such Security shall (subject to the right of any Holder of such Security to receive interest as provided in the last paragraph of Section 307) be paid to the Company on Company Request, or if then held by the Company, shall be discharged from such trust. SECTION 1106. SECURITIES PAYABLE ON REDEMPTION DATE. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued interest to the Redemption Date; provided, however, that, unless otherwise specified as contemplated by Section 301, installments of interest whose Stated Maturity is on or prior to the Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 307. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal and any premium shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Security. SECTION 1107. SECURITIES REDEEMED IN PART. Any Security which is to be redeemed only in part shall be surrendered at a Place of Payment therefor (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or its attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities of the same series and of like tenor, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. ARTICLE TWELVE SINKING FUNDS 66 74 SECTION 1201. APPLICABILITY OF ARTICLE. The provisions of this Article shall be applicable to any sinking fund for the retirement of Securities of any series except as otherwise specified as contemplated by Section 301 for such Securities. The minimum amount of any sinking fund payment provided for by the terms of any Securities is herein referred to as a "mandatory sinking fund payment," and any payment in excess of such minimum amount provided for by the terms of such Securities is herein referred to as an "optional sinking fund payment." If provided for by the terms of any Securities, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 1202. Each sinking fund payment shall be applied to the redemption of Securities as provided for by the terms of such Securities. SECTION 1202. SATISFACTION OF SINKING FUND PAYMENTS WITH SECURITIES. The Company (1) may deliver Outstanding Securities of a series (other than any previously called for redemption) and (2) may apply as a credit Securities of a series which have been redeemed either at the election of the Company pursuant to the terms of such Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Securities, in each case in satisfaction of all or any part of any sinking fund payment with respect to any Securities of such series required to be made pursuant to the terms of such Securities as and to the extent provided for by the terms of such Securities; provided that the Securities to be so credited have not been previously so credited. The Securities to be so credited shall be received and credited for such purpose by the Trustee at the Redemption Price, as specified in the Securities so to be redeemed, for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. SECTION 1203. REDEMPTION OF SECURITIES FOR SINKING FUND. Not less than 60 days prior to each sinking fund payment date for any Securities, the Company will deliver to the Trustee an Officers' Certificate specifying the amount of the next ensuing sinking fund payment for such Securities pursuant to the terms of such Securities, the portion thereof, if any, which is to be satisfied by payment of cash and the portion thereof, if any, which is to be satisfied by delivering and crediting Securities pursuant to Section 1202 and will also deliver to the Trustee any Securities to be so delivered. Not less than 30 days prior to each such sinking fund payment date, the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 1103 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 1104. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 1106 and 1107. 67 75 ARTICLE THIRTEEN DEFEASANCE AND COVENANT DEFEASANCE SECTION 1301. COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT DEFEASANCE. The Company may elect, at its option at any time, to have Section 1302 or Section 1303 applied to any Securities or any series of Securities, as the case may be, designated pursuant to Section 301 as being defeasible pursuant to such Section 1302 or 1303, in accordance with any applicable requirements provided pursuant to Section 301 and upon compliance with the conditions set forth below in this Article. Any such election shall be evidenced by a Board Resolution or in another manner specified as contemplated by Section 301 for such Securities. SECTION 1302. DEFEASANCE AND DISCHARGE. Upon the Company's exercise of its option (if any) to have this Section applied to any Securities or any series of Securities, as the case may be, the Company shall be deemed to have been discharged from its obligations with respect to such Securities as provided in this Section on and after the date the conditions set forth in Section 1304 are satisfied (hereinafter called "Defeasance"). For this purpose, such Defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by such Securities and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), subject to the following which shall survive until otherwise terminated or discharged hereunder: (1) the rights of Holders of such Securities to receive, solely from the trust fund described in Section 1304 and as more fully set forth in such Section, payments in respect of the principal of and any premium and interest on such Securities when payments are due, (2) the Company's obligations with respect to such Securities under Sections 304, 305, 306, 1002 and 1003, and, if applicable, Article Fourteen, (3) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (4) this Article. Subject to compliance with this Article, the Company may exercise its option (if any) to have this Section applied to any Securities notwithstanding the prior exercise of its option (if any) to have Section 1303 applied to such Securities. SECTION 1303. COVENANT DEFEASANCE. Upon the Company's exercise of its option (if any) to have this Section applied to any Securities or any series of Securities, as the case may be, (1) the Company shall be released from its obligations under any covenants provided pursuant to Section 301(19), 901(2) or 901(7) for the benefit of the Holders of such Securities and (2) the occurrence of any event specified in Section 501(4) (with respect to any such covenants provided pursuant to Section 301(19), 901(2) or 901(7)), shall be deemed not to be or result in 68 76 an Event of Default, in each case with respect to such Securities as provided in this Section on and after the date the conditions set forth in Section 1304 are satisfied (hereinafter called "Covenant Defeasance"). For this purpose, such Covenant Defeasance means that, with respect to such Securities, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such specified Section (to the extent so specified in the case of Section 501(4)), whether directly or indirectly by reason of any reference elsewhere herein to any such Section or Article or by reason of any reference in any such Section or Article to any other provision herein or in any other document, but the remainder of this Indenture and such Securities shall be unaffected thereby. SECTION 1304. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE. The following shall be the conditions to the application of Section 1302 or Section 1303 to any Securities or any series of Securities, as the case may be: (1) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee which satisfies the requirements contemplated by Section 609 and agrees to comply with the provisions of this Article applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefits of the Holders of such Securities, (A) money in an amount, or (B) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in an amount, or (C) a combination thereof, in each case sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or any such other qualifying trustee) to pay and discharge, the principal of and any premium and interest on such Securities on the respective Stated Maturities, in accordance with the terms of this Indenture and such Securities. As used herein, "U.S. Government Obligation" means (x) any security which is (i) a direct obligation of the United States of America for the payment of which the full faith and credit of the United States of America is pledged or (ii) an obligation of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case (i) or (ii), is not callable or redeemable at the option of the issuer thereof, and (y) any depositary receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as custodian with respect to any U.S. Government Obligation which is specified in Clause (x) above and held by such bank for the account of the holder of such depositary receipt, or with respect to any specific payment of principal of or interest on any U.S. Government Obligation which is so specified and held, provided that (except as required by law) such custodian is not authorized to make any 69 77 deduction from the amount payable to the holder of such depositary receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal or interest evidenced by such depositary receipt. (2) In the event of an election to have Section 1302 apply to any Securities or any series of Securities, as the case may be, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this instrument, there has been a change in the applicable Federal income tax law, in either case (A) or (B) to the effect that, and based thereon such opinion shall confirm that, the Holders of such Securities will not recognize gain or loss for Federal income tax purposes as a result of the deposit, Defeasance and discharge to be effected with respect to such Securities and will be subject to Federal income tax on the same amount, in the same manner and at the same times as would be the case if such deposit, Defeasance and discharge were not to occur. (3) In the event of an election to have Section 1303 apply to any Securities or any series of Securities, as the case may be, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of such Securities will not recognize gain or loss for Federal income tax purposes as a result of the deposit and Covenant Defeasance to be effected with respect to such Securities and will be subject to Federal income tax on the same amount, in the same manner and at the same times as would be the case if such deposit and Covenant Defeasance were not to occur. (4) The Company shall have delivered to the Trustee an Officers' Certificate to the effect that neither such Securities nor any other Securities of the same series, if then listed on any securities exchange, will be delisted as a result of such deposit. (5) No event which is, or after notice or lapse of time or both would become, an Event of Default with respect to such Securities or any other Securities shall have occurred and be continuing at the time of such deposit or, with regard to any such event specified in Sections 501(5) and (6), at any time on or prior to the 90th day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until after such 90th day). (6) Such Defeasance or Covenant Defeasance shall not cause the Trustee to have a conflicting interest within the meaning of the Trust Indenture Act (assuming all Securities are in default within the meaning of such Act). 70 78 (7) Such Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company is a party or by which it is bound. (8) Such Defeasance or Covenant Defeasance shall not result in the trust arising from such deposit constituting an investment company within the meaning of the Investment Company Act unless such trust shall be registered under such Act or exempt from registration thereunder. (9) The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent with respect to such Defeasance or Covenant Defeasance have been complied with. SECTION 1305. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE HELD IN TRUST; MISCELLANEOUS PROVISIONS. Subject to the provisions of the last paragraph of Section 1003, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee or other qualifying trustee (solely for purposes of this Section and Section 1306, the Trustee and any such other trustee are referred to collectively as the "Trustee") pursuant to Section 1304 in respect of any Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any such Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities, of all sums due and to become due thereon in respect of principal and any premium and interest, but money so held in trust need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 1304 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of Outstanding Securities. Anything in this Article to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in Section 1304 with respect to any Securities which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect the Defeasance or Covenant Defeasance, as the case may be, with respect to such Securities. SECTION 1306. REINSTATEMENT. If the Trustee or the Paying Agent is unable to apply any money in accordance with this Article with respect to 71 79 any Securities by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the obligations under this Indenture and such Securities from which the Company has been discharged or released pursuant to Section 1302 or 1303 shall be revived and reinstated as though no deposit had occurred pursuant to this Article with respect to such Securities, until such time as the Trustee or Paying Agent is permitted to apply all money held in trust pursuant to Section 1305 with respect to such Securities in accordance with this Article; provided, however, that if the Company makes any payment of principal of or any premium or interest on any such Security following such reinstatement of its obligations, the Company shall be subrogated to the rights (if any) of the Holders of such Securities to receive such payment from the money so held in trust. ARTICLE FOURTEEN CONVERSION OF SECURITIES SECTION 1401. APPLICABILITY OF ARTICLE. The provisions of this Article shall be applicable to the Securities of any series which are convertible into shares of Common Stock of the Company, and the issuance of such shares of Common Stock upon the conversion of such Securities, except as otherwise specified as contemplated by Section 301 for the Securities of such series. SECTION 1402. EXERCISE OF CONVERSION PRIVILEGE. In order to exercise a conversion privilege, the Holder of a Security of a series with such a privilege shall surrender such Security to the Company at the office or agency maintained for that purpose pursuant to Section 1002, accompanied by a duly executed conversion notice to the Company substantially in the form set forth in Section 206 stating that the Holder elects to convert such Security or a specified portion thereof. Such notice shall also state, if different from the name and address of such Holder, the name or names (with address) in which the certificate or certificates for shares of Common Stock which shall be issuable on such conversion shall be issued. Securities surrendered for conversion shall (if so required by the Company or the Trustee) be duly endorsed by or accompanied by instruments of transfer in forms satisfactory to the Company and the Trustee duly executed by the registered Holder or its attorney duly authorized in writing; and Securities so surrendered for conversion (in whole or in part) during the period from the close of business on any Regular Record Date to the opening of business on the next succeeding Interest Payment Date (excluding Securities or portions thereof called for redemption during the period beginning at the close of business on a Regular Record Date and ending at the opening of business on the first Business Day after the next succeeding Interest Payment Date, or if such Interest Payment Date is not a Business Day, the second such Business Day) shall also be accompanied by 72 80 payment in funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of such Security then being converted, and such interest shall be payable to such registered Holder notwithstanding the conversion of such Security, subject to the provisions of Section 307 relating to the payment of Defaulted Interest by the Company. As promptly as practicable after the receipt of such notice and of any payment required pursuant to a Board Resolution and, subject to Section 303, set forth, or determined in the manner provided, in an Officers' Certificate, or established in one or more indentures supplemental hereto setting forth the terms of such series of Security, and the surrender of such Security in accordance with such reasonable regulations as the Company may prescribe, the Company shall issue and shall deliver, at the office or agency at which such Security is surrendered, to such Holder or on its written order, a certificate or certificates for the number of full shares of Common Stock issuable upon the conversion of such Security (or specified portion thereof), in accordance with the provisions of such Board Resolution, Officers' Certificate or supplemental indenture, and cash as provided therein in respect of any fractional share of such Common Stock otherwise issuable upon such conversion. Such conversion shall be deemed to have been effected immediately prior to the close of business on the date on which such notice and such payment, if required, shall have been received in proper order for conversion by the Company and such Security shall have been surrendered as aforesaid (unless such Holder shall have so surrendered such Security and shall have instructed the Company to effect the conversion on a particular date following such surrender and such Holder shall be entitled to convert such Security on such date, in which case such conversion shall be deemed to be effected immediately prior to the close of business on such date) and at such time the rights of the Holder of such Security as such Security Holder shall cease and the Person or Persons in whose name or names any certificate or certificates for shares of Common Stock of the Company shall be issuable upon such conversion shall be deemed to have become the Holder or Holders of record of the shares represented thereby. Except as set forth above and subject to the final paragraph of Section 307, no payment or adjustment shall be made upon any conversion on account of any interest accrued on the Securities (or any part thereof) surrendered for conversion or on account of any dividends on the Common Stock of the Company issued upon such conversion. In the case of any Security which is converted in part only, upon such conversion the Company shall execute and the Trustee shall authenticate and deliver to or on the order of the Holder thereof, at the expense of the Company, a new Security or Securities of the same series, of authorized denominations, in aggregate principal amount equal to the unconverted portion of such Security. SECTION 1403. NO FRACTIONAL SHARES. No fractional share of Common Stock of the Company shall be issued upon conversions of Securities of any series. If more than one Security shall be surrendered for conversion at one time by the same Holder, the number of full shares which shall be issuable upon conversion shall be computed on the basis of the aggregate principal amount of the Securities (or specified portions thereof to the extent permitted hereby) so surrendered. If, 73 81 except for the provisions of this Section 1403, any Holder of a Security or Securities would be entitled to a fractional share of Common Stock of the Company upon the conversion of such Security or Securities, or specified portions thereof, the Company shall pay to such Holder an amount in cash equal to the current market value of such fractional share computed, (i) if such Common Stock is listed or admitted to unlisted trading privileges on a national securities exchange or market, on the basis of the last reported sale price regular way on such exchange or market on the last trading day prior to the date of conversion upon which such a sale shall have been effected, or (ii) if such Common Stock is not at the time so listed or admitted to unlisted trading privileges on a national securities exchange or market, on the basis of the average of the bid and asked prices of such Common Stock in the over-the-counter market, on the last trading day prior to the date of conversion, as reported by the National Quotation Bureau, Incorporated or similar organization if the National Quotation Bureau, Incorporated is no longer reporting such information, or if not so available, the fair market price as determined by the Board of Directors. For purposes of this Section, "trading day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday other than any day on which the Common Stock is not traded on the Nasdaq National Market, or if the Common Stock is not traded on the Nasdaq National Market, on the principal exchange or market on which the Common Stock is traded or quoted. SECTION 1404. ADJUSTMENT OF CONVERSION PRICE. The conversion price of Securities of any series that is convertible into Common Stock of the Company shall be adjusted for any stock dividends, stock splits, reclassifications, combinations or similar transactions in accordance with the terms of the supplemental indenture or Board Resolutions setting forth the terms of the Securities of such series. Whenever the conversion price is adjusted, the Company shall compute the adjusted conversion price in accordance with terms of the applicable Board Resolution or supplemental indenture and shall prepare an Officers' Certificate setting forth the adjusted conversion price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed at each office or agency maintained for the purpose of conversion of Securities pursuant to Section 1002 and, if different, with the Trustee. The Company shall forthwith cause a notice setting forth the adjusted conversion price to be mailed, first class postage prepaid, to each Holder of Securities of such series at its address appearing on the Security Register and to any conversion agent other than the Trustee. Unless and until a Responsible Officer of the Trustee shall have received an Officers' Certificate setting forth an adjustment of the conversion price, the Trustee may assume that no such adjustment has been made and that the last conversion price of which it has knowledge remains in effect. SECTION 1405. NOTICE OF CERTAIN CORPORATE ACTIONS. In case: 74 82 (1) the Company shall declare a dividend (or any other distribution) on its Common Stock payable otherwise than in cash out of its retained earnings (other than a dividend for which approval of any shareholders of the Company is required) that would require an adjustment pursuant to Section 1404; or (2) the Company shall authorize the granting to all or substantially all of the holders of its Common Stock of rights, options or warrants to subscribe for or purchase any shares of capital stock of any class or of any other rights (other than any such grant for which approval of any shareholders of the Company is required); or (3) of any reclassification of the Common Stock of the Company (other than a subdivision or combination of its outstanding shares of Common Stock, or of any consolidation, merger or share exchange to which the Company is a party and for which approval of any shareholders of the Company is required), or of the sale of all or substantially all of the assets of the Company; or (4) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; then the Company shall cause to be filed with the Trustee, and shall cause to be mailed to all Holders at their last addresses as they shall appear in the Security Register, at least 20 days (or 10 days in any case specified in Clause (1) or (2) above) prior to the applicable record date hereinafter specified, a notice in the form of an Officers' Certificate stating (i) the date on which a record is to be taken for the purpose of such dividend, distribution, rights, options or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights, options or warrants are to be determined, or (ii) the date on which such reclassification, consolidation, merger, share exchange, sale, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, share exchange, sale, dissolution, liquidation or winding up. If at any time the Trustee shall not be the conversion agent, a copy of such notice shall also forthwith be filed by the Company with the Trustee. Unless and until a Responsible Officer of the Trustee shall have received such Officers' Certificate, the Trustee shall not be charged with knowledge of any event described in this Section 1405. SECTION 1406. RESERVATION OF SHARES OF COMMON STOCK. The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock, for the purpose of effecting the conversion of Securities, the full number of shares of Common Stock of the 75 83 Company then issuable upon the conversion of all outstanding Securities of any series that has conversion rights. SECTION 1407. PAYMENT OF CERTAIN TAXES UPON CONVERSION. Except as provided in the next sentence, the Company will pay any and all taxes that may be payable in respect of the issue or delivery of shares of its Common Stock on conversion of Securities pursuant hereto. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of its Common Stock in a name other than that of the Holder of the Security or Securities to be converted, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Company the amount of any such tax, or has established, to the satisfaction of the Company, that such tax has been paid. SECTION 1408. NONASSESSABILITY. The Company covenants that all shares of its Common Stock which may be issued upon conversion of Securities will upon issue in accordance with the terms hereof be duly and validly issued and fully paid and nonassessable. SECTION 1409. PROVISION IN CASE OF CONSOLIDATION, MERGER OR SALE OF ASSETS. In case of any consolidation or merger of the Company with or into any other Person, any merger of another Person with or into the Company (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Company) or any conveyance, sale, transfer or lease of all or substantially all of the assets of the Company, the Person formed by such consolidation or resulting from such merger or which acquires such assets, as the case may be, shall execute and deliver to the Trustee a supplemental indenture providing that the Holder of each Security of a series then Outstanding that is convertible into Common Stock of the Company shall have the right thereafter (which right shall be the exclusive conversion right thereafter available to said Holder), during the period such Security shall be convertible, to convert such Security only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease by a holder of the number of shares of Common Stock of the Company into which such Security might have been converted immediately prior to such consolidation, merger, conveyance, sale, transfer or lease, assuming such holder of Common Stock of the Company (i) is not a Person with which the Company consolidated or merged with or into or which merged into or with the Company or to which such conveyance, sale, transfer or lease was made, as the case may be (a "Constituent Person"), or an Affiliate of a Constituent Person and (ii) failed to exercise his rights of election, if any, as to the kind or amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, 76 84 transfer or lease (provided that if the kind or amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer, or lease is not the same for each share of Common Stock of the Company held immediately prior to such consolidation, merger, conveyance, sale, transfer or lease by others than a Constituent Person or an Affiliate thereof and in respect of which such rights of election shall not have been exercised ("Non-electing Share"), then for the purpose of this Section 1409 the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease by the holders of each Non-electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Non-electing Shares). Such supplemental indenture shall provide for adjustments which, for events subsequent to the effective date of such supplemental indenture, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article or in accordance with the terms of the supplemental indenture or Board Resolutions setting forth the terms of such adjustments. The above provisions of this Section 1409 shall similarly apply to successive consolidations, mergers, conveyances, sales, transfers or leases. Notice of the execution of such a supplemental indenture shall be given by the Company to the Holder of each Security of a series that is convertible into Common Stock of the Company as provided in Section 106 promptly upon such execution. Neither the Trustee nor any conversion agent, if any, shall be under any responsibility to determine the correctness of any provisions contained in any such supplemental indenture relating either to the kind or amount of shares of stock or other securities or property or cash receivable by Holders of Securities of a series convertible into Common Stock of the Company upon the conversion of their Securities after any such consolidation, merger, conveyance, transfer, sale or lease or to any such adjustment, but may accept as conclusive evidence of the correctness of any such provisions, and shall be protected in relying upon, an Opinion of Counsel with respect thereto, which the Company shall cause to be furnished to the Trustee upon request. SECTION 1410. DUTIES OF TRUSTEE REGARDING CONVERSION. Neither the Trustee nor any conversion agent shall at any time be under any duty or responsibility to any Holder of Securities of any series that is convertible into Common Stock of the Company to determine whether any facts exist which may require any adjustment of the conversion price, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed, whether herein or in any supplemental indenture, any resolutions of the Board of Directors or written instrument executed by one or more officers of the Company provided to be employed in making the same. Neither the Trustee nor any conversion agent shall be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock of the Company, or of any securities or property, which may at any time be issued or delivered upon the conversion of any Securities and neither the Trustee nor any conversion agent makes any representation with respect thereto. Subject to the provisions of Section 77 85 601, neither the Trustee nor any conversion agent shall be responsible for any failure of the Company to issue, transfer or deliver any shares of its Common Stock or stock certificates or other securities or property upon the surrender of any Security for the purpose of conversion or to comply with any of the covenants of the Company contained in this Article Fourteen or in the applicable supplemental indenture, resolutions of the Board of Directors or written instrument executed by one or more duly authorized officers of the Company. SECTION 1411. REPAYMENT OF CERTAIN FUNDS UPON CONVERSION. Any funds which at any time shall have been deposited by the Company or on its behalf with the Trustee or any other paying agent for the purpose of paying the principal of, and premium, if any, and interest, if any, on any of the Securities (including, but not limited to, funds deposited for the sinking fund referred to in Article Twelve hereof and funds deposited pursuant to Article Thirteen hereof) and which shall not be required for such purposes because of the conversion of such Securities as provided in this Article Fourteen shall after such conversion be repaid to the Company by the Trustee upon the Company's written request. ARTICLE FIFTEEN COLLATERAL SECTION 1501. RELEASES OF COLLATERAL. In case this Indenture or any indenture supplemental hereto shall provide for the release of any property from the Lien hereof or thereof in favor of the Holders of Securities of any series the Trustee shall release the same from the Lien of this Indenture or such indenture supplemental hereto upon receipt by the Trustee of an application of the Company requesting such release and describing the Property to be so released, together with: (a) a Board Resolution requesting such release and authorizing an application to the Trustee therefor; (b) an Officers' Certificate, dated not more than 30 days prior to the date of the application for such release, stating in substance as follows: (i) the Company has sold or disposed of or has contracted to sell or dispose of the Property so requested to be released or the Company is otherwise entitled to the release of such Property, and in any such case identifying the section or sections of this Indenture or any indenture supplemental hereto under which the Company is entitled to the release of such Property; 78 86 (ii) that, in the opinion of the signer, the security afforded by this Indenture and such indenture supplemental hereto will not be impaired by such release in contravention of the provisions hereof and thereof, and, in the case of Property to be disposed of by the Company, unless the Property (or comparable Property) is to be leased or rented by the Company, the Property to be released is not necessary for the efficient operation of its remaining Property that is used or useful in connection with its business; (iii) in case it shall be stated pursuant to clause (b)(i) that such Property is to be sold or disposed of, either (1) that the Company has disposed of or will dispose of, the Property so to be released for a consideration representing, in the opinion of the signers, its Fair Market Value, which consideration may consist of any one or more of the following: (A) cash, (B) obligations secured by a purchase money Lien upon the Property so to be released, and (C) any other Property that, upon acquisition thereof by the Company, would be subject to the Lien of this Indenture, and such indenture supplemental hereto subject to no Lien other than Liens permitted hereby and thereby, all of such consideration to be briefly described in the certificate, or (2) that the Property so to be released has been or is to be disposed of without consideration (or for consideration less than Fair Market Value), in which event such certificate shall state the reason for its disposition at less than Fair Market Value; (iv) that no Default or Event of Default exists; (v) the Fair Market Value, in the opinion of the signers, of the Property to be released; provided, however, that it shall not be necessary under this clause (v) to state the Fair Market Value of any Property whose Fair Market Value is certified in a certificate of an Independent Appraiser or Independent Financial Advisor under subdivision (c) of this Section; (vi) that all conditions precedent provided in this Indenture and any indenture supplemental hereto relating to the release of the Property in question have been complied with; and (vii) whether the aggregate of the Fair Market Value of the Property to be released and the Fair Market Value of all other Property released since the commencement of the then current calendar year (as previously certified to the Trustee in connection with releases) is 10% or more of the aggregate principal amount of all Securities of such series then outstanding and whether the Fair Market Value of the Property to be released is at least $25,000 and at least 1% of the aggregate principal amount of all Securities of such series at the time outstanding and if all the facts specified in this clause (vii) are present, that a certificate of an Independent Appraiser or 79 87 Independent Financial Advisor as to the Fair Market Value of the Property to be released will be furnished under subdivision (c) of this Section; (c) in case it shall be stated pursuant to clause (b)(vii) that the same shall be furnished, a certificate of an Independent Appraiser, or if such Property consists of securities being pledged as collateral, a certificate of an Independent Financial Advisor, dated not more that 30 days prior to the application for such release, stating: (1) the Fair Market Value, in the opinion of the signer, of the Property to be released; and (2) that such release, in the opinion of the signer, will not impair the security under this Indenture and any indenture supplemental hereto in contravention of the terms hereof and thereof; (d) any cash or obligations received or to be received as consideration for any Property so to be released or, if the Property so to be released is subject to a Prior Lien, a certificate of the trustee, mortgagee or other holder of such Prior Lien that it has received such money or obligations and has been irrevocably authorized by the Company to pay over to the Trustee any balance of such money or obligations, remaining after the discharge of such Prior Lien; and, if any Property other than cash or obligations is included in the consideration for any Property so to be released, such instruments of conveyance, assignment and transfer, if any, as may be necessary, in the Opinion of Counsel hereinafter referred to, to subject to the Lien of this Indenture and any such indenture supplemental hereto all the right, title and interest of the Company in and to such Property; (e) in case the consideration for a proposed release includes Property other than cash or obligations, a certificate of an Appraiser, or if such Property consists of securities being pledged as collateral, a certificate of a Financial Advisor, stating, in the opinion of the signor, the Fair Market Value thereof; and the Appraiser or the Financial Advisor shall be an Independent Appraiser or an Independent Financial Advisor if (1) within six months prior to the date of acquisition by the Company, such Property has been used or operated, by a Person or Persons other than the Company, in a business similar to that in which it has been or is to be used or operated by the Company, and (2) the Fair Market Value of such Property as set forth in the certificate required by this subdivision (e) is not less than $25,000 and not less than 1% of the aggregate principal amount of the Securities of such series outstanding; and 80 88 (f) an Opinion of Counsel substantially to the effect (i) either (1) that such instruments of conveyance, assignment and transfer as have been or are then delivered to the Trustee are sufficient to subject to the Lien of this Indenture and any such indenture supplemental hereto all the right, title and interest of the Company in and to any Property, other than cash and obligations, that is included in the consideration for the Property so to be released, or (2) that no instruments of conveyance, assignment or transfer are necessary for such purpose, (ii) that the Company has corporate power to own all Property included in the consideration for such release, (iii) in case any part of the money or obligations referred to in subdivision (d) of this Section 15.01 has been deposited with a trustee, mortgagee or other holder of the Lien, that such trustee, mortgagee or other holder of the Lien (specifying the trustee, mortgagee or other holder) is entitled to receive the same, and (iv) that all conditions precedent herein provided and provided in any indenture supplemental hereto relating to the release of the Property in question have been complied with. All cash received by the Trustee pursuant to the provisions of this Section shall be held by the Trustee in trust and as collateral as provided in this Indenture and any such indenture supplemental hereto. 81 89 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed all as of the day and year first above written. AXYS PHARMACEUTICALS, INC. By: /s/ William J. Newell ---------------------------------------- Title: Senior Vice President U.S. BANK TRUST NATIONAL ASSOCIATION, AS TRUSTEE By: /s/ Cindy Brown ---------------------------------------- Title: Assistant Vice President 82 EX-4.2 4 f65920ex4-2.txt SUPPLEMENTAL INDENTURE 1 EXHIBIT 4.2 AXYS PHARMACEUTICALS, INC. TO U.S. BANK TRUST NATIONAL ASSOCIATION, AS TRUSTEE ----------------------- FIRST SUPPLEMENTAL INDENTURE Dated as of September 22, 2000 $26,000,000 8% Senior Secured Convertible Notes due 2004 ----------------------- Supplemental to Indenture Dated as of September 22, 2000 2 AXYS PHARMACEUTICALS, INC. TO U.S. BANK TRUST NATIONAL ASSOCIATION, AS TRUSTEE FIRST SUPPLEMENTAL INDENTURE 8% Senior Secured Convertible Notes due 2004 TABLE OF CONTENTS
PAGE ARTICLE ONE DEFINITIONS................................................................2 Section 1.01. Definitions.........................................................2 ARTICLE TWO FORM OF NOTES..............................................................25 Section 2.01. Form of Notes.......................................................25 Section 2.02. Form of Face of Notes...............................................25 Section 2.03. Form of Reverse of Notes............................................27 Section 2.04. Form of Conversion Notice...........................................30 ARTICLE THREE THE NOTES..................................................................31 Section 3.01. Establishment of Series; Amount.....................................31 Section 3.02. Issuance of Common Stock in Lieu of Cash Interest...................32 Section 3.03. Defeasance..........................................................34 ARTICLE FOUR REMEDIES...................................................................35 Section 4.01. Events of Default...................................................35 ARTICLE FIVE COVENANTS..................................................................37 Section 5.01. Limitations on Certain Indebtedness.................................37 Section 5.02. Investment Company Act..............................................37 Section 5.03. Limitations on Asset Sales, Liquidations, Etc.; Certain Matters.....37 Section 5.04. Limitations on Liens................................................38 Section 5.05. Limitation on Certain Issuances of Securities.......................38 Section 5.06. Certain Obligations.................................................39 Section 5.07. Transactions with Affiliates........................................39 Section 5.08. Notice of Defaults..................................................40 Section 5.09. Limitations on Dividends, Other Share Payments and Investments in Unrestricted Subsidiaries.................................40 Section 5.10. Further Documentation; Pledge of Instruments and Chattel Paper......41
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Section 5.11. Indemnification.....................................................41 Section 5.12. Maintenance of Records..............................................42 Section 5.13. Limitation on Liens on Collateral and Akkadix Shares................42 Section 5.14. Limitations on Dispositions of Collateral and Akkadix Shares........43 Section 5.15. Performance of Contracts and Agreements Giving Rise to Accounts.....43 Section 5.16. Further Identification of Collateral................................43 Section 5.17. Notices.............................................................43 Section 5.18. Changes in Locations, Name, Etc.....................................43 Section 5.19. Subsidiaries........................................................43 Section 5.20. Waiver..............................................................44 Section 5.21. Additional Collateral in Respect of Pledged Securities..............44 ARTICLE SIX PLEDGE AND SECURITY INTEREST; COLLATERAL...................................45 Section 6.01. Grant of Security Interest and Pledge; Collateral Assignment........45 Section 6.02. Rights of Trustee; Limitations on Trustee's Obligations.............45 Section 6.03. Trustee's Powers Respecting the Collateral..........................46 Section 6.04. Performance by Trustee of Company's Obligations.....................48 Section 6.05. Remedies in General.................................................48 Section 6.06. Remedies With Respect to Pledged Securities.........................49 Section 6.07. Limitation on Duties Regarding Preservation of Collateral...........50 Section 6.08. Powers Coupled with an Interest.....................................50 Section 6.09. Termination of Security Interest Release of Collateral..............50 Section 6.10. Concerning the Trustee..............................................51 Section 6.11. Substitution of Collateral..........................................51 ARTICLE SEVEN REPURCHASE UPON A REPURCHASE EVENT.........................................52 Section 7.01. Repurchase Right....................................................52 Section 7.02. Notices; Method of Exercising Repurchase Rights, Etc................52 Section 7.03. Other...............................................................53 Section 7.04. Form of Company Notice..............................................54 Section 7.05. Form of Holder Notice...............................................55 ARTICLE EIGHT CONVERSION.................................................................56 Section 8.01. Right to Convert....................................................56 Section 8.02. Exercise of Conversion Privilege; Issuance of Common Stock on Conversion...................................................57 Section 8.03. Adjustment of Conversion Price......................................59 Section 8.04. Effect of Reclassification, Consolidation, Merger or Sale...........67
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Section 8.05. Reservation of Shares; Shares to Be Fully Paid; Listing of Common Stock.................................................68 Section 8.06. Notice to Holders Prior to Certain Actions..........................69 Section 8.07. Original Indenture..................................................70 ARTICLE NINE SUNDRY PROVISIONS..........................................................70 Section 9.01. Representations, Warranties and Covenants of the Company............70 Section 9.02. Trustee Not Responsible for Recitals................................70 Section 9.03. Effect of Headings and Table of Contents............................70 Section 9.04. Successors and Assigns..............................................70 Section 9.05. Separability Clause.................................................70 Section 9.06. Benefits of Supplemental Indenture..................................70 Section 9.07. Governing Law.......................................................71 Section 9.08. Counterparts........................................................71 Section 9.09. Enforceable Obligation..............................................71 Section 9.10. Certain Performance.................................................71 Section 9.11. Amendments..........................................................71 Section 9.12. Reference to and Effect on Original Indenture.......................71 Section 9.13. Notices.............................................................71 Section 9.14. Payment of Notes on Repurchase; Deposit of Repurchase Price, Etc..........................................................73
SCHEDULE I Certain Permitted Indebtedness SCHEDULE II Certain Pledged Securities SCHEDULE III Subordination of Indebtedness SCHEDULE IV Form of Agreement Relating to the DPI Contracts 5 AXYS PHARMACEUTICALS, INC. TO U.S. BANK TRUST NATIONAL ASSOCIATION, AS TRUSTEE FIRST SUPPLEMENTAL INDENTURE 8% Senior Secured Convertible Notes due 2004 FIRST SUPPLEMENTAL INDENTURE, dated as of September 22, 2000, between AXYS PHARMACEUTICALS, INC., a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company"), having its principal executive office at 180 Kimball Way, South San Francisco, California 94080, and U.S. BANK TRUST NATIONAL ASSOCIATION, a national banking association duly organized and existing under the laws of the United States of America, as Trustee under the Original Indenture mentioned below (herein called the "Trustee"). RECITALS OF THE COMPANY The Company and the Trustee have heretofore entered into an Indenture, dated as of September 22, 2000 (hereinafter called the "Original Indenture"), to provide, among other things, for the issuance from time to time of Securities, unlimited as to principal amount, all as provided in the Original Indenture. The Securities authorized hereby are the first series of Securities to be authorized under the Original Indenture. Section 901 of the Original Indenture provides that, without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time or from time to time, may enter into one or more indentures supplemental to the Original Indenture, in form satisfactory to the Trustee, for the purpose of, among other things, establishing the form or terms of Securities of any series as permitted by Sections 201 and 301 of the Original Indenture, to add to, change or eliminate any provisions of the Original Indenture in respect of any one or more series of Securities, to secure the Securities or to make provision with respect to the conversion rights of Holders. The Company desires to issue from time to time its 8% Senior Secured Convertible Notes due 2004, and to add to the provisions of the Original Indenture certain provisions with respect to such Notes. The entry into this Supplemental Indenture by the parties hereto is in all respects authorized by the provisions of the Original Indenture. 6 All things necessary to make this Supplemental Indenture a valid agreement of the Company in accordance with its terms have been done. NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Notes by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Notes, without preference, priority or distinction of any of the Notes over any of the others by reason of priority in time of issuance or otherwise, except as otherwise provided in the Original Indenture or this Supplemental Indenture, as follows: ARTICLE ONE DEFINITIONS SECTION 1.01. DEFINITIONS. (a) For all purposes of this Supplemental Indenture, except as otherwise herein expressly provided or unless the context otherwise requires: (1) The terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; (2) terms used herein in capitalized form and defined in the Original Indenture and not otherwise defined herein shall have the respective meanings specified in the Original Indenture; (3) the words "herein", "hereof" and "hereunder" and other words of similar import used in this Supplemental Indenture refer to this Supplemental Indenture as a whole and not to any particular Article, Section or other subdivision of this Supplemental Indenture; (4) the terms defined in the introductory paragraph hereof and in the first paragraph of the Recitals of the Company herein shall have the respective meanings specified therein; (5) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles, and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or permitted 2 7 hereunder shall mean such accounting principles as are generally accepted in the United States at the date of such computation; and (6) The following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Accounts" means all rights to payment for goods sold or leased or for services rendered, whether or not such rights have been earned by performance. "Affiliate" means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the subject Person. For purposes of this definition, "control" (including, with correlative meaning, the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise. "Akkadix" means Akkadix Corporation, a California corporation, and its successors. "Akkadix Shares" means the 3,000,000 shares of Series A Preferred Stock, $.001 par value per share, of Akkadix registered in the name of the Company, any other shares of capital stock of Akkadix owned by the Company from time to time, and any shares of capital stock of Akkadix into or for which such shares shall be converted, exchanged, changed or reclassified. "AMEX" means the American Stock Exchange, Inc. "Applicable Rate" means 8 percent per annum; provided, however, that if an Event of Default shall have occurred, then the Applicable Rate shall be increased to the Default Rate during the period from the date of such Event of Default until the date no Event of Default is continuing (or in either such case such lesser rate as shall be the highest rate permitted by applicable law). "Board of Directors" means the Board of Directors of the Company. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors, or duly authorized committee thereof (to the extent permitted by applicable law), and to be in full force and effect on the date of such certification, and delivered to the Holder. 3 8 "Business Day" means any day other than a Saturday, Sunday or a day on which commercial banks in The City of New York or the State of California are authorized or required by law or executive order to remain closed. "California UCC" means the Uniform Commercial Code as in effect from time to time in the State of California. "Cash, Cash Equivalents and Eligible Investment Balances" of any Person on any date shall be determined from such Person's books maintained in accordance with Generally Accepted Accounting Principles, and means (without duplication) the sum of (1) the cash accrued by such Person and its subsidiaries on a consolidated basis on such date and available for use by such Person and its subsidiaries on such date, (2) all assets which would, on a consolidated balance sheet of such Person and its subsidiaries prepared as of such date in accordance with Generally Accepted Accounting Principles, be classified as cash equivalents and (3) all Eligible Marketable Securities, in the amount thereof that would be shown on such balance sheet. "Chattel Paper" shall have the meaning assigned to such term under the Code. "Code" means the California UCC or the New York UCC, as applicable. "Collateral" means each of the following, whether now existing or hereafter arising: (1) the Pledged Securities; (2) all of the Company's right, title and interest in and to all Contracts relating to any of the Pledged Securities, including, without limitation, the DPI Contracts; (3) all General Intangibles of the Company, whether now existing or hereafter arising, in any way relating to or arising from items (1) through (2) immediately above; (4) all cash, securities, rights and other property at any time or from time to time received, receivable or otherwise distributed in respect of items (1) through (3) immediately above; (5) all insurance policies to the extent they relate to items (1) through (4) immediately above; 4 9 (6) all books, ledgers, books of account, records, writings, databases, information and other property relating to, used or useful in connection with, evidencing, embodying, incorporating, or referring to any of the foregoing in this definition; (7) to the extent not otherwise included, all Proceeds, products, rents, issues, profits and returns of and from any and all of the foregoing in this definition, which Proceeds may be in the form of Accounts, Chattel Paper, Inventory or otherwise; and (8) any funds or Government Obligations deposited by the Company with the Trustee pursuant to Article Thirteen of the Original Indenture or Section 6.11. "Collateral Substitution" means the substitution by the Company of Collateral pursuant to Section 6.11(a), and which will occur on the date that the Company is entitled, in accordance with Section 6.11(a), to the release of all Collateral other than the Collateral so deposited by the Company with the Trustee pursuant to Section 6.11(a). "Collateral Value" as of any date means the sum of the following: (1) all cash held by the Trustee on such date that constitutes Collateral; and (2) the Fair Market Value, as set forth in a certificate signed by a Financial Advisor and delivered to the Trustee, of all Pledged Securities held by the Trustee on such date that constitute Collateral, taking into account any restrictions on sale of such Pledged Securities other than the restrictions arising from the Security Interest; provided, however, that only such items of Collateral listed in the preceding clauses (1) and (2) as to which the Trustee has a first priority perfected security interest for the benefit of the Holders shall be included in the calculation of Collateral Value. "Common Stock" includes the Company's Common Stock, $.001 par value, and the related Preferred Share Purchase Rights (and any similar rights issued with respect to the Common Stock) as authorized on the date hereof, and any other securities into which or for which the Common Stock or the related Preferred Share Purchase Rights (and any similar rights issued with respect to the Common Stock) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise and any stock (other than Common Stock) and other securities of the Company or any other Person which the Holders at any time shall be 5 10 entitled to receive, or shall have received, on the conversion of the Notes, in lieu of or in addition to Common Stock. "Common Stock Equivalent" means any warrant, option, subscription or purchase right with respect to shares of Common Stock, any security convertible into, exchangeable for, or otherwise entitling the holder thereof to acquire, shares of Common Stock or any warrant, option, subscription or purchase right with respect to any such convertible, exchangeable or other security. "Company" shall have the meaning provided in the first paragraph of this Supplemental Indenture. "Company DPI Agreements" means, collectively, all agreements between or among the Company and DPI, other than the DPI Contracts, whether existing at the date of this Supplemental Indenture or entered into thereafter. "Company Certificate" means a certificate of the Company signed by an Officer. "Company Notice" means a Company Notice in the form set forth in Section 7.04 of this Supplemental Indenture. "Computation Date" shall have the meaning provided in Section 5.09. "Consolidated Net Current Assets" means the Net Current Assets of the Company and its Restricted Subsidiaries consolidated in accordance with Generally Accepted Accounting Principles. "Contracts" shall have the meaning assigned to such term under the Code. "Conversion Date" means the date on which a Conversion Notice is given in accordance with Section 8.02(a). "Conversion Notice" means a duly executed Notice of Conversion of 8% Senior Secured Convertible Note due 2004 substantially in the form set forth in Section 2.04 of this Supplemental Indenture. "Conversion Price" means $7.06, subject to adjustment as provided in Section 8.03. "Credit Agreement" means that certain Credit Agreement, dated as of July 26, 1999, as amended, by and between the Company and Foothill Capital Corporation, providing for up to $30 million of revolving credit borrowings, including any related 6 11 notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and as amended, modified, renewed, refunded, replaced or refinanced from time to time without increasing the principal amount of borrowings thereunder and in compliance with the requirements of this Supplemental Indenture. "Current Market Price" shall mean the arithmetic average of the daily Market Prices per share of Common Stock for the ten consecutive Trading Days immediately prior to the date in question; provided, however, that (1) if the "ex" date (as hereinafter defined) for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 8.03(a), (b), (c), (d), (e), (f), or (g) occurs during such ten consecutive Trading Days, the Market Price for each Trading Day prior to the "ex" date for such other event shall be adjusted by multiplying such Market Price by the same fraction by which the Conversion Price is so required to be adjusted as a result of such other event, (2) if the "ex" date for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 8.03(a), (b), (c), (d), (e), (f), or (g) occurs on or after the "ex" date for the issuance or distribution requiring such computation and prior to the day in question, the Market Price for each Trading Day on and after the "ex" date for such other event shall be adjusted by multiplying such Market Price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event, and (3) if the "ex" date for the issuance or distribution requiring such computation is prior to the day in question, after taking into account any adjustment required pursuant to clause (1) or (2) of this proviso, the Market Price for each Trading Day on or after such "ex" date shall be adjusted by adding thereto the amount of any cash and the Fair Market Value (as determined by the Board of Directors in a manner consistent with any determination of such value for purposes of Section 8.03(d) or (f), whose determination shall be conclusive and described in a Board Resolution) of the evidences of indebtedness, shares of capital stock or assets being distributed applicable to one share of Common Stock as of the close of business on the day before such "ex" date. For purposes of any computation under Section 8.03(f), the Current Market Price of the Common Stock on any date shall be deemed to be the arithmetic average of the daily Market Prices per share of Common Stock for such day and the next two succeeding Trading Days; provided, however, that if the "ex" date for any event (other than the Tender Offer requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 8.03(a), (b), (c), (d), (e), (f) or (g), occurs on or after the Expiration Time for the Tender Offer requiring such computation and prior to the day in question, the Market Price for each Trading Day on and after the "ex" date for such other event shall be adjusted by multiplying such Market Price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event. For purposes of this paragraph, the term "ex" date, (1) when used with respect to any issuance or distribution, means the first date on which the Common Stock trades, regular way, on the relevant exchange or in the relevant market from 7 12 which the Market Price was obtained without the right to receive such issuance or distribution, (2) when used with respect to any subdivision or combination of shares of Common Stock, means the first date on which the Common Stock trades, regular way, on such exchange or in such market after the time at which such subdivision or combination becomes effective, and (3) when used with respect to any Tender Offer means the first date on which the Common Stock trades, regular way, on such exchange or in such market after the Expiration Time of such Tender Offer. Notwithstanding the foregoing, whenever successive adjustments to the Conversion Price are called for pursuant to Section 8.03, such adjustments shall be made to the Current Market Price as may be necessary or appropriate to effectuate the intent of Section 8.03 and to avoid unjust or inequitable results as determined in good faith by the Board of Directors. "Default" means any event that is, or with the passage of time or the giving of notice or both would become, an Event of Default. "Default Interest" shall have the meaning provided in the first paragraph of the Note. "Default Rate" means 15 percent per annum (or such lesser rate equal to the highest rate permitted by applicable law). "Depositary" means The Depository Trust Company. "Documents" shall have the meaning assigned to such term under the Code. "DPI" means Discovery Partners International, Inc., a Delaware corporation, and its successors. "DPI Contracts" means the Standstill Agreement made as of April 28, 2000 by and between DPI and the Company; and the DPI Investors' Rights Agreement. "DPI Merger Agreement" means the Agreement and Plan of Merger, dated as of April 11, 2000, by and among DPI, DPII Newco, LLC, a Delaware limited liability company and a wholly-owned subsidiary of DPI, Axys Advanced Technologies, Inc., a Delaware corporation, and the Company, as in effect of the date of this Supplemental Indenture. "DPI Investors' Rights Agreement" means the Second Amended and Restated Investors' Rights Agreement made as of April 28, 2000 by and between DPI and the Investors listed on Schedule A thereto, including the Company, as amended by Amendment No. 1 to Second Amended and Restated Investors' Rights Agreement 8 13 dated as of June 30, 2000 by and between DPI and the Investors parties thereto, including the Company. "Eligible Marketable Securities" of any Person on any date means the amount of marketable securities which would be reflected as investments that are current assets on a consolidated balance sheet of such Person and its subsidiaries prepared as of such date in accordance with Generally Accepted Accounting Principles on a basis consistent with the most recently published audited consolidated balance sheet of such Person and its subsidiaries at the time of such determination. "Event of Default" shall have the meaning provided in Section 4.01. "Excluded Transaction" means a consolidation or merger of the Company or any Subsidiary with or into another entity where all of the following requirements are met: (a) the stockholders of the Company immediately prior to such transaction collectively own at least 40% of the outstanding voting securities of the surviving entity of such consolidation or merger (or of the Company, in the case of a consolidation or merger of a Subsidiary in which the Company is not a constituent corporation in such consolidation or merger) immediately following such transaction; (b) such other entity and its Affiliates are principally engaged in businesses of the same general types as the Company and the Subsidiaries; (c) the ratio of pro forma combined Net Cash, Cash Equivalents and Eligible Investment Balances immediately prior to consummation of such consolidation or merger to the pro forma combined Quarterly Cash Requirements immediately prior to consummation of such consolidation or merger, in each such case of the surviving entity of such consolidation or merger (or of the Company, in the case of a consolidation or merger of a Subsidiary in which the Company is not a constituent corporation in such consolidation or merger) shall not be less than the ratio of the Company's Net Cash, Cash Equivalents and Eligible Investment Balances to the Company's Quarterly Cash Requirements, in each such case immediately prior to consummation of such consolidation or merger; and (d) the Board of Directors shall have determined prior to consummation of such consolidation or merger, as evidenced by a Board Resolution, that consummation of such consolidation or merger will not adversely affect the ability of the Company to pay and perform its obligations to the Holders under the Transaction Documents. 9 14 Any such consolidation or merger shall be an Excluded Transaction only if the Company shall have delivered to the Trustee at least ten days prior to consummation of such consolidation or merger an Officers' Certificate signed by the Company's Chief Executive Officer or Chief Financial Officer setting forth in reasonable detail the facts showing that such consolidation or merger is an Excluded Transaction. "Expiration Time" shall have the meaning provided in Section 8.03(f). "Fundamental Change" means (a) Any consolidation or merger of the Company or any Subsidiary with or into another entity (other than a consolidation or merger of a Subsidiary into the Company or a wholly-owned Subsidiary and other than an Excluded Transaction) where the stockholders of the Company immediately prior to such transaction do not collectively own at least 51% of the outstanding voting securities of the surviving entity of such consolidation or merger (or of the Company, in the case of a consolidation or merger of a Subsidiary in which the Company is not a constituent corporation in such consolidation or merger) immediately following such transaction; or the sale of all or substantially all of the assets of the Company and the Subsidiaries in a single transaction or a series of related transactions; or (b) The occurrence of any transaction or event in connection with which all or substantially all the Common Stock shall be exchanged for, converted into, acquired for or constitute the right to receive consideration (whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or otherwise) which is not all or substantially all common stock which is (or will, upon consummation of or immediately following such transaction or event, will be) listed on the NYSE or the AMEX or approved for quotation on Nasdaq or any similar United States system of automated dissemination of transaction reporting of securities prices; or (c) The acquisition by a Person or entity or group of Persons or entities acting in concert as a partnership, limited partnership, syndicate or group, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases or otherwise, of beneficial ownership of securities of the Company representing 50% or more of the combined voting power of the outstanding voting securities of the Company ordinarily (and apart from rights accruing in special circumstances) having the right to vote in the election of directors other than pursuant to a Negotiated Transaction. 10 15 "General Intangibles" shall have the meaning assigned to such term under the Code. "Generally Accepted Accounting Principles" for any Person means the generally accepted accounting principles and practices applied by such Person from time to time in the preparation of its audited financial statements. "Government Obligations" means direct obligations of, or obligations the timely payment of the principal of and the interest on which are unconditionally guaranteed by, the United States of America and which are not, by their terms, callable. "Hedging Obligations" means, with respect to any specified Person, the obligations of such Person under: (1) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements; and (2) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. "Holder Notice" means a Holder Notice in the form set forth in Section 7.05 of this Supplemental Indenture. "Indebtedness" as used in reference to any Person means all indebtedness of such Person for borrowed money, the deferred purchase price of property, goods and services and obligations under leases which are required to be capitalized in accordance with Generally Accepted Accounting Principles and shall include all such indebtedness guaranteed in any manner by such Person or in effect guaranteed by such Person through a contingent agreement to purchase and all indebtedness for the payment or purchase of which such Person has contingently agreed to advance or supply funds and all indebtedness secured by mortgage or other Lien upon property owned by such Person, although such Person has not assumed or become liable for the payment of such indebtedness, and, for all purposes hereof, such indebtedness shall be treated as though it has been assumed by such Person; provided, however, that "Indebtedness" shall not include trade debt incurred in the ordinary course of business to trade creditors that is payable on customary trade terms. "Initial Allocation" shall have the meaning provided in Section 5.13. "Interest Payment Dates" shall mean each March 15, June 15, September 15 and December 15 and the Maturity Date. 11 16 "Interest Share Price" means, with respect to any Interest Payment Date, an amount equal to 95 percent of the arithmetic average of the Market Price of one share of Common Stock for each of the ten consecutive Trading Days ending on and including the Trading Day immediately preceding such Interest Payment Date. "Interest Shares" means the shares of Common Stock and the related Preferred Share Purchase Rights issuable in payment of interest on the Notes in accordance with Section 3.02. "Instrument" shall have the meaning assigned to such term under the Code. "Inventory" shall have the meaning assigned to such term under the Code, and in any event, including all inventory, merchandise, goods and other personal property that are held by or on behalf of a Person for sale or lease or to be furnished under a contract of service or which give rise to any Account, including returned goods. "Issuance Date" means the date the Notes were first issued to the original Holders of the Notes. "Issuing Agent" means Computershare Investor Services, LLC, its successor or such other person who shall be serving as transfer agent and registrar for the Common Stock and who shall have been authorized by the Company to act as conversion agent for the Notes in accordance with the Issuing Agent Instruction and the name, address and telephone number of whom shall have been given to the Trustee and the Holders by notice from the Company. "Issuing Agent Instruction" means the Issuing Agent Instruction, dated September 22, 2000, from the Company to the Issuing Agent for the benefit of the Holders and the holders from time to time of the Warrants. "Lien" shall mean any lien, mortgage, security interest, chattel mortgage, pledge, equity or other encumbrance (statutory or otherwise) of any kind, including, without limitation, any agreement to give any of the foregoing, any conditional sales or other title retention agreement, any lease in the nature thereof, and the filing of or the agreement to give any financing statement under the Code of any jurisdiction or similar evidence of any encumbrance, whether within or outside the United States. "Majority Holders" means at any time Holders who hold Notes that are Outstanding which, based on the Outstanding principal amount thereof, represent a majority of the aggregate Outstanding principal amount of all the Notes. 12 17 "Market Price" with respect to any security on any day shall mean the closing bid price of such security on such day on the Nasdaq or the NYSE or the AMEX, as applicable, or, if such security is not listed or admitted to trading on the Nasdaq, the NYSE or the AMEX, on the principal national securities exchange or quotation system on which such security is quoted or listed or admitted to trading, in any such case as reported by Bloomberg, L.P. or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the average of the closing bid and asked prices of such security on the over-the-counter market on the day in question, as reported by the National Quotation Bureau Incorporated, or a similar generally accepted reporting service, or if not so available, in such manner as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors for that purpose, or a price determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution. "Maturity Date" means October 1, 2004. "Nasdaq" means the Nasdaq National Market. "Negotiated Transaction" means an acquisition by a Person or entity or group of Persons or entities acting in concert as a partnership, limited partnership or group, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases or otherwise, of beneficial ownership of securities of the Company representing 50% or more of the combined voting power of the outstanding voting securities of the Company ordinarily (and apart from rights accruing in special circumstances) having the right to vote in the election of directors which acquisition meets all of the following requirements: (1) such acquisition is made pursuant to a written agreement to which the Company is a party and which has been approved by the Board of Directors prior to such acquisition and which the Company and the other parties have entered into prior to such transaction; and (2) such agreement provides for the acquisition by such Person, entity, group of Persons or group of entities making such acquisition of such outstanding voting securities of the Company of all of the outstanding voting securities of the Company at the same price and in the same form of consideration per share for all voting securities of the Company of the same class or series. "Net Cash, Cash Equivalents and Eligible Investment Balances" of any Person on any date means the consolidated Cash, Cash Equivalents and Eligible Investment Balances of such Person and its subsidiaries on such date less the sum 13 18 (without duplication) of (1) the amount of any outstanding Indebtedness of such Person or any of its subsidiaries which, directly or indirectly, is secured in whole or in part by, or restricts the use of, the consolidated Cash, Cash Equivalents and Eligible Investment Balances of such Person or any of its subsidiaries plus (2) the amount of outstanding Indebtedness of such Person and its subsidiaries which on such date is classified as short-term debt in accordance with Generally Accepted Accounting Principles. "Net Current Assets" of any Person at any date shall be determined from books of such Person maintained in accordance with Generally Accepted Accounting Principles, and means as of such date (1) the value shown by such books of all assets, exclusive of patents, patent applications, trademarks, copyrights, trade names, good will, organizational expense, research and development, other intangibles, treasury stock and unamortized debt, discount and expense, classified as current assets as of such date; less (2) all current liabilities of such Person. "New York UCC" means the Uniform Commercial Code as in effect from time to time in the State of New York. "Newly Issued Shares" shall have the meaning provided in Section 8.03(g). "1934 Act" means the Securities Exchange Act of 1934, as amended. "1933 Act" means the Securities Act of 1933, as amended. "Non-Recourse Debt" means Indebtedness: (1) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise, or (c) constitutes the lender; (2) no default with respect to which (including any rights that the holders of the Indebtedness may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any holder of any other Indebtedness of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the 14 19 payment of such other Indebtedness to be accelerated or payable prior to its stated maturity; and (3) as to which the lenders have been notified in writing by the Company that they will not have any recourse to the stock or assets of the Company or any of its Restricted Subsidiaries. "Note Purchase Agreements" means the Note Purchase Agreements, dated as of September 22, 2000, by and between the Company and the several original Holders of the Notes. "Notes" means the Company's 8% Senior Secured Convertible Notes due 2004 issued pursuant to the Original Indenture and this Supplemental Indenture. "NYSE" means the New York Stock Exchange, Inc. "Obligations" means: (1) the full and prompt payment when due of all obligations and liabilities to the Holders, whether now existing or hereafter arising, under the Notes, this Supplemental Indenture or the other Transaction Documents and the due performance and compliance with the terms of the Notes and the other Transaction Documents; (2) any and all sums advanced in accordance with the terms of the Notes, this Supplemental Indenture or applicable law by the Trustee or any Holder in order to preserve the Collateral or to preserve the Trustee's security interest in the Collateral; (3) in the event of any proceeding for the collection or enforcement of any obligations or liabilities of the Company referred to in the immediately preceding clauses (1) and (2) in accordance with the terms of the Notes and this Supplemental Indenture, the reasonable expenses of re-taking, holding, preparing for sale, selling or otherwise disposing of or realizing on the Collateral, or of any other exercise by the Trustee of its rights hereunder, together with reasonable attorneys' fees and court costs; and (4) any amounts for which any Holder is entitled to indemnification under Section 5.11. "Officer" means the Chairman of the Board, the Chief Executive Officer, the President or the Chief Financial Officer of the Company. 15 20 "Permitted Collateral or Akkadix Disposition" means a sale, transfer or other disposition of Collateral or the Akkadix Shares in accordance with, and as permitted by, Section 5.03(b)(1); provided, however, that if during the period of 20 consecutive Trading Days ending on and including the Trading Day immediately preceding the closing of a Permitted Collateral or Akkadix Disposition on each such Trading Day (a) the Common Stock shall be listed on Nasdaq, the NYSE or the Amex, and the Market Price of the Common Stock shall be at least 200% of the Conversion Price in effect on each such Trading Day (b) no Event of Default shall have occurred or be continuing and no Repurchase Event shall have occurred with respect to which any Holder has the right to require repurchase of any Note pursuant to Article Seven or with respect to which any Holder has exercised such right and the Company shall not have paid or deposited in accordance with Section 9.14 of this Supplemental Indenture the applicable Repurchase Price, (c) the Registration Statement shall be effective and available for use by the Company for the sale of shares of Common Stock to holders of the Warrants upon exercise of the Warrants and is reasonably expected to remain effective and available after such period of 20 Trading Days, and (d) the Company shall have furnished to the Holders and the Trustee a Company Certificate certifying the matters set forth in the immediately preceding clauses (a) through (c), then such Permitted Collateral or Akkadix Disposition shall not constitute a Repurchase Event. "Permitted Indebtedness" means (1) with respect to the Company or any of its Restricted Subsidiaries: (a) Indebtedness outstanding on the Issuance Date and identified on SCHEDULE I; (b) Indebtedness incurred after the Issuance Date in an aggregate amount not to exceed $5 million at any one time outstanding so long as (x) such Indebtedness is incurred for the purpose of acquiring, constructing or improving an interest in real estate owned or used or to be owned or used by the Company or one of its Restricted Subsidiaries (or for the purpose of acquiring the capital stock or similar equity interests of a Restricted Subsidiary of the Company that is formed for the limited purpose of owning same and does not own or hold any other material assets) and does not exceed the purchase price of the interest in real estate, capital stock or other equity interest so acquired plus reasonable transaction expenses or the cost of such construction or improvements plus reasonable transaction expenses, as the case may be, (y) such Indebtedness, if secured, is secured solely by the interest of the Company or one of its Restricted Subsidiaries in the real estate so acquired, constructed or improved and rights related thereto and (z) the holder of such Indebtedness shall not have recourse to the Company or any Subsidiary for payment thereof or performance of any obligation relating thereto; 16 21 (c) Indebtedness incurred after the Issuance Date in an aggregate amount not to exceed $15 million at any one time outstanding so long as (x) such Indebtedness is incurred for the purpose of acquiring equipment owned or used or to be owned or used by the Company or one of its Restricted Subsidiaries (or for the purpose of acquiring the capital stock or similar equity interests of a Restricted Subsidiary of the Company that is formed for the limited purpose of owning same and does not own or hold any other material assets) and does not exceed the purchase price of the equipment, capital stock or other equity interest so acquired plus reasonable transaction expenses and (y) such Indebtedness, if secured, is secured solely by the interest of the Company or one of its Restricted Subsidiaries in the equipment so acquired and rights related thereto; (d) endorsements for collection or deposit in the ordinary course of business; (e) Indebtedness of the Company incurred under and in accordance with the Credit Agreement in an aggregate amount not to exceed $30 million at any time outstanding; (f) Indebtedness represented by the Notes; (g) Permitted Refinancing Indebtedness issued in exchange for, or the net proceeds of which are used to refund, refinance or replace, Indebtedness that is identified in subclauses (a) through (h) or (j) of this clause (1) of this definition; (h) Hedging Obligations that are incurred by the obligor on Indebtedness that is identified in subclauses (a) and (e) of this clause (1) of this definition (or Permitted Refinancing Indebtedness that is identified in subclause (g) of clause (1) of this definition and that refunds or replaces such Indebtedness) that does not have a fixed rate of interest and which Hedging Obligations are incurred solely for the bona fide purpose of fixing or hedging interest rate risk with respect to such Indebtedness; (i) Indebtedness constituting reimbursement obligations with respect to letters of credit issued in the ordinary course of business in respect of workers' compensation claims or self-insurance, or other Indebtedness with respect to reimbursement type obligations regarding workers' compensation claims or self-insurance, and obligations in respect of performance and surety bonds and completion guarantees incurred in the ordinary course of business; provided, however, that upon the drawing of such letters of credit or the incurrence of such Indebtedness, such obligations are reimbursed within 30 days following such drawing or incurrence; 17 22 (j) Indebtedness in an aggregate amount at any one time outstanding not to exceed the greater of (A) $10 million and (B) an amount equal to 20% of the Consolidated Net Current Assets of the Company and its Restricted Subsidiaries, and in the case of both the preceding clauses (A) and (B) (x) which is subordinated to the Notes on the Subordination Terms and (y) for which no payment of principal of such Indebtedness is scheduled to be due prior to the date that is one year after the Maturity Date; and (k) Guaranties by the Company or any of its Restricted Subsidiaries of Indebtedness of the Company or any of its Restricted Subsidiaries which Indebtedness is Permitted Indebtedness that is of the type or character specified in subclauses (a), (c), (d), (e), (h) or (i) of clause (1) of this definition (including any such Permitted Indebtedness so specified that may have been incurred pursuant to subclause (g) of clause (1) of this definition) or subclause (c) of clause (2) of this definition; and (2) in the case of any Restricted Subsidiary of the Company: (a) Indebtedness owed by such Restricted Subsidiary to the Company; and (b) Indebtedness of such Restricted Subsidiary to another Restricted Subsidiary of the Company in an aggregate amount not to exceed $5 million at any one time outstanding for all Restricted Subsidiaries of the Company; and (c) Indebtedness of a Restricted Subsidiary of the Company existing at the time such Restricted Subsidiary is acquired by the Company so long as immediately prior to such acquisition the amount by which (x) the outstanding amount of such Indebtedness of such Restricted Subsidiary exceeds (y) the Cash, Cash Equivalents and Eligible Investment Balances of such Restricted Subsidiary does not exceed 20% of the Fair Market Value of the assets of such Restricted Subsidiary, as set forth in a certificate of the Chief Financial Officer of the Company delivered by the Company to the Trustee prior to such acquisition; so long as, in the case of any Indebtedness specified in subclauses (c), (e) and (j) of clause (1) of this definition (including any Indebtedness that is of the type or character specified in subclause (c), (e) or (j) of clause (1) of this definition and that the Company may propose to incur as Permitted Refinancing Indebtedness pursuant to subclause (g) of clause (1) of this definition) or Indebtedness specified in clause (2) of this definition, at the time of incurrence of such Indebtedness no Default or Event of Default (A) has occurred and is continuing by reason of Section 4.01(a), 4.01(b), 4.01(c) (with respect to Sections 5.03, 5.06, 5.13, 5.14, 5.17, 5.18 and 5.21 of this Supplemental Indenture only), 18 23 4.01(d) (with respect to Sections 5.10, 5.12, 5.15 and 5.16 and Article Six of this Supplemental Indenture only), 4.01(h), 4.01(i) (with respect to Section 501(2) of the Original Indenture only) or 4.01(k) of this Supplemental Indenture or (B) would result from such incurrence; provided, however, that, notwithstanding the occurrence or continuation of any Default or Event of Default, the Company and its Restricted Subsidiaries shall not be prohibited from incurring Indebtedness specified in clauses (c), (e) and (j) of clause (1) of this definition (including any Indebtedness that is of the type or character specified in subclause (c), (e) or (j) of clause (1) of this definition and that the Company may propose to incur as Permitted Refinancing Indebtedness pursuant to subclause (g) of clause (1) of this definition) or Indebtedness specified in clause (2) of this definition so long as at the time of such incurrence (x) the Collateral Substitution shall have occurred or (y) the Collateral Value is at least 300% of the amount of the Obligations and, in the case of either the preceding clause (x) or (y), no Default or Event of Default would result from such incurrence. "Permitted Liens" means any of the following Liens, so long as (except in the case of clause (2) of this definition) such Lien does not relate to any of the Collateral or the Akkadix Shares: (1) Liens upon any property of any Restricted Subsidiary or Restricted Subsidiaries of the Company as security for indebtedness owing to the Company; (2) Liens securing the Notes ratably; (3) Liens for taxes or assessments or governmental charges or levies on the property of the Company or any of its Restricted Subsidiaries if such taxes or assessments or charges or levies shall not at the time be due and payable or if the amount, applicability, or validity of any such tax, assessment, charge or levy shall currently be contested in good faith by appropriate proceedings or necessary preliminary steps are being taken to contest, compromise or settle the amount thereof or to determine the applicability or validity thereof and if the Company or such Restricted Subsidiary, as the case may be, shall have set aside on its books reserves (segregated to the extent required by sound accounting practice) deemed by it adequate with respect thereto; deposits or pledges to secure payment of worker's compensation, unemployment insurance, old age pensions or other social security; deposits or pledges to secure performance of bids, tenders, contracts (other than contracts for the payment of money borrowed or credit extended), leases, public or statutory obligations, surety or appeal bonds, or other deposits or pledges for purposes of like general nature in the ordinary course of business; mechanics', carriers', workers', repairmen's or other like Liens arising in the ordinary course of business securing obligations which are not overdue for a period of 60 days, or which are in good faith being 19 24 contested or litigated, or deposits to obtain the release of such Liens; Liens created by or resulting from any litigation or legal proceedings or proceedings being contested in good faith by appropriate proceedings, provided any execution levied thereon shall be stayed; leases made, or existing on property acquired, in the ordinary course of business; landlords' Liens under leases to which the Company or any of its Restricted Subsidiaries is a party; and zoning restrictions, easements, licenses or restrictions on the use of real property or minor irregularities in title thereto; provided that all such Liens described in this subsection (3) do not, in the aggregate, materially impair the use of such property in the operations of the business of the Company or any of its Restricted Subsidiaries or the value of such property for the purpose of such business; (4) Liens existing on the Issuance Date and listed in Schedule 4(r) to the Note Purchase Agreement and Liens created by the Company on the property covered by the Liens so listed on such Schedule 4(r) which Liens secure Permitted Refinancing Indebtedness issued in accordance with subclause (g) of clause (1) of the definition of Permitted Indebtedness that is issued to refinance Indebtedness specified in subclause (a) or (e) of clause (1) of the definition of Permitted Indebtedness. (5) judgment Liens not giving rise to an Event of Default; (6) any interest or title of a lessor under any lease permitted by subclauses (b) and (c) of clause (1) of the definition of Permitted Indebtedness (including any such lease entered into pursuant to subclause (g) of clause (1) of the definition of Permitted Indebtedness); (7) purchase money Liens to finance the purchase price of property or assets purchased by the Company or any of its Restricted Subsidiaries acquired in the ordinary course of business; provided, however, that the Lien securing such Indebtedness shall be created within 180 days of such acquisition, the amount of such Indebtedness so secured in connection with any such acquisition of property or assets shall not exceed the purchase price of such property or assets and the Lien securing such Indebtedness shall not extend to any property or assets other than the property or assets so acquired; (8) Liens upon specific items of inventory or other goods of any Person and on proceeds thereof securing such Person's obligations in respect of banker's acceptances issued or created for the account of such Person to facilitate the purchase, shipment, or storage of such inventory or other goods; 20 25 (9) Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other property relating to such letters of credit and products and proceeds thereof; (10) leases, subleases, licenses or sublicenses granted to others that do not materially interfere with the ordinary course of business of the Company and its Restricted Subsidiaries and which are entered into in compliance with Section 5.03; and (11) Liens arising from filing Uniform Commercial Code financing statements regarding leases permitted by subclauses (b), (c) and (g) of clause (1) of the definition of Permitted Indebtedness so long as the collateral described in such financing statements is limited to the property covered by such leases; so long as, in the case of any Lien specified in clauses (6) and (7) of this definition, at the time such Lien is created (A) no Default or Event of Default has occurred and is continuing by reason of Section 4.01(a), 4.01(b), 4.01(c) (with respect to Sections 5.03, 5.06, 5.13, 5.14, 5.17, 5.18 and 5.21 of this Supplemental Indenture only), 4.01(d) (with respect to Sections 5.10, 5.12, 5.15 and 5.16 and Article Six of this Supplemental Indenture only), 4.01(h), 4.01(i) (with respect to Section 501(2) of the Original Indenture only) or 4.01(k) of this Supplemental Indenture or (B) would result from such creation of such Lien; provided, however, that, notwithstanding the occurrence or continuation of any Default or Event of Default, the Company and its Restricted Subsidiaries shall not be prohibited from creating any Lien specified in clauses (6) and (7) of this definition so long as at the time such Lien is created (x) the Collateral Substitution shall have occurred or (y) the Collateral Value is at least 300% of the amount of the Obligations and, in the case of either the preceding clause (x) or (y), no Default or Event of Default would result from the creation of such Lien. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that all of the following requirements are met: (1) the principal amount (or accreted value, if applicable, determined in accordance with Generally Accepted Accounting Principles) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable, determined in accordance with Generally Accepted Accounting Principles) of the Indebtedness extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued interest on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded and the amount of all expenses and premiums incurred in connection therewith); 21 26 (2) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (4) such Indebtedness is incurred by such of the Company or its Restricted Subsidiary that is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (5) the Indebtedness that is being extended, refinanced, renewed, replaced, defeased or refunded will not remain outstanding after the incurrence of such Permitted Refinancing Indebtedness; provided, however, that in the case of any extension, refinancing, renewal, replacement, defeasance or refunding of Indebtedness referred to in subclauses (a) through (h) or (j) of clause (1) of the definition of Permitted Indebtedness, if prior notice to the holder or holders of the Indebtedness to be extended, refinanced, renewed, replaced, defeased or refunded is required in order to repay such Indebtedness, then such Indebtedness may remain outstanding for up to 60 days after the incurrence of such Permitted Refinancing Indebtedness so long as on or before the date of incurrence of such Permitted Refinancing Indebtedness the Company or the applicable Restricted Subsidiary shall have (a) given such notice to the holder or holders of such Indebtedness and (b) irrevocably deposited in trust with a trustee (other than the Company or any Subsidiary), for the exclusive benefit of the holder or holders of the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded, an amount at least equal to the aggregate amount that the Company or such Restricted Subsidiary will be obligated to pay in respect of such Indebtedness from such date to the date of payment in full of such Indebtedness; and (6) such Indebtedness is of the type or character specified in subclauses (a) through (f) or (h) through (k) of clause (1) of the definition of Permitted Indebtedness or subclause (a) or (b) of clause (2) of the definition of Permitted Indebtedness. 22 27 "Person" means any natural person, corporation, partnership, limited liability company, trust, incorporated organization, unincorporated association or similar entity or any government, governmental agency or political subdivision. "Pledged Securities" means: (1) the outstanding shares of capital stock of DPI described on SCHEDULE II hereto as "Pledged Securities"; and (2) any and all other shares of capital stock or other securities of DPI and any and all rights to acquire capital stock or other securities of DPI hereafter acquired by the Company and required to be delivered to the Trustee in accordance with Section 5.21. "Preferred Share Purchase Rights" means the Preferred Share Purchase Rights issued or issuable pursuant to the Rights Agreement (or any similar right hereafter issued by the Company with respect to the Common Stock). "Proceeds" shall have the meaning assigned to such term under the Code. "Quarterly Cash Requirements" of any Person as of any date means the cash used in operating activities and for payment of Indebtedness of such Person and its subsidiaries, determined on a consolidated basis, for the fiscal quarter of such Person most recently completed prior to the date of such determination, as would be shown on a consolidated statement of cash flows of such Person and its subsidiaries for such fiscal quarter prepared in accordance with Generally Accepted Accounting Principles. "Record Date" shall mean, with respect to any dividend, distribution or other transaction or event in which the holders of Common Stock have the right to receive any cash, securities or other property or in which the Common Stock (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of stockholders entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise). "Registration Statement" means the Company's Registration Statement on Form S-3 under the 1933 Act (Registration No. 333-35828), as amended by any post effective amendment thereto, including all documents and reports incorporated therein by reference. "Repurchase Date" means with respect to any Repurchase Event 23 28 (a) the date that is 60 days after the latest date that any Holder may exercise the repurchase right pursuant to Article VII with respect to such Repurchase Event so long as (1) on the date of such Repurchase Event occurs the Collateral Substitution has occurred or (2) on the date such Repurchase Event occurs and at all times thereafter to such 60th day the Collateral Value is at least 200% of the amount of the Obligations; (b) if the immediately preceding clause (a) of this definition is not applicable on the date such Repurchase Event occurs, the date that is 30 days after the latest date that any Holder may exercise the repurchase right pursuant to Article VII with respect to such Repurchase Event; (c) if the preceding clause (a) of this definition is applicable on the date such Repurchase Event occurs, and thereafter the Company fails to continue to meet the requirements of such clause (a), the later of (1) the date that is 30 days after the latest date that any Holder may exercise the repurchase right pursuant to Article VII with respect to such Repurchase Event and (2) the date that is five Business Days after the date the Company no longer continues to meet the requirements of such clause (a). "Repurchase Event" means the occurrence of any one or more of the following events: (a) For any period of five consecutive Trading Days following the date hereof there shall be no reported sale price of the Common Stock on any of Nasdaq, the NYSE or the AMEX; (b) Any Fundamental Change; (c) The inability of the Company for twenty Trading Days (whether or not consecutive) on or after the Issuance Date in any period of 365 consecutive days to sell shares of Common Stock to the holders of Warrants upon exercise of the Warrants pursuant to the Registration Statement (1) by reason of the requirements of the 1933 Act, the 1934 Act or any of the rules or regulations under either thereof or (2) due to the Registration Statement containing any untrue statement of material fact or omitting to state a material fact required to be stated therein or necessary to make the statements therein not misleading or other failure of the Registration Statement to comply with the rules and regulations of the SEC; provided, however, that at any time prior to the Maturity Date the Company shall be entitled to an aggregate of 20 additional Trading Days during which it is unable so to sell shares of Common Stock to the holders of Warrants without such inability constituting a Repurchase Event under this clause (c) of this definition. 24 29 (d) Any Permitted Collateral or Akkadix Disposition. "Repurchase Percentage" means 100%. "Repurchase Portion" means, with respect to a particular Repurchase Event: (a) in the case of a Repurchase Event specified in clause (a), (b) or (c) of the definition of the term Repurchase Event, 100 percent; (b) in the case of a Repurchase Event specified in clause (d) of the definition of the term Repurchase Event, if, after giving effect to the sale, conveyance or other disposition giving rise to such Repurchase Event, the Collateral Value of the remaining Collateral as to which the Trustee holds a perfected first priority security interest is at least equal to 150% of the amount by which (x) the amount of the Obligations exceeds (y) the principal amount of Notes that are Outstanding and of which the Holders have the right to require repurchase pursuant to Article Seven by reason of such sale, conveyance or other disposition (whether or not such right has been exercised), plus accrued interest thereon to the date of determination, then the quotient, expressed as a percentage, obtained by dividing (x) an amount equal to 50 percent of the amount of gross proceeds from such Permitted Collateral or Akkadix Disposition by (y) the principal amount of Notes that are Outstanding at the close of business on the Business Day immediately preceding such Permitted Collateral or Akkadix Disposition; and (c) in the case of a Repurchase Event specified in clause (d) of the definition of the term Repurchase Event, if, after giving effect to the sale, conveyance or other disposition giving rise to such Repurchase Event, the Collateral Value of the Collateral as to which the Trustee holds a perfected first priority security interest would be less than 150% of the amount by which (x) the amount of the Obligations exceeds (y) the principal amount of the Notes that are Outstanding and of which the Holders have the right to require repurchase pursuant to Article Seven by reason of such sale, conveyance or other disposition (whether or not such right has been exercised), plus accrued interest thereon to the date of determination if 50% of the gross proceeds of such sale, conveyance or other disposition (plus the amount of any cash in addition to such proceeds which cash is deposited by the Company with the Trustee as Collateral in connection with such Permitted Collateral or Akkadix Disposition and which may be applied to pay the Repurchase Price of such Notes) were applied to repurchase of Notes pursuant to Article Seven, then the quotient, expressed as a percentage, obtained by dividing (x) such amount of the gross proceeds from 25 30 such Permitted Collateral or Akkadix Disposition as shall be necessary so that, assuming such amount of such gross proceeds (plus the amount of any cash in addition to such proceeds which cash is deposited by the Company with the Trustee as Collateral in connection with such Permitted Collateral or Akkadix Disposition and which may be applied to pay the Repurchase Price of such Notes) is applied to repurchase Notes pursuant to Article Seven, the Collateral Value of the Collateral as to which the Trustee holds a perfected first priority security interest would be at least 150% of the amount by which the amount of the Obligations exceeds the principal amount of Notes Outstanding that would be so repurchased by (y) the principal amount of Notes that are Outstanding at the close of business on the Business Day immediately preceding such Permitted Collateral or Akkadix Disposition. "Repurchase Price" means with respect to any repurchase of a Note pursuant to Sections 7.01 and 7.02 an amount in cash equal to the sum of (1) the product of (x) the Repurchase Percentage times (y) the outstanding principal amount of such Note to be repurchased in accordance with Article Seven plus (B) accrued and unpaid interest on such principal amount to the date the Repurchase Price is required to be paid plus (C) accrued and unpaid Default Interest, if any, thereon at the Default Rate to the date of such repurchase. "Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. "Rights Agreement" means the Rights Agreement, dated as of October 8, 1998, between the Company and Computershare Investor Services, LLC, as Rights Agent. "SEC" means the Securities and Exchange Commission. "Securities" shall have the meaning provided in Section 8.03(d). "Security Interest" means the security interest granted in, and collateral assignment of, the Collateral pursuant to this Supplemental Indenture. "Share Payments" shall have the meaning provided in Section 5.09. "Specified Market Value" when used with respect to the Common Stock as of a specified date means with respect to each share of Common Stock the average of the closing prices of the Common Stock sold on all securities exchanges (including the Nasdaq and the Nasdaq SmallCap Market) on which the Common Stock may at the time be listed, or, if there have been no sales on any such exchange on such day, the average of the highest bid and lowest asked prices on all such exchanges at the end of 26 31 such day, or, if on such day the Common Stock is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 p.m., New York City time, or, if on such day the Common Stock is not quoted in the NASDAQ System, the average of the highest bid and lowest asked price on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of five Trading Days consisting of the day as of which the Specified Market Value of Common Stock is being determined (or if such day is not a Trading Day, the Trading Day next preceding such day) and the four consecutive Trading Days prior to such day. If on the date for which Specified Market Value is to be determined the Common Stock is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the Specified Market Value of Common Stock shall be the highest price per share which the Company could then obtain from a willing buyer (not an employee or director of the Company at the time of determination) for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by the Board of Directors. "Stock Payment Option" shall have the meaning provided in Section 3.02(a). "Subordination Terms" means the terms set forth in SCHEDULE III to this Supplemental Indenture or such other terms of subordination as shall have been approved in advance of the incurrence of the applicable Indebtedness by the Majority Holders in their sole discretion, as evidenced by the written approval of the Majority Holders given to the Company and the Trustee prior to incurrence of such Indebtedness. "Subsidiary" means any corporation or other entity of which a majority of the capital stock or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Company. "Tender Offer" means a tender offer or exchange offer. "Trading Day" means a day on which any of the national securities exchange or Nasdaq which then constitutes the principal securities market for the Common Stock is open for general trading of securities. "Transaction Documents" means the Original Indenture, this Supplemental Indenture, the Notes, the Note Purchase Agreements, the Warrants and the other agreements, instruments and documents contemplated hereby and thereby. "Trigger Event" shall have the meaning provided in Section 8.03(d). 27 32 "Unrestricted Subsidiary" means PPGx, Inc. and its Subsidiaries and any Subsidiary of the Company that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the extent that such Subsidiary: (1) has no Indebtedness other than Non-Recourse Debt; (2) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding comply with Section 5.07 (such compliance to be determined without regard to the proviso to Section 5.07); (3) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional equity interests or (b) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and (4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries. Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary will be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the preceding conditions. If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for purposes of this Supplemental Indenture and will become a Restricted Subsidiary of the Company for purposes of this Supplemental Indenture, and any Indebtedness, Liens and activities of such Subsidiary will be deemed to be incurred or engaged in by a Restricted Subsidiary of the Company as of such date and shall be required to comply as of such date with the requirements of this Supplemental Indenture applicable to the Company and its Restricted Subsidiaries. The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary of the Company; provided, however, that such designation will be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation will only be permitted if (1) such Indebtedness is permitted under this Supplemental Indenture; and (2) no Default or Event of Default would be in existence following such designation. 28 33 "Warrants" means the Common Stock Purchase Warrants of the Company issued to the original Holders of the Notes pursuant to the Note Purchase Agreements. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing: (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of such Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (2) the outstanding principal amount of such Indebtedness at such date. (b) All the agreements or instruments herein defined shall mean such agreements or instruments as the same may from time to time be supplemented or amended or the terms thereof waived or modified to the extent permitted by, and in accordance with, the terms thereof and of the Original Indenture, this Supplemental Indenture and the Notes. ARTICLE TWO FORM OF NOTES SECTION 2.01. FORM OF NOTES. The Notes shall be in substantially the form set forth in this Article, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by the Original Indenture and this Supplemental Indenture, and may have such other letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or Depositary therefor or as may, consistently herewith, be determined by the officers executing the Notes, as evidenced by their execution thereof. SECTION 2.02. FORM OF FACE OF NOTES. AXYS PHARMACEUTICALS, INC. No. $ ------------------ ----------------- 29 34 Axys Pharmaceuticals, Inc., a corporation duly organized and existing under the laws of Delaware (herein called the "Company," which term includes any successor Person under the Original Indenture hereinafter referred to), for value received, hereby promises to pay to __________________, or registered assigns, the principal sum of _________ Dollars (or such lesser principal amount of this Note as is outstanding on the date of payment) on September ______, 2004, and to pay interest thereon from the Issuance Date or from the most recent Interest Payment Date to which interest has been paid or duly provided for, on each Interest Payment Date in each year, commencing December 15, 2000, and at the Maturity of this Note, at the Applicable Rate, until the principal hereof is paid or made available for payment, provided that any principal or amount of interest which is overdue shall bear interest at a rate per annum equal to the Default Rate (to the extent that the payment of such interest shall be legally enforceable), from the dates such amounts are due until they are paid or made available for payment, and such interest ("Default Interest") shall be payable on demand. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Supplemental Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the fifth Business Day preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than ten days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Original Indenture and the Supplemental Indenture. Payment of the principal of and any such interest on this Security and any other amounts payable in respect of this Security will be made at the office or agency of the Company maintained for that purpose in the city in which the Corporate Trust Office is located, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts or, at the option of the Company and subject to the provisions of this Note, interest payable on the Interest Payment Dates may be paid in whole or in part in fully paid and nonassessable shares of Common Stock; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register; provided further, however, that cash payments shall be made by wire transfer of immediately available funds to such account within the United States of America as the Holder may from time to time designate by notice to the Company in accordance with the Original Indenture and the 30 35 ' Supplemental Indenture. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Original Indenture or the Supplemental Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. Dated: AXYS PHARMACEUTICALS, INC. -------------------- By: ------------------------------------- Title: Attest: --------------------------- TRUSTEE'S CERTIFICATE OF AUTHENTICATION U.S. Bank Trust National Association, as Trustee, certifies that this is one of the Securities referred to in the within-mentioned Original Indenture. U.S. BANK TRUST NATIONAL ASSOCIATION, AS TRUSTEE By: --------------------------------------- Authorized Officer Date of Authentication: SECTION 2.03. FORM OF REVERSE OF NOTES. This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Original Indenture, dated as of September 1, 2000 (herein called the "Original Indenture," which term shall have the meaning 31 36 assigned to it in such instrument), between the Company and U.S. Bank Trust National Association, as Trustee (herein called the "Trustee," which term includes any successor trustee under the Original Indenture), and the Supplemental Indenture, dated as of September ______, 2000, between the Company and the Trustee (herein called the "Supplemental Indenture," which term shall have the meaning assigned to it in such instrument), and reference is hereby made to the Original Indenture, the Supplemental Indenture and all indentures supplemental thereto for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof, limited in aggregate principal amount to $26,000,000 (except as otherwise provided in the Original Indenture and the Supplemental Indenture). The Original Indenture and the Supplemental Indenture contain provisions for defeasance at any time of certain restrictive covenants, Events of Default or other circumstances with respect to this Security upon compliance with certain conditions set forth in the Original Indenture and the Supplemental Indenture. Certain of the Company's obligations with respect to this Security are defeasible in accordance with Sections 1302 and 1303 of the Original Indenture and related provisions of the Supplemental Indenture. Subject to the provisions of the Supplemental Indenture, the Holder of this Security is entitled, at its option, at any time prior to the close of business on September _____, 2004 (except that, if the Holder shall have exercised repurchase rights under Article Seven of the Supplemental Indenture, such conversion right shall terminate with respect to the portion of this Security to be repurchased on the last Trading Day prior to the later of (x) the date of such repurchase and (y) the date the Company pays or deposits in accordance with the Supplemental Indenture the applicable Repurchase Price, unless in any such case the Company shall default in payment due upon repurchase hereof) to convert the principal amount of this Security, or any portion of such principal amount which is at least $10,000 (or such lesser principal amount hereof as shall be outstanding at such time), plus accrued and unpaid interest, into that number of fully paid and non-assessable shares of Common Stock (as such shares shall then be constituted) obtained by dividing (1) the sum of (x) the principal amount of this Security or portion hereof being converted plus (y) accrued and unpaid interest on the portion of the principal amount of this Security being converted to the applicable Conversion Date plus (z) accrued and unpaid Default Interest, if any, on the amount referred to in the immediately preceding clause (y) to the applicable Conversion Date by (2) the Conversion Price in effect on the applicable Conversion Date, by giving a Conversion Notice in the manner provided in the Supplemental Indenture; provided, however, that, if at any time this Security is converted in whole or in part, the Company does not have available for issuance upon such conversion as authorized and unissued 32 37 shares or in its treasury at least the number of shares of Common Stock required to be issued pursuant hereto, then, at the election of the Holder made by notice from the Holder to the Company, this Security (or portion hereof as to which conversion has been requested), to the extent that sufficient shares of Common Stock are not then available for issuance upon conversion, shall be converted into the right to receive from the Company, in lieu of the shares of Common Stock into which this Security or such portion hereof would otherwise be converted and which the Company is unable to issue, payment in an amount equal to the product obtained by multiplying (x) the number of shares of Common Stock which the Company is unable to issue times (y) the arithmetic average of the Market Price for the Common Stock during the five consecutive Trading Days immediately prior to the applicable Conversion Date. Any such payment shall, for all purposes of this Security, be deemed to be a payment of principal plus a premium equal to the total amount payable less the principal portion of this Security converted as to which such payment is required to be made because shares of Common Stock are not then available for issuance upon such conversion. The Holder is not entitled to any rights of a holder of Common Stock until the Holder has converted this Security to Common Stock, and only to the extent this Security is deemed to have been converted to Common Stock under the Supplemental Indenture. The Conversion Rate is subject to adjustment as provided in the Supplemental Indenture. If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Original Indenture and the Supplemental Indenture. The Original Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Original Indenture at any time by the Company and the Trustee with the consent of the Holders of more than 50% in principal amount of the Securities at the time Outstanding of each series to be affected. The Original Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Original Indenture and the Supplemental Indenture and certain past defaults under the Original Indenture and the Supplemental Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. As provided in and subject to the provisions of the Original Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect 33 38 to the Original Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein. No reference herein to the Original Indenture or the Supplemental Indenture and no provision of this Security or of the Original Indenture or the Supplemental Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Original Indenture and the Supplemental Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and any premium and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or its attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons. As provided in the Original Indenture and the Supplemental Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series and of like tenor of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made to a Holder for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the 34 39 Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. All terms used in this Security which are defined in the Supplemental Indenture shall have the meanings assigned to them in the Supplemental Indenture. SECTION 2.04. FORM OF CONVERSION NOTICE. The Conversion Notice shall be in substantially the following form or, in the case of any particular conversion of a Note, in such other form as agreed by the Company and the converting Holder: NOTICE OF CONVERSION OF 8% SENIOR SECURED CONVERTIBLE NOTE DUE 2004 OF AXYS PHARMACEUTICALS, INC. To: Axys Pharmaceuticals, Inc. 180 Kimball Way South San Francisco, California 94080 Attention: Chief Financial Officer Facsimile No.: (650) 829-1067 [Name and Address of Issuing Agent] Attention: ----------------------------- Special Issuances Facsimile No.: 1. Pursuant to the terms of the 8% Senior Secured Convertible Note due 2004 (the "Note"), the undersigned hereby elects to convert $_______________ of the Note into shares of Common Stock of Axys Pharmaceuticals, Inc., a Delaware corporation, at a Conversion Price per share equal to $_______________. Capitalized terms used herein and not otherwise defined herein have the respective meanings provided in the Note. 2. The number of shares of Common Stock issuable upon the conversion of the Note to which this Notice relates is _________________. 3. Please issue a certificate or certificates for _______________ shares of Common Stock in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto: 35 40 - --------------------------------- Name - --------------------------------- Address - --------------------------------- SS or Tax ID Number Delivery Instructions for Common Stock: - --------------------------------- - --------------------------------- - --------------------------------- Date: ----------------------- Name Signature of Registered Holder (Must be signed exactly as name appears in the Note.) ARTICLE THREE THE NOTES SECTION 3.01. ESTABLISHMENT OF SERIES; AMOUNT. There is hereby established a series of Securities entitled "8% Senior Secured Convertible Notes due 2004," which shall be limited in aggregate principal amount to $26,000,000 (except as otherwise provided in the Original Indenture or this Supplemental Indenture). The Notes shall bear interest at the rate provided in the form of Notes and interest on the Notes shall be payable quarterly on the Interest Payment Dates specified in the form of Notes to the Persons who are Holders of the Notes at the close of business on the fifth Business Day preceding each Interest Payment Date. The Notes shall not be Original Issue Discount Securities. 36 41 SECTION 3.02. ISSUANCE OF COMMON STOCK IN LIEU OF CASH INTEREST. (a) If the Company exercises its option to make a payment of interest on the Notes wholly or partly in shares of Common Stock (herein sometimes called the "Stock Payment Option"), the issuance of Interest Shares upon such exercise of the Stock Payment Option shall have been authorized by the Board of Directors. (b) The Company shall not be permitted to exercise the Stock Payment Option with respect to any payment of interest on the Notes if: (i) the number of shares of Common Stock authorized, unissued and unreserved for all purposes other than payment of interest on the Notes, or held in the Company's treasury, after taking into account shares of Common Stock required to be reserved for conversion of the Notes and exercise of the Warrants, is insufficient to pay the portion of such interest to be paid in Common Stock; (ii) the issuance or delivery of Interest Shares or the public resale of such Interest Shares by the Holders who are not Affiliates of the Company for purposes of the 1933 Act would require registration or filing with or approval of any governmental authority under any law or regulation, and such registration, filing or approval has not been effected or obtained or is not in effect; (iii) the Interest Shares shall not at the time of issuance have been authorized for listing, upon official notice of issuance, on the principal securities exchange on which the Common Stock is then listed and traded; (iv) the Interest Share Price for the Interest Shares is less than the par value of the Common Stock; (v) an Event of Default has occurred and is continuing on the applicable Interest Payment Date or at any time thereafter to and including the date on which the Company delivers such Interest Shares to the Holders; or (vi) the Common Stock is neither (i) listed or admitted for trading on a national securities exchange nor (ii) quoted on Nasdaq. (c) (1) The Company shall have the right to elect the Stock Payment Option for the Notes with respect to a particular Interest Payment Date only if the Company gives notice of such election to the Trustee and the Holders on or before the date that is 25 Trading Days prior to such Interest Payment Date. Any election of the Stock Payment Option for a particular Interest Payment Date shall be applicable pro rata (based on the amount of interest payable on such Interest Payment Date) to all Notes that are outstanding on such Interest Payment Date. If the Company elects the Stock Payment Option with respect to a particular Interest Payment Date, the Company 37 42 shall issue to each Holder in respect of such Interest Payment Date the aggregate number of whole shares of Common Stock determined by dividing the per share Interest Share Price of the Common Stock on the applicable Interest Payment Date into an amount equal to the total amount of lawful money of the United States of America which such Holder would receive if the aggregate amount of interest on the Notes held by such Holder which is being paid in Interest Shares were being paid in such lawful money. (2) If the Company elects the Stock Payment Option with respect to an Interest Payment Date, the Interest Shares for such Interest Payment Date shall become issuable on such Interest Payment Date and the Company shall deliver, or cause to be delivered, the appropriate number of Interest Shares to the Holders within three Trading Days after the applicable Interest Payment Date. If in any case the Company shall fail to deliver or cause to be delivered such number of Interest Shares to the Holders within five Trading Days after such Interest Payment Date, then in addition to any other liabilities the Company may have hereunder and under applicable law (A) the Company shall pay or reimburse the Holders on demand for all out-of-pocket expenses, including, without limitation, reasonable fees and expenses of legal counsel, incurred by the Holders as a result of such failure, (B) if as a result of such failure the Holders shall suffer any direct damages or liabilities from such failure (including, without limitation, margin interest and the cost of purchasing securities to cover a sale (whether by any Holder or any Holder's securities broker) or borrowing of shares of Common Stock by such Holder for purposes of settling any trade involving a sale of shares of Common Stock made by such Holder during the period beginning on the applicable Interest Payment Date and ending on the date the Company delivers or causes to be delivered to such Holder the Interest Shares issuable in respect thereof), then the Company shall upon demand of such Holder pay to such Holder an amount equal to the actual direct, out-of-pocket damages and liabilities suffered by such Holder by reason thereof which such Holder documents to the reasonable satisfaction of the Company, and (C) such Holder may by written notice (which may be given by mail, courier, personal service or telephone line facsimile transmission) or oral notice (promptly confirmed in writing), given at any time prior to delivery to such Holder of the shares of Common Stock issuable in connection with such exercise of the Stock Payment Option, require payment in cash of the interest in respect of which the Company exercised the Stock Payment Option, in which case the amount of such interest shall be immediately due and payable, with Default Interest thereon from the applicable Interest Payment Date until paid in full and upon such cash payment in full the Company shall not be obligated to issue such Interest Shares to such Holder. Notwithstanding the foregoing the Company shall not be liable to a Holder under clause (B) of the immediately preceding sentence to the extent the failure of the Company to deliver or to cause to be delivered such Interest Shares results from fire, flood, storm, earthquake, shipwreck, strike, war, acts of terrorism, crash involving facilities of a common carrier, acts of God, or any similar event outside the control of the 38 43 Company (it being understood that the action or failure to act of the Issuing Agent shall not be deemed an event outside the control of the Company except to the extent resulting from fire, flood, storm, earthquake, shipwreck, strike, war, acts of terrorism, crash involving facilities of a common carrier, acts of God, the bankruptcy, liquidation or reorganization of the Issuing Agent under any bankruptcy, insolvency or other similar law or any similar event outside the control of the Issuing Agent). A Holder shall notify the Company in writing (or by telephone conversation, confirmed in writing) as promptly as practicable following the second Trading Day after such Interest Payment Date if such Holder becomes aware that Interest Shares so issuable have not been received as provided herein, but any failure so to give such notice shall not affect the rights of any Holder under the Notes or otherwise. (3) No fractional shares of Common Stock shall be issued in payment of interest on the Notes. In lieu thereof, the Company may, at its option, issue a number of shares of Common Stock which reflects a rounding up to the next whole number of shares or may pay lawful money of the United States of America in payment of the amount of such interest in lieu of issuance of such fractional share. (d) If the Company elects the Stock Payment Option with respect to a payment of interest on the Notes with respect to a particular Interest Payment Date, the Company shall deliver to the Trustee and each Holder, on or prior to the date on which Interest Shares for such payment of interest on the Notes are required to be received by the Holders, a Company Certificate setting forth (i) the total amount of the cash interest payment to which such respective Holder is entitled, (ii) the portion of such interest payment being made in Interest Shares, (iii) the Interest Share Price and the Market Price on each Trading Day used in computing the Interest Share Price, (iv) the number of Interest Shares allocable to such payment, as calculated pursuant to this Section 3.02, (v) any rounding adjustment to such number or any payment necessary to be made pursuant to Section 3.02(c), (vi) a brief statement of the facts requiring such adjustment, and (vii) a brief statement that none of the conditions set forth in Section 3.02(b) has occurred and is existing and that all of the requirements of this Section 3.02 have been met. Such Company Certificate shall be conclusive evidence of the correctness of the calculation of the number of Interest Shares allocable to the payments to which such Company Certificate relates and of any adjustments to such number made pursuant to this Section 3.02 in the absence of manifest error. On or before the pertinent Interest Payment Date, the Company shall issue, or cause the Issuing Agent to prepare and issue, the Interest Shares in the names of the Holders or their respective nominees before being so delivered by the Company on such Interest Payment Date. (e) The Interest Shares, when issued pursuant to and in compliance with this Section 3.02, shall be, and for all purposes shall be deemed to be, validly issued, fully paid and nonassessable shares of Common Stock; the issuance and delivery thereof has been in all respects authorized by the Company; and the issuance 39 44 thereof, together with lawful money of the United States of America, if any, paid in lieu of fractional shares of such Common Stock and any amount required to be paid by the Company pursuant to Section 3.02(c)(3) with respect to such interest payment, will be, and for all purposes shall be deemed to be, in full discharge and satisfaction of the Company's obligation to pay the interest on the Note to which such Interest Shares relate. SECTION 3.03. DEFEASANCE. Certain of the Company's obligations with respect to the Notes shall be defeasible in accordance with Sections 1302 and 1303 of the Original Indenture. For purposes of any Defeasance of the Notes pursuant to Section 1302 of the Original Indenture, in addition to any obligations of the Company which shall survive as provided in Section 1302 of the Original Indenture until otherwise terminated or discharged, the Company's obligations under Article Eight of this Supplemental Indenture shall survive until otherwise terminated or discharged as provided in this Supplemental Indenture. Any cash or property deposited by the Company with the Trustee pursuant to Section 1302 or 1303 of the Original Indenture in respect of the Notes shall constitute Collateral for purposes of this Supplemental Indenture. ARTICLE FOUR REMEDIES SECTION 4.01. EVENTS OF DEFAULT. "Event of Default," whenever used in the Original Indenture or this Supplemental Indenture with respect to the Notes, means any of the following events: (a) FAILURE TO PAY INTEREST. The Company fails to pay any installment of interest on any Note when due and such failure continues for a period of five Business Days after the due date thereof; or (b) CONVERSION AND THE SHARES. The Company fails to issue or cause to be issued shares of Common Stock (1) to any Holder upon exercise by such Holder of such Holder's conversion rights in accordance with this Supplemental Indenture and the Notes or (2) to the holder of any Warrant upon exercise by such holder of such holder's purchase rights in accordance with the terms of such Warrant, in either such case in the preceding clauses (1) and (2) within two Trading Days after the due date therefor in accordance with the terms of any Note, the Original Indenture, this Supplemental Indenture, or any Warrant, as the case may be; provided, however, that if such failure occurs solely by reason of any action that the Issuing Agent has taken or failed to take, then no Event of Default shall occur under this Section 4.01(b) unless the Company fails so to issue or to cause to be issued such shares of Common Stock within 40 45 four Trading Days after the due date therefor in accordance with the terms of any Note, the Original Indenture, this Supplemental Indenture or any Warrant; or (c) BREACH OF CERTAIN COVENANTS OR WARRANTIES. Default in the performance, or breach, of any covenant or warranty of the Company in Section 1005 or 1006 of the Original Indenture or Sections 5.01, 5.03, 5.05, 5.06, 5.07, 5.08, 5.09, 5.13, 5.14, 5.17, 5.18, or 5.21 of this Supplemental Indenture; or (d) BREACH OF OTHER COVENANTS OR WARRANTIES. Default in the performance, or breach, of any covenant or warranty of the Company in the Original Indenture or this Supplemental Indenture (other than a covenant or warranty a default in the performance or breach of which is elsewhere in this Section specifically dealt with or which has expressly been included in the Original Indenture solely for the benefit of a series of Securities other than the Notes), and continuance of such default or breach for a period of 15 Business Days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities of this series a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder or within 30 Business Days after such notice is given if, and only if, such default is reasonably capable of cure within 30 Business Days after such notice is given and at all times during such 30 Business Days period the Company has been diligently taking action to cure such default and such cure cannot reasonably be completed in such 15-Business Day period; or (e) BREACH OF REPRESENTATION OR WARRANTY. Any representation or warranty of the Company made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith (including, without limitation, the Transaction Documents) shall be false or misleading in any material respect when made and, to the extent susceptible to cure, such breach shall not have been cured within ten Business Days after there has been given, by facsimile transmission or registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities of this series a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (f) JUDGMENTS. Any court of competent jurisdiction shall enter one or more final judgments against the Company or any of its Restricted Subsidiaries or any of their respective properties or other assets in an aggregate amount in excess of $1,000,000, which is not vacated, bonded, stayed, discharged, satisfied or waived for a period of 45 consecutive days; or 41 46 (g) DEFAULT UNDER OTHER AGREEMENTS AND INSTRUMENTS. (1) The Company or any of its Restricted Subsidiaries shall default in any payment with respect to any Indebtedness for borrowed money (other than the Notes) which Indebtedness has an outstanding principal amount in excess of $1,000,000 individually, or $2,000,000 in the aggregate, for the Company and its Subsidiaries, beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness was created or (2) any Indebtedness of the Company or any of its Restricted Subsidiaries which has an outstanding principal amount in excess of $1,000,000 individually, or $2,000,000 in the aggregate, shall, in accordance with its terms, be declared to be due and payable, or required to be prepaid other than by a regularly scheduled or required payment prior to the stated maturity thereof; or (h) DELISTING OF THE COMMON STOCK. The Common Stock shall cease to be listed on any of Nasdaq, the NYSE or the AMEX; or (i) ORIGINAL INDENTURE EVENTS OF DEFAULT. Any Event of Default specified in Section 501(2), 501(5) or 501(6) of the Original Indenture; or (j) SECURITY INTEREST; PLEDGED SECURITIES. The Trustee shall cease to have a first priority perfected Security Interest for the benefit of the Holders in any of the Collateral, other than Collateral that has been released from the Lien of this Supplemental Indenture in accordance with the terms of the Original Indenture and this Supplemental Indenture; or any of the Pledged Securities shall not be duly and validly authorized, fully paid and non-assessable shares of capital stock of the issuer thereof. The Events of Default provided in Sections 501(1) and 501(4) of the Original Indenture shall be superseded with respect to the Notes by the Events of Default provided in Sections 4.01(a), 4.01(d) and 4.01(e) of this Supplemental Indenture. ARTICLE FIVE COVENANTS So long as the Company shall have any obligation for any amount outstanding under any Note, unless otherwise consented to in advance by the Majority Holders: SECTION 5.01. LIMITATIONS ON CERTAIN INDEBTEDNESS. The Company will not itself, and will not permit any of its Restricted Subsidiaries to, create, assume, incur or in any manner become liable in respect of, including, without limitation, by reason of any business combination transaction (all of which are referred to herein as "incurring"), any Indebtedness other than Permitted Indebtedness; provided, however, that if at any 42 47 time during any period of 20 consecutive Trading Days commencing after the Closing Date on each such Trading Day (a) the Common Stock shall be listed on Nasdaq, the NYSE or the AMEX, and the Market Price of the Common Stock shall be at least 300% of the Conversion Price in effect on each such Trading Day, (b) no Event of Default shall have occurred or be continuing and no Repurchase Event shall have occurred with respect to which any Holder has the right to require repurchase of any Note pursuant to Article Seven or with respect to which any Holder has exercised such right and the Company shall not have paid or deposited in accordance with Section 9.14 of this Supplemental Indenture the applicable Repurchase Price, (c) the Registration Statement shall be effective and available for use by the Company for the sale of shares of Common Stock to holders of the Warrants upon exercise of the Warrants and is reasonably expected to remain effective and available after such period of 20 Trading Days, and (d) the Company shall have furnished to the Holders and the Trustee a Company Certificate certifying the matters set forth in the immediately preceding clauses (a) through (c), then thereafter the Company shall no longer be obligated to comply with this Section 5.01. SECTION 5.02. INVESTMENT COMPANY ACT. The Company will not be or become an open-end investment trust, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act of 1940, as amended. SECTION 5.03. LIMITATIONS ON ASSET SALES, LIQUIDATIONS, ETC.; CERTAIN MATTERS. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, (1) sell, convey or otherwise dispose of (including, without limitation, by way of lease or license) any assets which are material to the business, properties, operations, condition (financial or other), results of operations or prospects of the Company and its Restricted Subsidiaries, taken as a whole, in a single transaction or a series of related transactions (including, without limitation, in a transaction between the Company and any Subsidiary or other Affiliate); or (2) sell, convey, pledge, transfer or otherwise dispose of (A) any of the Pledged Securities or (B) any capital stock or other interest in Akkadix, except in each such case referred to in the preceding clauses (A) and (B) as permitted by Section 5.03(b); or (3) liquidate, dissolve or otherwise wind up its affairs. (b) Notwithstanding the foregoing restrictions in Sections 5.03(a)(1), and 5.03(a)(2), the Company shall be permitted to sell, convey or otherwise dispose of all or a portion of the Pledged Securities or the Akkadix Shares so long as: 43 48 (1) the net cash proceeds of such sale, conveyance or other disposition (plus the amount of any cash in addition to such proceeds which cash is deposited by the Company with the Trustee as Collateral in connection with such Permitted Collateral or Akkadix Disposition and which may be applied to pay the Repurchase Price of the Notes) are sufficient to pay in full all amounts payable by the Company pursuant to Article Seven by reason of the repurchase rights arising from such transaction (assuming all Holders exercise their repurchase rights pursuant to Article Seven to the full extent permitted thereby), (2) the terms of such sale, conveyance or other disposition provide for payment to the Company by deposit with the Trustee on or before the date of such sale, conveyance or other disposition of an amount in cash (or instrument payable in next day funds) which, together with the amount of any cash in addition to such proceeds which cash is deposited by the Company with the Trustee on or before such date as Collateral in connection with such Permitted Collateral or Akkadix Disposition and which may be applied to pay the Repurchase Price of Notes, is at least equal to the amount specified in the immediately preceding clause (l), (3) after giving effect to such sale, conveyance or other disposition, the Collateral Value of the Collateral as to which the Trustee holds a perfected first priority security interest is at least equal to 150% of the amount by which (A) the amount of the Obligations exceeds (B) the principal amount of Notes that are Outstanding and of which the Holders have the right to require repurchase pursuant to Article Seven by reason of such sale, conveyance or other disposition (whether or not such right has been exercised), plus accrued interest thereon to the date of determination, and (4) no Default or Event of Default has occurred and is continuing. SECTION 5.04. LIMITATIONS ON LIENS. The Company will not itself, and will not permit any of its Restricted Subsidiaries to, create, assume or suffer to exist any Lien upon all or any part of its property of any character, whether owned at the date hereof or thereafter acquired, except Permitted Liens. SECTION 5.05. LIMITATION ON CERTAIN ISSUANCES OF SECURITIES. The Company shall not, and shall not permit any of its Restricted Subsidiaries to (a) issue any Common Stock Equivalent that directly or indirectly is convertible into, exchangeable for, or otherwise entitles the holder to acquire, shares of Common Stock at a price that varies based on changes in the market price of the Common Stock, (b) directly or indirectly issue any Common Stock or Common Stock Equivalent under any agreement or arrangement that provides for re-pricing or adjusting the price at which 44 49 Common Stock is issued in connection therewith or which adjusts the number of shares of Common Stock issued in connection therewith or (c) enter into any agreement for the issuance of shares of Common Stock under an arrangement for the Company to draw down from a commitment by any Person to issue shares of Common Stock or which allows the Company or such Subsidiary to exercise any put right with respect to shares of Common Stock or any similar transaction. SECTION 5.06. CERTAIN OBLIGATIONS. (a) The Company shall not amend, modify or waive any provision of DPI's charter or by-laws or any DPI Contract, or enter into any agreement, arrangement or understanding with respect to (1) the Pledged Securities or (2) which would impair the rights and remedies of the Trustee with respect to the Collateral; provided, however, that nothing in this Section 5.06(a) shall prohibit the Company from (x) entering into an agreement for a transaction permitted by Section 5.03(b) or (y) amending, modifying or waiving, or agreeing to amend, modify or waive, any provision of DPI's charter or by-laws or any DPI Contract so long as (i) the terms of any such amendment, modification or waiver treat the Company no less favorably than other stockholders of DPI, (ii) such terms do not (A) adversely affect the validity or enforceability of any Transaction Document, (B) materially impair the ability of the Company to perform its obligations under the Transaction Documents, (C) impair the existence, validity or priority of the Trustee's Lien on and Security Interest in the Collateral for the benefit of the Holders or (D) impair the rights of the Holders or the Trustee to enforce any of their respective rights or remedies pursuant to the Transaction Documents, and (iii) the Company gives the Holders and the Trustee at least ten Business Days prior written notice of any such action which notice shall set forth in reasonable detail the action proposed to be taken. (b) The Company shall perform and comply in all material respects with DPI's charter and by-laws and the DPI Contracts. (c) The Company shall perform and comply with its obligations under the Company DPI Agreements the failure to comply with which would give rise to any claim by DPI against or in respect of any of the Pledged Securities; provided, however, that the Company may surrender shares of DPI Common Stock that constitute Pledged Securities only in accordance with Section 6.11(b). SECTION 5.07. TRANSACTIONS WITH AFFILIATES. The Company will not, and will not permit any of its Restricted Subsidiaries, directly or indirectly, to pay any funds to or for the account of, make any investment (whether by acquisition of stock or Indebtedness, by loan, advance, transfer of property, guarantee or other agreement to pay, purchase or service, directly or indirectly, any Indebtedness, or otherwise) in, lease, sell, transfer or otherwise dispose of any assets, tangible or intangible, to, or participate in, or effect any transaction in connection with, any joint enterprise or other joint arrangement with, any Affiliate of the Company, except as in existence on the date 45 50 the Note Purchase Agreements are executed and delivered by the parties thereto and except on terms to the Company or, in the case of any such payment, investment or transaction between any of its Restricted Subsidiaries and any Affiliate, such Restricted Subsidiary no less favorable than terms that could be obtained by the Company or such Restricted Subsidiary from a Person that is not an Affiliate of the Company, as determined in good faith by the Board of Directors; provided, however, that nothing in this Section 5.07 shall prohibit a transaction between the Company, on the one hand, and a Restricted Subsidiary, on the other hand, if the terms of the transaction do not (i) adversely affect the validity or enforceability of any Transaction Document, (ii) materially impair the ability of the Company to perform its obligations under the Transaction Documents, (iii) impair the value of the Collateral or the existence, validity or priority of the Trustee's Lien on and Security Interest in the Collateral, or (iv) impair the rights of the Holders, or the Trustee to enforce any of their respective rights or remedies pursuant to the Transaction Documents. SECTION 5.08. NOTICE OF DEFAULTS. The Company shall notify the Trustee and the Holders promptly, but in any event not later than five Business Days after the Company becomes aware of the fact, of any failure by the Company to comply with this Article Five. If the Company fails to give a notice required by this Section 5.08 but nonetheless cures the failure to comply with this Article Five that gave rise to the Company's obligation to give such notice within the cure period, if any, applicable to such failure to comply with this Article Five, from and after the time of such cure such failure to give such notice shall cease to be a default under this Section 5.08. SECTION 5.09. LIMITATIONS ON DIVIDENDS, OTHER SHARE PAYMENTS AND INVESTMENTS IN UNRESTRICTED SUBSIDIARIES. The Company covenants and agrees that (i) it will not declare or pay any dividends (other than dividends payable solely in shares of the Company, including, without limitation, Preferred Share Purchase Rights) on any shares of any class of its capital stock or make any payment on account of the purchase, redemption or other retirement or acquisition of any shares of such stock or make or declare any distribution in respect thereof, either directly or indirectly (such dividend payments, purchases, redemptions, retirements, acquisitions or distributions being herein called "Share Payments"), and (ii) it will not itself, and will not permit any of its Restricted Subsidiaries to, make any investment in Unrestricted Subsidiaries, unless, in the case of any such investment referred to in this clause (ii), at the date of such investment (hereinafter called the "Computation Date"), after giving effect, as if made, to the proposed investment, the sum of the amount of aggregate unliquidated investment (computed as herein below provided) of the Company and all of its Restricted Subsidiaries in Unrestricted Subsidiaries, made on or after the date of this Supplemental Indenture, shall not exceed the greater of (x) $5 million and (y) an amount equal to 10% of the Company's Consolidated Net Assets determined as of the Computation Date. 46 51 For the purpose of this Section 5.09, the amount of any investment in an Unrestricted Subsidiary or capital contribution made through the transfer of property, shall be deemed to be the net book value of such property at the date of such investment or contribution. The Company shall not enter into any agreement or become bound by any obligation to make any Share Payment that would be prohibited by this Section 5.09. For the purpose of any computation under this Section 5.09, the aggregate unliquidated investment of the Company and its Restricted Subsidiaries in any Unrestricted Subsidiary shall be computed in accordance with Generally Accepted Accounting Principles (subject to the above stated requirement to value transferred property at the net book value) and shall include all investments by means of share purchase, loan, advance, guarantee, capital contribution or otherwise; provided, however, that (i) amounts invested by the Company through the exchange of its shares for shares of an Unrestricted Subsidiary shall be disregarded; (ii) except as otherwise specifically provided in clause (iii) of this proviso below, there shall not be deducted from the amounts invested in any Unrestricted Subsidiary any amounts received by the Company or any of its Restricted Subsidiaries (as dividends, interest or otherwise) as earnings on its investment in such Unrestricted Subsidiary; (iii) there shall be deducted from the amounts invested in any Unrestricted Subsidiary 50% of (x) any amounts received by the Company or any of its Restricted Subsidiaries as proceeds of the sale or other disposition of its interest in such Unrestricted Subsidiary on or after the date of this Supplemental Indenture, to the extent such interest arose from an investment in such Unrestricted Subsidiary that was made by the Company or any of its Restricted Subsidiaries on or after the date of this Supplemental Indenture, after payment or provision for all costs incurred by the Company or its Restricted Subsidiary in making such sale or other disposition and taxes arising from such sale or other disposition and (y) the cash dividends received by the Company or any of its Restricted Subsidiaries from its Unrestricted Subsidiaries on or after the date of this Supplemental Indenture; (iv) write-ups, write-downs or write-offs after December 31, 1999, of investments in Unrestricted Subsidiaries shall be disregarded; and 47 52 (v) current accounts receivable from an Unrestricted Subsidiary arising in the ordinary course of business from the sale of goods or services shall not be included. The Company will not permit any of its Restricted Subsidiaries to purchase any shares of any class of the Company other than a purchase of newly issued shares from the Company for cash at a price per share equal to the Current Market Price on the date of purchase. SECTION 5.10. FURTHER DOCUMENTATION; PLEDGE OF INSTRUMENTS AND CHATTEL PAPER. At any time and from time to time, upon the written request of the Trustee or Holders of at least 25% in principal amount of Notes that are at the time Outstanding, and at the sole expense of the Company, the Company will promptly and duly execute and deliver such further instruments and documents and take such further action as the Trustee or such Holders may reasonably request for the purpose of obtaining or preserving the full benefits of this Supplemental Indenture and of the rights and powers herein granted, including, without limitation, (i) the filing of any financing or continuation statements under the Code or similar laws in effect in any such jurisdiction with respect to the Liens created hereby and (ii) providing to the Trustee such documents or instruments as shall be necessary or desirable for the exercise by the Trustee on behalf of the Company of any and all rights relating to the Collateral. The Company also hereby authorizes the Trustee to file any such financing or continuation statement without the signature of the Company to the extent permitted by applicable law. The Company agrees that a carbon, photographic or other reproduction of this Supplemental Indenture may be filed as a financing statement or attached to a financing statement in any jurisdiction where permitted by applicable law. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any Instrument or Chattel Paper, such Instrument or Chattel Paper shall be immediately delivered to the Trustee, duly endorsed in a manner satisfactory to the Trustee, to be held as Collateral pursuant to this Supplemental Indenture. SECTION 5.11. INDEMNIFICATION. The Company agrees to indemnify and hold harmless the Trustee and each Holder from and against any and all claims, demands, losses, judgments and liabilities (including liabilities for penalties) of whatsoever kind or nature, and to reimburse the Trustee and each Holder for all costs and expenses, including reasonable attorneys' fees and expenses, arising out of or resulting from this Supplemental Indenture, including any breach hereof or Event of Default hereunder, or the exercise by the Trustee or any Holder, as the case may be, of any right or remedy granted to it hereunder or under the other Transaction Documents under applicable law; provided, however, that the Company shall not be required to indemnify the Trustee or any Holder to the extent any claim, demand, loss, judgment, liability, cost or expense is determined by final judgment (not subject to further appeal) of a court of competent jurisdiction to have arisen primarily from the gross negligence 48 53 or willful misconduct of the Trustee or such Holder, as the case may be. In no event shall the Trustee or any Holder be liable, in the absence of a determination of gross negligence or willful misconduct on its part by final judgment (not subject to further appeal) of a court of competent jurisdiction, for any matter or thing in connection with this Supplemental Indenture other than to account for moneys actually received by it in accordance with the terms hereof. If and to the extent that the obligations of the Company under this Section 5.11 are unenforceable for any reason, the Company hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law. In any suit, proceeding or action brought by the Trustee or any Holder under any Account or Contract that constitutes part of the Collateral for any sum owing thereunder, or to enforce any provisions of any such Account or Contract, the Company will save, indemnify and keep the Trustee and each Holder harmless from and against all expense, loss or damage suffered by reason of any defense, setoff, counterclaim, recoupment or reduction or liability whatsoever of the account debtor or obligor thereunder, arising out of a breach by the Company of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to or in favor of such account debtor or obligor or its successors from the Company. SECTION 5.12. MAINTENANCE OF RECORDS. The Company will keep and maintain at its own cost and expense satisfactory and complete records of the Collateral, including, without limitation, a record of all payments received and all credits granted with respect to the Accounts that constitute part of the Collateral. For the further security of the Trustee for the ratable benefit of the Holders, the Company hereby grants to the Trustee, for the ratable benefit of the Holders, a security interest in all of the Company's books and records pertaining to the Collateral, and the Company shall turn over any such books and records for inspection at the office of the Company to the Trustee or any Holder or to their respective representatives during normal business hours at the request of the Trustee upon reasonable prior notice from the Trustee or such Holder to the Company. SECTION 5.13. LIMITATION ON LIENS ON COLLATERAL AND AKKADIX SHARES. (a) The Company (x) will not create, incur or permit to exist, will defend the Collateral against, and will take such other action as is necessary to remove, any Lien or claim on or to the Collateral, other than the Liens created hereby and Permitted Liens identified in clause (3) of the definition of Permitted Liens that are inchoate Liens, and (y) will defend the right, title and interest of the Trustee in and to any of the Collateral against the claims and demands of all persons whomsoever other than Permitted Liens identified in clause (3) of the definition of Permitted Liens that are inchoate Liens. (b) The Company will not create, incur or permit to exist, will defend the Akkadix Shares against, and will take such other action as is necessary to remove, any Lien or claim on or to the Akkadix Shares other than (1) Permitted Liens identified 49 54 in clause (3) of the definition of Permitted Liens that are inchoate Liens and (2) Liens created in accordance with this Section 5.13(b). Notwithstanding the foregoing limitation in this Section 5.13(b), the Company shall be permitted to create Liens on the Akkadix Shares so long as: (A) any such Lien secures only Indebtedness for borrowed money that is Permitted Indebtedness and obligations of the Company relating thereto; (B) no Default or Event of Default will result from such incurrence; (C) the Company shall have received a bona fide offer from one or more persons to provide such Indebtedness to the Company with such Lien on the Akkadix Shares; (D) the Company shall have given the holders at least 10 days' notice, with a copy to the Trustee, which notice shall include statements of the amount of such Indebtedness, the material terms of such Indebtedness and the time or period within which the closing of the funding of such Indebtedness is to occur (but in no event sooner than 30 days or later than 90 days after the Company gives such notice to the Holders) and copies of any proposed documents relating to such Indebtedness, and during such 10-day period each Holder shall have the right to notify the Company, with a copy to the Trustee, that such Holder wishes to provide such Holder's pro rata portion of such Indebtedness to the Company, such pro rata portion to be determined from the ratio of the principal amount of such Holder's Note or Notes that are Outstanding to the aggregate principal amount of all Notes that are Outstanding, in each case at the close of business on the date such notice is given by the Company (the "Initial Allocation"), and whether such Holder wishes to provide more than such Holder's Initial Allocation (and if so, the amount such Holder wishes to provide in excess of such Holder's Initial Allocation, which amount may be all of such Indebtedness or any portion thereof as so specified by such Holder); (E) if within such 10-day period (x) no Holder so notifies the Company that it wishes to provide such Indebtedness or (y) one or more Holders so notify the Company that such Holder or Holders wish to provide such Indebtedness but the aggregate amount of such Indebtedness which such Holder or Holders wish to provide (including all amounts in excess of their Initial Allocations), as stated in such notices or notices from such Holder or Holders to the Company, is less than the amount of such Indebtedness as stated in the Company's notice to the Holders given pursuant to clause (D) of this Section 5.13(b), then in the case of either the preceding clause (x) or (y) no Holder shall have any right to provide such Indebtedness and the Company shall be entitled to complete the financing of such Indebtedness on the terms, and on or before the date, or within the period, as the case may be, specified in such notice from the Company to the Holders; 50 55 (F) if within such 10-day period one or more Holders so notify the Company that they wish to provide such Indebtedness and the aggregate amount of such Indebtedness which such Holder or Holders wish to provide (including all amounts in excess of their Initial Allocations), as stated in such notices or notices from such Holder or Holders to the Company, is at least equal to the amount of such Indebtedness as stated in the Company's notice to the Holders given pursuant to clause (D) of this Section 5.13(b), then each Holder who so notifies the Company shall be entitled to provide such pro rata portion of such Indebtedness on the terms set forth in the Company's notice to the Holders given in accordance with clause (D) of this Section 5.13(b); and, if all Holders do not notify the Company that they wish to provide their Initial Allocations of such Indebtedness, each Holder who shall have notified the Company that such Holder wishes to provide more than its Initial Allocation shall be entitled to provide a portion of the amount of such Indebtedness in excess of the aggregate amount thereof which the Holders have offered to provide based on their Initial Allocations, with the portion of such excess allocated to each such Holder to be based on the ratio of the amount of such excess which such Holder offered to provide to the aggregate amount of such excess that all such Holders offered to provide (which procedure shall be followed successively until such excess is fully allocated to such Holders); (G) the closing of the transaction for such Indebtedness with the Holder or Holders entitled to provide such Indebtedness and the creation of such Lien shall occur at such time or within such period specified in the notice given by the Company to the Holders pursuant to clause (D) of this Section 5.13(b); and (H) if one or more Holders shall be entitled in accordance with clause (F) of this Section 5.13(b) to provide such Indebtedness and such Holder or Holders default in their obligations to provide such Indebtedness, then the Company shall promptly give notice to the Holders of such default, with a copy to the Trustee, and, notwithstanding any other provision of this Section 5.13(b), the Company shall have 60 days after such default to complete such Indebtedness financing on terms no more favorable to the lenders providing such Indebtedness than those contained in the notice provided by the Company to the Holders in accordance with clause (D) of this Section 5.13(b). If for any reason such closing and creation of such Lien do not occur within the applicable period provided in this Section 5.13(b), thereafter any proposed creation of a Lien on any of the Akkadix Shares shall again be subject to the requirements of this Section 5.13(b). SECTION 5.14. LIMITATIONS ON DISPOSITIONS OF COLLATERAL AND AKKADIX SHARES. (a) The Company will not sell, transfer, lease, assign or otherwise dispose of 51 56 any of the Collateral to any Person, including, without limitation, any Subsidiary, or attempt, offer or contract to do so except as expressly permitted by Section 5.03(b)(1) of this Supplemental Indenture. SECTION 5.15. PERFORMANCE OF CONTRACTS AND AGREEMENTS GIVING RISE TO ACCOUNTS. The Company will (i) exercise promptly and diligently each and every material right and perform each material obligation which it may have under each Contract that constitutes part of the Collateral and each agreement giving rise to an Account that constitutes part of the Collateral (other than any right of termination) except where the Company determines in its reasonable business judgment that the failure to exercise such right or perform such obligation is in the best interest of the Company and consistent with the protection and preservation of the rights and interests of the Trustee in the Collateral or (ii) deliver to the Holder, upon request, a copy of each material demand, notice or document received by it relating in any way to any Contract that constitutes part of the Collateral or any agreement giving rise to an Account that constitutes part of the Collateral. The Company will not amend or modify the terms of, or waive any rights under, any Contract that constitutes part of the Collateral in a manner which would adversely effect the Security Interest or the value of the Collateral. SECTION 5.16. FURTHER IDENTIFICATION OF COLLATERAL. The Company will furnish to the Trustee or any Holder from time to time, upon the request of the Trustee or such Holder, statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Trustee or such Holder may reasonably request, all in reasonable detail. SECTION 5.17. NOTICES. The Company will advise the Trustee promptly, in reasonable detail, at its address in accordance with Section 9.13 (i) of any Lien (other than Liens permitted hereunder) on, or claim asserted against, any of the Collateral of which the Company has actual notice, (ii) of any Event of Default or any event which, with notice or the lapse of time, or both, would become an Event of Default and (iii) of the occurrence of any other event of which the Company is aware which could reasonably be expected to have a material adverse effect on the Liens created hereunder. SECTION 5.18. CHANGES IN LOCATIONS, NAME, ETC. The Company will not (i) change the location of its chief executive office/chief place of business from 180 Kimball Way, South San Francisco, California 94080 or remove its books and records from such location or (ii) change its name, identity or corporate structure to such an extent that any financing statement filed in connection with this Supplemental Indenture would become misleading, unless in the case of the preceding clause (i) or (ii) it shall have given the Trustee at least 30 days prior written notice thereof and, prior to such action or event, shall have taken appropriate action to preserve and protect the Trustee's security interest under this Supplemental Indenture. 52 57 SECTION 5.19. SUBSIDIARIES. The Company will not permit its Subsidiaries or any other entities controlled by the Company to have any rights in, or to exercise any control over, the Collateral, it being understood that Pledged Securities released in accordance with Section 6.11(b) shall, upon such release, cease to be Collateral and at such time shall cease to be subject to the restrictions in this Section 5.19. SECTION 5.20. WAIVER. The Company, for itself and its successors and assigns, does hereby irrevocably waive and release all preemptive, first-refusal and other similar rights, if any, to purchase any or all of the Pledged Securities upon any sale thereof by the Trustee hereunder, whether such right to purchase arises under the organizational documents of the issuer of such Pledged Securities, by agreement, by operation of law, or otherwise. SECTION 5.21. ADDITIONAL COLLATERAL IN RESPECT OF PLEDGED SECURITIES. (1) In case any stock dividend shall be declared on any of the Pledged Securities, or any shares of stock or fractions thereof shall be issued pursuant to any stock split involving any of the Pledged Securities, or any distribution of capital shall be made on any of the Pledged Securities or from the issuer of any Pledged Securities, or any property shall be distributed upon or with respect to the Pledged Securities or from the issuer of any Pledged Securities pursuant to any recapitalization or reclassification of the capital of the issuer of any Pledged Securities, or pursuant to a reorganization thereof, the shares or other property so distributed shall be delivered to the Trustee as additional collateral security for the Obligations. The Company will forthwith deliver to the Trustee certificates therefor, accompanied by three undated stock powers duly executed in blank by the Company for each such certificate, with appropriate signature guarantees, in the case of capital stock or such other instruments of transfer as are acceptable to the Trustee, and will promptly thereafter deliver to the Trustee an Officers' Certificate describing such stock and certifying that the same has been duly pledged to the Trustee and deposited with the Trustee hereunder. The delivery of such stock powers and such Officers' Certificate shall not be deemed for any purpose to be acts required for creation of the Security Interest in such securities in favor of the Trustee for the benefit of the Holders. (2) If an Event of Default occurs, then during any period in which an Event of Default is continuing, all cash dividends payable in respect of the Pledged Securities shall be paid to the Trustee and retained by it as part of the Collateral. The Trustee shall also be entitled to retain as part of the Collateral the following, all of which shall be received directly by the Trustee: (A) all other or additional stock or securities or property (other than cash) paid or distributed by way of dividend or otherwise, as the case may be, in respect of the Pledged Securities; 53 58 (B) all other or additional stock or other securities or property (including cash) paid or distributed in respect of the Pledged Securities by way of stock-split, spin-off, split-up, reclassification, combination of shares or similar rearrangement; and (C) all other or additional stock or other securities or property (including cash) which may be paid in respect of the Collateral by reason of any consolidation, merger, exchange of stock, conveyance of assets, liquidation, dissolution, or similar corporate reorganization. (3) All dividends, distributions or other payments which are received by the Company contrary to the provisions of this Section 5.21 shall be received in trust for the benefit of the Trustee, shall be segregated from other property or funds of the Company and shall be forthwith paid over to the Trustee by delivery to the Trustee as Collateral in the same form as so received (with any necessary endorsement). If, upon the dissolution or liquidation (in whole or in part) of any issuer of Pledged Securities, any sum shall be paid upon or with respect to any of the Pledged Securities, such sum shall be paid over to the Trustee to be held by the Trustee as additional collateral security for the Obligations. ARTICLE SIX PLEDGE AND SECURITY INTEREST; COLLATERAL SECTION 6.01. GRANT OF SECURITY INTEREST AND PLEDGE; COLLATERAL ASSIGNMENT. As collateral security for the Obligations and for the other purposes provided in this Supplemental Indenture, the Company hereby (x) grants to the Trustee for the ratable benefit of the Holders a first priority security interest in all of the Collateral, (y) pledges to the Trustee for the ratable benefit of the Holders all of the Pledged Securities and (z) assigns, transfers, hypothecates, mortgages, charges and sets over to the Trustee for the ratable benefit of the Holders all of the Company's right, title and interest in and to the Pledged Securities (and in and to the certificates or instruments evidencing the Pledged Securities) and the DPI Investors' Rights Agreement, to be held by the Trustee upon the terms and conditions set forth in this Supplemental Indenture. SECTION 6.02. RIGHTS OF TRUSTEE; LIMITATIONS ON TRUSTEE'S OBLIGATIONS. (a) COMPANY REMAINS LIABLE UNDER ACCOUNTS AND CONTRACTS. Anything herein to the contrary notwithstanding, the Company shall remain liable under each of the Accounts and Contracts that constitute part of the Collateral to 54 59 observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise to each such Account and in accordance with and pursuant to the terms and provisions of each such Contract. Except as specifically provided in Sections 6.02(c) and 6.02(d), neither the Trustee nor any Holder shall have any obligation or liability under any Account that constitutes part of the Collateral (or any agreement giving rise thereto) or under any Contract that constitutes part of the Collateral by reason of or arising out of this Supplemental Indenture or the receipt by the Trustee of any payment relating to such Account or Contract pursuant hereto, nor shall the Trustee be obligated in any manner to perform any of the obligations of the Company under or pursuant to any such Account (or any agreement giving rise thereto) or under or pursuant to any such Contract, to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party under any such Account (or any agreement giving rise thereto) or under any such Contract, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. (b) NOTICE TO CONTRACTING PARTIES. On or prior to the Issuance Date, the Company shall notify all parties to the Contracts that constitute part of the Collateral (and after the Issuance Date, the Company shall notify all parties to any additional Contract that becomes part of the Collateral promptly after such Contract becomes part of the Collateral) that (1) such Contracts have been assigned as Collateral to the Trustee for the ratable benefit of the Holders, (2) payments in respect thereof shall be made directly to the Trustee or as the Trustee shall direct, (3) prior to notice to such party of the occurrence of an Event of Default, copies of all notices given by such party to the Company relating to such Contract shall also be given to the Trustee, at its address set forth in such notice from the Company (or such other address specified in writing by the Trustee), at the same time given to the Company and (4) from and after notice to such party of the occurrence of an Event of Default (until notice to such party that no Event of Default is continuing), all notices by such party relating to such Contract shall be given to (and shall be effective only when given to) the Trustee at its address set forth in such notice from the Company (or such other address specified in writing by the Trustee). (c) PLEDGED SECURITIES AND STOCK POWERS. At or prior to the first issuance of any Note on the Issuance Date, the Company shall deliver to the Trustee certificates for the Pledged Securities, accompanied by three undated stock powers, duly executed in blank by the Company, for each such certificate, with appropriate signature guaranties. The delivery of such stock powers shall not be deemed for any purpose to be acts required for creation of the Security Interest in, or for the pledge of, the Pledged Securities in favor of the Trustee for the benefit of the Holders. 55 60 (d) DPI CONTRACTS. Prior to the issuance of any Notes, the Trustee, DPI and the other parties referred to therein shall have executed and delivered, one to the other, the agreement in the form set forth in SCHEDULE IV. SECTION 6.03. TRUSTEE'S POWERS RESPECTING THE COLLATERAL. (a) POWERS. The Company hereby irrevocably constitutes and appoints the Trustee and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of the Company and in the name of the Company or in its own name, from time to time in the Trustee's discretion, if an Event of Default occurs, then during any period in which an Event of Default is continuing, for the purpose of carrying out the terms of this Supplemental Indenture, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Supplemental Indenture, and, without limiting the generality of the foregoing, the Company hereby gives the Trustee during such period the power and right, on behalf of the Company, without notice to or assent by the Company, except any notice required by law, to do the following: (i) to take possession of and endorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under or with respect to any Collateral and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Trustee for the purpose of collecting any and all such moneys due under or with respect to any such Collateral whenever payable, in each case in the name of the Company or its own name, or otherwise; (ii) to pay or discharge taxes and Liens levied or placed on or threatened against the Collateral and to pay all or any part of the premiums therefor and the costs thereof; (iii) (A) to direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due or to become due thereunder directly to the Trustee or as the Trustee shall direct; (B) to ask or demand for, collect, receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (C) to sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Collateral; (D) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any thereof and to enforce any other right in respect of any Collateral; (E) to defend any suit, action or 56 61 proceeding brought against the Company with respect to any Collateral; (F) to settle, compromise or adjust any suit, action or proceeding described in clause (E) above and, in connection therewith, to give such discharges or releases as the Trustee may deem appropriate; and (G) generally, to sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Trustee were the absolute owner thereof for all purposes, and to do, at the Trustee's option and the Company's expense, at any time, or from time to time, all acts and things which the Trustee deems necessary to protect, preserve or realize upon the Collateral and the Trustee's Liens thereon and to effect the intent of this Supplemental Indenture, all as fully and effectively as the Company might do; and (iv) to exercise any and all voting power with respect to the Pledged Securities. The Company hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable until the Company shall have paid and performed in full all of the Obligations. (b) VOTING AND OTHER RIGHTS. The Company shall be entitled to exercise in a manner not inconsistent with the provisions of this Supplemental Indenture or the other Transaction Documents all voting power with respect to the Pledged Securities, except as provided in Section 6.03(a)(iv) in case an Event of Default shall have occurred and be continuing. The Company will provide the Trustee with at least ten Business Days notice of any permitted or proposed exercise by the Company of any voting or other rights with respect to the Pledged Securities unless the Company receives less than ten Business Days' notice of such action, in which case the Company shall give the Trustee such notice thereof as may be reasonable and practical under the circumstances. The Company hereby appoints the Trustee, with full power of substitution, as the Company's attorney-in-fact to vote the Pledged Securities, if an Event of Default has occurred, during any period an Event of Default is continuing and to exercise other rights with respect thereto, if an Event of Default has occurred, during any period an Event of Default is continuing. On the Closing Date, the Company will deliver to the Trustee an irrevocable proxy, duly executed in form satisfactory to the Trustee, authorizing and directing the Trustee to vote in its sole discretion all Pledged Securities, if an Event of Default has occurred, during any period an Event of Default is continuing and to exercise all other rights pertaining to such securities, if an Event of Default has occurred, during any period an Event of Default is continuing. (c) OTHER POWERS. The Company also authorizes the Trustee, if an Event of Default has occurred, and from time to time during any period in which an Event of Default is continuing, to execute, in connection with the sale provided for herein, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral. 57 62 (d) REGISTRATION AND ENDORSEMENTS OF PLEDGED SECURITIES. If an Event of Default has occurred, then during any period an Event of Default is continuing, (1) at any time and from time to time the Trustee may cause all or any of the Pledged Securities to be transferred into its name or into the name of its nominee or nominees and (2) the Trustee shall have the right, for and in the name, place and stead of the Company and acting as its attorney-in-fact if necessary, to execute endorsements, assignments and other instruments of conveyance or transfer with respect to all or any of the Pledged Securities whenever any such execution is required or permitted hereunder. (e) NO DUTY ON TRUSTEE'S PART. The powers conferred on the Trustee hereunder are solely to protect the Trustee's interests in the Collateral and shall not impose any duty upon the Trustee to exercise any such powers. The Trustee shall be accountable only for amounts that it actually receives as a result of the exercise of such powers, and neither it nor any of its officers, directors, employees or agents shall be responsible to the Company for any act or failure to act hereunder, except for their own gross negligence or willful misconduct. SECTION 6.04. PERFORMANCE BY TRUSTEE OF COMPANY'S OBLIGATIONS. If the Company fails to perform or comply with any of its agreements contained herein and the Trustee, as provided for by the terms of this Supplemental Indenture and following reasonable notice to the Company, shall itself perform or comply, or otherwise cause performance or compliance, with such agreement, the expenses of the Trustee incurred in connection with such performance or compliance shall be payable by the Company to the Trustee on demand and shall constitute Obligations secured hereby. SECTION 6.05. REMEDIES IN GENERAL. If an Event of Default has occurred, then during any period an Event of Default is continuing, the Trustee may exercise, in addition to all other rights and remedies granted to it in this Supplemental Indenture and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the Code. Without limiting the generality of the foregoing, if an Event of Default has occurred, then during any period an Event of Default is continuing, the Trustee, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below or expressly provided for) to or upon the Company or any other Person (all and each of which demands, defenses, advertisements and notices are, to the extent permitted by applicable law, hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, license, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), at public or private sale or sales, at any exchange, broker's board or office of the Trustee or elsewhere upon such terms and 58 63 conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Trustee shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in the Company, which right or equity is hereby waived, to the extent permitted by applicable law, or released. The Company further agrees that, if an Event of Default has occurred, then during any period an Event of Default is continuing, at the Trustee's request, to assemble the Collateral and make it available to the Trustee at places which the Trustee shall reasonably select, whether at the Company's premises or elsewhere. The Trustee shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of every kind incurred therein or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Trustee hereunder, including, without limitation, reasonable attorneys' fees and disbursements, to the payment in whole or in part of the Obligations, in such order as the Trustee may elect, and only after such application and after the payment by the Trustee of any other amount required by any provision of law, need the Trustee account for the surplus, if any, to the Company. To the extent permitted by applicable law, the Company waives all claims, damages and demands it may acquire against the Trustee arising out of the exercise by it of any rights hereunder, provided, that nothing contained in this Section 6.05 shall relieve the Trustee from liability arising solely from its gross negligence or willful misconduct. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least ten days before such sale or other disposition. The Company shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay the Obligations and the fees and disbursements of any attorneys employed by the Trustee to collect such deficiency. SECTION 6.06. REMEDIES WITH RESPECT TO PLEDGED SECURITIES. (a) Without limiting the effect of Section 6.05, the Trustee shall have the further rights with respect to the Pledged Securities set forth in this Section 6.06. Upon the occurrence and during the continuance of an Event of Default, the Trustee shall have, without obligation to resort to other security or to recourse against any guarantor or other party secondarily liable, the right at any time and from time to time to sell, resell, assign and deliver, in the Trustee's discretion, all or any of the Pledged Securities, in one or more parcels at the same or different times, and all right, title, interest, claim and demand therein and right of redemption thereof, at public or private sale, for cash, upon credit or for immediate or future delivery, and at such price or prices and on such terms as the Trustee may determine, the Company hereby agreeing that upon any such sale any and all equity and right of redemption shall be automatically waived and released without any further action on the part of the Company, and in connection therewith the Trustee 59 64 may grant options, all without any demand, advertisement or notice, all of which are hereby expressly waived. In the event of any such sale, the Trustee shall, at least ten days before the sale, give the Company notice of its intention to sell which notice the Company agrees is reasonable. Upon each such sale, the Trustee or the Company may purchase all or any of the Pledged Securities being sold, free of any equity or right of redemption. The proceeds of each such sale shall be applied to the payment of all costs and expenses of every kind for sale or delivery, including reasonable compensation to the agents and attorneys of the Trustee, and all other expenses, liabilities and advances made or incurred by the Trustee in connection therewith, and after deducting such costs and expenses from the proceeds of sale, the Trustee shall apply any residue to the payment of the Obligations in such order as the Trustee may deem fit. Upon the occurrence and during the continuance of an Event of Default, the Trustee shall also have, without obligation to resort to other security or to recourse against any guarantor or other party secondarily liable and in addition to the other remedies provided in this Section 6.06, the right at any time and from time to time, but not the obligation, to exercise ownership of the Pledged Securities and to take all actions as may be permitted under applicable law. (b) If at any time when the Trustee shall determine to exercise its right to sell all or any part of the Pledged Securities pursuant to hereto, such Pledged Securities or the part thereof to be sold shall not, for any reason whatsoever, be effectively registered under the 1933 Act, the Trustee may, in its sole and absolute discretion, sell such Pledged Securities or part thereof by private sale in such manner and under such circumstances as the Trustee may deem necessary or advisable in order that such sale may legally be effected without such registration provided that at least ten days' notice of the time and place of any such sale shall be given to the Company. Without limiting the generality of the foregoing, in any such event the Trustee, in its sole and absolute discretion (i) may proceed to make such private sale notwithstanding that a registration statement for the purpose of registering such Pledged Securities or part thereof shall have been filed under the 1933 Act, (ii) may approach and negotiate with a single possible purchaser to effect such sale, and (iii) may restrict such sale to a purchaser who will represent and agree that such purchaser is purchasing for its own account, for investment, and not with a view to the distribution or sale of such Pledged Securities or part thereof. In the event of any such sale, the Trustee shall incur no responsibility or liability for selling all or any part of the Pledged Securities at a price which the Trustee, in its sole and absolute discretion, may in good faith deem reasonable under the circumstances, notwithstanding the possibility that a substantially higher price might be realized if the sale were deferred until after registration as aforesaid. SECTION 6.07. LIMITATION ON DUTIES REGARDING PRESERVATION OF COLLATERAL. The Trustee's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under the Code or otherwise, shall be to 60 65 deal with it in the same manner as the Trustee deals with similar property for its own account. Neither the Trustee or any Holder nor any of their respective directors, officers, employees, members, partners or agents shall be liable for failure to demand, collect or realize upon all or any part of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of the Company or otherwise. SECTION 6.08. POWERS COUPLED WITH AN INTEREST. All authorizations and agencies herein contained with respect to the Collateral are irrevocable and powers coupled with an interest until the Company has paid and performed in full all of its obligations under the Transaction Documents. SECTION 6.09. TERMINATION OF SECURITY INTEREST; RELEASE OF COLLATERAL. (a) Upon the payment and performance in full by the Company of the Obligations, the Security Interest shall terminate and all rights to the Collateral shall revert to the Company. At any time and from time to time prior to such termination of the Security Interest, the Trustee shall release any of the Collateral only (1) in accordance with Article Fifteen of the Original Indenture, (2) in accordance with Section 6.11(b) or (3) with the prior written consent of the Majority Holders. (b) Upon any such termination of the Security Interest, the Trustee will, at the expense of the Company, promptly execute and deliver to the Company such documents and take such other actions as the Company shall reasonably request to evidence the termination of the Security Interest and deliver to the Company all Collateral so released then in its possession. SECTION 6.10. CONCERNING THE TRUSTEE. The Company acknowledges that the rights and responsibilities of the Trustee under this Supplemental Indenture with respect to any action taken by the Trustee or the exercise or nonexercise by the Trustee of any option, right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Supplemental Indenture shall, as between the Trustee and the Holders, be governed by the Original Indenture and this Supplemental Indenture and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Trustee and the Company, except as expressly provided in Section 6.09, the Trustee shall be conclusively presumed to be acting as agent for the Holders with full and valid authority so to act or refrain from acting, and the Company shall not be under any obligation to make any inquiry respecting such authority. The Trustee hereby waives for the benefit of the Holders any claim, right or Lien of the Trustee against the Collateral arising under applicable law or arising from any business or transaction between the Trustee and the Company other than pursuant to this Supplemental Indenture or any of the other Transaction Documents. 61 66 SECTION 6.11. SUBSTITUTION OF COLLATERAL. (a) If (i) the Company shall have deposited as Collateral with the Trustee, in trust, funds or Government Obligations, the principal of and interest on which when due will, together with any other funds in which, at the time of such deposit and at the end of the 92-day period referred to herein, the Trustee has a perfected first priority security interest for the benefit of the Holders, and without the necessity for investment or reinvestment of such funds or for further investment or reinvestment of the principal amount of or interest on such Government Obligations, provide funds sufficient to pay at maturity or upon repurchase pursuant to Article VII all of the Notes, including principal and interest due or to become due to the Maturity Date or earlier repurchase pursuant to Article VII; (ii) notice of such deposit shall have been given to the Holders, within ten days after the date of such deposit; and the Company shall also pay or cause to be paid all other sums payable hereunder by the Company, then on the date which is 92 days after the date of such deposit by the Company with the Trustee, so long as during such 92-day period no Event of Default specified in clause (5) or (6) of Section 5.01 of the Original Indenture and no event which with notice or passage of time, or both, would become an Event of Default specified in clause (5) or (6) of Section 5.01 of the Original Indenture has occurred, then on demand of the Company accompanied by a Company Certificate and an opinion of counsel and at the cost and expense of the Company, the Trustee shall release to the Company all Collateral other than the Collateral so deposited and shall execute and deliver to the Company such documents and take such other actions as the Company shall reasonably request to evidence the termination of the Security Interest in the Collateral so released and deliver to the Company all such Collateral so released then in the Trustee's possession. (b) If, by reason of the Company's obligations under Section 8.2 of the DPI Merger Agreement, the Company shall become obligated to surrender to DPI shares of DPI Common Stock that are Pledged Securities, the Company shall be entitled to release from the Lien of this Supplemental Indenture shares of DPI Common Stock that are Pledged Securities in accordance with this Section 6.11(b). In order to obtain such release of shares of DPI Common Stock that constitute Pledged Securities, DPI shall: (1) furnish to the Trustee an Officers' Certificate stating (A) the amount in dollars of the obligation of the Company to DPI pursuant to Section 8.2 of the DPI Merger Agreement in respect of which the 62 67 Company is obligated to surrender shares of DPI Common Stock that constitute Pledged Securities; (B) the value per share of DPI Common Stock for purposes of Section 8.2 of the DPI Merger Agreement; (C) the number of shares of DPI Common Stock that constitute Pledged Securities and that are required to be surrendered by the Company to DPI pursuant to Section 8.2 of the DPI Merger Agreement and which the Company is seeking release; (D) that at or before the delivery of such Officers' Certificate to the Trustee, the Company has delivered to the Trustee as Collateral under this Supplemental Indenture one or more certificates for a number of shares of DPI Common Stock equal to the number of shares of DPI Common Stock identified in paragraph (C) of such Officers' Certificate, in accordance with this Section 6.11(b); and (E) that all conditions precedent in the Original Indenture and this Supplemental Indenture for the release of the shares of DPI Common Stock requested in such Officers' Certificate have been satisfied; (2) furnish to the Trustee all documents, certificates and opinions required by Article Fifteen of the Original Indenture in connection with such release of shares of DPI Common Stock that constitute Collateral; (3) deliver to the Trustee as Collateral under this Supplemental Indenture one or more certificates for a number of shares of DPI Common Stock equal to the number of shares of DPI Common Stock to be so released, accompanied by three undated stock powers, duly executed in blank by the Company, for each such stock certificate, with appropriate signature guaranties; provided, however, that the delivery of such stock powers shall not be deemed for any purpose to be acts required for creation of the Security Interest in, or for the pledge of, such shares of DPI Common Stock in favor of the Trustee for the benefit of the Holders; and (4) furnish to the Trustee an Opinion of Counsel that (A) the release of such shares of DPI Common Stock and the substitution therefor of the shares of DPI Common Stock delivered to the Trustee in accordance with the immediately preceding clause (3) shall not be subject to avoidance by a trustee under Section 547(b) of the federal Bankruptcy Code in a case in which the Company is the debtor and (B) all conditions precedent in the Original Indenture and this 63 68 Supplemental Indenture for the release of the shares of DPI Common Stock requested in such Officers' Certificate have been satisfied. ARTICLE SEVEN REPURCHASE UPON A REPURCHASE EVENT SECTION 7.01. REPURCHASE RIGHT. If a Repurchase Event occurs, in addition to any other right of the Holders, each Holder shall have the right, at such Holder's option, to require the Company to repurchase the Repurchase Portion of such Holder's Notes, or any portion thereof by depositing an amount in cash with the Trustee equal to the applicable Repurchase Price payable to such Holder on or before the applicable Repurchase Date for such Repurchase Event. Each Holder shall have the right to require the Company to repurchase the Repurchase Portion of such Holder's Notes or any portion of the Repurchase Portion of such Holder's Notes if a Repurchase Event occurs at any time while any portion of the principal amount of any Note held by such Holder is outstanding at a price equal to the Repurchase Price. SECTION 7.02. NOTICES; METHOD OF EXERCISING REPURCHASE RIGHTS, ETC. (a) On or before the fifth Business Day after the occurrence of a Repurchase Event, the Company shall give to the Trustee and each Holder a Company Notice of the occurrence of the Repurchase Event and of the repurchase right set forth herein arising as a result thereof. Such Company Notice shall set forth: (i) the date by which the repurchase right must be exercised, and (ii) a description of the procedure (set forth in this Section 7.02) which a Holder must follow to exercise the repurchase right. No failure of the Company to give a Company Notice or defect therein shall limit any Holder's right to exercise the repurchase right or affect the validity of the proceedings for the repurchase of any Note or portion hereof. (b) To exercise the repurchase right, a Holder shall deliver to the Company, with a copy to the Trustee, on or before the 20th day after a Company Notice (or if no such Company Notice has been given, within 40 days after such Holder first learns of the Repurchase Event) a Holder Notice setting forth the name of such Holder and the principal amount of Notes to be repurchased from such Holder. A Holder Notice may be revoked by the Holder giving such notice at any time prior to the time the Company pays the applicable Repurchase Price to such Holder. 64 69 (c) If a Holder shall have given a Holder Notice with respect to a Repurchase Event, then on or before the applicable Repurchase Date for such Repurchase Event the Company shall deposit with the Trustee in immediately available funds an amount equal to the aggregate Repurchase Price payable to the Holders, which amount shall be held in trust by the Trustee and applied by the Trustee as provided in this Section 7.02. On the applicable Repurchase Date, (or such later date as a particular Holder surrenders the Note or Notes to be repurchased to the Trustee duly endorsed for transfer to the Trustee of the portion of the outstanding principal amount thereof to be repurchased), the Trustee shall pay the applicable Repurchase Prices to the respective Holders who have so exercised repurchase rights (x) in the case of any Holder who is the Holder of one or more Notes in an aggregate principal amount in excess of $1.0 million, by wire transfer of immediately available funds to such accounts as specified by such Holder in writing to the Trustee at least one Business Day prior to the applicable payment date and (y) in all other cases, by check mailed to such Holder on the applicable payment date at its registered address; provided, however, that if the aggregate amount deposited by the Company with the Trustee to pay the Repurchase Prices in connection with a particular Repurchase Event shall be less than the aggregate amount of the Repurchase Prices payable to all such Holders, then the amount paid to each such Holder shall be an amount equal to the product obtained by multiplying (x) the total amount so deposited by the Company with the Trustee in respect of the exercise of repurchase rights by the Holders by reason of such Repurchase Event times (y) a fraction of which the numerator is the amount of the Repurchase Price so payable to such Holder and the denominator is the aggregate amount of Repurchase Prices so payable to all such Holders. SECTION 7.03. OTHER. (a) If the Company fails to deposit with the Trustee on or before the applicable Repurchase Date the Repurchase Price of any Note (or portion thereof) as to which the repurchase right has been properly exercised pursuant to this Article Seven, then the Repurchase Price for such Note (or the portion thereof) which is required to have been so repurchased shall bear interest to the extent not prohibited by applicable law from the applicable date the Company was required to make such deposit with the Trustee until so deposited at the Default Rate. (b) The Company shall notify a Holder giving a Holder Notice of any claim by the Company of manifest error in such Holder Notice promptly, but in no event later than five Business Days, after such Holder gives such notice and no such claim of error shall limit or delay performance of the Company's obligation to repurchase such portion of the Notes which is not in dispute and (ii) such notice shall be deemed for all purposes to be in proper form unless the Company notifies such Holder within one Business Day after such notice has been given (which notice from the Company shall specify all defects in such notice) and any Holder Notice containing any such defect shall nonetheless be effective on the date given if such Holder promptly undertakes in writing to correct all such defects. 65 70 (c) In case of any Repurchase Event as specified in clause (b) of the definition of such term, the Company shall be entitled to satisfy its obligations to repurchase Notes under this Article VII by causing a third party to make payment on the applicable Repurchase Date of the applicable Repurchase Prices of all Notes required to be repurchased by the Company, in which case the Company shall notify the Holders of such fact, with a copy to the Trustee, at least five Business Days prior to such Repurchase Date; provided, however, that nothing herein shall relieve the Company of its obligation for payment of such Repurchase Prices if such third party shall fail to pay the same when due. SECTION 7.04. FORM OF COMPANY NOTICE. A Company Notice shall be in the following form: COMPANY NOTICE (8% SENIOR SECURED CONVERTIBLE NOTE DUE 2004) TO: ---------------------------------------- (Name of Holder) (1) A Repurchase Event described in clause ____ the definition of that term for the 8% Senior Secured Convertible Notes due 2004 (the "Notes") of Axys Pharmaceuticals, Inc., a Delaware corporation (the "Company"), occurred on _____________. As a result of such Repurchase Event, the Holders are entitled to exercise repurchase rights pursuant to Article Seven of the Supplemental Indenture. (2) Each Holder's repurchase right must be exercised on or before _____________. (3) At or before the date set forth in the preceding paragraph (2), a Holder must deliver to the Company a Holder Notice, in the form set forth in Section 7.05 of the Supplemental Indenture; and (4) In order to receive payment of the Repurchase Price, such Holder must also surrender to the Trustee the Note or Notes to be repurchased, duly endorsed for transfer to the Trustee of the portion of the principal amount to be repurchased. (5) Capitalized terms used herein and not otherwise defined herein have the respective meanings provided in the Note, the Original Indenture and the Supplemental Indenture. Date AXYS PHARMACEUTICALS, INC. ----------------------------------- 66 71 By: ------------------------------ Title: cc: U. S. BANK TRUST NATIONAL ASSOCIATION, as Trustee 550 South Hope Street Suite 500 Los Angeles, California 90071 Attention: Mr. Brad Scarbrough, Assistant Vice President SECTION 7.05. FORM OF HOLDER NOTICE. A Holder Notice shall be in substantially the following form: HOLDER NOTICE 8% SENIOR SECURED CONVERTIBLE NOTE DUE 2004 TO: AXYS PHARMACEUTICALS, INC. (1) Pursuant to the terms of the 8% Senior Secured Convertible Note due 2004 (the "Note"), the undersigned Holder hereby elects to exercise its right to require repurchase by the Company pursuant to Article Seven of the Supplemental Indenture of $______ principal amount of the Note, accrued and unpaid interest on such principal amount and, if applicable, Default Interest thereon, at the Repurchase Price provided in the Supplemental Indenture. (2) Capitalized terms used herein and not otherwise defined herein have the respective meanings provided in the Note, the Original Indenture and the Supplemental Indenture. Date: NAME OF HOLDER: ---------------- By ------------------------------------------ Signature of Registered Holder 67 72 (Must be signed exactly as name appears in the Note.) cc: U. S. BANK TRUST NATIONAL ASSOCIATION, as Trustee 550 South Hope Street Suite 500 Los Angeles, California 90071 Attention: Mr. Brad Scarbrough, Assistant Vice President ARTICLE EIGHT CONVERSION SECTION 8.01. RIGHT TO CONVERT. Subject to and upon compliance with the provisions of this Supplemental Indenture, the Holders shall have the right, at the Holders' option, at any time prior to the close of business on the Maturity Date (except that, if a Holder shall have exercised repurchase rights under Article Seven of this Supplemental Indenture, such conversion right shall terminate with respect to the portion of such Holder's Note or Notes to be repurchased on the last Trading Day prior to the later of (x) the date of such repurchase and (y) the date the Company pays or deposits in accordance with Section 9.14 the applicable Repurchase Price, unless in any such case the Company shall default in payment due upon repurchase thereof) to convert the principal amount of such Holder's Note, or any portion of such principal amount which is at least $10,000 (or such lesser principal amount thereof as shall be outstanding at such time) into that number of fully paid and non-assessable shares of Common Stock (as such shares shall then be constituted) obtained by dividing (1) the principal amount of such Note or portion thereof being converted by (2) the Conversion Price in effect on the applicable Conversion Date, by giving a Conversion Notice in the manner provided in Section 8.02 of this Supplemental Indenture; provided, however, that, if at any time any Note is converted in whole or in part pursuant to this Section 8.01, the Company does not have available for issuance upon such conversion as authorized and unissued shares or in its treasury at least the number of shares of Common Stock required to be issued pursuant hereto, then, at the election of the converting Holder made by notice from such Holder to the Company, such Note (or portion thereof as to which conversion has been requested), to the extent that sufficient shares of Common Stock are not then available for issuance upon conversion, shall be converted into the right to receive from the Company, in lieu of the shares of Common Stock into which such Note or such portion thereof would otherwise be converted and which the Company is unable to issue, payment in an amount equal to the product obtained by multiplying (x) the number of shares of Common Stock which the Company is unable 68 73 to issue times (y) the arithmetic average of the Market Price for the Common Stock during the five consecutive Trading Days immediately prior to the applicable Conversion Date. Any such payment shall, for all purposes of such Note, be deemed to be a payment of principal plus a premium equal to the total amount payable less the principal portion of such Note converted as to which such payment is required to be made because shares of Common Stock are not then available for issuance upon such conversion. In connection with conversion of a Note or portion thereof, the Holder shall not be entitled to payment or credit in respect of accrued and unpaid interest on such Note or portion thereof converted and such interest shall not be deemed to have been paid to such Holder. A Holder is not entitled to any rights of a holder of Common Stock until such Holder has converted a Note to Common Stock, and only to the extent such Note is deemed to have been converted to Common Stock under this Article Eight. For purposes of Sections 8.05 and 8.06, whenever a provision references the shares of Common Stock into which a Note (or a portion thereof) is convertible or the shares of Common Stock issuable upon conversion of a Note (or a portion thereof) or words of similar import, any determination required by such provision shall be made as if a sufficient number of shares of Common Stock were then available for issuance upon conversion in full of the Notes. SECTION 8.02. EXERCISE OF CONVERSION PRIVILEGE; ISSUANCE OF COMMON STOCK ON CONVERSION. (a) In order to exercise the conversion privilege with respect to a Note, the Holder shall give a Conversion Notice (or such other notice which is acceptable to the Company) to the Company and the Trustee or to the office or agency designated by the Company for such purpose by notice to the Holders. A Conversion Notice may be given by telephone line facsimile transmission to the numbers set forth on the form of Conversion Notice. (b) As promptly as practicable, but in no event later than three Trading Days (if the converting Holder has requested delivery through the facilities of The Depository Trust Company), after a Conversion Notice is given by a Holder, the Company shall issue and shall deliver to such Holder or such Holder's designee the number of full shares of Common Stock issuable upon such conversion of such Holder's Note or portion thereof in accordance with the provisions of this Article and deliver a check or cash in respect of any fractional interest in respect of a share of Common Stock arising upon such conversion, as provided in Section 8.02(f) and, if applicable, any cash payment required pursuant to the proviso to the first sentence of Section 8.01 (which payment, if any, shall be paid no later than three Trading Days after the applicable Conversion Date). (c) Each conversion of a Note (or portion thereof) shall be deemed to have been effected on the applicable Conversion Date, and the person in whose name any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become on such Conversion Date the holder of 69 74 record of the shares represented thereby; provided, however, that if a Conversion Date is a date on which the stock transfer books of the Company shall be closed such conversion shall constitute the person in whose name the certificates are to be issued as the record holder thereof for all purposes on the next succeeding day on which such stock transfer books are open, but such conversion shall be at the Conversion Price in effect on the applicable Conversion Date. (d) A Conversion Notice shall be deemed for all purposes to be in proper form unless the Company notifies the Holder giving such Conversion Notice by telephone line facsimile transmission within two Trading Days after such Conversion Notice has been given (which notice from the Company shall specify all defects in such Conversion Notice) and any Conversion Notice containing any such defect shall nonetheless be effective on the date given if such Holder promptly undertakes to correct all such defects. No such claim of error shall limit or delay performance of the Company's obligation to issue upon such conversion the number of shares of Common Stock which are not in dispute. The Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of shares of Common Stock or other securities or property on conversion of any Note in a name other than that of the Holder converting such Note, and the Company shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons requesting the issuance thereof shall have paid to the Company the amount of any such tax or shall have established to the reasonable satisfaction of the Company that such tax has been paid. A Holder shall be responsible for the amount of any withholding tax payable in connection with any conversion of such Holder's Note. (e) (1) If a Holder shall have given a Conversion Notice in accordance with the terms of this Supplemental Indenture, the Company's obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of any action or inaction by the Trustee or such Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Company to the Trustee or the Holders, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Trustee, any Holder or any other person of any obligation to the Company or any violation or alleged violation of law by the Trustee, any Holder or any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to such Holder in connection with such conversion; provided, however, that nothing herein shall limit or prejudice the right of the Company to pursue any such claim in any other manner permitted by applicable law. The occurrence of an event which requires an adjustment of the Conversion Price as contemplated by Section 8.03 shall in no way restrict or delay the right of the Holders to receive certificates for Common Stock upon conversion of Notes and the Company shall 70 75 use its best efforts to implement such adjustment on terms reasonably acceptable to the Holders within three Trading Days of such occurrence. (2) If the Company fails to issue and deliver the shares of Common Stock to a converting Holder in connection with a particular conversion of a Note promptly, but in no event later than five Trading Days (if the converting Holder has requested delivery through the facilities of The Depository Trust Company), after such Holder gives the Conversion Notice for such conversion, in addition to any other liabilities the Company may have hereunder and under applicable law (A) the Company shall pay or reimburse such Holder on demand for all out-of-pocket expenses, including, without limitation, reasonable fees and expenses of legal counsel, incurred by such Holder as a result of such failure, (B) if as a result of such failure such Holder shall suffer any direct damages or liabilities from such failure (including, without limitation, margin interest and the cost of purchasing securities to cover a sale (whether by such Holder or such Holder's securities broker) or borrowing of shares of Common Stock by such Holder for purposes of settling any trade involving a sale of shares of Common Stock made by such Holder during the period beginning on the Issuance Date and ending on the date the Company delivers or causes to be delivered to such Holder such shares of Common Stock, then the Company shall upon demand of such Holder pay to such Holder an amount equal to the actual direct, out-of-pocket damages and liabilities suffered by such Holder by reason thereof which such Holder documents to the reasonable satisfaction of the Company, and (C) such Holder may by written notice (which may be given by mail, courier, personal service or telephone line facsimile transmission) or oral notice (promptly confirmed in writing) to the Company, with a copy to the Trustee, given at any time prior to delivery to such Holder of the shares of Common Stock issuable in connection with such exercise of such Holder's conversion right, rescind such exercise and the Conversion Notice relating thereto, in which case such Holder shall thereafter be entitled to convert that portion of such Note as to which such exercise is so rescinded and to exercise its other rights and remedies with respect to such failure by the Company. Notwithstanding the foregoing the Company shall not be liable to any Holder under clause (B) of the immediately preceding sentence to the extent the failure of the Company to deliver or to cause to be delivered such shares of Common Stock results from fire, flood, storm, earthquake, shipwreck, strike, war, acts of terrorism, crash involving facilities of a common carrier, acts of God, or any similar event outside the control of the Company (it being understood that the action or failure to act of the Trustee shall not be deemed an event outside the control of the Company except to the extent resulting from fire, flood, storm, earthquake, shipwreck, strike, war, acts of terrorism, crash involving facilities of a common carrier, acts of God, the bankruptcy, liquidation or reorganization of the Trustee under any bankruptcy, insolvency or other similar law or any similar event outside the control of the Trustee). A converting Holder shall notify the Company in writing (or by telephone conversation, confirmed in writing) as promptly as practicable following the third Trading Day after such Holder gives a Conversion Notice if such 71 76 Holder becomes aware that such shares of Common Stock so issuable have not been received as provided herein, but any failure so to give such notice shall not affect such Holder's rights under the Original Indenture, this Supplemental Indenture, the Notes or otherwise. (f) No fractional shares of Common Stock shall be issued upon conversion of any Note but, in lieu of any fraction of a share of Common Stock which would otherwise be issuable in respect of such conversion, the Company may round the number of shares of Common Stock issued on such conversion up to the next highest whole share or may pay lawful money of the United States of America for such fractional share, based on a value of one share of Common Stock being equal to the Market Price of the Common Stock on the applicable Conversion Date. SECTION 8.03. ADJUSTMENT OF CONVERSION PRICE. The Conversion Price shall be adjusted from time to time by the Company as follows: (a) In case the Company shall on or after the Issuance Date pay a dividend or make a distribution to all holders of the outstanding Common Stock in shares of Common Stock, the Conversion Price in effect at the opening of business on the date following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the Record Date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the day following the Record Date. If any dividend or distribution of the type described in this Section 8.03(a) is declared but not so paid or made, the Conversion Price shall again be adjusted to the Conversion Price which would then be in effect if such dividend or distribution had not been declared. (b) In case the Company shall on or after the Issuance Date issue rights or warrants (other than any rights or warrants (including the Preferred Share Purchase Rights) referred to in Section 8.03(d)) to all holders of its outstanding shares of Common Stock entitling them (for a period expiring within 45 days after the date fixed for the determination of stockholders entitled to receive such rights or warrants) to subscribe for or purchase shares of Common Stock at a price per share less than the Current Market Price on the Record Date fixed for the determination of stockholders entitled to receive such rights or warrants, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect at the opening of business on the date after such Record Date by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the Record Date plus the number of shares which the aggregate offering 72 77 price of the total number of shares so offered would purchase at such Current Market Price, and the denominator shall be the number of shares of Common Stock outstanding on the close of business on the Record Date plus the total number of additional shares of Common Stock so offered for subscription or purchase. Such adjustment shall become effective immediately after the opening of business on the day following the Record Date fixed for determination of stockholders entitled to receive such rights or warrants. To the extent that shares of Common Stock are not delivered pursuant to such rights or warrants, upon the expiration or termination of such rights or warrants, the Conversion Price shall be readjusted to the Conversion Price which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered. In the event that such rights or warrants are not so issued, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such date fixed for the determination of stockholders entitled to receive such rights or warrants had not been fixed. In determining whether any rights or warrants entitle the holder to subscribe for or purchase shares of Common Stock at less than such Current Market Price, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received for such rights or warrants, the value of such consideration, if other than cash, to be determined by the Board of Directors. (c) In case the outstanding shares of Common Stock shall on or after the Issuance Date be subdivided into a greater number of shares of Common Stock, the Conversion Price in effect at the opening of business on the earlier of the day following the day upon which such subdivision becomes effective and the day on which "ex-" trading of the Common Stock begins with respect to such subdivision shall be proportionately reduced, and conversely, in case outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Conversion Price in effect at the opening of business on the earlier of the day following the day upon which such combination becomes effective and the day on which "ex-" trading of the Common Stock with respect to such combination begins shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the earlier of the day following the day upon which such subdivision or combination becomes effective and the day on which "ex-" trading of the Common Stock begins with respect to such subdivision or combination. (d) In case the Company shall on or after the Issuance Date, by dividend or otherwise, distribute to all holders of its Common Stock shares of any class of capital stock of the Company (other than any dividends or distributions to which Section 8.03(a) applies) or evidences of its indebtedness, cash or other assets (including securities, but excluding any rights or warrants referred to in Section 8.03(b) and dividends and distributions paid exclusively in cash and excluding any capital stock, 73 78 evidences of indebtedness, cash or assets distributed upon a merger or consolidation to which Section 8.04 applies) (the foregoing hereinafter in this Section 8.03(d) called the "Securities")), then, in each such case, subject to the second paragraph of this Section 8.03(d), the Conversion Price shall be reduced so that the same shall be equal to the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the Record Date with respect to such distribution by a fraction of which the numerator shall be the Current Market Price on such date less the Fair Market Value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) on such date of the portion of the Securities so distributed applicable to one share of Common Stock and the denominator shall be such Current Market Price, such reduction to become effective immediately prior to the opening of business on the day following the Record Date; provided, however, that in the event the then Fair Market Value (as so determined) of the portion of the Securities so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price on the Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that the Holders shall have the right to receive upon conversion of the Notes (or any portion thereof) the amount of Securities each Holder would have received had the Holder converted the Notes (or such portion thereof) immediately prior to such Record Date. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been declared. If the Board of Directors determines the Fair Market Value of any distribution for purposes of this Section 8.03(d) by reference to the actual or when issued trading market for any Securities comprising all or part of such distribution, it must in doing so consider the prices in such market over the same period used in computing the Current Market Price, to the extent possible. Rights or warrants distributed by the Company to all holders of Common Stock entitling the holders thereof to subscribe for or purchase shares of the Company's capital stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events (a "Trigger Event"): (i) are deemed to be transferred with such shares of Common Stock; (ii) are not exercisable; and (iii) are also issued in respect of future issuances of Common Stock, shall not be deemed to have been distributed for purposes of this Section 8.03 (and no adjustment to the Conversion Price under this Section 8.03 will be required) until the occurrence of the earliest Trigger Event. If any such rights or warrants, including any such existing rights or warrants distributed prior to the Issuance Date (including the Preferred Share Purchase Rights), are subject to Trigger Events, upon the satisfaction of each of which such rights or warrants shall become exercisable to purchase different securities, evidences of indebtedness or other assets, then the occurrence of each such Trigger Event shall be deemed to be such date of issuance and Record Date with respect to new rights or warrants (and a termination or expiration of the existing rights or warrants without exercise by the holder thereof) (so that, by way of illustration and not limitation, the 74 79 dates of issuance of any such rights shall be deemed to be the dates on which such rights become exercisable to purchase capital stock of the Company, and not the date on which such rights may be issued, or may become evidenced by separate certificates, if such rights are not then so exercisable). In addition, in the event of any distribution of rights or warrants, or any Trigger Event with respect thereto (including the Preferred Share Purchase Rights), that was counted for purposes of calculating a distribution amount for which an adjustment to the Conversion Price under this Section 8.03 was made (1) in the case of any such rights or warrants which shall all have been redeemed or repurchased without exercise by any holders thereof, the Conversion Price shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or repurchase price received by a holder or holders of Common Stock with respect to such rights or warrants (assuming such holder had retained such rights or warrants), made to all holders of Common Stock as of the date of such redemption or repurchase, and (2) in the case of such rights or warrants (including the Preferred Share Purchase Rights) which shall have expired or been terminated without exercise by any holders thereof, the Conversion Price shall be readjusted as if such rights and warrants had not been issued. For purposes of this Section 8.03(d) and Sections 8.03(a) and (b), any dividend or distribution to which this Section 8.03(d) is applicable that also includes shares of Common Stock, or rights or warrants to subscribe for or purchase shares of Common Stock to which Section 8.03(b) applies (or both), shall be deemed instead to be (1) a dividend or distribution of the evidences of indebtedness, assets, shares of capital stock, rights or warrants other than such shares of Common Stock or rights or warrants to which Section 8.03(b) applies (and any Conversion Price reduction required by this Section 8.03(d) with respect to such dividend or distribution shall then be made) immediately followed by (2) a dividend or distribution of such shares of Common Stock or such rights or warrants (and any further Conversion Price reduction required by Sections 8.03(a) and (b) with respect to such dividend or distribution shall then be made), except (A) the Record Date of such dividend or distribution shall be substituted as "the date fixed for the determination of stockholders entitled to receive such dividend or other distribution", "Record Date fixed for such determination" and "Record Date" within the meaning of Section 8.03(a) and as "the date fixed for the determination of stockholders entitled to receive such rights or warrants", "the Record Date fixed for the determination of the stockholders entitled to receive such rights or warrants" and "such Record Date" within the meaning of Section 8.03(b) and (B) any shares of Common Stock included in such dividend or distribution shall not be deemed "outstanding at the close of business on the Record Date fixed for such determination" within the meaning of Section 8.03(a). (e) In case the Company shall on or after the Issuance Date, by dividend or otherwise, distribute to all holders of its Common Stock cash (excluding 75 80 any cash that is distributed upon a merger or consolidation to which Section 8.04 applies or as part of a distribution referred to in Section 8.03(d)) in an aggregate amount that, combined with (1) the aggregate amount of any other such distributions to all holders of its Common Stock made exclusively in cash within the 12 months preceding the date of payment of such distribution, and in respect of which no adjustment pursuant to this Section 8.03(e) has been made, and (2) the aggregate of any cash plus the Fair Market Value (as determined by the Board of Directors, whose determination shall be conclusive and set forth in a Board Resolution) of consideration payable in respect of any Tender Offer by the Company or any Subsidiary for all or any portion of the Common Stock concluded within the 12 months preceding the date of payment of such distribution, and in respect of which no adjustment pursuant to Section 8.03(f) has been made, exceeds 10% of the product of (x) the Current Market Price on the Record Date with respect to such distribution times (y) the number of shares of Common Stock outstanding on such date, then, and in each such case, immediately after the close of business on such date, unless the Company elects to reserve such cash for distribution to the Holders upon the conversion of Notes (and shall have made adequate provision by deposit with the Trustee) so that the Holders will receive upon such conversion, in addition to the shares of Common Stock to which the Holders are entitled, the amount of cash which the Holders would have received if the Holders had, immediately prior to the Record Date for such distribution of cash, converted the Notes into Common Stock, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on such Record Date by a fraction (i) the numerator of which shall be equal to the Current Market Price on the Record Date less an amount equal to the quotient of (x) the excess of such combined amount over such 10% and (y) the number of shares of Common Stock outstanding on the Record Date and (ii) the denominator of which shall be equal to the Current Market Price on the Record Date; provided, however, that in the event the portion of the cash so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price of the Common Stock on the Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that the Holders shall have the right to receive upon conversion of the Notes (or any portion thereof) the amount of cash the Holders would have received had the Holders converted their Notes (or portion thereof) immediately prior to such Record Date. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been declared. (f) In case a Tender Offer on or after the Issuance Date made by the Company or any Subsidiary for all or any portion of the Common Stock shall expire and such Tender Offer (as amended upon the expiration thereof) shall require the payment to stockholders (based on the acceptance (up to any maximum specified in the terms of the Tender Offer) of Purchased Shares (as defined below)) of an aggregate consideration having a Fair Market Value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) that combined together with (1) the aggregate of the cash plus the Fair Market Value (as determined by the Board of Directors, 76 81 whose determination shall be conclusive and described in a Board Resolution), as of the expiration of such Tender Offer, of consideration payable in respect of any other Tender Offers, by the Company or any Subsidiary for all or any portion of the Common Stock expiring within the 12 months preceding the expiration of such Tender Offer and in respect of which no adjustment pursuant to this Section 8.03(f) has been made and (2) the aggregate amount of any distributions to all holders of the Company's Common Stock made exclusively in cash within 12 months preceding the expiration of such Tender Offer and in respect of which no adjustment pursuant to Section 8.03(e) has been made, exceeds 10% of the product of (i) the Current Market Price as of the last time (the "Expiration Time") tenders could have been made pursuant to such Tender Offer (as it may be amended) times (ii) the number of shares of Common Stock outstanding (including any tendered shares) at the Expiration Time, then, and in each such case, immediately prior to the opening of business on the day after the date of the Expiration Time, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to close of business on the date of the Expiration Time by a fraction of which the numerator shall be the number of shares of Common Stock outstanding (including any tendered shares) at the Expiration Time multiplied by the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time and the denominator shall be the sum of (x) the Fair Market Value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the Tender Offer) of all shares validly tendered and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Purchased Shares") and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) at the Expiration Time and the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time, such reduction (if any) to become effective immediately prior to the opening of business on the day following the Expiration Time. In the event that the Company is obligated to purchase shares pursuant to any such Tender Offer, but the Company is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such Tender Offer had not been made. If the application of this Section 8.03(f) to any Tender Offer would result in an increase in the Conversion Price, no adjustment shall be made for such Tender Offer under this Section 8.03(f). (g) (1) In case at any time on or after the Issuance Date the Company shall issue shares of its Common Stock or Common Stock Equivalents (collectively, the "Newly Issued Shares"), other than an issuance pro rata to all holders of its outstanding Common Stock, at a price below the Specified Market Value of the 77 82 Common Stock at the time of such issuance, then following such issuance of Newly Issued Shares the Conversion Price shall be adjusted as provided in this Section 8.03(g). The Conversion Price following any such adjustment shall be determined by multiplying the Conversion Price immediately prior to such adjustment by a fraction, of which the numerator shall be the sum of (a) the number of shares of Common Stock outstanding immediately prior to the issuance of the Newly Issued Shares (calculated on a fully-diluted basis assuming the conversion of all options, warrants, purchase rights or convertible securities which are exercisable at the time of the issuance of the Newly Issued Shares) plus (b) the number of shares of Common Stock which the aggregate consideration, if any, received by the Company for the number of Newly Issued Shares would purchase at a price equal to the Specified Market Value of the Common Stock at the time of such issuance, and the denominator shall be the sum of (X) the number of shares of Common Stock outstanding immediately prior to the issuance of the Newly Issued Shares (calculated on a fully-diluted basis assuming the exercise or conversion of all options, warrants, purchase rights or convertible securities which are exercisable or convertible at the time of the issuance of the Newly Issued Shares) plus (Y) the number of Newly Issued Shares. The adjustment provided for in this Section 8.03(g) may be expressed as the following mathematical formula: (O +(C / SMV)) NCP -------------- X CP (O + N) where: C = aggregate consideration received by the Company for the Newly Issued Shares N = number of Newly Issued Shares O = number of shares of Common Stock outstanding (on a fully diluted basis, as described above) immediately prior to the issuance of the Newly Issued Shares SMV = Specified Market Value of the Common Stock at the time of issuance of the Newly Issued Shares CP = Conversion Price immediately prior to the issuance of the Newly Issued Shares NCP = Conversion Price immediately after the issuance of the Newly Issued Shares 78 83 (2) Notwithstanding the foregoing, no adjustment shall be made under this Section 8.03(g) by reason of: (A) the issuance by the Company of shares of Common Stock pro rata to all holders of the Common Stock so long as (i) any adjustment to the Conversion Price that is required by Section 8.03(a) is made and (ii) the Company shall have given notice of such issuance thereof to the Holders pursuant to Section 8.06; (B) the issuance by the Company of Newly Issued Shares in an offering for cash for the account of the Company that is underwritten on a firm commitment basis and (i) is registered under the 1933 Act or (ii) sold in an offering primarily to "qualified institutional buyers" as defined in, and in a transaction under, Rule 144A under the 1933 Act; (C) the issuance by the Company of shares of Common Stock upon conversion of the Notes or upon exercise of the Warrants in accordance with the terms hereof and thereof; (D) the issuance by the Company of shares of Common Stock in payment of interest on the Notes in accordance with the terms hereof and thereof; (E) the issuance by the Company of shares of Common Stock pursuant to the exercise of options, warrants or other rights outstanding as of the date of this Supplemental Indenture in accordance with their respective terms in effect on the date of this Supplemental Indenture; and (F) the issuance by the Company of shares of Common Stock pursuant to the Common Stock Purchase Agreement, dated as of July 21, 2000, between the Company and Acqua Wellington North American Equities Fund, Ltd., as in effect on the date of this Supplemental Indenture. (3) In case at any time on or after the Issuance Date the Company shall issue shares of Common Stock or Common Stock Equivalents to any Subsidiary, the Conversion Price shall be subject to adjustment as and to the extent provided in this Section 8.03(g) by reason of such issuance. In case at any time on or after the Issuance Date any Subsidiary shall sell any shares of Common Stock or Common Stock Equivalents, such sale shall be deemed for purposes of this Section 8.03(g) to be the issuance of such shares of Common Stock or Common Stock Equivalents by the Company, and the Conversion Price shall also be subject to further adjustment as and to the extent provided in this Section 8.03(g) by reason of such sale of shares of Common Stock or Common Stock Equivalents by such Subsidiary. 79 84 (h) The Company may make such reductions in the Conversion Price, in addition to those required by Sections 8.03(a), (b), (c), (d), (e), (f), and (g) as the Board of Directors considers to be advisable to avoid or diminish any income tax to holders of Common Stock or rights to purchase Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. (i) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% in such price; provided, however, that any adjustments which by reason of this Section 8.03(i) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article II shall be made by the Company and shall be made to the nearest cent or to the nearest one hundredth of a share, as the case may be. No adjustment need be made for a change in the par value of the Common Stock or from par value to no par value or from no par value to par value. (j) Whenever the Conversion Price is adjusted as herein provided, the Company shall promptly, but in no event later than five Business Days thereafter, give a notice to the Holders, with a copy to the Trustee, setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment, but which statement shall not include any information which would be material non-public information for purposes of the 1934 Act. Failure to deliver such notice shall not affect the effectiveness, legality or validity of any such adjustment. (k) In any case in which this Section 8.03 provides that an adjustment shall become effective immediately after a Record Date for an event, the Company may defer until the occurrence of such event (i) issuing to the Holders in connection with any conversion of Notes after such Record Date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (ii) paying to such Holder any amount in cash in lieu of any fraction pursuant to Section 8.02(f). (l) For purposes of this Section 8.03, the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company other than (i) dividends or distributions payable only in shares of Common Stock and (ii) the Preferred Share Purchase Rights. 80 85 SECTION 8.04. EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. (a) If any of the following events occur, namely (i) any reclassification or change of the outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), (ii) any consolidation, merger or combination of the Company with another Person as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, or (iii) any sale or conveyance of the properties and assets of the Company as, or substantially as, an entirety to any other Person as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, then prior to such reclassification, change, consolidation, merger, combination or sale the Company or the successor or purchasing Person, as the case may be, shall execute with the Trustee a written agreement providing that (x) the Notes shall be convertible into the kind and amount of shares of stock and other securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance by the holder of a number of shares of Common Stock issuable upon conversion of the Notes immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance assuming such holder of Common Stock did not exercise such holder's rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance (provided that, if the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance is not the same for each share of Common Stock in respect of which such rights of election shall not have been exercised ("non-electing share"), then for the purposes of this Section 8.04 the kind and amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance for each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares), (y) in the case of any such successor or purchasing Person, upon such consolidation, merger, combination, sale or conveyance such successor or purchasing Person shall be jointly and severally liable with the Company for the payment and performance of all of the Company's obligations under the Original Indenture, this Supplemental Indenture and the Notes and the other Transaction Documents and (z) if registration or qualification is required under the 1933 Act or applicable state law for the Notes, the Warrants or the issuance to the Holders or the holders of the Warrants of the shares of such shares of stock and other securities so issuable upon conversion of the Notes or exercise of the Warrants, such registration or qualification shall be completed prior to such reclassification, change, consolidation, merger, combination or sale. Such written agreement shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article. If, in the case of any such reclassification, change, consolidation, merger, combination, sale or 81 86 conveyance, the stock or other securities and assets receivable thereupon by a holder of shares of Common Stock includes shares of stock or other securities and assets of a corporation other than the successor or purchasing corporation, as the case may be, in such reclassification, change, consolidation, merger, combination, sale or conveyance, then such written agreement shall also be executed by such other corporation and shall contain such additional provisions to protect the interests of the Holders as the Board of Directors shall reasonably consider necessary by reason of the foregoing, including, to the extent practicable, the provisions providing for the repurchase rights set forth in Article Seven herein. (b) The above provisions of this Section shall similarly apply to successive reclassifications, changes, consolidations, mergers, combinations, sales and conveyances. (c) If this Section 8.04 applies to any event or occurrence, Section 8.03 shall not apply to such event or occurrence. SECTION 8.05. RESERVATION OF SHARES; SHARES TO BE FULLY PAID; LISTING OF COMMON STOCK. (a) The Company shall reserve and keep available, free from preemptive rights, out of its authorized but unissued shares of Common Stock or shares of Common Stock held in treasury, solely for issuance upon conversion of the Notes, and in addition to the shares of Common Stock required to be reserved by the terms of the Warrants, sufficient shares to provide for the conversion of the Notes from time to time as the Notes are converted. (b) Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value, if any, of the shares of Common Stock issuable upon conversion of the Notes, the Company will take all corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue shares of such Common Stock at such adjusted Conversion Price. (c) The Company covenants that all shares of Common Stock issued upon conversion of the Notes will be fully paid and non-assessable by the Company and free from all taxes, Liens and charges with respect to the issue thereof. (d) The Company covenants that if any shares of Common Stock to be provided for the purpose of conversion of the Notes hereunder require registration with or approval of any governmental authority under any federal or state law before such shares may be validly issued upon conversion, the Company will in good faith and as 82 87 expeditiously as possible endeavor to secure such registration or approval, as the case may be. (e) The Company covenants that, so long as the Common Stock shall be listed on the Nasdaq, the NYSE, the AMEX or any other national securities exchange, the Company shall obtain and, so long as the Common Stock shall be so listed on such market or exchange, maintain approval for listing thereon of all Common Stock issuable upon conversion of or in payment of interest on the Notes. SECTION 8.06. NOTICE TO HOLDERS PRIOR TO CERTAIN ACTIONS. In case on or after the Issuance Date: (a) the Company shall declare a dividend (or any other distribution) on its Common Stock (other than in cash out of retained earnings); or (b) the Company shall authorize the granting to the holders of its Common Stock of rights or warrants to subscribe for or purchase any share of any class or any other rights or warrants; or (c) the Board of Directors shall authorize any reclassification of the Common Stock of the Company (other than a subdivision or combination of its outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value), or any consolidation or merger or other business combination transaction to which the Company is a party and for which approval of any stockholders of the Company is required, or the sale or transfer of all or substantially all of the assets of the Company; or (d) there shall be pending the voluntary or involuntary dissolution, liquidation or winding-up of the Company; the Company shall give the Holders, as promptly as possible but in any event at least ten Trading Days prior to the applicable date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution or rights are to be determined, or (y) the date on which such reclassification, consolidation, merger, other business combination transaction, sale, transfer, dissolution, liquidation or winding-up is expected to become effective or occur, and the date as of which it is expected that holders of Common Stock of record who shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, other business combination transaction, sale, transfer, dissolution, liquidation or winding-up shall be determined. Such notice shall not include any information which would be material non-public information for 83 88 purposes of the 1934 Act. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such dividend, distribution, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up. In the case of any such action of which the Company gives such notice to the Holders or is required to give such notice to the Holders, the Holders shall be entitled to give Conversion Notices which are contingent on the completion of such action. SECTION 8.07. ORIGINAL INDENTURE. The conversion provisions of this Article Eight shall supersede Sections 1402, 1403, 1404 and 1409 of the Original Indenture. ARTICLE NINE SUNDRY PROVISIONS SECTION 9.01. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. Except to the extent modified by this Supplemental Indenture, the Company makes and reaffirms as of the date of execution of this Supplemental Indenture all of its representations, warranties, covenants and agreements set forth in the Original Indenture. SECTION 9.02. TRUSTEE NOT RESPONSIBLE FOR RECITALS. The recitals contained herein shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representation as to the validity of this Supplemental Indenture. SECTION 9.03. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and Section headings herein are for convenience only and shall not affect the construction hereof. SECTION 9.04. SUCCESSORS AND ASSIGNS. All covenants and agreements in this Supplemental Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 9.05. SEPARABILITY CLAUSE. In case any provision in this Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 9.06. BENEFITS OF SUPPLEMENTAL INDENTURE. Nothing in this Supplemental Indenture, express or implied, shall give to any Person, other than the parties hereto, any Paying Agent, any Note Registrar and their successors under the 84 89 Original Indenture and the Holders of Notes, any benefit or any legal or equitable right, remedy or claim under the Original Indenture. SECTION 9.07. GOVERNING LAW. This Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York. SECTION 9.08. COUNTERPARTS. This Supplemental Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. SECTION 9.09. ENFORCEABLE OBLIGATION. The Company represents and warrants that at the time of the original issuance of each Note it received the full purchase price payable pursuant to the Note Purchase Agreements pursuant to which such Note is being issued in an amount at least equal to the original principal amount of such Note, and that each Note is an enforceable obligation of the Company which is not subject to any offset, reduction, counterclaim or disallowance of any sort. SECTION 9.10. CERTAIN PERFORMANCE. The Company acknowledges and agrees that, by reason of, among other things, the conversion rights of the Holders, there shall be no adequate remedy at law for the Company's willful failure to comply with the Original Indenture, this Supplemental Indenture or the Notes, and that the repayment of principal of and interest on the Notes, and payment by the Company of the other amounts payable by the Company, in connection with an Event of Default, will not adequately compensate the Holders for any loss or impairment of the conversion rights. The Company agrees that, in addition to any other rights or remedies, the Trustee and the Holders shall be entitled to specific performance by the Company of its obligations under, and an injunction against any action that would constitute a failure by the Company to comply with, the Original Indenture, this Supplemental Indenture and the Notes. SECTION 9.11. AMENDMENTS. In addition to the requirements of Section 902 of the Original Indenture, no supplemental indenture shall, without the consent of the Holder of each Outstanding Note affected thereby, change the obligations of the Company to redeem or repurchase Notes pursuant to Article Seven of this Supplemental Indenture. SECTION 9.12. REFERENCE TO AND EFFECT ON ORIGINAL INDENTURE. This Supplemental Indenture shall be construed as supplemental to the Original Indenture and all the terms and conditions of this Supplemental Indenture shall be deemed to be part of the terms and conditions of the Original Indenture. Except as set forth herein, the Original Indenture heretofore executed and delivered is hereby ratified, approved and confirmed. The provisions of this Supplemental Indenture shall for the purposes of 85 90 this series of Securities supersede the provisions of the Original Indenture heretofore executed and delivered to the extent such Original Indenture heretofore executed and delivered is expressly inconsistent herewith. This Supplemental Indenture is subject to the provisions of the Trust Indenture Act, and shall, to the extent applicable, be governed by such provisions. SECTION 9.13. NOTICES. Notwithstanding Sections 105 and 106 of the Original Indenture, whenever under the provisions of the Original Indenture, this Supplemental Indenture or the Notes any notice is required or permitted to be given, such notice shall be in writing (except as otherwise specifically provided in the Original Indenture, this Supplemental Indenture or the Notes) and shall be sent by telephone line facsimile transmission to such telephone line facsimile transmission number as shall be set forth below or shall have been provided for purposes hereof by the Person entitled to such notice or, if no such telephone line facsimile transmission number shall have been so provided, may be sent by first class mail (postage prepaid), personal delivery or courier (charges prepaid) addressed as follows: If to the Company: Axys Pharmaceuticals, Inc. 180 Kimball Way South San Francisco, California 94080 Attention: Chief Financial Officer Facsimile No.: (650) 829-1067 If to the Trustee: U. S. Bank Trust National Association, as Trustee 550 South Hope Street Suite 500 Los Angeles, California 90071 Attention: Mr. Brad Scarbrough, Assistant Vice President Facsimile No.: (213) 533-8729 and if to any Holder, at such Holder's telephone line facsimile transmission number or address set forth in the Security Register for the Notes. Any notice so sent by telephone line facsimile transmission, personal delivery or courier shall be effective upon receipt, 86 91 and any such notice sent by mail shall be effective three Business Days after being deposited with the facilities of the United States Postal Service. The Company or the Trustee may change its telephone line facsimile transmission number or address for purposes of notices under the Original Indenture and hereunder by giving three Business Days' notice to the other, in each case with similar notice to all of the Holders. Any Holder may change its telephone line facsimile transmission or address for purposes of notices under the Original Indenture or hereunder by giving three Business Days' notice to the Trustee. Whenever under the provisions of this Supplemental Indenture a Holder is required or permitted to give any notice to the Company and such provision also calls for giving a copy of such notice to the Trustee, if such Holder gives such notice to the Company but fails to give such notice to the Trustee, such failure shall not affect the validity of such notice. SECTION 9.14. PAYMENT OF NOTES ON REPURCHASE; DEPOSIT OF REPURCHASE PRICE, ETC. If any Note or any portion of any Note is to be repurchased as provided in Article Seven and any notice required in connection therewith shall have been given as provided therein and the Company shall have otherwise complied with the requirements of this Supplemental Indenture with respect thereto, then the Note or Notes or the portion or portions thereof to be so repurchased and with respect to which any such notice has been given shall become due and payable on the date stated in such notice at the applicable Repurchase Price. On and after the repurchase date so stated in such notice, provided that the Company shall have deposited with the Trustee on or prior to such repurchase date, an amount sufficient to pay the applicable Repurchase Price interest on such Note or Notes or the portion or portions thereof to be so redeemed or repurchased shall cease to accrue, and such Note or Notes or such portion thereof shall be deemed not to be Outstanding and shall not be entitled to any benefit with respect to principal of or interest on the portion to be so repurchased except to receive payment of the applicable Repurchase Price. On presentation and surrender of such Note or Notes or such portion or portions thereof, such Note or Notes or the specified portion or portions thereof shall be paid and repurchased at the applicable Repurchase Price. If a portion of any Note is to be repurchased, upon surrender of such Note to the Trustee in accordance with the terms hereof, the Company shall execute and deliver to the Holder of such note without service charge, a new Note or Notes, having the same date as the Note so surrendered and containing identical terms and conditions, in such denomination or denominations as requested by such Holder in aggregate principal amount equal to, and in exchange for, the unrepurchased portion of the principal amount of the Note so surrendered. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 87 92 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. AXYS PHARMACEUTICALS, INC. By: /s/ William J. Newell ------------------------------ Name: William J. Newell U. S. BANK TRUST NATIONAL ASSOCIATION, AS TRUSTEE By: /s/ Cindy Brown ------------------------------ Name: Cindy Brown 88 93 SCHEDULES INTENTIONALLY OMITTED 1 EX-4.3 5 f65920ex4-3.txt CLASS A COMMON STOCK PURCHASE WARRANT 1 EXHIBIT 4.3 No. CWA-101 Right to Purchase 198,300 Shares of Common Stock of Axys Pharmaceuticals, Inc. AXYS PHARMACEUTICALS, INC. COMMON STOCK PURCHASE WARRANT, CLASS A AXYS PHARMACEUTICALS, INC., a Delaware corporation, hereby certifies that, for value received, DELTA OPPORTUNITY FUND, LTD. or registered assigns (the "Holder"), is entitled, subject to the terms set forth below, to purchase from the Company at any time or from time to time before 5:00 p.m., New York City time, on the Expiration Date (such capitalized term and all other capitalized terms used herein having the respective meanings provided herein), 198,300 fully paid and nonassessable shares of Common Stock at a purchase price per share equal to the Purchase Price. The number of such shares of Common Stock and the Purchase Price are subject to adjustment as provided in this Warrant. As used herein the following capitalized terms, unless the context otherwise requires, have the following respective meanings: "Aggregate Purchase Price" means at any time an amount equal to the product obtained by multiplying (x) the Purchase Price times (y) the number of shares of Common Stock for which this Warrant may be exercised at such time. "AMEX" means the American Stock Exchange, Inc. "Board of Directors" means the Board of Directors of the Company. "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed. "Common Stock" includes the Company's Common Stock, par value $.001 per share, and the related Preferred Share Purchase Rights (and any similar rights issued with respect to the Common Stock) as authorized on the date hereof, and any other securities into which or for which the Common Stock or the related Preferred Share Purchase Rights (and any similar rights issued with respect to the Common Stock) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise and any stock (other than Common Stock) and other securities 2 of the Company or any other Person which the Holder at any time shall be entitled to receive, or shall have received, on the exercise of this Warrant, in lieu of or in addition to Common Stock. "Common Stock Equivalents" means any warrant, option, subscription or purchase right with respect to shares of Common Stock, any security convertible into, exchangeable for, or otherwise entitling the holder thereof to acquire, shares of Common Stock or any warrant, option, subscription or purchase right with respect to any such convertible, exchangeable or other security. "Common Stock Purchase Agreement" means the Common Stock Purchase Agreement, dated as of July 21, 2000, between the Company and Acqua Wellington North American Equities Fund, Ltd., as in effect on the earliest date of first issuance of any of the Notes. "Company" shall include Axys Pharmaceuticals, Inc., a Delaware corporation, and any corporation that shall succeed to or assume the obligations of Axys Pharmaceuticals, Inc. hereunder in accordance with the terms hereof. "Current Fair Market Value" means when used with respect to the Common Stock as of a specified date with respect to each share of Common Stock, the average of the closing prices of the Common Stock sold on all securities exchanges (including the Nasdaq and the Nasdaq SmallCap) on which the Common Stock may at the time be listed, or, if there have been no sales on any such exchange on such day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on such day the Common Stock is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 p.m., New York City time, or, if on such day the Common Stock is not quoted in the NASDAQ System, the average of the highest bid and lowest asked price on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of ten Trading Days consisting of the day as of which the Current Fair Market Value of Common Stock is being determined (or if such day is not a Trading Day, the Trading Day next preceding such day) and the nine consecutive Trading Days prior to such day. If on the date for which Current Fair Market Value is to be determined the Common Stock is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the Current Fair Market Value of Common Stock shall be the highest price per share which the Company could then obtain from a willing buyer (not an employee or director of the Company at the time of determination) in an arms'-length transaction 2 3 for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by the Board of Directors. "Expiration Date" means October 1, 2004. "Issuance Date" means the date of original issuance of this Warrant. "Nasdaq" means the Nasdaq National Market. "Nasdaq SmallCap" means the Nasdaq SmallCap Market. "1934 Act" means the Securities Exchange Act of 1934, as amended. "1933 Act" means the Securities Act of 1933, as amended. "Note Purchase Agreement" means the Note Purchase Agreement, dated as of September 20, 2000, by and between the Company and the original Holder of this Warrant. "Notes" means any of the 8% Senior Secured Convertible Notes due 2004 issued by the Company pursuant to the Supplemental Indenture, the Note Purchase Agreement or any Other Note Purchase Agreements. "NYSE" means the New York Stock Exchange, Inc. "Other Note Purchase Agreements" means the several Note Purchase Agreements, dated as of the date of the Note Purchase Agreement, by and between the Company and the several buyers named therein. "Other Securities" means any stock (other than Common Stock) and other securities of the Company or any other Person which the Holder at any time shall be entitled to receive, or shall have received, on the exercise of this Warrant, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 4. "Other Warrants" means the Common Stock Purchase Warrants (other than this Warrant) issued or issuable by the Company pursuant to the Note Purchase Agreement and the Other Note Purchase Agreements. "Person" means an individual, partnership, corporation, limited liability company, trust or unincorporated organization, or a government or a governmental agency or political subdivision. 3 4 "Preferred Share Purchase Rights" means the Preferred Share Purchase Rights issued or issuable pursuant to the Rights Agreement (or any similar rights hereafter issued by the Company with respect to the Common Stock). "Purchase Price" means $8.82, subject to adjustment as provided in this Warrant. "Reorganization Event" means the occurrence of any one or more of the following events: (i) any consolidation, merger or similar transaction of the Company or any Subsidiary with or into another entity (other than a merger or consolidation or similar transaction of a Subsidiary into the Company or a wholly-owned Subsidiary); or the sale or transfer of all or substantially all of the assets of the Company and the Subsidiaries in a single transaction or a series of related transactions; or (ii) the occurrence of any transaction or event in connection with which all or substantially all the Common Stock shall be exchanged for, converted into, acquired for or constitute the right to receive securities of any other Person (whether by means of a Tender Offer, liquidation, consolidation, merger, share exchange, combination, reclassification, recapitalization, or otherwise); or (iii) the acquisition by a Person or group of Persons acting in concert as a partnership, limited partnership, syndicate or group, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases or otherwise, of beneficial ownership of securities of the Company representing 50% or more of the combined voting power of the outstanding voting securities of the Company ordinarily (and apart from rights accruing in special circumstances) having the right to vote in the election of directors. "Rights Agreement" means the Rights Agreement, dated as of October 8, 1998, between the Company and Harris Trust Company of California, as Rights Agent. "SEC" means the Securities and Exchange Commission. "Subsidiary" means any corporation or other entity of which a majority of the capital stock or other ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions are at the time directly or indirectly owned by the Company. 4 5 "Supplemental Indenture" means the First Supplemental Indenture, dated as of September 22, 2000, between the Company and U. S. Bank Trust National Association, as Trustee. "Tender Offer" means a tender offer, exchange offer or other offer by the Company to repurchase outstanding shares of its capital stock. "Trading Day" means a day on which the national securities exchange, the Nasdaq or the Nasdaq SmallCap which then constitutes the principal securities market for the Common Stock is open for general trading. 1. EXERCISE OF WARRANT. (a) EXERCISE. This Warrant may be exercised by the Holder in full at any time or in part from time to time on or before the Expiration Date by (x) surrendering this Warrant to the Company, (y) giving a subscription form in the form of EXHIBIT 1 to this Warrant (duly executed by the Holder) to the Company, and (z) making payment, in cash or by certified or official bank check payable to the order of the Company, or by wire transfer of funds to the account of the Company, in any such case, in the amount obtained by multiplying (a) the number of shares of Common Stock designated by the Holder in the subscription form by (b) the Purchase Price then in effect. On any partial exercise the Company will forthwith issue and deliver to or upon the order of the Holder a new Warrant or Warrants of like tenor, in the name of the Holder or as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, providing in the aggregate on the face or faces thereof for the purchase of the number of shares of Common Stock for which such Warrant or Warrants may still be exercised. The subscription form may be surrendered by telephone line facsimile transmission to such telephone number for the Company as shall have been specified in writing to the Holder by the Company; provided, however, that if the subscription form is given to the Company by telephone line facsimile transmission the Holder shall send an original of such subscription form to the Company within ten Business Days after such subscription form is so given to the Company; provided further, however, that any failure or delay on the part of the Holder in giving such original of any subscription form shall not affect the validity or the date on which such subscription form is so given by telephone line facsimile transmission. In connection with any exercise of this Warrant, the Holder shall also furnish to the Company such other documentation as required by applicable law and reasonably requested by the Company in writing; provided, however, that any failure or delay on the part of the Holder in furnishing such documentation shall not affect the validity of the exercise of this Warrant or the date on which this Warrant shall have been exercised. 5 6 (b) Net Exercise. Notwithstanding anything to the contrary contained in Section 1(a), the Holder may elect to exercise this Warrant, in whole or in part, by receiving shares of Common Stock equal to the net issuance value (as determined below) of this Warrant, or any part hereof, upon surrender of the subscription form annexed hereto (duly executed by the Holder) to the Company (followed by surrender of this Warrant to the Company within three Trading Days after surrender of such subscription form), in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula: X = Y x (A - B) ----------- A where, X = the number of shares of Common Stock to be issued to the Holder Y = the number of shares of Common Stock as to which this Warrant is to be exercised A = the Current Fair Market Value of one share of Common Stock calculated as of the last Trading Day immediately preceding the exercise of this Warrant B = the Purchase Price 2. DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE. As soon as practicable after the exercise of this Warrant and in any event within three Trading Days thereafter, upon the terms and subject to the conditions of this Warrant, the Company at its expense (including the payment by it of any applicable issue or stamp taxes) will cause to be issued in the name of and delivered to the Holder, or as the Holder (upon payment by the Holder of any applicable transfer taxes) may direct, a certificate or certificates for the number of fully paid and nonassessable shares of Common Stock (or Other Securities) to which the Holder shall be entitled on such exercise, in such denominations as may be requested by the Holder, plus, in lieu of any fractional share to which the Holder would otherwise be entitled, cash equal to such fraction multiplied by the then Current Fair Market Value of one full share, together with any other stock or Other Securities or any property (including cash, where applicable) to which the Holder is entitled upon such exercise pursuant to Section 1 or otherwise. The Company shall pay any taxes and other governmental charges that may be imposed under the laws of the United States of America or any political subdivision or taxing authority thereof or therein in respect of the issue or delivery of shares of Common Stock (or Other Securities) 6 7 or payment of cash upon exercise of this Warrant (other than income taxes imposed on the Holder). The Company shall not be required, however, to pay any tax or other charge imposed in connection with any transfer involved in the issue of any certificate for shares of Common Stock (or Other Securities) issuable upon exercise of this Warrant or payment of cash to any Person other than the Holder, and in case of such transfer or payment the Company shall not be required to deliver any certificate for shares of Common Stock (or Other Securities) upon such exercise or pay any cash until such tax or charge has been paid or it has been established to the Company's reasonable satisfaction that no such tax or charge is due. Upon exercise of this Warrant as provided herein, the Company's obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Company to the Holder, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with such exercise. If the Company fails to issue and deliver the certificates for the Common Stock to the Holder pursuant to the first sentence of this paragraph as and when required to do so, in addition to any other liabilities the Company may have hereunder and under applicable law, the Company shall pay or reimburse the Holder on demand for all out-of-pocket expenses including, without limitation, fees and expenses of legal counsel incurred by the Holder as a result of such failure. 3. ADJUSTMENT FOR DIVIDENDS IN OTHER STOCK, PROPERTY, ETC.; RECLASSIFICATION, ETC. In case at any time or from time to time on or after the Issuance Date, all the holders of Common Stock (or Other Securities) shall have received, or (on or after the record date fixed for the determination of stockholders eligible to receive) shall have become entitled to receive, without payment therefor, (a) other or additional stock or other securities or property (other than cash) by way of dividend, or (b) any cash (excluding cash dividends payable solely out of earnings or earned surplus of the Company), or (c) other or additional stock or other securities or property (including cash) by way of spin-off, split-up, reclassification, recapitalization, combination of shares or similar corporate rearrangement, 7 8 other than (i) additional shares of Common Stock (or Other Securities) issued as a stock dividend or in a stock-split (adjustments in respect of which are provided for in Section 5) and (ii) rights or warrants to subscribe for Common Stock at less than the Current Fair Market Value (adjustments in respect of which are provided in Section 6), then and in each such case the Holder, on the exercise hereof as provided in Section 1, shall be entitled to receive the amount of stock and Other Securities and property (including cash in the cases referred to in subdivisions (b) and (c) of this Section 3) which the Holder would hold on the date of such exercise if on the date thereof the Holder had been the holder of record of the number of shares of Common Stock called for on the face of this Warrant and had thereafter, during the period from the date thereof to and including the date of such exercise, retained such shares and all such other or additional stock and Other Securities and property (including cash in the case referred to in subdivisions (b) and (c) of this Section 3) receivable by the Holder as aforesaid during such period, giving effect to all adjustments called for during such period by Section 4. 4. EXERCISE UPON A REORGANIZATION EVENT. In case of any Reorganization Event the Company shall, as a condition precedent to the consummation of the transactions constituting, or announced as, such Reorganization Event, cause effective provisions to be made so that the Holder shall have the right thereafter, by exercising this Warrant (in lieu of the shares of Common Stock of the Company and Other Securities or property purchasable and receivable upon exercise of the rights represented hereby immediately prior to such transaction) to purchase the kind and amount of shares of stock and Other Securities and property (including cash) receivable upon such Reorganization Event by a holder of the number of shares of Common Stock that might have been received upon exercise of this Warrant immediately prior to such Reorganization Event. Any such provision shall include provisions for adjustments in respect of such shares of stock and Other Securities and property that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The provisions of this Section 4 shall apply to successive Reorganization Events. 5. ADJUSTMENT FOR CERTAIN EXTRAORDINARY EVENTS. In the event that on or after the Issuance Date the Company shall (i) issue additional shares of the Common Stock as a dividend or other distribution on outstanding Common Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock, or (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then, in each such event, the Purchase Price shall, simultaneously with the happening of such event, be adjusted by multiplying the Purchase Price in effect immediately prior to such event by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event, and the product so obtained shall thereafter be the Purchase Price then in effect. The 8 9 Purchase Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described herein in this Section 5. The Holder shall thereafter, on the exercise hereof as provided in Section 1, be entitled to receive that number of shares of Common Stock determined by multiplying the number of shares of Common Stock which would be issuable on such exercise immediately prior to such issuance by a fraction of which (i) the numerator is the Purchase Price in effect immediately prior to such issuance and (ii) the denominator is the Purchase Price in effect on the date of such exercise. 6. ISSUANCE OF RIGHTS OR WARRANTS TO COMMON STOCKHOLDERS AT LESS THAN CURRENT FAIR MARKET VALUE. In case the Company shall on or after the Issuance Date issue rights or warrants to all holders of its outstanding shares of Common Stock entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the Current Fair Market Value on the record date fixed for the determination of stockholders entitled to receive such rights or warrants, then (a) the Purchase Price shall be adjusted so that the same shall equal the price determined by multiplying the Purchase Price in effect at the opening of business on the day after such record date by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on such record date plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at such Current Fair Market Value, and the denominator shall be the number of shares of Common Stock outstanding on the close of business on such record date plus the total number of additional shares of Common Stock so offered for subscription or purchase; and (b) the number of shares of Common Stock which the Holder may thereafter purchase upon exercise of this Warrant at the opening of business on the day after such record date shall be increased to a number equal to the quotient obtained by dividing (x) the Aggregate Purchase Price in effect immediately prior to such adjustment in the Purchase Price pursuant to clause (a) of this Section 6 by (y) the Purchase Price in effect immediately after such adjustment in the Purchase Price pursuant to clause (a) of this Section 6. Such adjustment shall become effective immediately after the opening of business on the day following the record date fixed for determination of stockholders entitled to receive such rights or warrants. To the extent that shares of Common Stock are not delivered pursuant to such rights or warrants, upon the expiration or termination of such rights or warrants, the Purchase Price shall be readjusted to the Purchase Price which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of delivery of only 9 10 the number of shares of Common Stock actually delivered and the number of shares of Common Stock for which this Warrant may thereafter be exercised shall be readjusted (subject to proportionate adjustment for any intervening exercises of this Warrant) to the number which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered. In the event that such rights or warrants are not so issued, the Purchase Price shall again be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed and the number of shares of Common Stock for which this Warrant may thereafter be exercised shall again be adjusted (subject to proportionate adjustment for any intervening exercises of this Warrant) to be the number which would then be in effect if such record date had not been fixed. In determining whether any rights or warrants entitle the holder to subscribe for or purchase shares of Common Stock at less than such Current Fair Market Value, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received for such rights or warrants, the value of such consideration, if other than cash, to be determined by the Board of Directors. 7. ISSUANCE AT LESS THAN CURRENT FAIR MARKET VALUE. (a) In case at any time on or after the Issuance Date the Company shall issue shares of its Common Stock or Common Stock Equivalents (collectively, the "Newly Issued Shares"), other than an issuance pro rata to all holders of its outstanding Common Stock, at a price below the Current Fair Market Value of the Common Stock at the time of such issuance, then following such issuance of Newly Issued Shares the Purchase Price shall be reduced as provided in clause (b) of this Section 7 and the number of shares of Common Stock which may be issued upon exercise of this Warrant shall be increased as provided in clause (c) of this Section 7. (b) The reduction in the Purchase Price following any such adjustment shall be determined by multiplying the Purchase Price immediately prior to such adjustment by a fraction, of which the numerator shall be the sum of (1) the number of shares of Common Stock outstanding immediately prior to the issuance of the Newly Issued Shares (calculated on a fully-diluted basis assuming the exercise or conversion of all options, warrants, purchase rights or convertible securities which are exercisable or convertible at the time of the issuance of the Newly Issued Shares) plus (2) the number of shares of Common Stock which the aggregate consideration, if any, received by the Company for the number of Newly Issued Shares would purchase at a price equal to the Current Fair Market Value of the Common Stock at the time of such issuance, and the denominator shall be the sum of (X) the number of shares of Common Stock outstanding immediately prior to the issuance of the Newly Issued Shares (calculated on a fully-diluted basis assuming the exercise or conversion of all options, warrants, purchase rights or convertible securities which are exercisable or convertible at the time of the 10 11 issuance of the Newly Issued Shares) plus (Y) the number of Newly Issued Shares. The adjustment provided for in this Section 7(b) may be expressed as the following mathematical formula: (O +(C / FMV)) NPP = -------------- x PP (O + N) where, C = aggregate consideration received by the Company for the Newly Issued Shares N = number of Newly Issued Shares O = number of shares of Common Stock outstanding (on a fully diluted basis, as described above) immediately prior to the issuance of the Newly Issued Shares FMV = Current Fair Market Value of the Common Stock at the time of issuance of the Newly Issued Shares PP = Purchase Price immediately prior to the issuance of the Newly Issued Shares NPP = Purchase Price immediately after the issuance of the Newly Issued Shares (c) If the Purchase Price is reduced in connection with the issuance of Newly Issued Shares as provided in Section 7(b), then the number of shares of Common Stock for which this Warrant may thereafter be exercised shall be increased at the time of such reduction in the Purchase Price to a number equal to the quotient obtained by dividing (x) the Aggregate Purchase Price in effect immediately prior to such issuance of Newly Issued Shares by (y) the Purchase Price in effect immediately after such issuance of Newly Issued Shares after giving effect to such reduction in the Purchase Price pursuant to Section 7(b). (d) Notwithstanding the foregoing, no adjustment shall be made under this Section 7 by reason of: (1) the issuance by the Company of shares of Common Stock pro rata to all holders of the Common Stock so long as (i) any adjustment required by Section 5 is made and (ii) the Company shall have given notice thereof to the Holder pursuant to Section 13; 11 12 (2) the issuance by the Company of Newly Issued Shares in an offering for cash for the account of the Company that is underwritten on a firm commitment basis and (A) is registered under the 1933 Act or (B) sold in an offering to "qualified institutional buyers" as defined in, and in a transaction under, Rule 144A under the 1933 Act; (3) the issuance by the Company of shares of Common Stock upon conversion of the Notes in accordance with the Supplemental Indenture or upon exercise of this Warrant or the Other Warrants in accordance with the terms hereof and thereof; (4) the issuance by the Company of shares of Common Stock in payment of interest on the Notes in accordance with the terms thereof and the Supplemental Indenture; (5) the issuance by the Company of shares of Common Stock pursuant to exercise of options, warrants or other rights outstanding as of the first date of issuance of any of the Notes in accordance with their terms in effect on the first date of issuance of any of the Notes; and (6) the issuance by the Company of shares of Common Stock pursuant to the Common Stock Purchase Agreement. 8. EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. (a) If any of the following events occur, namely (i) any reclassification or change of the outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), (ii) any consolidation, merger or combination of the Company with another corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, or (iii) any sale or conveyance of the properties and assets of the Company as, or substantially as, an entirety to any other Person as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, then the Company or the successor or purchasing Person, as the case may be, shall execute with the Holder a written agreement providing that (x) this Warrant shall thereafter entitle the Holder to purchase the kind and amount of shares of stock and Other Securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance by the holder of a number of shares of Common Stock issuable upon exercise of this Warrant (assuming, for such purposes, a sufficient number of authorized shares of Common Stock available to exercise this Warrant) immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance assuming such holder of 12 13 Common Stock did not exercise such holder's rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance (provided that, if the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance is not the same for each share of Common Stock in respect of which such rights of election shall not have been exercised ("non-electing share"), then for the purposes of this Section 8 the kind and amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance for each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares), (y) in the case of any such successor or purchasing Person, upon such consolidation, merger, combination, sale or conveyance such successor or purchasing Person shall be jointly and severally liable with the Company for the performance of all of the Company's obligations under this Warrant and this Note Purchase Agreement and (z) if registration or qualification is required under the 1933 Act or applicable state law for this Warrant or the issuance to the Holder of the shares of such shares of stock and Other Securities so issuable upon exercise of this Warrant, such registration or qualification shall be completed prior to such reclassification, change, consolidation, merger, combination or sale. Such written agreement shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. If, in the case of any such reclassification, change, consolidation, merger, combination, sale or conveyance, the stock or other securities and assets receivable thereupon by a holder of shares of Common Stock includes shares of stock or other securities and assets of a corporation other than the successor or purchasing corporation, as the case may be, in such reclassification, change, consolidation, merger, combination, sale or conveyance, then such written agreement shall also be executed by such other corporation and shall contain such additional provisions to protect the interests of the Holder as the Board of Directors shall reasonably consider necessary by reason of the foregoing. (b) The above provisions of this Section 8 shall similarly apply to successive reclassifications, changes, consolidations, mergers, combinations, sales and conveyances. (c) If this Section 8 applies to any event or occurrence, Section 4 shall not apply to such event or occurrence. TAX ADJUSTMENTS. The Company may make such reductions in the Purchase Price, in addition to those required by Sections 3, 4, 5, 6 and 7, as the Board of Directors considers to be advisable to avoid or diminish any income tax to holders of Common Stock or rights to purchase Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. 13 14 10. MINIMUM ADJUSTMENT. (a) No adjustment in the Purchase Price (and no related adjustment in the number of shares of Common Stock which may thereafter be purchased upon exercise of this Warrant) shall be required unless such adjustment would require an increase or decrease of at least 1% in the Purchase Price; provided, however, that any adjustments which by reason of this Section 10 are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All such calculations under this Warrant shall be made by the Company and shall be made to the nearest cent or to the nearest one hundredth of a share, as the case may be. (b) No adjustment need be made for a change in the par value of the Common Stock or from par value to no par value or from no par value to par value. 11. NOTICE OF ADJUSTMENTS. Whenever the Purchase Price is adjusted as herein provided, the Company shall promptly, but in no event later than five Trading Days thereafter, give a notice to the Holder setting forth the Purchase Price and number of shares of Common Stock which may be purchased upon exercise of this Warrant after such adjustment and setting forth a brief statement of the facts requiring such adjustment but which such statement shall not include any information which would be material non-public information for purposes of the 1934 Act. Failure to deliver such notice shall not affect the legality or validity of any such adjustment. 12. FURTHER ASSURANCES. The Company will take all action that may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock, free from all taxes, liens and charges with respect to the issue thereof, on the exercise of all or any portion of this Warrant from time to time outstanding. 13. NOTICE TO HOLDER PRIOR TO CERTAIN ACTIONS. In case on or after the Issuance Date: (a) the Company shall declare a dividend (or any other distribution) on its Common Stock (other than in cash out of retained earnings); or (b) the Company shall authorize the granting to the holders of its Common Stock of rights or warrants to subscribe for or purchase any share of any class or any other rights or warrants; or (c) the Board of Directors shall authorize any reclassification of the Common Stock (other than a subdivision or combination of its outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value), or any consolidation or merger or other business combination 14 15 transaction to which the Company is a party and for which approval of any stockholders of the Company is required, or the sale or transfer of all or substantially all of the assets of the Company; or (d) there shall be pending the voluntary or involuntary dissolution, liquidation or winding-up of the Company; the Company shall give the Holder, as promptly as possible but in any event at least ten Trading Days prior to the applicable date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution or rights are to be determined, or (y) the date on which such reclassification, consolidation, merger, other business combination transaction, sale, transfer, dissolution, liquidation or winding-up is expected to become effective or occur, and the date as of which it is expected that holders of Common Stock of record who shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, other business combination transaction, sale, transfer, dissolution, liquidation or winding-up shall be determined. Such notice shall not include any information which would be material non-public information for purposes of the 1934 Act. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such dividend, distribution, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up. In the case of any such action of which the Company gives such notice to the Holder or is required to give such notice to the Holder, the Holder shall be entitled to give a subscription form to exercise this Warrant in whole or in part that is contingent on the completion of such action. 14. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF WARRANTS. The Company will at all times reserve and keep available out of its authorized but unissued shares of capital stock, solely for issuance and delivery on the exercise of this Warrant, a sufficient number of shares of Common Stock (or Other Securities) to effect the full exercise of this Warrant and the exercise, conversion or exchange of any other warrant or security of the Company exercisable for, convertible into, exchangeable for or otherwise entitling the holder to acquire shares of Common Stock (or Other Securities), and if at any time the number of authorized but unissued shares of Common Stock (or Other Securities) shall not be sufficient to effect such exercise, conversion or exchange, the Company shall take such action as may be necessary to increase its authorized but unissued shares of Common Stock (or Other Securities) to such number as shall be sufficient for such purposes. 15. TRANSFER OF WARRANT. This Warrant shall inure to the benefit of the successors to and assigns of the Holder. This Warrant and all rights 15 16 hereunder, in whole or in part, are registrable at the office or agency of the Company referred to below by the Holder in Person or by his duly authorized attorney, upon surrender of this Warrant properly endorsed accompanied by an assignment form in the form attached to this Warrant, or other customary form, duly executed by the transferring Holder. 16. REGISTER OF WARRANTS. The Company shall maintain, at the principal office of the Company (or such other office as it may designate by notice to the Holder), a register in which the Company shall record the name and address of the Person in whose name this Warrant has been issued, as well as the name and address of each successor and prior owner of such Warrant. The Company shall be entitled to treat the Person in whose name this Warrant is so registered as the sole and absolute owner of this Warrant for all purposes. 17. EXCHANGE OF WARRANT. This Warrant is exchangeable, upon the surrender hereof by the Holder at the office or agency of the Company referred to in Section 15, for one or more new Warrants of like tenor representing in the aggregate the right to subscribe for and purchase the number of shares of Common Stock which may be subscribed for and purchased hereunder, each of such new Warrants to represent the right to subscribe for and purchase such number of shares as shall be designated by the Holder at the time of such surrender. 18. REPLACEMENT OF WARRANT. On receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant and (a) in the case of loss, theft or destruction, of indemnity from the Holder reasonably satisfactory in form to the Company (and without the requirement to post any bond or other security), or (b) in the case of mutilation, upon surrender and cancellation of this Warrant, the Company will execute and deliver to the Holder a new Warrant of like tenor without charge to the Holder. 19. WARRANT AGENT. The Company may, by written notice to the Holder, appoint the transfer agent and registrar for the Common Stock as the Company's agent for the purpose of issuing Common Stock (or Other Securities) on the exercise of this Warrant pursuant to Section 1, and the Company may, by written notice to the Holder, appoint an agent having an office in the United States of America for the purpose of exchanging this Warrant pursuant to Section 17, and replacing this Warrant pursuant to Section 18, or any of the foregoing, and thereafter any such exchange or replacement, as the case may be, shall be made at such office by such agent. 20. REMEDIES. The Company stipulates that the remedies at law of the Holder in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will 16 17 not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 21. NO RIGHTS OR LIABILITIES AS A STOCKHOLDER. This Warrant shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company. Nothing contained in this Warrant shall be construed as conferring upon Holder hereof the right to vote or to consent or to receive notice as a stockholder of the Company on any matters or with respect to any rights whatsoever as a stockholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the Common Stock (or Other Securities) purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised in accordance with its terms. 22. NOTICES, ETC. All notices and other communications from the Company to the Holder shall be mailed by first class certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by the Holder or at the address shown for the Holder on the register of Warrants referred to in Section 16. 23. AMENDMENT; WAIVER. This Warrant and any terms hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. 24. MISCELLANEOUS. This Warrant shall be construed and enforced in accordance with and governed by the internal laws of the State of New York. The headings, captions and footers in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. 25. ATTORNEYS' FEES. In any litigation, arbitration or court proceeding between the Company and Holder relating hereto, the prevailing party shall be entitled to attorneys' fees and expenses and all costs of proceedings incurred in enforcing this Warrant. 17 18 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed on its behalf by one of its officers thereunto duly authorized. Dated: September 22, 2000 AXYS PHARMACEUTICALS, INC. By: /s/ William J. Newell ----------------------------------- Name: William Newell Title: Senior Vice President * The Company also executed a Class A Warrant with each of the following parties: Delta Opportunity Fund (Institutional), LLC Omicron Partners, L.P. Otato Limited Partnership Gatx Ventures, Inc. Alexander Enterprise Holdings, Corp. Cumberland Partners Cumber International S.A. Edwin L. Cox Longview Partners Charles V. Schaefer Jr. Longview Partners B, L.P. Delta Associates Limited Partnership Longview Partners C, L.P. Cumberland Benchmarked Partners, L.P. Longview Partners A, L.P. 18 19 ASSIGNMENT For value received _________________________ hereby sell(s), assign(s) and transfer(s) unto _________________________ (Please insert social security or other Taxpayer Identification Number of assignee: ______________________________) the attached original, executed Warrant to purchase _____ share of Common Stock of Axys Pharmaceuticals, Inc., a Delaware corporation, and hereby irrevocably constitutes and appoints _________________________ attorney to transfer the Warrant on the books of the Company, with full power of substitution in the premises. Capitalized terms used in this Assignment and not defined in this Assignment shall have the respective meanings provided in the Warrant. Dated: NAME: --------------------------------- ---------------------------- ---------------------------- Signature(s) 20 EXHIBIT 1 FORM OF SUBSCRIPTION AXYS PHARMACEUTICALS, INC. (To be signed only on exercise of Warrant) TO: Axys Pharmaceuticals, Inc. 180 Kimball Way South San Francisco, California 94080 Attention: Chief Financial Officer Facsimile No.: (650) 829-1067 1. The undersigned Holder of the attached original, executed Warrant hereby elects to exercise its purchase right under such Warrant with respect to ______________ shares (the "Exercise Shares") of Common Stock, as defined in the Warrant, of Axys Pharmaceuticals, Inc., a Delaware corporation (the "Company"). 2. The undersigned Holder (check one): [ ] (a) elects to pay the Aggregate Purchase Price for such shares of Common Stock (i) in lawful money of the United States or by the enclosed certified or official bank check payable in United States dollars to the order of the Company in the amount of $___________, or (ii) by wire transfer of United States funds to the account of the Company in the amount of $____________, which transfer has been made before or simultaneously with the delivery of this Form of Subscription pursuant to the instructions of the Company; or [ ] (b) elects to receive shares of Common Stock having a value equal to the value of the Warrant calculated in accordance with Section 1(b) of the Warrant. 3. Please issue a stock certificate or certificates representing the appropriate number of shares of Common Stock in the name of the undersigned or in such other name(s) as is specified below: Name: ---------------------------------- 21 Address: ------------------------------------------ Social Security or Tax Identification Number (if any): Dated: ------------------------------------------------ (Signature must conform to name of Holder as specified on the face of the Warrant) ------------------------------------------------ ------------------------------------------------ (Address) EX-4.4 6 f65920ex4-4.txt CLASS B COMMON STOCK PURCHASE WARRANT 1 EXHIBIT 4.4 No. CWB-101 Right to Purchase 198,300 Shares of Common Stock of Axys Pharmaceuticals, Inc. AXYS PHARMACEUTICALS, INC. COMMON STOCK PURCHASE WARRANT, CLASS B AXYS PHARMACEUTICALS, INC., a Delaware corporation, hereby certifies that, for value received, DELTA OPPORTUNITY FUND, LTD. or registered assigns (the "Holder"), is entitled, subject to the terms set forth below, to purchase from the Company at any time or from time to time before 5:00 p.m., New York City time, on the Expiration Date (such capitalized term and all other capitalized terms used herein having the respective meanings provided herein), 198,300 fully paid and nonassessable shares of Common Stock at a purchase price per share equal to the Purchase Price. The number of such shares of Common Stock and the Purchase Price are subject to adjustment as provided in this Warrant. As used herein the following capitalized terms, unless the context otherwise requires, have the following respective meanings: "Aggregate Purchase Price" means at any time an amount equal to the product obtained by multiplying (x) the Purchase Price times (y) the number of shares of Common Stock for which this Warrant may be exercised at such time. "AMEX" means the American Stock Exchange, Inc. "Board of Directors" means the Board of Directors of the Company. "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed. "Common Stock" includes the Company's Common Stock, par value $.001 per share, and the related Preferred Share Purchase Rights (and any similar rights issued with respect to the Common Stock) as authorized on the date hereof, and any other securities into which or for which the Common Stock or the related Preferred Share Purchase Rights (and any similar rights issued with respect to the Common Stock) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise and any stock (other than Common Stock) and other securities 2 of the Company or any other Person which the Holder at any time shall be entitled to receive, or shall have received, on the exercise of this Warrant, in lieu of or in addition to Common Stock. "Common Stock Equivalents" means any warrant, option, subscription or purchase right with respect to shares of Common Stock, any security convertible into, exchangeable for, or otherwise entitling the holder thereof to acquire, shares of Common Stock or any warrant, option, subscription or purchase right with respect to any such convertible, exchangeable or other security. "Common Stock Purchase Agreement" means the Common Stock Purchase Agreement, dated as of July 21, 2000, between the Company and Acqua Wellington North American Equities Fund, Ltd., as in effect on the earliest date of first issuance of any of the Notes. "Company" shall include Axys Pharmaceuticals, Inc., a Delaware corporation, and any corporation that shall succeed to or assume the obligations of Axys Pharmaceuticals, Inc. hereunder in accordance with the terms hereof. "Current Fair Market Value" means when used with respect to the Common Stock as of a specified date with respect to each share of Common Stock, the average of the closing prices of the Common Stock sold on all securities exchanges (including the Nasdaq and the Nasdaq SmallCap) on which the Common Stock may at the time be listed, or, if there have been no sales on any such exchange on such day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on such day the Common Stock is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 p.m., New York City time, or, if on such day the Common Stock is not quoted in the NASDAQ System, the average of the highest bid and lowest asked price on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of ten Trading Days consisting of the day as of which the Current Fair Market Value of Common Stock is being determined (or if such day is not a Trading Day, the Trading Day next preceding such day) and the nine consecutive Trading Days prior to such day. If on the date for which Current Fair Market Value is to be determined the Common Stock is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the Current Fair Market Value of Common Stock shall be the highest price per share which the Company could then obtain from a willing buyer (not an employee or director of the Company at the time of determination) in an arms'-length transaction 2 3 for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by the Board of Directors. "Expiration Date" means October 1, 2004. "Issuance Date" means the date of original issuance of this Warrant. "Nasdaq" means the Nasdaq National Market. "Nasdaq SmallCap" means the Nasdaq SmallCap Market. "1934 Act" means the Securities Exchange Act of 1934, as amended. "1933 Act" means the Securities Act of 1933, as amended. "Note Purchase Agreement" means the Note Purchase Agreement, dated as of September 20, 2000, by and between the Company and the original Holder of this Warrant. "Notes" means any of the 8% Senior Secured Convertible Notes due 2004 issued by the Company pursuant to the Supplemental Indenture, the Note Purchase Agreement or any Other Note Purchase Agreements. "NYSE" means the New York Stock Exchange, Inc. "Other Note Purchase Agreements" means the several Note Purchase Agreements, dated as of the date of the Note Purchase Agreement, by and between the Company and the several buyers named therein. "Other Securities" means any stock (other than Common Stock) and other securities of the Company or any other Person which the Holder at any time shall be entitled to receive, or shall have received, on the exercise of this Warrant, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 4. "Other Warrants" means the Common Stock Purchase Warrants (other than this Warrant) issued or issuable by the Company pursuant to the Note Purchase Agreement and the Other Note Purchase Agreements. "Person" means an individual, partnership, corporation, limited liability company, trust or unincorporated organization, or a government or a governmental agency or political subdivision. 3 4 "Preferred Share Purchase Rights" means the Preferred Share Purchase Rights issued or issuable pursuant to the Rights Agreement (or any similar rights hereafter issued by the Company with respect to the Common Stock). "Purchase Price" means $10.59, subject to adjustment as provided in this Warrant. "Reorganization Event" means the occurrence of any one or more of the following events: (i) any consolidation, merger or similar transaction of the Company or any Subsidiary with or into another entity (other than a merger or consolidation or similar transaction of a Subsidiary into the Company or a wholly-owned Subsidiary); or the sale or transfer of all or substantially all of the assets of the Company and the Subsidiaries in a single transaction or a series of related transactions; or (ii) the occurrence of any transaction or event in connection with which all or substantially all the Common Stock shall be exchanged for, converted into, acquired for or constitute the right to receive securities of any other Person (whether by means of a Tender Offer, liquidation, consolidation, merger, share exchange, combination, reclassification, recapitalization, or otherwise); or (iii) the acquisition by a Person or group of Persons acting in concert as a partnership, limited partnership, syndicate or group, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases or otherwise, of beneficial ownership of securities of the Company representing 50% or more of the combined voting power of the outstanding voting securities of the Company ordinarily (and apart from rights accruing in special circumstances) having the right to vote in the election of directors. "Rights Agreement" means the Rights Agreement, dated as of October 8, 1998, between the Company and Harris Trust Company of California, as Rights Agent. "SEC" means the Securities and Exchange Commission. "Subsidiary" means any corporation or other entity of which a majority of the capital stock or other ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions are at the time directly or indirectly owned by the Company. 4 5 "Supplemental Indenture" means the First Supplemental Indenture, dated as of September 22, 2000, between the Company and U. S. Bank Trust National Association, as Trustee. "Tender Offer" means a tender offer, exchange offer or other offer by the Company to repurchase outstanding shares of its capital stock. "Trading Day" means a day on which the national securities exchange, the Nasdaq or the Nasdaq SmallCap which then constitutes the principal securities market for the Common Stock is open for general trading. 1. EXERCISE OF WARRANT. (a) EXERCISE. This Warrant may be exercised by the Holder in full at any time or in part from time to time on or before the Expiration Date by (x) surrendering this Warrant to the Company, (y) giving a subscription form in the form of EXHIBIT 1 to this Warrant (duly executed by the Holder) to the Company, and (z) making payment, in cash or by certified or official bank check payable to the order of the Company, or by wire transfer of funds to the account of the Company, in any such case, in the amount obtained by multiplying (a) the number of shares of Common Stock designated by the Holder in the subscription form by (b) the Purchase Price then in effect. On any partial exercise the Company will forthwith issue and deliver to or upon the order of the Holder a new Warrant or Warrants of like tenor, in the name of the Holder or as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, providing in the aggregate on the face or faces thereof for the purchase of the number of shares of Common Stock for which such Warrant or Warrants may still be exercised. The subscription form may be surrendered by telephone line facsimile transmission to such telephone number for the Company as shall have been specified in writing to the Holder by the Company; provided, however, that if the subscription form is given to the Company by telephone line facsimile transmission the Holder shall send an original of such subscription form to the Company within ten Business Days after such subscription form is so given to the Company; provided further, however, that any failure or delay on the part of the Holder in giving such original of any subscription form shall not affect the validity or the date on which such subscription form is so given by telephone line facsimile transmission. In connection with any exercise of this Warrant, the Holder shall also furnish to the Company such other documentation as required by applicable law and reasonably requested by the Company in writing; provided, however, that any failure or delay on the part of the Holder in furnishing such documentation shall not affect the validity of the exercise of this Warrant or the date on which this Warrant shall have been exercised. 5 6 (b) NET EXERCISE. Notwithstanding anything to the contrary contained in Section 1(a), the Holder may elect to exercise this Warrant, in whole or in part, by receiving shares of Common Stock equal to the net issuance value (as determined below) of this Warrant, or any part hereof, upon surrender of the subscription form annexed hereto (duly executed by the Holder) to the Company (followed by surrender of this Warrant to the Company within three Trading Days after surrender of such subscription form), in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula: Y x (A - B) X = ----------- A where,
X = the number of shares of Common Stock to be issued to the Holder Y = the number of shares of Common Stock as to which this Warrant is to be exercised A = the Current Fair Market Value of one share of Common Stock calculated as of the last Trading Day immediately preceding the exercise of this Warrant B = the Purchase Price
2. DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE. As soon as practicable after the exercise of this Warrant and in any event within three Trading Days thereafter, upon the terms and subject to the conditions of this Warrant, the Company at its expense (including the payment by it of any applicable issue or stamp taxes) will cause to be issued in the name of and delivered to the Holder, or as the Holder (upon payment by the Holder of any applicable transfer taxes) may direct, a certificate or certificates for the number of fully paid and nonassessable shares of Common Stock (or Other Securities) to which the Holder shall be entitled on such exercise, in such denominations as may be requested by the Holder, plus, in lieu of any fractional share to which the Holder would otherwise be entitled, cash equal to such fraction multiplied by the then Current Fair Market Value of one full share, together with any other stock or Other Securities or any property (including cash, where applicable) to which the Holder is entitled upon such exercise pursuant to Section 1 or otherwise. The Company shall pay any taxes and other governmental charges that may be imposed under the laws of the United States of America or any political subdivision or taxing authority thereof or therein in respect of the issue or delivery of shares of Common Stock (or Other Securities) 6 7 or payment of cash upon exercise of this Warrant (other than income taxes imposed on the Holder). The Company shall not be required, however, to pay any tax or other charge imposed in connection with any transfer involved in the issue of any certificate for shares of Common Stock (or Other Securities) issuable upon exercise of this Warrant or payment of cash to any Person other than the Holder, and in case of such transfer or payment the Company shall not be required to deliver any certificate for shares of Common Stock (or Other Securities) upon such exercise or pay any cash until such tax or charge has been paid or it has been established to the Company's reasonable satisfaction that no such tax or charge is due. Upon exercise of this Warrant as provided herein, the Company's obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Company to the Holder, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with such exercise. If the Company fails to issue and deliver the certificates for the Common Stock to the Holder pursuant to the first sentence of this paragraph as and when required to do so, in addition to any other liabilities the Company may have hereunder and under applicable law, the Company shall pay or reimburse the Holder on demand for all out-of-pocket expenses including, without limitation, fees and expenses of legal counsel incurred by the Holder as a result of such failure. 3. ADJUSTMENT FOR DIVIDENDS IN OTHER STOCK, PROPERTY, ETC.; RECLASSIFICATION, ETC. In case at any time or from time to time on or after the Issuance Date, all the holders of Common Stock (or Other Securities) shall have received, or (on or after the record date fixed for the determination of stockholders eligible to receive) shall have become entitled to receive, without payment therefor, (a) other or additional stock or other securities or property (other than cash) by way of dividend, or (b) any cash (excluding cash dividends payable solely out of earnings or earned surplus of the Company), or (c) other or additional stock or other securities or property (including cash) by way of spin-off, split-up, reclassification, recapitalization, combination of shares or similar corporate rearrangement, 7 8 other than (i) additional shares of Common Stock (or Other Securities) issued as a stock dividend or in a stock-split (adjustments in respect of which are provided for in Section 5) and (ii) rights or warrants to subscribe for Common Stock at less than the Current Fair Market Value (adjustments in respect of which are provided in Section 6), then and in each such case the Holder, on the exercise hereof as provided in Section 1, shall be entitled to receive the amount of stock and Other Securities and property (including cash in the cases referred to in subdivisions (b) and (c) of this Section 3) which the Holder would hold on the date of such exercise if on the date thereof the Holder had been the holder of record of the number of shares of Common Stock called for on the face of this Warrant and had thereafter, during the period from the date thereof to and including the date of such exercise, retained such shares and all such other or additional stock and Other Securities and property (including cash in the case referred to in subdivisions (b) and (c) of this Section 3) receivable by the Holder as aforesaid during such period, giving effect to all adjustments called for during such period by Section 4. 4. EXERCISE UPON A REORGANIZATION EVENT. In case of any Reorganization Event the Company shall, as a condition precedent to the consummation of the transactions constituting, or announced as, such Reorganization Event, cause effective provisions to be made so that the Holder shall have the right thereafter, by exercising this Warrant (in lieu of the shares of Common Stock of the Company and Other Securities or property purchasable and receivable upon exercise of the rights represented hereby immediately prior to such transaction) to purchase the kind and amount of shares of stock and Other Securities and property (including cash) receivable upon such Reorganization Event by a holder of the number of shares of Common Stock that might have been received upon exercise of this Warrant immediately prior to such Reorganization Event. Any such provision shall include provisions for adjustments in respect of such shares of stock and Other Securities and property that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The provisions of this Section 4 shall apply to successive Reorganization Events. 5. ADJUSTMENT FOR CERTAIN EXTRAORDINARY EVENTS. In the event that on or after the Issuance Date the Company shall (i) issue additional shares of the Common Stock as a dividend or other distribution on outstanding Common Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock, or (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then, in each such event, the Purchase Price shall, simultaneously with the happening of such event, be adjusted by multiplying the Purchase Price in effect immediately prior to such event by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event, and the product so obtained shall thereafter be the Purchase Price then in effect. The 8 9 Purchase Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described herein in this Section 5. The Holder shall thereafter, on the exercise hereof as provided in Section 1, be entitled to receive that number of shares of Common Stock determined by multiplying the number of shares of Common Stock which would be issuable on such exercise immediately prior to such issuance by a fraction of which (i) the numerator is the Purchase Price in effect immediately prior to such issuance and (ii) the denominator is the Purchase Price in effect on the date of such exercise. 6. ISSUANCE OF RIGHTS OR WARRANTS TO COMMON STOCKHOLDERS AT LESS THAN CURRENT FAIR MARKET VALUE. In case the Company shall on or after the Issuance Date issue rights or warrants to all holders of its outstanding shares of Common Stock entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the Current Fair Market Value on the record date fixed for the determination of stockholders entitled to receive such rights or warrants, then (a) the Purchase Price shall be adjusted so that the same shall equal the price determined by multiplying the Purchase Price in effect at the opening of business on the day after such record date by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on such record date plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at such Current Fair Market Value, and the denominator shall be the number of shares of Common Stock outstanding on the close of business on such record date plus the total number of additional shares of Common Stock so offered for subscription or purchase; and (b) the number of shares of Common Stock which the Holder may thereafter purchase upon exercise of this Warrant at the opening of business on the day after such record date shall be increased to a number equal to the quotient obtained by dividing (x) the Aggregate Purchase Price in effect immediately prior to such adjustment in the Purchase Price pursuant to clause (a) of this Section 6 by (y) the Purchase Price in effect immediately after such adjustment in the Purchase Price pursuant to clause (a) of this Section 6. Such adjustment shall become effective immediately after the opening of business on the day following the record date fixed for determination of stockholders entitled to receive such rights or warrants. To the extent that shares of Common Stock are not delivered pursuant to such rights or warrants, upon the expiration or termination of such rights or warrants, the Purchase Price shall be readjusted to the Purchase Price which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of delivery of only 9 10 the number of shares of Common Stock actually delivered and the number of shares of Common Stock for which this Warrant may thereafter be exercised shall be readjusted (subject to proportionate adjustment for any intervening exercises of this Warrant) to the number which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered. In the event that such rights or warrants are not so issued, the Purchase Price shall again be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed and the number of shares of Common Stock for which this Warrant may thereafter be exercised shall again be adjusted (subject to proportionate adjustment for any intervening exercises of this Warrant) to be the number which would then be in effect if such record date had not been fixed. In determining whether any rights or warrants entitle the holder to subscribe for or purchase shares of Common Stock at less than such Current Fair Market Value, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received for such rights or warrants, the value of such consideration, if other than cash, to be determined by the Board of Directors. 7. ISSUANCE AT LESS THAN CURRENT FAIR MARKET VALUE. (a) In case at any time on or after the Issuance Date the Company shall issue shares of its Common Stock or Common Stock Equivalents (collectively, the "Newly Issued Shares"), other than an issuance pro rata to all holders of its outstanding Common Stock, at a price below the Current Fair Market Value of the Common Stock at the time of such issuance, then following such issuance of Newly Issued Shares the Purchase Price shall be reduced as provided in clause (b) of this Section 7 and the number of shares of Common Stock which may be issued upon exercise of this Warrant shall be increased as provided in clause (c) of this Section 7. (b) The reduction in the Purchase Price following any such adjustment shall be determined by multiplying the Purchase Price immediately prior to such adjustment by a fraction, of which the numerator shall be the sum of (1) the number of shares of Common Stock outstanding immediately prior to the issuance of the Newly Issued Shares (calculated on a fully-diluted basis assuming the exercise or conversion of all options, warrants, purchase rights or convertible securities which are exercisable or convertible at the time of the issuance of the Newly Issued Shares) plus (2) the number of shares of Common Stock which the aggregate consideration, if any, received by the Company for the number of Newly Issued Shares would purchase at a price equal to the Current Fair Market Value of the Common Stock at the time of such issuance, and the denominator shall be the sum of (X) the number of shares of Common Stock outstanding immediately prior to the issuance of the Newly Issued Shares (calculated on a fully-diluted basis assuming the exercise or conversion of all options, warrants, purchase rights or convertible securities which are exercisable or convertible at the time of the 10 11 issuance of the Newly Issued Shares) plus (Y) the number of Newly Issued Shares. The adjustment provided for in this Section 7(b) may be expressed as the following mathematical formula:
-------------------- --------------------------- --------- ( O +(C / FMV)) x PP -------------------- --------------------------- --------- NPP = ( O + N ) -------------------- --------------------------- ---------
where,
C = aggregate consideration received by the Company for the Newly Issued Shares N = number of Newly Issued Shares O = number of shares of Common Stock outstanding (on a fully diluted basis, as described above) immediately prior to the issuance of the Newly Issued Shares FMV = Current Fair Market Value of the Common Stock at the time of issuance of the Newly Issued Shares PP = Purchase Price immediately prior to the issuance of the Newly Issued Shares NPP = Purchase Price immediately after the issuance of the Newly Issued Shares
(c) If the Purchase Price is reduced in connection with the issuance of Newly Issued Shares as provided in Section 7(b), then the number of shares of Common Stock for which this Warrant may thereafter be exercised shall be increased at the time of such reduction in the Purchase Price to a number equal to the quotient obtained by dividing (x) the Aggregate Purchase Price in effect immediately prior to such issuance of Newly Issued Shares by (y) the Purchase Price in effect immediately after such issuance of Newly Issued Shares after giving effect to such reduction in the Purchase Price pursuant to Section 7(b). (d) Notwithstanding the foregoing, no adjustment shall be made under this Section 7 by reason of: (1) the issuance by the Company of shares of Common Stock pro rata to all holders of the Common Stock so long as (i) any adjustment required by Section 5 is made and (ii) the Company shall have given notice thereof to the Holder pursuant to Section 13; 11 12 (2) the issuance by the Company of Newly Issued Shares in an offering for cash for the account of the Company that is underwritten on a firm commitment basis and (A) is registered under the 1933 Act or (B) sold in an offering to "qualified institutional buyers" as defined in, and in a transaction under, Rule 144A under the 1933 Act; (3) the issuance by the Company of shares of Common Stock upon conversion of the Notes in accordance with the Supplemental Indenture or upon exercise of this Warrant or the Other Warrants in accordance with the terms hereof and thereof; (4) the issuance by the Company of shares of Common Stock in payment of interest on the Notes in accordance with the terms thereof and the Supplemental Indenture; (5) the issuance by the Company of shares of Common Stock pursuant to exercise of options, warrants or other rights outstanding as of the first date of issuance of any of the Notes in accordance with their terms in effect on the first date of issuance of any of the Notes; and (6) the issuance by the Company of shares of Common Stock pursuant to the Common Stock Purchase Agreement. 8. EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. (a) If any of the following events occur, namely (i) any reclassification or change of the outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), (ii) any consolidation, merger or combination of the Company with another corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, or (iii) any sale or conveyance of the properties and assets of the Company as, or substantially as, an entirety to any other Person as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, then the Company or the successor or purchasing Person, as the case may be, shall execute with the Holder a written agreement providing that (x) this Warrant shall thereafter entitle the Holder to purchase the kind and amount of shares of stock and Other Securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance by the holder of a number of shares of Common Stock issuable upon exercise of this Warrant (assuming, for such purposes, a sufficient number of authorized shares of Common Stock available to exercise this Warrant) immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance assuming such holder of 12 13 Common Stock did not exercise such holder's rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance (provided that, if the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance is not the same for each share of Common Stock in respect of which such rights of election shall not have been exercised ("non-electing share"), then for the purposes of this Section 8 the kind and amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance for each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares), (y) in the case of any such successor or purchasing Person, upon such consolidation, merger, combination, sale or conveyance such successor or purchasing Person shall be jointly and severally liable with the Company for the performance of all of the Company's obligations under this Warrant and this Note Purchase Agreement and (z) if registration or qualification is required under the 1933 Act or applicable state law for this Warrant or the issuance to the Holder of the shares of such shares of stock and Other Securities so issuable upon exercise of this Warrant, such registration or qualification shall be completed prior to such reclassification, change, consolidation, merger, combination or sale. Such written agreement shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. If, in the case of any such reclassification, change, consolidation, merger, combination, sale or conveyance, the stock or other securities and assets receivable thereupon by a holder of shares of Common Stock includes shares of stock or other securities and assets of a corporation other than the successor or purchasing corporation, as the case may be, in such reclassification, change, consolidation, merger, combination, sale or conveyance, then such written agreement shall also be executed by such other corporation and shall contain such additional provisions to protect the interests of the Holder as the Board of Directors shall reasonably consider necessary by reason of the foregoing. (b) The above provisions of this Section 8 shall similarly apply to successive reclassifications, changes, consolidations, mergers, combinations, sales and conveyances. (c) If this Section 8 applies to any event or occurrence, Section 4 shall not apply to such event or occurrence. TAX ADJUSTMENTS. The Company may make such reductions in the Purchase Price, in addition to those required by Sections 3, 4, 5, 6 and 7, as the Board of Directors considers to be advisable to avoid or diminish any income tax to holders of Common Stock or rights to purchase Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. 13 14 10. MINIMUM ADJUSTMENT. (a) No adjustment in the Purchase Price (and no related adjustment in the number of shares of Common Stock which may thereafter be purchased upon exercise of this Warrant) shall be required unless such adjustment would require an increase or decrease of at least 1% in the Purchase Price; provided, however, that any adjustments which by reason of this Section 10 are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All such calculations under this Warrant shall be made by the Company and shall be made to the nearest cent or to the nearest one hundredth of a share, as the case may be. (b) No adjustment need be made for a change in the par value of the Common Stock or from par value to no par value or from no par value to par value. 11. NOTICE OF ADJUSTMENTS. Whenever the Purchase Price is adjusted as herein provided, the Company shall promptly, but in no event later than five Trading Days thereafter, give a notice to the Holder setting forth the Purchase Price and number of shares of Common Stock which may be purchased upon exercise of this Warrant after such adjustment and setting forth a brief statement of the facts requiring such adjustment but which such statement shall not include any information which would be material non-public information for purposes of the 1934 Act. Failure to deliver such notice shall not affect the legality or validity of any such adjustment. 12. FURTHER ASSURANCES. The Company will take all action that may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock, free from all taxes, liens and charges with respect to the issue thereof, on the exercise of all or any portion of this Warrant from time to time outstanding. 13. NOTICE TO HOLDER PRIOR TO CERTAIN ACTIONS. In case on or after the Issuance Date: (a) the Company shall declare a dividend (or any other distribution) on its Common Stock (other than in cash out of retained earnings); or (b) the Company shall authorize the granting to the holders of its Common Stock of rights or warrants to subscribe for or purchase any share of any class or any other rights or warrants; or (c) the Board of Directors shall authorize any reclassification of the Common Stock (other than a subdivision or combination of its outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value), or any consolidation or merger or other business combination 14 15 transaction to which the Company is a party and for which approval of any stockholders of the Company is required, or the sale or transfer of all or substantially all of the assets of the Company; or (d) there shall be pending the voluntary or involuntary dissolution, liquidation or winding-up of the Company; the Company shall give the Holder, as promptly as possible but in any event at least ten Trading Days prior to the applicable date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution or rights are to be determined, or (y) the date on which such reclassification, consolidation, merger, other business combination transaction, sale, transfer, dissolution, liquidation or winding-up is expected to become effective or occur, and the date as of which it is expected that holders of Common Stock of record who shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, other business combination transaction, sale, transfer, dissolution, liquidation or winding-up shall be determined. Such notice shall not include any information which would be material non-public information for purposes of the 1934 Act. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such dividend, distribution, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up. In the case of any such action of which the Company gives such notice to the Holder or is required to give such notice to the Holder, the Holder shall be entitled to give a subscription form to exercise this Warrant in whole or in part that is contingent on the completion of such action. 14. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF WARRANTS. The Company will at all times reserve and keep available out of its authorized but unissued shares of capital stock, solely for issuance and delivery on the exercise of this Warrant, a sufficient number of shares of Common Stock (or Other Securities) to effect the full exercise of this Warrant and the exercise, conversion or exchange of any other warrant or security of the Company exercisable for, convertible into, exchangeable for or otherwise entitling the holder to acquire shares of Common Stock (or Other Securities), and if at any time the number of authorized but unissued shares of Common Stock (or Other Securities) shall not be sufficient to effect such exercise, conversion or exchange, the Company shall take such action as may be necessary to increase its authorized but unissued shares of Common Stock (or Other Securities) to such number as shall be sufficient for such purposes. 15. TRANSFER OF WARRANT. This Warrant shall inure to the benefit of the successors to and assigns of the Holder. This Warrant and all rights 15 16 hereunder, in whole or in part, are registrable at the office or agency of the Company referred to below by the Holder in Person or by his duly authorized attorney, upon surrender of this Warrant properly endorsed accompanied by an assignment form in the form attached to this Warrant, or other customary form, duly executed by the transferring Holder. 16. REGISTER OF WARRANTS. The Company shall maintain, at the principal office of the Company (or such other office as it may designate by notice to the Holder), a register in which the Company shall record the name and address of the Person in whose name this Warrant has been issued, as well as the name and address of each successor and prior owner of such Warrant. The Company shall be entitled to treat the Person in whose name this Warrant is so registered as the sole and absolute owner of this Warrant for all purposes. 17. EXCHANGE OF WARRANT. This Warrant is exchangeable, upon the surrender hereof by the Holder at the office or agency of the Company referred to in Section 15, for one or more new Warrants of like tenor representing in the aggregate the right to subscribe for and purchase the number of shares of Common Stock which may be subscribed for and purchased hereunder, each of such new Warrants to represent the right to subscribe for and purchase such number of shares as shall be designated by the Holder at the time of such surrender. 18. REPLACEMENT OF WARRANT. On receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant and (a) in the case of loss, theft or destruction, of indemnity from the Holder reasonably satisfactory in form to the Company (and without the requirement to post any bond or other security), or (b) in the case of mutilation, upon surrender and cancellation of this Warrant, the Company will execute and deliver to the Holder a new Warrant of like tenor without charge to the Holder. 19. WARRANT AGENT. The Company may, by written notice to the Holder, appoint the transfer agent and registrar for the Common Stock as the Company's agent for the purpose of issuing Common Stock (or Other Securities) on the exercise of this Warrant pursuant to Section 1, and the Company may, by written notice to the Holder, appoint an agent having an office in the United States of America for the purpose of exchanging this Warrant pursuant to Section 17, and replacing this Warrant pursuant to Section 18, or any of the foregoing, and thereafter any such exchange or replacement, as the case may be, shall be made at such office by such agent. 20. REMEDIES. The Company stipulates that the remedies at law of the Holder in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will 16 17 not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 21. NO RIGHTS OR LIABILITIES AS A STOCKHOLDER. This Warrant shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company. Nothing contained in this Warrant shall be construed as conferring upon Holder hereof the right to vote or to consent or to receive notice as a stockholder of the Company on any matters or with respect to any rights whatsoever as a stockholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the Common Stock (or Other Securities) purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised in accordance with its terms. 22. NOTICES, ETC. All notices and other communications from the Company to the Holder shall be mailed by first class certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by the Holder or at the address shown for the Holder on the register of Warrants referred to in Section 16. 23. AMENDMENT; WAIVER. This Warrant and any terms hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. 24. MISCELLANEOUS. This Warrant shall be construed and enforced in accordance with and governed by the internal laws of the State of New York. The headings, captions and footers in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. 25. ATTORNEYS' FEES. In any litigation, arbitration or court proceeding between the Company and Holder relating hereto, the prevailing party shall be entitled to attorneys' fees and expenses and all costs of proceedings incurred in enforcing this Warrant. 17 18 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed on its behalf by one of its officers thereunto duly authorized. Dated: September 22, 2000 AXYS PHARMACEUTICALS, INC. By: /s/ William J. Newell -------------------------------- Name: William J. Newell Title: Senior Vice President * The Company also executed a Class B Warrant with each of the following parties: Delta Opportunity Fund (Institutional), LLC Omicron Partners, L.P. Otato Limited Partnership Gatx Ventures, Inc. Alexander Enterprise Holdings, Corp. Cumberland Partners Cumber International S.A. Edwin L. Cox Longview Partners Charles V. Schaefer Jr. Longview Partners B, L.P. Delta Associates Limited Partnership Longview Partners C, L.P. Cumberland Benchmarked Partners, L.P. Longview Partners A, L.P. 18 19 ASSIGNMENT For value received _________________________ hereby sell(s), assign(s) and transfer(s) unto _________________________ (Please insert social security or other Taxpayer Identification Number of assignee: ______________________________) the attached original, executed Warrant to purchase share of Common Stock of Axys Pharmaceuticals, Inc., a Delaware corporation, and hereby irrevocably constitutes and appoints _________________________ attorney to transfer the Warrant on the books of the Company, with full power of substitution in the premises. Capitalized terms used in this Assignment and not defined in this Assignment shall have the respective meanings provided in the Warrant. Dated: NAME: ----------------- ---------------------------- -------------------------------- Signature(s) 20 EXHIBIT 1 FORM OF SUBSCRIPTION AXYS PHARMACEUTICALS, INC. (To be signed only on exercise of Warrant) TO: Axys Pharmaceuticals, Inc. 180 Kimball Way South San Francisco, California 94080 Attention: Chief Financial Officer Facsimile No.: (650) 829-1067 1. The undersigned Holder of the attached original, executed Warrant hereby elects to exercise its purchase right under such Warrant with respect to ______________ shares (the "Exercise Shares") of Common Stock, as defined in the Warrant, of Axys Pharmaceuticals, Inc., a Delaware corporation (the "Company"). 2. The undersigned Holder (check one): [ ] (a) elects to pay the Aggregate Purchase Price for such shares of Common Stock (i) in lawful money of the United States or by the enclosed certified or official bank check payable in United States dollars to the order of the Company in the amount of $___________, or (ii) by wire transfer of United States funds to the account of the Company in the amount of $____________, which transfer has been made before or simultaneously with the delivery of this Form of Subscription pursuant to the instructions of the Company; or [ ] (b) elects to receive shares of Common Stock having a value equal to the value of the Warrant calculated in accordance with Section 1(b) of the Warrant. 3. Please issue a stock certificate or certificates representing the appropriate number of shares of Common Stock in the name of the undersigned or in such other name(s) as is specified below: Name: ----------------------------------- 21 Address: ----------------------------------- Social Security or Tax Identification Number (if any): Dated: ----------------------- ----------------------------------------------- (Signature must conform to name of Holder as specified on the face of the Warrant) ----------------------------------------------- ----------------------------------------------- (Address) EX-20.1 7 f65920ex20-1.txt AXYS PHARMACEUTICALS PRESS RELEASE DATED 9/21/2000 1 EXHIBIT 20.1 AXYS PHARMACEUTICALS, INC. ANNOUNCES AGREEMENTS TO SELL $26 MILLION OF 8% SENIOR CONVERTIBLE NOTES DUE 2004 AND WARRANTS TO PURCHASE COMMON STOCK SOUTH SAN FRANCISCO, Calif.--Sept. 21, 2000--Axys Pharmaceuticals, Inc. (Nasdaq:AXPH) today announced that it has entered into agreements to sell $26 million aggregate principal amount of its new series of 8% Senior Secured Convertible Notes maturing October 1, 2004. Axys had previously announced its intent to sell up to $20 million of fixed rate convertible notes. The notes will be convertible into shares of Axys' common stock, par value $.001 per share, at a fixed conversion price of $7.06 per share, which represents an approximately 10% premium to Axys' closing price on September 19, 2000. Interest on the notes will accrue at the rate of 8% per annum, will be payable quarterly and may be paid in shares of Axys' common stock, at Axys' sole discretion. In connection with the offering of the notes, Axys is also issuing warrants to purchase shares of its common stock. The warrants will be exercisable through October 1, 2004. The notes are secured by shares of Discovery Partners International, Inc. (Nasdaq:DPII) held by Axys, with Axys retaining the right to substitute other appropriate collateral. Diaz & Altschul Capital, LLC acted as placement agent for the offering. According to John Walker, chairman and chief executive officer: "This offering not only adds $26 million to our balance sheet, but it also leverages, without liquidating, our ownership interest in Discovery Partners International. With this additional cash on our balance sheet, and with the $50 million equity line we put in place earlier this summer with Acqua Wellington, Axys has gone a long way towards assuring that our oncology-focused research and development will be well funded. Our increased financial strength also provides the flexibility to consider other strategic initiatives, including the in-licensing or acquisition of new technologies and products." "The current value of our stake in DPI validates Axys' stated strategy to leverage its core scientific competencies by spinning out technologies into more focused subsidiaries. DPI's strong positioning in the market place is in part a result of its merger with Axys' [AAT] subsidiary earlier this year. In completing the financing announced today, we have eliminated any immediate need to liquidate our holdings in Discovery Partners International, underscoring our faith in our investment in DPI and its prospects for long term growth." Axys Pharmaceuticals, Inc. is an integrated small molecule drug discovery and development company. Axys has a broad pipeline of products for chronic therapeutic applications that are partnered with world-class pharmaceutical companies and a proprietary product portfolio in oncology. Axys is also building shareholder value through affiliated businesses that leverage the Axys technologies in order to provide capital for Axys' drug discovery and development programs. In addition to a minority interest in Discovery Partners International (Nasdaq:DPII) resulting from the merger of its combinatorial chemistry business, Axys Advanced Technologies, with DPII and the subsequent IPO of DPII, Axys' technology leveraging businesses are: PPGx, a 2 majority-owned pharmacogenomics company, and Akkadix Corporation, an agricultural biotechnology company. For more information about Axys Pharmaceuticals, Inc., please visit the company's website at http:\\www.axyspharm.com. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the convertible notes or warrants in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. Except for the historical information contained herein, this press release contains forward-looking statements that involve risks and uncertainties which could cause Axys' actual results to differ materially from those discussed here, including the risks inherent in early stage development and the reliance on the efforts of collaborative partners, the risk that Axys collaborations will not be successful, the risk that clinical trials will not proceed as anticipated or may not be successful, the risk that Axys will not be successful in entering into new collaborations, market risk associated with Axys' substantial ownership interest in Discovery Partners International, Inc., competition and marketing risk, and general economic conditions that may affect Axys' actual results and developments. Additional factors that could cause or contribute to such differences include, but are not limited to, those discussed in the sections entitled "What Factors Could Cause Our Results to Differ Significantly from Those You Might Expect?" and "What Other Matters Should Stockholders Consider with Respect to Axys?" in the Axys' SEC Reports, including Axys' report on Form 10-K for the fiscal year ended December 31, 1999. # # # -----END PRIVACY-ENHANCED MESSAGE-----