-----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, C+CajR32qdphLOsX5OKWGp2ppPNL+bPxiDijM611DrruYwMiZrlbBsLdG+gEtc5r aMo9YuQuT7fCFO00Tq+Mmg== /in/edgar/work/0000950149-00-002478/0000950149-00-002478.txt : 20001115 0000950149-00-002478.hdr.sgml : 20001115 ACCESSION NUMBER: 0000950149-00-002478 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 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: 10-Q SEC ACT: SEC FILE NUMBER: 000-22788 FILM NUMBER: 767210 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 10-Q 1 f67245e10-q.txt 3RD QUARTER REPORT 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q ------------------------ [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________ . COMMISSION FILE NUMBER: 0-22788 AXYS PHARMACEUTICALS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 22-2969941 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
180 KIMBALL WAY SOUTH SAN FRANCISCO, CALIFORNIA 94080 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (650) 829-1000 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of outstanding shares of the registrant's Common Stock, $0.001 par value, was 37,142,691 as of October 31, 2000. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 AXYS PHARMACEUTICALS, INC. INDEX
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited)* Consolidated Balance Sheets -- September 30, 2000 and December 31, 1999........................................... 1 Consolidated Statements of Operations -- Three and nine months ended September 30, 2000 and 1999.................... 2 Consolidated Statements of Cash Flows -- Nine months ended September 30, 2000 and 1999................................. 3 Notes to Consolidated Financial Statements -- September 30, 2000........................................................ 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 9 Item 3. Quantitative and Qualitative Disclosure About Market Risk... 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings........................................... 15 Item 2. Changes in Securities....................................... 15 Item 3. Defaults Upon Senior Securities............................. 15 Item 4. Submission of Matters to a Vote of Security Holders......... 15 Item 5. Other Information........................................... 15 Item 6. Exhibits and Reports on Form 8-K............................ 15 Signatures........................................................... 16
- --------------- * The financial information contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999, filed with the Securities and Exchange Commission on March 8, 2000. i 3 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AXYS PHARMACEUTICALS, INC. CONSOLIDATED BALANCE SHEETS ASSETS
SEPTEMBER 30, DECEMBER 31, 2000 1999(1) ------------- ------------ (UNAUDITED) (IN THOUSANDS) CURRENT ASSETS: Cash and cash equivalents................................... $ 40,008 $ 23,577 Marketable investments...................................... 11,307 3,080 Accounts receivable......................................... 1,163 5,340 Due from affiliates......................................... 3,195 31 Prepaid expenses and other current assets................... 2,635 3,197 --------- --------- Total current assets.............................. 58,308 35,225 Property and equipment, net................................. 13,492 18,873 Investment in equity method investee........................ 40,370 -- Debt issuance costs......................................... 7,068 -- Other assets................................................ 1,585 1,636 --------- --------- Total Assets...................................... $ 120,823 $ 55,734 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable............................................ $ 1,852 $ 4,563 Accrued compensation........................................ 1,932 2,980 Other accrued liabilities................................... 2,905 7,367 Current portion of capital lease and debt obligations....... 9,499 23,646 --------- --------- Total current liabilities......................... 16,188 38,556 Debt obligations, net of current portion.................... 26,000 -- Capital lease obligations, net of current portion........... 2,500 57 Minority interest in joint venture.......................... 1,918 3,074 STOCKHOLDERS' EQUITY: Common stock................................................ 343,171 291,328 Accumulated other comprehensive income (loss)............... 2,072 (70) Accumulated deficit......................................... (271,026) (277,211) --------- --------- Total stockholders' equity........................ 74,217 14,047 --------- --------- Total Liabilities and Stockholders' Equity........ $ 120,823 $ 55,734 ========= =========
- --------------- (1) The balance sheet at December 31, 1999 has been derived from the audited financial statement at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See accompanying notes. 1 4 AXYS PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- -------------------- 2000 1999 2000 1999 ------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues Collaboration and license revenues............. $ 2,611 $ 4,493 $ 5,496 $ 17,556 Service revenues............................... 589 304 1,209 646 ------- -------- -------- -------- Total revenue.......................... 3,200 4,797 6,705 18,202 Operating expenses Research and development...... 8,573 13,703 28,829 44,771 General and administrative..................... 3,737 4,337 9,765 10,693 Restructuring charge........................... -- 7,008 (625) 7,008 ------- -------- -------- -------- Total operating expenses............... 12,310 25,048 37,969 62,472 ------- -------- -------- -------- Operating loss................................... (9,110) (20,251) (31,264) (44,270) Interest income.................................. 458 785 1,212 2,449 Interest expense................................. (531) (842) (1,062) (1,843) Other............................................ 672 (679) 1,458 (567) ------- -------- -------- -------- Loss from continuing operations.................. (8,511) (20,987) (29,656) (44,231) Discontinued operations Income from operations of discontinued segment........................... -- 1,047 1,061 3,329 Gain on disposal of segment.................... 1,793 -- 34,780 -- ------- -------- -------- -------- Net (loss) income................................ $(6,718) $(19,940) $ 6,185 $(40,902) ======= ======== ======== ======== Basic and diluted net loss per share from continuing operations.......................... $ (0.23) $ (0.69) $ (0.86) $ (1.46) ======= ======== ======== ======== Basic and diluted net income per share from discontinued operations........................ $ 0.05 $ 0.03 $ 1.03 $ 0.11 ======= ======== ======== ======== Basic and diluted net (loss) income per share.... $ (0.18) $ (0.66) $ 0.18 $ (1.35) ======= ======== ======== ======== Shares used in computing basic and diluted net (loss) income per share........................ 36,603 30,359 34,653 30,340 ======= ======== ======== ========
See accompanying notes. 2 5 AXYS PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, -------------------- 2000 1999 -------- -------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)........................................... $ 6,185 $(40,902) Adjustments to reconcile net income (loss) to net cash and cash equivalents used in operating activities: Non-cash restructuring charge............................. (79) 2,920 Gain on disposal of segment............................... (34,780) -- Write off of investment in Genos.......................... -- 1,072 Depreciation and amortization............................. 5,715 8,419 Loss (Gain) on disposal of fixed assets................... 188 (178) (Gain) on disposal of marketable security................. (712) -- Equity interest in loss of joint venture.................. 409 836 Forgiveness of note receivable from officer............... 186 183 Changes in assets and liabilities: Accounts receivable..................................... 4,177 (2,030) Due from affiliates..................................... (3,262) -- Other current assets.................................... 562 1,151 Other long-term assets.................................. (1,548) (135) Other liabilities....................................... (8,142) (2,788) -------- -------- Net cash and cash equivalents used in operating activities........................................ (31,101) (31,452) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Available-for-sale securities: Purchases................................................. (11,835) (76,569) Maturities................................................ 5,375 73,846 Minority interest........................................... (1,156) 3,043 Proceeds from sale of marketable securities................. 1,087 -- Net cash proceeds from sale of AAT to DPI................... 600 -- Proceeds from sale of property and equipment................ 14 255 Transaction costs on disposal of segment.................... (1,816) -- Net purchase of property and equipment...................... (5,177) (8,866) -------- -------- Net cash and cash equivalents (used in) investing activities................................................ (12,908) (8,291) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common stock.................. 46,144 938 Proceeds from notes payable and capital lease financing..... 66,375 32,308 Principal payments on notes payable and capital leases...... (52,079) (25,665) -------- -------- Net cash and cash equivalents provided by financing Activities........................................ 60,440 7,581 -------- -------- Net increase (decrease) in cash and cash equivalents........ 16,431 (32,162) Cash and cash equivalents, beginning of period.............. 23,577 36,261 -------- -------- Cash and cash equivalents, end of period.................... $ 40,008 $ 4,099 ======== ========
See accompanying notes. 3 6 AXYS PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The unaudited consolidated financial statements included herein have been prepared by Axys Pharmaceuticals, Inc. ("Axys" or the "Company") according to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in complete financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The financial statements reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to state fairly the financial position and results of operations as of and for the periods indicated. The results of operations for the nine months ended September 30, 2000 are not necessarily indicative of the results to be expected for subsequent quarters or the full fiscal year. On April 28, 2000, the Company completed the sale of its combinatorial chemistry business, Axys Advanced Technologies, Inc. ("AAT"), to Discovery Partners International, Inc. (Nasdaq: DPII "DPI"). The Company reclassified operating results previously reported for the three and nine months ended September 30, 1999 to reflect the results of the combinatorial chemistry business as a discontinued operation, in accordance with Accounting Principles Board Opinion No. 30 (APB 30). These financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company's 1999 Annual Report on Form 10-K filed with the Securities and Exchange Commission. Reclassifications Certain 1999 amounts have been reclassified to conform to the September 30, 2000 presentations. 2. ISSUANCE OF CONVERTIBLE SECURED DEBT On September 22, 2000, Axys issued $26,000,000 in Senior Secured Convertible Notes (the "Notes"), which bear interest at 8% per annum. Interest is payable quarterly and may be paid in cash or in shares of Axys' common stock at Axys' sole discretion. The Notes are convertible into the Company's common stock with a conversion price of $7.06 per share. The Notes are secured by shares of DPI held by Axys. Axys retains the right to substitute other appropriate collateral. In connection with these notes, the Company issued warrants to purchase an aggregate of 1,841,360 of the Company's common stock. These warrants have an exercise price per share ranging from $8.82 to $10.59, and expire October 1, 2004. The fair value of these warrants (using the Black-Sholes option-pricing model to value the warrants), of $5.7 million is treated as debt issuance costs of the Notes, and was capitalized and is being amortized to interest expense using the effective interest method over the life of the debt. These debt issuance costs along with other related issuance costs are presented as debt issuance costs, net of amortization, of $7.1 million on the accompanying consolidated balance sheet as of September 30, 2000. 3. EQUITY FINANCING On July 21, 2000, the Company completed the sale of $10 million of its common stock, par value $.001 per share, under its effective shelf registration statement. 1,639,345 shares of common stock were sold at a price of $6.10 per share, resulting in net proceeds of $10 million under the Company's effective shelf registration statement. Pursuant to a common stock purchase agreement, the Company may, from time to time, and at its own discretion, issue and sell up to an additional $40 million of common stock, subject to 4 7 AXYS PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 2000 (UNAUDITED) certain conditions, at a price per share based on the daily volume weighted average price of the Company's common stock over a certain period of time less a discount ranging from 4.5% to 6.0% over the fifteen month period beginning July 21, 2000. For information related to this financing see our registration statements dated April 28 and July 20, 2000 on file with the Securities and Exchange Commission. 4. DISCONTINUED OPERATIONS On April 28, 2000, Axys completed the sale of AAT, its combinatorial chemistry business, to DPI. Under the terms of the agreement, AAT was merged with a subsidiary of DPI and the Company received as consideration 7,425,000 shares of common stock of DPI (fair value of $8 per share on the date of acquisition), $50,000 in cash, $550,000 in the form of a note receivable and a warrant to purchase 200,000 additional shares of DPI at $8 per share. The revenues of the combinatorial chemistry business were $5.1 million for the four months ended April 30, 2000, and $10.9 million for the nine months ended September 30, 1999. The net income of the combinatorial chemistry business was $1.1 million for the four months ended April 30, 2000, and $3.3 million for the nine months ended September 30, 1999. As a result of the sale of AAT, the Company's combinatorial chemistry business has been presented as discontinued operations for the nine months ended September 30, 1999 and through April 30, 2000. The results of operations for the discontinued segment are included in discontinued operations in the consolidated statements of operations for the three and nine months ended September 30, 1999. 5. DUE FROM AFFILIATES At September 30, 2000 due from affiliates consists of $2.3 million in loans due from its 23% owned affiliate, Akkadix Corporation, and $0.9 million due from DPI. The loans to Akkadix bear interest at a rate of 8% per year. All unpaid principal together with all accrued but unpaid interest are due and payable to the Company at the earlier of August 22, 2001 or the first business day immediately following such date as the Company receives any cash totaling $8 million or more. Also, Axys has the right to convert $2 million of the loans into Series E Preferred Stock in Akkadix. The amounts due from DPI bear no interest. Also in September 2000, Axys entered into a credit agreement with its 82% owned subsidiary, PPGx Inc., pursuant to which the Company, at the request of PPGx, shall from time to time make loans to PPGx in an aggregate outstanding principal amount not to exceed $3.15 million. The unpaid principal amount of the loans, which are to be used to fund PPGx operating costs, accrues interest at a rate of 8%, and matures in June 2001. The loans are evidenced by a promissory note. As of September 30, 2000, PPGx had borrowed $350,000 under the agreement. The note with PPGx is eliminated in consolidation. 6. INVESTMENT IN EQUITY METHOD INVESTEE Investment in equity method investee consists of the Company's investment in DPI as a result of the merger agreement between DPI and the Company for the sale of AAT in April 2000. The Company accounts for its investment in DPI under the equity method of accounting. In July 2000, DPI completed its initial public offering (IPO) of its common stock. Prior to the IPO, the Company held 7,425,000 shares of DPI common stock, which represented a 43% ownership of the outstanding shares of DPI. As a result of DPI's IPO, Axys' ownership percentage was diluted to approximately 31% as of September 30, 2000. In connection with this transaction Axys realized a portion of the unrealized gain from the sale of AAT of $1.8 million. The shares of DPI are subject to a lock-up arrangement that restricts Axys' ability to sell them, which expires on January 27, 2001. 5 8 AXYS PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 2000 (UNAUDITED) The Company has a Key Personnel Stock Option Plan, adopted in 1999, whereby certain key personnel of the Company have the right to participate in the increased equity generated from Axys' affiliated companies. If Axys' affiliated companies meet certain financial equity targets, then the participants in the plan have the right to acquire as beneficial owners up to 5% of the increased equity. As a result of this plan, the financial statements reflect a charge of $1.7 million to the gain on sale of AAT to reflect the key personnel rights to the increased equity. The market value of DPI stock held by Axys as of September 30, 2000 was approximately $150.8 million. At September 30, 2000 the Company's equity-method investee summarized balance sheet information is as follows:
SEPTEMBER 30, DOLLARS IN THOUSANDS 2000 - -------------------------------------------------------- ------------- Current assets.......................................... $117,547 Non-current assets...................................... 60,445 Non-current liabilities................................. 812
Summarized statement of operations information of the Company's equity-method investee for the nine month period ended September 30, 2000 is as follows:
NINE MONTHS ENDED SEPTEMBER 30, DOLLARS IN THOUSANDS 2000 - ------------------------------------------------ ------------------------ Net sales....................................... $ 24,861 Loss from operations............................ (11,454) Net loss........................................ (11,576)
7. RESTRUCTURING CHARGE In December 1999, the Company completed the closing of its San Diego, CA operations and had finished the relocation of its oncology genomics activities to its South San Francisco headquarters. As a result of this action, a one-time charge of $7.0 million was recorded during the third quarter of 1999, of which $2.2 million related to severance and other employee-related costs, $1.7 million related to facilities costs, $1.8 million related to the disposal of assets, and $1.3 million in other costs associated with the restructuring. During the third quarter of 2000, the restructuring reserve was reduced by actual cash payments. The following table summarizes the Company's 2000 restructuring charge activity for the nine months ended September 30, 2000 (in thousands):
RESERVE BALANCE RESERVE BALANCE AT DECEMBER 31, AT SEPTEMBER 30, DESCRIPTION 1999 OTHER PAYMENTS 2000 ----------- --------------- ----- -------- ---------------- Severance and benefits...................... $(1,095) $ 79 $ 938 $(78) Facilities.................................. (748) 546 202 -- Contractual research commitments............ (81) -- 81 -- ------- ---- ------ ---- Total............................. $(1,924) $625 $1,221 $(78) ======= ==== ====== ====
The Company anticipates that the remaining accruals will be utilized by December 31, 2000. 6 9 AXYS PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 2000 (UNAUDITED) 8. COMPREHENSIVE INCOME (LOSS) Comprehensive loss is comprised of net loss and unrealized holding gains and losses on available-for-sale securities. Components of comprehensive loss are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ------------------ 2000 1999 2000 1999 ------- -------- ------ -------- Net income/(loss).................................. $(6,718) $(19,940) $6,185 $(40,902) Other comprehensive (loss) income.................. (44) 58 2,142 (51) ------- -------- ------ -------- Comprehensive (loss) income........................ $(6,762) $(19,882) $8,327 $(40,953) ======= ======== ====== ========
9. SEGMENT INFORMATION Prior to April 28, 2000, the Company operated in three business segments: drug discovery, combinatorial chemistry and other affiliated businesses. The drug discovery segment focused its own resources on discovering and developing therapeutics for the treatment of various types of cancer and collaborates with large pharmaceutical companies in discovering therapeutics for chronic diseases. The combinatorial chemistry segment was AAT, a wholly owned subsidiary that marketed combinatorial chemistry compounds, enabling technology and services. The other affiliated businesses segment consisted of PPGx, Inc. ("PPGx"), an 82% owned subsidiary that engaged in the business of providing pharmacogenomic (the science of how genetic variations among individuals affects drug safety and efficacy) products and services to the pharmaceutical and biotechnology industries, and Akkadix Corporation ("Akkadix"), an approximately 23% owned affiliate in the agricultural biotechnology business. The segments were strategic business units managed separately, based on the differences in the technologies of their respective product lines. On April 28, 2000, the Company completed the sale of its combinatorial chemistry business, AAT to DPI. All financial results related to the combinatorial chemistry business are accounted for as discontinued operations in accordance with APB 30. The accounting policies of the business segments are the same as those described in the summary of significant accounting policies. The Company does not currently have a measure of interest income or interest expense by business segment. The table below details the segment information prior to the sale of the combinatorial chemistry business, with a reconciling column to reflect totals related to continuing operations.
BUSINESS SEGMENTS ------------------------------------------------------------------ OTHER CONTINUING DRUG AFFILIATED OPERATIONS DISCOVERY AAT BUSINESSES RECONCILIATION TOTAL --------- ------- ---------- -------------- ---------- NINE MONTHS ENDED SEPTEMBER 30, 2000 Revenue............................ $ 5,533 $ 5,071 $1,172 $ (5,071) $ 6,705 Income (loss)...................... (23,235) 1,061 (6,421) (1,061) (29,656) Identifiable assets................ 117,630 7,758 3,193 (7,758) 120,823 NINE MONTHS ENDED SEPTEMBER 30, 1999 Revenue............................ $ 17,556 $10,909 $ 646 $(10,909) $ 18,202 Income (loss)...................... (39,866) 3,329 (4,365) (3,329) (44,231)
Other affiliated businesses represent the results of Akkadix's and PPGx's principal activities, which commenced in 1998 and 1999, respectively. The Company's ownership of Akkadix was reduced to a level 7 10 AXYS PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 2000 (UNAUDITED) below 50% in August 1999. Therefore, Akkadix's activities are excluded above for the nine months ended September 30, 2000. 10. REVOLVING LINE OF CREDIT The Company has a $30.0 million revolving line of credit with Foothill Capital Corporation. There was no outstanding balance at September 30, 2000. The line is subject to the terms of a security agreement and amounts drawn under the line are required to be fully secured by the Company's cash and cash equivalents, and marketable investments. Interest is due on the line monthly and is computed at the reference rate for Wells Fargo Bank, which approximated 9.5% at September 30, 2000. The line is available through July 2002. PPGx, Inc. increased its revolving line of credit with a third party bank from $8.0 million to $9.0 million during the second quarter of 2000. This line is guaranteed by PPD, Inc. ("PPD"), a minority owner of PPGx. Interest is accrued monthly and is computed at the LIBOR rate, which approximated 6.62% at September 30, 2000. The amount outstanding on this line as of September 30, 2000 was $9.0 million. The balance of any unpaid principal and interest is due June 2001. 11. RECENT PRONOUNCEMENTS In July, 1999, the Financial Accounting Standards Board, or FASB, announced the delay of the effective date of Statement of Financial Accounting Standards 133, or FAS 133, "Accounting for Derivative Instruments and Hedging Activities" for one year, to the first quarter of 2001. Also, in June 2000, the FASB issued FAS 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities". FAS 133 as amended by FAS 138 is intended to be comprehensive guidance on accounting for derivatives and hedging activities. It requires companies to recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting under FAS 133 and 138. Because of the Company's minimal use of derivatives, management does not anticipate that the adoption of the new Statement will have a significant effect on earnings or the financial position of the Company. On March 31, 2000, the FASB issued Interpretation No. 44, "Accounting for Certain Transactions involving Stock Compensation", which provides guidance on several implementation issues related to Accounting Principles Board ("APB") Opinion No. 25. The most significant of which are clarification of the definition of employee for purposes of applying Opinion 25 and the accounting for options that have been repriced. Under the interpretation, a modification that reduces the exercise price of a fixed stock option award, commonly referred to as repricing, effectively changes the terms of the award to a variable award subject to compensation expense. The Company currently does not have any options that have been repriced since the effective date of APB Opinion 25. The impact of the interpretation on our financial position and results of operations is not material. In June 2000, the Securities and Exchange Commission delayed the implementation date of Staff Accounting Bulletin No. 101, or SAB 101, "Revenue Recognition in Financial Statements", until no later than the fourth quarter of 2000. SAB 101 provides guidance on applying generally accepted accounting principles to revenue recognition issues in financial statements. The Company has already adopted SAB 101, as required, and its adoption had no significant effect on the financial results of the Company. 8 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion contains both historical information and forward-looking statements that involve risks and uncertainties. Forward-looking statements include projections and other statements about events that may occur at some point in the future. The Company's actual results could differ significantly from those described in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this section as well as under "Item 1. Business," including, "What Factors Could Cause Our Results To Differ Significantly From Those You Might Expect" and "What Matters Should Stockholders Consider with Respect to the Company?", in the Company's Annual Report on Form 10-K for the year ended December 31, 1999 filed with the Securities and Exchange Commission. OVERVIEW The Company is an early-stage biopharmaceutical company focused on the discovery, development and commercialization of small molecules. The Company invests its own resources in discovering and developing therapeutics for the treatment of various types of cancer and collaborates with large pharmaceutical companies in discovering therapeutics for chronic diseases for which there are large markets. After the sale of its AAT subsidiary to Discovery Partners International Inc. (DPI) the Company currently has two affiliated companies, which were also formed to provide future capital to Axys for its drug discovery operations: - Akkadix Corporation ("Akkadix"), an agricultural biotechnology company founded in 1998, was approximately 23% owned by Axys at September 30, 2000. Akkadix has incurred losses since inception, is separately managed, and is primarily funded by third parties. - PPGx, Inc. ("PPGx"), a pharmacogenomics subsidiary founded in 1999, is 82% owned by Axys and 18% owned by PPD, Inc. ("PPD"). Financial results of PPGx are consolidated into Axys' financial results. It has incurred losses since inception, is separately managed, and is primarily funded by third parties. On July 21, 2000, the Company completed the sale of $10 million of its common stock, par value $.001 per share, under its effective shelf registration statement. 1,639,345 shares of common stock were sold at a price of $6.10 per share, resulting in net proceeds of $10 million under the Company's effective shelf registration statement. Pursuant to a common stock purchase agreement, the Company may, from time to time, and at its own discretion, issue and sell up to an additional $40 million of common stock, subject to certain conditions, at a price per share based on the daily volume weighted average price of the Company's common stock over a certain period of time less a discount ranging from 4.5% to 6.0% over the fifteen month period beginning July 21, 2000. For information related to this financing see our registration statement dated April 28 and July 20, 2000 on file with the Securities and Exchange Commission. On September 22, 2000, Axys issued $26,000,000 in Senior Secured Convertible Notes (the "Notes"), which bear interest at 8% per annum. Interest is payable quarterly and may be paid in cash or in shares of Axys' common stock at Axys' sole discretion. The Notes are convertible into the Company's common stock with a conversion price of $7.06 per share. The Notes are secured by shares of DPI held by Axys. Axys retains the right to substitute other appropriate collateral. In connection with these notes, the Company issued warrants to purchase an aggregate of 1,841,360 of the Company's common stock. These warrants have an exercise price per share ranging from $8.82 to $10.59, and expire October 1, 2004. The fair value of these warrants (using the Black-Sholes option-pricing model to value the warrants), of $5.7 million is treated as debt issuance costs of the Notes, and was capitalized and is being amortized to interest expense using the effective interest method over the life of the debt. These debt issuance costs along with other related issuance costs are presented as debt issuance costs, net of amortization, of $7.1 million on the accompanying consolidated balance sheet as of September 30, 2000. 9 12 Also in September 2000, the Company entered into a financing agreement with a lease financing company under which Axys has the ability to finance up to $8.0 million of purchases of lab equipment and tenant improvements. At September 30, 2000, Axys had borrowed $2.5 million under this financing line. In May 2000, Bayer AG ("Bayer"), a collaboration partner of the Company, decided to discontinue development of the compound known as BAY 44-3428. Bayer had previously selected BAY 44-3428 for development as an oral treatment for asthma based on the demonstrated in vivo efficacy of the compound in primate models of asthma. Bayer's decision to discontinue development of BAY 44-3428 was based on its view that the toxicological properties of this specific compound precluded advancement into clinical development. However, Bayer's decision did not affect Axys' Phase II clinical trial of APC 2059, a tryptase inhibitor currently being developed for the treatment of inflammatory bowel disease. After completing a planned interim data analysis of its Phase II clinical study of APC 2059 for the treatment of ulcerative colitis, the Company decided to continue the Phase II study to its defined clinical endpoints later this year. APC 2059, which is a second generation tryptase inhibitor developed in the collaboration with Bayer, is from a chemically distinct class of compounds from the third generation compound BAY 44-3428, and does not demonstrate the toxicological properties that were found with BAY 44-3428. The Company previously demonstrated proof of principle for tryptase as a target in inflammation in two Phase II trials of a first generation compound, APC 366. Those trials, completed in the United Kingdom, demonstrated that APC 366 could alleviate symptoms associated with allergen-induced asthma, with statistically significant results in the reduction of the late airway response as measured against both baseline and placebo. To date, the Company has not generated any product revenue in its drug discovery programs and does not expect to generate such revenues for at least several years. The Company expects its primary sources of revenue, if any, for the next several years to consist of payments under corporate partnerships. The process of developing the Company's products will require significant additional research and development, preclinical testing and clinical trials, as well as regulatory approval. These activities, together with general and administrative expenses, are expected to result in significant operating losses for the foreseeable future. The Company expects that losses will fluctuate from quarter to quarter, that such fluctuations may be substantial, and that results from prior quarters may not be indicative of future operating results. Axys will not receive product revenue or royalties in its drug discovery programs unless the Company or its collaborative partners complete clinical trials and successfully commercialize one or more of the Company's products. In addition, there can be no assurance that DPI, Akkadix or PPGx will ever generate funding for the Company's drug discovery operations. As of September 30, 2000, the Company had an accumulated deficit of $271 million. Included in the Company's accumulated deficit at September 30, 2000 was approximately $147 million of acquired in-process research and development from the acquisition of Khepri Pharmaceuticals, Inc. in 1995 and the acquisition of Sequana Therapeutics, Inc. in January 1998. The Company is subject to risks common to early-stage drug discovery and development companies, including risks inherent in its research and development efforts and clinical trials, reliance on collaborative partners, the need for future capital, enforcement of patent and proprietary rights, potential competition and uncertainty of regulatory approval. In order for a product to be commercialized, it will be necessary for the Company, and in some programs, its collaborators, to conduct preclinical tests and clinical trials to demonstrate efficacy and safety of product candidates, obtain regulatory clearances and enter into manufacturing, distribution and marketing arrangements, as well as obtain market acceptance. There can be no assurance that the Company will generate revenues or achieve and sustain profitability in the future. RESULTS OF OPERATIONS Collaboration and Licensing Revenues The Company's collaboration and licensing revenues were $2.6 million and $5.5 million for the three and nine months ended September 30, 2000, respectively, compared to $4.5 million and $17.6 million for the comparable periods in 1999. The decrease was primarily due to wind-up of several collaborations in gene identification in 1999. The collaboration and licensing revenues for the three and nine months ended 10 13 September 30, 2000 consisted of research support and license fees from two collaborative partners, compared to the research support and license fees from eight collaborative partners for the comparable periods in 1999. Service Revenues The Company's service revenues were $589,000 and $1.2 million for the three and nine months ended September 30, 2000, respectively, compared to $304,000 and $646,000 for the comparable periods in 1999. The increase was primarily due to the increase in PPGx's service revenue. Research and Development The Company's research and development expenses were $8.6 million and $28.8 million for the three and nine months ended September 30, 2000, respectively, compared to $13.7 million and $44.8 million for the comparable periods in 1999. The overall decrease in 2000 was primarily due to the shutdown of the Company's San Diego operations and the conclusion of several collaborations in gene identification in 1999. General and Administrative The Company's general and administrative expenses were $3.7 million and $9.8 million for the three and nine months ended September 30, 2000, respectively, compared to $4.3 million and $10.7 million for the comparable periods in 1999. The overall decrease in 2000 was primarily due to the shutdown of the Company's San Diego operations in 1999. Interest Income and Interest Expense Interest income was $458,000 and $1.2 million for the three and nine months ended September 30, 2000, respectively, compared to $785,000 and $2.4 million for the comparable periods in 1999. The decrease was primarily due to the decrease in average cash and investment balances for the respective periods. Interest expense was $531,000 and $1.1 million for the three and nine months ended September 30, 2000, respectively, compared to $842,000 and $1.8 million for the comparable periods in 1999. The decrease was primarily due to the lower debt balances on the Company's revolving line of credit and capital lease arrangements. Income from Operations of Discontinued Segment Income from operations of discontinued segment was $1.1 million for the nine months ended September 30, 2000, compared to $3.3 million for the comparable period in 1999. The decrease was primarily due to reporting four months of operations of AAT in 2000 because of the merger of AAT into DPI on April 28, 2000, compared to nine months of operations in 1999. Discontinued Operations On April 28, 2000, the Company completed the sale of its combinatorial chemistry business, AAT, to DPI. As a result, the Company's former combinatorial chemistry business has been accounted for as a discontinued operation and prior period results have been reclassified to report only continuing operations. Axys' ownership interest in DPI has been accounted for under the equity method starting in May 2000. Total revenues on the discontinued operations were $5.1 million for the four months ended April 30, 2000, compared to $6.7 million for the comparable period in 1999. The net income on the discontinued operations was $1.1 million for the nine months ended September 30, 2000, compared to $3.3 million for the comparable period in 1999. The Company also recorded a gain of $33.0 million on the merger of AAT into DPI in the second quarter of 2000, and an additional gain of $1.8 million for the quarter ended September 30, 2000. Additional gain up to $16.5 million from the sale of AAT to DPI may be recognized by Axys as its ownership interest in DPI diminishes as a result of (1) the sale of Axys' shares in DPI, or (2) the dilution of Axys' ownership interest in DPI. Financial results of AAT were consolidated with Axys' financial results through April 2000 when the merger involving AAT was consummated and AAT became a subsidiary of DPI. 11 14 LIQUIDITY AND CAPITAL RESOURCES The Company has financed its operations since inception primarily through private and public offerings of capital stock, corporate collaborative research agreements, and sales of combinatorial chemistry compounds. From inception through September 30, 2000, the Company realized approximately $228.2 million in net proceeds from offerings of its capital stock. In addition, over the same period, the Company realized approximately $210.8 million from its collaborative research agreements and the sale of compound libraries by AAT. The Company's principal sources of liquidity are its cash and investments, which totaled $51.3 million as of September 30, 2000. The Company has a $30.0 million line of credit under which there was no outstanding balance as of September 30, 2000. The line is available subject to certain conditions through July 2002. The Company currently does not intend to use this line of credit. PPGx has a $9.0 million line of credit that is guaranteed by PPD, its minority shareholder, under which $9.0 million was outstanding as of September 30, 2000. The Company's cash and investments at September 30, 2000 include the balances from PPGx, its majority owned subsidiary, some of which is subject to certain restrictions on use. Currently, PPD has the right to acquire for $6 million from Axys an equal interest in PPGx, which would also require Axys to become a co-guarantor of the bank debt of PPGx. The Company's marketable investments at September 30, 2000 include approximately 53,175 shares of Maxim Pharmaceuticals, Inc. stock (a publicly traded company). These shares are subject to a lock-up arrangement that restricts Axys' ability to sell them, which expires over a nine month period, from September 2000, at a rate of 17,725 shares per quarter. Net cash used in operating activities during the nine months ended September 30, 2000 was $31.1 million, compared to $31.5 million for the comparable period in 1999. Cash used in operating activities is expected to fluctuate from quarter to quarter depending in part upon the timing and amounts, if any, of cash received from existing and any new collaboration agreements. The Company also spent approximately $3.9 million for the purchase of property, plant and equipment during the nine months ended September 30, 2000. The Company expects to acquire or lease additional equipment in connection with future research and development activities, and has made a commitment to spend $0.5 million to upgrade information technology infrastructure over the next eight months. There were no material commitments for capital expenditures outstanding at September 30, 2000. However, the Company expects to enter into agreements pertaining to the construction of a 43,000 square foot medicinal chemistry building on leased property adjacent to its corporate headquarters commencing the third quarter of 2000. The Company's material commitments at September 30, 2000 included its obligations to perform research under its collaboration agreements with Merck and Aventis (for which the Company is fully funded by its partners) and its obligations under its convertible debt agreement. The Company believes that its existing cash and investments (including the proceeds of the $10.0 million stock issuance described below and the investment in DPI also described below) are sufficient for the Company to fulfill these commitments. On July 21, 2000, the Company completed a sale of $10 million of its common stock, par value $.001 per share, under its effective shelf registration statement relating to the offer and sale by the Company of up to $50 million of its common stock pursuant to a common stock purchase agreement, dated as of July 21, 2000 between the Company and Acqua Wellington. The shares of common stock were sold at a price of $6.10 per share, based on a negotiated discount from the daily volume weighted average price of the Company's common stock on July 20, 2000. Pursuant to the common stock purchase agreement, the Company may, from time to time, and at its own discretion, issue and sell to Acqua Wellington up to an additional $40 million of common stock, subject to certain conditions, at a price per share based on the daily volume weighted average price of the Company's common stock over a certain period of time less a discount ranging from 4.5% to 6.0% over the fifteen month period beginning July 21, 2000. In addition, the Company may also grant to Acqua Wellington a call option at the same discount for the applicable period to purchase additional shares of the Company's common stock up to the applicable amount being sold by the Company in such period, subject to the overall limit of $40 million described above. 12 15 On September 22, 2000, Axys issued $26,000,000 in Senior Secured Convertible Notes (the "Notes"), which bear interest at 8% per annum. Interest is payable quarterly and may be paid in cash or in shares of Axys' common stock at Axys' sole discretion. The Notes are convertible into the Company's common stock with a conversion price of $7.06 per share. The Notes are secured by shares of DPI held by Axys. Axys retains the right to substitute other appropriate collateral. In connection with these notes, the Company issued warrants to purchase an aggregate of 1,841,360 of the Company's common stock. These warrants have an exercise price per share ranging from $8.82 to $10.59 and expire October 1, 2004. The fair value of these warrants (using the Black-Sholes option-pricing model to value the warrants), of $5.7 million is treated as debt issuance costs of the Notes, and was capitalized and is being amortized to interest expense using the effective interest method over the life of the debt. These debt issuance costs along with other related issuance costs are presented as debt issuance costs, net of amortization, of $7.1 million on the accompanying consolidated balance sheet as of September 30, 2000. Axys acquired its interest in DPI in connection with the April 2000 merger of AAT, the Company's combinatorial chemistry business, into DPI. In July 2000, DPI effected an initial public offering ("IPO") of its common stock and commenced trading on the Nasdaq under the symbol "DPII". Prior to the IPO, Axys held 7,425,000 shares of DPI common stock, which represented approximately 43% of the outstanding shares. DPI sold 5 million shares of its common stock in its IPO at a price of $18 per share, raising gross proceeds of approximately $90 million. This reduced the Company's ownership in DPI to approximately 31% after the IPO. As of September 30, 2000, Axys' investment in DPI has a value of approximately $150.8 million. In September 2000, the Company entered into a financing agreement with a lease financing company under which Axys has the ability to finance up to $8.0 million of purchases of lab equipment and tenant improvements. At September 30, 2000, Axys had borrowed $2.5 million under this financing line. The Company expects that existing cash and investments, together with the DPI shares, will enable the Company to maintain current and planned operations for the foreseeable future. The Company continues to actively pursue a variety of financing alternatives, including additional draws under the common stock purchase agreement with Acqua Wellington described above. The drug development process is expensive and the Company is at an early stage of development. Therefore, the Company expects that it will continue to need to raise money in the future until the Company achieves substantial product or royalty revenues, if ever. The Company expects that it will continue to seek additional funding from time to time through one or more of the following: new collaborations, the extension of existing collaborations, the sale of its interests in its affiliated businesses, or through public or private equity or debt financings. Furthermore, the Company may obtain funds through arrangements with collaborative partners or others that require the Company to give up rights to technologies or products that it would otherwise seek to develop or commercialize itself. The Company cannot be certain that additional funding will be available or that, if available, the terms will be acceptable. Existing stockholders will experience dilution of their investment if additional funds are raised through private or public stock sales. If adequate funds are not available, the Company may delay, reduce or eliminate any of its research or development programs. CERTAIN BUSINESS RISKS The Company is at an early stage of development and will need a substantial amount of additional funding to continue to prosecute its research and development programs. The Company's proprietary research programs are, in many cases, several years from clinical development and require substantial additional research and development. All of its proposed products are in research or development and will require significant additional research and development efforts prior to any commercial use, including extensive and costly pre-clinical and clinical testing, as well as lengthy regulatory approval involving many complexities. The Company's research and development efforts may not be successful, our proposed products may not prove to be safe and efficacious in clinical trials, and no commercially successful products may ultimately be developed by the Company. In addition, many of the Company's currently proposed products are subject to development and licensing arrangements with our collaborators. Therefore, the Company is dependent in many cases on the research and development efforts of these collaborators. Moreover, in cases where the Company is the licensor 13 16 of its research programs, the Company is entitled only to a portion of the revenues, if any, realized from the commercial sale of any of the proposed products covered by the collaborations. The Company has experienced significant operating losses since inception and expects to incur significant operating losses over at least the next several years. The development of the Company's proposed products will require a commitment of substantial funds to conduct these costly and time-consuming activities, which funds may not be available. Should the Company or its collaborators fail to perform in accordance with the terms of the applicable agreements, any consequent loss of revenue under the collaboration agreements could have a material adverse effect on the Company's business, financial condition and results of operations. The proposed products under development by the Company have never been manufactured on a commercial scale and it is possible that proposed products may not be able to be manufactured at a cost or in quantities necessary to make them commercially viable. The Company has no sales, marketing or distribution capability for its proposed products. If any of the products subject to the Company's collaborative agreements involving licenses or our research programs are successfully developed, the Company must rely on its collaborators to market the products. The Company cannot ensure that any collaborator's marketing efforts would be successful. If the Company develops any products which are not subject to collaborative agreements under which the Company's research partner is the marketer, we must either rely on other pharmaceutical companies to market the products or the Company must develop a marketing and sales force with technical expertise and supporting distribution capability in order to market the products directly. The Company cannot guarantee that its marketing efforts would be successful. The foregoing risks reflect the Company's early stage of development and the nature of its industry and products. Also inherent in the Company's stage of development are a number of additional risks, including competition, the substantially greater financial resources of a number of its competitors, uncertainties regarding protection of patents and proprietary rights, government regulation, uncertainties related to clinical trials and health care reform and the potential volatility of our stock price. These risks and uncertainties are discussed further in "Items 1. Business -- What Factors Could Cause Our Results to Differ Significantly From Those You Might Expect?" and "-- What Other Matters Should Stockholders Consider with Respect to the Company?" in the Company's Annual Report on Form 10-K for the year ended December 31, 1999, filed by the Company with the Securities and Exchange Commission on March 8, 2000. ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The company's exposure to market risk is principally limited to its cash equivalents and investments that have maturities of less than two years. The Company maintains a non-trading investment portfolio of investment grade, liquid debt securities that limits the amount of credit exposure to any one issue, issuer or type of instrument. The securities in the Company's investment portfolio are not leveraged, are classified as available-for-sale and are therefore subject to interest rate risk. The Company currently does not hedge interest rate exposure. 14 17 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES In July 2000, the Company issued and sold under its effective shelf registration statement 1.639 million shares of common stock at $6.10 per share for an aggregate of $10 million in proceeds. The Company intends to use the proceeds from this transaction for operating costs, including the Company's ongoing oncology research programs and other general corporate purposes. The shares were purchased by Acqua Wellington pursuant to a registration statement on Form S-3 filed with the Securities and Exchange Commission. On September 22, 2000, Axys issued $26,000,000 in Senior Secured Convertible Notes (the "Notes"), which bear interest at 8% per annum. Interest is payable quarterly and may be paid in cash or in shares of Axys' common stock at Axys' sole discretion. The Notes are convertible into the Company's common stock with a conversion price of $7.06 per share. The Notes are secured by shares of DPI held by Axys. Axys retains the right to substitute other appropriate collateral. In connection with these notes, the Company issued warrants to purchase an aggregate of 1,841,360 of the Company's common stock. These warrants have an exercise price per share ranging from $8.82 to $10.59 and expire October 1, 2004. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS 10.128 Common Stock Purchase Agreement by and between Acqua Wellington North American Equities Fund, Ltd. and Axys Pharmaceuticals, Inc. dated July 21, 2000(1) 10.129 Note Purchase Agreement, Indenture; Supplemental Indenture; Class A Common Stock Purchase Warrant; Class B Common Stock Purchase Warrant(2) 10.130 Credit agreement by and between PPGx, Inc. and Axys Pharmaceuticals, Inc. dated September 22, 2000 10.131 Bridge Loan by and between Akkadix Corporation and Axys Pharmaceuticals, Inc. dated September 11, 2000 10.132 Secured/Subordinated Promissory Note by and between Littlefield Associates and Axys Pharmaceuticals, Inc. dated September 28, 2000. 27 Financial Data Schedule.
- --------------- (1) Incorporated herein by reference to Exhibit 1.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 22, 2000. (2) Incorporated herein by reference to Exhibit 1.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on September 21, 2000. (b) REPORTS ON FORM 8-K None 15 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AXYS PHARMACEUTICALS, INC. Date: November 14, 2000 By: /s/ JOHN P. WALKER ------------------------------------ John P. Walker Chief Executive Officer, Chairman of the Board, Director (Principal Executive Officer) Date: November 14, 2000 By: /s/ DAVID E. RIGGS ------------------------------------ David E. Riggs Senior Vice President, Chief Financial Officer (Chief Accounting Officer and Principal Financial Officer) 16 19 EXHIBIT INDEX
EXHIBITS DESCRIPTION - -------- ----------- 10.128 Common Stock Purchase Agreement by and between Acqua Wellington North American Equities Fund, Ltd. and Axys Pharmaceuticals, Inc. dated July 21, 2000(1) 10.129 Note Purchase Agreement, Indenture; Supplemental Indenture; Class A Common Stock Purchase Warrant; Class B Common Stock Purchase Warrant(2) 10.130 Credit agreement by and between PPGx, Inc. and Axys Pharmaceuticals, Inc. dated September 22, 2000 10.131 Bridge Loan by and between Akkadix Corporation and Axys Pharmaceuticals, Inc. dated September 11, 2000 10.132 Secured/Subordinated Promissory Note by and between Littlefield Associates and Axys Pharmaceuticals, Inc. dated September 28, 2000. 27 Financial Data Schedule.
EX-10.130 2 f67245ex10-130.txt CREDIT AGREEMENT 1 EXHIBIT 10.130 LOAN AGREEMENT THIS LOAN AGREEMENT (the "Agreement") is made as of September __, 2000 by and between PPGx, INC., a Delaware corporation (the "Company") and the entities whose names appear on the Schedule of Lenders attached hereto as Exhibit A (the "Lenders"). 1. The Loans. 1.1 The Loans. Subject to the conditions specified in this Agreement, each Lender agrees to lend to the Company up to the sum set forth opposite such Lender's name on Exhibit A (each, a "Credit Line," and collectively, the "Total Credit Line"). Each month for the next nine months prior to the Maturity Date (as defined below), the Company may borrow from the Lenders the principal amount (each a "Loan Amount") up to one million dollars ($1,000,000); provided, however, that the Loan Amount shall be made on a pro rata basis from the Lenders based on the Pro Rata Percentages set forth on Exhibit A attached hereto. At the end of each month prior to the Maturity Date, the Company will inform the Lenders in writing of the next month's Loan Amount based on the Company's anticipated funding needs for the next month, and each Lender will provide its Pro Rata Percentage, set forth on Exhibit A attached hereto, of the Loan Amount on the second business day after receipt of the notice of the Loan Amount. Each Loan Amount shall be made against the issuance and delivery by the Company of a promissory note to each Lender for the portion of the Loan Amount borrowed from each Lender (each a "Note," and collectively, the "Notes") in substantially the form attached hereto as Exhibit B. The availability of additional funding under these credit lines will be automatically cancelled in the event of new external funding provided to the Company or in case of a sale, merger or other disposition of the Company such that after such event the Lenders collectively own less than fifty percent (50%) of the outstanding securities of the Company. 1.2 Maturity Date. For the purposes of this Agreement, the Maturity Date shall be the earlier of (i) June 30, 2001, or (ii) a sale, merger or other disposition of the Company such that after such event the Lenders collectively own less than fifty percent (50%) of the outstanding securities of the Company. 1.3 Repayment. The Company will repay the outstanding principal and accrued interest of each Note on a pro rata basis, so that each Lender receives the same principal amount in repayment, and each Lender's share of the outstanding aggregate Loan Amounts remains in accordance with the Pro Rata Percentages set forth on Exhibit A attached hereto. 1.4 Place and Date of Closing. The closing of the transactions provided for herein (the "Closing") will be held at the offices of Pharmaceutical product Development, Inc. at 3151 South 17th Street, Wilmington, NC 28412 on September __, 2000 or at such other time and place as the parties shall mutually agree (the "Closing Date"). 1 2 1.5 Delivery. At the Closing, (i) the Company shall execute and deliver to each Lender this Agreement, and (ii) the Lenders shall each execute and deliver to the Company this Agreement. 2. Representations and Warranties of the Company. The Company hereby represents and warrants to each Lender as follows: 2.1 Organization and Standing. The Company is a corporation duly organized and validly existing under, and by virtue of, the laws of the State of Delaware and is in good standing under such laws. The Company has the requisite corporate power to own and operate its properties and assets, and to carry on its business as presently conducted and as proposed to be conducted. 2.2 Corporate Power. The Company will have at the Closing all requisite legal and corporate power to execute and deliver this Agreement, to issue the Notes and to carry out and perform its obligations under the terms of this Agreement. 2.3 Consents, Authorizations and Permits. The Company will have obtained prior to the Closing any and all consents, authorizations and permits appropriate or required in connection with the issuance of the Notes and performance of the Company's obligations under the terms of this Agreement (except for such consents, authorizations and permits that may be properly obtained subsequent to the Closing). 2.4 Authorization. The execution, delivery and performance of this Agreement by the Company has been duly authorized by all requisite corporate action, and constitutes the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, or similar laws relating to or affecting the enforcement of creditors' rights. 3. Defaults and Remedies. 3.1 Events of Default. The following events shall be considered Events of Default with respect to each Note: (a) The Company shall default in the payment of any part of the principal or accrued and unpaid interest on the Note for more than thirty (30) days after the same shall become due and payable, whether at maturity or at a date fixed for prepayment or otherwise; (b) The Company shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts as they become due, or shall file a voluntary petition for bankruptcy, or shall file any petition or answer seeking for itself any reorganization, arrangement, composition, readjustment, dissolution or similar relief under any present or future statute, law or regulation, or shall file any answer admitting the material allegations of a petition filed against the Company in any such proceeding, or shall seek or 2 3 consent to or acquiesce in the appointment of any trustee, receiver or liquidator of the Company, or of all or any substantial part of the properties of the Company, or the Company or its respective directors or majority shareholders shall take any action looking to the dissolution or liquidation of the Company; or (c) Within sixty (60) days after the commencement of any proceeding against the Company seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceeding shall not have been dismissed or, within sixty (60) days after the appointment without the consent or acquiescence of the Company of any trustee, receiver or liquidator of the Company or of all or any substantial part of the properties of the Company, such appointment shall not have been vacated. 3.2 Remedies. Upon the occurrence of an Event of Default under Section 5.1 hereof, at the option and upon the declaration of the holder of the Note, (i) the entire unpaid principal and accrued and unpaid interest on the Note held by such holder shall, without presentment, demand, protest, or notice of any kind, all of which are hereby expressly waived, be forthwith due and payable, (ii) such holder may, immediately and without expiration of any period of grace, enforce payment of all amounts due and owing under such Note and exercise any and all other remedies granted to it at law, in equity, or otherwise and (iii) the Applicable Rate (as defined in the form of Note attached hereto as Exhibit B) will automatically change to the Default Rate of twelve percent (12%) compounded quarterly in arrears. 4. Miscellaneous. 4.1 Waivers and Amendments. With the written consent of the record holders of more than fifty percent (50%) of the aggregate Loan Amounts then outstanding, the obligations of the Company and the rights of the holders of the aggregate Loan Amounts under this Agreement may be waived (either generally or in a particular instance, either retroactively or prospectively and either for a specified period of time or indefinitely), and with the same consent the Company, when authorized by resolution of its Board of Directors, may enter into a supplementary agreement for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement; provided, however, that (i) no such waiver or supplemental agreement shall reduce the above percentage of aggregate Loan Amounts, the holders of which are required to consent to any waiver or supplemental agreement, without the consent of the record or beneficial holders of all of the aggregate Loan Amounts and (ii) no such waiver or supplemental agreement shall vary the terms of the Notes (including without limitation the provisions of this Agreement incorporated by reference into the Notes) without the consent of the holder of the Note affected by such proposed waiver or supplemental agreement. Upon the effectuation of each such waiver, consent, agreement, amendment or modification the Company shall promptly give written notice thereof to the record holders of the aggregate Loan Amounts who have not previously consented thereto in writing. Neither this Agreement nor any provisions hereof may be changed, waived, discharged or terminated orally, but only by a signed statement in writing. 3 4 4.2 Governing Law. This Agreement shall be governed in all respects by the laws of the State of Delaware as such laws are applied to agreements between Delaware residents entered into and to be performed entirely within Delaware. 4.3 Survival. The representations, warranties, covenants and agreements made herein shall survive for a period of one year following the Closing Date. 4.4 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 4.5 Entire Agreement. This Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. 4.6 Severability of this Agreement. In case any provision of this Agreement shall be deemed to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 4.7 Titles and Subtitles. The titles of the Sections and Subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 4.8 Delays or Omissions. It is agreed that no delay or omission to exercise any right, power or remedy accruing to the Lender, upon any breach or default of the Company under this Agreement or the Notes, shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach or default, or any acquiescence therein, or of any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. It is further agreed that any waiver, permit, consent or approval of any kind or character by the Lender of any breach or default under this Agreement, or any waiver by the Lender of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in writing and that all remedies, either under this Agreement, or by law or otherwise afforded to the Lender, shall be cumulative and not alternative. 4.9 Notices. Any notice or report required in this Agreement or permitted to be given shall be given by depositing the same in the United States mail, postage prepaid and addressed to the parties as follows: To the Company: PPGx, Inc. 3500 Paramount Parkway Morrisville, NC 27560 Attn: Josh Baker, President & CEO 4 5 To the Lenders: At their respective addresses set forth on Exhibit A 4.10 Counterparts. This Agreement may be executed by facsimile and in any number of counterparts, each of which shall be deemed an original, and all of which together shall constitute one instrument. IN WITNESS WHEREOF, the parties have caused this Loan Agreement to be duly executed and delivered as of the day and year first written above. [Signature Pages to Follow] 5 6 THE COMPANY: PPGx, INC. By: --------------------------------------- Name: ------------------------------------- (print) Title: ------------------------------------ Address: 3500 Paramount Parkway Morrisville, NC 27560 LENDERS: AXYS PHARMACEUTICALS, INC. By: --------------------------------------- Name: ------------------------------------- (print) Title: ------------------------------------ Address: 180 Kimball Way S. San Francisco, CA 94080 PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. By: --------------------------------------- Name: ------------------------------------- (print) Title: ------------------------------------ Address: 3151 South 17th Street Wilmington, NC 28412 6 7 EXHIBIT A SCHEDULE OF LENDERS
- ------------------------------------------------------------------------------------------------- LENDER CREDIT LINE PRO RATA PERCENTAGE - ------------------------------------------------------------------------------------------------- Axys Pharmaceuticals, Inc. $3,150,000.00 50% 180 Kimball Way S. San Francisco, CA 94080 Attn: William J. Newell - ------------------------------------------------------------------------------------------------- Pharmaceutical Product Development, Inc. $3,150,000.00 50% 3151 South 17th Street Wilmington, NC 28412 Attn: Fred Davenport, General Counsel - ------------------------------------------------------------------------------------------------- TOTAL $6,300,000.00 - -------------------------------------------------------------------------------------------------
A-1 8 EXHIBIT B Date: September ____, 2000 $-- PPGx PROMISSORY NOTE PPGx, Inc., a Delaware corporation ("Company"), for value received, promises to pay to -- or its assigns (the "Lender"), the principal sum of $--, in lawful money of the United States of America and in immediately available funds, plus interest on the principal amount hereof, at the Applicable Rate per annum. All accrued interest is payable at maturity. All principal and accrued interest shall be due and payable on the Maturity Date. Interest shall be computed on the basis of a year of 365 days for the actual number of days elapsed. 1. Definitions. Unless the context indicates otherwise, capitalized terms used herein shall have the meanings given them in the Loan Agreement, provided that the following terms used herein shall have the following meanings: 1.1 "Loan Agreement" means the Loan Agreement dated as of September _____, 2000 among the Lender, the Company and the other Lender. 1.2 "Lenders" means the lenders whose names appear on the Schedule of Lenders attached to the Loan Agreement as Exhibit A thereto. 1.3 "Noteholder," "holder," or similar terms, when the context refers to a holder of a Note, means any person who shall at the time be the holder of this Note. 1.4 "Applicable Rate" means 8% per annum, compounded quarterly. 1.5 "Default Rate" means 12% per annum, compounded quarterly. 2. No Prepayment Penalty. The principal amount of, and accrued and unpaid interest on, this Note may be paid by the Company in whole or in part at any time prior to maturity without penalty, provided however, the Company must give the Lenders five (5) working days prior notice, and the prepaid amount shall be divided in accordance with the respective Pro Rata Percentages of such Lenders set forth on the Schedule of Lenders attached to the Loan Agreement as Exhibit A thereto. 3. Subordination. This Note is a general unsecured obligation of the Company and is subordinated in right of payment to all indebtedness of the Company to First Union National Bank for bank loans outstanding on the date hereof, except for any such loan that by its terms is junior in right of payment to this Note or is pari passu in right of payment to this Note. B-1 9 4. Attorneys' Fees and Costs. If any amount is not paid as and when due hereunder, the Company promises to pay all costs of collection and reasonable attorneys' fees which the Lenders may incur. 5. Transferability. This Note may not be transferred in whole or in part without the prior written consent of the Company and the Lenders. 6. Loan Agreement. This Note is a Note as defined in the Loan Agreement and is entitled to all the benefits provided therein. Reference is made to said Loan Agreement for the Events of Default and the rights of acceleration of the maturity upon an Event of Default. 7. Governing Law. This terms and conditions of this Note shall be governed in all respects by the laws of the State of Delaware as such laws are applied to agreements between Delaware residents entered into and to be performed entirely within Delaware. PPGx, INC. ------------------------------------------ By: --------------------------------------- Its: -------------------------------------- B-2 EX-10.131 3 f67245ex10-131.txt BRIDGE LOAN 1 EXHIBIT 10.131 Dated as of September 11, 2000 BRIDGE FINANCING AGREEMENT Axys Pharmaceuticals, Inc., a Delaware corporation 180 Kimball Way South San Francisco, California 94080 Ladies and Gentlemen: The undersigned, Akkadix Corporation, a California corporation (the "Company"), hereby agrees with Axys Pharmaceuticals, Inc., a Delaware corporation ("Axys" or "Lender"), with respect to this Bridge Financing Agreement (this "Agreement") as follows: 1. Authorization. The Company has authorized the issuance and sale to Lender of a secured convertible note and security agreement in the amount of Two Million Dollars ($2,000,000) in the form attached hereto as Exhibit A (the "Note") and a warrant in the form attached hereto as Exhibit B (the "Warrant") to purchase 200,000 shares of Series E Convertible Preferred Stock ("Series E Preferred Stock") of the Company. The Note, the Warrant, and the Series E Preferred Stock purchasable under the Note and Warrant are sometimes collectively referred to herein as the "Securities." 2. Sale and Purchase of the Note and Warrant. Upon the terms and conditions contained herein, the Company agrees to sell to Axys, and Axys agrees to purchase from the Company, at the Closing (as hereinafter defined in Section 3 below): (a) the Note at a purchase price equal to the full principal amount of such Note; and (b) a Warrant to purchase up to 200,000 shares of Series E Preferred Stock. The purchase price for the Warrant shall be equal to $.001 times the number of shares of Series E Preferred Stock which would be initially covered by such Warrant. 3. Closing. The closing of the sale to and purchase by Lender of the Note and Warrant (the "Closing") shall occur on or before September 30, 2000 at a location mutually acceptable to the Company and the Lender or as soon thereafter as all of the conditions to Closing set forth in Section 7 have been satisfied (the "Closing Date"). At the Closing, the Company shall deliver to Lender or its representatives the Note and Warrant, each issued in the name of Axys, in the amounts specified in Section 2 above, against delivery to the Company of payment, by check or by wire transfer in the aggregate amount of $2,000,200. The Company hereby acknowledges (a) receipt of $2,000,000 as 2 payment in full for the Note on September 11, 2000 (the "Effective Date") and (b) the receipt of $200 as payment in full for the Warrant. The Company further acknowledges that interest under the Note began to accrue on the Effective Date. 4. Company Representations and Warranties. The Company represents and warrants to the Lender on the date hereof and on the Closing Date, except as identified on the attached Schedule of Exceptions, as follows: (a) Organization and Standing; Articles and Bylaws. The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of California, and has full power and authority and all material licenses, permits, and approvals to own and operate its properties and assets and to carry on its business as presently conducted. The Company is duly qualified and authorized to do business, and is in good standing as a foreign corporation, in each jurisdiction where the nature of its activities and of its properties (both owned and leased) makes such qualification necessary, except where the failure to so qualify would not have a material adverse effect upon the business and operations of the Company. (b) Authorization. All corporate action on the part of the Company, its officers, directors and shareholders necessary for the authorization, execution and delivery of this Agreement, the Note, the Warrant, and related documents (collectively, the "Transaction Documents"), and the performance of all the Company's obligations hereunder and thereunder, and for the authorization, issuance, sale and delivery of the Securities has been taken or will be taken prior to the Closing, except that the Company's board of directors has not designated the Series E Preferred Stock purchasable under the Note and Warrant from the Company's existing non-designated Preferred Stock (as defined below in Section 4(c)), although the Company's board of directors has agreed to do so immediately upon Lender's request, pursuant to the terms of a side letter set forth in Exhibit G attached hereto. The Transaction Documents, when executed and delivered, shall constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and subject to the availability of equitable remedies. (c) Capitalization; Validity of Securities. (i) The authorized capital stock of the Company consists of (A) 30,000,000 shares of Common Stock, par value $.001 per share (the "Common Stock"), of which, as of the date hereof and as of immediately prior to the Closing, there are 1,739,522 shares outstanding, (B) 11,650,000 shares of Preferred Stock authorized, par value $.001 per share (the 2 3 "Preferred Stock"), of which 6,003,002 shares of Series A Preferred Stock are outstanding, 3,349,885 shares of Series B Preferred Stock are outstanding, 100,000 shares of Series C Preferred Stock are outstanding, and pursuant to a licensing transaction, the Company has reserved an aggregate of 3,690,000 shares of Series D Preferred for issuance. (ii) Of the Company's 30,000,000 authorized shares of Common Stock, 2,750,000 shares of Common Stock (the "Option Pool") have been reserved for issuance under the Company's 1998 Equity Incentive Plan (the "Plan"). Of this amount, 1,108,488 shares of Common Stock have been issued as restricted stock, 211,034 shares of Common Stock have been issued pursuant to the exercise of option granted under the Plan, 1,118,628 shares of Common Stock may be issued under outstanding option grants under the Plan, and 61,850 shares of Common Stock remaining in the Option Pool for issuance under the Plan. (iii) The sale of the Securities is not and will not be subject to any preemptive rights or rights of first refusal that have not been waived; provided, however, that the Securities may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein or therein or as otherwise required by such laws at the time a transfer is proposed. Consistent with the provisions of the Note and the Warrant, the Series E Preferred Stock issuable upon exchange or conversion of the Note and exercise of the Warrant have not been designated but have been reserved. Once designated, issued and delivered and upon payment therefor in accordance with the terms of the Note and Warrant, the Series E Preferred Stock issuable upon exchange or conversion of the Note and exercise of the Warrant will be validly issued, fully paid and nonassessable, and will be free of any liens or encumbrances. (iv) Except for (A) the conversion privileges of the Company's Series A Convertible Preferred Stock, (B) the rights provided in Section 2.3 of the Amended and Restated Shareholder's Agreement dated May 14, 1999 (a Second Amended and Restated Shareholder's Agreement is currently out for signature) (C) vesting rights of employees under certain Stock Transfer Agreements entered into in connection with the issuance of shares (included in subsection (i)(A) above), (D) the rights described in subsection (ii) above, (E) a Warrant to purchase 7,200 shares of Common Stock of Akkadix Corporation held by the Salk Institute for Biological Research, and (F) a stock purchase agreement for 3,690,000 shares of Akkadix Corporation by Pangene Corporation (this transaction is pending the acceptance of an Amended and Restated Articles of Incorporation with the 3 4 Secretary of State of California), there are no other outstanding warrants, options, conversion privileges, or other rights or binding agreements to purchase or otherwise acquire or issue any equity securities of the Company. (d) Reports of the Company; No Material Adverse Changes. The Company has furnished Lender with copies of its unaudited financial statements for the fiscal year ending December 31, 1999, and unaudited financial statements for the quarter ended March 31, 2000 (collectively, the "Financial Statements"). Said Financial Statements, as of their respective dates, were accurate and complete in all material respects and did not omit any material information required to be set forth therein. Since December 31, 1999, there has not been any change in the assets, liabilities, financial condition or operating results of the Company from that reflected in the Financial Statements, except changes in the ordinary course of business that have not been, in the aggregate, materially adverse. (e) Intellectual Property Rights. (i) Except as set forth on Schedule 4(e)(i) attached hereto, to the best of its knowledge, the Company has sufficient title and ownership or license rights of all patents, trademarks, service marks, trade names, copyrights, trade secrets, information, proprietary rights, and processes (collectively, "Intellectual Property") necessary for its business as now conducted and as proposed to be conducted to the Company's knowledge, without any conflict with or infringement of the rights of others; (ii) Except as set forth on Schedule 4(e)(ii) attached hereto, there are no outstanding options, licenses, or agreements of any kind relating to the matters listed in subsection (i) above, or that grant rights to any other person to manufacture, license, produce, assemble, market or sell the Company's products, nor is the Company bound by or a party to any options, licenses, or agreements of any kind with respect to the Intellectual Property of any other person or entity; (iii) the Company has not received any written communications (or oral communications to Gary H. Richardson) alleging that the Company or its employees has violated or infringed or, by conducting its business as proposed, would violate or infringe any of the Intellectual Property of any other person or entity; and (iv) the Company is not aware that any of its employees is obligated under any contract (including licenses, covenants, or commitments of any nature) or other agreement, or subject to any judgment, decree, or order of 4 5 any court or administrative agency, that would interfere with the use of such employee's best efforts to promote the interests of the Company with respect to the Intellectual Property of the Company or otherwise or that would conflict with the Company's business as proposed to be conducted. (f) Security Interests. The grant of security interests in Section 6 of the Note, when effective by execution of each Note (and the filings required under the Uniform Commercial Code of the State of California and U.S. Patent and Trademark Office, when completed), creates a valid, binding, and perfected security interest (except to the extent that possession of stock certificates or other instruments is required to perfect a security interest therein) in the Collateral (as defined in Section 6 of the Note), free from any and all other liens and encumbrances. (g) Compliance With Other Instruments and Laws. The Company is not in violation or default in any material respect of any provision of its Articles of Incorporation or bylaws or in any material respect of any provision of any material mortgage, indenture, agreement, instrument, or contract to which it is a party or by which it is bound, or of any federal or state judgment, order, writ, decree, or any federal or state statute, rule, regulation or restriction applicable to the Company. The execution, delivery, and performance by the Company of the Transaction Documents, and the consummation of the transactions contemplated hereby and thereby, will not result in any such violation or be in material conflict with or constitute, with or without the passage of time or giving of notice, either a material default under any such provision or an event that results in the creation of any material lien, charge or encumbrance upon any assets of the Company or the suspension, revocation, impairment, forfeiture or nonrenewal of any material permit, license, authorization, or approval applicable to the Company, its business or operations, or any of its assets or properties. (h) Litigation. There is no action, suit, proceeding, or investigation pending or, to the best knowledge of the Company, threatened against the Company that questions the validity of the Transaction Documents, or the right of the Company to enter into such agreements, or to consummate the transactions contemplated hereby or thereby, or that might result, either individually or in the aggregate, in any material adverse change in the assets, business properties, prospects or financial condition of the Company. (i) Taxes. The Company has no material liability for any federal, state or local taxes, except for taxes which have accrued and are not yet payable or are being contested by the Company in good faith. The Company has paid all payroll taxes required to be paid by it. 5 6 (j) Offering. Assuming the accuracy of the representations and warranties of each Lender contained in Section 5 hereof, the offer, issue, and sale of the Securities is and will be exempt from the registration and prospectus delivery requirements of the Securities Act of 1933, as amended (the "1933 Act"), and has been registered or qualified (or are exempt from registration and qualification) under the registration, permit, or qualification requirements of all applicable state securities laws. 5. Representations and Warranties of Lender. Lender hereby represents and warrants to the Company as follows. (a) Legal Power. It has the requisite legal power to enter into this Agreement, to purchase the Securities hereunder, to convert its Note and exercise its Warrant, and to carry out and perform its obligations under the terms of this Agreement. (b) Due Execution. This Agreement has been duly authorized, executed and delivered by it, and, upon due execution and delivery by the Company, this Agreement will be a valid and binding agreement of it. (c) Investment Representations. (i) It is acquiring the Securities and will acquire any security issued upon exercise thereof for its own account, not as nominee or agent, for investment and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the 1933 Act. (ii) It understands that (A) the Securities have not been registered under the 1933 Act by Reason of a specific exemption therefrom, that the Securities must be held by it indefinitely, and that it must, therefore, bear the economic risk of such investment indefinitely, unless a subsequent disposition thereof is registered under the 1933 Act or is exempt form such registration; (B) the Securities will be endorsed with the following legends: NEITHER THIS [CONVERTIBLE NOTE] [WARRANT] NOR THE UNDERLYING SHARES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE HOLDER (AS DEFINED BELOW) MAY NOT TRANSFER THIS [CONVERTIBLE NOTE] [WARRANT], OR ANY SHARES ISSUED PURSUANT THERETO, UNLESS (i) THERE IS AN EFFECTIVE REGISTRATION COVERING SUCH [NOTE] WARRANT] OR SUCH SHARES UNDER THE SECURITIES 6 7 ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS, (ii) THE COMPANY FIRST RECEIVES A LETTER FROM AN ATTORNEY, ACCEPTABLE TO THE BOARD OF DIRECTORS OR ITS AGENTS, STATING THAT IN THE OPINION OF THE ATTORNEY THE PROPOSED TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND UNDER ALL APPLICABLE STATE SECURITIES LAWS, OR (iii) THE TRANSFER IS MADE PURSUANT TO RULE 144 UNDER THE SECURITIES ACT OF 1933. IN ADDITION, THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION AND/OR ITS ASSIGNEE(S), AS PROVIDED IN THE BY-LAWS OF THE CORPORATION. and (C) the Company will instruct any transfer agent not to register the transfer of any of the Securities unless the conditions specified in the foregoing legend are satisfied, provided, however, that no such opinion of counsel shall be necessary if the sale, transfer or assignment is made pursuant to SEC Rule 144 and such transferring Lender provides the Company with evidence reasonably satisfactory to the Company and its counsel that the proposed transaction satisfies the requirements of Rule 144. The Company agrees to remove the foregoing legend from any securities if the requirements of SEC Rule 144(k) (or any successor rule or regulation) apply with respect to such securities and the Company and its counsel are provided with reasonably satisfactory evidence that the requirements of Rule 144(k) apply. (iii) It is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Securities. (iv) It is an "accredited investor" within the meaning of SEC Rule 501 of Regulation D, as presently in effect. (v) It understands that the Securities it is purchasing are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws 7 8 and applicable regulations such securities may be resold without registration under the 1933 Act, only in certain limited circumstances, and it represents that it is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the 1933 Act. (vi) It was not formed for the specific purpose of acquiring the Securities offered hereunder. (vii) Its principal business address is as set forth below its name on the signature pages hereto and it does not reside in any state of the United States other than the state so specified. 6. Warrant Separate. The Warrant will not be affected by payment of the Note. 7. Conditions to Closing. (a) Lender's Conditions. Lender's obligations under Section 2 of this Agreement shall be subject to the fulfillment of the following conditions to be satisfied before or at Closing: (i) Lender shall have received the following documents, each executed by a duly authorized officer of the Company and other applicable parties, and each effective as of the date of this Agreement and in form and substance satisfactory to Lender: (A) The Note; (B) The Warrant; (C) A UCC-1 Financing Statement in the form attached hereto as Exhibit C; (D) A Confirmation and Grant of Security Interests in Intellectual Property in the form attached hereto as Exhibit D; (E) A Side Letter in the form of Exhibit E, where, among other things, the Company agrees to issue Series E Preferred Stock on the same terms and conditions and possessing the same rights and preferences as Series A Preferred Stock (other than price), if no Mezzanine Financing (as defined in the Note) has occurred when Lender desires to exchange or convert under the Note or exercise under the Warrant; 8 9 (F) Waivers of the Series A Holders' Rights of First Refusal and the Series B Holders' Rights of First Offer in the forms attached hereto as Exhibit F; (G) An Opinion of Arthur J. Chatroo, counsel to the Company, in the form attached hereto as Exhibit G; and (H) Shares of common stock representing the Company's ownership interest in all subsidiaries of the Company (with stock powers endorsed in blank); and (ii) The representations and warranties of the Company contained in Section 4 shall be true and correct on the Closing Date as though such representations and warranties had been made on and as of such date. (b) Company's Conditions. Company's obligations under Section 2 of this Agreement shall be subject to the fulfillment of the following conditions to be satisfied before or at Closing: (i) Company shall have received waivers of the Series A Holders' Rights of First Refusal and of the Series B Holder's Rights of First Offer in the forms attached hereto as Exhibit F; (ii) The representations and warranties of Lender contained in Section 5 shall be true and correct on the Closing Date as though such representations and warranties had been made on and as of such date; and (iii) The Company shall have received the purchase price for the Note and Warrant upon the terms and conditions set forth in this Agreement. 8. Covenants of the Company. (a) The Company shall not create or incur or suffer to be created or incurred any indebtedness other than: (i) indebtedness related to lease improvements and equipment purchases for a new 50,000 square foot facility the Company is presently negotiating a ten year lease for, and a related $850,000 letter of credit in favor of the lessor of that facility to secure lease payments thereunder; (ii) trade indebtedness created in the ordinary course of business; 9 10 and (iii) indebtedness in respect of taxes, assessments, governmental charges or levies and claims for labor, materials and supplies. (b) No payment or declaration of a cash dividend, shall be made on the common stock of the Company while any obligations under the Note is outstanding. (c) No later than 45 days following the end of each quarter, the Company shall deliver to the Lenders its balance sheet as at the end of such period and its income statement for such period and for that portion of the Company's financial reporting year ending with such period. In addition, no later than 90 days following the end of each financial reporting year, the Company shall deliver to the Lenders its balance sheet, income statement, and statement of cash flows for such year. 9. Miscellaneous (a) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. (b) This Agreement and the other Transaction Documents constitute the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements, whether written or oral, and shall not be modified except by a writing signed by the Company and Lender. (c) This Agreement shall be governed by and construed in accordance with the laws of the State of California. (d) The headings in this Agreement are for convenience only and shall not alter or otherwise affect the meaning hereof. (e) No waiver of any of the provisions contained in this Agreement shall be valid unless made in writing and executed by the waiving party, it is expressly understood that in the event any party shall on any occasion fail to perform any term of this Agreement and the other party shall not enforce that term, the failure to enforce on that occasion shall not prevent enforcement of that or any other term hereof on any other occasion. The covenants set forth in Section 8 above shall expire on the Company's indefeasible payment to Lender of the full amount of the Obligations hereunder, whether pursuant to cash payment to Lender or the Lender's conversion or exchange thereof or any combination of the above. 10 11 (f) If any section of this Agreement is held invalid by any law, rule, order, regulation, or promulgation of any jurisdiction, such invalidity shall not affect the enforceability of any other sections not held to be invalid. (g) This Agreement and any amendment thereof may be executed in two or more counterparts, each of which shall be deemed an original for all purposes. (h) The Company agrees to execute and deliver such further acts and documents as Lender from time to time reasonably requires for the assuring and confirming of its rights hereby created or intended now or hereafter to be created. (i) All expenses related to this Agreement will be borne by the party incurring them, except that the Company shall pay reasonable fees and expenses of one counsel to Lender, in an amount not to exceed $15,000. [THE NEXT PAGE IS THE SIGNATURE PAGE] 11 12 If you are in agreement with the foregoing, please sign the form of acceptance on the enclosed counterpart of this Agreement and return the same to the undersigned, whereupon this Agreement shall become a valid and binding contract between you and the undersigned. Very truly yours, AKKADIX CORPORATION, a California corporation By: /s/ ARTHUR J. CHATROO ----------------------------------------- Name: ARTHUR J. CHATROO --------------------------------------- Title: Exec Vice President and General Counsel --------------------------------------- The foregoing Agreement is hereby accepted as of the date first written above: AXYS PHARMACEUTICALS, INC., a Delaware corporation By: Axys Pharmaceuticals, Inc. Its: Advisor and Attorney-in-Fact By ------------------------------------------ Name: --------------------------------------- Title: --------------------------------------- 13 If you are in agreement with the foregoing, please sign the form of acceptance on the enclosed counterpart of this Agreement and return the same to the undersigned, whereupon this Agreement shall become a valid and binding contract between you and the undersigned. Very truly yours, AKKADIX CORPORATION, a California corporation By: ----------------------------------------- Name: --------------------------------------- Title: --------------------------------------- The foregoing Agreement is hereby accepted as of the date first written above: AXYS PHARMACEUTICALS, INC., a Delaware corporation By: Axys Pharmaceuticals, Inc. Its: Advisor and Attorney-in-Fact By /s/ WILLIAM J. NEWELL ------------------------------------------ Name: WILLIAM J. NEWELL --------------------------------------- Title: SR. VICE PRESIDENT --------------------------------------- 14 SCHEDULE OF EXCEPTIONS 1. Schedule 4(e)(i) Akkadix is an early stage gene discovery and functional genomics company developing new plant traits. Its business plan is to license these traits to other companies for the development and marketing of products. Commercial research and the introduction of products containing transgenic traits requires the application of a number of separate and distinct technologies. These include: the gene or genes necessary to confer the desired trait(s); germplasm; transformation and regeneration technology; promoters, enhancers and other regulatory elements; selectable markets; and terminator sequences, among others. Many of these technologies have been developed by others. To the extent that Akkadix does not have access to these technologies itself, it proposes to collaborate with other companies with available technologies that permit the development and marketing of products containing the traits developed by Akkadix. However, Akkadix does not represent that it has, or will be able to obtain, all of the rights necessary for the commercialization of any specific traits. 2. Schedule 4(e)(ii) Grants of Intellectual Property Rights to Third Parties. (a) Forage Genetics, Inc.: An exclusive license to make, use, sell and sublicense the five gene technologies licensed by Akkadix from the Salk Institute and Noble Foundation solely for use in Alfalfa. This license includes a first right to negotiate for licenses to future technologies developed by Akkadix for use in Alfalfa. (b) AgriBioTech, Inc.: A license to make, use, sell and sublicense the five gene technologies licensed by Akkadix from the Salk Institute and Noble Foundation solely for use in turf grasses and certain forage crops. The license is exclusive (except for forage corn), and includes a first right to negotiate for licenses to future technologies developed by Akkadix for use in these crops. (c) American Cyanamid: In connection with a screening agreement for certain combinatorial chemistry compounds available to Akkadix from Axys Pharmaceuticals, American Cyanamid has an option to negotiate for an exclusive license to use the compounds for products in areas where they have identified biological activity. (d) 25 agreements with seed various companies for the exchange of germplasm materials. 13 15 LIST OF AGREEMENTS AKKADIX CORPORATION
- -------------------------------------------------------------------------------------------------------- COMPANY TYPE OF AGREEMENT DATE ======================================================================================================== 2. 1999 AGREEMENTS A/F Protein, Inc. Mutual Non-Disclosure & Confidentiality Agree 10/4/99 AgResearch Confidentiality Agreement 11/19/99 Arena Pharmaceuticals, Inc. Mutual Non-Disclosure Agreement 12/6/99 ASAP Confidentiality Agreement 11/10/99 Axys Pharmaceuticals, Inc. Materials Transfer Agreement 11/9/99 BioScience Securities, Inc. Confidentiality Agreement 10/25/99 Biotechnology Research & Dev. Option Agreement 12/1/99 Center for Biological Sequence Analysis License Agreement -- Signal Software 10/21/99 Chou, Richard Confidential Info & Invention Assignment Agmt 10/6/99 Comsolv Consulting LLC Confidentiality Agreement 10/28/99 CropTech Confidentiality Agreement 9/21/99 CSIRO Plant Industry Material Transfer Agreement (missing) unknown Damegen, Inc. Confidentiality Agreement 10/29/99 Elich, Tedd Reciprocal Confidentiality Agreement 10/5/99 European Molecular Biology Lab. Non-Exclusive License Agmt/Smart-A Database 10/29/99 Gene Pool Confidential Information Agreement 7/7/99 Genetronics, Inc. Confidential Disclosure Agreement 9/27/99 GenSeed, Inc. Confidentiality Agreement 8/10/99 GRDC (Grains Research & Dev.) Confidentiality Agreement 10/9/99 GRDC (Grains Research & Dev.) License Agreement 11/1/99 Harper, Jeff Confidentiality Agreement 12/7/99
14 16
INBio Research Agreement 12/1/99 Kmiec, Dr. Eric B. Confidentiality Agreement 10/17/99 Lloyd, Alan Martin Reciprocal Confidentiality Agreement 7/22/99 Michigan State University Confidential Disclosure Agreement 8/27/99 New Mexico State University Research Agreement 8/1/99 Novartis Seeds AG Materials Transfer Agreement 10/15/99 Ohio State Agree for Obtaining Arabidopsis EST Lib of Clones Regents of the Univ. of California Mutual Secrecy Agreement for Data 10/21/99 Regents of the Univ. of California Mutual Secrecy Agreement for Data 11/23/99 Romac International Professional Services Agreement 10/5/99 Salk Institute for Biological Studies Blanket Mutual Confidentiality Agreement 11/2/99 SBIR Grant application Phase II of the SBIR Grant/Arcady Mushegian 8/11/99 Sephens Inc. Confidentiality Agreement 12/16/99 South Carolina Research Institute Licensing Agreement (USC Disclosure No. 96126) 8/3/99 South Carolina Research Institute Licensing Agreement (USC Disclosure No. 99212) 8/3/99 South Carolina Research Institute Research Agreement 8/3/99 Sycamores, The Rental Agreement 8/20/99 Texagen, Inc. Confidential Disclosure Agreement 11/15/99 Thomas Jefferson University Confidential Disclosure Agreement 10/4/99 UniQuest Pty Ltd. Confidentiality Agreement 6/1/99 University of GA Research Found. Research Agreement 10/1/99 University of Rochester Non-Disclosure Agreement 5/7/99 University of South Carolina Confidentiality Agreement 9/30/99 University of Texas Exclusive Option Agreement 8/9/99 University of Texas Sponsored Research Agreement No. UTA99-0280 8/1/99 University of Texas (Texagen, Inc.) Sponsored Research Agreement 8/1/99 Walker, John (Professor) Reciprocal Confidentiality Agreement 2/23/99 Zuo, Lin Confidentiality Agreement 9/28/99
3. 2000 AGREEMENTS 15 17 A/F Protein Material Transfer Agreement 1/21/00 AgriBio Tech, Inc. Confidentiality and Non-Use Agreement 1/10/00 Aurora Biosciences Non-disclosure Agreement 1/31/00 Axys Pharmaceuticals, Inc. Modification Agreement 4/28/00 Axys Pharmaceuticals, Inc. receipt for protocols re: Modification Agreement 5/17/00 Axys Pharmaceuticals, Inc. Consent to proposed transfer - AAT 4/12/00 Battelle Memorial Institute Non-disclosure Agreement 2/29/00 CalTech (California Institute of Technology) Material Transfer Agreement 2/14/00 CAMBIA Nonexclusive License Agreement 2/3/00 CAMBIA Confidentiality Agreement 1/27/00 Celera AgGen, Inc. Confidentiality Agreement 1/6/00 Cell Gate, Inc. Confidentiality Agreement 4/14/00 Center for the Application of Molecular Biology to International Agriculture Non-Exclusive License Agreement 2/3/00 Colliant, LLC Confidentiality Agreement 5/9/00 CropTech Corporation Confidentiality Agreement 4/12/00 Forage Genetics Confidentiality Agreement 1/6/00 Foundation for Research CDA 2/9/00 Friedrich, James W. Confidentiality Agreement 3/29/00 Geneformatics, Inc. Mutual Non-Disclosure Agreement 3/20/00 Genesis Res. & Dev. Corp. Ltd. Material Transfer Agreement 4/3/00 Genesis Res. & Dev. Corp. Ltd. Mutual Non-Disclosure Agreement 11/2/00 Genetic Applications LLC Confidentiality Agreement 2/11/00 Genetronics, Inc. Research and License Agreement 3/27/00 Hookstra CDA 1/13/00 Karin Lohman Confidentiality Agreement 3/30/00 Kyoto University (Dr. Sumie Ishiguro) Material Transfer Agreement 3/22/00 MBS Corn Testing Agreement 3/2/00 Michelmore, Richard SAB Agreement Extension 1/31/00 Missouri Soybean Merchandising Council Letter Agreement 2/9/00 On Target CDA 1/12/00
16 18 Orion Genomics, LLC Confidentiality Agreement 1/31/00 Pangene CDA 2/15/00 Pangene Nondisclosure Agreement 2/15/00 PAU Seeds Material Transfer Agreement 3/28/00 PAU Seeds Material Release Agreement - Akkadix 3/21/00 Philippine Rice Research Institute Research and Technology Transfer Agreement 1/1/00 Plant Newco Term Sheet PLANTCO INC. Formation documents 5/1/00 PLANTCO, INC./"TRAITFINDER" Acquisition Agreement May-00 PLANTCO, INC. Salk/PlantCo License Agreement Apr-00 PLANTCO, INC. Stock Acquisition Agreement 5/1/00 Private Individuals (Russian Academy of Science Confidentiality Agreement 5/1/00 Producers Natural Processing Corp. CDA 1/27/00 SALK INSTITUTE Warrant to Purchase Stock SALK-FOUR SCIENTISTS Letter of Intent 2/4/00 Schmidt, Bob CDA 1/31/00 Schubert, Karel, Dr. Confidentiality Agreement 3/29/00 Seed Genetics Inbred Crossing & Testing Agreement 4/6/00 South Carolina Research Institute License Agreement 1/1/00 Tellus CDA 1/26/00 THE SALK INSTITUTE Proposal to license technologies by Plant Biology Lab. 5/1/00 THE SALK INSTITUTE Terms & Conditions to review information 4/25/00 University of California Secrecy Agreement for Data 5/3/00 University of Edinburg Research and License Agreement 2/21/00 University of Missouri Proposed Term Sheet -- Research Funding 2/22/00 University of Rochester License Agreement 5/5/00 University of So. Carolina License Agreement 1/1/00 Vitality Biotechnologies, Inc. Confidentiality Agreement 2/11/00
17 19 NEITHER THIS CONVERTIBLE NOTE NOR THE UNDERLYING SHARES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE HOLDER (AS DEFINED BELOW) MAY NOT TRANSFER THIS CONVERTIBLE NOTE, OR ANY SHARES ISSUED PURSUANT TO ITS CONVERSION PROVISION, UNLESS (i) THERE IS AN EFFECTIVE REGISTRATION COVERING SUCH NOTE OR SUCH SHARES UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS, (ii) THE COMPANY FIRST RECEIVES A LETTER FROM AN ATTORNEY, ACCEPTABLE TO THE BOARD OF DIRECTORS OR ITS AGENTS, STATING THAT IN THE OPINION OF THE ATTORNEY THE PROPOSED TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND UNDER ALL APPLICABLE STATE SECURITIES LAWS, OR (iii) THE TRANSFER IS MADE PURSUANT TO RULE 144 UNDER THE SECURITIES ACT OF 1933. AKKADIX CORPORATION 8% CONVERTIBLE SECURED NOTE DUE SEPTEMBER 11, 2001 AND SECURITY AGREEMENT FOR VALUE RECEIVED, Akkadix Corporation, a California corporation (the "Company"), hereby promises to pay, subject to the exchange and conversion provisions in Section 7 herein, to Axys Pharmaceuticals, Inc., a Delaware corporation (the "Lender" or "Holder"), the principal sum of TWO MILLION DOLLARS ($2,000,000) plus interest plus enforcement costs (including, but not limited to, reasonable attorney fees) thereon (collectively, the "Obligations") on the earlier of: (i) September 11, 2001, or (ii) the first business day immediately following such date as the Company receives any cash or other proceeds totaling $8,000,000 (or $10,000,000 if the Holder does not exchange the Obligations under this Note at the closing of the Mezzanine Financing (as defined below)) or more from the date hereof with respect to a financing (the "Mezzanine Financing") (such date in (i) or (ii) above being the "Maturity Date"). Section 1. Interest. Interest on the outstanding principal amount shall be cumulative, accrue at the rate of 8% per annum or, if lower, the maximum rate permitted by law, and be paid in cash unless this note and security agreement ("Note") is converted pursuant to Section 7 hereof, in which case interest may, at the Holder's election, be paid in Series E Preferred Stock. Section 2. Bridge Financing Agreement. This Note has been issued pursuant to a Bridge Financing Agreement (the "Bridge Financing Agreement") dated as of the date hereof by and among the Company and the Holder. The Company shall keep or cause to be kept at its principal office appropriate records for the recordation of the name and address of the 1 20 Holder, which address may be changed from time to time effective ten (10) days after receipt of written notice of such change from the Holder. Section 3. Default. The occurrence of one or more of the following events shall constitute an event of default ("Event of Default"): 3.1 The Company shall fail to pay the Obligations on the Maturity Date when the same shall have become due and payable. 3.2 The Company shall fail to pay any of its debts (other than the Obligations under this Note) when the same shall have become due and payable. 3.3 The entry of a decree or order by a court having jurisdiction in the premises 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 the federal Bankruptcy Act or any other applicable federal or state law, or appointing a receiver, liquidator, assignee, or trustee of the Company, or 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 unstayed and in effect for a period of sixty (60) consecutive days. 3.4 The institution by the Company of proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under the federal Bankruptcy Act or any other applicable federal or state law, or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, or trustee 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. 3.5 The Company shall fail to perform or observe any material covenant contained in the Bridge Financing Agreement or any material term or agreement set forth in this Note. Section 4. Acceleration. Upon an Event of Default, all Obligations shall become immediately due and payable to the Holder without presentment, demand, protest or other notice of any kind, all of which are expressly waived by the Company. Section 5. Status of Note. The rights of the Holder, under the terms of this Note shall be superior to any obligation due any holder of the common shares of the Company arising solely out of the fact that such person is an owner of the common shares of the Company. 2 21 Section 6. Creation of Security Interest. The Company hereby grants to the Holder a security interest, in all of the Company's right, title and interest in and to the following collateral, whether now owned or hereinafter acquired (the "Collateral"): 6.1 All accounts, contract rights, chattel paper, instruments, deposit accounts, general intangibles for money due or to become due, and all obligations of any kind from any party to the Company. 6.2 All inventory and equipment in all of its forms, wherever located, and all other goods and personal property of the Company. 6.3 All intellectual property of the Company, including, but not limited to, any and all: (i) patents, patent rights, patent registrations and applications, patent licenses, claims and rights against third parties for past, present or future infringement of any patents, and all corresponding and related rights throughout the world; (ii) copyrights, copyright registrations and applications, rights to make and exploit all derivative work based on such copyrights, copyright licenses, claims and rights against third parties for past, present or future infringement of any copyrights, and all corresponding and related rights throughout the world; (iii) trademarks, tradenames, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other designs, and any related registrations and applications related to the foregoing, licenses, claims and rights against third parties for past, present or future infringement of any of the foregoing rights, and all corresponding and related rights throughout the world. 6.4 All proceeds of any and all of the foregoing Collateral and all interest, principal, royalties, license fees, rents, dividends, cash, instruments or other property from time to time received, receivable or otherwise distributed in respect of, or in exchange for, the Collateral, and, to the extent not otherwise included, any and all: (i) payments under insurance to the Company (regardless of whether the Company or the Lender is loss payee), or any indemnity, warranty or guaranty payable by reason of loss or damage to such Collateral, and (ii) cash. Section 7. Exchange; Conversion. 7.1 The Holder of this Note shall have the right, at the Holder's option, to exchange or convert the Obligations under this Note as follows: 7.1.1 The Holder may exchange the Obligations under this Note into Series E Preferred Stock of the Company which are sold and issued by the Company in the Mezzanine Financing on the same terms and conditions of such Mezzanine Financing and on the closing date of such Mezzanine Financing or at any time thereafter. 7.1.2 If, on the earlier of (i) the Maturity Date, or (ii) the date of an Event of Default, no Mezzanine Financing has occurred to set the terms and conditions of 3 22 exchange of Obligations for Series E Preferred Stock, then Holder may convert the Obligations under this Note on such date (or at any time thereafter) into the Company's Series E Preferred Stock, $0.001 par value, and such Series E Preferred Stock shall be issued on the same terms and conditions (other than price) as the Company's currently outstanding Series A Preferred Stock at a per share price of Series E Preferred Stock to be mutually agreed to by the parties at such time. 7.2 In the event of an exercise of this Section 7, the Holder may exchange or convert all or part of Obligations under this Note. In order to exchange or convert, the Holder must surrender this Note to the Company at the Company's principal offices and the Company shall, as promptly as practicable after the surrender, deliver to the Holder a certificate or certificates representing the number of fully paid and nonassessable shares of the Company into which such Note may be exchanged or converted and a new Note evidencing any unexchanged or unconverted Obligations. 7.3 The number of shares of Company stock which shall be delivered on exchange or conversion of the Obligations under this Note shall be an amount determined by dividing the amount of the Obligations under this Note by the applicable exchange or conversion price as determined in accordance with this Section 7, and rounding the result down to the nearest share. The conversion price from time to time specified in Section 7.1.2 above shall be the "Original Conversion Price", and the adjusted conversion price shall be the "Conversion Price". 7.4 No fractional shares of stock or scrip shall be issued upon conversion of this Note. Instead of any fractional shares of stock which would otherwise be issuable upon conversion of this Note, the Company shall pay a cash adjustment in respect of such fractional interest in an amount equal to the then current market price of such fractional interest. Section 8. Covenants of the Company. The Company agrees that it will comply with the covenants set forth in Section 8 of the Bridge Financing Agreement. Section 9. Assignment, Exchange, or Loss of Note. Subject to the transfer restrictions herein, upon presentation and surrender of this Note to the Company at its principal office with a duly executed request for assignment and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Note in the name of the assignee named in such instrument of assignment and this Note shall promptly be canceled. Section 10. Rights of the Holder. The Holder shall not, by virtue of the provisions in this Note, be entitled to any rights of a shareholder in the Company, either at law or equity. 4 23 Section 11. Anti-Dilution Provisions. The number and kind of securities purchasable upon the conversion (but not the exchange) of the Obligations under this Note shall be subject to adjustment from time to time as follows: 11.1 In case the Company shall: (i) pay a dividend or make a distribution on the outstanding common stock of the Company (the "Common Stock") payable in common shares, (ii) subdivide the outstanding Common Stock into a greater number of shares, (iii) combine the outstanding Common Stock into a lesser number of shares, or (iv) issue by reclassification of the Common Stock any common shares of the Company, the Holder of this Note shall thereafter be entitled, upon conversion, to receive the number and kind of shares which, if this Note had been converted immediately prior to the happening of such event, the Holder would have owned upon such conversion (and conversion of the Series E Preferred Stock into Common Stock) and been entitled to receive upon such dividend, distribution, subdivision, combination, or reclassification. Such adjustment shall become effective on the day next following (x) the record date of such dividend or distribution or (y) the day upon which such subdivision, combination, or reclassification shall become effective. 11.2 This Note shall also be subject to the following adjustment: 11.2.1 If at any time or from time to time after the "Closing Date" (as defined in the Bridge Financing Agreement), the Company issues or sells, or is deemed by the express provisions of this subsection to have issued or sold, Additional Shares of Common Stock (as hereinafter defined), other than as provided in Section 11.1, for an Effective Price (as hereinafter defined) less than the then existing Conversion Price, then and in each such case the then existing Conversion Price for this Note shall be reduced, as of the opening of business on the date of such issue or sale, to a price determined by multiplying the then existing Conversion Price by a fraction: (i) the numerator of which shall be (A) the number of shares of Common Stock deemed outstanding (as defined below) immediately prior to such issue or sale, plus (B) the number of shares of Common Stock which the aggregate consideration received (as defined in subsection 11.2.2) by the Company for the total number of Additional Shares of Common Stock so issued would purchase at the then existing Conversion Price, and (ii) the denominator of which shall be the number of shares of Common Stock deemed outstanding (as defined below) immediately prior to such issue or sale plus the total number of Additional Shares of Common Stock so issued. For the purposes of the preceding sentence, the number of shares of Common Stock deemed to be outstanding as of a given date shall be the sum of (A) the number of shares of Common Stock actually outstanding, and (B) the number of shares of Common Stock into which the then outstanding shares of Preferred Stock could be converted if fully converted on the day immediately preceding the given date. 11.2.2 For the purpose of making any adjustment required under this Section 11.2, the consideration received by the Company for any issue or sale of securities shall (A) to 5 24 the extent it consists of cash, be computed at the net amount of cash received by the Company after deduction of any underwriting or similar commissions, compensation or concessions paid or allowed by the Company in connection with such issue or sale but without deduction of any expenses payable by the Company, (B) to the extent it consists of property other than cash, be computed at the fair value of that property as determined in good faith by the Board of Directors, and (C) if Additional Shares of Common Stock, Convertible Securities (as hereinafter defined) or rights or options to purchase either Additional Shares of Common Stock or Convertible Securities are issued or sold together with other stock or securities or other assets of the Company for a consideration which covers both, be computed as the portion of the consideration so received that may be reasonably determined in good faith by the Board of Directors to be allocable to such Additional Shares of Common Stock, Convertible Securities or rights or options. 11.2.3 For the purpose of the adjustment required under this Section 11.2, if the Company issues or sells any rights or options for the purchase of, or stock or other securities convertible into, Additional Shares of Common Stock (such convertible stock or securities being herein referred to as "Convertible Securities") and if the Effective Price of such Additional Shares of Common Stock is less than the Original Exercise Price, in each case the Company shall be deemed to have issued at the time of the issuance of such rights or options or Convertible Securities the maximum number of Additional Shares of Common Stock issuable upon exercise or conversion thereof and to have received as consideration for the issuance of such shares an amount equal to the total amount of the consideration, if any, received by the Company for the issuance of such rights or options or Convertible Securities, plus, in the case of such rights or options, the minimum amount of consideration, if any, payable to the Company upon the exercise of such rights or options, plus, in the case of Convertible Securities, the minimum amount of consideration, if any, payable to the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) upon the conversion thereof, provided that if in the case of Convertible Securities the minimum amount of such consideration cannot be ascertained, but are a function of antidilution or similar protective clauses, the Company shall be deemed to have received the minimum amounts of consideration without reference to such clauses; provided further that if the minimum amount of consideration payable to the Company upon the exercise or conversion of rights, options or Convertible Securities is reduced over time or on the occurrence or non-occurrence of specified events other than by reason of antidilution adjustments, the Effective Price shall be recalculated using the figure to which such minimum amount of consideration is reduced; provided further that if the minimum amount of consideration payable to the Company upon the exercise or conversion of such rights, options or Convertible Securities is subsequently increased, the Effective Price shall be again recalculated using the increased minimum amount of consideration payable to the Company upon the exercise or conversion of such rights, options or Convertible Securities. No further adjustment of the then existing Conversion Price, as adjusted upon 6 25 the issuance of such rights, options or Convertible Securities, shall be made as a result of the actual issuance of Additional Shares of Common Stock on the exercise of any such rights or options or the conversion of any such Convertible Securities. If any such rights or options or the conversion privilege represented by any such Convertible Securities shall expire without having been exercised, the then existing Conversion Price as adjusted upon the issuance of such rights, options or Convertible Securities shall be readjusted to the conversion price which would have been in effect had an adjustment been made on the basis that the only Additional Shares of Common Stock so issued were the Additional Shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such Convertible Securities, and such Additional Shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company upon such exercise, plus the consideration, if any, actually received by the Company for the granting of all such rights or options, whether or not exercised, plus the consideration received for issuing or selling the Convertible Securities actually converted, plus the consideration, if any, actually received by the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) on the conversion of such Convertible Securities, provided that such readjustment shall not apply to prior conversions of Notes. 11.2.4. "Additional Shares of Common Stock" shall mean all shares of Common Stock issued by the Company or deemed to be issued pursuant to this Section 11.2, whether or not subsequently reacquired or retired by the Company other than (1) shares of Common Stock issued upon conversion of the Preferred Stock and the Notes and upon exercise of warrants issued to the Holder of the Note on the date hereof, (2) shares of Common Stock and/or options, warrants or other Common Stock purchase rights, and the Common Stock issued pursuant to such options, warrants or other rights (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like) after the Closing Date to employees, officers or directors of, or consultants or advisors to the Company or any subsidiary pursuant to stock purchase or stock option plans or other arrangements that are approved by the Board, provided that in aggregate no more than 2,507,200 shares of such Common Stock is issued, (3) shares of Common Stock issued pursuant to the exercise of options, warrants or convertible securities outstanding as of the Closing Date, and (4) shares of Common Stock issued in connection with equipment leasing or bank financing transactions approved by the Company's Board of Directors. The "Effective Price" of Additional Shares of Common Stock shall mean the quotient determined by dividing the total number of Additional Shares of Common Stock issued or sold, or deemed to have been issued or sold by the Company under this Section 11.2, into the aggregate consideration received, or deemed to have been received by the Company for such issue under this Section 11.2, for such Additional Shares of Common Stock. 11.3 If at any time the Company is required to issue shares of its common shares in excess of the number of common shares then authorized, both the Company and the 7 26 Holder shall cooperate in taking any and all steps necessary to increase the number of authorized common shares of the Company to effectuate the purposes of this Section 11. 11.4 Irrespective of any adjustments in the number or kind of shares to be received upon conversion of this Note, the form of Note theretofore or thereafter issued may continue to express the number and kind of shares as are stated in this Note. Section 12. Restrictions on Transfer. This Note has not been registered under the Securities Act of 1933. This Note, or any right hereunder, may not be enforced against the Company by any Holder, except the original Holder herein, (i) unless there is an effective registration covering such note or underlying shares under the Securities Act of 1933 and applicable state securities laws, (ii) unless the Company receives an opinion of an attorney acceptable to the board of directors or its agents, that the proposed transfer of the Note complies with the requirements of the Securities Act of 1933 and any relevant state securities law, or (iii) unless the transfer is made pursuant to Rule 144 under the Securities Act of 1933. Section 13. Notices. All notices and other communications required or permitted under this Note shall be validly given, made, or served if in writing and delivered personally, via overnight courier or sent by registered mail, to the Company at the following address: Akkadix Corporation 11099 North Torrey Pines Road, Suite 200 La Jolla, CA 92037 Attn: Arthur J. Chatroo All notices and other communications required or permitted under this Note shall be validly given, made or served if in writing and delivered personally, via overnight courier or sent by registered mail, to the Holder at the following address: Axys Pharmaceuticals, Inc. 180 Kimball Way South San Francisco, CA 94080 Attn: William J. Newell Section 14. Law Governing. This Agreement shall be governed by and construed in accordance with the internal laws of the State of California. Section 15. Titles and Captions. All section titles or captions contained in this Agreement are for convenience only and shall not be deemed part of the context nor effect the interpretation of this Agreement. 8 27 Section 16. Computation of Time. In computing any period of time pursuant to this Agreement, the day of the act, event or default from which the designated period of time begins to run shall be included, unless it is a Saturday, Sunday, or a legal holiday, in which event the period shall begin to run on the next day which is not a Saturday, Sunday, or legal holiday, in which event the period shall run until the end of the next day thereafter which is not a Saturday, Sunday, or legal holiday. Section 17. Presumption. This Agreement or any section thereof shall not be construed against any party due to the fact that said Agreement or any section thereof was drafted by said party. Section 18. Further Assurances. The Company shall execute and deliver all documents, provide all information and take or forbear from all such action as may be necessary or appropriate to achieve the purposes of the Agreement, including, but not limited to, taking any action to perfect Lender's security interests granted herein. Section 19. Parties in Interest. Nothing herein shall be construed to be to the benefit of any third party, nor is it intended that any provision shall be for the benefit of any third party. IN WITNESS WHEREOF, a duly authorized officer of Akkadix Corporation has executed this Note to be effective on this 11th day of September, 2000. AKKADIX CORPORATION By: /s/ ARTHUR J. CHATROO ------------------------------------ Name: Arthur J. Chatroo ---------------------------------- Title: Exec. V.P. and General Counsel --------------------------------- 9 28 VOID AFTER 5:00 P.M. PACIFIC TIME, ON SEPTEMBER 11, 2005 NEITHER THIS WARRANT NOR THE UNDERLYING SHARES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE HOLDER (AS HEREINAFTER DEFINED) MAY NOT TRANSFER THIS WARRANT OR ANY SHARES ISSUED PURSUANT TO ITS EXERCISE PROVISION UNLESS (i) THERE IS AN EFFECTIVE REGISTRATION COVERING SUCH WARRANT OR SUCH SHARES, AS THE CASE MAY BE, UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS, (ii) THE COMPANY FIRST RECEIVES A LETTER FROM AN ATTORNEY, ACCEPTABLE TO THE BOARD OF DIRECTORS OR ITS AGENTS, STATING THAT IN THE OPINION OF THE ATTORNEY THE PROPOSED TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND UNDER ALL APPLICABLE STATE SECURITIES LAWS, OR (iii) THE TRANSFER IS MADE PURSUANT TO RULE 144 UNDER THE SECURITIES ACT OF 1933. AKKADIX CORPORATION WARRANT CERTIFICATE FOR THE PURCHASE OF SERIES E PREFERRED STOCK FOR VALUE RECEIVED, Akkadix Corporation, a California corporation (the "Company"), hereby certifies that Axys Pharmaceuticals, Inc. or its assigns (the "Holder"), is entitled, subject to the provisions of this Warrant Certificate ("Warrant"), to purchase from the Company at any time, or from time to time during the period commencing on the date hereof and expiring at 5:00 p.m. Pacific Time, on September 11, 2005 (the "Expiration Date"), up to Two Hundred Thousand (200,000) fully paid and non-assessable shares of Series E Preferred Stock (as hereinafter defined), at a per share price (the "Original Exercise Price") equal to (i) the conversion price under the 8% Convertible Secured Note Due September 11, 2001 and Security Agreement (the "Note") pursuant to Section 7.1.2 of the Note, or (ii) the exchange price under the Note set forth in Section 7.1.1 if a Mezzanine Financing (as defined in the Note) has occurred before September 11, 2001. Capitalized terms are used herein as defined in the Note unless otherwise defined herein. The Original Exercise Price may be adjusted as herein provided (as may be adjusted, the "Exercise Price"). The term "Series E Preferred Stock" means the Series E Convertible Preferred Stock, par value $.001 per share, of the Company, which terms and conditions shall be the same as the Series E Preferred Stock referred to in the Note, together with any other equity securities that may be issued by the Company in respect thereof or in substitution therefor. The number of shares of Series E Preferred Stock to be received upon the exercise of this Warrant may be adjusted from time to time as hereinafter set forth. The shares of Series 1 29 E Preferred Stock deliverable or delivered upon such exercise, as adjusted from time to time, are hereinafter referred to as "Warrant Stock". Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction, mutilation or partial exercise of this Warrant, and in the case of loss, theft, destruction, mutilation or partial exercise of satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated or partially exercised, the Company shall execute and deliver a new Warrant, of like tenor and date for the appropriate number of shares that the Holder is entitled to purchase. Section 1. Vesting. There shall be no vesting period for the Warrant, as this warrant shall vest in full on the date hereof. Section 2. Exercise of Warrant. 2.1 General Procedure. This Warrant may be exercised, subject to the requirements set forth below, in whole, or in part, at any time during the period commencing on the Effective Date and expiring at 5:00 p.m. Pacific Time on the Expiration Date, or, if such day is a day on which banking institutions in San Francisco, California are authorized by law to close, then on the next succeeding day that shall not be such a day, by presentation and surrender of this warrant to the company at its principal office and, subject to Section 8, delivery of the Warrant Exercise Form attached hereto as Exhibit A duly executed accompanied by payment (either in cash or by certified or official bank check, payable to the order of the Company) of the aggregate Exercise Price for the number of shares specified in such form and instruments of transfer, if appropriate, duly executed by the Holder. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the shares purchasable hereunder. 2.2 Series E Preferred Stock Delivery. Upon receipt by the Company of this Warrant, together with the Exercise Price, at its office in proper form for exercise as described above, together with an agreement to comply with the restrictions on transfer and related covenants contained herein and a representation as to investment intent and any other matter required by counsel to the Company, signed by the Holder (and if other than the original Holder accompanied by proof, satisfactory to counsel for the Company, of the right of such person or persons to exercise the Warrant), the Holder shall be deemed to be the holder of record of the shares of Series E Preferred Stock issuable upon such exercise, even if the stock transfer books of the Company shall then be closed or certificates representing such shares of Series E Preferred Stock shall not have been delivered to the Holder. The Holder shall pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Series E Preferred Stock on 2 30 exercise of this Warrant. The Company shall promptly thereafter issue certificate(s) evidencing the Series E Preferred Stock so purchased. Section 3. Reservation of Shares. The Company shall at all times reserve for issuance and delivery upon exercise of this Warrant 200,000 shares (as adjusted) of Preferred Stock (to be designable into Series E Preferred Stock) or other shares of capital stock of the Company (and other securities) from time to time receivable upon exercise of this Warrant. All such shares (and other securities) shall be duly authorized and, when issued upon exercise, shall be validly issued, fully paid and non-assessable. Section 4. No Fractional Shares. No fractional shares or script representing fractional shares shall be issued upon the exercise of this Warrant, but the Company shall pay the Holder an amount equal to the Fair Market Value of such fractional share of Common Stock in lieu of each fraction of a share otherwise called for upon any exercise of this Warrant. For purposes of this Warrant, the Fair Market Value of a share of Common Stock shall equal the closing sale price (or if not available the average of the closing bid and asked prices) on the business day prior to exercise of this Warrant, or, if the Common Stock is then not publicly traded, then the price determined in good faith by the Board of Directors of the Company. Section 5. Transfer. 5.1 Securities Laws. Neither this Warrant nor the Warrant Stock have been registered under the Securities Act of 1933. The Company will not transfer this Warrant or the Warrant Stock unless (i) there is an effective registration covering such Warrant or such shares, as the case may be, under the Securities Act of 1933 and applicable states securities laws, (ii) it first receives a letter from an attorney, acceptable to the Company's board of directors or its agents, stating that in the opinion of the attorney the proposed transfer is exempt from registration under the Securities Act of 1933 and under all applicable state securities laws, or (iii) the transfer is made pursuant to Rule 144 under the Securities Act of 1933. 5.2 Conditions to Transfer. Prior to any such proposed transfer, and as a condition thereto, if such transfer is not made pursuant to an effective registration statement under the Securities Act, the Holder will, if requested by the Company, deliver to the Company (i) an investment covenant signed by the proposed transferee, (ii) an agreement by such transferee that the restrictive investment legend set forth above be placed on the certificate or certificates representing the securities acquired by such transferee, (iii) an agreement by such transferee that the Company may place a "stop transfer order" with its transfer agent or registrar, and (iv) an agreement by the transferee to indemnify the Company to the same extent as set forth in the next succeeding paragraph. 3 31 5.3 Holdback Period and Transfer. Except as specifically restricted hereby, this Warrant and the Warrant Stock issued may be transferred by the Holder in whole or in part at any time or from time to time. In the event that the Company publicly offers shares of its Common Stock, the Warrant Stock (if converted into Common Stock of the Company) may not be sold from the date of the Company's initial public offering of securities for a period ending six months after the conclusion of such initial public offering. Upon surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, with an appropriate assignment form duly executed and funds sufficient to pay any transfer tax, and upon compliance with the foregoing provisions, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment, and this Warrant shall promptly be canceled. Any assignment, transfer, pledge, hypothecation or other disposition of this Warrant attempted contrary to the provisions of this Warrant, or any levy of execution, attachment or other process attempted upon this Warrant, shall be null and void and without effect. Section 6. Rights of the Holder. The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this Warrant. Section 7. Anti-Dilution Provisions. 7.1 Stock Splits, Dividends, Etc. 7.1.1 If the Company shall at any time subdivide its outstanding shares of Common Stock by recapitalization, reclassification or split-up thereof, or if the Company shall declare a stock dividend or distribute shares of Common Stock to its stockholders, the number of shares of Series E Preferred Stock (on an as-converted basis into Common Stock) purchasable under this Warrant immediately prior to such subdivision shall be proportionately increased (unless such anti-dilution adjustment has already been effected through a conversion price adjustment on existing Series E Preferred Stock after a Mezzanine Financing), and if the Company shall at any time combine the outstanding shares of Series E Preferred Stock by recapitalization, reclassification or combination thereof, the number of shares of Series E Preferred Stock (on an as-converted basis into Common Stock) purchasable under this Warrant immediately prior to such combination shall be proportionately decreased. Any such adjustment and adjustment to the number of shares purchasable and the Exercise Price pursuant to this Section shall be effective at the close of business on the effective date of such subdivision or combination, or if any adjustment is the result of a stock dividend or distribution then the effective date for such adjustment based thereon shall be the record date therefor. 7.1.2 Whenever the number of shares of Series E Preferred Stock purchasable upon the exercise of this Warrant is adjusted as provided in this Section, the Exercise 4 32 Price shall be adjusted to the nearest cent by multiplying such Exercise Price immediately prior to such adjustment by a fraction (x) the numerator of which shall be the number of shares of Series E Preferred Stock purchasable upon the exercise immediately prior to such adjustment, and (y) the denominator of which shall be the number of shares of Series E Preferred Stock so purchasable immediately thereafter. 7.2 Adjustment for Reorganization, Consolidation, Merger, Etc. In case of any reorganization of the Company (or any other corporation, the securities of which are at the time receivable on the exercise of this Warrant) or in case the Company (or any such other corporation) shall consolidate with or merge into another corporation or convey all or substantially all of its assets to another corporation, then, and in each such case, the Holder of this Warrant may, immediately prior to such transaction, exercise as provided in Section 2, or, at any time after the consummation of such reorganization, consolidation, merger or conveyance, shall be entitled to receive, in lieu of the securities and property receivable upon the exercise of this Warrant prior to such consummation, the securities or property to which such Holder would have been entitled upon such consummation if such Holder had exercised this Warrant immediately prior thereto; in each such case, the terms of this Warrant shall be applicable to the securities or property received upon the exercise of this Warrant after such consummation. 7.3 Certificate as to Adjustments. In each case of an adjustment in the number of shares of Series E Preferred Stock receivable on the exercise of this Warrant, the Company at its expense shall promptly compute such adjustment in accordance with the terms of the Warrant and prepare a certificate executed by an officer of the Company setting forth such adjustment and showing the facts upon which such adjustment is based. The Company shall forthwith mail a copy of each such certificate to each Holder. 7.4 Anti-Dilution Adjustment. This Warrant shall also be subject to the following adjustment (unless such anti-dilution adjustment has already been effected through a conversion price adjustment on existing Series E Preferred Stock after a Mezzanine Financing) in the event: 7.4.1 If at any time or from time to time after the "Closing Date" (as defined in the Bridge Financing Agreement, of even date herewith, between the Company and the Holder), the Company issues or sells, or is deemed by the express provisions of this subsection to have issued or sold, Additional Shares of Common Stock (as hereinafter defined), other than as provided in Section 7.1, for an Effective Price (as hereinafter defined) less than the then existing Exercise Price, then in each such case the number of Series E Preferred Stock shares purchasable shall be increased, as of the opening of business on the date of such issue or sale, to a number determined by multiplying the number of Series E Preferred Stock shares theretofore purchasable by a fraction: (ii) the denominator of which shall be (A) the number of shares of Common Stock deemed outstanding (as defined below) immediately prior to such issue or sale, plus (B) the 5 33 number of shares of Common Stock which the aggregate consideration received (as defined in subsection 7.4.2) by the Company for the total number of Additional Shares of Common Stock so issued would purchase at the then existing Exercise Price, and (i) the numerator of which shall be the number of shares of Common Stock deemed outstanding (as defined below) immediately prior to such issue or sale plus the total number of Additional Shares of Common Stock so issued. For the purposes of the preceding sentence, the number of shares of Common Stock deemed to be outstanding as of a given date shall be the sum of (A) the number of shares of Common Stock actually outstanding, and (B) the number of shares of Common Stock into which the then outstanding shares of all securities convertible into Common Stock could be converted if fully converted on the day immediately preceding the given date. 7.4.2 For the purpose of making any adjustment required under this Section 7.4, the consideration received by the Company for any issue or sale of securities shall (A) to the extent it consists of cash, be computed at the net amount of cash received by the Company after deduction of any underwriting or similar commissions, compensation or concessions paid or allowed by the Company in connection with such issue or sale but without deduction of any expenses payable by the Company, (B) to the extent it consists of property other than cash, be computed at the fair value of that property as determined in good faith by the Board of Directors, and (C) if Additional Shares of Common Stock, Convertible Securities (as hereinafter defined) or rights or options to purchase either Additional Shares of Common Stock or Convertible Securities are issued or sold together with other stock or securities or other assets of the Company for a consideration which covers both, be computed as the portion of the consideration so received that may be reasonably determined in good faith by the Board of Directors to be allocable to such Additional Shares of Common Stock, Convertible Securities or rights or options. 7.4.3 For the purpose of the adjustment required under this Section 7.4, if the Company issues or sells any rights or options for the purchase of, or stock or other securities convertible into Additional Shares of Common Stock (such convertible stock or securities being herein referred to as "Convertible Securities") and if the Effective Price of such Additional Shares of Common Stock is less than the then existing Exercise Price, in each case the Company shall be deemed to have issued at the time of the issuance of such rights or options or Convertible Securities the maximum number of Additional Shares of Common Stock issuable upon exercise or conversion thereof and to have received as consideration for the issuance of such shares an amount equal to the total amount of the consideration, if any, received by the Company for the issuance of such rights or options or Convertible Securities, plus, in the case of such rights or options, the minimum amounts of consideration, if any, payable to the Company upon the exercise of such rights or options, plus, in the case of Convertible Securities, the minimum amounts of consideration, if any, payable to the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) upon the conversion thereof; 6 34 provided that if in the case of Convertible Securities the minimum amounts of such consideration cannot be ascertained, but are a function of antidilution or similar protective clauses, the Company shall be deemed to have received the minimum amounts of consideration without reference to such clauses; provided further that if the minimum amount of consideration payable to the Company upon the exercise or conversion of rights, options or Convertible Securities is reduced over time or on the occurrence or nonoccurrence of specified events other than by reason of antidilution adjustments, the Effective Price shall be recalculated using the figure to which such minimum amount of consideration is reduced, provided further that if the minimum amount of consideration payable to the Company upon the exercise or conversion of such rights, options or Convertible Securities is subsequently increased, the Effective Price shall be again recalculated using the increased minimum amount of consideration payable to the Company upon the exercise or conversion of such rights, options or Convertible Securities. No further adjustment of the then existing Exercise Price, as adjusted upon the issuance of such rights, options or Convertible Securities, shall be made as a result of the actual issuance of Additional Shares of Common Stock on the exercise of any such rights or options or the conversion of any such Convertible Securities. If any such rights or options or the conversion privilege represented by any such Convertible Securities shall expire without having been exercised, the then existing Exercise Price as adjusted upon the issuance of such rights, options or Convertible Securities shall be readjusted to the exercise price which would have been in effect had an adjustment been made on the basis that the only Additional Shares of Common Stock so issued were the Additional Shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such Convertible Securities, and such Additional Shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company upon such exercise, plus the consideration, if any, actually received by the Company for the granting of all such rights or options, whether or not exercised, plus the consideration received for issuing or selling the Convertible Securities actually converted, plus the consideration, if any, actually received by the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) on the conversion of such Convertible Securities, provided that such readjustment shall not apply to prior exercise of this Warrant. 7.4.4 "Additional Shares of Common Stock" shall mean all shares of Common Stock issued by the Company or deemed to be issued pursuant to this Section 7.4, whether or not subsequently reacquired or retired by the Company other than (1) shares of Common Stock issued upon conversion of the Preferred Stock and the Notes and upon exercise of warrants issued to the Holder of the Note on the date hereof, (2) shares of Common Stock and/or options, warrants or other Common Stock purchase rights, and the Common Stock issued pursuant to such options, warrants or other rights (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like) after the Closing Date to employees, officers or directors of, or consultants or advisors to the Company or 7 35 any subsidiary pursuant to stock purchase or stock option plans or other arrangements that are approved by the Board, provided that in aggregate no more than 2,507,200 shares of such Common Stock is issued, (3) shares of Common Stock issued pursuant to the exercise of options, warrants or convertible securities outstanding as of the Closing Date, and (4) shares of Common Stock issued in connection with equipment leasing or bank financing transactions approved by the Company's Board of Directors. The "Effective Price" of Additional Shares of Common Stock shall mean the quotient determined by dividing the total number of Additional Shares of Common Stock issued or sold, or deemed to have been issued or sold by the Company under this Section 74, into the aggregate consideration received, or deemed to have been received by the Company for such issue under this Section 7.4, for such Additional Shares of Common Stock. 7.5 Notices of Record Date, Etc. In case: 7.5.1 the Company shall take a record of the holders of its Common Stock (or other securities at the time receivable upon the exercise of the Warrant) for the purpose of entitling them to receive any dividend (other than a cash dividend at the same rate as the rate of the last cash dividend theretofore paid) or other distribution, or any right to subscribe for, purchase or otherwise acquire all shares of stock of any class or any other securities, or to receive any other right; or 7.5.2 of any voluntary or involuntary dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company shall mail or cause to be mailed to each Holder a notice specifying, as the case may be, (A) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (B) the date on which such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding-up is to take place, and the time, if any, to be fixed, as to which the holders of record of Common Stock (or such other securities at the time receivable upon the exercise of this Warrant) shall be entitled to exchange their shares of Common Stock (or such other securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding-up. Such notice shall be mailed at least twenty (20) days prior to the date therein specified, and this Warrant may be exercised prior to said date during the term of the Warrant. 7.6 Threshold for Adjustments. Anything in this Section to the contrary notwithstanding, the Company shall not be required to give effect to any adjustment until the cumulative resulting adjustment in the Exercise Price pursuant to this Section shall have required a change of the Exercise Price by at least $0.01, but when the cumulative net effect of more than one adjustment so determined shall be to change the Exercise Price by at least $0.01, such full change in the Exercise Price shall thereupon be given effect. No adjustment shall be made by reason of the issuance of shares upon conversion 8 36 rights, stock issuance rights or similar rights currently outstanding or any change in the number of treasury shares held by the Company. Section 8. Cashless Conversion Rights. 8.1 Shares to be Issued. In lieu of exercise of any portion of this Warrant as provided in Section 2 hereof, the Warrant (or any portion thereof) may, at the election of the Holder, be converted into the nearest whole number of shares of Common Stock equal to: (1) the product of (a) the number of Warrants to be so converted, (b) the number of shares of Common Stock then issuable upon the exercise of each Warrant and (c) the excess, if any, of (i) the Fair Market Value (as determined in accordance with Section 4) per share with respect to the date of conversion over (ii) the Exercise Price in effect on the business day next preceding the date of conversion. divided by (2) the Fair Market Value (as determined in accordance with Section 4) per share with respect to the date of conversion. 8.2 Procedure. The conversion rights provided under this Section may be exercised in whole or in part and at any time and from time to time while any Warrants remain outstanding. In order to exercise the conversion privilege, the Holder shall surrender to the Company, at its offices, this Warrant accompanied by a duly completed Notice of Cashless Conversion in the form attached hereto as Exhibit B. The Warrant (or so much thereof as shall have been surrendered for conversion) shall be deemed to have been converted immediately prior to the close of business on the day of surrender of such Warrant for conversion in accordance with the foregoing provisions. As promptly as practicable on or after the conversion date, the Company shall issue and shall deliver to the Holder (i) a certificate or certificates representing the number of shares of Common Stock to which the Holder shall be entitled as a result of the conversion, and (ii) if the Warrant is being converted in part only, a new certificate in principal amount equal to the unconverted portion of the Warrant. Section 9. Legend and Stop Transfer Orders. Unless the shares of Warrant Stock have been registered under the Securities Act, upon exercise of any of this Warrant and the issuance of any of the shares of Warrant Stock, the Company shall instruct its transfer agent, if any, to enter stop transfer orders with respect to such shares, and all certificates representing shares of Warrant Stock shall bear on the face thereof substantially the following legend: Neither this stock nor any shares of stock issuable upon conversion of this stock, if applicable, have been registered under the Securities Act of 1933. The Holder may not transfer this stock nor the shares issuable upon conversion of this stock, if applicable, unless (i) there is an effective registration covering the shares represented by this certificate or such underlying shares, as the case may be, under the Securities Act of 1933 and applicable state securities laws, (ii) the Company first receives a letter from 9 37 an attorney, acceptable to the board of directors or its agents, stating that in the opinion of the attorney the proposed transfer is exempt from registration under the Securities Act of 1933 and under all applicable state securities laws, or (iii) the transfer is made pursuant to Rule 144 under the Securities Act of 1933. Section 10. Notice. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be mailed by certified mail, return receipt requested, or delivered against receipt, if to the Holder, at his/her address as shown on the books of the Company, and if to the Company, at its principal office, 11099 North Torrey Pines Road, Suite 200, La Jolla, California 92037. Any notice or other communication given by certified mail shall be deemed given at the time of certification thereof, except for a notice changing a party's address which shall be deemed given at the time of receipt thereof. Section 11. Binding Effect. The provisions of this Warrant shall be binding upon and inure to the benefit of (1) the parties hereto, (2) the successors and assigns of the Company, (3) if the Holder is a corporation, partnership, or other business entity, the successors and assignee of the Holder, and (4) if the Holder is a natural person, the assignees, heirs, and personal representative of the Holder. IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by a duly authorized officer and effective as of this 11th day of September, 2000. AKKADIX CORPORATION, a California corporation By: /s/ ARTHUR J. CHATROO ------------------------------------- Name: Arthur J. Chatroo ----------------------------------- Title: Exec. V.P. and General Counsel ---------------------------------- 10 38 EXHIBIT A WARRANT EXERCISE FORM To: Akkadix Corporation The undersigned hereby irrevocably elects to exercise the within Warrant to the extent of purchasing _____ shares of Series E Preferred Stock of Akkadix Corporation and hereby makes payment of $_______ in payment therefor. Dated: ------------ ---------------------------- Name of Holder By: ------------------------- Signature of Holder Address --------------------- ---------------------------- ---------------------------- 11 39 EXHIBIT B NOTICE OF CASHLESS CONVERSION To: Akkadix Corporation The undersigned hereby irrevocably elects to convert, pursuant to Section 8 of the Warrant accompanying this is Notice of Conversion, _________ Warrants of the total number of Warrants owned by the undersigned pursuant to the accompanying Warrant into shares of the Series E Stock of Akkadix Corporation (the "Shares"). The number of Shares to be received by the undersigned shall be calculated in accordance with the provisions of Section 8.1 of the accompanying Warrant. Dated: ------------ ---------------------------- Name of Holder By: ------------------------- Signature of Holder Address --------------------- ---------------------------- ---------------------------- 12 EX-10.132 4 f67245ex10-132.txt SECURED/SUBORDINATED PROMISSORY NOTE 1 EXHIBIT 10.132 SECURED/SUBORDINATED PROMISSORY NOTE $834,421.28 SEPTEMBER 28, 2000 South San Francisco, California FOR VALUE RECEIVED, Littlefield Associates, a general partnership ("BORROWER"), hereby unconditionally promises to pay to the order of Axys Pharmaceuticals, Inc., a Delaware corporation, ("LENDER"), in lawful money of the United States of America and in immediately available funds, the principal sum of Eight Hundred Thirty Four Thousand, Four Hundred Twenty One Dollars and Twenty Eight Cents ($834,421.28) (the "LOAN") together with accrued and unpaid interest thereon, each due and payable on the dates and in the manner set forth below. 1. SECURED NOTE. This Promissory Note is the Note referred to in and is executed and delivered in connection with that certain Deed of Trust With Assignment of Rents dated as of even date herewith and executed by Borrower in favor of Lender (as the same may from time to time be amended, modified or supplemented or restated, the "Deed of Trust"). Additional rights of Lender are set forth in the Deed of Trust. All capitalized terms used herein and not otherwise defined herein shall have the respective meanings given to them in the Deed of Trust. The full amount of this Note is secured by the property identified and described as security therefor in the Deed of Trust. Borrower shall not, directly or indirectly, create, permit or suffer to exist, and shall defend such property against and take such other action as is necessary to remove, any lien on or in the property, or in any portion thereof, except as permitted pursuant to the Deed of Trust and this Note. 2. PRINCIPAL REPAYMENT. 2.1 ORIGINAL TERM. The outstanding principal amount of the Loan shall be due and payable on February 1, 2001 (the "MATURITY DATE"), unless such date is extended in accordance with the terms of Section 2.2, below. 2.2 BORROWER'S OPTION TO EXTEND MATURITY DATE. Provided that no Event of Default shall then exist, Borrower may extend the Maturity Date until August 31, 2001, by giving written notice to Lender (no later than January 1, 2001) of Borrower's election to exercise its option to extend the Maturity Date to August 31, 2001 in accordance with the terms of this Note. 3. INTEREST RATE. Borrower further promises to pay interest on the outstanding principal amount hereof from the date hereof until February 1, 2001, at the rate of seven and one half percent (7.5%) per annum compounded daily, and following such date at the rate of the Bank of America's main San Francisco branch reference rate (or successor rate selected by Lender in the event such rate no longer exists) plus one percent or the maximum rate permissible by law (which under the laws of the State of California shall be deemed to be the laws relating to permissible rates of interest on commercial loans), whichever is less, until paid in full. Interest shall be due and payable monthly in arrears not later than the first day of each calendar month for 1. 2 the preceding month and shall be calculated on the basis of a 360 day year for the actual number of days elapsed. 4. PLACE OF PAYMENT. All amounts payable hereunder shall be payable at the office of Lender, 180 Kimball Way, South San Francisco, CA 94080, unless another place of payment shall be specified in writing by Lender. 5. APPLICATION OF PAYMENTS. Payment on this Note shall be applied first to the costs of collection, if any, then to accrued interest, and thereafter to the outstanding principal balance hereof. 6. DEFAULT. Each of the following events shall be an "EVENT OF DEFAULT" hereunder: (a) Borrower fails to pay timely any of the principal amount due under this Note on the date the same becomes due and payable or any accrued interest or other amounts due under this Note on the date the same becomes due and payable; (b) Borrower files any petition or action for relief under any bankruptcy, reorganization, insolvency or moratorium law or any other law for the relief of, or relating to, debtors, now or hereafter in effect, or makes any assignment for the benefit of creditors or takes any corporate action in furtherance of any of the foregoing; or (c) An involuntary petition is filed against Borrower (unless such petition is dismissed or discharged within sixty (60) days) under any bankruptcy statute now or hereafter in effect, or a custodian, receiver, trustee, assignee for the benefit of creditors (or other similar official) is appointed to take possession, custody or control of any property of Borrower. (d) Any default under the Deed of Trust. Upon the occurrence of an Event of Default hereunder, all unpaid principal, accrued interest and other amounts owing hereunder shall, at the option of Lender, and, in the case of an Event of Default pursuant to (b) or (c) above, automatically, be immediately due, payable and collectible by Lender pursuant to applicable law. 7. SUBORDINATION. The indebtedness evidenced by this Note is hereby expressly subordinated, to the extent and in the manner hereinafter set forth, in right of payment to the prior payment in full of the Senior Indebtedness. 7.1 "SENIOR INDEBTEDNESS" shall mean, unless expressly subordinated to or made on a parity with the amounts due under this Note, the principal of, unpaid interest on and amounts reimbursable, fees, expenses, costs of enforcement and other amounts due in connection with (a) indebtedness of 486 Littlefield Road, L.P. to San Diego National Bank, secured by the property subject to the lien of the Deed of Trust (the "Construction Financing"), and (b) any such indebtedness or any debentures, notes or other evidence of indebtedness issued in exchange for such Construction Financing. 7.2 INSOLVENCY PROCEEDINGS. If there shall occur any receivership, insolvency, assignment for the benefit of creditors, bankruptcy, reorganization, or arrangements 2. 3 with creditors (whether or not pursuant to bankruptcy or other insolvency laws), sale of all or substantially all of the assets, dissolution, liquidation, or any other marshaling of the assets and liabilities of Borrower, (a) no amount shall be paid by Borrower in respect of the principal of, interest on or other amounts due with respect to this Note at the time outstanding, unless and until the principal of and interest on the Senior Indebtedness then outstanding shall be paid in full, and (b) no claim or proof of claim shall be filed by or on behalf of Lender which shall assert any right to receive any payments in respect of the principal of and interest on this Note except subject to the payment in full of the principal of and interest on all of the Senior Indebtedness then outstanding. 7.3 DEFAULT ON SENIOR INDEBTEDNESS. If there shall occur an event of default which has been declared in writing with respect to any Senior Indebtedness, as defined therein, or in the instrument under which it is outstanding, permitting the holder to accelerate the maturity thereof and Lender shall have received written notice thereof from the holder of such Senior Indebtedness, then, unless and until such event of default shall have been cured or waived or shall have ceased to exist, or all Senior Indebtedness shall have been paid in full, no payment shall be made in respect of the principal of or interest on this Note unless within one hundred eighty (180) days after the happening of such event of default the maturity of such Senior Indebtedness shall not have been accelerated. Not more than one notice may be given to Lender pursuant to the terms of this SECTION during any 360 day period. 7.4 FURTHER ASSURANCES. By acceptance of this Note Lender agrees to execute and deliver customary forms of subordination agreement requested from time to time by the holders of Senior Indebtedness and, as a condition to Lender's rights hereunder, Borrower may require that Lender execute such forms of subordination agreement, provided that such forms shall not impose on Lender terms less favorable than those provided herein. 7.5 OTHER INDEBTEDNESS. No indebtedness which does not constitute Senior Indebtedness shall be senior in any respect to the indebtedness represented by this Note. 7.6 SUBROGATION. Subject to the payment in full of all Senior Indebtedness, Lender shall be subrogated to the rights of the holder(s) of such Senior Indebtedness (to the extent of the payments or distributions made to the holder(s) of such Senior Indebtedness pursuant to the provisions of this SECTION 7) to receive payments and distributions of assets of Borrower applicable to the Senior Indebtedness. No such payments or distributions applicable to the Senior Indebtedness shall, as between Borrower and its creditors, other than the holders of Senior Indebtedness and Lender, be deemed to be a payment by Borrower to or on account of this Note; and for purposes of such subrogation, no payments or distributions to the holders of Senior Indebtedness to which Lender would be entitled except for the provisions of this SECTION 7 shall, as between Borrower and its creditors, other than the holders of Senior Indebtedness and Lender, be deemed to be a payment by Borrower to or on account of the Senior Indebtedness. 7.7 NO IMPAIRMENT. Subject to the rights, if any, of the holders of Senior Indebtedness under this SECTION 7 to receive cash, securities or other properties otherwise payable or deliverable to Lender, nothing contained in this SECTION 7 shall impair, as between Borrower and Lender, the obligation of Borrower, subject to the terms and conditions hereof, to 3. 4 pay to Lender the principal hereof and interest hereon as and when the same become due and payable, or shall prevent Lender, upon default hereunder, from exercising all rights, powers and remedies otherwise provided herein or by applicable law. 7.8 LIEN SUBORDINATION. Any lien or security interest of Lender, whether now or hereafter existing in connection with the amounts due under this Note, on any assets or property of Borrower or any proceeds or revenues therefrom which Lender may have at any time as security for any amounts due and obligations under this Note, including, without limitation, any lien on or in the property subject to the lien of the Deed of Trust, shall be subordinate to all liens or security interests now or hereafter granted to a holder of Senior Indebtedness by 486 Littlefield Road, L.P. or by law notwithstanding the date, order or method of attachment or perfection of any such lien or security interest or the provisions of any applicable law. 7.9 APPLICABILITY OF PRIORITIES. The priority of the holder of the Senior Indebtedness provided for herein with respect to security interests and liens are applicable only to the extent that such security interests and liens are enforceable and perfected and have not been avoided; if a security interest or lien is judicially determined to be unenforceable or unperfected or is judicially avoided with respect to any claim of the holder of the Senior Indebtedness or any part thereof, the priority provided for herein shall not be available to such security interest or lien to the extent that it is avoided or determined to be unenforceable or unperfected. The foregoing notwithstanding, Lender covenants and agrees that it shall not challenge, attack or seek to avoid any security interest or lien to the extent that it secures any holder of the Senior Indebtedness. Nothing in this SECTION 7.8 affects the operation of any subordination of indebtedness or turnover of payment provisions hereof, or of any other agreements among any of the parties hereto. 7.10 RELIANCE OF HOLDERS OF SENIOR INDEBTEDNESS. Lender, by its acceptance hereof, shall be deemed to acknowledge and agree that the foregoing subordination provisions are, and are intended to be, an inducement to and a consideration of each holder of Senior Indebtedness, whether such Senior Indebtedness was created or acquired before or after the creation of the indebtedness evidenced by this Note, and each such holder of Senior Indebtedness shall be deemed conclusively to have relied on such subordination provisions in acquiring and holding, or in continuing to hold, such Senior Indebtedness. 8. WAIVER. Borrower waives presentment and demand for payment, notice of dishonor, protest and notice of protest of this Note, and shall pay all costs of collection when incurred, including, without limitation, reasonable attorneys' fees, costs and other expenses. The right to plead any and all statutes of limitations as a defense to any demands hereunder is hereby waived to the full extent permitted by law. 9. GOVERNING LAW. This Note shall be governed by, and construed and enforced in accordance with, the laws of the State of California, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction. 4. 5 10. SUCCESSORS AND ASSIGNS. The provisions of this Note shall inure to the benefit of and be binding on any successor to Borrower and shall extend to any holder hereof. BORROWER Littlefield Associates, a California general partnership By: /s/ JAMES G.J. WALKER ------------------------------------------ Printed Name: James G.J. Walker Title: Co-Managing General Partner 5. EX-27 5 f67245ex27.txt EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS, STATEMENTS OF OPERATIONS AND STATEMENTS OF CASH FLOWS INCLUDED IN THE COMPANY'S FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND NOTES THERETO. 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 40,008 11,307 1,163 0 0 58,308 43,352 (29,860) 120,823 16,188 0 0 0 343,171 74,217 120,823 1,209 6,705 0 0 37,969 0 1,061 (29,656) 0 (29,656) 35,841 0 0 6,185 0.18 0.18
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