-----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, P2QcsfbkgH/k3DqNsSPTstc23ZxwaPd7J1YW1DuxHGoBPVXQdMqM1LCx+eO+VY9X 0i8bgXBLklBNDyxDSKR0WA== 0000950149-99-001502.txt : 19990817 0000950149-99-001502.hdr.sgml : 19990817 ACCESSION NUMBER: 0000950149-99-001502 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXYS PHARMECUETICALS INC CENTRAL INDEX KEY: 0000913056 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [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: 99691940 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 QUARTERLY REPORT FOR PERIOD ENDED 6/30/99 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 JUNE 30, 1999 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. [X] Yes [ ] No The number of outstanding shares of the registrant's Common Stock, $0.001 par value, was 30,441,037 as of July 31, 1999. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 AXYS PHARMACEUTICALS, INC. INDEX
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited)* Consolidated Balance Sheets -- June 30, 1999 and December 31, 1998......................................... 3 Consolidated Statements of Operations -- Three and six months ended June 30, 1999 and 1998............ 4 Consolidated Statements of Cash Flows -- Six months ended June 30, 1999 and 1998.............................. 5 Notes to Consolidated Financial Statements -- June 30, 1999.................................................. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................. 9 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................................... 16 Item 6. Exhibits and Reports on Form 8-K.................... 16 Signatures.................................................. 17
- --------------- * 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, 1998, filed with the Securities and Exchange Commission on March 31, 1999. 2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AXYS PHARMACEUTICALS, INC. CONSOLIDATED BALANCE SHEETS ASSETS
JUNE 30, DECEMBER 31, 1999 1998 (UNAUDITED) (1) ----------- ------------ (IN THOUSANDS) Current assets: Cash and cash equivalents................................. $ 23,025 $ 36,261 Marketable investments.................................... 29,330 36,456 Accounts receivable, trade................................ 4,148 2,140 Inventory................................................. 996 435 Prepaid expenses and other current assets................. 3,151 4,513 --------- --------- Total current assets.............................. 60,650 79,805 Property and equipment, net................................. 22,476 21,510 Investment in joint venture................................. 1,104 1,908 Note receivable from officer................................ 654 821 Intangible assets........................................... 3,372 2,200 Other assets................................................ 1,165 1,018 --------- --------- TOTAL ASSETS...................................... $ 89,421 $ 107,262 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 2,473 $ 3,788 Accrued compensation...................................... 3,697 4,232 Other accrued liabilities................................. 3,506 2,956 Deferred revenue.......................................... 3,487 8,698 Current portion of capital lease and debt obligations..... 9,976 9,872 --------- --------- Total current liabilities......................... 23,139 29,546 Capital lease and debt obligations, net of current portion................................................... 13,144 16,816 Minority interest in joint venture.......................... 13,159 388 Stockholders' equity: Preferred stock........................................... -- -- Common stock.............................................. 290,944 290,291 Accumulated other comprehensive income.................... (109) 116 Accumulated deficit....................................... (250,856) (229,895) --------- --------- Total stockholders' equity........................ 39,979 60,512 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $ 89,421 $ 107,262 ========= =========
- --------------- (1) The balance sheet at December 31, 1998 has been derived from the audited financial statements 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 to consolidated financial statements. 3 4 AXYS PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- --------------------- 1999 1998 1999 1998 -------- ------- -------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues Collaboration and license revenue............. $ 6,134 $ 8,299 $ 14,796 $ 16,650 Product and service revenue................... 2,193 798 5,335 881 -------- ------- -------- --------- Total revenue......................... 8,327 9,097 20,131 17,531 Operating expenses Cost of goods sold............................ 902 -- 1,450 387 Research and development...................... 16,740 13,887 32,665 28,987 General and administrative.................... 4,552 3,690 7,753 7,122 Acquired in-process research and development................................ -- -- -- 124,888 -------- ------- -------- --------- Total operating expenses.............. 22,194 17,577 41,868 161,384 -------- ------- -------- --------- Operating loss.................................. (13,867) (8,480) (21,737) (143,853) Interest income................................. 799 1,287 1,706 2,669 Interest expense................................ (504) (538) (1,011) (1,107) Equity interest in loss of joint venture........ (267) (445) (830) (902) Minority interest............................... 625 -- 911 -- -------- ------- -------- --------- Net loss........................................ $(13,214) $(8,176) $(20,961) $(143,193) ======== ======= ======== ========= Basic and diluted net loss per share............ $ (0.44) $ (0.27) $ (0.69) $ (4.87) ======== ======= ======== ========= Shares used in computing basic and diluted net loss per share................................ 30,359 29,999 30,340 29,390 ======== ======= ======== =========
See accompanying notes to consolidated financial statements. 4 5 AXYS PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, --------------------- 1999 1998 -------- --------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.................................................... $(20,961) $(143,193) Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities: Depreciation........................................... 4,303 3,801 Amortization........................................... 828 593 Gain on sale of fixed asset............................ (22) -- Equity interest in loss of joint venture............... 830 902 Forgiveness of note receivable from officer............ 183 125 Acquired in-process research and development........... -- 124,888 Changes in assets and liabilities: Accounts Receivable.................................. (2,008) -- Inventory............................................ (561) -- Prepaid expenses and other current assets............ 1,362 986 Other assets......................................... (2,164) (3,357) Accounts payable and accrued liabilities............. (1,301) (4,350) Deferred revenue..................................... (5,211) (4,460) -------- --------- Net cash and cash equivalents used in operating activities................................................ (24,722) (24,065) -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Available-for-sale securities: Purchases................................................. (22,424) (19,301) Maturities................................................ 29,332 49,019 Minority interest........................................... 12,771 -- Proceeds from sale of fixed asset........................... 22 -- Sequana acquisition, net of cash............................ -- 13,270 Investment in joint venture................................. (25) (2,000) Purchase of property and equipment.......................... (5,269) (2,332) -------- --------- Net cash and cash equivalents provided by investing activities................................................ 14,408 38,656 -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common stock.................. 653 1,586 Proceeds from note receivable............................... -- 603 Proceeds from notes payable and lease financing............. -- 2,000 Proceeds from minority interest............................. -- 500 Principal payments on notes payable and capital leases...... (3,568) (3,143) -------- --------- Net cash and cash equivalents provided by (used by) financing activities...................................... (2,915) 1,546 -------- --------- Effect of exchange rate change.............................. (7) -- -------- --------- Net increase (decrease) in cash and cash equivalents........ (13,236) 16,137 Cash and cash equivalents, beginning of period.............. 36,261 22,938 -------- --------- Cash and cash equivalents, end of period.................... $ 23,025 $ 39,075 ======== =========
See accompanying notes to consolidated financial statements. 5 6 AXYS PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999 (UNAUDITED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Axys Pharmaceuticals, Inc., a Delaware corporation ("Axys" or the "Company"), is a drug discovery and development company with a proprietary focus in oncology. Axys' business is focused in three primary areas: (i) drug discovery and development programs in collaboration with pharmaceutical and biotechnology companies, (ii) drug discovery and development programs in the area of oncology, which are not partnered, and (iii) the spin out of affiliated businesses in combinatorial chemistry, pharmacogenomics, and agricultural biotechnology. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Arris Pharmaceuticals Canada, Inc., Sequana Therapeutics, Inc. ("Sequana"), and Axys Advanced Technologies, Inc. ("AAT"), and includes the accounts of Xyris Corporation and PPGx, Inc. the Company's majority owned subsidiaries and (See "Formation of PPGx, Inc.", Note 3). All significant intercompany accounts and transactions have been eliminated. Sequana owns 50% of Genos, a joint venture with Memorial Sloan-Kettering Cancer Center ("MSKCC"). This investment is accounted for under the equity method. RECLASSIFICATIONS Certain 1998 amounts have been reclassified to conform to the June 30, 1999 presentations. BASIS OF PRESENTATION The unaudited consolidated financial statements included herein have been prepared by 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 three and six-month periods ended June 30, 1999 are not necessarily indicative of the results to be expected for subsequent quarters or the full fiscal year. These financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company's 1998 Annual Report on Form 10-K filed with the Securities and Exchange Commission. 2. ROUND OF FINANCING FOR XYRIS CORPORATION In February 1999, Xyris executed an exclusive license to the Company's technology in the field of agriculture (the "Technology License"). The Company received additional shares of Xyris in exchange for the Technology License. Also in February Xyris completed a round of financing in which it raised $4,500,000 from a third party. During the second quarter Xyris completed a round of financing in which it raised $5,000,000 from other third parties. Under the terms of this financing, the Company has granted the third parties the right (the "Put Option") to require the Company to purchase all of their interests in Xyris in exchange for that number of shares of the Company whose market value equals $10,000,000 at the date of the exercise of the Put Option. The Put Option may be exercised at any time between August 2, 1999 and February 2, 2001. 6 7 AXYS PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1999 (UNAUDITED) The net effect of the issuance of shares in connection with the round of financing is a reduction of the Company's ownership in Xyris from 82% at December 31, 1998, to 52% at June 30, 1999. 3. FORMATION OF PPGX, INC. In February 1999, the Company announced the formation of a majority-owned subsidiary, PPGx, Inc. ("PPGx"), which is 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 industry. In connection with the formation of PPGx, Axys contributed certain fixed assets and technology, which was recorded at the company's net book value, in exchange for an 82% ownership interest in PPGx. PPD, Inc. ("PPD"), Axys' partner in PPGx, contributed certain assets, technology, cash and loan guarantees in exchange for an 18% ownership interest in PPGx and the exclusive, worldwide right to market the pharmacogenomic products and services of PPGx. Under the terms of a shareholder agreement between the Company and PPD, PPD has the option (the "PPD Option") to purchase 32% of PPGx from the Company at various escalating prices until February 1, 2002 to PPD at various escalating prices until August 1, 2002. Upon exercise of the PPD Option or the Axys Put, the Company and PPD would have equal ownership positions in PPGx. Under certain circumstances, the Company has the option to put (the "Axys Put") 32% of PPGx. At such time as either the PPD Option or the Axys Put are exercised, the Company would also become a co-guarantor of a certain PPGx line of credit to the extent any borrowings are outstanding at that time. Additionally, at any time after the fifth anniversary of the formation of PPGx, the Company and, provided either the PPD Option or the Axys Put have been exercised, PPD have the right to buy all of the outstanding equity interests in PPGx at fair market value in accordance with the terms of buy-sell provisions of the shareholder agreement. 4. INVENTORY Inventories are stated at the lower of cost (first-in, first-out) or market. At June 30, 1999, inventories consisted of the following (in thousands): Raw materials............................................... $293 Finished goods.............................................. 703 ---- $996 ====
5. COMPREHENSIVE INCOME Total comprehensive loss was ($13,353) and ($21,186) for the three- and six-months ended June 30, 1999, respectively and ($8,176) and ($143,193) for the three- and six-months ended June 30, 1998, respectively. 7 8 AXYS PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1999 (UNAUDITED) 6. SEGMENT INFORMATION Segment information consists of the following:
SIX MONTHS ENDED JUNE 30, --------------------- 1999 1998 -------- --------- (IN THOUSANDS) Revenues: Drug discovery............................................ $ 13,063 $ 15,650 AAT....................................................... 6,726 1,881 Other..................................................... 342 -- -------- --------- Total consolidated.......................................... $ 20,131 $ 17,531 ======== ========= Operating income (loss): Drug discovery(1)......................................... $(19,628) $(142,064) AAT....................................................... 2,283 (1,069) Other..................................................... (3,616) (60) -------- --------- Total consolidated.......................................... $(20,961) $(143,193) ======== =========
Other represents the results of Xyris' and PPGx's principal activities which commenced in 1998 and 1999, respectively. - --------------- (1) Includes $125 million in acquired in-process research and development recorded in 1998 relating to the acquisition of Sequana Therapeutics, Inc. in January 1998. 7. SUBSEQUENT EVENT On July 26, 1999, the Company refinanced its two lines of credit, one with Sumitomo Bank, Limited ("Sumitomo") and one with Sumitomo and Silicon Valley Bank, jointly, for a new $30 million revolving line of credit with Foothill Capital Corporation. The Company has fully drawn down this new line of credit, and repaid the previous notes with Sumitomo and Silicon Valley Bank. The new line is subject to the terms of a security agreement, under which certain investments are held in designated accounts as security for the line. Interest is due on the line monthly and is computed at the reference rate for Wells Fargo Bank. The balance of any unpaid principal and interest is due July 2002. 8 9 AXYS PHARMACEUTICALS, INC. 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," in the Company's Annual Report on Form 10-K for the year ended December 31, 1998 filed with the Securities and Exchange Commission. OVERVIEW Since the Company's founding in 1989, Axys has devoted most of its resources to research and development programs. To date, the company's revenues have resulted from its collaborative research programs with pharmaceutical companies as part of its drug discovery business and more recently from the sales of chemical compound libraries by its new combinatorial chemistry business subsidiary, Axys Advanced Technologies, Inc. ("AAT") (formerly known as the Company's Advanced Technologies Division). In July 1999, the company announced the closing of its San Diego operations by the end of the calendar year. The company plans to relocate its oncology genomics operations from San Diego to its South San Francisco headquarters, and is involved in discussions with third parties to sell its positional cloning and other related technology programs. Following the conclusion of such discussions, the Company plans to close any remaining San Diego operations by the end of this calendar year. As a result of these actions, operating expenses are projected to decrease by $17 million on an annual basis. The company anticipates a one-time charge to range from $3.0 to $6.0 million during the third quarter of 1999 for costs associated with the relocation of its oncology genomics efforts and the transfer or winding up of its positional cloning and related efforts. In the second quarter of 1999, the following collaborative relationships were brought to an end. Two of these relationships involved early stage research collaborations and the third involved a collaboration in which the Company's research activities had concluded over a year earlier. The Company does not expect the termination of any of these relationships to have a material adverse effect on its business, financial statements or results of operations. Since June 1995 the Company has been involved in a collaboration with Boehringer Ingelheim International GmbH ("Boehringer Ingelheim") to identify the genetic causes of asthma. In June 1999 the Company agreed that Boehringer Ingelheim's research funding obligations would end as of June 30, 1999, and that certain royalty terms in the agreement would be revised. In May 1999 the Company was notified by Pharmacia & Upjohn of the formal termination of the March 1993 collaborative agreement regarding the development of synthetic, small molecule mimetics of human growth factor. The research funding under this collaborative agreement had previously ended in 1997. Rights to this program revert to Axys. The Company and Memorial Sloan-Kettering Cancer Center formed and funded a joint venture called Genos Biosciences, Inc. in January 1997 to identify genes and related genetic information pertaining to prostate, breast and colon cancer. In May 1999 the Board of Directors of Genos Biosciences decided to suspend its research activities and wind up its affairs. The Company is receiving back rights to use its technology in the identification programs in oncology as a result of this winding up of Genos. The company's collaborative research programs generally contain one or more of the following sources of revenue to the company: - Research Support: Payments which are generally based on the number of researchers Axys is committing to a particular program. These revenues are recorded when earned by the company. 9 10 - License Fees: Payments generally made when a collaboration agreement is signed. These revenues are recorded when the agreement is signed, as no future performance obligation exists. - Commitment Fees: Payments made in conjunction with the company's commitment to perform certain funded research. These revenues are recorded over the course of the research efforts. - Milestone Payments: Payments which are based on the company or its partner achieving certain technical or regulatory milestones in the collaboration. These revenues are recorded upon the achievement of mutually agreed upon milestones. - Royalties: Upon commercialization of products resulting from a collaboration, the company may earn royalties based on a percentage of the revenue earned by the collaboration partner. These revenues would be recorded when product sales result from the company's collaborations. The company's sales of chemical compound libraries contain one or more of the following sources of revenue to the company: - Product Sales: As chemical compound libraries are shipped to customers of AAT, the Company records revenue based on the contracted price per compound. - License Fees: Payments made when compound supply or technology license agreements are signed. These revenues are recorded when the agreement is signed, as no future performance obligation exists. - Commitment Fees: Payments made in conjunction with AAT's commitment to perform certain obligations under compound supply or technology license agreements. These revenues are recorded over the course of the relevant agreement, as performance obligations are completed. - Protocol Fees: Payments made for granting access to technology know-how. These revenues are recorded as protocol are delivered. Although the sale of stock by the company to one of its partners is not a source of revenue, unless sold at a premium to market, the company's collaborative research programs have occasionally included the sale of stock by the company to the pharmaceutical company sponsoring the research. The Company has not been profitable since inception and expects to incur substantial losses for at least the next several years, primarily due to the cost of its research and development programs, including preclinical studies and human clinical trials. 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. As of June 30, 1999, the Company's accumulated deficit was approximately $251 million. Included in the Company's accumulated deficit at June 30, 1999 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 in January 1998. RESULTS OF OPERATIONS REVENUES Total revenue was $8.3 million and $20.1 million for the three- and six-month periods ended June 30, 1999, respectively, compared to $9.1 million and $17.5 million for the comparable periods in 1998. Revenue is made up of two components, which are discussed below. Collaboration and licensing revenues The company's collaboration and licensing revenues were $6.1 million and $14.8 million for the three-and six-month periods ended June 30, 1999, respectively, compared to $8.3 million and $16.7 million, respectively, for the comparable periods in 1998. The change was primarily due to: (i) an increase in technology licensing fees, including the combinatorial chemistry agreement between AAT and Daiichi Pharmaceutical Co., Ltd., signed in June 1999; (ii) the research support in connection with an agreement with Rhone-Polenc Rorer for the development of small molecule therapeutics that inhibit cathepsin S, associated with certain inflammatory diseases; and (iii) the termination fee associated with Corange International, Ltd., 10 11 which ended in February 1999. These increases were offset by lower revenues recognized compared to the prior year for the following agreements: (i) the end of the research funding in mid 1998 of the Pharmacia & Upjohn agreement for the development of inhibitors of Factor Xa; (ii) the reduction in research support in the Boehringer Ingelheim International GmbH agreement for the gene identification program in asthma; and (iii) the conclusion of the Glaxo-Wellcome Inc. agreement for the genomics work in the area of type II diabetes and related conditions. Product and service revenues The company's product and service revenues increased to $2.2 million and $5.3 million for the three- and six-month periods ended June 30, 1999, respectively, compared to $798,000 and $881,000, respectively, for the comparable periods in 1998. The increase was primarily due to an increase in the number of compounds shipped in 1999 under three AAT agreements, as well as the inclusion of the service revenue recognized by PPGx since its formation in February 1999, compared to the number of compounds shipped in 1998 under one AAT agreement. Cost of Goods Sold The company's cost of goods sold increased to $902,000 and $1.5 million for the three- and six-month periods ended June 30, 1999, respectively, compared to none and $387,000, respectively, for the comparable periods in 1998. The costs in 1999 are directly related to the costs of producing compounds for sale. The costs in 1998 primarily reflect start up costs for the production of compounds. Research and Development The company's research and development expenses increased to $16.7 million and $32.7 million for the three- and six-month periods ended June 30, 1999, respectively, from $13.9 million and $29.0 million, respectively, for the comparable periods in 1998. The increases in 1999 are primarily due to the research and development expenses of the company's newly formed subsidiaries PPGx, and Xyris. Other factors contributing to the increase relate to the clinical costs associated with pursuing our own clinical programs in both ulcerative colitis and psoriasis in 1999, versus the clinical costs associated with an inhaled therapeutic for asthma in 1998, as well as the severance costs associated with the reduction in headcount in the first quarter. General and Administrative The company's general and administrative expenses increased to $4.6 million and $7.8 million for the three- and six-month periods ended June 30, 1999, respectively, compared to $3.7 million and $7.1 million, respectively, for the comparable periods in 1998. The increases were primarily due to the addition of the administrative expenses of the company's newly formed subsidiaries, PPGx, and Xyris. Interest Income and Interest Expense Interest income decreased to $799,000 and $1.7 million for the three- and six-month periods ended June 30, 1999, respectively, compared to $1.3 million and $2.7 million, respectively, for the same periods in 1998. The decrease was primarily due to the decrease in average cash and investment balances between the periods. Interest expense decreased to $504,000 and $1.0 million for the three- and six-month periods ended June 30, 1999, respectively, compared to $538,000 and $1.1 million, respectively, for the same periods in 1998. The decrease was primarily due to the lower debt balances from the company's two lines of credit and capital lease arrangements. Equity Interest in Loss of Joint Venture Equity interest in loss of joint venture decreased to $267,000 and $830,000 for the three- and six- month periods ended June 30, 1999, respectively, compared to $445,000 and $902,000, respectively, for the same period in 1998. This account represents the company's 50% portion of Genos' loss for the period based on the Company's 50% ownership of Genos. These expenses are expected to decrease in future quarters as Genos is in the process of being wound up. 11 12 Minority interest Minority interest represents another investor's share of a subsidiary's operating income (loss), where the company owns 51% to 99% of that subsidiary. Income reported by the company, which is attributable to a minority owner was $625,000 and $911,000 for the three- and six- month periods ended June 30, 1999, respectively, compared to none for the same periods in 1998. This amount is the result of the formation of the Company's majority owned subsidiaries, PPGx, Inc. and Xyris Corporation. Since the company records all of the PPGx and Xyris operating expenses as our expenses, a portion of the losses from these entities is allocated to the minority shareholders in these entities as minority interest, offsetting the company's operating loss. IMPACT OF THE YEAR 2000 The Year 2000 problem or the "Y2K problem" is a problem that may arise at the turn of the century in computers or other equipment utilizing microprocessor technology. Some computer software programs and computer equipment, as well as other equipment using embedded microprocessors, use two digit date fields rather than four date digit fields (that is, "98" in the computer code refers to the year "1998"). As a result, time-related functions in such software and equipment may misinterpret dates after January 1, 2000 to refer to the twentieth century rather than the twenty-first century (that is, "02" could be interpreted as "1902" rather than "2002"). This could potentially cause system or equipment shutdowns, failures or miscalculations, resulting in inaccuracies in computer output. The Y2K problem is a global problem and has the potential to impact virtually every company to one degree or another, including Axys. The company has been addressing the Y2K problem for more than six months beginning with a review of its core information technology systems, including its servers, databases, desktop computers, significant applications (whether licensed from third parties or developed internally) and significant microprocessor-controlled equipment for Y2K readiness. Because the Y2K problem potentially affects many other companies, the company has also been investigating the Y2K readiness of its vendors, service providers and other companies (including its collaboration partners and customers) with whom the company has significant business relationships ("Important Third Parties"). As the company completes these internal and external reviews, the company has been prioritizing the responses it needs to take to address the Y2K problem, to address the highest priorities first and to develop by no later than the end of the third quarter of 1999 such contingency plans as management believes to be prudent. The company expects to update and revise this contingency plan throughout the remainder of 1999 as additional information becomes known. With respect to the company's core information technology systems, the review is complete and modifications have been substantially completed. The review and modification process of the desktop computers has been completed. With respect to third party software applications, the company expects to complete its review and to replace or upgrade such applications by the end of the third quarter of 1999. In this regard, the company has completed the replacement of its enterprise management information system with a new system that is Y2K ready. With respect to the few software applications the company has developed and licensed to third parties, the company has completed its review of some of these applications and believes them to be Y2K ready. The remaining applications are undergoing testing and if determined not to be Y2K ready, the company expects to provide upgrades to such applications, making them Y2K ready by the third quarter of 1999 or as soon thereafter as practicable. With respect to other internally-developed software applications, the company has compiled a list of such applications and has completed the design of appropriate tests. The company has run a number of tests and expects to complete its review by the end of the third quarter. The company has completed the replacement or upgrade of some of these applications and expects to complete the remaining replacements or upgrades during the third quarter of 1999. Finally, with respect to other significant microprocessor-controlled equipment, the company has identified and completed its review of such equipment and has completed the necessary upgrades or replacements. The review of the Y2K readiness of Important Third Parties is substantially complete and the company is in the process of assessing the nature and extent of the risk from non-readiness by such third parties. Depending upon the outcome of such assessment, the company plans to cease doing business with such third parties, locate back-up businesses who are Y2K ready, obtain reasonable assurances of Y2K readiness, or to implement other appropriate contingency plans, by the end of 1999. 12 13 The total costs associated with the company's Y2K readiness efforts is currently believed to be in the range of $250,000. Out-of-pocket expenditures to date with respect to the Y2K problem have not been material and the time of company personnel to address Y2K readiness has also not been material. Until the reviews described above are completed, the company's estimates of the extent of the expenditures that will be necessary to address the Y2K problem are subject to change. The company believes that its Y2K readiness review and the actions it intends to take prior to the end of 1999 should result in the absence of significant Y2K-related problems for the company's computer systems, applications and microprocessor-controlled equipment. However, there can be no assurances that the company will be able to complete its review of various systems within the time frames indicated, that the company, will be completely Y2K ready by the end of 1999 or that the company will not encounter Y2K-related problems that could have a material adverse affect on the company's results of operations and financial condition. In addition, the company cannot guarantee the Y2K readiness of Important Third Parties and certain business disruptions could occur, such as a financial institution's inability to process checks drawn on bank accounts, to accept deposits or process wire transfers, an Important Third Party's business failure, interruption in deliveries of equipment, supplies and services from Important Third Parties, loss of voice and/or data connections, loss of power to electrical facilities, and other business interruptions which cannot be predicted. Accordingly, there can be no assurance that Y2K-related problems of Important Third Parties will not have a material adverse affect on the company's results of operations and financial condition. LIQUIDITY AND CAPITAL RESOURCES The company has financed its operations since inception primarily through private and public offerings of its capital stock and through corporate collaborations. As of June 30, 1999, the company had realized approximately $183 million in net proceeds from offerings of its capital stock. In addition, the company had realized approximately $182 million since inception from its corporate collaborations. The company's principal sources of liquidity are its cash and investments, which totaled $52.3 million as of June 30, 1999. In July 1999, the company has refinanced its former lines of credit with a new line of credit under which it has borrowed $30 million to fund research activities. This new line of credit increased the company's working capital by approximately $9 million. The company's cash and investments at June 30, 1999 include the balances from its wholly owned and majority owned subsidiaries. Xyris Corporation, the majority owned agricultural biotechnology affiliate is in the process of merging with Global Agro, Inc., a privately held plant science company. Once the all-stock transaction is completed, it is anticipated that the company's ownership percentage in Xyris will be 50% or less. The company's consolidated financial statements will no longer include the balances of Xyris and the activity in Xyris will be accounted for on the equity method. Xyris' cash and investments at June 30, 1999 totalled $8.0 million. Net cash used in operating activities during the six-month period ended June 30, 1999 was $24.7 million, compared to $24.1 million in the same period in 1998. Operating expenses between the two periods were largely unchanged. 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 or the sale of combinatorial chemistry compound libraries. The company also spent approximately $5.3 million for the purchase of property, plant and equipment during the six months ended June 30, 1999. Additional equipment is expected to be acquired or leased in connection with the company's continuing research and development activities. The Company is currently in discussions to finance prior and future purchases of capital equipment. We expect that our existing money resources, including research and development revenues from existing collaborations, will enable us to maintain current and planned operations for at least the next 12 to 18 months. We expect that our existing money resources, including research and development revenues from existing collaborations, will enable us to maintain current and planned operations for at least the next 12 to 18 months. 13 14 However, we expect to raise substantial additional money to fund operations before the end of this period. In addition, we will need to continue to raise money until we achieve substantial product or royalty revenues, if ever. We expect that we will seek additional funding through one or more of the following: new collaborations, the extension of existing collaborations, the sale of our interests in our affiliated businesses, or through public or private equity or debt financings. Furthermore, we may obtain funds through arrangements with collaborative partners or others that require us to give up rights to technologies or products that we would otherwise seek to develop or commercialize ourselves. We 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, we may delay, reduce or eliminate any of our research or development programs. CERTAIN BUSINESS RISKS We are at an early stage of development. Our technologies are, in many cases, new and all are still under development. All of our proposed products are in research or development and will require significant additional research and development efforts prior to any commercial use, including extensive preclinical and clinical testing, as well as lengthy regulatory approval involving many complexities. Our 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 us. In addition, many of our currently proposed products are subject to development and licensing arrangements with our collaborators. Therefore, we are dependent, in many cases on the research and development efforts of these collaborators. Moreover, we are 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. We have experienced significant operating losses since our inception and expect to incur significant operating losses over at least the next several years. The development of our technology and proposed products will require a commitment of substantial funds to conduct these costly and time consuming activities. Should we or our 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 our business, financial condition and results of operations. The proposed products under development by us 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. We have no sales, marketing or distribution capability for our proposed products. If any of the products subject to our collaborative agreements are successfully developed, we must rely on our collaborators to market the products. We cannot ensure that any collaborator's marketing efforts would be successful. If we develop any products which are not subject to our collaborative agreements, we must either rely on other pharmaceutical companies to market our products or we must develop a marketing and sales force with technical expertise and supporting distribution capability in order to market our products directly. We cannot guarantee that these marketing efforts would be successful. The foregoing risks reflect our early stage of development and the nature of our 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 our competitors, the manufacturing challenges presented by the production of increasing numbers of combinatorial chemistry compounds, uncertainties regarding protection of patents and proprietary rights, and 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 Report on Form 10-K for the year ended December 31, 1998, filed by the Company with the Securities and Exchange Commission on March 31, 1999. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Not Applicable. 14 15 AXYS PHARMACEUTICALS, INC. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES In May and June 1999, the Company issued options (the "Put Options") to the North American Nutrition & Agribusiness Fund, L.P. and the Missouri Soybean Merchandising Council ("MSMC"), granting each of them the right to require the Company to purchase the 1,201,201 shares and 300,300 shares, respectively, of Series A Preferred Stock of Xyris Corporation ("Xyris") held by NANAF and MSMC. If either of the Put Options is exercised, the Company would purchase the Xyris shares held by NANAF or MSMC, as the case may be, with shares of the Company's Common Stock, at its then market price, with an aggregate market value as the date the Put Option is exercised equal to $4,000,000 or $1,000,000, as the case may be, rounded down to the nearest whole number of shares. The Put Options were granted in connection with the Series A Purchase Agreements between NANAF and MSMC, as the case may be, and Xyris, and the Company, whereby NANAF and MSMC each purchased Series A Preferred Stock of Xyris in connection with the additional financing of Xyris. The Put Options may be exercised at any time between August 2, 1999 and February 2, 2001. The issuance of the above securities were intended to be exempt from registration and prospectus delivery requirements under the Securities Act of 1933, as amended (the "Securities Act"), by virtue of Section 4 (2) thereof, due to, among other things, (i) the limited number of persons to whom the securities were issued, (ii) the distribution of disclosure documents to the investor, (iii) the fact that such investors represented and warranted to the company, among other things, that such investors were acquiring the securities for investment only and not with a view to the resale of distribution thereof, and (iv) the fact that such investors were knowledgeable, sophisticated and experienced in making investment decisions of this kind. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's 1999 Annual Meeting of Stockholders was held on Wednesday, May 26, 1999. Stockholders were asked (i) to elect directors to serve for the ensuing year and until their successors are elected; (ii) to ratify the selection of Ernst & Young LLP as independent auditors of the Company for its fiscal year ending December 31, 1999; and (iii) to approve an additional 500,000 shares of common stock under the Company's Employee Stock Purchase Plan (ESPP). All of the matters were approved by the stockholders of the Company. The number of shares voted for, against and withheld for each matter were:
IN FAVOR WITHHELD ---------- --------- Election of Directors: John P. Walker............................................ 23,718,105 243,618 Ann M. Arvin, M.D......................................... 23,720,454 241,269 Vaughn M. Kailian......................................... 23,726,865 234,858 Donald Kennedy, Ph.D...................................... 20,005,605 3,956,118 Irvin Lerner.............................................. 23,706,103 255,620 Alan Mendelson, J.D....................................... 23,729,205 232,518 J. Leighton Read, M.D..................................... 23,726,989 234,734
15 16
BROKER FOR AGAINST ABSTAIN NON-VOTES ---------- ------- ------- --------- Selection of Ernst & Young LLP................... 23,878,898 53,104 29,721 6,386,613 Additional 500,000 shares of Common stock under the Company's ESPP............................. 23,387,304 482,338 92,081 6,386,613
ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.107* Combinatorial Chemistry Agreement between Axys Advanced Technologies, Inc. and Daiichi Pharmaceutical Co., Ltd., signed June 30, 1999. 10.108* Amendment to the Collaboration Agreement between the Sequana and Boehringer Ingelheim GmH, dated June 14, 1999. 10.109 Series A Preferred Stock Purchase Agreement dated May 14, 1999, by and among Xyris Corporation, The North American Nutrition & Agribusiness Fund and the Registrant. 10.110 Series A Preferred Stock Purchase Agreement dated May 14, 1999, by and among Xyris Corporation and Missouri Soybean Merchandise Council and the Registrant. 10.111 Fourth Amendment to Expansion Lease between Sequana and ARE -- 11099 North Torrey Pines, LLC, dated March 31, 1999. 10.112* First Amendment to Lease between ARE-JOHN HOPKINS COURT LLC and Sequana, dated December 1, 1998. 27 Financial Data Schedule.
- --------------- * Confidential treatment has been requested with respect to certain portions of this exhibit. (b) Reports on Form 8-K None. 16 17 AXYS PHARMACEUTICALS, INC. 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: August 16, 1999 By: /s/ JOHN P. WALKER -------------------------------------- John P. Walker Chairman and Chief Executive Officer (Duly Authorized Officer and Principal Financial Officer) 17 18 EXHIBIT INDEX
EXHIBIT DESCRIPTION ------- ----------- 10.107* Combinatorial Chemistry Agreement between Axys Advanced Technologies, Inc. and Daiichi Pharmaceutical Co., Ltd., signed June 30, 1999. 10.108* Amendment to the Collaboration Agreement between the Sequana and Boehringer Ingelheim GmH, dated June 14, 1999. 10.109 Series A Preferred Stock Purchase Agreement dated May 14, 1999, by and among Xyris Corporation, The North American Nutrition & Agribusiness Fund and the Registrant. 10.110 Series A Preferred Stock Purchase Agreement dated May 14, 1999, by and among Xyris Corporation, Missouri Soybean Merchandise Council and the Registrant. 10.111 Fourth Amendment to Expansion Lease between Sequana and ARE -- 11099 North Torrey Pines, LLC, dated March 31, 1999. 10.112* First Amendment to Lease between ARE-JOHN HOPKINS COURT LLC and Sequana, dated December 1, 1998. 27 Financial Data Schedule.
- --------------- * Confidential treatment has been requested with respect to certain portions of this exhibit. EX-10.107 2 COMBINATORIAL CHEMISTRY AGREEMENT 1 CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. EXHIBIT 10.107 COMBINATORIAL CHEMISTRY AGREEMENT THIS COMBINATORIAL CHEMISTRY AGREEMENT (this "Agreement") is made and entered into effective as of June 30, 1999 (the "Effective Date"), by and between AXYS ADVANCED TECHNOLOGIES, INC., a Delaware corporation having a place of business at 180 Kimball Way, South San Francisco, CA 94080 ("Axys"), a wholly-owned subsidiary of Axys Pharmaceuticals, Inc., a Delaware corporation having a place of business at 180 Kimball Way, South San Francisco, CA 94080, and DAIICHI PHARMACEUTICAL CO., LTD., a corporation organized and existing under the laws of Japan, having a place of business at 14-10 Nihonbashi 3-chome, Chuo-ku, Tokyo 103-8234, Japan ("Daiichi"). Axys and Daiichi may be referred to herein individually as a "Party" or, collectively, as the "Parties." RECITALS A. Axys has developed and owns certain capabilities, technology, and intellectual property relating to combinatorial chemistry and the synthesis of diverse chemistry libraries using combinatorial techniques. B. Daiichi desires to purchase from Axys physical samples of [ * ] custom-designed compounds synthesized by Axys, and learn how to practice such technology and to obtain from Axys certain non-exclusive licenses to use such technology and intellectual property for Daiichi's internal drug discovery, development and commercialization programs. C. Axys is willing, pursuant to the following terms and conditions, to synthesize and sell to Daiichi such compound libraries, and to train Daiichi's employees and grant such licenses. NOW, THEREFORE, the Parties agree as follows: 1. DEFINITIONS The following capitalized terms shall have the meanings ascribed to such terms in the following definitions when used in this Agreement. 1.1 "AFFILIATE" means, with respect to a Party, any individual or entity that controls, is controlled by, or is under common control with, such Party. For this definition, the term "control" shall refer to (a) the ownership, directly or indirectly, of at least 50% of the voting securities or other ownership interest of an entity, or (b) the possession, directly or indirectly, of the power to direct the management or policies of an entity, whether through the ownership of voting securities, by contract or otherwise. 1. 2 1.2 "AXYS KNOW-HOW" means Information that is Controlled by Axys during this Agreement and comprises general combinatorial chemistry techniques proprietary to Axys (other than Protocols) that are necessary to enable Daiichi to make compounds, and to conduct accelerated medicinal chemistry, based on the Custom Compounds, including without limitation, relevant computational methods, library development method, library production method, analytical method and instrumentation know-how, except for Information that was already known to Daiichi at the time of its disclosure to Daiichi by Axys. 1.3 "AXYS PATENTS" means all patents and patent applications Controlled by Axys during this Agreement that claim inventions which constitute Axys Know-How or any part or aspect thereof. 1.4 "AXYS RESTRICTED INFORMATION" means all Confidential Information of Axys, other than Axys Know-How, Axys Patents, Protocol Know-How and Protocol Patents, that is learned by the employees of Daiichi who work at Axys as permitted under Section 5.1 at any time they are at an Axys facility. 1.5 "AXYS TECHNOLOGY" means the Axys Know-How, Axys Patents, Protocol Know-How, Protocol Patents and/or Software Programs, or any part or aspect thereof. 1.6 "COMBINATORIAL CHEMISTRY LIBRARY" means the aggregate of all the physical samples of the Custom Compounds in the Libraries provided to Daiichi hereunder. 1.7 "CONFIDENTIAL INFORMATION" means the Information of a Party that it considers proprietary and/or confidential, and that, if disclosed under this Agreement to the other Party in written, graphic or electronic form, is marked or otherwise designated as "confidential" or "proprietary" or the equivalent and, if disclosed orally, is characterized as "confidential" or "proprietary" by the disclosing Party at the time of such disclosure. "Confidential Information" of Axys shall include, without limitation, (a) those portions of the Software Programs along with associated documentation, if any, whether in source or object code form, along with any Information pertaining to the design of Software Programs, and (b) any Information, including but not limited to, design specifications, schematics, algorithms, API's, interfaces, procedures and code examples, relevant to any of the foregoing which may be provided by Axys to Daiichi hereunder. The disclosing Party shall make reasonable efforts to summarize in writing all oral disclosures of Confidential Information. 1.8 "CONTROLLED" means, with respect to any material, item of Information or intellectual property right, that the applicable Party owns or has a license or right to such material, item of Information or intellectual property right, and has the ability to grant to the other Party access to and a right and license as provided for herein under such material, item of Information or intellectual property right without violating the terms of any agreement or other arrangements with or the rights of any third party. 1.9 "CUSTOM COMPOUND" means any individual [ * ] chemical compound, a physical sample of which Axys synthesizes and provides to Daiichi under the terms of Article 2 of this Agreement. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 2. 3 1.10 "DAIICHI MODIFICATIONS" means any modification or derivative work of the Software Programs developed by or for Daiichi in any form in accordance with Section 3.3(b) based on or incorporating any Confidential Information of Axys. 1.11 "GENERAL SCREENING" means use of any Library or any group of Custom Compounds or Program Compounds in assays to screen for activity against targets in the pursuit of the identification of lead compounds or structures in drug discovery and development programs, where the party conducting such screening is not expressly limited to [ * ]. 1.12 "INFORMATION" means information and data of any type and in any tangible or intangible form, including without limitation inventions, practices, methods, techniques, specifications, formulations, formulae, knowledge, know-how, skill, experience, test data, analytical and quality control data, stability data, results of studies and patent and other legal information or descriptions. 1.13 "LIBRARY" means a collection of approximately [ * ] different physical samples of Custom Compounds synthesized by Axys and provided to Daiichi as a single library, which Custom Compounds are related to each other by the specific synthetic techniques that Axys used to make such group of Custom Compounds. 1.14 "PROGRAM COMPOUND" means any compound, including without limitation a Custom Compound, that is made by Daiichi or a permitted sublicensee of Daiichi by directly practicing or utilizing any of the Axys Know-How, Axys Patents, Protocols, Protocol Know-How and/or Protocol Patents licensed under this Agreement. 1.15 "PROTOCOL" means, with respect to a particular Library, the detailed set of combinatorial chemistry synthetic methods and operating procedures designed to be used for synthesizing the set of compounds in such Library using combinatorial chemistry techniques, and Information relating to the Custom Compounds in such Library comprising the structure and well locations of each physical sample of Custom Compound in such Library, the physicochemical properties (distribution of MW and ClogP) of such Library and the results of the analysis on such Library performed by Axys according to the methods of analysis set forth in Exhibit A attached hereto, and the related analytical data. 1.16 "PROTOCOL KNOW-HOW" means Information that is Controlled by Axys during this Agreement and comprises Protocols, which shall include any intellectual property of Axys relating to the Custom Compound in a Library. 1.17 "PROTOCOL PATENTS" means all patents and patent applications Controlled by Axys during this Agreement that claim inventions which constitute Protocol Know-How or any part or aspect thereof. 1.18 "SOFTWARE PROGRAMS" means the software programs provided to Daiichi by Axys pursuant to this Agreement related to [ * ] and defined in Exhibit C attached hereto and made a part hereof, [ * ], accompanying documentation and other material related to such software programs and provided by Axys hereunder, and including any part or aspect of any of the foregoing, and [ * ]. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 3. 4 1.19 "TECHNOLOGY COMMITTEE" means the committee formed by the Parties under Article 4 of this Agreement. 1.20 "UPDATES" means any improvements, extensions and other changes to the Software Programs that are [ * ] and are provided to Daiichi by Axys as set forth in Section 3.2. 2. DEVELOPMENT AND TRANSFER OF LIBRARIES 2.1 LIBRARIES SYNTHESIS. Commencing promptly after the Effective Date, Axys will use [ * ] to synthesize the physical samples of the Custom Compounds comprising the [ * ] Libraries to be provided to Daiichi under this Agreement. Axys will ensure that each Library will be composed of physical samples of an average of approximately [ * ] of the Custom Compounds. 2.2 DELIVERY OF PHYSICAL SAMPLES OF CUSTOM COMPOUNDS. Axys shall synthesize and sell to Daiichi and Daiichi shall purchase, subject to the terms of this Agreement, quantities of physical samples of the Custom Compounds [ * ]. Axys shall use [ * ] to deliver the physical samples of the Custom Compounds to Daiichi according to the following schedule: physical samples of [ * ] Custom Compounds to be delivered by [ * ]; physical samples of [ * ] additional Custom Compounds to be delivered by [ * ]; physical samples of [ * ] additional Custom Compounds to be delivered [ * ]; and physical samples of the remaining Custom Compounds (to bring the total delivered physical samples of the Custom Compounds to [ * ]) to be delivered [ * ]. The physical samples of the Custom Compounds shall be delivered in accordance with Section 2.3 and either in [ * ] or in another [ * ]. Within [ * ] of the delivery of a Library to Daiichi, Axys shall provide Daiichi with the Protocol for such Library. Such Protocol shall be provided to Daiichi in written form, CD-ROM, microfilm or other appropriate medium and format as reasonably selected by Axys in consultation with Daiichi. 2.3 DELIVERY AND RISK OF LOSS. Delivery of the physical samples of the Custom Compounds shall be [ * ]. The physical samples of the Custom Compounds shall be appropriately packaged by Axys, [ * ], for export shipment. Axys shall provide Daiichi, [ * ], with information concerning the structure and well locations of physical samples of the Custom Compounds to be delivered on a Library basis prior to such shipment. Axys shall also provide to the shipper, for compliance with exportation and importation laws and regulations, such information as reasonably requested by the shipper for such shipment. The physical samples of the Custom Compounds shall be [ * ]. Daiichi shall be responsible for obtaining all customs clearances required and for compliance with all exportation and importation laws and regulations. 2.4 [ * ]. Within [ * ] of physical samples of the Custom Compounds, Daiichi may provide Axys with written notification that (a) [ * ], and (b) [ * ]. 2.5 USE OF THE PHYSICAL SAMPLES OF THE CUSTOM COMPOUNDS BY DAIICHI. Subject to the terms of this Agreement, Daiichi shall have the right, under the Protocol Know-How and the Protocol Patent, to use the Combinatorial Chemistry Library and the physical samples of the Custom Compounds therein solely [ * ]. Except as expressly permitted in the foregoing or as permitted in Section 8.3, Daiichi covenants that it shall not transfer or disclose the Libraries or [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 4. 5 the physical samples of the Custom Compounds, or the structures thereof, or Protocols to any third party for any purpose. Daiichi may use the Information generated by the permitted uses of the Libraries and the physical samples of the Custom Compounds, for any purpose in conjunction with the permitted use of the physical samples of the Custom Compounds, subject to and in compliance with the limitations in this Agreement. Daiichi further covenants that it is only permitted to transfer or disclose the Libraries, the physical samples of the Custom Compounds or the structures thereof, or Protocols to any of its Affiliates subject to all relevant restrictions in this Agreement, including without limitation, the restrictions set forth in this Section 2.5. Daiichi hereby guarantees the compliance of each of its Affiliates with all such restrictions regarding the Libraries, the physical samples of the Custom Compounds or the structures thereof, or Protocols transferred or disclosed to such Affiliate. 2.6 USE OF CUSTOM COMPOUNDS BY AXYS. Axys may sell or provide the Combinatorial Chemistry Library or Custom Compounds therein to other companies for their uses, including without limitation General Screening, provided that Axys may not provide the Combinatorial Chemistry Library and the Protocols to [ * ] for use in General Screening. Axys covenants that during the term of this Agreement, it shall not provide the Combinatorial Chemistry Library, a substantial portion thereof or the Protocols to [ * ] for use in General Screening. Without limiting the generality of Axys' retained rights, Axys and its Affiliates shall retain full rights to use the Combinatorial Chemistry Library, the Custom Compounds and their Protocols for all internal purposes, including without limitation General Screening, combinatorial chemistry and medicinal chemistry, and drug discovery, development and commercialization activities of Axys and its Affiliates, and to sell such Custom Compounds to third parties for any uses, subject only to the foregoing covenant. Further, it is understood that Axys and its Affiliates retain the right to use the Combinatorial Chemistry Library and the Custom Compounds in screening for activity in assays for specific targets covered by research, development or commercialization programs pursuant to collaborative research agreements with third parties, and to provide the Combinatorial Chemistry Library, specific Custom Compounds and the specifications for such Custom Compounds and related Protocols to third party corporate partners of Axys or its Affiliates for use by such partner in screening for activity in specific assays for targets, pursuant to a collaborative research agreement between such corporate partner and Axys (or its Affiliate, as applicable). 2.7 OPTIONAL CHEMISTRY SERVICES. Axys agrees to provide Daiichi with [ * ]. If Daiichi is interested in pursuing such a project at Axys, Daiichi shall give Axys written notice of the desired project and details thereof, the Parties shall meet to negotiate in good faith the economic and other relevant terms of Axys conducting such a project, [ * ]. 3. TECHNOLOGY TRANSFER AND LICENSE 3.1 TRANSFER OF COMBINATORIAL CHEMISTRY TECHNOLOGY. Axys shall transfer to Daiichi, on an orderly basis, the Axys Know-How, Protocol Know-How, copies of the Axys Patents or Protocol Patents [ * ], and copies of the Protocols. [ * ]. Within [ * ] after the Effective Date, Axys shall complete the transfer to Daiichi of the Axys Patents Controlled by Axys on the Effective Date and shall commence the transfer to Daiichi of the Axys Know-How. Such transfer will be managed and coordinated by the Technology Committee, as provided in Article 4 below, in accordance with Exhibit D. The schedule for such transfer will be reasonable [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 5. 6 and orderly, as established by the Technology Committee. In addition, Daiichi may provide, at its cost and expense, [ * ] Daiichi scientists to work at Axys at any one time during [ * ] to assist and direct the transfer to Daiichi of the Axys Know-How, Protocols, Protocol Know-How and Software Programs and the related technical training; provided that access or exposure to Axys Restricted Information by the Daiichi scientists shall be subject to the provisions of Article 8. The total number of such Daiichi scientists that may work at Axys hereunder shall be [ * ]. Any such Daiichi scientists that work at Axys under the terms of this Section 3.1 shall be restricted from access to any Axys facilities or locations other than those necessary for completing the technology transfer and training as provided above. Further, Axys shall use reasonable efforts to limit and restrict such Daiichi scientists from access or exposure to any confidential information of Axys that is not Axys Know-How or Protocol Know-How. 3.2 DELIVERY OF SOFTWARE PROGRAMS AND UPDATES. Commencing [ * ], Axys will deliver to Daiichi and install each of the Software Programs [ * ], according to the delivery schedule therefor established by the Technology Committee. The Software Programs shall be delivered in electronic format, or in such other suitable format as selected by Axys and reasonably acceptable to Daiichi. All Software Programs (including Updates) [ * ]. Axys may make Updates during the term of this Agreement [ * ]. [ * ] 3.3 TECHNOLOGY AND SOFTWARE PROGRAMS LICENSE RIGHTS. (a) Subject to the terms of this Agreement, Axys hereby grants Daiichi a limited, non-exclusive, non-transferable, worldwide, perpetual (subject to termination under Article 10) license to use and practice the Axys Know-How, Protocol Know-How, Protocol Patents and Axys Patents solely for Daiichi to make and use Custom Compounds and Program Compounds for any purpose permitted under this Agreement, and subject to the limitations in Section 3.6 of this Agreement. (b) Subject to the terms of this Agreement, Axys hereby grants to Daiichi a limited, non-exclusive, non-transferable, world-wide, perpetual (subject to termination under Article 10) license, solely within Daiichi's organization and facilities: to use, [ * ] the Software Programs, and to [ * ], provided that all such uses of the Software Programs are solely for [ * ]. The foregoing license includes [ * ]. The foregoing license rights may not be sublicensed to a third party without the prior written consent of Axys, and any such permitted sublicense shall only be in conjunction with and in compliance with Daiichi's permitted use of Program Compounds as described in Section 3.5 and only to the extent needed to accomplish such permitted purposes. Daiichi covenants that it will not transfer or disclose any such Axys Know-How, Protocol Know-How, Protocol Patents, Axys Patents or Software Programs to any third party except as part of such permitted sublicenses and only subject to limitations consistent with the above restrictions and those in Sections 3.5 and 3.6. Daiichi further covenants that it will only transfer or disclose any such Axys Know-How, Protocol Know-How, Protocol Patents, Axys Patents or Software Programs to any of its Affiliates pursuant to agreements that subject such Affiliates to all relevant limitations in this Agreement, including without limitation, the restrictions regarding permitted use of Custom Compounds or Program Compounds as described in Sections 2.5, 3.2, 3.3, 3.4, 3.5 and 3.6. Daiichi hereby guarantees the compliance of each of its Affiliates with all such restrictions and [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 6. 7 limitations on the use of the Axys Know-How, Protocol Know-How, Protocol Patents, Axys Patents or Software Programs transferred or disclosed to such Affiliate. 3.4 LIMITED COMMERCIAL LICENSES. Subject to the terms of this Agreement, Axys hereby grants Daiichi the limited, non-exclusive, worldwide, perpetual (subject to termination under Article 10) license, with the right to sublicense, under the Axys Know-How, Protocol Know-How, Protocol Patents and Axys Patents, solely for Daiichi to offer for sale, sell and manufacture (a) any products containing Custom Compounds or Program Compounds [ * ], or (b) any such Custom Compounds or Program Compounds in bulk material for use in manufacturing such products. 3.5 RIGHT TO USE PROGRAM COMPOUNDS. Daiichi shall have the right to use the Program Compounds and the Protocols solely in [ * ]. Daiichi shall be permitted to transfer the Program Compounds only (a) [ * ], or (b) [ * ] and are subject to written confidentiality agreements at least as restrictive as the provisions of Article 8. Except as expressly permitted in the foregoing, Daiichi covenants that it and its Affiliates shall not transfer or disclose Program Compounds, or the structures thereof, or the Protocols to any third party for any purpose. Daiichi and its Affiliates may use the Protocols, and Information generated by the permitted use of the Program Compounds, for any purpose in conjunction with the permitted use of Program Compounds, subject to and in compliance with the limitations in this Agreement. 3.6 LIMITATIONS. (a) Daiichi understands and agrees that Axys retains all its rights to use all technology, Information and intellectual property rights for its own purposes and to license or disclose such technology, Information and intellectual property rights to third parties without restriction, subject only to the right and the licenses granted to Daiichi in Sections 2.5, 3.3, 3.4 and 3.5 of this Agreement. Daiichi covenants that it and its Affiliates shall not use or practice the Axys Know-How, Protocol Know-How, Protocol Patents, Axys Patents, Software Programs, Libraries, Custom Compounds or Program Compounds for any use or purpose except as expressly permitted in Sections 2.5, 3.3, 3.4 and 3.5. Daiichi further covenants that Daiichi and its Affiliates will not [ * ], except as expressly permitted in Sections 2.5, 3.3, 3.4 and 3.5, but excluding from the foregoing limitation [ * ]. It is understood that the foregoing sentence shall not be interpreted to prevent Daiichi or its Affiliate or sublicensee from [ * ]. (b) Daiichi may not: (i) distribute in any manner any of the Software Programs or any derivative work of any portion of the Software Programs, except as expressly permitted in this Agreement; (ii) publicly disclose, publicly perform or publicly display the Software Programs; (iii) use, copy, compile, adapt, translate the Software Programs except as expressly permitted in this Agreement; (iv) sell, lease, loan, trade, transfer (including over a network including the Internet), sublicense, market or publish the Software Programs except as expressly permitted in this Agreement; or (v) copy the documentation, except as expressly permitted in this Agreement. Daiichi acknowledges and agrees that [ * ] is highly confidential and warrants the imposition of appropriate security precautions above and beyond those implemented for its own proprietary or confidential information. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 7. 8 4. TECHNOLOGY COMMITTEE Within thirty (30) days of the Effective Date, Axys and Daiichi will form a committee consisting of two (2) representatives of each Party (the "Technology Committee"). Each Party's representatives on the Technology Committee are listed on Exhibit E and may be [ * ] with the approval of the Technology Committee. The Technology Committee shall meet as needed at times as agreed upon [ * ] (on a quarterly basis in principle) (a) to discuss proposals for Libraries proposed by either Party, (b) to review the diversity of Custom Compounds to be made in each Library, (c) [ * ], (d) to discuss and establish the technology transfer to Daiichi contemplated under Section 3.1, including appropriate schedules and mechanisms therefor, (e) to establish and supervise the training of Daiichi employees with respect to use of the Axys Technology as provided in Article 3 and (f) to discuss and resolve any non-business aspects of the relationship of the Parties under this Agreement that require attention. The Technology Committee shall act by unanimous consent, and may meet by telephone, video-conference or in face-to-face meetings, as agreed upon by the members of the Technology Committee. A chairperson shall be appointed for each meeting of the Technology Committee by the members of the Technology Committee. Each Party may send non-voting representatives to attend Technology Committee meetings as observers. 5. TECHNOLOGY TRAINING 5.1 PROVISION OF TRAINING. Axys hereby agrees to provide specified Daiichi employees with training regarding the use of the Axys Technology as permitted under Sections 2.5, 3.3, 3.4 and 3.5 [ * ]. Such training shall be in accordance with the custom training program set forth in Exhibit D attached hereto, which exhibit may be modified as appropriate by the Technology Committee. Such training shall be provided at Axys' facilities, unless otherwise agreed by the Parties. All salary, benefits, costs and expenses of any Daiichi employees who participate in such training program shall be paid for by Daiichi. All Daiichi employees who attend Axys' facilities shall be subject to appropriate and reasonable limitations and restrictions to protect access to any Axys' proprietary or confidential information not related to this Agreement. 5.2 TRAINING EFFORTS. Axys agrees to use [ * ], to provide the training set forth in Section 5.1. 6. PAYMENTS 6.1 PAYMENTS FOR PHYSICAL SAMPLES OF CUSTOM COMPOUNDS. Daiichi shall pay Axys a purchase price for each physical sample of Custom Compound delivered hereunder equal to [ * ] for each physical sample of Custom Compound delivered. 6.2 PROTOCOL FEE. In consideration for Axys' grant of license rights to the Protocol Know-How and Protocol Patents under Article 3, Daiichi shall pay to Axys [ * ] for each Protocol delivered to Daiichi as the non-refundable Protocol fee for such Protocol. 6.3 PAYMENT PROCEDURES. Payment of the purchase price set forth in Section 6.1 for physical samples of Custom Compounds delivered shall be made within [ * ] of delivery of an invoice from Axys regarding such samples, which invoice shall be submitted promptly upon [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 8. 9 receipt of delivery of such samples under the terms of Section 2.2. Payment of the Protocol fee set forth in Section 6.2 shall be made within [ * ] of receipt of delivery of an invoice from Axys regarding such Protocol, which invoice shall be submitted promptly upon delivery of such Protocol by Axys under the terms of Section 2.2. Daiichi shall be responsible for payment of all shipping and insurance costs and any sales, transfer, excise, export or other tax and of any customs tax or duties assessed on the sale or transfer of such samples under the terms of this Agreement, but excluding taxes based upon net income of Axys. 6.4 LICENSE FEE. Daiichi shall pay to Axys the following amounts as the non-refundable license fee for the grant of license rights under the Axys Know-How, Axys Patents and Software Programs under Article 3 hereof: (a) [ * ], (b) [ * ], and (c) [ * ]. It is expressly understood that Axys shall in no way require Daiichi any additional payment other than [ * ] for the grant of the license right by Axys to Daiichi under Article 3. 6.5 BANK ACCOUNT. All payments payable by Daiichi to Axys under this Agreement shall be made by wire transfer remittance to the bank account designated by Axys. 6.6 WITHHOLDING TAX. Any tax required to be withheld in Japan on any payment payable to Axys under Section 6.2 or 6.4 of this Agreement shall be withheld and promptly paid by Daiichi for and on behalf of Axys to the competent authorities. Daiichi shall procure official tax certificate(s) proving payment of the tax withheld and pass the original(s) on to Axys. In addition, Axys shall [ * ] under strict confidentiality, with [ * ] may require [ * ], and [ * ]. If, as a result of [ * ], then [ * ]. Daiichi shall procure official tax certificate(s) proving payment of the tax withheld and pass the original(s) on to Axys. 7. INTELLECTUAL PROPERTY MATTERS 7.1 OWNERSHIP. All intellectual property rights, including but not limited to all copyrights, patent rights, moral rights, and trade secrets, in and to the Protocols, Axys Know-How, Protocol Know-How, Protocol Patents, Axys Patents, and the Software Programs that are Controlled by Axys as of the Effective Date or during this Agreement shall remain exclusively with Axys, subject only to the license rights granted to Daiichi under Sections 2.5, 3.3, 3.4 and 3.5. The sale to Daiichi of the physical samples of Custom Compounds hereunder does not involve the sale or transfer of Axys intellectual property rights (if any) relating thereto, which Axys retains. Axys shall own the entire right, title and interest in and to any inventions and Information, and all intellectual property rights therein, developed solely by employees or agents of Axys or its Affiliates in the course of this Agreement. Daiichi shall own the entire right, title and interest in and to any inventions and Information, and all intellectual property rights therein, developed solely by employees or agents of Daiichi or its Affiliates in the course of this Agreement. The Parties shall own jointly the entire right, title and interest in and to any inventions and Information, and all intellectual property rights therein, developed jointly by [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 9. 10 employees or agents of Axys or its Affiliates and employees or agents of Daiichi or its Affiliates in the course of this Agreement. 7.2 LIMITATION ON PATENT APPLICATIONS. The Parties agree that each Party and its Affiliates shall [ * ] filing or prosecuting any patent applications that [ * ]. Each Party and its Affiliates shall also [ * ] filing or prosecuting any patent application that [ * ]. In addition, it is understood and agreed that, notwithstanding the foregoing, if Daiichi or its Affiliate or Axys or its Affiliate or licensee [ * ]. 7.3 LIMITED CROSS-LICENSES. (a) Daiichi hereby grants to Axys a non-exclusive, world-wide, perpetual (subject to termination by Daiichi under Section 10.2), royalty-free license, with right to sublicense, under issued patents Controlled by Daiichi or its Affiliate that [ * ] solely for Axys and its Affiliates and sublicensees to make, have made, import, use, offer for sale and sell such Custom Compound as permitted in Section 2.6 of this Agreement, but excluding from the foregoing license (i) [ * ], and (ii) [ * ]. (b) Axys hereby grants to Daiichi a non-exclusive, world-wide, perpetual (subject to termination by Axys under Section 10.2), royalty-free license, with right to sublicense, under issued patents Controlled by Axys or its Affiliate that [ * ] solely for Daiichi and its Affiliates and sublicensees to make, have made, import, use, offer for sale and sell such Custom Compound as permitted in Section 2.5 of this Agreement, but excluding from the foregoing license any [ * ]. 7.4 ENFORCEMENT OF PATENTS. If Daiichi becomes aware of any actions of a third party that it considers infringing upon any Axys Patent or Protocol Patent, it shall notify Axys and provide all evidence of such infringement that is reasonably available. Axys shall have the sole and exclusive right, at its own expense, to attempt to terminate such infringement by commercially appropriate steps, including suit. Any amounts recovered by Axys, whether by settlement or judgment, shall be retained by Axys. 7.5 THIRD PARTY PATENT RIGHTS. If any warning letter or other notice of infringement is received by a Party, or action, suit or proceeding is brought against a Party alleging infringement of a patent right of any third party in the manufacture, use or sale of a Library, Custom Compound or Program Compound or use or practice of the Axys Know-How, Protocol Know-How, Protocol Patents or Axys Patents or Software Programs as permitted herein, the Parties shall promptly discuss and decide the best way to respond. 8. CONFIDENTIALITY 8.1 CONFIDENTIALITY OBLIGATIONS. Each Party agrees that, for the term of this Agreement and for [ * ] thereafter, such Party shall keep, and shall ensure that its officers, directors, employees and agents keep, completely confidential and shall not publish or otherwise disclose and shall not use for any purpose except as expressly permitted hereunder any Confidential Information furnished to it by the other Party pursuant to this Agreement; except that the foregoing obligations shall not apply to any Information to the extent that it can be established by such receiving Party that such Information: [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 10. 11 (a) was already known to the receiving Party or any of its Affiliates, other than pursuant to an obligation of confidentiality owed to the disclosing Party, at the time of disclosure; (b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving Party; (c) became generally available to the public or otherwise part of the public domain after its disclosure other than through any act or omission of the receiving Party in breach of this Agreement; (d) was subsequently lawfully disclosed to the receiving Party or its Affiliates by a third party other than in contravention of a confidentiality obligation of such third party to the disclosing Party; or (e) was developed or discovered by employees of the receiving Party or its Affiliates who had no access to the Confidential Information of the disclosing Party. Notwithstanding the foregoing, each Party may disclose the other's Confidential Information only to the extent such disclosure is necessary in prosecuting or defending litigation or complying with applicable governmental laws or regulations, provided that if a Party is required to make any such disclosure of the other Party's Confidential Information, it will, whenever reasonably possible, give advance notice to the latter Party of such disclosure requirement, will cooperate with the other Party in its efforts to secure confidential treatment of such Confidential Information prior to its disclosure (whether through protective orders or confidentiality agreements or otherwise), and will use reasonable efforts to limit the extent of such disclosure and, if requested by the other Party because of an inability of such other Party to seek confidential treatment, to secure confidential treatment of such Confidential Information prior to its disclosure (whether through protective orders or confidentiality agreements or otherwise). 8.2 PRESS RELEASES. Except to the extent required by law or as otherwise permitted in accordance with this Section 8.2 or Section 8.3, neither Party shall make any public announcements concerning this Agreement or the subject matter hereof without the prior written consent of the other, which shall not be unreasonably withheld. Notwithstanding the foregoing, the Parties agree that each Party may desire or be required to issue press releases relating to this Agreement or activities thereunder, and the Parties agree to consult with each reasonably and in good faith with respect to the text of such press releases prior to the issuance thereof, provided that a Party may not unreasonably withhold consent to such releases, and that either Party may issue such press releases as it determines are reasonably necessary to comply with laws or regulations or, based on advice of counsel, for appropriate market disclosure. The principles to be observed by Axys and Daiichi in public disclosures with respect to this Agreement shall be: accuracy, the requirements of confidentiality under this Article 8, and the normal business practice in the pharmaceutical and biotechnology industries for disclosures by companies comparable to Axys and Daiichi. Except as set forth in Section 8.3 hereof, in the event of a required or desired public announcement, such Party shall provide the other Party with a reasonable opportunity and the right to approve the content of such announcement prior to its being made, which approval shall not be delayed or unreasonably withheld. Each Party agrees [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 11. 12 that any filings it makes with the Securities and Exchange Commission describing the terms of this Agreement shall be consistent with the prior press releases and other public disclosures of such terms. [ * ]. 8.3 PUBLICATIONS. Notwithstanding the terms of Section 8.2, either Party may publish Information that such Party discovered or developed in its research, development or commercialization activities derived from use of any Library, Custom Compound, Axys Know-How, Protocol, Protocol Know-How or Program Compound without the consent of or notice to the other Party, provided, however, that no such publication may contain the Confidential Information of the other Party, or may disclose the structure of a Program Compound or Information that reasonably may be interpreted to disclose the structure of a Custom Compound or Program Compound unless: (a) such structure is in the public domain at the time of such publication; (b) such structure was independently discovered by employees of the publishing Party who had no access to the Libraries, the Custom Compounds or the Program Compounds or any Confidential Information of the other Party; or (c) the other Party has consented in writing to such disclosure; or (d) such Party has filed, in compliance with the terms of this Agreement, a patent application covering such Custom Compound or Program Compound. [ * ]. 9. INDEMNIFICATION 9.1 INDEMNIFICATION BY DAIICHI. Daiichi shall indemnify, defend and hold Axys and its agents, employees, officers and directors (the "Axys Indemnitees") harmless from and against any and all liability, damage, loss, cost or expense (including reasonable attorneys' fees) arising out of third party claims or suits related to (a) Daiichi's or its Affiliate's negligence, willful misconduct or breach of this Agreement; or (b) the manufacture or use of Custom Compounds, or the manufacture, use or sale, by Daiichi and its Affiliates, distributors and agents, of Program Compounds or products containing Program Compounds or compounds that are based upon or derived from a Custom Compound or Program Compound, except to the extent such claims or suits result from (i) negligence or willful misconduct of or breach of this Agreement by any of the Axys Indemnitees or (ii) the manufacture, use or sale to third parties by Axys, its Affiliates, third party licensees, distributors or agents (provided such party is not Daiichi or an Affiliate, sublicensee, distributor or agent of Daiichi) of compounds having the same structure as Custom Compounds made by Axys, its Affiliates, third party licensees, or agents or products containing such compounds or any compound based upon or derived therefrom. Upon the assertion of any such claim or suit, the Axys Indemnitees shall promptly notify Daiichi thereof, and Daiichi shall appoint counsel reasonably acceptable to the Axys Indemnitees to represent the Axys Indemnitees with respect to any claim or suit for which indemnification is sought, provided that Daiichi shall have sole control over the defense and settlement of such claim or suit. Axys may [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 12. 13 nevertheless retain co-counsel at its own expense. As a condition to obtaining indemnification hereunder, the Axys Indemnitees shall not settle or attempt to settle or defend or attempt to defend any such claim or suit without the prior written consent of Daiichi, unless they shall have first waived their rights to indemnification hereunder; provided that the foregoing shall in no way limit Axys' right to challenge or defend against a claim (whether by Daiichi or any third party) that the claim or suit that is the subject of a claim for indemnification by Axys hereunder results from negligence or willful misconduct of or breach of the Agreement by any of the Axys Indemnitees. 9.2 INDEMNIFICATION BY AXYS. Axys shall indemnify, defend and hold Daiichi and its agents, employees, officers and directors (the "Daiichi Indemnitees") harmless from and against any and all liability, damage, loss, cost or expense (including reasonable attorney's fees) arising out of third party claims or suits related to (a) Axys' negligence, willful misconduct or breach of this Agreement, or (b) the manufacture, use or sale to third parties by Axys, its Affiliates, third party licensees, distributors or agents (provided such party is not Daiichi or an Affiliate, distributor or agent of Daiichi) of compounds having the same structure as Custom Compounds or products containing such compounds or any compound based upon or derived therefrom, except to the extent that such claims or suits result from (i) the manufacture, use, or sale by Daiichi and its Affiliates, sublicensees, distributors and agents of Custom Compounds, Program Compound or products containing Program Compound or compounds that are based upon or derived from a Custom Compound or Program Compound, or (ii) negligence or willful misconduct of or breach of this Agreement by any of the Daiichi Indemnitees. Upon the assertion of any such claim or suit, the Daiichi Indemnitees shall promptly notify Axys thereof, and Axys shall appoint counsel reasonably acceptable to the Daiichi Indemnitees to represent the Daiichi Indemnitees with respect to any claim or suit for which indemnification is sought, provided that Axys shall have sole control over the defense and settlement of such claim or suit. Daiichi may nevertheless retain co-counsel at its own expense. As a condition to obtaining indemnification hereunder, the Daiichi Indemnitees shall not settle or attempt to settle or defend or attempt to defend any such claim or suit without the prior written consent of Axys, unless they shall have first waived their rights to indemnification hereunder; provided that the foregoing shall in no way limit Daiichi's right to challenge or defend against a claim (whether by Axys or any third party) that the claim or suit that is the subject of a claim for indemnification by Daiichi hereunder results from negligence or willful misconduct of or breach of the Agreement by any of the Daiichi Indemnitees. 10. TERMINATION AND EXPIRATION 10.1 TERM AND TERMINATION. This Agreement shall commence upon the Effective Date and, unless earlier terminated as provided herein, shall expire on the latest to occur of the following: (i) the third anniversary of the Effective Date, (ii) the completion of delivery of the Libraries to Daiichi under Article 2, (iii) completion of transfer to Daiichi of the Axys Technology under Article 3 or (iv) the completion of the training program under Articles 3 and 5. Sections 2.5, 3.3 and 3.4 shall survive such expiration, subject to compliance by Daiichi, its Affiliates and any permitted sublicensees with all limitations on the practice of such rights set forth in Sections 2.5, 3.5, 3.6 and Article 8. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 13. 14 10.2 TERMINATION UPON MATERIAL BREACH. (a) Failure by a Party to comply with any of its material obligations contained herein shall entitle the Party not in default to give to the Party in default notice specifying the nature of the default, requiring it to make good or otherwise cure such default, and stating its intention to terminate if such default is not cured. If such default is not cured within [ * ] after the date of such notice (or, if such default cannot be cured within such [ * ], if the Party in default does not commence and diligently continue actions to cure such default), the Party not in default shall be entitled, without prejudice to any of its other rights conferred on it by this Agreement, and in addition to any other remedies available to it by law or in equity, to terminate this Agreement; provided, however, that such right to terminate shall be stayed in the event that, during such [ * ], the Party alleged to have been in default shall have initiated dispute resolution proceedings in accordance with Section 11.11 with respect to the alleged default, which stay shall last so long as the initiating Party diligently and in good faith pursues the prompt resolution of such proceedings. (b) The right of a Party to terminate this Agreement, as provided above, shall not be affected in any way by its waiver or failure to take action with respect to any prior default. A Party may waive its right to terminate this Agreement with respect to a particular default, provided that any such waiver shall not constitute a waiver of, and such Party shall retain all rights to pursue, any and all other remedies it may have at law or in equity of such default by the other Party. 10.3 CONSEQUENCES OF TERMINATION. (a) Upon termination of this Agreement by Daiichi pursuant to Section 10.2 for the uncured material breach of Axys, then: (i) Section 2.5 shall survive termination for physical samples of the Custom Compounds delivered and paid for by Daiichi, subject to compliance by Daiichi (and any permitted Affiliates) with the limitations set forth in Sections 2.5 and 3.6; (ii) the rights granted under Sections 3.3 and 3.4 shall survive termination, subject to compliance by Daiichi and its Affiliates with all limitations on the practice of such rights set forth in Sections 3.5 and 3.6; (iii) Axys shall promptly return all Confidential Information of Daiichi in its possession; and (iv) all obligations and rights of Axys to provide additional physical samples of the Custom Compounds shall terminate. (b) Upon termination of this Agreement by Axys pursuant to Section 10.2 for the uncured material breach of Daiichi, then: (i) all rights granted to Daiichi under this Agreement shall terminate, except that Sections 2.5 and 3.3 shall survive solely with respect to those physical samples of the Custom Compounds and the Protocols already paid for by Daiichi and for which Daiichi (and any permitted Affiliates) has complied and continues to fully comply with the limitations set forth in Sections 2.5 and 3.6; (ii) with respect to any physical sample of a Custom Compound not covered by subsection (i) above, Daiichi shall return all existing physical samples of such Custom Compound and Daiichi may not further use such compounds; (iii) all obligations of Axys to provide additional physical samples of the Custom Compounds shall terminate; (iv) Daiichi shall promptly return to Axys or destroy all copies of Confidential Information of Axys, including without limitation all Software Programs; and (v) all obligations of Axys to provide additional Axys Technology shall terminate. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 14. 15 10.4 ACCRUED RIGHTS; SURVIVING OBLIGATIONS. (a) Termination or expiration of this Agreement for any reason shall be without prejudice to any rights which shall have accrued to the benefit of a Party prior to such termination or expiration. Such termination or expiration shall not relieve a Party from obligations which are expressly indicated to survive termination or expiration of this Agreement. (b) Without limiting the foregoing, Sections 2.6, 7.1, 7.2, 7.3, 7.4 and 7.5 and Articles 1, 8, 9 and 10 of this Agreement shall survive the expiration or termination of this Agreement for the following periods of time: Sections 7.2, 7.4 and 7.5 and Article 8 shall survive for [ * ] after the effective date of expiration or termination, and all other Sections and Articles referred to in this subsection (b) shall survive indefinitely. 11. MISCELLANEOUS PROVISIONS 11.1 RELATIONSHIP OF THE PARTIES. Nothing in this Agreement is intended or shall be deemed to constitute a partnership, agency or employer-employee relationship between the Parties. Neither Party shall incur any debts or make any commitments for the other. 11.2 ASSIGNMENTS. Except as expressly provided herein, neither this Agreement nor any interest hereunder shall be assignable, nor any other obligation delegable, by a Party without the prior written consent of the other; provided, however, that a Party may assign this Agreement to any Affiliate or to any successor in interest by way of merger, acquisition or sale of all or substantially all of its assets in a manner such that the assignee shall be liable and responsible for the performance and observance of all such Party's duties and obligations hereunder, but provided that if such assignee is an Affiliate of the assigning Party, such Party shall guarantee the performance by such Affiliate of all its obligations under this Agreement. This Agreement shall be binding upon the successors and permitted assigns of the Parties. Any assignment not in accordance with this Section 11.2 shall be void. 11.3 DISCLAIMER OF WARRANTIES. EXCEPT FOR THE WARRANTIES SET FORTH IN SECTION 11.4, AXYS DOES NOT GRANT, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES, EXPRESS, STATUTORY OR IMPLIED, INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT OF THIRD PARTY RIGHTS. DAIICHI ACKNOWLEDGES THAT THE SOFTWARE PROGRAMS ARE SUPPLIED HEREUNDER ON AN "AS IS" BASIS. AXYS DOES NOT WARRANT, AND HEREBY DISCLAIMS ANY WARRANTY, THAT ANY SOFTWARE PROGRAM OR ANY SOFTWARE PROGRAM GENERATED FROM THE SOURCE CODE WILL MEET DAIICHI'S SPECIFIC NEEDS OR THAT DAIICHI'S USE OF SUCH PROGRAMS WILL BE UNINTERRUPTED OR ERROR-FREE. AXYS EXPRESSLY DISCLAIMS ANY AND ALL EXPRESS, IMPLIED OR STATUTORY WARRANTIES RELATIVE TO THE SOFTWARE PROGRAMS INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF TITLE, NON-INFRINGEMENT, MERCHANTABILITY, AND FITNESS FOR A PARTICULAR PURPOSE. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 15. 16 11.4 REPRESENTATIONS AND WARRANTIES. (a) Each Party represents and warrants to the other Party that, as of the date of this Agreement: (i) such Party is duly organized and validly existing under the laws of the state of its incorporation and has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof; (ii) such Party has taken all corporate action necessary to authorize the execution and delivery of this Agreement and the performance of its obligations under this Agreement; (iii) this Agreement is a legal and valid obligation of such Party, binding upon such Party and enforceable against such Party in accordance with the terms of this Agreement, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar laws affecting creditors' rights, and subject to general equity principles and to limitations on availability of equitable relief, including specific performance. All consents, approvals and authorizations from all governmental authorities or other third parties required to be obtained by such Party in connection with this Agreement have been obtained; and (iv) such Party has obtained written confidentiality agreements from each of its employees and consultants who have access to the Confidential Information of the other Party hereunder, whether in the form of general confidentiality agreements from the employees obtained at the time of commencement of such employees' employment by such Party or otherwise, which agreements obligate such persons to maintain as confidential all confidential information obtained by such Party in confidence from a third party. (b) Axys represents and warrants to Daiichi that as of the date of this Agreement: (i) it has the full right, power and authority to enter into this Agreement and to grant the right and licenses granted under Articles 2 and 3 and Section 7.3 hereof; (ii) the execution, delivery and performance of this Agreement by Axys does not constitute a material breach under, and is not precluded by the terms of, any agreement to which Axys is a party or by which Axys is bound; and (iii) [ * ]. (c) Daiichi represents and warrants to Axys that as of the date of this Agreement: (i) it has the full right, power and authority to enter into this Agreement; and [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 16. 17 (ii) the execution, delivery and performance of this Agreement by Daiichi does not constitute a material breach under, and is not precluded by the terms of, any agreement to which Daiichi is a party or by which Daiichi is bound. 11.5 FURTHER ACTIONS. Each Party agrees to execute, acknowledge and deliver such further instruments and to do all such other acts as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement. 11.6 FORCE MAJEURE. The failure of a Party to perform any obligation under this Agreement by reason of acts of God, acts of governments, riots, wars, strikes, accidents or deficiencies in materials or transportation or other causes of any nature (whether similar or dissimilar) beyond its control for the duration thereof and for [ * ] thereafter shall not be deemed to be a breach of this Agreement. 11.7 NO TRADEMARK RIGHTS. No right, express or implied, is granted by this Agreement to a Party to use in any manner the name or any other trade name or trademark of a Party in connection with the performance of this Agreement. 11.8 ENTIRE AGREEMENT OF THE PARTIES; AMENDMENTS. This Agreement constitutes and contains the entire understanding and agreement of the Parties respecting the subject matter hereof and cancels and supersedes any and all prior negotiations, correspondence, understandings and agreements between the Parties, whether oral or written, regarding such subject matter. No waiver, modification or amendment of any provision of this Agreement shall be valid or effective unless made in writing and signed by a duly authorized officer of each Party. 11.9 CAPTIONS. The captions and headings to this Agreement are for convenience only, and are to be of no force or effect in construing or interpreting any of the provisions of this Agreement. 11.10 APPLICABLE LAW. This Agreement shall be governed by and interpreted in accordance with the laws of the [ * ] applicable to contracts entered into and to be performed wholly within the [ * ] excluding conflict of laws principles. This Agreement is made and shall be interpreted solely in English, and all proceedings to enforce this Agreement shall be in English. 11.11 DISPUTES. In the event of any controversy or claim arising out of, relating to or in connection with any provision of this Agreement, or the rights or obligations of the Parties hereunder, the Parties shall try to settle their differences amicably between themselves by referring the disputed matter to the Chief Executive Officer of Axys and the Board Director (Basic Technology Research Laboratory and New Product Research Laboratory) of Daiichi or another Daiichi designee of similar management level for discussion and resolution. Either Party may initiate such informal dispute resolution by sending written notice of the dispute to the other Party, and within [ * ] after such notice such representatives of the Parties shall meet for attempted resolution by good faith negotiations. If such personnel are unable to resolve such dispute within [ * ] of their first meeting of such negotiations, either Party may seek to have such dispute resolved by mediation or arbitration conducted in the [ * ] in accordance with, [ * ]. It is [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 17. 18 understood and agreed by the Parties that, on showing of good cause, each Party shall be entitled to such discovery as may be permitted by the arbitrator. Each Party hereby consents to jurisdiction, for the foregoing purposes of enforcing any award rendered by the arbitrator, in the [ * ]. Notwithstanding the foregoing, all disputes relating to the validity, scope or enforceability of any patent shall be submitted for resolution to a court of competent jurisdiction. In any arbitration proceeding, the prevailing Party shall be entitled to recover attorneys' fees and costs. 11.12 NOTICES AND DELIVERIES. Any notice, request, delivery, approval or consent required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been sufficiently given if delivered in person, transmitted by telecopier (receipt verified) or five (5) days after it was sent by express courier service (signature required) or registered letter, return receipt requested (or its equivalent), to the Party to which it is directed at its address shown below or such other address as such Party shall have last given by notice to the other Parties. If to Daiichi, addressed to: Daiichi Pharmaceutical Co., Ltd. 16-13, Kitakasai 1-Chome Edogawa-ku, Tokyo 134-8630 Japan Telecopier: +81-3-5696-8336 Attn: General Manager, Basic Technology Research Laboratory If to Axys, addressed to: Axys Advanced Technologies, Inc. 180 Kimball Way South San Francisco, CA USA 94080 Telecopier: +1 (650) 829-1067 Attn: Chief Executive Officer with a copy to: Axys Pharmaceuticals, Inc. 180 Kimball Way South San Francisco, CA USA 94080 Telecopier: +1 (650) 829-1067 Attn: General Counsel 11.13 NO CONSEQUENTIAL DAMAGES. IN NO EVENT SHALL EITHER PARTY OR ANY OF ITS RESPECTIVE AFFILIATES BE LIABLE TO THE OTHER PARTY OR ANY OF ITS AFFILIATES FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER IN CONTRACT, WARRANTY, TORT, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE, including, but not limited to, loss of profits or revenue, or claims of customers of any of them or other third parties for such or other damages, but excluding from the foregoing liabilities arising from breach of the limitations in Sections 2.5, 3.4, 3.5, 3.6 or Article 8. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 18. 19 11.14 WAIVER. A waiver by either Party of any of the terms and conditions of this Agreement in any instance shall not be deemed or construed to be a waiver of such term or condition for the future, or of any subsequent breach hereof. All rights, remedies, undertakings, obligations and agreements contained in this Agreement shall be cumulative and none of them shall be in limitation of any other remedy, right, undertaking, obligation or agreement of either Party. 11.15 COMPLIANCE WITH LAW. Nothing in this Agreement shall be deemed to permit a Party to export, reexport or otherwise transfer any physical sample of the Custom Compound or any Confidential Information of Axys provided under this Agreement without compliance with all applicable laws. 11.16 SEVERABILITY. When possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. 11.17 COUNTERPARTS. This Agreement may be executed in two counterparts, each containing the signature of one Party. Each counterpart shall be deemed an original, and both counterparts together shall constitute one and the same agreement. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 19. 20 IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their respective duly authorized officers as of the day and year first above written, each copy of which shall for all purposes be deemed to be an original. DAIICHI PHARMACEUTICAL CO., LTD. By: /s/ Kiyoshi Morita -------------------------------------------- Name: Kiyoshi Morita ------------------------------------------ Title: President ----------------------------------------- AXYS ADVANCED TECHNOLOGIES, INC. By: /s/ Frederick J. Ruegsegger -------------------------------------------- Name: Frederick J. Ruegsegger ------------------------------------------ Title: Chief Financial Officer ----------------------------------------- [ * ]. WITNESS: AXYS PHARMACEUTICALS, INC. By: /s/ William J. Newell -------------------------------------------- Name: William J. Newell ------------------------------------------ Title: Senior Vice President/General Counsel ----------------------------------------- [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 20. 21 EXHIBIT A METHODS OF ANALYSIS [ * ] [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 21. 22 EXHIBIT B CHARACTERISTICS OF LIBRARIES [ * ] [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 22. 23 EXHIBIT C SOFTWARE PROGRAMS [ * ] [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 23. 24 EXHIBIT D [ * ] [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 24. 25 EXHIBIT E TECHNOLOGY COMMITTEE MEMBERS Axys Representatives: [*] [*] Daiichi Representatives: [*] [*] [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 25. 26 [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 26. EX-10.108 3 AMENDMENT TO THE COLLABORATION AGREEMENT 1 CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. EXHIBIT 10.108 BOEHRINGER INGELHEIM BOEHRINGER INGELHEIM Board of Managing Directors INTERNATIONAL GMBH Dr. Herlbert Johann (Chairman) Our reference BPG Dr.Mi/sk Prof. Dr. Dr. Lic. Rolf Krebs amendment2202.doc (Vice Chairman) Dr. Hans-Jorgen Leuchs Dr. Claus D. Rohleder Dr. David Mitchand Phone +49/61 32/77-34 08 Seat Ingelheim am Rhein Fax +49/61 32/77-35 83 Commercial Register Bingen HR B 1063 Deutsche Bank AG BLZ 550 7000 40 Account No. 0122 5BO Binger Strasse 173 D-55216 Ingelheim am Rhein Germany Phone +49/61 32/77-0 Fax +49/61 32/72-0 www.boehringer-ingelheim.com 14 June 1999 AxyS Pharmaceuticals, Inc. 11099 North Torrey Pines Road Suite 160 La Jolla, CA 92037 U.S.A. AGREEMENT OF JUNE 12, 1995 BETWEEN BOEHRINGER INGELHEIM INTERNATIONAL GMBH ("BI") AND SEQUANA THERAPEUTICS, INC. (NOW AXYS PHARMACEUTICALS, INC.) ("AXYS") AS AMENDED (THE "AGREEMENT"). Dear Mr. Petree We are writing to confirm our agreement to amend certain provisions of the Agreement. The background to this amendment is both Parties' understanding that [ * ]. AxyS will [ * ]. BI's interest in the remaining collaboration is limited to [ * ]. The Parties agree that each Party is [ * ], as described below. Specifically, the provisions of this Amendment are as follows: 1.9 "BI Patent": The words "based on or incorporating data derived through the use of Results, or" shall be inserted after the words "owned or controlled by BI". 1. 2 1.33 "Research Term": The words "fifth anniversary of the Effective Date" are deleted and replaced by "June 30, 1999". 1.37 "Sequana Patent": The words "based on or incorporating data derived through the use of Results, or" shall be inserted after the words "owned or controlled by Sequana". 2.3.2 "Sequana Research Obligations": As from February 1, 1999, AxyS' commitment to the Research is reduced from [ * ] to [ * ] FTE's. 2.3.4 "BI Funding Obligations": An additional sentence is added at the end as follows: "BI's funding obligations for AxyS researchers involved in the Research will end June 30, 1999.". 2.5 [ * ]. 2.7.3 [ * ] AxyS agrees to provide BI by September 30th 1999 with [ * ] from the [ * ] collection and [ * ] from the [ * ] collections, in AxyS' possession. 2.8 [ * ] AxyS agrees to transfer to BI in electronic form by September 30th 1999 the [ * ] from the [ * ] collections. Article 4: The development milestones in 4.1.1 and the royalties in 4.2 will [ * ]. [ * ], BI will pay AxyS [ * ] on the Net Sales of any BI Product [ * ]. [ * ], BI will pay AxyS [ * ] on the Net Sales of such BI Product. [ * ]. Notwithstanding the above, royalty payments will [ * ]. 4.11 [ * ] BI's obligation to [ * ] shall end on [ * ]. Article 5 "Grant of Licenses": In addition to the rights granted in Article 5, each Party grants the other a fully paid-up, non-exclusive perpetual license to [ * ]. Each Party shall have the [ * ]. In the event that pursuant to the rights granted BI under the Agreement and this Amendment, BI [ * ], BI agrees to [ * ]. 5.1.2 "Technology License for Commercialization of BI Products": This clause is deleted in its entirety and replaced with the following: "Subject to the terms and conditions of this Agreement, Sequana grants to BI: (a) an exclusive, even as to Sequana, worldwide license, with the right to sublicense pursuant to Article 5.3.1 under the (i) Sequana Technology and (ii) Sequana's interest in the Joint Results and Joint Patents, to make, have made, and use Compounds based on data derived [ * ] and to make, have made, use and sell BI Products based on data derived [ * ], including all activities necessary to discover and develop such Compounds and BI Products. [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 2. 3 (b) a non-exclusive, worldwide license, with the right to sublicense pursuant to Article 5.3.1 under the (i) Sequana Technology and (ii) Sequana's interest in the Joint Results and Joint Patents, to make, have made, and use Compounds based on data derived [ * ], and to make, have made, use and sell BI Products based on data derived [ * ], including all activities necessary to discover and develop such Compounds and BI Products." 6.1 [ * ]. 8.1 "Obligation of Non-Disclosure": The following sentence shall be added to the end of the clause: "Notwithstanding the terms of Article 8, each Party will be permitted to disclose the Confidential Information of the other Party to Third Parties only to the extent required to exercise the rights granted each Party under the Agreement and this Amendment." Article 10 "Property Rights and Patents": BI retains [ * ]. Except as modified above, the Agreement remains in full force and effect. Please signify your agreement to the above by your signing below and returning one of the originals to us. This letter will then constitute an amendment of the Agreement effective June 14, 1999. Best Regards Agreed on behalf of BOEHRINGER INGELHEIM AxyS Pharmaceuticals, Inc. INTERNATIONAL GmbH by ppa. /s/ B. Wetzel /s/ H. Muller /s/ D. H. Petree Prof. Dr. B. Wetzel H. P. Muller Daniel Petree President & COO [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 3. EX-10.109 4 NANAF STOCK PURCHASE AGREEMENT 1 EXHIBIT 10.109 SERIES A PREFERRED STOCK PURCHASE AGREEMENT THIS SERIES A PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of May 14, 1999, by and among XYRIS CORPORATION, a California corporation (the "Company"), THE NORTH AMERICAN NUTRITION & AGRIBUSINESS FUND, L.P., a Delaware limited partnership ("Purchaser"), and AXYS PHARMACEUTICALS, INC., a Delaware corporation, as Put Grantor ("Axys"). RECITALS WHEREAS, Purchaser desires to purchase 1,201,201 shares of Series A Preferred Stock (the "Shares") on the Closing Date (as defined below) on the terms and conditions set forth herein; WHEREAS, the Company desires to issue and sell the Shares to Purchaser and Axys desires to issue to Purchaser the Put Option (as defined below) for the Shares on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises hereinafter set forth, the parties hereto agree as follows: 1. AGREEMENT TO SELL AND PURCHASE. 1.1 AUTHORIZATION OF SHARES. On or prior to the Closing (as defined in Section 2 below), the Company shall have authorized (i) the sale and issuance to Purchaser of the Shares and (ii) the issuance of 1,201,201 shares of Common Stock upon conversion of the Shares (the "Conversion Shares"). The Shares and the Conversion Shares shall have the rights, preferences, privileges and restrictions set forth in the Amended and Restated Articles of Incorporation of the Company in the form attached as Exhibit B to that certain Series A Preferred Stock Purchase Agreement dated June 1, 1998 among the Company, Bay City Capital Fund I and Axys Pharmaceuticals, Inc. (the "Restated Articles"). 1.2 SALE AND PURCHASE. Subject to the terms and conditions hereof, at the Closing the Company hereby agrees to issue and sell to Purchaser and Purchaser agrees to purchase from the Company the Shares at a purchase price of three dollars and thirty-three cents ($3.33) per share. 2. CLOSING, DELIVERY AND PAYMENT. 2.1 CLOSING. The closing of the sale and purchase of the Shares under this Agreement (the "Closing") shall take place at 5:00 p.m. on May 26, 1999, at the offices of Heller, Ehrman, White & McAuliffe, 333 Bush Street, Suite 3100, San Francisco, California or at such other time or place as the Company and Purchaser may mutually agree (such date is hereinafter referred to as the "Closing Date"). 1. 2 2.2 DELIVERY. At the Closing, subject to the terms and conditions hereof, the Company will deliver to Purchaser a certificate representing the Shares, against payment of the purchase price therefor by wire transfer or check made payable to the order of the Company. At the Closing, subject to the terms and conditions hereof, Purchaser and Axys Pharmaceuticals, Inc. shall each execute and deliver to each other the Side Letter (as defined in Section 3.5 hereof). 3. PUT OPTION. 3.1 Subject to the terms and conditions herein set forth, Axys hereby grants Purchaser the right (the "Put Option") at any time after the Trigger Date (as defined in Section 3.3 below) to require Axys to purchase from Purchaser, the Shares in exchange for shares of Axys Common Stock, at its then "market price," with an aggregate market value on the date immediately prior to the day the Put Option is exercised equal to $4,000,000, rounded down to the nearest whole number of shares (the "Put Option Shares"), on or prior to the Expiration Date set forth in Section 3.4 below. For purposes of the Put Option, the market price for Axys Common Stock shall be (i) if the Axys Common Stock is then reported on The Nasdaq National Market or its successor, the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted in The Nasdaq National Market or its successor on the last market trading day prior to exercise of the Put Option, (ii) if the Axys Common Stock is then listed or admitted to trading on the New York Stock Exchange, the last sale price, regular way (or, in case no such sale takes places on such day, the average of the closing bid and asked prices, regular way) in either case as reported in the consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange on the last market trading day prior to exercise of the Put Option, (iii) if the Axys Common Stock is not then reported on The Nasdaq National Market or then listed or admitted to trading on the New York Stock Exchange, the last quoted price (or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market) as reported by the National Association of Securities Dealers, Inc. Automated Quotation System or such other system then in use on the last market trading day prior to exercise of the Put Option, or (iv) in the event none of the foregoing situations applies, the average of the closing bid and asked prices, as furnished by a professional market maker making a market in Axys Common Stock selected by the Axys Board of Directors, on the last market trading day prior to exercise of the Put Option. 3.2 The Put Option shall be deemed to have been exercised immediately prior to the close of business on the date of surrender to Axys of the Put Option Subscription Form, attached hereto as Exhibit A. 3.3 The Put Option shall not be exercisable until August 2, 1999 (the "Trigger Date"). 3.4 The Put Option shall terminate in full on February 2, 2001. 3.5 The Put Option shall not be transferable by Purchaser except to an affiliate of Purchaser reasonably acceptable to Axys who is also a transferee of the Shares and agrees in a writing reasonably acceptable to Axys to be bound by the provisions of this Agreement pertaining to the Put Option and the Put Option Shares, the Registration Rights Agreement and the side letter referred to in Section 3.4 thereof (the "SIDE LETTER") to the same extent as Purchaser. 2. 3 3.6 Upon the exercise of the Put Option and concurrent with the issuance of the Put Option Shares within a reasonable time period (not to exceed 10 business days after Axys' receipt of the Put Option Subscription Form), Axys shall execute the Registration Rights Agreement in the form attached as Exhibit B (the "REGISTRATION RIGHTS AGREEMENT"). Purchaser shall provide such reasonable cooperation as Axys requests in connection with the issuance of the Put Option Shares. 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND AXYS. (a) The Company hereby represents and warrants to Purchaser as of the date of this Agreement as follows: 4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION OF THE COMPANY. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California. The Company has all requisite corporate power and authority to own and operate its properties and assets, to execute and deliver this Agreement, to issue and sell the Shares and the Conversion Shares, to carry out the provisions of this Agreement and the Restated Articles and to carry on its business as presently conducted and as presently proposed to be conducted. 4.2 CAPITALIZATION; VOTING RIGHTS OF THE COMPANY. The authorized capital stock of the Company, immediately prior to the Closing, will consist of 10,000,000 shares of Common Stock, no par value per share, 650,000 shares of which are issued and outstanding as of the date of this Agreement; 8,200,000 shares of Preferred Stock no par value per share, all of which are designated Series A Preferred Stock, 6,501,501 of which are issued and outstanding as of the date of this Agreement. All issued and outstanding shares of the Company's Common Stock have been duly authorized and validly issued. The rights, preferences, privileges and restrictions of the Shares are as stated in the Restated Articles. The Conversion Shares have been or, prior to the Closing, will have been duly and validly reserved for issuance. Other than as set forth in this Agreement; the Series A Stock Purchase Agreements between the Company, Axys and Bay City Capital Fund I, dated June 1, 1998 and February 2, 1999, respectively; the Series A Preferred Stock Purchase Agreements between the Company and Axys dated as of June 1, 1998 and February 2, 1999, respectively; the Common Stock Purchase Agreement between the Company and Jerry Caulder, dated as of April 30, 1998; the Shareholders' Agreement between the Company, Jerry Caulder, Purchaser and Axys, dated as of June 1, 1998; and the Company's 1998 Equity Incentive Plan (pursuant to which options to purchase 556,000 shares of Common Stock and 650,000 shares of Common Stock pursuant to restricted stock grants are outstanding as of the date of this Agreement), and other than as contemplated by or in connection with that certain letter of intent dated January 22, 1999 between Global Agro, Inc. and the Company; there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal), proxy or shareholder agreements, or agreements of any kind for the purchase or acquisition from the Company of any of its securities. When issued in compliance with the provisions of this Agreement and the Restated Articles, the Shares and the Conversion Shares will be validly issued, fully paid and nonassessable, and will be free of any liens or encumbrances other than liens and encumbrances created by or imposed upon Purchaser; provided, however, that the Shares and the Conversion Shares may be subject to restrictions on transfer under the Company's Bylaws or state and/or federal securities laws as set forth herein or as otherwise required by such laws at the time a transfer is proposed. 3. 4 4.3 AUTHORIZATION; BINDING OBLIGATIONS OF THE COMPANY. All corporate action on the part of the Company, its officers, directors and shareholders necessary for the authorization of this Agreement, the performance of all obligations of the Company hereunder at the Closing and the authorization, sale, issuance and delivery of the Shares pursuant hereto and the Conversion Shares pursuant to the Restated Articles has been taken or will be taken prior to the Closing. The Agreement, when executed and delivered, will be a valid and binding obligation of the Company enforceable in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors' rights; and (b) general principles of equity that restrict the availability of equitable remedies. 4.4 AGREEMENTS; ACTION. Except for agreements explicitly contemplated hereby and pursuant to the Employment Agreement by and between the Company and Jerry Caulder, dated April 30, 1998, as amended by Amendment No. 1 to Employment Agreement dated March 26, 1999, and agreements between the Company and its employees with respect to the sale, or the issuance of options and restricted stock awards providing for the sale, of the Company's Common Stock, pursuant to the Company's 1998 Equity Incentive Plan, there are no agreements, understandings or proposed transactions between the Company and any of its officers, directors, affiliates or any affiliate thereof. 4.5 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. Each employee, officer and consultant of the Company has executed a Proprietary Information and Inventions Agreement in the form previously approved by Axys and Purchaser. (b) Axys, as Put Grantor, hereby represents and warrants to Purchaser as of the date of this Agreement as follows: 4.6 ORGANIZATION, GOOD STANDING AND QUALIFICATION OF AXYS. Axys is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Axys has all requisite corporate power and authority to own and operate its properties and assets, to execute and deliver this Agreement, to issue and sell the Put Option and Put Option Shares, to carry out the provisions of this Agreement relating to it as Put Grantor and to carry on its business as presently conducted and as presently proposed to be conducted. 4.7 CAPITALIZATION OF AXYS. The authorized capital stock of Axys, as of March 31, 1999, consisted of 50,000,000 shares of Common Stock, $.001 par value per share, 30,321,328 shares of which were then issued and outstanding; 10,000,000 shares of Preferred Stock $.001 par value per share, 500,000 of which are designated as Series A Junior Participating Preferred Stock and none of which were then issued and outstanding. All issued and outstanding shares of the Company's Common Stock and the related Preferred Share Purchase Rights have been duly authorized and validly issued. The rights, preferences, privileges and restrictions of the shares of the Company's Common Stock and the related Preferred Share Purchase Rights are as stated in Axys' public filings. The Put Option Shares have been or, by the Closing, will have been, duly and validly reserved for issuance. When issued in compliance with the provisions of this Agreement and Axys' public filings, the Put Option Shares will be validly issued, fully paid and nonassessable, 4. 5 and will be free of any liens or encumbrances other than liens and encumbrances created by or imposed upon Purchaser; provided, however, that the Put Option Shares may be subject to restrictions on transfer under state and/or federal securities laws, as set forth herein, or as otherwise required by such laws at the time a transfer is proposed. 4.8 AUTHORIZATION; BINDING OBLIGATIONS OF AXYS. All corporate action on the part of Axys, its officers, directors and stockholders necessary for the authorization of this Agreement, the performance of all obligations of Axys as Put Grantor hereunder at the Closing and the authorization, sale, issuance and delivery of the Put Option and the Put Option Shares pursuant hereto has been taken or will be taken prior to the Closing. The Agreement, when executed and delivered, will be a valid and binding obligation of Axys enforceable in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors' rights; and (b) general principles of equity that restrict the availability of equitable remedies. 5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. Purchaser hereby represents and warrants to the Company as follows: 5.1 REQUISITE POWER AND AUTHORITY. Purchaser has all necessary power and authority under all applicable provisions of law to execute and deliver this Agreement and to carry out its provisions. All action on Purchaser's part required for the lawful execution and delivery of this Agreement have been or will be effectively taken prior to the Closing. Upon its execution and delivery, this Agreement will be a valid and binding obligation of Purchaser, enforceable in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors' rights, and (b) general principles of equity that restrict the availability of equitable remedies 5.2 INVESTMENT REPRESENTATIONS. Purchaser understands that neither the Shares, the Conversion Shares, the Put Option nor the Put Option Shares have been registered under the Securities Act of 1933, as amended (the "Securities Act"). Purchaser also understands that the Shares and the Put Option are being offered and sold pursuant to an exemption from registration contained in the Securities Act based in part upon Purchaser's representations contained in this Agreement. Purchaser hereby represents and warrants as follows: (a) PURCHASER BEARS ECONOMIC RISK. Purchaser has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests. Purchaser must bear the economic risk of this investment indefinitely unless the Shares (or the Conversion Shares) and the Put Option (or the Put Option Shares) are registered pursuant to the Securities Act, or an exemption from registration is available. Purchaser understands that the Company has no present intention of registering the Shares, the Conversion Shares, or any shares of its Common Stock and that Axys has no present intention of registering the Put Option and only intends to register the Put Option Shares pursuant to the terms and provisions of the Registration Rights Agreement. Purchaser also understands that there is no assurance that any exemption from registration under the Securities Act will be available and that, even if available, such exemption may not allow Purchaser to 5. 6 transfer all or any portion of the Shares or the Conversion Shares or the Put Option or the Put Option Shares under the circumstances, in the amounts or at the times Purchaser might propose. (b) ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring the Shares, the Conversion Shares, the Put Option and the Put Option Shares for Purchaser's own account for investment only, and not with a view towards their distribution; provided that Purchaser may transfer the Shares and the Conversion Shares to an affiliate of Purchaser reasonably acceptable to Axys, may transfer the Put Option as provided herein and may transfer the Put Option Shares (subject to the provisions of the Side Letter) as permitted by applicable law or pursuant to the Registration Rights Agreement. (c) PURCHASER CAN PROTECT ITS INTEREST. Purchaser represents that by reason of its, or of its management's, business or financial experience, Purchaser has the capacity to protect its own interests in connection with the transactions contemplated in this Agreement. Further, Purchaser is aware of no publication of any advertisement in connection with the transactions contemplated in this Agreement. (d) ACCREDITED INVESTOR. Purchaser represents that it is an accredited investor within the meaning of Regulation D under the Securities Act. (e) COMPANY INFORMATION. Purchaser has had an opportunity to discuss the Company's business, management and financial affairs with the directors of the Company. Purchaser has also had the opportunity to ask questions of and receive answers from the Company and its management regarding the terms and conditions of this investment. (f) RULE 144. Purchaser acknowledges and agrees that the Shares and the Put Option, and, if issued, the Conversion Shares and the Put Option Shares must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Purchaser has been advised or is aware of the provisions of Rule 144 promulgated under the Securities Act as in effect from time to time, which permits limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things: the availability of certain current public information about the Company, the resale occurring following the required holding period under Rule 144 and the number of shares being sold during any three-month period not exceeding specified limitations. 5.3 TRANSFER RESTRICTIONS. Purchaser acknowledges and agrees that the Shares and the Put Option and, if issued, the Conversion Shares and the Put Option Shares are subject to restrictions on transfer as set forth in the Company's Bylaws. 6. CONDITIONS TO CLOSING. 6.1 CONDITIONS TO PURCHASER'S OBLIGATIONS AT THE CLOSING. Purchaser's obligations to purchase the Shares and the Put Option at the Closing are subject to the satisfaction, at or prior to the Closing Date, of the following conditions, any one or more of which may be waived in writing by Purchaser: (a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF OBLIGATIONS. The representations and warranties made by the Company in Section 4 hereof shall be true and correct in all material 6. 7 respects as of the Closing Date with the same force and effect as if they had been made as of the Closing Date, with the exceptions that (i) the Company may have entered into subsequent to the date hereof an agreement and plan of merger and reorganization with Global Agro, Inc. pursuant to which the Company would be obligated to issue shares of Series B Preferred Stock of the Company to the stockholders of Global Agro, Inc. aggregating 27.5% of the outstanding shares of the Company and restricted stock awards and stock options as contemplated in such agreement and (ii) the Company may have entered into subsequent to the date hereof an agreement to issue and sell for $1,000,000 an additional 300,300 shares of Series A Preferred Stock of the Company on the same terms as are set forth herein, and the Company shall have performed all obligations and conditions herein required to be performed or observed by it on or prior to the Closing. (b) LEGAL INVESTMENT. On the Closing Date, the sale and issuance of the Shares and the Put Option and the potential issuance of the Conversion Shares and the Put Option Shares shall be legally permitted by all laws and regulations to which Purchaser, the Company and Axys are subject. (c) CONSENTS, PERMITS, AND WAIVERS. The Company and Axys shall have obtained any and all consents, permits and waivers necessary or appropriate for consummation of the transactions contemplated by the Agreement, except for such as may be properly obtained subsequent to the Closing. (d) CORPORATE DOCUMENTS. The Company and Axys shall have delivered to Purchaser or its counsel, copies of all corporate documents of the Company and Axys, respectively, as Purchaser shall reasonably request. (e) RESERVATION OF CONVERSION SHARES. The Conversion Shares shall have been duly authorized and reserved for issuance by the Company and the Put Option Shares shall have been duly authorized and reserved for issuance by Axys. (f) PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in connection with the transactions contemplated at the Closing hereby and all documents and instruments incident to such transactions shall be reasonably satisfactory in substance and form to the Purchaser and its counsel, and the Purchaser and its counsel shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request. 6.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's obligation to issue and sell the Shares at the Closing and Axys' obligation to issue the Put Option are subject to the satisfaction, on or prior to the Closing, of the following conditions, any one or more of which may be waived in writing by the Company: (a) REPRESENTATIONS AND WARRANTIES TRUE. The representations and warranties made by Purchaser in Section 5 hereof shall be true and correct in all material respects at the date of the Closing, with the same force and effect as if they had been made on and as of said date. (b) PERFORMANCE OF OBLIGATIONS. Purchaser shall have performed and complied with all agreements and conditions herein required to be performed or complied with by Purchaser on or before the Closing, including but not limited to the tender of the purchase price for the Shares. 7. 8 (c) CONSENTS, PERMITS AND WAIVERS. The Company and Axys shall have obtained any and all consents, permits and waivers necessary or appropriate for consummation of the transactions contemplated by the Agreement, except for such as may be properly obtained subsequent to the Closing. 7. MISCELLANEOUS. 7.1 GOVERNING LAW. This Agreement shall be governed in all respects by the laws of the State of California as such laws are applied to agreements between California residents entered into and performed entirely in California. 7.2 SURVIVAL. The representations, warranties, covenants and agreements made herein shall survive any investigation made by Purchaser and the closing of the transactions contemplated hereby. All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder solely as of the date of such certificate or instrument. 7.3 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, and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each person who shall be a holder of the Shares from time to time. 7.4 ENTIRE AGREEMENT. This Agreement and the Exhibits hereto constitute the full and entire understanding and agreement between the parties with regard to the subject matter hereof and no party shall be liable or bound to any other in any manner by any representations, warranties, covenants and agreements, except as specifically set forth herein and therein. 7.5 SEVERABILITY. In case any provision of the Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 7.6 AMENDMENT AND WAIVER. This Agreement may be amended or modified and any provision hereof may be waived only upon the written consent of the Company, the Purchaser and Axys. 7.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to exercise any right, power or remedy accruing to any party, upon any breach, default or noncompliance by another party under this Agreement or the Restated Articles, shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of or in any similar breach, default or noncompliance thereafter occurring. 7.8 NOTICES. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified; (b) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not, then on the next business day; (c) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (d) one day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the Company, the Purchaser or Axys at the address as set forth 8. 9 on the signature page hereof for such party or at such other address as a party may designate by ten days advance written notice to the other parties hereto. 7.9 ATTORNEYS' FEES. In the event that any dispute among the parties to this Agreement should result in litigation, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals. 7.10 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. 7.11 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 7.12 PRONOUNS. All pronouns contained herein, and any variations thereof, shall be deemed to refer to the masculine, feminine or neutral, singular or plural, as the identity of the parties hereto may require. 7.13 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION OR IN THE ABSENCE OF AN EXEMPTION FROM SUCH QUALIFICATION IS UNLAWFUL. PRIOR TO ACCEPTANCE OF SUCH CONSIDERATION BY THE COMPANY, THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION FROM SUCH QUALIFICATION BEING AVAILABLE. 9. 10 IN WITNESS WHEREOF, the parties hereto have executed this SERIES A PREFERRED STOCK PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof. COMPANY: PURCHASER: XYRIS CORPORATION THE NORTH AMERICAN NUTRITION & AGRIBUSINESS FUND, L.P. By: /s/ JERRY CAULDER By: NANA Management, L.P. Jerry Caulder Its: General Partner President Address: 12626 High Bluff Drive, Suite 250 By: Bay City Capital LLC San Diego California 92130 Its: Advisor and Attorney-In-Fact Attn: President FAX: (619) 794-5525 By: /s/ ROGER SALQUIST ----------------------------- Name: Roger Salquist --------------------------- Title: -------------------------- Address: 750 Battery Street, Suite 600 San Francisco, California 94111 Attention: Roger Salquist FAX: (415) 837-0996 PUT GRANTOR: AXYS PHARMACEUTICALS, INC. By: Print Name: Title: Address: 180 Kimball Way South San Francisco, CA 94080 Attn: Chief Financial Officer FAX: (650) 829-1001 10. 11 SERIES A PREFERRED STOCK PURCHASE AGREEMENT EXHIBIT A PUT OPTION SUBSCRIPTION FORM To: Axys Pharmaceuticals, Inc. 180 South Kimball Way South San Francisco, California 94080 Attn: Chief Financial Officer THE NORTH AMERICAN NUTRITION & AGRIBUSINESS FUND, L.P., a Delaware limited partnership ("NANAF"), the holder of the Put Option (the "Put Option") described in Section 3 of that certain Series A Preferred Stock Purchase Agreement dated May 14, 1999, by and among Xyris Corporation, a California corporation ("Xyris"), NANAF and Axys Pharmaceuticals, Inc., a Delaware corporation ("Axys"), hereby elects to exercise the right represented by the Put Option to sell to Axys 1,201,201 shares of Series A Preferred Stock of Xyris held by NANAF in exchange for that number of shares of Axys Common Stock having an aggregate market value of $4,000,000, rounded down to the nearest whole number of shares, at the "market price" as defined in the Put Option. NANAF hereby covenants to cause a certificate representing such shares of Common Stock to be delivered to Axys upon surrender of this Put Option Subscription Form in accordance with the Put Option. Dated: ____________________ THE NORTH AMERICAN NUTRITION & AGRIBUSINESS FUND, L.P., a Delaware Limited Partnership By: NANA Management, L. P. Its: General Partner By: Bay City Capital LLC Its: Advisor and Attorney-In-Fact By: Name: Title: 12 SERIES A PREFERRED STOCK PURCHASE AGREEMENT EXHIBIT B FORM OF REGISTRATION RIGHTS AGREEMENT 13 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT") is entered into as of the ___ day of __________, ____, by and among AXYS PHARMACEUTICALS, INC., a Delaware corporation (the "COMPANY") and the persons listed on the signature page(s) hereto. RECITALS WHEREAS, the Company proposes to sell and issue shares of its Common Stock upon exercise of put options held by the purchasers of the Series A Preferred Stock of Xyris Corporation (the "PUT OPTIONS") pursuant to certain Series A Preferred Stock Purchase Agreements, among the Company, Xyris Corporation and such purchasers (the "XYRIS PURCHASE AGREEMENTS"). WHEREAS, as a condition of entering into the Xyris Purchase Agreements, the purchasers have requested that the Company extend to them certain registration rights as set forth below on any shares of Company Common Stock issued upon exercise of the Put Options. NOW, THEREFORE, in consideration of the mutual promises, representations, warranties, covenants and conditions set forth in this Agreement and the Xyris Purchase Agreements, the parties mutually agree as follows: SECTION 1. GENERAL 1.1 DEFINITIONS. As used in this Agreement the following terms shall have the following respective meanings: "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "FORM S-3" means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. "HOLDER" means any person owning of record Registrable Securities that have not been sold to the public or any assignee of record of such Registrable Securities in accordance with Section 2.8 hereof. "MATERIAL ADVERSE EVENT" means an occurrence having a consequence that either (a) is materially adverse to the business, prospects or financial condition of the Company or (b) has a reasonable likelihood of occurring and, if it were to occur, would be reasonably likely to materially adversely affect the business, prospects or financial condition of the Company. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the 2 14 declaration or ordering of effectiveness of such registration statement. "REGISTRABLE SECURITIES" means (a) Common Stock of the Company issued to the purchasers of the Series A Preferred Stock of Xyris Corporation (the "Series A Purchasers") in connection with the Xyris Purchase Agreements; and (b) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, such above-described securities. Notwithstanding the foregoing, Registrable Securities shall not include any securities sold by a person to the public pursuant to a registration statement or Rule 144 or sold in a private transaction in which the transferor's rights under Section 2 of this Agreement are not assigned. "REGISTRATION EXPENSES" means all expenses incurred by the Company in complying with Section 2.2 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, reasonable fees and disbursements not to exceed twenty-five thousand dollars ($25,000) of a single special counsel for the Holders, blue sky fees and expenses and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). "SEC" or "COMMISSION" means the Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SELLING EXPENSES" means all underwriting discounts and selling commissions applicable to the sale. SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER 2.1 RESTRICTIONS ON TRANSFER. (a) Each Holder agrees not to make any disposition of all or any portion of its Registrable Securities unless and until: (i) There is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement or such proposed disposition is otherwise exempt from registration under the Securities Act; or (ii) (A) The transferee has agreed in writing to be bound by the terms of this Agreement, (B) such Holder shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (C) if requested by the Company, such Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the Securities Act. 3 15 (iii) Notwithstanding the provisions of paragraphs (i) and (ii) above, no such registration statement or opinion of counsel shall be necessary for a transfer by a Holder which is (A) a partnership to its partners or former partners in accordance with partnership interests, (B) a corporation to its shareholders in accordance with their interest in the corporation, (C) a limited liability company to its members or former members in accordance with their interest in the limited liability company, (D) to an entity of which a majority of the equity and voting interest is owned by such Holder, directly or indirectly (an "AFFILIATE"), or (E) to the Holder's family member or trust for the benefit of an individual Holder; provided that in each case the transferee will be subject to the terms of this Agreement to the same extent as if he were an original Holder hereunder. (b) Each certificate representing Registrable Securities shall (unless otherwise permitted by the provisions of the Agreement) be stamped or otherwise imprinted with a legend substantially similar to the following (in addition to any legend required under applicable state securities laws): THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. (c) The Company shall be obligated to reissue promptly unlegended certificates at the request of any holder thereof if the holder shall have obtained an opinion of counsel (which counsel may be counsel to the Company) reasonably acceptable to the Company to the effect that the securities proposed to be disposed of may lawfully be so disposed of without registration, qualification or legend. (d) Any legend endorsed on an instrument pursuant to applicable state securities laws and the stop-transfer instructions with respect to such securities shall be removed upon receipt by the Company of an order of the appropriate blue sky authority authorizing such removal. 2.2 PIGGYBACK REGISTRATIONS. The Company shall notify all Holders of Registrable Securities in writing at least twenty-one (21) days prior to the filing of any registration statement under the Securities Act for purposes of a public offering of securities of the Company (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding registration statements relating to employee benefit plans or with respect to corporate reorganizations or other transactions under Rule 145 of the Securities Act) and will afford each such Holder an opportunity to include in such registration statement all or part of such Registrable Securities held by such Holder. Each 4 16 Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by it shall, within fifteen (15) days after the above-described notice from the Company, so notify the Company in writing. Such notice shall state the intended method of disposition of the Registrable Securities by such Holder. If a Holder decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein. (a) UNDERWRITING. If the registration statement under which the Company gives notice under this Section 2.2 is for an underwritten offering, the Company shall so advise the Holders of Registrable Securities. In such event, the right of any such Holder to be included in a registration pursuant to this Section 2.2 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. Notwithstanding any other provision of the Agreement, if the underwriter determines in good faith that marketing factors require a limitation of the number of shares to be underwritten, the number of shares that may be included in the underwriting shall be allocated, first, to the Company; second, to the Holders and any other shareholders of the Company currently having registration rights on a pro rata basis based on the total number of Registrable Securities held by the Holders and the total number of registrable securities held by such other shareholders; and third, to any shareholder of the Company (other than a Holder) on a pro rata basis. No such reduction shall (i) reduce the securities being offered by the Company for its own account to be included in the registration and underwriting, or (ii) reduce the amount of securities of the selling Holders included in the registration below twenty-five percent (25%) of the total amount of securities included in such registration, unless such registration does not include shares of any other selling shareholders, in which event any or all of the Registrable Securities of the Holders may be excluded in accordance with the immediately preceding sentence. In no event will shares of any other selling shareholder (other than those presently entitled to registration rights) be included in such registration which would reduce the number of shares which may be included by Holders without the written consent of Holders of not less than sixty-six and two-thirds percent (66 2/3%) of the Registrable Securities proposed to be sold in the offering. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter, delivered at least ten (10) business days prior to the effective date of the registration statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. For any Holder which is a partnership or corporation, the partners, retired partners and shareholders of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing person shall be deemed to be a single "Holder", and any pro rata reduction with respect to such "Holder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "Holder," as defined in this sentence. 5 17 (b) RIGHT TO TERMINATE REGISTRATION. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.2 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. The Registration Expenses of such withdrawn registration shall be borne by the Company in accordance with Section 2.3 hereof. 2.3 FORM S-3 REGISTRATION. In case the Company shall receive from any Holder or Holders of Registrable Securities a written request that the Company effect a registration on Form S-3 (or any successor to Form S-3) or any similar short-form registration statement and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will: (a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other holders of registrable securities; and (b) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the registrable securities of any other holder or holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 2.3: (i) if Form S-3 (or any successor or similar form) is not available for such offering by the Holders, or (ii) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public of less than one million dollars ($1,000,000), or (iii) if within thirty (30) days of receipt of a written request from the Holders pursuant to this Section, the Company gives notice to the Holders of the Company's intention to make a public offering within ninety (90) days; (iv) if the Company shall furnish to the Holders a certificate signed by the Chairman of the Board of Directors of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such Form S-3 registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than ninety (90) days after receipt of the request of the Holder or Holders under this Section 2.4; provided, that such right to delay a request shall be exercised by the Company not more than once in any twelve (12) month period, or (v) if the Company has already effected one (1) 6 18 registration on Form S-3 for the Holders pursuant to this Section 2.3, or (vi) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance. Notwithstanding the foregoing, in the event that the Holder or Holders of Registrable Securities request the withdrawal of a registration being made pursuant to this Section 2.3 and, in such withdrawal request, the Holder(s) state that it first learned (within seven (7) days of the date of such withdrawal request) of a Material Adverse Event (which is specified in reasonable detail in such withdrawal request) not known to the Holder(s) at the time of its request for registration of their Registrable Securities pursuant to this Section 2.3, then the Holder(s) shall retain its rights to request registration pursuant to this Section 2.3 as if it had not previously requested registration hereunder. (c) Subject to the foregoing, the Company shall file a Form S-3 registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. 2.4 EXPENSES OF REGISTRATION. Except as specifically provided herein, all Registration Expenses incurred in connection with any registration under Section 2.2 or 2.3 herein shall be borne by the Company. All Selling Expenses incurred in connection with any registrations hereunder, shall be borne by the holders of the securities so registered pro rata on the basis of the number of shares so registered. 2.5 OBLIGATIONS OF THE COMPANY. Whenever required to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use all reasonable efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to ninety (90) days or, if earlier, until the Holder or Holders have completed the distribution related thereto. The Company shall not be required to file, cause to become effective or maintain the effectiveness of any registration statement that contemplates a distribution of securities on a delayed or continuous basis pursuant to Rule 415 under the Securities Act. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement for the period set forth in paragraph (a) above. (c) Furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the 7 19 Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (d) Use its reasonable best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (g) Use its best efforts to furnish, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, (i) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and (ii) a letter dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering addressed to the underwriters. 2.6 TERMINATION OF REGISTRATION RIGHTS. All registration rights granted under this Section 2 shall terminate and be of no further force and effect two (2) years after the date of this Agreement. In addition, a Holder's registration rights shall expire if all Registrable Securities held by and issuable to such Holder (and its affiliates, partners, former partners, members and former members) may be sold under Rule 144 during any ninety (90) day period. 2.7 DELAY OF REGISTRATION; FURNISHING INFORMATION. (a) No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2. (b) It shall be a condition precedent to the obligations of the Company to take any action pursuant to Section 2.2 or 2.3 that the selling Holders shall furnish to the Company such information regarding themselves, the Registrable Securities held by them and the intended method of disposition of such securities as shall be required to effect the 8 20 registration of their Registrable Securities. 2.8 INDEMNIFICATION. In the event any Registrable Securities are included in a registration statement under Section 2.2.or 2.3: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, officers and directors of each Holder, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "VIOLATION") by the Company: (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law in connection with the offering covered by such registration statement; and the Company will pay as incurred to each such Holder, partner, officer, director, underwriter or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided however, that the indemnity agreement contained in this Section 2.7(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, partner, officer, director, underwriter or controlling person of such Holder. (b) To the extent permitted by law, each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration is being effected, indemnify and hold harmless the Company, each of its directors, its officers and each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter and any other Holder selling securities under such registration statement or any of such other Holder's partners, directors or officers or any person who controls such Holder, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, underwriter or other such Holder, or partner, director, officer or controlling person of such other Holder may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder under an instrument duly executed 9 21 by such Holder and stated to be specifically for use in connection with such registration; and each such Holder will pay as incurred any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or other Holder, or partner, officer, director or controlling person of such other Holder in connection with investigating or defending any such loss, claim, damage, liability or action if it is judicially determined that there was such a Violation; provided, however, that the indemnity agreement contained in this Section 2.7(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided further, that in no event shall any indemnity under this Section 2.7 exceed the net proceeds from the offering received by such Holder. (c) Promptly after receipt by an indemnified party under this Section 2.7 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.7, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 2.7, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 2.7. (d) If the indemnification provided for in this Section 2.7 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the Violation(s) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, that in no event shall any contribution by a Holder hereunder exceed the net proceeds from the offering received by such Holder. 10 22 (e) The obligations of the Company and Holders under this Section 2.7 shall survive completion of any offering of Registrable Securities in a registration statement and the termination of this Agreement. No indemnifying party, in the defense of any such claim or litigation, shall, except with the consent of each indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. 2.9 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to register Registrable Securities pursuant to this Section 2 may be assigned by any of the Series A Purchasers to a transferee or assignee which is an affiliate, subsidiary, parent, general partner, limited partner, retired partner, member or retired member of such Series A Purchaser; provided, however, (i) such Series A Purchaser shall, within ten (10) days after such transfer, furnish to the Company written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned and (ii) such transferee shall agree to be subject to all restrictions set forth in this Agreement. 2.10 "MARKET STAND-OFF" AGREEMENT; AGREEMENT TO FURNISH INFORMATION. Each Holder hereby agrees that such Holder shall not sell, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any Common Stock (or other securities) of the Company held by such Holder (other than those included in the registration) for a period specified by the representative of the underwriters of Common Stock (or other securities) of the Company not to exceed ninety (90) days following the effective date of a registration statement of the Company filed under the Securities Act; provided that all officers and directors of the Company enter into similar agreements. Each Holder agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter which are consistent with the foregoing or which are necessary to give further effect thereto. In addition, if requested by the Company or the representative of the underwriters of Common Stock (or other securities) of the Company, each Holder shall provide, within ten (10) days of such request, such information as may be required by the Company or such representative in connection with the completion of any public offering of the Company's securities pursuant to a registration statement filed under the Securities Act. The obligations described in this Section 2.10 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a SEC Rule 145 transaction on Form S-4 or similar forms that may be promulgated in the future. The Company may impose stop-transfer instructions with respect to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of said ninety (90) day period. 2.11 RULE 144 REPORTING. With a view to making available to the Holders the benefits of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the Company agrees to use its best efforts to: 11 23 (a) Make and keep public information available, as those terms are understood and defined in SEC Rule 144 or any similar or analogous rule promulgated under the Securities Act, at all times after the effective date of the first registration filed by the Company for an offering of its securities to the general public; (b) File with the SEC, in a timely manner, all reports and other documents required of the Company under the Exchange Act; and (c) So long as a Holder owns any Registrable Securities, furnish to such Holder forthwith upon request: a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 of the Securities Act, and of the Exchange Act (at any time after it has become subject to such reporting requirements); a copy of the most recent annual or quarterly report of the Company; and such other reports and documents as a Holder may reasonably request in availing itself of any rule or regulation of the SEC allowing it to sell any such securities without registration. 12 24 SECTION 3. MISCELLANEOUS 3.1 GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California. 3.2 SURVIVAL. The representations, warranties, covenants, and agreements made herein shall survive any investigation made by any Holder and the closing of the transactions contemplated by the Xyris Purchase Agreements. All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder solely as of the date of such certificate or instrument. 3.3 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 and shall inure to the benefit of and be enforceable by each person who shall be a holder of Registrable Securities from time to time; provided, however, that prior to the receipt by the Company of adequate written notice of the transfer of any Registrable Securities specifying the full name and address of the transferee, the Company may deem and treat the person listed as the holder of such shares in its records as the absolute owner and holder of such shares for all purposes, including the payment of dividends or any redemption price. 3.4 ENTIRE AGREEMENT. This Agreement, the Xyris Purchase Agreements and the side letters entered into in connection with the Xyris Purchase Agreements between the Series A Purchasers who are parties hereto and the Company (each a "SIDE LETTER") and the other documents delivered pursuant thereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof and no party shall be liable or bound to any other in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein and therein. 3.5 SEVERABILITY. In the event one or more of the provisions of this Agreement should, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 3.6 AMENDMENT AND WAIVER. (a) Except as otherwise expressly provided, this Agreement may be amended or modified only upon the written consent of the Company and each of the holders of the Registrable Securities. (b) Except as otherwise expressly provided, the obligations of the Company and the rights of the Holders under this Agreement may be waived only with the 13 25 written consent of each of the holders of the Registrable Securities. 3.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to exercise any right, power, or remedy accruing to any Holder, upon any breach, default or noncompliance of the Company under this Agreement shall impair any such right, power, or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent, or approval of any kind or character on any Holder's part of any breach, default or noncompliance under the Agreement or any waiver on such Holder's part of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, by law, or otherwise afforded to Holders, shall be cumulative and not alternative. 3.8 NOTICES. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the party to be notified at the address as set forth on the signature pages hereof or at such other address as such party may designate by ten (10) days advance written notice to the other parties hereto. 3.9 ATTORNEYS' FEES. In the event that any suit or action is instituted to enforce any provision in this Agreement, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals. 3.10 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. 3.11 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 3.12 JOINDER. At any time after the execution of this Agreement by the Company and any Series A Purchaser, any other Series A Purchaser who is entitled to the rights set forth in this Agreement may become a party to this Agreement by signing a counterpart signature page to this Agreement and delivering such counterpart signature page to the Company who shall send a copy thereof to any other party to this Agreement. From and after the execution and delivery to the Company of such counterpart signature page by a Series A Purchaser, such Series A Purchaser shall be a party to this Agreement and shall be entitled to all of the rights of a Holder under this Agreement. 14 26 IN WITNESS WHEREOF, the parties hereto have executed this REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof. AXYS PHARMACEUTICALS, INC. -------------------------------- By: By: Title: Title: --------------------------------- -------------------------- Address: 180 Kimball Way Address: South San Francisco, CA 94080 ------------------------ Attn: Chief Financial Officer Attn: FAX: (650) 829-1001 --------------------------- FAX: ---------------------------- 15 EX-10.110 5 MSMC STOCK PURCHASE AGREEMENT 1 SERIES A PREFERRED STOCK PURCHASE AGREEMENT THIS SERIES A PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of June 4, 1999, by and among XYRIS CORPORATION, a California corporation (the "Company"), MISSOURI SOYBEAN MERCHANDISING COUNCIL, a Missouri not-for-profit corporation ("Purchaser"), and AXYS PHARMACEUTICALS, INC., a Delaware corporation, as Put Grantor ("Axys"). RECITALS WHEREAS, Purchaser desires to purchase 300,300 shares of Series A Preferred Stock (the "Shares") by the Final Closing Date (as defined below) on the terms and conditions set forth herein; WHEREAS, the Company desires to issue and sell the Shares to Purchaser and Axys desires to issue to Purchaser the Put Option (as defined below) for the Shares on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises hereinafter set forth, the parties hereto agree as follows: 1. AGREEMENT TO SELL AND PURCHASE. 1.1 AUTHORIZATION OF SHARES. On or prior to the Initial Closing (as defined in Section 2 below), the Company shall have authorized (i) the sale and issuance to Purchaser of the Shares and (ii) the issuance of 300,300 shares of Common Stock (as defined in Section 4.2) upon conversion of the Shares (the "Conversion Shares"). The Shares and the Conversion Shares shall have the rights, preferences, privileges and restrictions set forth in the Amended and Restated Articles of Incorporation of the Company, a complete and accurate copy of which is attached as Exhibit A hereto (the "Restated Articles"). 1.2 SALE AND PURCHASE. Subject to the terms and conditions hereof, at the Initial Closing and the Subsequent Closings (as defined in Section 2 below) the Company hereby agrees to issue and sell to Purchaser and Purchaser agrees to purchase from the Company the Shares at a purchase price of three dollars and thirty-three cents ($3.33) per share. 2. CLOSING, DELIVERY AND PAYMENT. 2.1 CLOSING. The initial closing of the sale and purchase of a portion of the Shares under this Agreement (the "Initial Closing") shall take place at 5:00 p.m. on June 7, 1999, at the offices of Cooley Godward, LLP, Five Palo Alto Square, 3000 El Camino Real, Palo Alto, California or at such other time or place as the Company and Purchaser may mutually agree (such date is 1. 2 hereinafter referred to as the "Initial Closing Date"). Subsequent closings (the "Subsequent Closings") shall occur on the dates that Purchaser makes further payments for additional portions of the Shares, with the all payments in connection with the purchase of the Shares to be made by no later than July 7, 1999. The last of the Subsequent Closings is referred to herein as the "Final Closing." 2.2 DELIVERY. At the Final Closing, subject to the terms and conditions hereof, the Company will deliver to Purchaser a certificate representing the Shares, provided that Purchaser has paid the full purchase price therefor by wire transfer or check made payable to the order of the Company. At the Initial Closing, subject to the terms and conditions hereof, Purchaser and Axys Pharmaceuticals, Inc. ("Axys") shall each execute and deliver to each other the Side Letter (as defined in Section 3.5 hereof) and the Company and Purchaser shall execute and deliver signature pages to the Amended and Restated Shareholders Agreement dated as of May 14, 1999 between the Company, Jerry Caulder, Axys and The Bay City Capital Fund I, L.P. (the "Shareholders Agreement"). 3. PUT OPTION. 3.1 Subject to the terms and conditions herein set forth, Axys hereby grants Purchaser the right (the "Put Option") at any time after the Trigger Date (as defined in Section 3.3 below) to require Axys to purchase from Purchaser, the Shares in exchange for shares of Axys Common Stock, at its then "market price," with an aggregate market value on the date immediately prior to the day the Put Option is exercised equal to $1,000,000, rounded down to the nearest whole number of shares (the "Put Option Shares"), on or prior to the Expiration Date set forth in Section 3.4 below. For purposes of the Put Option, the market price for Axys Common Stock shall be (i) if the Axys Common Stock is then reported on The Nasdaq National Market or its successor, the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted in The Nasdaq National Market or its successor on the last market trading day prior to exercise of the Put Option, (ii) if the Axys Common Stock is then listed or admitted to trading on the New York Stock Exchange, the last sale price, regular way (or, in case no such sale takes places on such day, the average of the closing bid and asked prices, regular way) in either case as reported in the consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange on the last market trading day prior to exercise of the Put Option, (iii) if the Axys Common Stock is not then reported on The Nasdaq National Market or then listed or admitted to trading on the New York Stock Exchange, the last quoted price (or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market) as reported by the National Association of Securities Dealers, Inc. Automated Quotation System or such other system then in use on the last market trading day prior to exercise of the Put Option, or (iv) in the event none of the foregoing situations applies, the average of the closing bid and asked prices, as furnished by a professional market maker making a market in Axys Common Stock selected by the Axys Board of Directors, on the last market trading day prior to exercise of the Put Option. 3.2 The Put Option shall be deemed to have been exercised immediately prior to the close of business on the date of surrender to Axys of the Put Option Subscription Form, attached hereto as Exhibit B. 2. 3 3.3 The Put Option shall not be exercisable until August 2, 1999 (the "Trigger Date"). 3.4 The Put Option shall terminate in full on February 2, 2001. 3.5 The Put Option shall not be transferable by Purchaser except to an affiliate of Purchaser reasonably acceptable to Axys who is also a transferee of the Shares and agrees in a writing reasonably acceptable to Axys to be bound by the provisions of this Agreement pertaining to the Put Option and the Put Option Shares, the Registration Rights Agreement and the side letter referred to in Section 3.4 thereof (the "SIDE LETTER") to the same extent as Purchaser. 3.6 Upon the exercise of the Put Option and concurrent with the issuance of the Put Option Shares within a reasonable time period (not to exceed 10 business days after Axys' receipt of the Put Option Subscription Form), Axys shall execute the Registration Rights Agreement in the form attached as Exhibit C (the "REGISTRATION RIGHTS AGREEMENT"). Purchaser shall provide such reasonable cooperation as Axys requests in connection with the issuance of the Put Option Shares. 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND AXYS. (a) The Company hereby represents and warrants to Purchaser as of the date of this Agreement as follows: 4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION OF THE COMPANY. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California. The Company has all requisite corporate power and authority to own and operate its properties and assets, to execute and deliver this Agreement, to issue and sell the Shares and the Conversion Shares, to carry out the provisions of this Agreement and the Restated Articles and to carry on its business as presently conducted and as presently proposed to be conducted. 4.2 CAPITALIZATION; VOTING RIGHTS OF THE COMPANY. The authorized capital stock of the Company, immediately prior to the Initial Closing, will consist of 10,000,000 shares of Common Stock, no par value per share ("Common Stock"), 650,000 shares of which are issued and outstanding as of the date of this Agreement; 8,200,000 shares of Preferred Stock no par value per share, all of which are designated Series A Preferred Stock, 7,702,702 of which are issued and outstanding as of the date of this Agreement. All issued and outstanding shares of the Company's Common Stock have been duly authorized and validly issued. The rights, preferences, privileges and restrictions of the Shares are as stated in the Restated Articles. The Conversion Shares have been or, prior to the Initial Closing, will have been duly and validly reserved for issuance. Other than as set forth in this Agreement and the agreements referred to in Section 4.4 below; the Series A Stock Purchase Agreements between the Company, Axys and Bay City Capital Fund I, dated June 1, 1998 and February 2, 1999, respectively; the Series A Stock Purchase Agreement between the Company, Axys and The North American Nutrition & Agribusiness Fund, L.P., dated May 14, 1999; the Series A Preferred Stock Purchase Agreements between the Company and Axys dated as of June 1, 1998 and February 2, 1999, respectively; the Common Stock Purchase Agreement between the 3. 4 Company and Jerry Caulder, dated as of April 30, 1998; the Shareholders Agreement; and the Company's 1998 Equity Incentive Plan (pursuant to which options to purchase 556,000 shares of Common Stock and 650,000 shares of Common Stock pursuant to restricted stock grants are outstanding as of the date of this Agreement), and other than as contemplated by or in connection with that certain letter of intent dated January 22, 1999 between Global Agro, Inc. and the Company; there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal), proxy or shareholder agreements, or agreements of any kind for the purchase or acquisition from the Company of any of its securities. When issued in compliance with the provisions of this Agreement and the Restated Articles, the Shares and the Conversion Shares will be validly issued, fully paid and nonassessable, and will be free of any liens or encumbrances other than liens and encumbrances created by or imposed upon Purchaser; provided, however, that the Shares and the Conversion Shares may be subject to restrictions on transfer under the Company's Bylaws or state and/or federal securities laws as set forth herein or as otherwise required by such laws at the time a transfer is proposed. 4.3 AUTHORIZATION; BINDING OBLIGATIONS OF THE COMPANY. All corporate action on the part of the Company, its officers, directors and shareholders necessary for the authorization of this Agreement, the performance of all obligations of the Company hereunder at the Initial Closing and the Subsequent Closings and the authorization, sale, issuance and delivery of the Shares pursuant hereto and the Conversion Shares pursuant to the Restated Articles has been taken or will be taken prior to the Initial Closing. The Agreement, when executed and delivered, will be a valid and binding obligation of the Company enforceable in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors' rights; and (b) general principles of equity that restrict the availability of equitable remedies. 4.4 AGREEMENTS; ACTION. Except for the agreements referred to in Section 4.2 above, agreements explicitly contemplated hereby and pursuant to the Employment Agreement by and between the Company and Jerry Caulder, dated April 30, 1998, as amended by Amendment No. 1 to Employment Agreement dated March 26, 1999, and agreements between the Company and its employees with respect to the sale, or the issuance of options and restricted stock awards providing for the sale, of the Company's Common Stock, pursuant to the Company's 1998 Equity Incentive Plan, there are no agreements, understandings or proposed transactions between the Company and any of its officers, directors, affiliates or any affiliate thereof. 4.5 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. Each employee, officer and consultant of the Company has executed a Proprietary Information and Inventions Agreement in the form previously approved by Axys and the other prior purchasers of the Company's Series A Preferred Stock. (b) Axys, as Put Grantor, hereby represents and warrants to Purchaser as of the date of this Agreement as follows: 4. 5 4.6 ORGANIZATION, GOOD STANDING AND QUALIFICATION OF AXYS. Axys is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Axys has all requisite corporate power and authority to own and operate its properties and assets, to execute and deliver this Agreement, to issue and sell the Put Option and Put Option Shares, to carry out the provisions of this Agreement relating to it as Put Grantor and to carry on its business as presently conducted and as presently proposed to be conducted. 4.7 CAPITALIZATION OF AXYS. The authorized capital stock of Axys, as of March 31, 1999, consisted of 50,000,000 shares of Common Stock, $.001 par value per share, 30,321,328 shares of which were then issued and outstanding; 10,000,000 shares of Preferred Stock $.001 par value per share, 500,000 of which are designated as Series A Junior Participating Preferred Stock and none of which were then issued and outstanding. All issued and outstanding shares of the Company's Common Stock and the related Preferred Share Purchase Rights have been duly authorized and validly issued. The rights, preferences, privileges and restrictions of the shares of the Company's Common Stock and the related Preferred Share Purchase Rights are as stated in Axys' public filings. The Put Option Shares have been or, by the Initial Closing, will have been, duly and validly reserved for issuance. When issued in compliance with the provisions of this Agreement and Axys' public filings, the Put Option Shares will be validly issued, fully paid and nonassessable, and will be free of any liens or encumbrances other than liens and encumbrances created by or imposed upon Purchaser; provided, however, that the Put Option Shares may be subject to restrictions on transfer under state and/or federal securities laws, as set forth herein, or as otherwise required by such laws at the time a transfer is proposed. 4.8 AUTHORIZATION; BINDING OBLIGATIONS OF AXYS. All corporate action on the part of Axys, its officers, directors and stockholders necessary for the authorization of this Agreement, the performance of all obligations of Axys as Put Grantor hereunder at the Initial Closing and the Subsequent Closings and the authorization, sale, issuance and delivery of the Put Option and the Put Option Shares pursuant hereto has been taken or will be taken prior to the Initial Closing. The Agreement, when executed and delivered, will be a valid and binding obligation of Axys enforceable in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors' rights; and (b) general principles of equity that restrict the availability of equitable remedies. 5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. Purchaser hereby represents and warrants to the Company as follows: 5.1 REQUISITE POWER AND AUTHORITY. Purchaser has all necessary power and authority under all applicable provisions of law to execute and deliver this Agreement and to carry out its provisions. All action on Purchaser's part required for the lawful execution and delivery of this Agreement have been or will be effectively taken prior to the Initial Closing. Upon its execution and delivery, this Agreement will be a valid and binding obligation of Purchaser, enforceable in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors' rights, and (b) general principles of equity that 5. 6 restrict the availability of equitable remedies 5.2 INVESTMENT REPRESENTATIONS. Purchaser understands that neither the Shares, the Conversion Shares, the Put Option nor the Put Option Shares have been registered under the Securities Act of 1933, as amended (the "Securities Act"). Purchaser also understands that the Shares and the Put Option are being offered and sold pursuant to an exemption from registration contained in the Securities Act based in part upon Purchaser's representations contained in this Agreement. Purchaser hereby represents and warrants as follows: (a) PURCHASER BEARS ECONOMIC RISK. Purchaser is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests. Purchaser must bear the economic risk of this investment indefinitely unless the Shares (or the Conversion Shares) and the Put Option (or the Put Option Shares) are registered pursuant to the Securities Act, or an exemption from registration is available. Purchaser understands that the Company has no present intention of registering the Shares, the Conversion Shares, or any shares of its Common Stock and that Axys has no present intention of registering the Put Option and only intends to register the Put Option Shares pursuant to the terms and provisions of the Registration Rights Agreement. Purchaser also understands that there is no assurance that any exemption from registration under the Securities Act will be available and that, even if available, such exemption may not allow Purchaser to transfer all or any portion of the Shares or the Conversion Shares or the Put Option or the Put Option Shares under the circumstances, in the amounts or at the times Purchaser might propose. (b) ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring the Shares, the Conversion Shares, the Put Option and the Put Option Shares for Purchaser's own account for investment only, and not with a view towards their distribution; provided that Purchaser may transfer the Shares and the Conversion Shares to an affiliate of Purchaser reasonably acceptable to Axys, may transfer the Put Option as provided herein and may transfer the Put Option Shares (subject to the provisions of the Side Letter) as permitted by applicable law or pursuant to the Registration Rights Agreement. (c) PURCHASER CAN PROTECT ITS INTEREST. Purchaser represents that by reason of its, or of its management's, business or financial experience, Purchaser has the capacity to protect its own interests in connection with the transactions contemplated in this Agreement. Further, Purchaser is aware of no publication of any advertisement in connection with the transactions contemplated in this Agreement. (d) ACCREDITED INVESTOR. Purchaser represents that it is an accredited investor within the meaning of Regulation D under the Securities Act. (e) COMPANY INFORMATION. Purchaser has had an opportunity to discuss the Company's business, management and financial affairs with the directors of the Company. Purchaser has also had the opportunity to ask questions of and receive answers from the Company and its management regarding the terms and conditions of this investment. 6. 7 (f) RULE 144. Purchaser acknowledges and agrees that the Shares and the Put Option, and, if issued, the Conversion Shares and the Put Option Shares must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Purchaser has been advised or is aware of the provisions of Rule 144 promulgated under the Securities Act as in effect from time to time, which permits limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things: the availability of certain current public information about the Company, the resale occurring following the required holding period under Rule 144 and the number of shares being sold during any three-month period not exceeding specified limitations. 5.3 TRANSFER RESTRICTIONS. Purchaser acknowledges and agrees that the Shares and the Put Option and, if issued, the Conversion Shares and the Put Option Shares are subject to restrictions on transfer as set forth in the Company's Bylaws. 6. CONDITIONS TO CLOSINGS. 6.1 CONDITIONS TO PURCHASER'S OBLIGATIONS AT THE CLOSINGS. Purchaser's obligations to purchase the Shares and the Put Option at the Initial Closing and the Subsequent Closing are subject to the satisfaction, at or prior to the Initial Closing Date, of the following conditions, any one or more of which may be waived in writing by Purchaser: (a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF OBLIGATIONS. The representations and warranties made by the Company and Axys in Section 4 hereof shall be true and correct in all material respects as of the Initial Closing Date with the same force and effect as if they had been made as of the Initial Closing Date, with the exception that (i) the Company may have entered into subsequent to the date hereof an agreement and plan of merger and reorganization with Global Agro, Inc. pursuant to which the Company would be obligated to issue shares of Series B Preferred Stock of the Company to the stockholders of Global Agro, Inc. aggregating up to 27.5% of the outstanding shares of the Company and restricted stock awards and stock options as contemplated in such agreement, and the Company and Axys shall have performed all obligations and conditions herein required to be performed or observed by it on or prior to the Initial Closing. (b) LEGAL INVESTMENT. On the Initial Closing Date, the sale and issuance of the Shares and the Put Option and the potential issuance of the Conversion Shares and the Put Option Shares shall be legally permitted by all laws and regulations to which Purchaser, the Company and Axys are subject. (c) CONSENTS, PERMITS, AND WAIVERS. The Company and Axys shall have obtained any and all consents, permits and waivers necessary or appropriate for consummation of the transactions contemplated by the Agreement, except for such as may be properly obtained subsequent to the Closing. (d) CORPORATE DOCUMENTS. The Company and Axys shall have delivered to Purchaser or its counsel, copies of all corporate documents of the Company and Axys, respectively, as Purchaser shall reasonably request. 7. 8 (e) RESERVATION OF CONVERSION SHARES. The Conversion Shares shall have been duly authorized and reserved for issuance by the Company and the Put Option Shares shall have been duly authorized and reserved for issuance by Axys. (f) PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in connection with the transactions contemplated at the Initial Closing hereby and all documents and instruments incident to such transactions shall be reasonably satisfactory in substance and form to the Purchaser and its counsel, and the Purchaser and its counsel shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request. (g) SHAREHOLDERS AGREEMENT. The execution and delivery by the Company of a counterpart signature page to the Shareholders Agreement as contemplated by Section 8.8 of the Shareholders Agreement. 6.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's obligation to issue and sell the Shares at the Initial Closing and the Subsequent Closings and Axys' obligation to issue the Put Option are subject to the satisfaction, on or prior to the Initial Closing, of the following conditions, any one or more of which may be waived in writing by the Company: (a) REPRESENTATIONS AND WARRANTIES TRUE. The representations and warranties made by Purchaser in Section 5 hereof shall be true and correct in all material respects at the date of the Initial Closing, with the same force and effect as if they had been made on and as of said date. (b) PERFORMANCE OF OBLIGATIONS. Purchaser shall have performed and complied with all agreements and conditions herein required to be performed or complied with by Purchaser on or before the Initial Closing, including but not limited to the tender of the purchase price for the Shares. (c) CONSENTS, PERMITS AND WAIVERS. The Company and Axys shall have obtained any and all consents, permits and waivers necessary or appropriate for consummation of the transactions contemplated by the Agreement, except for such as may be properly obtained subsequent to the Initial Closing. (d) SHAREHOLDERS AGREEMENT. The execution and delivery by the Purchaser of a counterpart signature page to the Shareholders Agreement as contemplated by Section 8.8 of the Shareholders Agreement. 7. MISCELLANEOUS. 7.1 GOVERNING LAW. This Agreement shall be governed in all respects by the laws of the State of California as such laws are applied to agreements between California residents entered into and performed entirely in California. 7.2 SURVIVAL. The representations, warranties, covenants and agreements made herein shall survive any investigation made by Purchaser and the closings of 8. 9 the transactions contemplated hereby. All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder solely as of the date of such certificate or instrument. 7.3 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, and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each person who shall be a holder of the Shares from time to time. 7.4 ENTIRE AGREEMENT. This Agreement, the Exhibits hereto and the letter dated March 29, 1999, from Jerry Caulder on behalf of the Company to the Purchaser constitute the full and entire understanding and agreement between the parties with regard to the subject matter hereof and no party shall be liable or bound to any other in any manner by any representations, warranties, covenants and agreements, except as specifically set forth herein and therein. 7.5 SEVERABILITY. In case any provision of the Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 7.6 AMENDMENT AND WAIVER. This Agreement may be amended or modified and any provision hereof may be waived only upon the written consent of the Company, the Purchaser and Axys. 7.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to exercise any right, power or remedy accruing to any party, upon any breach, default or noncompliance by another party under this Agreement or the Restated Articles, shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of or in any similar breach, default or noncompliance thereafter occurring. 7.8 NOTICES. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified; (b) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not, then on the next business day; (c) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (d) one day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the Company, the Purchaser or Axys at the address as set forth on the signature page hereof for such party or at such other address as a party may designate by ten days advance written notice to the other parties hereto. 7.9 ATTORNEYS' FEES. In the event that any dispute among the parties to this Agreement should result in litigation, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals. 9. 10 7.10 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. 7.11 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 7.12 PRONOUNS. All pronouns contained herein, and any variations thereof, shall be deemed to refer to the masculine, feminine or neutral, singular or plural, as the identity of the parties hereto may require. 7.13 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION OR IN THE ABSENCE OF AN EXEMPTION FROM SUCH QUALIFICATION IS UNLAWFUL. PRIOR TO ACCEPTANCE OF SUCH CONSIDERATION BY THE COMPANY, THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION FROM SUCH QUALIFICATION BEING AVAILABLE. 10. 11 IN WITNESS WHEREOF, the parties hereto have executed this SERIES A PREFERRED STOCK PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof. COMPANY: PURCHASER: XYRIS CORPORATION MISSOURI SOYBEAN MERCHANDISING COUNCIL By: /s/ JERRY CAULDER By: /s/ DAVID M. HAGGARD Jerry Caulder Name: David M. Haggard President Its: Chairman Address: 12626 High Bluff Drive, Address: P. O. Box 104778 Suite 250 3337 Emerald Lane San Diego California 92130 Jefferson City, Missouri 65110 Attn: President Attention: Dale K. Ludwig, FAX: (619) 794-5525 Executive Director FAX: (573) 635-5122 PUT GRANTOR: AXYS PHARMACEUTICALS, INC. By: Print Name: Title: Address: 180 Kimball Way South San Francisco, CA 94080 Attn: Chief Financial Officer FAX: (650) 829-1001 11. 12 SERIES A PREFERRED STOCK PURCHASE AGREEMENT EXHIBIT A AMENDED AND RESTATED ARTICLES OF INCORPORATION SEE ATTACHED 13 ARTICLES OF AMENDMENT OF AMENDED AND RESTATED ARTICLES OF INCORPORATION OF AGXYS The undersigned certify that: 1. They are the President and the Secretary, respectively, of Agxys, a California corporation. 2. The language of "ARTICLE 1. NAME" of the Amended and Restated Articles of Incorporation, which now reads "The name of the corporation is Agxys" is amended to read "The name of the corporation is Xyris Corporation". 3. The foregoing amendments of the Amended and Restated Articles of Incorporation has been duly approved by the board of directors of this corporation. 4. The foregoing amendment of the Amended and Restated Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902, California Corporations Code. The total number of each class of outstanding shares of the corporation is 300,000 shares of Common Stock and 2,200,000 shares of Series A Preferred Stock. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage required was more than 50%. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. DATED: July 2, 1998. /s/ JERRY CAULDER -------------------------------- Jerry Caulder President /s/ ROGER SALQUIST ------------------------------- Roger Salquist Secretary OFFICE OF THE SECRETARY OF STATE 14 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF AGXYS Jerry Caulder and Roger Salquist certify that: A. They are the President and Secretary, respectively, of Agxys, a California corporation (the "corporation"). B. The Articles of Incorporation of this corporation are amended and restated to read as follows: ARTICLE 1. NAME The name of the corporation is Agxys. ARTICLE 2. PURPOSE The purpose of this corporation is to engage in any lawful acts of activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporation Code (the "Code"). ARTICLE 3. AUTHORIZED CAPITAL The corporation is authorized to issue two (2) classes of shares, designated as "Common Stock" and "Preferred Stock," respectively. The total number of shares of Common Stock which this corporation is authorized to issue is 10,000,000 and the total number of shares of Preferred Stock which this corporation is authorized to issue is 15 8,200,000. All of the shares of Preferred Stock are designated as "Series A Preferred Stock" (the "Series A Preferred"). ARTICLE 4. RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS OF CAPITAL STOCK The relative rights, preferences, privileges, and restrictions granted to or imposed upon the respective classes of the shares of capital stock or the holders thereof are as follows: 1. DIVIDEND PREFERENCE. The holders of Series A Preferred shall be entitled to receive, out of funds legally available therefor, dividends at an annual rate of 6% of the Original Series A Issue Price (as defined in Section 2(a)(i) below) for each outstanding share of Series A Preferred (as adjusted for combinations, consolidations, subdivisions, or stock splits with respect to such shares) held by them, payable when and if declared by the Board of Directors, in preference and priority to the payment of dividends on any shares of Common Stock (other than those payable solely in Common Stock or involving the repurchase of shares of Common Stock from terminated employees, officers, directors, or consultants pursuant to contractual arrangements). In the event dividends are paid to the holders of Series A Preferred that are less than the full amounts to which such holders are entitled pursuant to this Section 1, such holders shall share ratably in the total amount of dividends paid according to the respective amounts due such holder if such dividends were paid in full. After payment of dividends to the holders of Series A Preferred, 2 16 dividends may be declared and distributed among all holders of Common Stock; provided, however, that no dividend may be declared and distributed among holders of Common Stock at a rate greater than the rate at which dividends are paid to the holders of Series A Preferred based on the number of shares of Common Stock into which such shares of Series A Preferred are convertible (as adjusted for stock splits and the like) on the date such dividend is declared. The dividends payable to the holders of the Series A Preferred shall not be cumulative, and no right shall accrue to the holders of the Series A Preferred by reason of the fact that dividends on the Series A Preferred are not declared or paid in any previous fiscal year of the corporation, whether or not the earnings of the corporation in that previous fiscal year were sufficient to pay such dividends in whole or in part. In the event that the corporation shall have declared but unpaid dividends outstanding immediately prior to, and in the event of, a conversion of Series A Preferred (as provided in Section 4 hereof), the corporation shall, at the option of the corporation, pay in cash to the holder(s) of the Series A Preferred subject to conversion the full amount of any such dividends or allow such dividends to be converted into Common Stock in accordance with, and pursuant to the terms specified in, Section 4 hereof. 2. LIQUIDATION PREFERENCE. (a) In the event of any liquidation, dissolution, or winding up of the corporation, whether voluntary or not, or the sale, lease, assignment, transfer, conveyance or disposal of all or substantially all of the assets of the corporation, or the acquisition of this corporation by another entity by means of consolidation, corporate reorganization or merger, or other transaction or series of related transactions in which more than 50% of 3 17 the outstanding voting power of this corporation is disposed of (each a "Liquidation Event"), distributions to the shareholders of the corporation shall be made in the following manner: (i) Each holder of Series A Preferred shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the corporation to the holders of the Common Stock, by reason of their ownership of such stock, the greater of (x) $3.33 (the "Original Series A Issue Price") multiplied by two per share, and (y) the amount that would have been received upon the conversion of the Series A Preferred, (each as adjusted for combinations, consolidations, subdivisions, or stock splits with respect to such shares) for each share of Series A Preferred then held by such holder, plus an amount equal to all declared but unpaid dividends on such shares of Series A Preferred (collectively, the "Series A Preference"). If, upon the occurrence of a Liquidation Event, the assets and funds available to be distributed among the holders of the Series A Preferred shall be insufficient to permit the payment to such holders of the full preferential amount, then the entire assets and funds of the corporation legally available for distribution to such holders shall be distributed ratably based on the total preferential amount due each such holder under this Section 2(a). (b) Each holder of Series A Preferred shall be deemed to have consented to distributions made by the corporation in connection with the repurchase of shares of Common Stock issued to or held by officers, directors, or employees of, or consultants to, the corporation or its subsidiaries upon termination of their employment or services 4 18 pursuant to agreements (whether now existing or hereafter entered into) providing for the right of said repurchase between the corporation and such persons. (c) The value of securities and property paid or distributed pursuant to this Section 2 shall be computed at fair market value at the time of payment to the corporation or at the time made available to shareholders, all as determined by the Board of Directors in the good faith exercise of its reasonable business judgment, provided that (i) if such securities are listed on any established stock exchange or a national market system, their fair market value shall be the closing sales price for such securities as quoted on such system or exchange (or the largest such exchange) for the date the value is to be determined (or if there are no sales for such date, then for the last preceding business day on which there were sales), as reported in the Wall Street Journal or similar publication, and (ii) if such securities are regularly quoted by a recognized securities dealer but selling prices are not reported, their fair market value shall be the mean between the high bid and low asked prices for such securities on the date the value is to be determined (or if there are no quoted prices for such date, then for the last preceding business day on which there were quoted prices). (d) Nothing hereinabove set forth shall affect in any way the right of each holder of Series A Preferred to convert such shares at any time and from time to time into Common Stock in accordance with Section 4 hereof. 3. VOTING RIGHTS. (a) Except as otherwise required by law or hereunder, the holder of each share of Common Stock issued and outstanding shall have one vote and the holder of each 5 19 share of Series A Preferred shall be entitled to the number of votes equal to the number of shares of Common Stock into which such share of Series A Preferred could be converted at the record date for determination of the shareholders entitled to vote on such matters, or, if no such record date is established, at the date such vote is taken or any written consent of shareholders is solicited, such votes to be counted together with all other shares of stock of the corporation having general voting power and not separately as a class. Fractional votes by the holders of Series A Preferred shall not, however, be permitted and any fractional voting rights shall (after aggregating all shares into which shares of Series A Preferred held by each holder could be converted) be rounded to the nearest whole number (with one-half being rounded upward). Holders of Common Stock and Series A Preferred shall be entitled to notice of any shareholders' meeting in accordance with the Bylaws of the corporation. 4. CONVERSION RIGHTS. The holders of Series A Preferred shall have conversion rights as follows: (a) RIGHT TO CONVERT. Each share of Series A Preferred shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the corporation or any transfer agent for such Series A Preferred, as follows: (i) Each share of Series A Preferred shall be convertible into such number of fully-paid and non-assessable shares of Common Stock as is determined by dividing the Original Series A Issue Price by the then applicable Conversion Price for such Series A Preferred, determined as hereinafter provided, in effect at the time of conversion. The price at which shares of Common Stock shall be deliverable upon 6 20 conversion of the Series A Preferred (the "Series A Conversion Price") shall initially be the Original Series A Issue Price. The initial Series A Conversion Price shall be subject to adjustment as provided in accordance with Section 4(d) of this Article 4. (b) AUTOMATIC CONVERSION. Each share of Series A Preferred shall automatically be converted into shares of Common Stock at the then effective applicable Conversion Price upon the closing of a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock for the account of the corporation to the public with aggregate proceeds to the corporation in excess of $15,000,000 (before deduction for underwriters commissions and expenses) and a per share price permitting the listing of such stock on the National Association of Securities Dealers, Inc. National Market (or any successor thereto) (such event is an "Automatic Conversion"). In the event of an Automatic Conversion of the Series A Preferred upon a public offering as aforesaid, the person(s) entitled to receive the Common Stock issuable upon such conversion of such Series A Preferred shall not be deemed to have converted such Series A Preferred until immediately prior to the closing of such sale of securities. (c) MECHANICS OF CONVERSION. No fractional shares of Common Stock shall be issued upon the conversion of Series A Preferred. In lieu of any fractional shares to which the holder would otherwise be entitled, the corporation shall pay cash equal to such fraction multiplied by the then effective Series A Conversion Price. Before any holder of Series A Preferred shall be entitled to convert the same into full shares of 21 Common Stock and to receive certificates therefor, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the corporation or of any transfer agent for the Series A Preferred, and shall give written notice to the corporation at such office that such holder elects to convert the same; provided, however, that in the event of an Automatic Conversion pursuant to Section 4(b), the outstanding shares of Series A Preferred shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the corporation or its transfer agent, and provided further that the corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such Automatic Conversion unless the certificates evidencing such shares of Series A Preferred are either delivered to the corporation or its transfer agent as provided above, or the holder notifies the corporation or its transfer agent that such certificates have been lost, stolen, or destroyed and executes an agreement satisfactory to the corporation to indemnify the corporation from any loss incurred by it in connection with such certificates. The corporation shall, as soon as practicable after such delivery, or such agreement and indemnification in the case of a lost certificate, issue and deliver at such office to such holder of Series A Preferred, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid and a check payable to the holder in the amount of any cash amounts payable as the result of a conversion into fractional shares of Common Stock. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such 8 22 surrender of the shares of Series A Preferred to be converted, or in the case of an Automatic Conversion, on the date of closing of the offering, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (d) ADJUSTMENTS TO CONVERSION PRICE. (i) ADJUSTMENTS FOR DIVIDENDS, SPLITS, SUBDIVISIONS, COMBINATIONS, OR CONSOLIDATION OF COMMON STOCK. In the event the outstanding shares of Common Stock shall be increased by a stock dividend payable in Common Stock, stock split, subdivision, or other similar transaction occurring after the filing of these Amended and Restated Articles of Incorporation, into a greater number of shares of Common Stock, the Series A Conversion Price then in effect shall, concurrently with the effectiveness of such event, be decreased in proportion to the percentage increase in the outstanding number of shares of Common Stock. In the event the outstanding shares of Common Stock shall be decreased by a reverse stock split, combination, consolidation, or other similar transaction occurring after the filing of these Amended and Restated Articles of Incorporation into a lesser number of shares of Common Stock, the Series A Conversion Price then in effect shall, concurrently with the effectiveness of such event, be increased in proportion to the percentage decrease in the outstanding number of shares of Common Stock. (ii) ADJUSTMENTS FOR OTHER DISTRIBUTIONS. In the event the corporation at any time or from time to time makes, or fixes a record date for the determination of 23 holders of Common Stock entitled to receive, any distribution payable in securities of the corporation other than shares of Common Stock and other than as otherwise adjusted in this Section 4, then and in each such event provision shall be made so that the holders of Series A Preferred shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable thereupon, the amount of securities of the corporation which they would have received had their Series A Preferred been converted into Common Stock on the date of such event and had they thereafter, during the period from the date of such event to and including the date of conversion, retained such securities receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this Section 4 with respect to the rights of the holders of the Series A Preferred. (iii) ADJUSTMENTS FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If the Common Stock issuable upon conversion of the Series A Preferred shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification, or otherwise (other than a subdivision or combination of shares provided for above), the Series A Conversion Price then in effect shall, concurrently with the effectiveness of such reorganization or reclassification, be proportionately adjusted such that the Series A Preferred shall be convertible into, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive, a number of shares of such other class or classes of stock equivalent to the number of shares of Common Stock that would have been subject to 10 24 receipt by the holders upon conversion of such Series A Preferred immediately before that change. (iv) ADJUSTMENTS ON ISSUANCE OF ADDITIONAL STOCK. If the corporation shall issue "Additional Stock" (as defined below) for a consideration per share less than the Series A Conversion Price in effect on the date and immediately prior to such issue, then and in such event, the Series A Conversion Price shall be reduced concurrently with such issue, to a price (calculated to three decimal places) determined by multiplying such Series A Conversion Price by a fraction (i) the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares of Common Stock which the aggregate consideration received by the corporation for the total number of Additional Stock so issued (or deemed to be issued) would purchase at such Series A Conversion Price; and (ii) the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares of Additional Stock so issued; provided that for purposes of this Section 4(d)(iv), all shares of Common Stock issuable upon conversion of the outstanding Series A Preferred Stock, all shares of Common Stock issuable upon exercise of outstanding stock options, all shares of Common Stock reserved for issuance under the corporation's current employee equity incentive plan, and all shares of Common Stock issuable upon exercise or conversion of any other outstanding security or debt instrument of the corporation shall be deemed to be Common Stock outstanding. For purposes of this subsection (iv) "Additional Stock" shall mean all Common Stock issued by the 11 25 corporation after the date on which the first share of Series A Preferred was issued (the "Series A Original Issue Date") other than Common Stock issued or issuable at any time (a) upon conversion of the Preferred Stock, (b) up to 1,500,000 shares of Common Stock to officers, directors, and employees of, and consultants to, the corporation after the Series A Original Issue Date as designated and approved by the Board of Directors; (c) as a dividend or distribution with respect to the Series A Preferred; (d) in connection with equipment leasing or bank financing transactions approved by the corporation's Board of Directors; or (e) as described in subparagraphs (i), (ii), and (iii) of this Section 4(d). For the purpose of making any adjustment in the Series A Conversion Price as provided above, the consideration received by the corporation for any issue or sale of Common Stock will be computed: (1) to the extent it consists of cash, as the amount of cash received by the corporation before deduction of any offering expenses payable by the corporation and any underwriting or similar commissions, compensation, or concessions paid or allowed by the corporation on connection with such issue or sale; (2) to the extent it consists of property other than cash, at the fair market value of that property as determined in good faith by the corporation's Board of Directors; and 12 26 (3) if Common Stock is issued or sold together with other stock or securities or other assets of the corporation for consideration which covers both, 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 Common Stock. If the corporation (1) grants any rights or options to subscribe for, purchase, or otherwise acquire shares of Common Stock, or (2) issues or sells any security convertible into shares of Common Stock, then, in each case, the price per share of Common Stock issuable on the exercise of the rights or options or the conversion of the securities will be determined by dividing the total amount, if any, received or receivable by the corporation as consideration for the granting of the rights or options or the issue or sale of the convertible securities, plus the minimum aggregate amount of additional consideration payable to the corporation on exercise or conversion of the securities, by the maximum number of shares of Common Stock issuable on the exercise of conversion. Such granting or issue or sale will be considered to be an issue or sale for cash of the maximum number of shares of Common Stock issuable on exercise or conversion at the price per share determined under this subsection, and the Series A Conversion Price will be adjusted as above provided to reflect (on the basis of that determination) the issue or sale. No further adjustment of such Series A Conversion Price will be made as a result of 13 27 the actual issuance of shares of Common Stock on the exercise of any such rights or options or the conversion of any such convertible securities. Upon the redemption or repurchase of any such securities or the expiration or termination of the right to convert into, exchange for, or exercise with respect to, Common Stock, the Series A Conversion Price will be readjusted to such price as would have been obtained had the adjustment made upon their issuance been made upon the basis of the issuance of only the number of such securities as were actually converted into, exchanged for, or exercised with respect to, Common Stock. If the purchase price or conversion or exchange rate provided for in any such security changes at any time, then, upon such change becoming effective, the Series A Conversion Price then in effect will be readjusted forthwith to such price as would have been obtained had the adjustment made upon the issuance of such securities been made upon the basis of (1) the issuance of only the number of shares of Common Stock theretofore actually delivered upon the conversion, exchange or exercise of such securities, and the total consideration received therefor, and (2) the granting or issuance, at the time of such change, of any such securities then still outstanding for the consideration, if any, received by the corporation therefor and to be received on the basis of such changed price or rate. (e) NO IMPAIRMENT. Except as provided in Section 6 of this Article 4, the corporation will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or 14 28 performance of any of the terms to be observed or performed hereunder by the corporation but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Preferred Stock against impairment. (f) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 4, the corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series A Preferred a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The corporation shall, upon the written request of any holder of Series A Preferred, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the applicable Conversion Price for such series of Series A Preferred at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of such Series A Preferred. (g) ISSUE TAXES. The corporation shall pay any and all issue and other taxes (other than income taxes) that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of shares of Series A Preferred pursuant hereto; provided, however, that the corporation shall not be obligated to pay any transfer taxes 15 29 resulting from any transfer requested by any holder in connection with any such conversion. (h) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series A Preferred such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Series A Preferred; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Series A Preferred, the corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including, without limitation, engaging in best efforts to obtain the requisite shareholder approval of any necessary amendment to its Articles of Incorporation. (i) STATUS OF CONVERTED STOCK. In case any Series A Preferred shall be converted pursuant to this Section 4, the shares to converted shall resume the status of authorized but unissued shares of Preferred Stock undesignated as to series. 5. REDEMPTION RIGHTS. The Series A Preferred shall be nonredeemable. 6. COVENANTS. (i) During such time as Axys Pharmaceuticals, Inc., a Delaware corporation ("Axys"), is the registered holder of at least 50% of the votes of the 16 30 corporation, calculated as provided in Section 3(a) of this Article 4, and in addition to any other rights provided by law, this corporation shall not, without first obtaining the affirmative vote or written consent of both Axys and the holders of an additional 3% of the votes of the corporation not being held by Axys, calculated in the manner as provided in Section 3(a) of this Article 4: (a) amend or repeal any provision of, or add any provision to, the corporation's Articles of Incorporation or Bylaws if such action would alter or change the preferences, rights, privileges or powers of, or the restrictions provided for the benefit of, Series A Preferred; (b) authorize or issue shares of any class or series of stock having any preference or priority as to dividends or redemption rights, liquidation preferences, conversion rights, or voting rights, superior to or on a parity with any preference or priority of Series A Preferred; (c) authorize or issue any bonds, debentures, notes or other obligations convertible into or exchangeable for, or having option rights to purchase, any shares of stock of this corporation having any preference or priority as to dividends or redemption rights, liquidation preferences, conversion rights, or voting rights, superior to or on a parity with any preference or priority of Series A Preferred; (d) reclassify any shares of capital stock of this corporation into shares having any preference or priority as to dividends or redemption rights, liquidation preferences, 31 conversion rights, or voting rights, superior to or on a parity with any preference or priority of Series A Preferred; (e) apply any of its assets to the redemption, retirement, purchase or acquisition, directly or indirectly, through subsidiaries (as defined in Section 425 of the Internal Revenue Code of 1986 (the "Tax Code")) or otherwise, of any shares of any class or series of Common Stock, except from employees, advisors, officers, directors and consultants of, and persons performing services for, this corporation or its subsidiaries on terms approved by the Board of Directors upon termination of employment or association; (f) do any act or thing which would result in taxation of the holders of shares of the Series A Preferred under Section 305 of the Tax Code (or any comparable provision of the Tax Code as hereafter from time to time amended); (g) engage in any transaction or series of related transactions constituting a Liquidation Event (excluding a voluntary dissolution, the approval of which shall be as governed by Section 1900 of the Code); (h) increase or decrease the authorized number of shares of Series A Preferred; or (i) make any change in the size of the Board of Directors of the corporation. 7. RESIDUAL RIGHTS. All rights accruing to the outstanding shares of the corporation not expressly provided for to the contrary herein shall be vested in the Common Stock. The Common Stock shall not be redeemable. 18 32 ARTICLE 5. LIMITATION OF DIRECTORS' LIABILITY The liability of directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. If, after the effective date of this Article, California law is amended in a manner which permits a corporation to limit the monetary or other liability of its directors in such case to a greater extent than is permitted on such effective date, the reference in this Article to "California law" shall to that extent be deemed to refer to California as so amended. ARTICLE 6. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS 1. INDEMNIFICATION OF DIRECTORS. The corporation shall, to the maximum extent and in a manner permitted by the Code, indemnify each of its Directors against expenses (as defined in Section 317(a) of the Code), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 317(a) of the Code), arising by reason of the fact that such person is or was a Director of the corporation. For purposes of this Article 6, a "Director" of the corporation includes any person (i) who is or was a Director of the corporation, (ii) who is or was serving at the request of the corporation as a director of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or (iii) who was a director of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 19 33 2. INDEMNIFICATION OF OTHERS. The corporation shall have the power, to the extent and in the manner permitted by the Code, to indemnify each of its employees, officers, and agents (other than Directors) against expenses (as defined in Section 317(a) of the Code), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 317(a) of the Code), arising by reason of the fact that such person is or was an employee, officer, or agent of the corporation. For purposes of this Article 6, an "employee" or "officer" or "agent" of the corporation (other than a Director) includes any person (i) who is or was an employee, officer, or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee, officer, or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee, officer or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 3. PAYMENT OF EXPENSES IN ADVANCE. Expenses and attorneys' fees incurred in defending any civil or criminal action or proceeding for which indemnification is required pursuant to Section 1 of this Article 6, or if otherwise authorized by the Board of Directors, shall be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized in this Article 6. 20 34 4. INDEMNITY NOT EXCLUSIVE. The indemnification provided by this Article 6 shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any Bylaw, agreement, vote of shareholders or Directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. The rights to indemnity hereunder shall continue as to a person who has ceased to be a Director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such person. 5. INSURANCE INDEMNIFICATION. The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a Director, officer, employee or agent of the corporation against any liability asserted against or incurred by such person in such capacity or arising out of that person's status as such, whether or not the corporation would have the power to indemnify that person against such liability under the provisions of this Article 6. 6. CONFLICTS. No indemnification or advance shall be made under this Article 6, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears: (a) That it would be inconsistent with a provision of these Articles, a resolution of the shareholders or an agreement in effect at the time of the accrual of the alleged 21 35 cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (b) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement. 7. RIGHT TO BRING SUIT. If a claim under this Article is not paid in full by the corporation within 90 days after a written claim has been received by the corporation (either because the claim is denied or because no determination is made), the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and if successful in whole or in part, the claimant shall also be entitled to be paid the expenses of prosecuting such claim. The corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the Code for the corporation to indemnify the claimant for the claim. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its shareholders) to have a determination prior to the commencement of such action that indemnification of the claimant is permissible in the circumstances because he or she has met the applicable standard of conduct, if any, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel, or its shareholders) that the claimant has not met the applicable standard of conduct, shall be a defense to such action or create a presumption for the purposes of such action that the claimant has not met the applicable standard of conduct. 22 36 8. INDEMNITY AGREEMENTS. The Board of Directors is authorized to enter into a contract with any Director, officer, employee or agent of the corporation, or any person who is or was serving at the request of the corporation as a Director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, or any person who was a Director, officer, employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation, providing for indemnification rights equivalent to or, if the Board of Directors so determines and to the extent permitted by applicable law, greater than, those provided for in this Article 6. 9. AMENDMENT, REPEAL OR MODIFICATION. Any amendment, repeal or modification of any provision of this Article 6 shall not adversely affect any right or protection of a Director or agent of the corporation existing at the time of such amendment, repeal or modification. 10. AMENDMENT OF CALIFORNIA LAW. If, after the effective date of this Article, California law is amended in a manner which permits a corporation to authorize indemnification of, or advancement of such defense expenses to, its directors or other persons, in any such case to a greater degree than is permitted on such effective date, the references in this Article to "California law" shall to that extent be deemed to refer to California as so amended 23 37 C. The foregoing Amended and Restated Articles of Incorporation has been duly approved by the Board of Directors. D. The foregoing Amended and Restated Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902 of the Code. The corporation has two classes of stock outstanding. The total number of outstanding shares of Common Stock of this corporation is 300,000 and the total number of outstanding shares of Preferred Stock of the corporation is none. The number of shares voting in favor of the amendment and restatement equaled or exceeded the vote required, such required vote being more than 50% of the outstanding shares of Common Stock. 24 38 We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this Certificate are true and correct of our own knowledge. Executed at San Francisco, California. Date: June 1, 1999 /s/ JERRY CAULDER --------------------------------------- Jerry Caulder, President /s/ ROGER SALQUIST --------------------------------------- Roger Salquist, Secretary [SEAL] 39 SERIES A PREFERRED STOCK PURCHASE AGREEMENT EXHIBIT B PUT OPTION SUBSCRIPTION FORM To: Axys Pharmaceuticals, Inc. 180 South Kimball Way South San Francisco, California 94080 Attn: Chief Financial Officer MISSOURI SOYBEAN MERCHANDISING COUNCIL, a Missouri not-for-profit corporation ("MSMC"), the holder of the Put Option (the "Put Option") described in Section 3 of that certain Series A Preferred Stock Purchase Agreement dated June 4, 1999, by and among Xyris Corporation, a California corporation ("Xyris"), MSMC and Axys Pharmaceuticals, Inc., a Delaware corporation ("Axys"), hereby elects to exercise the right represented by the Put Option to sell to Axys 300,300 shares of Series A Preferred Stock of Xyris held by MSMC in exchange for that number of shares of Axys Common Stock having an aggregate market value of $1,000,000, rounded down to the nearest whole number of shares, at the "market price" as defined in the Put Option. MSMC hereby covenants to cause a certificate representing such shares of Preferred Stock to be delivered to Axys upon surrender of this Put Option Subscription Form in accordance with the Put Option. Dated: ____________________ MISSOURI SOYBEAN MERCHANDISING COUNCIL, a Missouri not-for-profit corporation By: Name: Title: 40 SERIES A PREFERRED STOCK PURCHASE AGREEMENT EXHIBIT C FORM OF REGISTRATION RIGHTS AGREEMENT 41 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT") is entered into as of the ___ day of __________, ____, by and among AXYS PHARMACEUTICALS, INC., a Delaware corporation (the "COMPANY") and the persons listed on the signature page(s) hereto. RECITALS WHEREAS, the Company proposes to sell and issue shares of its Common Stock upon exercise of put options held by the purchasers of the Series A Preferred Stock of Xyris Corporation (the "PUT OPTIONS") pursuant to certain Series A Preferred Stock Purchase Agreements, among the Company, Xyris Corporation and such purchasers (the "XYRIS PURCHASE AGREEMENTS"). WHEREAS, as a condition of entering into the Xyris Purchase Agreements, the purchasers have requested that the Company extend to them certain registration rights as set forth below on any shares of Company Common Stock issued upon exercise of the Put Options. NOW, THEREFORE, in consideration of the mutual promises, representations, warranties, covenants and conditions set forth in this Agreement and the Xyris Purchase Agreements, the parties mutually agree as follows: SECTION 1. GENERAL 1.1 DEFINITIONS. As used in this Agreement the following terms shall have the following respective meanings: "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "FORM S-3" means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. "HOLDER" means any person owning of record Registrable Securities that have not been sold to the public or any assignee of record of such Registrable Securities in accordance with Section 2.8 hereof. "MATERIAL ADVERSE EVENT" means an occurrence having a consequence that either (a) is materially adverse to the business, prospects or financial condition of the Company or (b) has a reasonable likelihood of occurring and, if it were to occur, would be reasonably likely to materially adversely affect the business, prospects or financial condition of the Company. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the 2 42 declaration or ordering of effectiveness of such registration statement. "REGISTRABLE SECURITIES" means (a) Common Stock of the Company issued to the purchasers of the Series A Preferred Stock of Xyris Corporation (the "Series A Purchasers") in connection with the Xyris Purchase Agreements; and (b) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, such above-described securities. Notwithstanding the foregoing, Registrable Securities shall not include any securities sold by a person to the public pursuant to a registration statement or Rule 144 or sold in a private transaction in which the transferor's rights under Section 2 of this Agreement are not assigned. "REGISTRATION EXPENSES" means all expenses incurred by the Company in complying with Section 2.2 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, reasonable fees and disbursements not to exceed twenty-five thousand dollars ($25,000) of a single special counsel for the Holders, blue sky fees and expenses and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). "SEC" or "COMMISSION" means the Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SELLING EXPENSES" means all underwriting discounts and selling commissions applicable to the sale. SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER 2.1 RESTRICTIONS ON TRANSFER. (a) Each Holder agrees not to make any disposition of all or any portion of its Registrable Securities unless and until: (i) There is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement or such proposed disposition is otherwise exempt from registration under the Securities Act; or (ii) (A) The transferee has agreed in writing to be bound by the terms of this Agreement, (B) such Holder shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (C) if requested by the Company, such Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the Securities Act. 3 43 (iii) Notwithstanding the provisions of paragraphs (i) and (ii) above, no such registration statement or opinion of counsel shall be necessary for a transfer by a Holder which is (A) a partnership to its partners or former partners in accordance with partnership interests, (B) a corporation to its shareholders in accordance with their interest in the corporation, (C) a limited liability company to its members or former members in accordance with their interest in the limited liability company, (D) to an entity of which a majority of the equity and voting interest is owned by such Holder, directly or indirectly (an "AFFILIATE"), or (E) to the Holder's family member or trust for the benefit of an individual Holder; provided that in each case the transferee will be subject to the terms of this Agreement to the same extent as if he were an original Holder hereunder. (b) Each certificate representing Registrable Securities shall (unless otherwise permitted by the provisions of the Agreement) be stamped or otherwise imprinted with a legend substantially similar to the following (in addition to any legend required under applicable state securities laws): THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. (c) The Company shall be obligated to reissue promptly unlegended certificates at the request of any holder thereof if the holder shall have obtained an opinion of counsel (which counsel may be counsel to the Company) reasonably acceptable to the Company to the effect that the securities proposed to be disposed of may lawfully be so disposed of without registration, qualification or legend. (d) Any legend endorsed on an instrument pursuant to applicable state securities laws and the stop-transfer instructions with respect to such securities shall be removed upon receipt by the Company of an order of the appropriate blue sky authority authorizing such removal. 2.2 PIGGYBACK REGISTRATIONS. The Company shall notify all Holders of Registrable Securities in writing at least twenty-one (21) days prior to the filing of any registration statement under the Securities Act for purposes of a public offering of securities of the Company (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding registration statements relating to employee benefit plans or with respect to corporate reorganizations or other transactions under Rule 145 of the Securities Act) and will afford each such Holder an opportunity to include in such registration statement all or part of such Registrable Securities held by such Holder. Each 4 44 Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by it shall, within fifteen (15) days after the above-described notice from the Company, so notify the Company in writing. Such notice shall state the intended method of disposition of the Registrable Securities by such Holder. If a Holder decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein. (a) UNDERWRITING. If the registration statement under which the Company gives notice under this Section 2.2 is for an underwritten offering, the Company shall so advise the Holders of Registrable Securities. In such event, the right of any such Holder to be included in a registration pursuant to this Section 2.2 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. Notwithstanding any other provision of the Agreement, if the underwriter determines in good faith that marketing factors require a limitation of the number of shares to be underwritten, the number of shares that may be included in the underwriting shall be allocated, first, to the Company; second, to the Holders and any other shareholders of the Company currently having registration rights on a pro rata basis based on the total number of Registrable Securities held by the Holders and the total number of registrable securities held by such other shareholders; and third, to any shareholder of the Company (other than a Holder) on a pro rata basis. No such reduction shall (i) reduce the securities being offered by the Company for its own account to be included in the registration and underwriting, or (ii) reduce the amount of securities of the selling Holders included in the registration below twenty-five percent (25%) of the total amount of securities included in such registration, unless such registration does not include shares of any other selling shareholders, in which event any or all of the Registrable Securities of the Holders may be excluded in accordance with the immediately preceding sentence. In no event will shares of any other selling shareholder (other than those presently entitled to registration rights) be included in such registration which would reduce the number of shares which may be included by Holders without the written consent of Holders of not less than sixty-six and two-thirds percent (66 2/3%) of the Registrable Securities proposed to be sold in the offering. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter, delivered at least ten (10) business days prior to the effective date of the registration statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. For any Holder which is a partnership or corporation, the partners, retired partners and shareholders of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing person shall be deemed to be a single "Holder", and any pro rata reduction with respect to such "Holder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "Holder," as defined in this sentence. 5 45 (b) RIGHT TO TERMINATE REGISTRATION. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.2 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. The Registration Expenses of such withdrawn registration shall be borne by the Company in accordance with Section 2.3 hereof. 2.3 FORM S-3 REGISTRATION. In case the Company shall receive from any Holder or Holders of Registrable Securities a written request that the Company effect a registration on Form S-3 (or any successor to Form S-3) or any similar short-form registration statement and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will: (a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other holders of registrable securities; and (b) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the registrable securities of any other holder or holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 2.3: (i) if Form S-3 (or any successor or similar form) is not available for such offering by the Holders, or (ii) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public of less than one million dollars ($1,000,000), or (iii) if within thirty (30) days of receipt of a written request from the Holders pursuant to this Section, the Company gives notice to the Holders of the Company's intention to make a public offering within ninety (90) days; (iv) if the Company shall furnish to the Holders a certificate signed by the Chairman of the Board of Directors of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such Form S-3 registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than ninety (90) days after receipt of the request of the Holder or Holders under this Section 2.4; provided, that such right to delay a request shall be exercised by the Company not more than once in any twelve (12) month period, or (v) if the Company has already effected one (1) 6 46 registration on Form S-3 for the Holders pursuant to this Section 2.3, or (vi) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance. Notwithstanding the foregoing, in the event that the Holder or Holders of Registrable Securities request the withdrawal of a registration being made pursuant to this Section 2.3 and, in such withdrawal request, the Holder(s) state that it first learned (within seven (7) days of the date of such withdrawal request) of a Material Adverse Event (which is specified in reasonable detail in such withdrawal request) not known to the Holder(s) at the time of its request for registration of their Registrable Securities pursuant to this Section 2.3, then the Holder(s) shall retain its rights to request registration pursuant to this Section 2.3 as if it had not previously requested registration hereunder. (c) Subject to the foregoing, the Company shall file a Form S-3 registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. 2.4 EXPENSES OF REGISTRATION. Except as specifically provided herein, all Registration Expenses incurred in connection with any registration under Section 2.2 or 2.3 herein shall be borne by the Company. All Selling Expenses incurred in connection with any registrations hereunder, shall be borne by the holders of the securities so registered pro rata on the basis of the number of shares so registered. 2.5 OBLIGATIONS OF THE COMPANY. Whenever required to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use all reasonable efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to ninety (90) days or, if earlier, until the Holder or Holders have completed the distribution related thereto. The Company shall not be required to file, cause to become effective or maintain the effectiveness of any registration statement that contemplates a distribution of securities on a delayed or continuous basis pursuant to Rule 415 under the Securities Act. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement for the period set forth in paragraph (a) above. (c) Furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the 7 47 Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (d) Use its reasonable best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (g) Use its best efforts to furnish, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, (i) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and (ii) a letter dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering addressed to the underwriters. 2.6 TERMINATION OF REGISTRATION RIGHTS. All registration rights granted under this Section 2 shall terminate and be of no further force and effect two (2) years after the date of this Agreement. In addition, a Holder's registration rights shall expire if all Registrable Securities held by and issuable to such Holder (and its affiliates, partners, former partners, members and former members) may be sold under Rule 144 during any ninety (90) day period. 2.7 DELAY OF REGISTRATION; FURNISHING INFORMATION. (a) No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2. (b) It shall be a condition precedent to the obligations of the Company to take any action pursuant to Section 2.2 or 2.3 that the selling Holders shall furnish to the Company such information regarding themselves, the Registrable Securities held by them and the intended method of disposition of such securities as shall be required to effect the 8 48 registration of their Registrable Securities. 2.8 INDEMNIFICATION. In the event any Registrable Securities are included in a registration statement under Section 2.2.or 2.3: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, officers and directors of each Holder, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "VIOLATION") by the Company: (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law in connection with the offering covered by such registration statement; and the Company will pay as incurred to each such Holder, partner, officer, director, underwriter or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided however, that the indemnity agreement contained in this Section 2.7(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, partner, officer, director, underwriter or controlling person of such Holder. (b) To the extent permitted by law, each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration is being effected, indemnify and hold harmless the Company, each of its directors, its officers and each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter and any other Holder selling securities under such registration statement or any of such other Holder's partners, directors or officers or any person who controls such Holder, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, underwriter or other such Holder, or partner, director, officer or controlling person of such other Holder may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder under an instrument duly executed 9 49 by such Holder and stated to be specifically for use in connection with such registration; and each such Holder will pay as incurred any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or other Holder, or partner, officer, director or controlling person of such other Holder in connection with investigating or defending any such loss, claim, damage, liability or action if it is judicially determined that there was such a Violation; provided, however, that the indemnity agreement contained in this Section 2.7(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided further, that in no event shall any indemnity under this Section 2.7 exceed the net proceeds from the offering received by such Holder. (c) Promptly after receipt by an indemnified party under this Section 2.7 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.7, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 2.7, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 2.7. (d) If the indemnification provided for in this Section 2.7 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the Violation(s) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, that in no event shall any contribution by a Holder hereunder exceed the net proceeds from the offering received by such Holder. 10 50 (e) The obligations of the Company and Holders under this Section 2.7 shall survive completion of any offering of Registrable Securities in a registration statement and the termination of this Agreement. No indemnifying party, in the defense of any such claim or litigation, shall, except with the consent of each indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. 2.9 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to register Registrable Securities pursuant to this Section 2 may be assigned by any of the Series A Purchasers to a transferee or assignee which is an affiliate, subsidiary, parent, general partner, limited partner, retired partner, member or retired member of such Series A Purchaser; provided, however, (i) such Series A Purchaser shall, within ten (10) days after such transfer, furnish to the Company written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned and (ii) such transferee shall agree to be subject to all restrictions set forth in this Agreement. 2.10 "MARKET STAND-OFF" AGREEMENT; AGREEMENT TO FURNISH INFORMATION. Each Holder hereby agrees that such Holder shall not sell, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any Common Stock (or other securities) of the Company held by such Holder (other than those included in the registration) for a period specified by the representative of the underwriters of Common Stock (or other securities) of the Company not to exceed ninety (90) days following the effective date of a registration statement of the Company filed under the Securities Act; provided that all officers and directors of the Company enter into similar agreements. Each Holder agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter which are consistent with the foregoing or which are necessary to give further effect thereto. In addition, if requested by the Company or the representative of the underwriters of Common Stock (or other securities) of the Company, each Holder shall provide, within ten (10) days of such request, such information as may be required by the Company or such representative in connection with the completion of any public offering of the Company's securities pursuant to a registration statement filed under the Securities Act. The obligations described in this Section 2.10 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a SEC Rule 145 transaction on Form S-4 or similar forms that may be promulgated in the future. The Company may impose stop-transfer instructions with respect to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of said ninety (90) day period. 2.11 RULE 144 REPORTING. With a view to making available to the Holders the benefits of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the Company agrees to use its best efforts to: 11 51 (a) Make and keep public information available, as those terms are understood and defined in SEC Rule 144 or any similar or analogous rule promulgated under the Securities Act, at all times after the effective date of the first registration filed by the Company for an offering of its securities to the general public; (b) File with the SEC, in a timely manner, all reports and other documents required of the Company under the Exchange Act; and (c) So long as a Holder owns any Registrable Securities, furnish to such Holder forthwith upon request: a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 of the Securities Act, and of the Exchange Act (at any time after it has become subject to such reporting requirements); a copy of the most recent annual or quarterly report of the Company; and such other reports and documents as a Holder may reasonably request in availing itself of any rule or regulation of the SEC allowing it to sell any such securities without registration. 12 52 SECTION 3. MISCELLANEOUS 3.1 GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California. 3.2 SURVIVAL. The representations, warranties, covenants, and agreements made herein shall survive any investigation made by any Holder and the closing of the transactions contemplated by the Xyris Purchase Agreements. All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder solely as of the date of such certificate or instrument. 3.3 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 and shall inure to the benefit of and be enforceable by each person who shall be a holder of Registrable Securities from time to time; provided, however, that prior to the receipt by the Company of adequate written notice of the transfer of any Registrable Securities specifying the full name and address of the transferee, the Company may deem and treat the person listed as the holder of such shares in its records as the absolute owner and holder of such shares for all purposes, including the payment of dividends or any redemption price. 3.4 ENTIRE AGREEMENT. This Agreement, the Xyris Purchase Agreements and the side letters entered into in connection with the Xyris Purchase Agreements between the Series A Purchasers who are parties hereto and the Company (each a "SIDE LETTER") and the other documents delivered pursuant thereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof and no party shall be liable or bound to any other in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein and therein. 3.5 SEVERABILITY. In the event one or more of the provisions of this Agreement should, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 3.6 AMENDMENT AND WAIVER. (a) Except as otherwise expressly provided, this Agreement may be amended or modified only upon the written consent of the Company and each of the holders of the Registrable Securities. (b) Except as otherwise expressly provided, the obligations of the Company and the rights of the Holders under this Agreement may be waived only with the 13 53 written consent of each of the holders of the Registrable Securities. 3.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to exercise any right, power, or remedy accruing to any Holder, upon any breach, default or noncompliance of the Company under this Agreement shall impair any such right, power, or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent, or approval of any kind or character on any Holder's part of any breach, default or noncompliance under the Agreement or any waiver on such Holder's part of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, by law, or otherwise afforded to Holders, shall be cumulative and not alternative. 3.8 NOTICES. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the party to be notified at the address as set forth on the signature pages hereof or at such other address as such party may designate by ten (10) days advance written notice to the other parties hereto. 3.9 ATTORNEYS' FEES. In the event that any suit or action is instituted to enforce any provision in this Agreement, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals. 3.10 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. 3.11 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 3.12 JOINDER. At any time after the execution of this Agreement by the Company and any Series A Purchaser, any other Series A Purchaser who is entitled to the rights set forth in this Agreement may become a party to this Agreement by signing a counterpart signature page to this Agreement and delivering such counterpart signature page to the Company who shall send a copy thereof to any other party to this Agreement. From and after the execution and delivery to the Company of such counterpart signature page by a Series A Purchaser, such Series A Purchaser shall be a party to this Agreement and shall be entitled to all of the rights of a Holder under this Agreement. 14 54 IN WITNESS WHEREOF, the parties hereto have executed this REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof. AXYS PHARMACEUTICALS, INC. -------------------------------- By: By: Title: Title: --------------------------------- -------------------------- Address: 180 Kimball Way Address: South San Francisco, CA 94080 ------------------------ Attn: Chief Financial Officer Attn: FAX: (650) 829-1001 --------------------------- FAX: ---------------------------- 15 EX-10.111 6 4TH AMENDMENT TO EXPANSION LEASE 1 EXHIBIT 10.111 FOURTH AMENDMENT TO EXPANSION LEASE THIS FOURTH AMENDMENT TO EXPANSION LEASE ("Amendment"), dated and effective as of March 31, 1999 (the "Effective Date"), is entered into by and between SEQUANA THERAPEUTICS, INC., a California corporation, doing business as AXYS PHARMACEUTICALS, INC. ("Tenant"), and ARE-11099 NORTH TORREY PINES, LLC, a Delaware limited liability company, successor-in-interest to ALEXANDRIA REAL ESTATE EQUITIES, INC., formerly HEALTH SCIENCE PROPERTIES, INC., a Maryland corporation ("Landlord") in connection with the following: A. Landlord and Tenant are parties to that certain Expansion Lease, dated as of November 20, 1995, as amended by that certain First Amendment to Expansion Lease dated as of October __, 1996, by that certain Second Amendment to Expansion Lase dated as of May 20, 1997, and by that certain Third Amendment to Expansion Lease ("Third Amendment") dated as of August 24, 1998 (as amended, the "Lease"), pursuant to which Tenant leases from Landlord certain premises (the "Demised Premises") in a building located at 11099 North Torrey Pines Road, La Jolla, California (the "Building"), and more particularly described in the Lease. All capitalized terms used but not otherwise defined herein shall have the meanings given them in the Lease. B. Landlord has agreed to provide a tenant improvement allowance to Tenant for a portion of the Demised Premises, conditioned upon Tenant repaying such tenant improvement allowance over the remainder of the term of the Lease, and Tenant has agreed to accept such tenant improvement allowance upon such condition. C. Landlord and Tenant now desire to amend the Lease to reflect Landlord's provision of the tenant improvement allowance to and the amortized repayment thereof by Tenant upon the terms and conditions set forth herein. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and the mutual covenants contained herein, the parties hereto hereby agree as follows: 1. AMENDMENTS TO LEASE. 1.1 Section 4.6 of the Lease is hereby amended by (i) adding the title "Tenant Improvement Allowances:" at the beginning of such section (after the number of the section), (ii) renumbering the existing text of Section 4.6 as Section 4.6(a), (iii) changing all existing references in the Lease from "Tenant Improvements" to "Suite 160 & 210 Tenant Improvements," (iv) changing all existing references in the Lease from "TI Allowance" to "Suite 160 & 210 TI Allowance," and (v) adding the following as Section 4.6(b): "(b) Landlord shall provide Tenant with a tenant improvement allowance (the "Suite 100 TI Allowance") of up to Three Hundred Thousand Dollars ($300,000) for tenant improvements which Tenant desires to make to Suite 100 (the "Suite 100 TI's"). Such amount shall be paid by Landlord to Tenant in one lump sum payment upon: (i) lien free completion of the Suite 100 TI's, (ii) Tenant's acceptance thereof from the contractor or contractors performing such work, and (iii) presentation to Landlord of lien waivers, receipts for payment and such other evidence of the payment in full of all costs and expenses of the Suite 100 TI's as Landlord shall reasonably request. If the total cost of the Suite 100 TI's exceeds the Suite 100 TI Allowance, the overage shall be the sole responsibility of Tenant, and shall be at Tenant's sole cost and expense. Except for the payment of the Suite 100 TI Allowance and as set forth in the Third Amendment, Landlord shall have no obligation or liability of any kind with respect to the Suite 100 TI's, which shall be subject to all of the approvals and conditions described in Article 17 hereof with respect to Alterations undertaken by Tenant." 2 1.2 Section 5.2 of the Lease is hereby amended in its entirety, effective from and after the Effective Date, to read as follows: "5.2 In addition to Basic Annual Rent, Tenant agrees to pay to Landlord as additional rent ("Additional Rent") at times hereinafter specified in this Lease (i) Tenant's pro rata share ("Tenant's Pro Rata Share"), as set forth in Section 2.1.6 and as may be subsequently amended, of Operating Expenses as provided in Article 7, (ii) commencing June 1, 1999, tenant improvement rent equal to the actual amount of the Suite 100 TI Allowance actually paid by Landlord, fully amortized, with interest at a rate of 13% per annum, in 31 equal monthly installments commencing June 1, 1999 and ending December 1, 2001 ($11,445.04 per month if the full $300,000 Suite 100 TI Allowance is used by Tenant), and (iii) any other amounts that Tenant assumes or agrees to pay under the provisions of this Lease that are owed to Landlord, including without limitation the cost of utilities not paid by Tenant directly to the supplier and any and all other sums that may become due by reason of any default of Tenant or failure on Tenant's part to comply with the agreements, terms, covenants and conditions of this Lease to be performed by Tenant, after notice and lapse of applicable cure period." 2. MISCELLANEOUS: 2.1 This Amendment shall be deemed to have been executed and delivered within the State of California, and the rights and obligations of the parties hereto shall be construed and enforced in accordance with, and governed by, the laws of the State of California. 2.2 This Amendment is the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous oral and written agreements and discussions. This Amendment may be amended only by an agreement in writing, signed by the parties hereto. 2.3 This Amendment is binding upon and shall inure to the benefit of the parties hereto, their respective agents, employees, representatives, officers, directors, divisions, subsidiaries, affiliates, assigns, heirs, successors in interest and shareholders. 2.4 Each party has cooperated in the drafting and preparation of this Amendment. Hence, in any construction to be made of this Amendment, the same shall not be construed against any party. 2.5 Each term of this Amendment is contractual and not merely a recital. 2.6 This Amendment may be executed in counterparts, and when each party has signed and delivered at least one such counterpart, each counterpart shall be deemed an original, and, when taken together with other signed counterparts, shall constitute one Amendment, which shall be binding upon and effective as to all parties. 2.7 The unenforceability of a portion of this Amendment shall not affect the enforceability of the remainder of this Amendment. 2.8 The parties will execute all such further and additional documents as shall be reasonable, convenient, necessary or desirable to carry out the provisions of this Amendment. 2.9 Except as specifically amended or modified by this Amendment, the Lease (including, without limitation, the First Amendment, the Second Amendment, and the Third Amendment) remains in full force and effect. 3 2.10 EACH PARTY ACKNOWLEDGES THAT IT HAS HAD ADEQUATE OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL OF ITS CHOOSING IN CONNECTION WITH THE EXECUTION HEREOF AND HAS DONE SO OR VOLUNTARILY ELECTED NOT TO DO SO. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above. "Tenant" SEQUANA THERAPEUTICS, INC., a California corporation, d/b/a Axys Pharmaceuticals, Inc. By: /s/ Daniel H. Petree ---------------------------------------------- Its: President and CEO --------------------------------------------- "Landlord" ARE - 11099 NORTH TORREY PINES, LLC, a Delaware limited liability company By: ALEXANDRIA REAL ESTATE EQUITIES, INC., a Maryland corporation By: /s/ Lynn Anne Shapiro ---------------------------------------------- Its: General Counsel --------------------------------------------- EX-10.112 7 1ST AMENDMENT TO LEASE 1 EXHIBIT 10.112 FIRST AMENDMENT TO LEASE THIS FIRST AMENDMENT TO LEASE (this "Amendment") is entered into as of December 1, 1998 (the "Effective Date"), by and between ARE-JOHN HOPKINS COURT, LLC, a Delaware limited liability company ("Landlord"), and SEQUANA THERAPEUTICS, INC., a California corporation doing business as Axys Pharmaceuticals, Inc. ("Tenant"), in connection with the following: A. Landlord and Tenant have previously entered into that certain Lease dated January 7, 1998 (the "Lease"), pursuant to which Tenant leases from Landlord certain portions of the property commonly known as 3550 John Hopkins Court, San Diego, California, and more particularly described in the Lease. All capitalized terms used but not otherwise defined herein shall have the meanings given such terms in the Lease. B. Landlord and Tenant desire to amend the Lease on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the mutual covenants set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows: 1. Amendments to Lease. Effective as of the Effective Date, the Lease is amended as follows: a. Section 2.1.4 is deleted in its entirety. b. Section 2.1.5 is deleted in its entirety. c. Section 2.1.7 is deleted in its entirety and replaced with the following: "2.1.7 (a) As used herein, "Term Commencement Date" shall mean April 1, 1999. (b) As used herein, "Term Expiration Date" shall mean December 31, 1999." d. Section 2.1.10(a) is deleted in its entirety and replaced with the following: "(a) Address for Rent Payment ARE-John Hopkins Court, LLC 135 N. Los Robles Avenue, Suite 250 Pasadena, California 91101 Attention: Accounts Receivable" [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED. 2 e. Section 2.1.10(b) is deleted in its entirety and replaced with the following: "(b) Address for Notices to Landlord ARE-John Hopkins Court, LLC 135 N. Los Robles Avenue, Suite 250 Pasadena, California 91101 Attention: General Counsel" f. Section 2.1.10(c) is deleted in its entirety and replaced with the following: "(c) Address for Notices to Tenant: Axys Pharmaceuticals, Inc. 180 Kimball Way South San Francisco, California 94080 Attention: Mr. Frederick J. Ruegsegger With a copy to: Axys Pharmaceuticals, Inc. 180 Kimball Way South San Francisco, California 94080 Attention: William J. Newell, Esq." g. Section 2.1.13 is deleted in its entirety and replaced with the following: "2.1.13 As used herein, "Leasehold Improvement Allowance" shall mean $0.00." h. Section 2.1.14 is deleted in its entirety. i. The following shall be added as a new Section 3.3 to the Lease: "3.3 At any time during the Term, Landlord shall have the right to terminate this Lease by delivering written notice of such termination (the "Termination Notice") to Tenant not less than 7 business days prior to the effective date of such termination (the "Termination Date") as set forth in such Termination Notice. Upon the Termination Date, any amounts of Rent due and owing from Tenant to Landlord, including,without limitation, any then unpaid portion of Basic Annual Rent (as hereinafter defined), shall be immediately due and payable." j. Each of Sections 4.1, 4.2, 4.3 and 4.5 is hereby deleted in its entirety. 2 [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED. 3 k. So long as Tenant is not in default under the Lease (as amended by this Amendment, including the provisions of paragraph 2, below) beyond any applicable cure periods, Section 5.1 shall be deleted in its entirety and replaced with the following: "5.1 Tenant agrees to pay Landlord rent in the total amount of $[*] ("Basic Annual Rent") for the term of the Lease. Basic Annual Rent shall be payable as follows: (a) Concurrent with the execution and delivery of the First Amendment to Lease by and between Landlord and Tenant ("First Amendment"), Tenant shall pay to Landlord the amount of [*] (First Installment of Basic Annual Rent"). (b) Commencing on April 1, 1999, and on the first day of each month thereafter until the Term Expiration Date, Tenant shall pay to Landlord the amount of [*] (each such payment, a "Monthly Rental Installment of Basic Annual Rent"). (c) In the event this Lease is terminated by Landlord pursuant to Section 3.3 of this Lease, any and all portions of Basic Annual Rent not then paid to Landlord shall immediately become due and payable. Tenant's obligation to pay Basic Annual Rent shall survive the early termination of this Lease." l. Section 6.1 is deleted in its entirety. m. Section 7.2 is deleted in its entirety and replaced with the following: "7.2 Tenant shall pay to Landlord on the first day of each month from the Term Commencement Date through the earlier to occur of (i) the Termination Date, or (ii) the Term Expiration Date, as Additional Rent, [*] Any amount due under this Section 7.2 for any period which is less than a full month shall be prorated (based on a 30 day month) for such fractional month." n. Section 7.3 is deleted in its entirety. 3 [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED. 4 o. Section 7.4 is deleted in its entirety and replaced with the following: "7.4 Tenant shall not be responsible for Operating Expenses attributable to the time period prior to the Term Commencement Date. The responsibility of Tenant for Operating Expenses shall continue until the earlier to occur of (i) the Termination Date, or (ii) the Term Expiration Date." p. Section 10.4 is deleted in its entirety. q. Section 14.1 is deleted in its entirety and replaced with the following: "14.1 Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the condition of the Demised Premised, the Building or the Project, or with respect to the suitability of any of the foregoing for the conduct of Tenant's business." r. Section 17.1 is deleted in its entirety and replaced with the following: "17.1 Tenant shall make no alterations, additions or improvements in or to the Demised Premises." s. Each of Sections 17.2, 17.3, 17.4, 17.5, 17.7, 17.10 and 17.11 is deleted in its entirety. t. Section 22.1 is deleted in its entirety and replaced with the following: "22.1 In the event of a partial or total destruction of the Building by fire or other casualty, this Lease shall terminate as of the date of such destruction and (i) any amounts of Rent due and owing from Tenant to Landlord, including, without limitation, any then unpaid portion of Basic Annual Rent shall be immediately due and payable, and (ii) the responsibility of Tenant for Operating Expenses shall terminate as of the date of such destruction." u. Each of Sections 22.2, 22.3, 22.4, 22.5, 22.6, and 22.7 is deleted in its entirety. v. Section 23.1 is deleted in its entirety and replaced with the following: "23.1 In the event of a whole or partial taking of the Building for any public or quasi-public purpose by any lawful power or authority by exercise of the right of appropriation, condemnation or eminent domain, or a sale to prevent such taking, this Lease shall terminate as of the date of such taking or sale and (i) and amounts of Rent due and owing from Tenant to Landlord, including, without limitation, any then unpaid portion of Basic 4 5 Annual Rent shall be immediately due and payable, and (ii) the responsibility of Tenant for Operating Expenses shall terminate as of the date of such taking or sale." w. Section 23.2 is deleted in its entirety and replaced with the following: "23.2 Any award for a whole or partial taking of the Building for any public or quasi-public purpose by any lawful power or authority by exercise of the right of appropriation, condemnation or eminent domain shall belong to Landlord." x. Each of Sections 23.3 and 23.4 is deleted in its entirety. y. Section 24.4(a) is deleted in its entirety. z. Section 24.4(b) is deleted in its entirety and replaced with the following: "(b) The failure of Tenant to make any payment of Rent as and when due, where such failure shall continue for a period of 5 days after Tenant's actual receipt of written notice of delinquency from Landlord." aa. Section 25.1 is deleted in its entirety and replaced with the following: "25.1 Tenant shall not, either voluntarily or by operation of law, directly or indirectly, sell, hypothecate, assign, pledge, encumber or otherwise transfer this Lease, or sublet the Demised Premises or any part hereof, or permit or suffer the Demised Premises or any part thereof to be used or occupied by anyone other than Tenant or Tenant's employees." bb. Each of Sections 25.4, 25.5, 25.6, 25.8 and 25.10 is deleted in its entirety. cc. Section 43.11 is deleted in its entirety and replaced with the following: "43.11 Notices. Any notice, consent, demand, bill, statement or other communication required or permitted to be given hereunder (each, a "Notice") must be in writing and shall be given by reputable overnight courier and shall be deemed received on the required delivery date set forth on such courier's mailing label for such Notice. All Notices shall be addressed to Tenant or Landlord, as applicable, at the addresses set forth for each party in Section 2.1.10, above." dd. Section 45.1 is deleted in its entirety. ee. Each of Sections 46.1, 46.2, 46.3, 46.4 and 46.5 is deleted in its entirety. 5 6 2. Abatement of Lease Provisions. So long as Tenant is not then in default under Sections 5, 7, 10, 13, 16, 17, 19, 24, 25, 29 or 41 of the Lease (as such sections may be amended by this Amendment), Tenant shall have no obligations under, and shall not be in default under the Lease for failure to perform pursuant to the terms of, Sections 9, 18, 21.3, 21.4, 21.5, 21.6 and 21.8. 3. Forbearance by Landlord. So long as Tenant is not in default under the Lease (as amended by this Amendment), Landlord shall not commence any legal action against Tenant for any defaults under the Lease by Tenant occurring prior to the Effective Date. Concurrent with the final payment of Basic Annual Rent by Tenant, Landlord and Tenant shall execute the Agreement of Mutual General Releases attached hereto as Exhibit A. 4. MISCELLANEOUS: a. This Amendment shall not be effective unless and until Tenant shall have delivered to Landlord the First Installment of Basic Annual Rent. b. This Amendment shall be deemed to have been executed and delivered within the State of California, and the rights and obligations of the parties hereto shall be construed and enforced in accordance with, and governed by, the laws of the State of California. c. This Amendment is the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous oral and written agreements and discussions. This Amendment may be amended only by an agreement in writing, signed by the parties hereto. d. This Amendment is binding upon and shall inure to the benefit of the parties hereto, their respective agents, employees, representatives, officers, directors, divisions, subsidiaries, affiliates, assigns, heirs, successors in interest and shareholders. e. Each party has cooperated in the drafting and preparation of this Amendment. Hence, in any construction to be made of this Amendment, the same shall not be construed against any party. f. Each term of this Amendment is contractual and not merely a recital. g. This Amendment may be executed in counterparts, and when each party has signed and delivered at least one such counterpart, each counterpart shall be deemed an original, and, when taken together with other signed counterparts, shall constitute one Amendment, which shall be binding upon and effective as to all parties. 6 7 h. The unenforceability of a portion of this Amendment shall not affect the enforceability of the remainder of this Amendment. i. The parties will execute all such further and additional documents as shall be reasonable, convenient, necessary or desirable to carry out the provisions of this Amendment. i. Except as specifically amended or modified by this Amendment, the Lease remains in full force and effect. j. EACH PARTY ACKNOWLEDGES THAT IT HAS HAD ADEQUATE OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL OF ITS CHOOSING IN CONNECTION WITH THE EXECUTION HEREOF AND HAS DONE SO, OR VOLUNTARILY ELECTED NOT TO DO SO. [SIGNATURES ON FOLLOWING PAGE] 7 8 IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above. [STAMP] APPROVED AS TO "Tenant" LEGAL FORM LEGAL AFFAIRS AXYS PHARMACEUTICALS, INC., a California [Illegible corporation Initials] By: /s/ Frederick J. Ruegsegger ------------------------------------ Its: Sr. VP & CFO ------------------------------------ "Landlord" ARE - JOHN HOPKINS COURT, a Delaware limited liability company BY: ARE-QRS CORP., a Maryland corporation, managing member By: /s/ Lynn Anne Shapiro ------------------------------------ Its: General Counsel ------------------------------------ 8 9 Schedule 1 Estimated Operating Expense Budget 9 10 SCHEDULE 1 3550 JOHNS HOPKINS COURT, SAN DIEGO, CA ESTIMATED BUDGET OF OPERATING EXPENSES AXYS PHARMACEUTICALS, INC. [*] [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED. 11 Exhibit A Agreement of Mutual General Releases (Attached). 10 12 AGREEMENT OF MUTUAL GENERAL RELEASES THIS AGREEMENT OF MUTUAL GENERAL RELEASES (this "Agreement") is made as of __________________________, ____, by and between ARE - JOHN HOPKINS COURT, LLC, a Delaware limited liability company ("ARE"), and SEQUANA THERAPEUTICS, INC., a California corporation doing business as Axys Pharmaceuticals, Inc. ("Sequana") with respect to the following facts: A. ARE and Sequana previously entered into that certain Lease dated January 7, 1998, as amended by that certain First Amendment to Lease dated December 1, 1998 (as amended, the "Lease"), pursuant to which Sequana leased from ARE certain portions of the property commonly known as 3550 John Hopkins Court, San Diego, California, and more particularly described in the Lease. All capitalized terms used but not otherwise defined herein shall have the meanings given such terms in the Lease. B. Certain disputes arose between ARE and Sequana in connection with Sequana' performance of its obligations under the Lease (the "Lease Disputes"). C. Pursuant to the terms of the First Amendment to Lease, (i) ARE agreed to release Sequana from any liability or claim in connection with the Lease Dispute so long as Sequana fully performed under the terms of the First Amendment to Lease, and (ii) Sequana agreed to release ARE from any liability or claim in connection with the Lease Dispute so long as ARE executed a release in favor of Sequana. D. Concurrent with the execution of this Agreement, Sequana shall deliver to ARE any and all amounts of Rent due and owning to ARE, including, without limitation, all unpaid amounts of Basic Annual Rent, and the Lease shall terminate. NOW THEREFORE, for good and valuable consideration, the adequacy of which is acknowledged, ARE and Sequana agree as follows: 1. Except as to the representations, warranties and obligations set forth in and arising from this Agreement, ARE, on behalf of itself and each of its predecessors, successors, licensees, transferees, legal representatives, trustees, beneficiaries, assigns, employees, servants, affiliates, and alter egos, hereby fully and forever releases and discharges Sequana, and each of its predecessors, successors, licensees, transferees, legal representatives, trustees, beneficiaries, assigns, shareholders, directors, officers, partners, employees, servants, subsidiaries, divisions, administrators, affiliates, alter egos and parent corporations, from any and all, known or unknown, anticipated or unanticipated, suspected or unsuspected, or fixed, conditional or contingent actions or causes of action at law or in equity, suits, debts, demands, claims, contracts, covenants, liens, liabilities, losses, costs, expenses (including, without limitation, attorneys' fees) or damages of every kind, nature and description, arising out of or relating to the Lease and the Lease Disputes. 13 2. Except as to the representations, warranties and obligations set forth in and arising from this Agreement, Sequana, on behalf of itself and each of its predecessors, successors, licensees, transferees, legal representatives, trustees, beneficiaries, assigns, employees, servants, affiliates, and alter egos, hereby fully and forever releases and discharges ARE, and each of its predecessors, successors, licensees, transferees, legal representatives, trustees, beneficiaries, assigns, shareholders, directors, officers, partners, employees, servants, subsidiaries, division, administrators, affiliates, alter egos and parent corporations, from any and all, known or unknown, anticipated or unanticipated, suspected or unsuspected, or fixed, conditional or contingent actions or causes of action at law or in equity, suits, debts, demands, claims, contracts, covenants, liens, liabilities, losses, costs, expenses (including, without imitation, attorney's fees) or damages of every kind, nature and description, arising out of or relating to the Lease and Lease Disputes. 3. With respect to the covenants contained in Paragraphs 1 and 2 of this Agreement, each of the parties hereto expressly understands and agrees that this Agreement fully and finally releases and forever resolves the matters released and discharged in Paragraphs 1 and 2, including those which may be unknown, unanticipated and/or unsuspected. Each of the parties hereto acknowledges that it is aware that it or its agents or employees may hereafter discover facts in addition to or different from those which it now knows or believes to exist with respect to the subject matter of this Agreement, but that it is its intention hereby fully, finally and forever to settle and release all of the claims, disputes and differences known or unknown, suspected or unsuspected, which now exist, may exist or heretofore have existed between or among the parties, except as otherwise expressly provided herein. Upon the advice of legal counsel, each of the parties hereto hereby expressly waives all benefits under Section 1542 of the California Civil Code, as well as under any other statues or common law principles of similar effect of this or any other jurisdiction, to the extent that such benefits may contravene the provisions of Paragraphs 1 and 2 of this Agreement. Each of the parties hereto acknowledges that it has read and understands Section 1542 of the California Civil Code, which provides as follows: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. EACH OF THE PARTIES HERETO, BEING AWARE OF SUCH CODE SECTION, HEREBY EXPRESSLY WAIVES ANY RIGHTS IT MAY HAVE THEREUNDER AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW PRINCIPALS OF SIMILAR EFFECT. INITIALED BY ARE: INITIALED BY SEQUANA: 14 4. Each of the parties hereto represents and warrants that it has not assigned or otherwise transferred (voluntarily, involuntarily or by operation of law) any right, title or interest in any claim which it has, may have or may have had and which is the subject of this Agreement. Each of the parties hereto agrees to indemnify, save and hold forever harmless the entities and persons released by such party under this Agreement from any claims, liabilities, demand, damages, costs and expenses, including attorneys' fees, incurred as a result of any person or entity asserting any such claim pursuant to any such assignment or transfer. It is the intention of the parties hereto that this indemnity does not require payment as a condition precedent to recovery. 5. Each of the parties hereto warrants, represents and agrees that in executing this Agreement: a. It has received independent legal advice from its attorneys with respect to each aspect of this Agreement; b. It is not relying upon any representation or statement made by or on behalf of any of the entities and persons released by such party with respect to any aspect of this Agreement; c. It assumes the risk of any mistake of fact with regard to any aspect of this Agreement; and d. It carefully has read and considered this Agreement in it entirety and fully understands its contents and the significance of each of its aspects. 6. No promise or inducement of any nature has been made other than those set forth in this Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof. This Agreement may not be amended or modified except by a written instrument executed by all of the parties hereto. 7. This Agreement shall be binding upon and shall inure to the benefit of the assignees, licensees, successors and transferees of the entities and persons releases hereunder, whether by license, sale, merger, reverse merger, sale of stock, insolvency, sale of assets, operation of law, or, without limitation, otherwise. 8. If any action at law or in equity is brought to enforce or interpret the provisions of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees in addition to any other relief to which that party may be entitled. 9. If any provision of this Agreement is found, determined, and/or adjudicated to be illegal, invalid or unenforceable, such finding shall in no way affect the legality, validity or enforceability of the remaining provisions of this Agreement, which shall be interpreted as if the illegal, invalid or unenforceable provision had been omitted. 3 15 10. This Agreement may be executed in counterparts and each signed counterpart shall constitute a duplicate original. 11. This Agreement shall be governed and constructed in accordance with the applicable laws of the State of California. Executed as of the date first written above. "Sequana" SEQUANA THERAPEUTICS, INC., a California corporation doing business as Axys Pharmaceuticals, Inc. By: _________________________________ Its:_________________________________ "ARE" ARE-JOHN HOPKINS COURT, a Delaware limited liability company BY: ARE-QRS CORP., a Maryland Corporation, managing member By: __________________________ Its:__________________________ EX-27 8 FINANCIAL DATA SCHEDULE
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 UNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND NOTES THERETO. 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 23,025 29,330 4,148 0 996 60,650 54,938 (32,462) 89,421 23,139 0 0 0 290,944 39,979 89,421 5,335 20,131 1,450 0 40,418 0 1,011 (20,961) 0 (20,961) 0 0 0 (20,961) (0.69) (0.69)
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