-----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, NVEKrhWZDgio6k73cZkxPOS9Dn681WO4kvqaksLJ960XX3Em2GaErL8FHrJDE4/W eAOTkEfwBQG6uSh+bmMDQQ== 0000950149-99-002036.txt : 19991117 0000950149-99-002036.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950149-99-002036 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: 99756413 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 THE PERIOD ENDED 09/30/99 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 SEPTEMBER 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 30,442,268 as of October 31, 1999. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 AXYS PHARMACEUTICALS, INC. INDEX
PAGE ---- PART I: FINANCIAL INFORMATION Item 1. Financial Statements (unaudited)* Consolidated Balance Sheets -- September 30, 1999 and December 31, 1998......................................... 3 Consolidated Statements of Operations -- Three and nine months ended September 30, 1999 and 1998.................. 4 Consolidated Statements of Cash Flows -- nine months ended September 30, 1999 and 1998............................... 5 Notes to Consolidated Financial Statements -- September 30, 1999...................................................... 6 Management's Discussion and Analysis of Financial Condition Item 2. and Results of Operations................................. 10 Item 3. Quantitative and Qualitative Disclosure About Market Risk... 16 PART II: OTHER INFORMATION Item 1. Legal Proceedings........................................... 17 Item 2. Changes in Securities....................................... 17 Item 3. Defaults Upon Senior Securities............................. 17 Item 4. Submission of Matters to a Vote of Security Holders......... 17 Item 5. Other Information........................................... 17 Item 6. Exhibits and Reports on Form 8-K............................ 17 Signatures............................................................ 18
- --------------- * 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 AXYS PHARMACEUTICALS, INC. PART 1: FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS ASSETS
SEPTEMBER 30, DECEMBER 31, 1999 1998 (UNAUDITED) (1) ------------- ------------ (IN THOUSANDS) Current assets: Cash and cash equivalents................................... $ 4,099 $ 36,261 Marketable investments...................................... 39,118 36,456 Accounts receivable, trade.................................. 4,170 2,140 Inventory................................................... 793 435 Prepaid expenses and other current assets................... 3,004 4,513 --------- --------- Total current assets........................................ 51,184 79,805 Property and equipment, net................................. 20,792 21,510 Investment in joint venture................................. -- 1,908 Note receivable from officer................................ 666 821 Intangible assets........................................... -- 2,200 Other assets................................................ 1,125 1,018 --------- --------- Total Assets...................................... $ 73,767 $ 107,262 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable............................................ $ 3,240 $ 3,788 Accrued compensation........................................ 2,971 4,232 Other accrued liabilities................................... 8,410 2,956 Deferred revenue............................................ 2,003 8,698 Current portion of capital lease and debt obligations....... 9,976 9,872 --------- --------- Total current liabilities................................... 26,600 29,546 Capital lease and debt obligations, net of current portion................................................... 23,355 16,816 Minority interest in joint venture.......................... 3,431 388 Stockholders' equity: Preferred stock............................................. -- -- Common stock................................................ 291,229 290,291 Accumulated other comprehensive income...................... (51) 116 Accumulated deficit......................................... (270,797) (229,895) --------- --------- Total stockholders' equity........................ 20,381 60,512 --------- --------- Total Liabilities and Stockholders' Equity........ $ 73,767 $ 107,262 ========= =========
- --------------- (1) The balance sheet at December 31, 1998 has been derived from the audited financial statement at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See accompanying notes to consolidated financial statements. 3 4 AXYS PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- --------------------- 1999 1998 1999 1998 -------- ------- -------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues Collaboration and license revenue............... $ 5,493 $ 9,761 $ 20,289 $ 26,411 Product and service revenue................... 3,487 4,513 8,822 5,394 -------- ------- -------- --------- Total revenue......................... 8,980 14,274 29,111 31,805 Operating expenses Cost of goods sold............................ 1,394 391 2,844 778 Research and development...................... 14,706 15,710 47,371 44,697 General and administrative.................... 5,076 4,480 12,829 11,602 Restructuring Charge.......................... 7,008 -- 7,008 -- Acquired in-process research and development................................ -- -- -- 124,888 -------- ------- -------- --------- Total operating expenses.............. 28,184 20,581 70,052 181,965 -------- ------- -------- --------- Operating loss.................................. (19,204) (6,307) (40,941) (150,160) Interest income (expense), net.................. (57) 410 606 1,972 Equity interest in loss of joint venture........ (6) (788) (836) (1,690) Minority interest............................... 612 -- 1,522 -- Other income (expense), net..................... (1,285) -- (1,253) -- -------- ------- -------- --------- Net loss........................................ $(19,940) $(6,685) $(40,902) $(149,878) ======== ======= ======== ========= Basic and diluted net loss per share............ $ (0.66) $ (0.22) $ (1.35) $ (5.06) ======== ======= ======== ========= Shares used in computing basic and diluted net loss per share................................ 30,359 30,095 30,340 29,625 ======== ======= ======== =========
See accompanying notes to consolidated financial statements. 4 5 AXYS PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, --------------------- 1999 1998 -------- --------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.................................................... $(40,902) $(149,878) Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities: Non-cash restructuring charge............................... 2,920 -- Write off of investment in Genos............................ 1,072 -- Depreciation................................................ 7,591 6,385 Amortization................................................ 828 825 Gain (loss) on sale of fixed asset.......................... (178) 44 Equity interest in loss of joint venture.................... 836 1,690 Forgiveness of note receivable from officer................. 183 125 Acquired in-process research and development................ -- 124,888 Changes in assets and liabilities: Accounts Receivable.................................... (2,030) (3,054) Inventory.............................................. (358) (960) Prepaid expenses and other current assets.............. 1,509 513 Other assets........................................... (135) (4,100) Accounts payable and accrued liabilities............... 3,907 (1,728) Deferred revenue....................................... (6,695) (4,611) -------- --------- Net cash and cash equivalents used in operating activities................................................ (31,452) (29,861) -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Available-for-sale securities: Purchases................................................. (76,569) (33,969) Maturities................................................ 73,846 66,247 Minority interest........................................... 3,043 500 Proceeds from sale of fixed asset........................... 255 119 Sequana acquisition, net of cash............................ -- 13,270 Investment in joint venture................................. -- (2,000) Purchase of property and equipment.......................... (8,862) (5,925) -------- --------- Net cash and cash equivalents (used in) provided by investing activities...................................... (8,287) 37,742 -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common stock.................. 938 2,350 Proceeds from note receivable............................... -- 252 Proceeds from notes payable and lease financing............. 32,308 6,174 Principal payments on notes payable and capital leases...... (25,665) (4,649) -------- --------- Net cash and cash equivalents provided by financing Activities................................................ 7,581 4,627 -------- --------- Effect of exchange rate change.............................. (4) -- -------- --------- Net (decrease)/increase in cash and cash equivalents........ (32,162) 12,508 Cash and cash equivalents, beginning of period.............. 36,261 22,938 -------- --------- Cash and cash equivalents, end of period.................... $ 4,099 $ 35,446 ======== =========
See accompanying notes to consolidated financial statements. 5 6 AXYS PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 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., and Sequana Therapeutics, Inc. ("Sequana"), and Axys Advanced Technologies, Inc. ("AAT"), and includes the account of PPGx, Inc. the Company's majority-owned subsidiary (See "Formation of PPGx, Inc.", Note 4). All significant intercompany accounts and transactions have been eliminated. The Company owns 41% of Akkadix Corporation ("Akkadix"), (formerly known as Xyris Corporation) (See "Changes in Akkadix Corporation", Note 3). Sequana owns 50% of Genos, a joint venture with Memorial Sloan-Kettering Cancer Center ("MSKCC"). These investments are accounted for under the equity method. RECLASSIFICATIONS Certain 1998 amounts have been reclassified to conform to the September 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 nine-month period ended September 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. RESTRUCTURING CHARGE In July 1999, the Company announced the closing of its San Diego operations by the end of the calendar year. The Company is relocating its oncology genomics operations from San Diego to its South San Francisco headquarters. The restructuring activities resulted in a one-time charge of $7.0 million during the third quarter of which $2.2 million related to severance and other employee-related costs, $1.7 million related to facilities costs, $1.8 million related to the disposal of assets, and $1.3 million in other costs associated with the plan. The facilities costs included lease payments on facilities to be vacated in San Diego net of proceeds from existing subleases. The company anticipates that the accrual for facilities will be utilized over the period through lease termination on December 31, 2001. As a result of closing the facility, the Company eliminated 120 positions of 6 7 AXYS PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1999 (UNAUDITED) which 93 are included in the severance calculation. Sixty-two employees will be terminated in October 1999. The Company anticipates that the remaining employees will be terminated by December 31, 1999. The following table summarizes the Company's 1999 restructuring charge activity for the nine months ended September 30, 1999 (in thousands):
SEVERANCE CONTRACTUAL & RESEARCH OTHER BENEFITS FACILITIES EQUIPMENT COMMITMENTS ASSETS TOTAL ----------- ---------- --------- ----------- ------- ------- Q3 1999 Charges.......... $2,210 $1,664 $ 1,810 $214 $ 1,110 $ 7,008 Asset write-offs......... (1,810) (1,110) (2,920) ------ ------ ------- ---- ------- ------- Liability at September 30, 1999............... $2,210 $1,664 $ 0 $214 $ 0 $ 4,088 ====== ====== ======= ==== ======= =======
3. CHANGES IN AKKADIX CORPORATION ROUND OF FINANCING In February 1999, Akkadix executed an exclusive license to the Company's technology in the field of agriculture (the "Technology License"). The Company received additional shares of Akkadix in exchange for the Technology License. Also in February 1999, Akkadix completed a financing in which it raised $4.5 million from a third party. During the second quarter of 1999 Akkadix completed a round of financing in which it raised $5 million 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 the their interests in Akkadix in exchange for that number of shares of the Company whose market value equals $10 million at the date of the exercise of the Put Option. The Put Option may be exercised at any time through February 2, 2001. The net effect of issuance of shares in connection with the completion of this round of financing in the second quarter of 1999 reduced the Company's ownership in Akkadix from 82% at December 31, 1998, to 52% at June 30, 1999. ACQUISITION OF GLOBAL AGRO CORPORATION BY AKKADIX On September 9, 1999 Akkadix completed its acquisition of Global Agro, Inc. ("Global"), a privately held California corporation. Under the terms of the merger, all outstanding shares of Global stock were converted into Series B preferred stock of Akkadix. The merger was accounted for as a purchase. As a result of the merger, the Company's ownership interest in Akkadix fell below 50%. Therefore, Akkadix's balance sheet is no longer consolidated into the Company's balance sheet. Akkadix's results of operations are included with the Company's results of operations through the date of merger between Akkadix and Global. Subsequent to the acquisition of Global, operating results of Akkadix are included in the Company's results using the equity method of accounting. 4. 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 and biotechnology industries. In connection with the formation of PPGx, Axys contributed certain fixed assets, which were recorded at the Company's net book value, and technology in exchange for a 82% ownership interest in PPGx. PPD, Inc. ("PPD"), Axys' partner in PPGx, contributed certain assets, technology, cash 7 8 AXYS PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1999 (UNAUDITED) 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. Under certain circumstances, the Company has the option to put (the "Axys Put") 32% of PPGx to PPD. Upon exercise of the PPD Option or the Axys Put, the Company and PPD would have equal ownership positions in 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. 5. INVENTORY Inventories associated with the Company's Axys Advanced Technologies (AAT) subsidiary are stated at the lower of cost (first-in, first-out) or market. At September 30, 1999, inventories consisted of the following (in thousands): Raw materials................................. $302 WIP........................................... 32 Finished goods................................ 459 ---- $793 ====
6. COMPREHENSIVE INCOME Total comprehensive loss was ($19,882,000) and ($40,953,000) for the three- and nine-months ended September 30, 1999, respectively, and ($6,540,000) and ($149,733,000) for the three- and nine-months ended September 30, 1998, respectively. 8 9 AXYS PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1999 (UNAUDITED) 7. SEGMENT INFORMATION Segment information consists of the following:
NINE MONTHS ENDED SEPTEMBER 30, --------------------- 1999 1998 -------- --------- (IN THOUSANDS) Revenues: Drug discovery........................................ $ 17,556 $ 24,911 AAT................................................. 10,909 6,894 Other............................................... 646 -- -------- --------- Total consolidated.......................... $ 29,111 $ 31,805 ======== ========= Net income (loss): Drug discovery (1).................................. $(39,866) $(151,922) AAT................................................. 3,329 2,352 Other............................................... (4,365) (308) -------- --------- Total consolidated.......................... $(40,902) $(149,878) ======== ========= Assets: Drug discovery...................................... $ 64,443 $ 103,128 AAT................................................. 5,556 3,807 Other............................................... 3,768 327\ -------- --------- $ 73,767 $ 107,262 ======== =========
- --------------- (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. Other represents the results of Akkadix's and PPGx's principal activities which commenced in 1998 and 1999, respectively. Total assets for AAT were approximately $5,556,000 and $3,807,000 as of September 30, 1999 and 1998, respectively. 8. REVOLVING LINE OF CREDIT 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, and is fully secured by the Company's marketable investments. 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. 9. IMPAIRMENT OF INVESTMENT IN GENOS In May 1999 the Board of Directors of Genos decided to suspend it research activities and wind up its affairs. The Company is receiving back rights to use its technology in the identification of programs in oncology from Genos. As a result of the winding up of Genos, the Company has taken a one-time charge of $1.1 million in the third quarter of 1999, representing the total carrying value of the Investment in Genos. 9 10 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 October 1999, the company announced its first in-licensing deal with Signal Pharmaceuticals, Inc. ("Signal"). Signal has granted exclusive worldwide development and marketing rights to the company for its selective estrogen receptor-beta modulators (SERM-B) for the treatment of cancer. Under the terms of the agreement, the company is obligated to provide payments to Signal in the form of an up-front license fee, research funding, research milestones and royalties. In September 1999, Akkadix Corporation ("Akkadix"), (formerly known as Xyris Corporation) completed its acquisition of Global Agro, Inc. ("Global"). As a result of this acquisition, the company's interest in Akkadix fell below 50% and will no longer be consolidated into the company's financial statements, and will be accounted for under the equity method. In July 1999, the company announced the closing of its San Diego operations by the end of the calendar year. The company is in the process of relocating its oncology genomics operations from San Diego to its South San Francisco headquarters and winding down all other operations in San Diego, which are expected to conclude by the end of this calendar year. As a result of this action, a one-time charge of $7.0 million was taken in the third quarter and operating expenses are projected to decrease by $17 million on an annual basis, beginning with fiscal year 2000. Since June 1995 Sequana Therapeutics, Inc. ("Sequana"), which was acquired by the company in January 1998, 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. The company and Memorial Sloan-Kettering Cancer Center ("MSKCC") formed and funded a joint venture called Genos Biosciences, Inc. ("Genos") 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 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. In the third quarter of 1999, the company wrote off the balance of the investment in 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 through the performance of the required research by the company. 10 11 - License Fees: Payments generally made when a collaboration agreement is signed. These revenues are recorded when the agreement is signed, as no future performance obligations exist. - 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 protocols are delivered. 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 September 30, 1999, the Company's accumulated deficit was approximately $271 million. Included in the Company's accumulated deficit at September 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 $9.0 million and $29.1 million for the three- and nine-month periods ended September 30, 1999, respectively, compared to $14.3 and $31.8 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 $5.5 million and $20.3 million for the three-and nine-month periods ended September 30, 1999, respectively, compared to $9.8 million and $26.4 million, respectively, for the comparable periods in 1998. The revenue mix for the quarter ended September 30, 1999 was positively affected in comparison to the same quarter for the prior year by: (i) an increase in technology licensing fees, arising out of the combinatorial chemistry agreements between AAT and Daiichi Pharmaceutical Co., Ltd., signed in June 1999 and between AAT and Allergan, signed in September 1999; (ii) payments for 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 an agreement with Corange International, Ltd., which ended in February 1999. These revenue increases were more than offset by decreased revenues recognized compared to the prior 11 12 year under 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 termination of research support in June 1999 under the Boehringer Ingelheim International GmbH agreement for the gene identification program in asthma; and (iii) the conclusion in May 1998 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 were $3.5 million and $8.8 million for the three- and nine-month periods ended September 30, 1999, respectively, compared to $4.5 million and $5.4 million, respectively, for the comparable periods in 1998. The lower third quarter revenue was primarily the result of a reduction in the number and value of compounds shipped in 1999 under the AAT agreements, which was offset by the inclusion of the service revenue recognized by PPGx, Inc. since its formation in February 1999, compared to the number of compounds shipped in 1998 under one AAT agreement. The nine month revenue numbers were higher in 1999 than in 1998 because higher revenues were recorded for the first six months of 1999 compared to the first six months of 1998. Cost of Goods Sold The company's cost of goods sold increased to $1.4 million and $2.8 million for the three- and nine-month periods ended September 30, 1999, respectively, compared to $391,000 and $778,000, 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. The increases in cost of goods sold in 1999 over 1998 reflect increases in the number of compounds sold in 1999 over 1998. Research and Development The company's research and development expenses were $14.7 million and $47.4 million for the three-and nine-month periods ended September 30, 1999, respectively, compared to $15.7 million and $44.7 million, respectively, for the comparable periods in 1998. The decrease for the three months ended September 30, 1999 compared to the same period in 1998 is primarily due to the winding down of activities in the company's San Diego operation. The increase in the nine month period ended September 30, 1999 compared to the same period in 1998 was primarily due to the research and development expenses of the company's newly formed subsidiaries PPGx and Akkadix. Akkadix's activities are reflected in the consolidated results of the company through the date it merged with Global Agro, which means through the first eight months of 1999. Other factors contributing to the increase for the nine-month period relate to the clinical costs associated with pursuing our own clinical programs in both ulcerative colitis and psoriasis in 1999, versus lower clinical costs associated with an inhaled therapeutic for asthma in 1998, as well as severance costs associated with the reduction in headcount in the first quarter of 1999. When the company acquired Sequana in January 1998, Sequana had the following research programs in progress: Asthma, partnered with Boehringer Ingelheim Int'l GmbH; Osteoporosis, partnered with Corange International Ltd.; Non-Insulin Dependent Diabetes Mellitus (NIDDM), partnered with Glaxo Wellcome, Inc.; Schizophrenia/Bipolar, partnered with Parke-Davis Pharmaceutical Research division of Warner-Lambert Company; Obesity, Alzheimer's and Pharmacogenomics. As of September 30, 1999 the following programs are still on-going: the Schizophrenia/Bipolar program partnered with Parke-Davis and with respect to which the company is currently in negotiations to transfer the program to Parke-Davis; and the Pharmacogenomics program, which was spun off into the PPGx subsidiary with PPD. All other programs have ended. General and Administrative The company's general and administrative expenses increased to $5.1 million and $12.8 million for the three- and nine-month periods ended September 30, 1999, respectively, compared to $4.5 million and 12 13 $11.6 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 Akkadix. Akkadix's activities are reflected in the consolidated results of the company through the date it merged with Global Agro, which means through the first eight months of 1999. Interest Income and Interest Expense Interest income decreased to $775,000 and $2.4 million for the three- and nine-month periods ended September 30, 1999, respectively, compared to $990,000 and $3.7 million, respectively, for the same periods in 1998. The decrease was primarily due to the decrease in average cash and investment balances during the periods. Interest expense increased to $832,000 and $1.8 million for the three- and nine-month periods ended September 30, 1999, respectively, compared to $580,000 and $1.7 million, respectively, for the same periods in 1998. The increase was primarily due to the higher debt balances from the company's revolving line of credit and capital lease arrangements. Equity Interest in Loss of Joint Venture Equity interest in loss of joint venture decreased to $6,000 and $836,000 for the three- and nine-month periods ended September 30, 1999, respectively, compared to $788,000 and $1.7 million 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. The decrease is primarily due to the wind down of operations of Genos since May 1999. In the third quarter of 1999, the company's wrote off the balance of the investment in Genos. 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 $612,000 and $1.5 million for the three- and nine-month periods ended September 30, 1999, respectively, compared to none for the same periods in 1998. This amount is the result of the recent formation of the Company's majority-owned subsidiaries, PPGx and Akkadix. Since the company consolidates all of the PPGx and Akkadix operating 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. As a result of the merger between Akkadix and Global, discussed above, Akkadix' results of operations will all be included in Equity Interest in Loss of Joint Venture in future periods. 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 addressed the Y2K problem by reviewing 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, we have also been reviewing the Y2K readiness of our vendors, service providers and other companies (including collaboration partners and customers) with whom we have significant business relationships ("Important Third Parties"). 13 14 The company has completed all internal reviews and has prioritized the responses needed to address the Y2K problem. All external reviews are expected to be completed by the end of November 1999. Management is currently developing such contingency plans as believed to be prudent. With respect to the company's core information technology systems and desktop computers, the company has completed its review and has substantially completed all necessary modifications and replacements. The company expects to complete its replacement or upgrade of all third party software applications by the end of November 1999. The company previously replaced 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 these applications and believes them to be Y2K ready. The company has compiled a list of all other internally developed software applications and does not believe them to be date sensitive. Finally, with respect to other significant microprocessor-controlled equipment, the company has identified such equipment and has made any necessary upgrades or replacements. The review of the Y2K readiness of Important Third Parties is substantially completed. Following completion, the company expects to assess the nature and extent of the risk from non-readiness by such third parties and to either 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. The total costs associated with the company's Y2K readiness efforts is estimated to be $250,000. The company has spent approximately $67,000 through September 30, 1999 on its Y2K activities, excluding the time of company personnel, all of which has been expensed, and expects to spend approximately $183,000 through December 31, 1999. 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 September 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 $189 million since inception from its corporate collaborations. The company's principal sources of liquidity are its cash and investments, which totaled $43.2 million as of September 30, 1999. The company's cash and investments at September 30, 1999 include the cash and investments from its wholly-owned and majority-owned subsidiaries. As a result of the merger between Akkadix and Global, discussed above, Akkadix is no longer consolidated into the company's balance sheet. Consequently, Akkadix's cash and investments of approximately $8 million at June 30, 1999 is no longer included in the balance of cash and investments at September 30, 1999. The company's investments also serve as security for the company's borrowings under its line of credit. Net cash used in operating activities during the nine-month period ended September 30, 1999 was $31.5 million compared to $29.9 million in the same period in 1998. Operating expenses between the two 14 15 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 $8.9 million for the purchase of property, plant and equipment during the nine months ended September 30, 1999. Additional equipment is expected to be acquired or leased in connection with the company's future research and development activities, although the magnitude of such purchases or leases is not presently known. There were no material commitments for capital expenditures outstanding at September 30, 1999. The company's AAT subsidiary currently has approximately $22.0 million of backlog from committed contracts for the sale of combinatorial chemistry libraries as of September 30, 1999 . In January of 1999 and then again in September of 1999 the company reduced its work force engaged in early stage genomics research activities in order to reduce its future cash requirements. The company believes it has sufficient cash resources, in light of the funding commitments of its research collaborators and its combinatorial chemistry partners, to allow it to continue to meet its committed research obligations and its committed combinatorial chemistry delivery obligations for the foreseeable future. However, the company is also pursuing its own internally-financed research programs. In order to continue these research efforts and to fund future clinical development activities, the company has been seeking and is continuing to seek additional funding through a variety of means, including new collaborations, public or private equity or debt financings and the sale of our interests in our affiliated businesses. We cannot be certain that additional funding will be available or that, if available, the terms will be acceptable. In the event the company is unsuccessful in the near term in securing additional funding or in securing the desired amount of funding, the company would have to reduce its future cash expenditures further and could scale back its internally-financed research. The drug development process is expensive and we are at an early stage of development. Therefore, we expect we will continue to need to raise money in the future until we achieve substantial product or royalty revenues, if ever. We expect that we will continue to seek additional funding from time to time through one or more of the following: new collaborations, the extension of existing collaborations, the sale of 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 and we will need a substantial amount of additional funding to continue to prosecute our research and development programs. 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 and costly 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, which funds may not be available. 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 15 16 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, 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. 16 17 PART II: OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) EXHIBITS 10.113* Combinatorial Chemistry Agreement between Axys Advanced Technologies, Inc. and Allergan, Inc., dated September 27, 1999 10.114* Loan Agreement by and between Axys Pharmaceuticals, Inc. and Foothill Capital Corporation, dated July 26, 1999 10.115 Warrant to Purchase Common Stock, issued to Reedland Capital Partners, dated July 30, 1999. 10.116 Registration Rights Agreement by and among the Registrant and Reedland Capital Partners, dated July 30, 1999. 10.117 Fifth Amendment to Expansion Lease by and between the Registrant and Alexandria Real Estate Equities, dated October 1999. 27 Financial Data Schedule
- --------------- * Confidential treatment has been requested with respect to certain portions of this exhibit. b) REPORTS ON FORM 8-K None. 17 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AXYS PHARMACEUTICALS, INC. Date: November 15, 1999 By: /s/ JOHN P. WALKER ------------------------------------ John P. Walker Chairman and Chief Executive Officer By: /s/ KATHLEEN STAFFORD ------------------------------------ Kathleen Stafford Sr. VP and CFO (Chief Accounting Officer) 18 19 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.113* Combinatorial Chemistry Agreement between Axys Advanced Technologies, Inc. and Allergan, Inc., dated September 27, 1999 10.114* Loan Agreement by and between Axys Pharmaceuticals, Inc. and Foothill Capital Corporation, dated July 26, 1999 10.115 Warrant to Purchase Common Stock, issued to Reedland Capital Partners, dated July 30, 1999. 10.116 Registration Rights Agreement by and among the Registrant and Reedland Capital Partners, dated July 30, 1999. 10.117 Fifth Amendment to Expansion Lease by and between the Registrant and Alexandria Real Estate Equities, dated October 1999. 27 Financial Data Schedule
- --------------- * Confidential treatment has been requested with respect to certain portions of this exhibit. EX-10.113 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 10.113 COMBINATORIAL CHEMISTRY AGREEMENT THIS COMBINATORIAL CHEMISTRY AGREEMENT (this "Agreement") is made and entered into effective as of September 27, 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 ("AAT"), a subsidiary of Axys Pharmaceuticals, Inc., a Delaware corporation having a place of business at 180 Kimball Way, South San Francisco, CA 94080, and ALLERGAN, INC., a Delaware corporation, having a place of business at 2525 Dupont Drive, Irvine, CA 92612. AAT and Allergan may be referred to herein individually as a "Party" or, collectively, as the "Parties." RECITALS A. AAT 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. Allergan desires to purchase from AAT [ * ] compounds synthesized by AAT, to obtain related combinatorial software, to receive training and technical support in conjunction with the transfer of certain AAT technology and know-how and to obtain from AAT certain non-exclusive licenses to use such technology and intellectual property for Allergan's drug discovery, development and commercialization programs. C. AAT is willing, pursuant to the following terms and conditions, to synthesize and sell to Allergan such compound libraries, and to train Allergan'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 "AAT KNOW-HOW" means Information that is Controlled by AAT during this Agreement and comprises general combinatorial chemistry techniques proprietary to AAT that are useful to Allergan in making Derivatives or other compounds based on the Compounds, such as computational methods, library development methods, library production methods, analytical methods and instrumentation know-how, but excluding the specific protocols and detailed set of combinatorial chemistry synthetic methods and operating procedures used for synthesizing the set of Compounds in each Library. 2 1.2 "AAT PATENTS" means all patents and patent applications Controlled by AAT during this Agreement that claim inventions within the AAT Know-How or any part or aspect thereof. 1.3 "AAT RESTRICTED INFORMATION" means all Confidential Information of AAT, other than AAT Know-How and AAT Patents, that is learned by the employees of Allergan who work at AAT as permitted under Section 3.1 at any time they are at an AAT facility. 1.4 "AAT TECHNOLOGY" means the AAT Know-How, AAT Patents, and/or Software Programs, or any part or aspect thereof. 1.5 "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. 1.6 "COMBINATORIAL CHEMISTRY LIBRARY" means the aggregate of all the physical samples of the Compounds in the Libraries provided to Allergan hereunder. 1.7 "COMPOUND" means any individual [ * ] chemical compound [ * ], a physical sample of which AAT synthesizes and provides to Allergan under the terms of Article 2 of this Agreement. 1.8 "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 AAT 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 AAT to Allergan hereunder. The disclosing Party shall make reasonable efforts to summarize in writing all oral disclosures of Confidential Information. 1.9 "CONTROLLED" means, with respect to any material, item of Information or intellectual property right, that the applicable Party owns or has a license or other 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. [ * ] = 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 "DERIVATIVE" means a compound (other than a Compound) made by Allergan based upon the use of AAT Know-How or any Compound or structure-activity Information relating to Compounds. 1.11 "GENERAL SCREENING" means use of any Library or any group of Compounds in assays to screen for activity [ * ], 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 Compounds synthesized by AAT and provided to Allergan as a single library, which Compounds are related to each other by a common Scaffold and the specific synthetic techniques that AAT used to make such group of Compounds. 1.14 "PROTOCOL" means a detailed set of combinatorial chemistry synthetic methods and standard operating procedures designed to be used for synthesizing a Library. 1.15 "SCAFFOLD" means the chemical substructure common to a set of Compounds in a particular Library. 1.16 "SOFTWARE PROGRAMS" means the software programs provided to Allergan by AAT pursuant to this Agreement related to [ * ] and defined in Exhibit B attached hereto and made a part hereof, [ * ], accompanying documentation and other material related to such software programs and provided by AAT hereunder. 1.17 "TECHNOLOGY COMMITTEE" means the committee formed by the Parties under Section 2.1 of this Agreement. 1.18 "UPDATES" means any improvements, extensions and other changes to the Software Programs that are [ * ] and are provided to Allergan by AAT as set forth in Section 3.2. 2. DEVELOPMENT AND TRANSFER OF LIBRARIES 2.1 TECHNOLOGY COMMITTEE. Within thirty (30) days of the Effective Date, AAT and Allergan will form a committee consisting of two (2) representatives of each Party (the "Technology Committee"). Each Party's representatives on the Technology Committee may be changed by the Party with the approval of the Technology Committee. The Technology Committee shall meet as needed at times as agreed upon by the members of the Technology Committee (on a quarterly basis in principle) (a) to discuss proposals for Libraries proposed by either Party, (b) to discuss and establish the technology transfer to Allergan contemplated under Section 3.1, including appropriate schedules and mechanisms therefor, (c) to establish and supervise the training of Allergan employees with respect to use of the AAT Technology as [ * ] = 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 provided in Section 3.1 and (d) 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. 2.2 LIBRARY SYNTHESIS; SCAFFOLD REVIEW. (a) Commencing promptly after the Effective Date, AAT will use [ * ] to synthesize the Compounds comprising the [ * ] Libraries to be provided to Allergan under this Agreement pursuant to the delivery schedule in Section 2.3. AAT will ensure that each Library will be composed of an average of approximately [ * ] Compounds and that [ * ] or more than [ * ], unless otherwise agreed by the Parties. (b) During the period when AAT is delivering the Library Compounds to Allergan under Section 2.3, Allergan shall have the right, as provided below, to review Scaffolds that AAT proposes to use in creating each Library, in advance of AAT delivering each such Library based on such Scaffolds. AAT shall provide the proposed Scaffolds to Allergan in confidence prior to preparing the Library based on such Scaffolds, and will use [ * ] to provide such Scaffolds as soon as AAT can reasonably do so in light of AAT's delivery schedule and in no event [ * ] in advance of starting the preparation of the related Library. Allergan shall have the right to review such Scaffolds and shall have the right to reject certain of such Scaffolds for [ * ] reason, including without limitation if Allergan determines that any Library based on or including such Scaffolds will overlap with or are substantially identical to compounds that Allergan has manufactured or plans to manufacture; provided, that Allergan shall have the right to reject up to [ * ] to be provided under this Agreement) during the term of this Agreement and AAT shall use [ * ] to replace said rejected Scaffolds with Scaffolds [ * ] to Allergan. Allergan shall notify AAT of its desire to accept or reject a particular Scaffold as soon as reasonably practicable and in no event [ * ] of receipt of the proposed Scaffold. Failure to notify AAT of its desire to reject a particular Scaffold within such [ * ] shall be deemed to be acceptance of such Scaffold by Allergan. AAT shall use [ * ] to make and deliver such Library in accordance with the delivery schedule set forth in Section 2.3. 2.3 DELIVERY OF COMPOUNDS. Subject to Section 2.2(b), AAT shall use [ * ] to deliver the Compounds to Allergan according to the following schedule: [ * ] to be delivered by [ * ]; an additional [ * ] to be delivered by [ * ] (with such deliveries to be made on a quarterly basis as determined by the Technology Committee); and an additional [ * ] to be delivered by [ * ] (with such deliveries to be made on a quarterly basis as determined by the Technology Committee). The Compounds shall be delivered in [ * ], or any other [ * ]. Risk of loss for and title to the Compounds provided by AAT to Allergan under this Agreement shall pass from AAT to Allergan [ * ]. AAT shall deliver a certificate of analysis with each Library specifying the results of analysis to show conformance with the specifications set forth in Exhibit A. 2.4 USE OF COMPOUNDS BY ALLERGAN. Subject to the terms of this Agreement, Allergan shall have the right to use the Combinatorial Chemistry Library and the Compounds [ * ] = 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 therein solely [ * ]. Except as expressly permitted in the foregoing or as permitted in Section 6.3, Allergan covenants that it shall not transfer or disclose the Libraries or the Compounds, or the structures thereof to any third party for any purpose. Allergan may use the Information generated by the permitted uses of the Libraries and the Compounds, for any purpose in conjunction with the permitted use of the Compounds, subject to and in compliance with the limitations in this Agreement. Allergan further covenants that it is only permitted to transfer or disclose the Libraries, the Compounds or the structures thereof to any of its Affiliates subject to all relevant restrictions in this Agreement, including without limitation, the restrictions set forth in this Section 2.4. Allergan hereby guarantees the compliance of each of its Affiliates with all such restrictions regarding the Libraries, the Compounds or the structures thereof transferred or disclosed to such Affiliate. 2.5 ALLERGAN'S RIGHT TO DERIVATIVES. Allergan and its Affiliates shall have a worldwide, royalty-free, irrevocable (except for uncured material breach by Allergan) right to synthesize and use Derivatives for [ * ]. 2.6 USE OF COMPOUNDS BY AAT. AAT may sell or provide the Combinatorial Chemistry Library or Compounds therein to other companies or third parties for their uses, including without limitation General Screening, provided that AAT covenants that prior to or during the term of this Agreement, it shall not provide any Library to [ * ] for use in General Screening. During the term of this Agreement, AAT agrees that it will not provide [ * ] of the Combinatorial Chemistry Library [ * ]. AAT also agrees that, during the term of this Agreement, if [ * ]. Without limiting the generality of AAT's retained rights, AAT and its Affiliates shall retain full rights to use the Combinatorial Chemistry Library and the Compounds for all internal purposes, including without limitation General Screening, combinatorial chemistry and medicinal chemistry, and drug discovery, development and commercialization activities of AAT and its Affiliates, and to sell such Compounds to third parties for any uses, subject only to the foregoing covenant. Further, it is understood that AAT and its Affiliates retain the right to use the Combinatorial Chemistry Library and the Compounds in screening for [ * ], and to provide the Combinatorial Chemistry Library, specific Compounds and the specifications for such Compounds to third party corporate partners of AAT or its Affiliates for use by such partner in screening for [ * ]. For purposes of clarity, it is understood and agreed that in the third party collaborations described in the immediately preceding sentence, [ * ]. 2.7 ALLERGAN OPTIONS. (a) CHEMISTRY SERVICES. AAT agrees to provide Allergan with [ * ]. If Allergan is interested in pursuing such a project at AAT, Allergan shall give AAT 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 AAT conducting such a project, [ * ]. (b) PROTOCOLS. Subject to the terms and conditions set forth herein, AAT hereby grants Allergan the option to license non-exclusively [ * ] Protocols during the period commencing on the Effective Date and ending [ * ] at the applicable price set forth in Section 4.4. In the event that Allergan exercises this option for the first time [ * ], the Parties agree to amend this Agreement in writing to add AAT's customary licensing provisions for Protocols 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. 5. 6 to provide for [ * ]. In the event that Allergan exercises this option for the first time [ * ], the Parties agree to execute a new written agreement that contains AAT's customary licensing provisions for Protocols. AAT agrees that, [ * ]. 3. TECHNOLOGY TRANSFER AND LICENSE 3.1 TRANSFER OF COMBINATORIAL CHEMISTRY TECHNOLOGY. AAT shall transfer to Allergan, on an orderly basis, the AAT Know-How and copies of the AAT Patents [ * ]. The schedule for such transfer will be reasonable and orderly, as established by the Technology Committee. In addition, Allergan may provide, at its cost and expense, [ * ] Allergan scientists to work at AAT at any one time during [ * ] to assist and direct the transfer to Allergan of the AAT Know-How and Software Programs and to receive related technical training; provided that access or exposure to AAT Restricted Information by the Allergan scientists shall be subject to the provisions of Article 6. Such training shall be provided at AAT's facilities, unless otherwise agreed by the Parties. Any such Allergan scientists that work at AAT under the terms of this Section 3.1 shall be restricted from access to any AAT facilities or locations other than those necessary for completing the technology transfer and training as provided above. Further, AAT shall use reasonable efforts to limit and restrict such Allergan scientists from access or exposure to any confidential information of AAT that is not AAT Know-How. AAT agrees to [ * ] Allergan on the use of the AAT Technology to [ * ] the purpose of this Agreement. Therefore, AAT agrees to provide, when requested by Allergan, time during the term of the Agreement for [ * ] to be scheduled at such times as are mutually convenient to the Parties. 3.2 DELIVERY OF SOFTWARE PROGRAMS AND UPDATES. Commencing [ * ] and according to the delivery schedule therefor established by the Technology Committee, AAT will, [ * ], deliver to and help install [ * ] copies of each of the Software Programs at Allergan's facilities. The Software Programs shall be delivered in electronic format, or in such other mutually agreeable format. Each Software Program [ * ]. AAT 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, AAT hereby grants Allergan a limited, non-exclusive, non-transferable, worldwide, perpetual (subject to termination under Article 8) license to use and practice the AAT Know-How and AAT Patents solely for Allergan to make and use Compounds and Derivatives for any purpose permitted under this Agreement, and subject to the limitations in Sections 3.4 and 3.5 of this Agreement. (b) Subject to the terms of this Agreement, AAT hereby grants to Allergan a limited, non-exclusive, non-transferable, world-wide, perpetual (subject to termination under Article 8) license, solely within Allergan'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 AAT, which consent shall not be unreasonably withheld, and any such permitted sublicense shall only be in conjunction with and in compliance with Allergan's permitted use of [ * ] = 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 Compounds and Derivatives as described in Sections 2.4 and 2.5 and only to the extent needed to accomplish such permitted purposes. Allergan covenants that it will not transfer or disclose any such AAT Know-How, AAT Patents or Software Programs, or any part thereof, to any third party except as part of such permitted sublicenses and only subject to limitations consistent with the above restrictions and those in Section 3.5. Allergan further covenants that it will only transfer or disclose any such AAT Know-How, AAT Patents or Software Programs or any part thereof, 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 Compounds as described in Sections 2.4, 2.5, 3.2, 3.3, 3.4 and 3.5. Allergan hereby guarantees the compliance of each of its Affiliates with all such restrictions and limitations on the use of the AAT Know-How, AAT Patents or Software Programs transferred or disclosed to such Affiliate. 3.4 LIMITED COMMERCIAL LICENSES. Subject to the terms of this Agreement, AAT hereby grants Allergan a limited, non-exclusive, worldwide, perpetual (subject to termination under Article 8) license, with the right to sublicense, under the AAT Know-How, and AAT Patents, solely for Allergan to offer for sale, sell and manufacture [ * ]. 3.5 LIMITATIONS. (a) Allergan understands and agrees that AAT 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 Allergan in Sections 2.4, 2.5, 3.3, 3.4 and 3.5 of this Agreement. Allergan covenants that it and its Affiliates shall not use or practice the AAT Know-How, AAT Patents, Software Programs, Libraries, Compounds for any use or purpose except as expressly permitted in Sections 2.4, 2.5, 3.3, 3.4 and 3.5. Allergan further covenants that Allergan and its Affiliates will not [ * ], except as expressly permitted in Sections 2.4, 2.5, 3.3 and 3.4, but excluding from the foregoing limitation [ * ]. (b) Allergan 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. Allergan acknowledges and agrees that [ * ] is highly confidential and warrants the imposition of appropriate security precautions. 4. PAYMENTS 4.1 PAYMENTS FOR COMPOUNDS. Allergan shall pay AAT a purchase price for [ * ] Compounds delivered hereunder equal to [ * ] for each such Compound. Allergan shall make such payment within [ * ] of its receipt of a Library from AAT. [ * ]. Allergan shall be responsible for payment of all shipping or other transportation charges and insurance costs and any sales, transfer, excise, export or other tax and of any customs tax or duties assessed on the [ * ] = 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 sale or transfer of such samples under the terms of this Agreement, but excluding taxes based upon net income of AAT. 4.2 LICENSE FEE. In consideration for the grant of license rights under Article 3 hereof, Allergan shall pay to AAT a non-refundable license fee of [ * ]. Allergan shall make such license payment [ * ]. 4.3 TECHNOLOGY TRANSFER FEE. In consideration for the technology transferred under Article 3 hereof, Allergan shall pay to AAT a technology transfer fee of [ * ]. Allergan shall make the [ * ]. 4.4 PAYMENTS FOR PROTOCOLS. For each Protocol licensed non-exclusively pursuant to Section 2.7(b) [ * ], Allergan shall pay AAT [ * ]. For each Protocol licensed non-exclusively pursuant to Section 2.7(b) [ * ], Allergan shall pay AAT [ * ]. For each Protocol licensed non-exclusively [ * ]. Allergan shall make all payments under this Section 4.4 within [ * ] of its receipt of a Protocol from AAT. 4.5 BANK ACCOUNT. All payments payable by Allergan to AAT under this Agreement shall be made by wire transfer remittance to the bank account designated by AAT. 5. INTELLECTUAL PROPERTY MATTERS 5.1 OWNERSHIP. All intellectual property rights, including but not limited to all copyrights, patent rights, moral rights, and trade secrets, in and to the AAT Know-How, AAT Patents, and the Software Programs that are Controlled by AAT as of the Effective Date or during this Agreement shall remain exclusively with AAT, subject only to the license rights granted to Allergan under Sections 2.4, 2.5, 3.3, 3.4 and 3.5. The sale to Allergan of the Compounds hereunder does not involve the sale or transfer of AAT intellectual property rights (if any) relating thereto, which AAT retains. AAT 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 AAT or its Affiliates in the course of this Agreement. Allergan 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 Allergan 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 employees or agents of AAT or its Affiliates and employees or agents of Allergan or its Affiliates in the course of this Agreement. 5.2 LIMITATION ON PATENT APPLICATIONS. If Allergan or its Affiliate or AAT or its Affiliate or licensee [ * ]. Except as provided in the preceding sentence, the Parties agree that each Party and its Affiliates shall [ * ] filing or prosecuting any patent applications that [ * ]. 5.3 LIMITED CROSS-LICENSES. (a) Allergan hereby grants to AAT a non-exclusive, world-wide, perpetual (subject to termination by Allergan under Section 8.2), royalty-free license, with right to sublicense, under issued patents Controlled by Allergan or its Affiliate that [ * ] solely for AAT [ * ] = 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 and its Affiliates and sublicensees to make, have made, import, use, offer for sale and sell such Compound as permitted in Section 2.6 of this Agreement, but excluding from the foregoing license (i) [ * ], and (ii) any license right to use or sell, for any purpose other than screening or creating derivatives, [ * ] being demonstrated by an active and ongoing program of preclinical or clinical development or marketing for which funds and personnel have been allocated. (b) AAT hereby grants to Allergan a non-exclusive, world-wide, perpetual (subject to termination by AAT under Section 8.2), royalty-free license, with right to sublicense, under issued patents Controlled by AAT or its Affiliate that [ * ] solely for Allergan and its Affiliates and sublicensees to make, have made, import, use, offer for sale and sell such Compound as permitted in Sections 2.4 and 2.5 of this Agreement, but excluding from the foregoing license any license right to use or sell for any purpose other than screening and derivatization [ * ] with written notification of its intent to file within a reasonable period a patent application claiming [ * ] an active and ongoing program of preclinical or clinical development or marketing for which funds and personnel have been allocated, and [ * ]. 5.4 ENFORCEMENT OF PATENTS. If Allergan becomes aware of any actions of a third party that it considers infringing upon any AAT Patent, it shall notify AAT and provide all evidence of such infringement that is reasonably available. AAT 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 AAT, whether by settlement or judgment, shall be retained by AAT. 5.5 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, Compound or use or practice of the AAT Know-How, or AAT Patents or Software Programs as permitted herein, [ * ]. 6. CONFIDENTIALITY 6.1 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: (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; [ * ] = 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 (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: (i) for filing patent applications or obtaining patents, provided the disclosing Party receives the other Party's prior written consent for any disclosure under this subsection (i), which consent shall not be unreasonably withheld; (ii) for filing and obtaining approval of applications with regulatory authorities to sell pharmaceutical products; or (iii) for 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 under (iii), above, 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). 6.2 PRESS RELEASES. Except to the extent required by law or as otherwise permitted in accordance with this Section 6.2 or Section 6.3, 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 other 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 AAT and Allergan in public disclosures with respect to this Agreement shall be: accuracy, the requirements of confidentiality under this Article 6, and the normal business practice in the pharmaceutical and biotechnology industries for disclosures by companies comparable to AAT and Allergan. Except as set forth in Section 6.3 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 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. [ * ] = 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 Commencing upon the expiration or termination of this Agreement, each Party may freely disclose, without the permission of the other Party, [ * ], provided no Confidential Information of the other Party or terms of this Agreement are disclosed thereby or therein without prior written consent of the other Party. 6.3 PUBLICATIONS. Notwithstanding the terms of Section 6.2, either Party may publish Information that such Party discovered or developed in its research, development or commercialization activities derived from use of any Library, Compound or AAT Know-How 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 Compound or Information that reasonably may be interpreted to disclose the structure of a 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 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 [ * ]. 7. INDEMNIFICATION 7.1 INDEMNIFICATION BY ALLERGAN. Allergan shall indemnify, defend and hold AAT and its agents, employees, officers and directors (the "AAT 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) Allergan's or its Affiliate's negligence, willful misconduct or breach of this Agreement; or (b) the manufacture or use of Compounds by Allergan, its Affiliates or any permitted third party sublicensee of Allergan, or the manufacture, use or sale, by Allergan and its Affiliates, distributors and agents, of Derivatives or compounds that are based upon or derived from a 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 AAT Indemnitees or (ii) the manufacture, use or sale to third parties by AAT, its Affiliates, third party licensees, distributors or agents (provided such party is not Allergan or an Affiliate, sublicensee, distributor or agent of Allergan) of compounds having the same structure as Compounds made by AAT, 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 AAT Indemnitees shall promptly notify Allergan thereof, and Allergan shall appoint counsel reasonably acceptable to the AAT Indemnitees to represent the AAT Indemnitees with respect to any claim or suit for which indemnification is sought, provided that Allergan shall have sole control over the defense and settlement of such claim or suit. AAT may nevertheless retain co-counsel at its own expense. As a condition to obtaining indemnification hereunder, the AAT 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 Allergan, unless they shall have first waived their rights to indemnification hereunder; provided that the foregoing shall in no way limit AAT's right to [ * ] = 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 challenge or defend against a claim (whether by Allergan or any third party) that the claim or suit that is the subject of a claim for indemnification by AAT hereunder results from negligence or willful misconduct of or breach of the Agreement by any of the AAT Indemnitees. 7.2 INDEMNIFICATION BY AAT. AAT shall indemnify, defend and hold Allergan and its agents, employees, officers and directors (the "Allergan 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) AAT's or its Affiliates', negligence, willful misconduct or breach of this Agreement, (b) the manufacture, use or sale to third parties by AAT, its Affiliates, third party licensees, distributors or agents (provided such party is not Allergan or an Affiliate, distributor or agent of Allergan) of compounds having the same structure as Compounds or products containing such compounds or any compound based upon or derived therefrom, or (c) personal or property damage arising directly from the manufacturing of the Compounds by Axys, except to the extent that such claims or suits result from (i) the manufacture, use, or sale by Allergan and its Affiliates, sublicensees, distributors and agents of Compounds, Derivatives or compounds that are based upon or derived from a Compound, or (ii) negligence or willful misconduct of or breach of this Agreement by any of the Allergan Indemnitees. Upon the assertion of any such claim or suit, the Allergan Indemnitees shall promptly notify AAT thereof, and AAT shall appoint counsel reasonably acceptable to the Allergan Indemnitees to represent the Allergan Indemnitees with respect to any claim or suit for which indemnification is sought, provided that AAT shall have sole control over the defense and settlement of such claim or suit. Allergan may nevertheless retain co-counsel at its own expense. As a condition to obtaining indemnification hereunder, the Allergan 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 AAT, unless they shall have first waived their rights to indemnification hereunder; provided that the foregoing shall in no way limit Allergan's right to challenge or defend against a claim (whether by AAT or any third party) that the claim or suit that is the subject of a claim for indemnification by Allergan hereunder results from negligence or willful misconduct of or breach of the Agreement by any of the Allergan Indemnitees. 8. TERMINATION AND EXPIRATION 8.1 TERM. This Agreement shall commence upon the Effective Date and, unless earlier terminated as provided herein, shall expire on the later to occur of one year from the delivery to Allergan of all of the Libraries, or the third anniversary of the Effective Date. 8.2 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, [ * ] = 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 during such [ * ], the Party alleged to have been in default shall have initiated dispute resolution proceedings in accordance with Section 9.11 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. 8.3 CONSEQUENCES OF TERMINATION. (a) Upon termination of this Agreement by Allergan pursuant to Section 8.2 for the uncured material breach of AAT, then: without prejudice to any other remedy of Allergan, (i) the sections set forth in Section 8.4(d) shall survive; (ii) AAT shall promptly return all Confidential Information of Allergan in its possession; (iii) all obligations and rights of AAT to provide additional Compounds shall terminate; (iv) [ * ]; and (v) all obligations of Allergan to make future payments [ * ] shall terminate. (b) Upon termination of this Agreement by AAT pursuant to Section 8.2 for the uncured material breach of Allergan, then: (i) all rights granted to Allergan under this Agreement, except for those referred to in the sections set forth in Section 8.4(e), shall terminate; (ii) with respect to any physical sample of a Compound delivered by AAT but not paid for by Allergan within [ * ] of delivery, Allergan shall return all existing physical samples of such Compound and Allergan may not further use such Compounds; (iii) all obligations of AAT to provide additional Compounds shall terminate; (iv) Allergan shall promptly return to AAT or destroy all copies of Confidential Information of AAT, including without limitation all Software Programs; and (v) all obligations of AAT to provide additional AAT Technology shall terminate. 8.4 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, 5.1, 5.2, 5.3, 5.4 and 5.5 and Articles 1, 6, 7 and 8 of this Agreement shall survive the expiration or termination of this Agreement for the following periods of time: Sections 5.2, 5.4 and 5.5 and Article 6 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. (c) In addition to those sections set forth in subsection (b), Sections 2.4, 2.5, 3.3 and 3.4 shall survive indefinitely the expiration of this Agreement, subject to compliance 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. 13. 14 Allergan, its Affiliates and any permitted sublicensees with all limitations on the practice of such rights set forth in Sections 2.4, 3.5 and Article 6, and [ * ]. (d) In addition to those sections set forth in subsection (b), upon termination of this Agreement by Allergan pursuant to Section 8.2 for the uncured material breach of AAT, (i) Section 2.4 and 2.5 shall indefinitely survive termination for Compounds delivered and paid for by Allergan within [ * ] of delivery, subject to compliance by Allergan (and any permitted Affiliates) with the limitations set forth in Sections 2.4, 3.5 and Article 6, (ii) [ * ], and (iii) the rights and licenses granted under Sections 3.3 and 3.4 shall indefinitely survive termination, subject to compliance by Allergan and its Affiliates with all limitations on the practice of such rights set forth in Section 3.5 and Article 6. (e) In addition to those sections set forth in subsection (b), upon termination of this Agreement by AAT pursuant to Section 8.2 for the uncured material breach of Allergan, Sections 2.4 and 3.3 shall survive indefinitely solely with respect to those Compounds delivered and paid for by Allergan within [ * ] of delivery and for which Allergan (and any permitted Affiliates) has complied and continues to fully comply with the limitations set forth in Sections 2.4, 3.5 and Article 6. 9. MISCELLANEOUS PROVISIONS 9.1 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. 9.2 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 9.2 shall be void. 9.3 DISCLAIMER OF WARRANTIES. EXCEPT FOR THE WARRANTIES SET FORTH IN SECTION 9.4, THE PARTIES DO NOT GRANT, AND HEREBY EXPRESSLY DISCLAIM, ALL WARRANTIES, EXPRESS, STATUTORY OR IMPLIED, INCLUDING WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT OF THIRD PARTY RIGHTS. AXYS DOES NOT WARRANT, AND HEREBY DISCLAIMS ANY WARRANTY, THAT ANY SOFTWARE PROGRAM OR ANY SOFTWARE PROGRAM GENERATED FROM THE SOURCE CODE WILL MEET ALLERGAN'S SPECIFIC NEEDS OR THAT ALLERGAN'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 [ * ]. [ * ] = 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 9.4 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) AAT represents and warrants to Allergan 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 5.3 hereof; (ii) the execution, delivery and performance of this Agreement by AAT does not constitute a material breach under, and is not precluded by the terms of, any agreement to which AAT is a party or by which AAT is bound; (iii) [ * ]; and (iv) [ * ]; and (v) [ * ]. (c) Allergan represents and warrants to AAT that as of the date 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. 15. 16 (i) it has the full right, power and authority to enter into this Agreement; and (ii) the execution, delivery and performance of this Agreement by Allergan does not constitute a material breach under, and is not precluded by the terms of, any agreement to which Allergan is a party or by which Allergan is bound. 9.5 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. 9.6 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. 9.7 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. 9.8 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. 9.9 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. 9.10 APPLICABLE LAW. This Agreement shall be governed by and interpreted in accordance with the laws of the State of California, USA, applicable to contracts entered into and to be performed wholly within the State of California, 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. 9.11 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 President of AAT and the President of Research & Development of Allergan or his or her delegate 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 [ * ] = 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 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 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. 9.12 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 Allergan, addressed to: Frances R. Tunney, Jr. Corporate Vice President-Administration, General Counsel and Secretary 2525 Dupont Drive Irvine, CA 92612 If to AAT, 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 9.13 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, PUNITIVE 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 [ * ] = 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 damages, but excluding from the foregoing liabilities arising from breach of the limitations in Sections 2.5, 3.4, 3.5 or Article 6. 9.14 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. 9.15 COMPLIANCE WITH LAW. Nothing in this Agreement shall be deemed to permit a Party to export, reexport or otherwise transfer any Compound or any Confidential Information of AAT provided under this Agreement without compliance with all applicable laws. 9.16 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. 9.17 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. 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. ALLERGAN, INC. By: /s/ Lester J. Kaplan ------------------------------------- Name: Lester J. Kaplan ----------------------------------- Title: Corporate Vice President ---------------------------------- AXYS ADVANCED TECHNOLOGIES, INC. By: /s/ John P. Walker ------------------------------------- Name: John P. Walker ----------------------------------- Title: Chairman ---------------------------------- [ * ] = 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 [ * ]. [ * ] [ * ] = 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 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 EXHIBIT B 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. ii. EX-10.114 3 LOAN 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 10.114 ================================================================================ LOAN AGREEMENT by and between AXYS PHARMACEUTICALS, INC. and FOOTHILL CAPITAL CORPORATION Dated as of July 26, 1999 ================================================================================ 2 TABLE OF CONTENTS
Page(s) 1. DEFINITIONS AND CONSTRUCTION.........................................................1 1.1 Definitions...................................................................1 1.2 Accounting Terms.............................................................10 1.3 Code.........................................................................11 1.4 Construction.................................................................11 1.5 Schedules and Exhibits.......................................................11 2. LOAN AND TERMS OF PAYMENT...........................................................11 2.1 Revolving Advances...........................................................11 2.2 Overadvances.................................................................12 2.3 Interest: Rates, Payments, and Calculations.................................13 2.4 Designated Account...........................................................13 2.5 Maintenance of Loan Account; Statements of Obligations.......................14 2.6 Fees.........................................................................14 3. CONDITIONS; TERM OF AGREEMENT.......................................................14 3.1 Conditions Precedent to the Initial Advance..................................14 3.2 Conditions Precedent to all Advances.........................................16 3.3 Condition Subsequent.........................................................17 3.4 Term.........................................................................17 3.5 Effect of Termination........................................................17 3.6 Early Termination by Borrower................................................17 3.7 Termination Upon Event of Default............................................17 4. CREATION OF SECURITY INTEREST.......................................................18 4.1 Grant of Security Interest...................................................18 4.2 Delivery of Additional Documentation Required................................18 4.3 Right to Inspect.............................................................18 5. REPRESENTATIONS AND WARRANTIES......................................................18 5.1 No Encumbrances..............................................................18 5.2 Location of Chief Executive Office; FEIN.....................................18 5.3 Due Organization and Qualification; Subsidiaries.............................19 5.4 Due Authorization; No Conflict...............................................19 5.5 Litigation...................................................................20 5.6 No Material Adverse Change. .................................................20 5.7 Solvency.....................................................................20 5.8 Employee Benefits............................................................20 6. AFFIRMATIVE COVENANTS...............................................................20
[ * ] = 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. i 3 6.1 Accounting System............................................................20 6.2 Collateral Reporting.........................................................21 6.3 Financial Statements, Reports, Certificates..................................21 6.4 Tax Returns..................................................................22 6.5 Taxes........................................................................22 6.6 Insurance....................................................................22 6.7 No Setoffs or Counterclaims..................................................22 6.8 Compliance with Laws.........................................................22 6.9 Securities Accounts..........................................................22 7. NEGATIVE COVENANTS..................................................................23 7.1 Intentionally Omitted........................................................23 7.2 Liens........................................................................23 7.3 Intentionally Omitted........................................................23 7.4 Intentionally Omitted........................................................23 7.5 Change Name..................................................................23 7.6 Nature of Business...........................................................23 7.7 Change of Control............................................................23 7.8 Accounting Methods...........................................................23 7.9 Intentionally Omitted........................................................23 7.10 Intentionally Omitted........................................................23 7.11 Use of Proceeds..............................................................23 7.12 Change in Location of Chief Executive Office.................................23 8. EVENTS OF DEFAULT...................................................................24 9. FOOTHILL'S RIGHTS AND REMEDIES......................................................25 9.1 Rights and Remedies..........................................................25 9.2 Remedies Cumulative..........................................................25 10. TAXES AND EXPENSES..................................................................26 11. WAIVERS; INDEMNIFICATION............................................................26 11.1 Demand; Protest; etc.........................................................26 11.2 Foothill's Liability for Collateral..........................................26 11.3 Indemnification..............................................................26 12. NOTICES.............................................................................27 13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER..........................................28 14. DESTRUCTION OF BORROWER'S DOCUMENTS.................................................29 15. GENERAL PROVISIONS..................................................................29
[ * ] = 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. ii 4 15.1 Effectiveness................................................................29 15.2 Successors and Assigns.......................................................29 15.3 Section Headings.............................................................29 15.4 Interpretation...............................................................29 15.5 Severability of Provisions...................................................30 15.6 Amendments in Writing........................................................30 15.7 Counterparts; Telefacsimile Execution........................................30 15.8 Revival and Reinstatement of Obligations.....................................30 15.9 Integration..................................................................30 15.10 Confidentiality..............................................................30
SCHEDULES AND EXHIBITS Schedule 5.3 Subsidiaries Schedule 5.5 Litigation Exhibit C-1 Form of Compliance Certificate [ * ] = 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. iii 5 LOAN AGREEMENT THIS LOAN AGREEMENT (this "Agreement"), is entered into as of July 26, 1999, between FOOTHILL CAPITAL CORPORATION, a California corporation ("Foothill"), with a place of business located at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles, California 90025-3333 and AXYS PHARMACEUTICALS, INC., a Delaware corporation ("Borrower"), with its chief executive office located at 180 Kimball Way, South San Francisco, CA 94080. The parties agree as follows: 1. DEFINITIONS AND CONSTRUCTION. 1.1 Definitions. As used in this Agreement, the following terms shall have the following definitions: "Advances" has the meaning set forth in Section 2.1(a). "Affiliate" means, as applied to any Person, any other Person who directly or indirectly controls, is controlled by, is under common control with or is a director or officer of such Person. For purposes of this definition, "control" means the possession, directly or indirectly, of the power to vote 5% or more of the securities having ordinary voting power for the election of directors or the direct or indirect power to direct the management and policies of a Person. "Agreement" has the meaning set forth in the preamble hereto. "Authorized Person" means any officer or other employee of Borrower. "Average Unused Portion of the Maximum Amount" means, as of any date of determination, (a) the Maximum Amount, less (b) the average Daily Balance of Advances that were outstanding during the immediately preceding calendar month. "Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C. Section 101 et seq.), as amended, and any successor statute. "Benefit Plan" means a "defined benefit plan" (as defined in Section 3(35) of ERISA) for which Borrower, any Subsidiary of Borrower, or any ERISA Affiliate has been an "employer" (as defined in Section 3(5) of ERISA) within the past six years. "Borrower" has the meaning set forth in the preamble to this Agreement. "Borrower's Books" means all of Borrower's books and records including: ledgers; records indicating, summarizing, or evidencing Borrower's properties or assets [ * ] = 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. 1 6 (including the Collateral) or liabilities; all information relating to Borrower's business operations or financial condition; and all computer programs, disk or tape files, printouts, runs, or other computer prepared information. "Borrowing Base" has the meaning set forth in Section 2.1(a). "Business Day" means any day that is not a Saturday, Sunday, or other day on which national banks in California are authorized or required to close. "Change of Control" shall be deemed to have occurred at such time as a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of more than 25% of the total voting power of all classes of stock then outstanding of Borrower entitled to vote in the election of directors. "Closing Date" means the date of the making of the initial Advance. "Code" means the California Uniform Commercial Code. "Collateral" has the meaning set forth in the Security Agreement. "Compliance Certificate" means a certificate substantially in the form of Exhibit C-1 and delivered by the chief accounting officer of Borrower to Foothill. "Control Agreements" means: (a) that certain Control Agreement, of even date herewith, among Foothill, Borrower and Wells Capital, (b) that certain Control Agreement, of even date herewith, among Foothill, Sequana and Wells Capital and (c) a control agreement with respect to another Securities Account that is acceptable to Foothill in form and substance. "Daily Balance" means, with respect to each day during the term of this Agreement, the amount of an Obligation owed at the end of such day. "Default" means an event, condition, or default that, with the giving of notice, the passage of time, or both, would be an Event of Default. "Designated Account" means account number [ * ] of Borrower maintained with Borrower's Designated Account Bank, or such other deposit account of Borrower (located within the United States) which has been designated, in writing and from time to time, by Borrower to Foothill. "Designated Account Bank" means Bank of America, whose office is located at 345 Montgomery Street, San Francisco, California 94104, and whose ABA number is 121000358. [ * ] = 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 7 "Disbursement Letter" means an instructional letter executed and delivered by Borrower to Foothill regarding the extensions of credit to be made on the Closing Date, the form and substance of which shall be satisfactory to Foothill. "Dollars or $" means United States dollars. "Early Termination Premium" has the meaning set forth in Section 3.6. "ERISA" means the Employee Retirement Income Security Act of 1974, 29 U.S.C. Sections 1000 et seq., amendments thereto, successor statutes, and regulations or guidance promulgated thereunder. "ERISA Affiliate" means (a) any corporation subject to ERISA whose employees are treated as employed by the same employer as the employees of Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA whose employees are treated as employed by the same employer as the employees of Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any organization subject to ERISA that is a member of an affiliated service group of which Borrower is a member under IRC Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any party subject to ERISA that is a party to an arrangement with Borrower and whose employees are aggregated with the employees of Borrower under IRC Section 414(o). "Event of Default" has the meaning set forth in Section 8. "Existing Lender" means Sumitomo Bank Limited and Sumitomo Bank Limited and Silicon Valley Bank, as co-lenders. "FEIN" means Federal Employer Identification Number. "Foothill" has the meaning set forth in the preamble to this Agreement. "Foothill Expenses" means all: costs or expenses (including taxes, and insurance premiums) required to be paid by Borrower under any of the Loan Documents that are paid or incurred by Foothill pursuant hereto; fees or charges paid or incurred by Foothill in connection with Foothill's transactions with Borrower, including, fees or charges for photocopying, notarization, couriers and messengers, telecommunication, public record searches (including tax lien, litigation, and UCC searches) filing, recording, publication; costs and expenses incurred by Foothill in the disbursement of funds to Borrower (by wire transfer or otherwise); charges paid or incurred by Foothill resulting from the dishonor of checks; costs and expenses paid or incurred by Foothill to correct any default or enforce any provision of the Loan Documents, or in gaining possession of, maintaining, handling, preserving, selling or preparing for sale the Collateral or any portion thereof, irrespective of whether a sale is consummated; costs and expenses paid or incurred by Foothill in examining Borrower's Books; costs and expenses of third party claims or any other suit paid or incurred by Foothill in enforcing 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. 3 8 defending the Loan Documents or in connection with the transactions contemplated by the Loan Documents or Foothill's relationship with Borrower; and Foothill's reasonable attorneys fees and expenses incurred in advising, structuring, drafting, reviewing, administering, amending, terminating, enforcing, defending, or concerning the Loan Documents (including attorneys fees and expenses incurred in connection with a "workout," a "restructuring," or an Insolvency Proceeding concerning Borrower), irrespective of whether suit is brought. "GAAP" means generally accepted accounting principles as in effect from time to time in the United States, consistently applied. "Governing Documents" means the certificate or articles of incorporation, by-laws, or other organizational or governing documents of any Person. "Governmental Authority" means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guaranty" means that certain Continuing Guaranty, of even date herewith, in which Sequana has guaranteed the Obligations. "Indebtedness" means: (a) all obligations of Borrower for borrowed money, (b) all obligations of Borrower evidenced by bonds, debentures, notes, or other similar instruments and all reimbursement or other obligations of Borrower in respect of letters of credit, bankers acceptances, interest rate swaps, or other financial products, (c) all obligations of Borrower under capital leases, (d) all obligations or liabilities of others secured by a Lien on any property or asset of Borrower, irrespective of whether such obligation or liability is assumed, and (e) any obligation of Borrower guaranteeing or intended to guarantee (whether guaranteed, endorsed, co-made, discounted, or sold with recourse to Borrower) any indebtedness, lease, dividend, letter of credit, or other obligation of any other Person. "Insolvency Proceeding" means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code or under any other bankruptcy or insolvency law, assignments for the benefit of creditors, formal or informal moratoria, compositions, extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief. "Inventory" has the meaning given to that term in Division 9 of the Code. "Investment Management Agreement" means an investment management agreement between Borrower or Sequana and Wells Capital establishing and governing a Securities Account. "Investment Property" means all of Borrower's presently existing and hereafter acquired or arising (a) investment property (as that term is defined in Section 9115 of [ * ] = 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 9 the Code), held in or as part of the Securities Account, (b) all rights and interest of Borrower with respect to the Investment Account and such investment property, and (c) all other financial assets held in or as part of the Securities Account, including without limitation, the Short-Term Cash Equivalent Securities and the Long-Term Cash Equivalent Securities, together with any certificates, options, warrants, moneys or other distributions issued in addition to, in substitution or exchange for, or on account of said assets. "IRC" means the Internal Revenue Code of 1986, as amended, and the regulations thereunder. "Lien" means any interest in property securing an obligation owed to, or a claim by, any Person other than the owner of the property, whether such interest shall be based on the common law, statute, or contract, whether such interest shall be recorded or perfected, and whether such interest shall be contingent upon the occurrence of some future event or events or the existence of some future circumstance or circumstances, including the lien or security interest arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement, security agreement, adverse claim or charge, conditional sale or trust receipt, or from a lease, consignment, or bailment for security purposes and also including reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases, and other title exceptions and encumbrances affecting estates or interests in real property. "Loan Account" has the meaning set forth in Section 2.5. "Loan Documents" means this Agreement, the Security Agreement, each Control Agreement, the Disbursement Letter, the Guaranty and any security agreements relating thereto, any note or notes executed by Borrower and payable to Foothill, and any other agreement entered into, now or in the future, in connection with this Agreement. "Long-Term Cash Equivalent Securities" means each of the following securities, provided such securities have maturities greater than 365 days and equal to or less than 545 days: (a) United States Government Obligations (i) United States Treasury Bills, (ii) United States Government Coupon Issues, and (iii) United States Federal Agencies and Instrumentalities; (b) Domestic Money Market Instruments (i) Certificates of Deposit, [ * ] = 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 10 (ii) Repurchase Agreements Fully Collateralized by United States Government or Agency Securities, (iii) Bankers Acceptances, (iv) Commercial Paper/Medium Term Notes, (v) Short-Term Money Market Funds Issued by an Affiliate of Wells Fargo & Company, and (vi) Master Notes; (c) Except for the United States Government Obligations, the Securities Described in (a) and (b) above must meet or exceed the following ratings: (i) Variable rate demand notes/municipal notes and bonds: AA/AAA long-term or MIGI, VMIGI, SPI short-term; pre-funded; escrow to maturity; AA/AAA letter of credit, (ii) Bank holding companies: a rating of at least A-1/P-1 short-term and AA-AA long-term, and (iii) Commercial paper: a rating of at least A-1/P-1. "Material Adverse Change" means (a) a material adverse effect on the value of the Collateral or the amount that Foothill would be likely to receive (after giving consideration to delays in payment and costs of enforcement) in the liquidation of such Collateral or (b) a material impairment of the priority of Foothill's Liens with respect to the Collateral. "Maximum Amount" means $30,000,000. "Mid Term Cash Equivalent Securities" means each of the following securities, provided such securities have maturities greater than 180 days and equal to or less than 365 days: (a) United States Government Obligations (i) United States Treasury Bills, (ii) United States Government Coupon Issues, and (iii) United States Federal Agencies and Instrumentalities; [ * ] = 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 11 (b) Domestic Money Market Instruments (i) Certificates of Deposit, (ii) Repurchase Agreements Fully Collateralized by United States Government or Agency Securities, (iii) Bankers Acceptances, (iv) Commercial Paper/Medium Term Notes, (v) Short-Term Money Market Funds Issued by an Affiliate of Wells Fargo & Company, and (vi) Master Notes; (c) Except for the United States Government Obligations, the Securities Described in (a) and (b) above must meet or exceed the following ratings: (i) Variable rate demand notes/municipal notes and bonds: AA/AAA long-term or MIGI, VMIGI, SPI short-term; pre-funded; escrow to maturity; AA/AAA letter of credit, (ii) Bank holding companies: a rating of at least A-1/P-1 short-term and AA-AA long-term, and (iii) Commercial paper: a rating of at least A-1/P-1. "Obligations" means all loans, Advances, debts, principal, interest (including any interest that, but for the provisions of the Bankruptcy Code, would have accrued), premiums (including Early Termination Premiums), liabilities (including all amounts charged to Borrower's Loan Account pursuant hereto), obligations, fees, charges, costs, or Foothill Expenses (including any fees or expenses that, but for the provisions of the Bankruptcy Code, would have accrued), lease payments, guaranties, covenants, and duties owing by Borrower to Foothill of any kind and description (whether pursuant to or evidenced by the Loan Documents or pursuant to any other agreement between Foothill and Borrower, and irrespective of whether for the payment of money), whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all interest not paid when due and all Foothill Expenses that Borrower is required to pay or reimburse by the Loan Documents, by law, or otherwise. "Overadvance" has the meaning set forth in Section 2.2. "Pay-Off Letter" means a letter, in form and substance reasonably satisfactory to Foothill, from Existing Lender respecting the amount necessary to repay in full all [ * ] = 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 12 of the obligations of Borrower owing to Existing Lender and obtain a termination or release of all of the Liens existing in favor of Existing Lender in and to the properties or assets of Borrower. "PBGC" means the Pension Benefit Guaranty Corporation as defined in Title IV of ERISA, or any successor thereto. "Permitted Liens" means (a) Liens held by Foothill, (b) Liens held by Wells Capital as permitted under any Control Agreement and (c) Liens for unpaid taxes that are the subject of a Permitted Protest. "Permitted Protest" means the right of Borrower to protest any Lien (other than any such Lien that secures the Obligations), tax (other than payroll taxes or taxes that are the subject of a United States federal tax lien), or rental payment, provided that (a) a reserve with respect to such obligation is established on the books of Borrower in an amount that is reasonably satisfactory to Foothill, (b) any such protest is instituted and diligently prosecuted by Borrower in good faith, and (c) Foothill is satisfied that, while any such protest is pending, there will be no impairment of the enforceability, validity, or priority of any of the Liens of Foothill in and to the Collateral. "Person" means and includes natural persons, corporations, limited liability companies, limited partnerships, general partnerships, limited liability partnerships, joint ventures, trusts, land trusts, business trusts, or other organizations, irrespective of whether they are legal entities, and governments and agencies and political subdivisions thereof. "Plan" means any employee benefit plan, program, or arrangement maintained or contributed to by Borrower or with respect to which it may incur liability. "Reference Rate" means the variable rate of interest, per annum, most recently announced by Wells Fargo Bank, National Association, or any successor thereto, as its "base rate," irrespective of whether such announced rate is the best rate available from such financial institution. "Reportable Event" means any of the events described in Section 4043(c) of ERISA or the regulations thereunder other than a Reportable Event as to which the provision of 30 days notice to the PBGC is waived under applicable regulations. "Retiree Health Plan" means an "employee welfare benefit plan" within the meaning of Section 3(1) of ERISA that provides benefits to individuals after termination of their employment, other than as required by Section 601 of ERISA. "Securities Account" means: (a) that certain securities account (as defined in Division 8 of the Code), Account Number [ * ], established by Borrower with Wells Capital pursuant to an agreement between Wells Capital, dated as of July ___, 1999, (b) that certain [ * ] = 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 13 securities account (as defined in Division 8 of the Code), Account Number [ * ], established by Sequana, dated as of July ___, 1999 and (c) such other account that has been established by Borrower or Sequana and approved by Foothill in writing and is expressly designated therein as a Securities Account. "Security Agreement" means that certain Security Agreement, of even date herewith, between Foothill and Borrower. "Sequana" means Sequana Therapeutics, Inc., a California corporation. "Short-Term Cash Equivalent Securities" means each of the following securities, provided such securities have maturities of 180 days or less: (a) United States Government Obligations (i) United States Treasury Bills, (ii) United States Government Coupon Issues, and (iii) United States Federal Agencies and Instrumentalities; (b) Domestic Money Market Instruments (i) Certificates of Deposit, (ii) Repurchase Agreements Fully Collateralized by United States Government or Agency Securities, (iii) Bankers Acceptances, (iv) Commercial Paper/Medium Term Notes, (v) Short-Term Money Market Funds Issued by an Affiliate of Wells Fargo & Company, and (vi) Master Notes; (c) Except for the United States Government Obligations, the Securities Described in (a) and (b) above must meet or exceed the following ratings: (i) Variable rate demand notes/municipal notes and bonds: AA/AAA long-term or MIGI, VMIGI, SPI short-term; pre-funded; escrow to maturity; AA/AAA letter of credit, [ * ] = 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 14 (ii) Bank holding companies: a rating of at least A-1/P-1 short-term and AA-AA long-term, and (iii) Commercial paper: a rating of at least A-1/P-1. "Solvent" means, with respect to any Person on a particular date, that on such date (a) at fair valuations, all of the properties and assets of such Person are greater than the sum of the debts, including contingent liabilities, of such Person, (b) the present fair salable value of the properties and assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person is able to realize upon its properties and assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (d) such Person does not intend to, and does not believe that it will, incur debts beyond such Person's ability to pay as such debts mature, and (e) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's properties and assets would constitute unreasonably small capital after giving due consideration to the prevailing practices in the industry in which such Person is engaged. In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount that, in light of all the facts and circumstances existing at such time, represents the amount that reasonably can be expected to become an actual or matured liability. "Subsidiary" of a Person means a corporation, partnership, limited liability company, or other entity in which that Person directly or indirectly owns or controls the shares of stock or other ownership interests having ordinary voting power to elect a majority of the board of directors (or appoint other comparable managers) of such corporation, partnership, limited liability company, or other entity. "Termination Date" has the meaning set forth in Section 3.4. "Voidable Transfer" has the meaning set forth in Section 15.8. "Wells Capital" means Wells Capital Management Incorporated, a California corporation. "Year 2000 Compliant" means, with regard to any Person, that all software in goods produced or sold by, or utilized by and material to the business operations or financial condition of, such entity are able to interpret and manipulate data on and involving all calendar dates correctly and without causing any abnormal ending scenario, including in relation to dates in and after the year 2000. 1.2 Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. When used herein, the term "financial statements" shall include the notes and schedules thereto. Whenever the term "Borrower" is used in respect of a financial covenant or a related definition, it shall be understood to mean Borrower on a consolidated basis unless the context clearly requires otherwise. [ * ] = 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 15 1.3 Code. Any terms used in this Agreement that are defined in the Code shall be construed and defined as set forth in the Code unless otherwise defined herein. 1.4 Construction. Unless the context of this Agreement clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the term "including" is not limiting, and the term "or" has, except where otherwise indicated, the inclusive meaning represented by the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. An Event of Default shall "continue" or be "continuing" until such Event of Default has been waived in writing by Foothill. Section, subsection, clause, schedule, and exhibit references are to this Agreement unless otherwise specified. Any reference in this Agreement or in the Loan Documents to this Agreement or any of the Loan Documents shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, and supplements, thereto and thereof, as applicable. 1.5 Schedules and Exhibits. All of the schedules and exhibits attached to this Agreement shall be deemed incorporated herein by reference. 2. LOAN AND TERMS OF PAYMENT 2.1 Revolving Advances. (a) Subject to the terms and conditions of this Agreement, Foothill agrees to make advances ("Advances") to Borrower in an amount outstanding not to exceed at any one time the lesser of (i) the Maximum Amount, or (ii) the Borrowing Base. For purposes of this Agreement, "Borrowing Base", as of any date of determination, shall mean: (y) an amount equal to [ * ] of: (i) cash deposited with Foothill or with Wells Capital in a Securities Account, (ii) the market value of the Short-Term Cash Equivalent Securities in a Securities Account, (iii) the market value of the Mid-Term Cash Equivalent Securities in a Securities Account, and (iv) the market value of the Long-Term Cash Equivalent Securities in a Securities Account, minus (z) a reserve for [ * ]. In the event that Borrower elects to transfer the Collateral to a wholly-owned Subsidiary (other than Sequana) that has been structured and organized in a manner that is acceptable to Foothill, and Foothill has a first priority, perfected Lien on the Collateral, for purposes of this Agreement, "Borrowing Base", as of any date of determination, shall mean the result of: [ * ] = 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 16 (v) [ * ] of the market value of the Long-Term Cash Equivalent Securities in a Securities Account, plus (w) [ * ] of the market value of the Mid-Term Cash Equivalent Securities in a Securities Account, plus (x) [ * ] of the market value of the Short Term Cash Equivalent Securities in a Securities Account, plus (y) 100% of cash deposited by such Subsidiary with Foothill or with Wells Capital in a Securities Account which is intended be invested within two Business Days of receipt of such cash, minus (z) a reserve for [ * ]. (b) Anything to the contrary in this Section 2.1 notwithstanding, Foothill may (i) reduce the advance rates in the Borrowing Base without declaring an Event of Default if it determines that there has occurred a Material Adverse Change; and (ii) establish reserves against the Borrowing Base as Foothill in its reasonable judgment (from the perspective of an asset-based lender) shall deem necessary or appropriate on account of amounts owing by Borrower to any Person to the extent secured by a Lien on, or trust over, any of the Collateral, which Lien or trust, in the reasonable determination of Foothill (from the perspective of an asset-based lender), would be likely to have a priority superior to the Liens of Foothill in and to such item of the Collateral. (c) Amounts borrowed pursuant to this Section 2.1 may be repaid and, subject to the terms and conditions of this Agreement, reborrowed at any time during the term of this Agreement. 2.2 Overadvances. If, at any time or for any reason, the amount of Obligations owed by Borrower to Foothill pursuant to Section 2.1 is greater than either the Dollar or percentage limitations set forth in Section 2.1 (an "Overadvance"), Borrower, within [ * ] (except as provided to the contrary in Section 8.1), shall pay to Foothill, in cash, the amount of such excess to be used by Foothill to repay Advances outstanding under Section 2.1. 2.3 Interest: Rates, Payments, and Calculations (a) Interest Rate. Except as provided in clause (b) below, all Obligations shall bear interest on the Daily Balance at a per annum rate equal to the Reference Rate. (b) Default Rate. Upon the occurrence and during the continuation of an Event of Default, at Foothill's election, all Obligations shall bear interest on the Daily Balance at a per annum rate equal to [ * ]. [ * ] = 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 17 (c) Payments. Interest payable hereunder shall be due and payable, in arrears, on the first day of each month during the term hereof. Borrower hereby authorizes Foothill, at its option, without prior notice to Borrower, to charge such interest, all Foothill Expenses (as and when incurred), the fees and charges provided for in Section 2.6 (as and when accrued or incurred), and all payments due under any Loan Document to Borrower's Loan Account, which amounts thereafter shall accrue interest at the rate then applicable to Advances hereunder. Any interest not paid when due shall be compounded and shall thereafter accrue interest at the rate then applicable to Advances hereunder. (d) Computation. The Reference Rate as of the date of this Agreement is 8.00% per annum. In the event the Reference Rate is changed from time to time hereafter, the applicable rate of interest hereunder automatically and immediately shall be increased or decreased by an amount equal to such change in the Reference Rate. All interest and fees chargeable under the Loan Documents shall be computed on the basis of a 360 day year for the actual number of days elapsed. (e) Intent to Limit Charges to Maximum Lawful Rate. In no event shall the interest rate or rates payable under this Agreement, plus any other amounts paid in connection herewith, exceed the highest rate permissible under any law that a court of competent jurisdiction shall, in a final determination, deem applicable. Borrower and Foothill, in executing and delivering this Agreement, intend legally to agree upon the rate or rates of interest and manner of payment stated within it; provided, however, that, anything contained herein to the contrary notwithstanding, if said rate or rates of interest or manner of payment exceeds the maximum allowable under applicable law, then, ipso facto as of the date of this Agreement, Borrower is and shall be liable only for the payment of such maximum as allowed by law, and payment received from Borrower in excess of such legal maximum, whenever received, shall be applied to reduce the principal balance of the Obligations to the extent of such excess. 2.4 Designated Account. Foothill is authorized to make the Advances under this Agreement based upon telephonic or other instructions received from anyone purporting to be an Authorized Person, or without instructions if pursuant to Section 2.3(c). Borrower agrees to establish and maintain the Designated Account with the Designated Account Bank for the purpose of receiving the proceeds of the Advances requested by Borrower and made by Foothill hereunder. Unless otherwise agreed by Foothill and Borrower, any Advance requested by Borrower and made by Foothill hereunder shall be made to the Designated Account. 2.5 Maintenance of Loan Account; Statements of Obligations. Foothill shall maintain an account on its books in the name of Borrower (the "Loan Account") on which Borrower will be charged with all Advances made by Foothill to Borrower or for Borrower's account, including, accrued interest, Foothill Expenses, and any other payment Obligations of Borrower. Foothill shall render statements regarding the Loan Account to Borrower, including principal, interest, fees, and including an itemization of all charges and expenses constituting Foothill Expenses owing, and such statements shall be conclusively presumed to be correct 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. 13 18 accurate and constitute an account stated between Borrower and Foothill unless, within 30 days after receipt thereof by Borrower, Borrower shall deliver to Foothill written objection thereto describing the error or errors contained in any such statements. Foothill hereby acknowledges that Borrower has previously provided Foothill with a deposit in the amount of [ * ] that shall be applied to Foothill Expenses. 2.6 Fees. Borrower shall pay to Foothill the following fees: (a) Closing Fee. On the Closing Date, a closing fee of [ * ]; (b) Unused Line Fee. On the first day of each month during the term of this Agreement, an unused line fee in an amount equal to [ * ] per annum times the Average Unused Portion of the Maximum Amount; (c) Annual Facility Fee. On first and second anniversaries of the Closing Date, an annual facility fee in an amount equal to [ * ] of the Maximum Amount; and (d) Financial Examination. Foothill's customary fee of [ * ] per day per examiner, plus reasonable out-of-pocket expenses for each financial analysis and examination (i.e., audits) of Borrower performed by personnel employed by Foothill; provided, however, that prior to the occurrence of an Event of Default, Borrower shall not be obligated to pay the fees and expenses of more than one such financial analysis and examination in any consecutive 12 month period. 3. CONDITIONS; TERM OF AGREEMENT 3.1 Conditions Precedent to the Initial Advance. The obligation of Foothill to make the initial Advance is subject to the fulfillment, to the satisfaction of Foothill and its counsel, of each of the following conditions on or before the Closing Date: (a) the Closing Date shall occur on or before July 31, 1999; (b) Foothill shall have received searches reflecting the filing of its financing statements; (c) Foothill shall have received each of the following documents, duly executed, and each such document shall be in full force and effect: (i) the Security Agreement; (ii) Borrower's Control Agreement and the Investment Management Agreement between Borrower and Wells Capital for the Securities Account; (iii) the Disbursement Letter; [ * ] = 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 19 (iv) the Pay-Off Letter, together with UCC termination statements and other documentation evidencing the termination by Existing Lender of its Liens in and to the properties and assets of Borrower; and (v) the Guaranty, the security agreement between Foothill and Sequana, the Investment Management Agreement between Sequana and Wells Capital for its Securities Account and Sequana's Control Agreement; (d) Foothill shall have received a certificate from the Secretary of Borrower attesting to the resolutions of Borrower's Board of Directors authorizing its execution, delivery, and performance of this Agreement and the other Loan Documents to which Borrower is a party and authorizing specific officers of Borrower to execute the same; (e) Foothill shall have received copies of Borrower's Governing Documents, as amended, modified, or supplemented to the Closing Date, certified by the Secretary of Borrower; (f) Foothill shall have received a certificate of status with respect to Borrower, dated within 10 days of the Closing Date, such certificate to be issued by the appropriate officer of the jurisdiction of organization of Borrower, which certificate shall indicate that Borrower is in good standing in such jurisdiction; (g) Foothill shall have received a certificate from the Secretary of Sequana attesting to the resolutions of Sequana's Board of Directors authorizing its execution, delivery, and performance of the Guaranty and the other Loan Documents to which Sequana is a party and authorizing specific officers of Sequana to execute the same; (h) Foothill shall have received copies of Sequana's Governing Documents, as amended, modified, or supplemented to the Closing Date, certified by the Secretary of Sequana; (i) Foothill shall have received a certificate of status with respect to Sequana, dated within 10 days of the Closing Date, such certificate to be issued by the appropriate officer of the jurisdiction of organization of Sequana, which certificate shall indicate that Sequana is in good standing in such jurisdiction; (j) Foothill shall have received certificates of status with respect to Borrower, each dated within 15 days of the Closing Date, such certificates to be issued by the appropriate officer of the jurisdictions in which its failure to be duly qualified or licensed would constitute a Material Adverse Change, which certificates shall indicate that Borrower is in good standing in such jurisdictions; [ * ] = 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 20 (k) Foothill shall have received an opinion of Borrower's counsel in form and substance satisfactory to Foothill in its sole discretion; (l) Foothill shall have received a certificate of an officer of Borrower confirming that all tax returns required to be filed by Borrower have been timely filed and all taxes upon Borrower or its properties, assets, income, and franchises (including real property taxes and payroll taxes) have been paid prior to delinquency, except such taxes that are the subject of a Permitted Protest; (m) Foothill shall have received satisfactory background searches for Borrower's key executive officers; and (n) all other documents and legal matters in connection with the transactions contemplated by this Agreement shall have been delivered, executed, or recorded and shall be in form and substance satisfactory to Foothill and its counsel. 3.2 Conditions Precedent to all Advances. The following shall be conditions precedent to all Advances hereunder: (a) the representations and warranties contained in this Agreement and the other Loan Documents shall be true and correct in all respects on and as of the date of such extension of credit, as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date); (b) no Default or Event of Default shall have occurred and be continuing on the date of such extension of credit, nor shall either result from the making thereof; and (c) no injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the extending of such credit shall have been issued and remain in force by any Governmental Authority against Borrower, Foothill, or any of their Affiliates. 3.3 Condition Subsequent. As a condition subsequent to initial closing hereunder, Borrower shall perform or cause to be performed the following (the failure by Borrower to so perform or cause to be performed constituting an Event of Default): (a) On or before October 15, 1999, Sequana shall be merged into Borrower. 3.4 Term. This Agreement shall become effective upon the execution and delivery hereof by Borrower and Foothill and shall continue in full force and effect for a term ending on the date (the "Termination Date") that is three years from the Closing Date, unless sooner terminated pursuant to the terms hereof. The foregoing notwithstanding, Foothill shall [ * ] = 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 21 have the right to terminate its obligations under this Agreement immediately and without notice upon the occurrence and during the continuation of an Event of Default. 3.5 Effect of Termination. On the date of termination of this Agreement, all Obligations immediately shall become due and payable without notice or demand. No termination of this Agreement, however, shall relieve or discharge Borrower of Borrower's duties, Obligations, or covenants hereunder, and Foothill's continuing security interests in the Collateral shall remain in effect until all Obligations have been fully and finally discharged and Foothill's obligation to provide additional credit hereunder is terminated. 3.6 Early Termination by Borrower. The provisions of Section 3.4 that allow termination of this Agreement by Borrower only on the Termination Date notwithstanding, Borrower has the option, at any time upon 10 Business days prior written notice to Foothill, to terminate this Agreement by paying to Foothill, in cash, the Obligations, in full, together with a premium (the "Early Termination Premium") equal to (a) [ * ] of the Maximum Amount if such termination occurs on or before the first anniversary of the Closing Date, (b) [ * ] of the Maximum Amount if such termination occurs after the first anniversary of the Closing Date and on or before the second anniversary of the Closing Date, and (c) [ * ] of the Maximum Amount if such termination occurs at any time after the second anniversary of the Closing Date and before the Termination Date. Notwithstanding the foregoing and so long as no Event of Default exists, no Early Termination Premium shall be due if Borrower repays the Obligations in full and in cash with proceeds of a public or private issuance of: (a) equity securities, (b) convertible debt securities or (c) securities (as defined in the Security Act of 1933, as amended) involving debt with a substantial equity securities component, in each case in an amount equal to or greater than the Maximum Amount. 3.7 Termination Upon Event of Default. If Foothill terminates this Agreement upon the occurrence of an Event of Default, in view of the impracticability and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a reasonable calculation of Foothill's lost profits as a result thereof, Borrower shall pay to Foothill upon the effective date of such termination, a premium in an amount equal to [ * ]. The [ * ] shall be presumed to be the amount of damages sustained by Foothill as the result of the early termination and Borrower agrees that it is reasonable under the circumstances currently existing. The [ * ] provided for in this Section 3.7 shall be deemed included in the Obligations. 4. CREATION OF SECURITY INTEREST. 4.1 Grant of Security Interest. Pursuant to the Security Agreement and Sequana's security agreement, Borrower and Sequana has each granted to Foothill a continuing security interest in all currently existing and hereafter acquired or arising Collateral in order to secure prompt repayment of any and all Obligations and in order to secure prompt performance by Borrower of each of its covenants and duties under the Loan Documents (or in the case of Sequana to secure its Guaranty of the Obligations). [ * ] = 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 22 4.2 Delivery of Additional Documentation Required. At any time upon the request of Foothill, Borrower shall execute and deliver to Foothill all financing statements, continuation financing statements, security agreements, pledges, assignments, control agreements, reports, notices, and all other documents that Foothill reasonably may request, in form satisfactory to Foothill, to perfect and continue perfected Foothill's security interests in the Collateral, and in order to fully consummate all of the transactions contemplated hereby and under the other the Loan Documents. 4.3 Right to Inspect. Foothill (through any of its officers, employees, or agents) shall have the right, from time to time hereafter, during normal business hours, to inspect Borrower's Books in order to verify the amount, quality, value, condition of, or any other matter relating to, the Collateral. 5. REPRESENTATIONS AND WARRANTIES. In order to induce Foothill to enter into this Agreement, Borrower makes the following representations and warranties which shall be true, correct, and complete in all respects as of the date hereof, and shall be true, correct, and complete in all respects as of the Closing Date, and at and as of the date of the making of each Advance made thereafter, as though made on and as of the date of such Advance (except, in each case, to the extent that such representations and warranties relate solely to an earlier date) and such representations and warranties shall survive the execution and delivery of this Agreement: 5.1 No Encumbrances. Borrower has good and indefeasible title to the Collateral, free and clear of Liens except for Permitted Liens. 5.2 Location of Chief Executive Office; FEIN. The chief executive office of Borrower is located at the address indicated in the preamble to this Agreement and Borrower's FEIN is 22-2969941. 5.3 Due Organization and Qualification; Subsidiaries. (a) Borrower is duly organized and existing and in good standing under the laws of the jurisdiction of its incorporation and qualified and licensed to do business in, and in good standing in, any state where the failure to be so licensed or qualified would cause a material adverse change. (b) Set forth on Schedule 5.3, is a complete and accurate list of Borrower's direct and indirect Subsidiaries, showing: (i) the jurisdiction of their incorporation; (ii) the number of shares of each class of common and preferred stock authorized for each of such Subsidiaries; and (iii) the number and the percentage of the outstanding shares of each such class owned directly or indirectly by Borrower. All of the outstanding capital stock of each such Subsidiary has been validly issued and is fully paid and non-assessable. [ * ] = 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 23 (c) Except as set forth on Schedule 5.3, no capital stock (or any securities, instruments, warrants, options, purchase rights, conversion or exchange rights, calls, commitments or claims of any character convertible into or exercisable for capital stock) of any direct or indirect Subsidiary of Borrower is subject to the issuance of any security, instrument, warrant, option, purchase right, conversion or exchange right, call, commitment or claim of any right, title, or interest therein or thereto. 5.4 Due Authorization; No Conflict. (a) The execution, delivery, and performance by Borrower of this Agreement and the Loan Documents to which it is a party have been duly authorized by all necessary corporate action. (b) The execution, delivery, and performance by Borrower of this Agreement and the Loan Documents to which it is a party do not and will not (i) violate any material provision of federal, state, or local law or regulation (including Regulations T, U, and X of the Federal Reserve Board) applicable to Borrower, the Governing Documents of Borrower, or any order, judgment, or decree of any court or other Governmental Authority binding on Borrower, (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any material contractual obligation or material lease of Borrower, (iii) result in or require the creation or imposition of any Lien of any nature whatsoever upon any of the Collateral, other than Permitted Liens, or (iv) require any approval of stockholders or any approval or consent of any Person under any material contractual obligation of Borrower. (c) Other than the filing of appropriate financing statements and disclosure in federal securities law filings, the execution, delivery, and performance by Borrower of this Agreement and the Loan Documents to which Borrower is a party do not and will not require any registration with, consent, or approval of, or notice to, or other action with or by, any federal, state, foreign, or other Governmental Authority or other Person. (d) This Agreement and the Loan Documents to which Borrower is a party, and all other documents contemplated hereby and thereby, when executed and delivered by Borrower will be the legally valid and binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors' rights generally. (e) The Liens granted by Borrower to Foothill in and to the Collateral pursuant to this Agreement and the other Loan Documents are validly created, perfected, and first priority Liens, subject only to Permitted Liens. 5.5 Litigation. There are no actions or proceedings pending by or against Borrower before any court or administrative agency and Borrower does not have knowledge or belief of any pending, threatened, or imminent litigation, governmental investigations, or claims, [ * ] = 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 24 complaints, actions, or prosecutions involving Borrower, except for: (a) ongoing collection matters in which Borrower is the plaintiff; (b) matters disclosed on Schedule 5.5; and (c) matters arising after the date hereof that, if decided adversely to Borrower, would not cause a material adverse change. 5.6 No Material Adverse Change. All financial statements relating to Borrower that have been delivered by Borrower to Foothill have been prepared in accordance with GAAP (except, in the case of unaudited financial statements, for the lack of footnotes and being subject to year-end audit adjustments) and fairly present Borrower's financial condition as of the date thereof and Borrower's results of operations for the period then ended. There has not been a material adverse change with respect to Borrower since the date of the latest financial statements submitted to Foothill on or before the Closing Date. 5.7 Solvency. Borrower is Solvent. No transfer of property is being made by Borrower and no obligation is being incurred by Borrower in connection with the transactions contemplated by this Agreement or the other Loan Documents with the intent to hinder, delay, or defraud either present or future creditors of Borrower. 5.8 Employee Benefits. None of Borrower, any of its Subsidiaries, or any of their ERISA Affiliates maintains or contributes to any Benefit Plan. 6. AFFIRMATIVE COVENANTS. Borrower covenants and agrees that, so long as any credit hereunder shall be available and until full and final payment of the Obligations, Borrower shall do all of the following: 6.1 Accounting System. Maintain a standard and modern system of accounting that enables Borrower to produce financial statements in accordance with GAAP, and maintain records pertaining to the Collateral that contain information as from time to time may be reasonably requested by Foothill. 6.2 Collateral Reporting. Provide Foothill with the following documents at the following times in form satisfactory to Foothill: (a) on a monthly basis and, in any event, by no later than the 10th day of each month during the term of this Agreement, a detailed calculation of the Borrowing Base based upon the most recent report received from Wells Capital, and (b) such other reports as to the Collateral or the financial condition of Borrower as Foothill may reasonably request from time to time. 6.3 Financial Statements, Reports, Certificates. Deliver to Foothill: (a) as soon as available, but in any event within 30 days after the end of each month during each of Borrower's fiscal years, a company prepared balance sheet, income statement, and statement of cash flow covering Borrower's operations during such period; and (b) as soon as available, but in any event within 90 days after the end of each of Borrower's fiscal years, financial statements of [ * ] = 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 25 Borrower for each such fiscal year, audited by independent certified public accountants reasonably acceptable to Foothill and certified, without any qualifications, by such accountants to have been prepared in accordance with GAAP. Such audited financial statements shall include a balance sheet, profit and loss statement, and statement of cash flow and, if prepared, such accountants' letter to management. If Borrower is a parent company of one or more consolidated Subsidiaries (according to GAAP), then, in addition to the financial statements referred to above, Borrower agrees to deliver financial statements prepared on a consolidating basis so as to present Borrower and each such related entity separately, and on a consolidated basis. Together with the above, Borrower also shall deliver to Foothill Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K Current Reports, and any other filings made by Borrower with the Securities and Exchange Commission, if any, as soon as the same are filed, or any other information that is provided by Borrower to its shareholders, and any other report reasonably requested by Foothill relating to the financial condition of Borrower. Each month, together with the financial statements provided pursuant to Section 6.3(a), Borrower shall deliver to Foothill a Compliance Certificate signed by its chief financial officer to the effect that: (i) all financial statements delivered or caused to be delivered to Foothill hereunder have been prepared in accordance with GAAP (except, in the case of unaudited financial statements, for the lack of footnotes and being subject to year-end audit adjustments) and fairly present the financial condition of Borrower, (ii) the representations and warranties of Borrower contained in this Agreement and the other Loan Documents are true and correct in all material respects on and as of the date of such certificate, as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date), and (iii) on the date of delivery of such certificate to Foothill there does not exist any condition or event that constitutes a Default or Event of Default (or, in the case of clauses (i) or (ii), to the extent of any non-compliance, describing such non-compliance as to which he or she may have knowledge and what action Borrower has taken, is taking, or proposes to take with respect thereto). 6.4 Tax Returns. Deliver to Foothill copies of each of Borrower's future federal income tax returns, and any amendments thereto, within 30 days after the filing thereof with the Internal Revenue Service. 6.5 Taxes. Cause all assessments and taxes, whether real, personal, or otherwise, due or payable by, or imposed, levied, or assessed against Borrower or any of its property to be paid in full, before delinquency or before the expiration of any extension period, except to the extent that the validity of such assessment or tax shall be the subject of a Permitted Protest. Borrower shall make due and timely payment or deposit of all such federal, state, and local taxes, assessments, or contributions required of it by law, and will execute and deliver to Foothill, on demand, appropriate certificates of an officer of Borrower attesting to the payment thereof or deposit with respect thereto. Borrower will make timely payment or deposit of all tax [ * ] = 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 26 payments and withholding taxes required of it by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Foothill with proof reasonably satisfactory to Foothill indicating that Borrower has made such payments or deposits. 6.6 Insurance. At its expense, Borrower shall maintain insurance against loss or damage to assets, business interruption, public liability, product liability, and property damage insurance relating to Borrower's ownership and use of its assets. 6.7 No Setoffs or Counterclaims. Make payments hereunder and under the other Loan Documents by or on behalf of Borrower without setoff or counterclaim and free and clear of, and without deduction or withholding for or on account of, any federal, state, or local taxes. 6.8 Compliance with Laws. Comply with the requirements of all applicable laws, rules, regulations, and orders of any Governmental Authority, including the Fair Labor Standards Act and the Americans With Disabilities Act, other than laws, rules, regulations, and orders the non-compliance with which, individually or in the aggregate, would not cause a Material Adverse Change. 6.9 Securities Accounts. Borrower and Sequana shall each maintain its Securities Account and a Control Agreement with respect thereto; provided, however, that Sequana's Security Account shall be combined with Borrower's upon consummation of the merger of Sequana into Borrower. 7. NEGATIVE COVENANTS. Borrower covenants and agrees that, so long as any credit hereunder shall be available and until full and final payment of the Obligations, Borrower will not do any of the following: 7.1 Intentionally Omitted. 7.2 Liens. Create, incur, assume, or permit to exist, directly or indirectly, any Lien on or with respect to any of the Collateral, or any income or profits therefrom, except for Permitted Liens. 7.3 Intentionally Omitted. 7.4 Intentionally Omitted. 7.5 Change Name. Without 10 days prior written notice from Borrower to Foothill, change Borrower's name, FEIN, corporate structure (within the meaning of Section 9402(7) of the Code) or add any new fictitious name. [ * ] = 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 27 7.6 Nature of Business. Make any change in the principal nature of Borrower's business to any other business than the drug discovery business relating to human therapeutic pharmaceuticals or suspend such business. 7.7 Change of Control. Cause, permit, or suffer, directly or indirectly, any Change of Control. 7.8 Accounting Methods. Materially modify or change its method of accounting except to maintain conformity with GAAP. 7.9 Intentionally Omitted. 7.10 Intentionally Omitted. 7.11 Use of Proceeds. Use the proceeds of the Advances made hereunder for any purpose other than (a) on the Closing Date, (i) to repay in full the outstanding principal, accrued interest, and accrued fees and expenses owing to Existing Lender, and (ii) to pay to Foothill the closing fee together with transactional costs and expenses incurred in connection with this Agreement, and (b) thereafter, consistent with the terms and conditions hereof, for its lawful and permitted corporate purposes. 7.12 Change in Location of Chief Executive Office. Relocate its chief executive office to a new location without providing 30 days prior written notification thereof to Foothill and so long as, at the time of such written notification, Borrower provides any financing statements necessary to perfect and continue perfected Foothill's security interests. 8. EVENTS OF DEFAULT. Any one or more of the following events shall constitute an event of default (each, an "Event of Default") under this Agreement: 8.1 If Borrower fails to pay when due and payable or when declared due and payable, any portion of the Obligations (whether of principal, interest (including any interest which, but for the provisions of the Bankruptcy Code, would have accrued on such amounts), fees and charges due Foothill, reimbursement of Foothill Expenses, or other amounts constituting Obligations); provided, however, if an Overadvance results from Foothill charging interest, fees or Foothill Expenses to Borrower's Loan Account, then such Overadvance shall not constitute an Event of Default unless and until Borrower fails to repay such Overadvance in full within [ * ] of the date thereof; 8.2 If Borrower fails to perform, keep, or observe: (a) any term, provision, condition, covenant, or agreement contained in Section 6.2 and such failure continues for a period of [ * ] after the date of such failure; (b) any term, provision, condition, covenant, 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. 23 28 agreement contained in Section 6.3, Section 6.4 and Section 6.5 and such failure continues for a period of [ * ] after the date of such failure; or (c) any other term, provision, condition, covenant, or agreement contained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between Borrower and Foothill; 8.3 If there is a Material Adverse Change; 8.4 If all or any portion of the Collateral is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any third Person; 8.5 If an Insolvency Proceeding is commenced by Borrower; 8.6 If an Insolvency Proceeding is commenced against Borrower and any of the following events occur: (a) Borrower consents to the institution of the Insolvency Proceeding against it; (b) the petition commencing the Insolvency Proceeding is not timely controverted; (c) the petition commencing the Insolvency Proceeding is not dismissed within [ * ] of the date of the filing thereof; provided, however, that, during the pendency of such period, Foothill shall be relieved of its obligation to extend credit hereunder; (d) an interim trustee is appointed to take possession of all or a substantial portion of the properties or assets of, or to operate all or any substantial portion of the business of, Borrower; or (e) an order for relief shall have been issued or entered therein; 8.7 If Borrower is enjoined, restrained, or in any way prevented by court order (other than by virtue of a temporary restraining order) from continuing to conduct all or any material part of its drug discovery business for a period in excess of [ * ]; 8.8 If a notice of Lien, levy, or assessment is filed of record with respect to any of the Collateral by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, or if any taxes or debts owing at any time hereafter to any one or more of such entities becomes a Lien, whether choate or otherwise, upon any of the Collateral and the same is not paid on the payment date thereof; 8.9 If a judgment or other claim becomes a Lien or encumbrance upon any of the Collateral; or 8.10 If any material misstatement or misrepresentation exists at the time made in any written warranty, representation, statement, or report made to Foothill on or before the Closing Date (or any written or oral warranty, representation, statement or report made to Foothill at any time after the Closing Date) by Borrower or any officer, employee, agent, or director of Borrower, or if any such warranty or representation is withdrawn. 9. FOOTHILL'S RIGHTS AND REMEDIES. [ * ] = 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 29 9.1 Rights and Remedies. Upon the occurrence, and during the continuation, of an Event of Default Foothill may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrower: (a) Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable; (b) Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement, under any of the Loan Documents, or under any other agreement between Borrower and Foothill; (c) Terminate this Agreement and any of the other Loan Documents as to any future liability or obligation of Foothill, but without affecting Foothill's rights and security interests in the Collateral and without affecting the Obligations; and (d) Exercise any and all rights under the Security Agreement. 9.2 Remedies Cumulative. Foothill's rights and remedies under this Agreement, the Loan Documents (including the Security Agreement), and all other agreements shall be cumulative. Foothill shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Foothill of one right or remedy shall be deemed an election, and no waiver by Foothill of any Event of Default shall be deemed a continuing waiver. No delay by Foothill shall constitute a waiver, election, or acquiescence by it. 10. TAXES AND EXPENSES. If Borrower fails to pay any monies (whether taxes, assessments, insurance premiums, or, in the case of leased properties or assets, rents or other amounts payable under such leases) due to third Persons, or fails to make any deposits or furnish any required proof of payment or deposit, all as required under the terms of this Agreement, then, to the extent that Foothill reasonably determines that such failure by Borrower would result in a Material Adverse Change, in its discretion and without prior notice to Borrower, Foothill may do any or all of the following: (a) make payment of the same or any part thereof; or (b) set up such reserves in Borrower's Loan Account as Foothill deems necessary to protect Foothill from the exposure created by such failure. Any such amounts paid by Foothill shall constitute Foothill Expenses. Any such payments made by Foothill shall not constitute an agreement by Foothill to make similar payments in the future or a waiver by Foothill of any Event of Default under this Agreement. Foothill need not inquire as to, or contest the validity of, any such expense, tax, or Lien and the receipt of the usual official notice for the payment thereof shall be conclusive evidence that the same was validly due and owing. [ * ] = 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 30 11. WAIVERS; INDEMNIFICATION. 11.1 Demand; Protest; etc. Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees at any time held by Foothill on which Borrower may in any way be liable. 11.2 Foothill's Liability for Collateral. So long as Foothill complies with its obligations, if any, under Section 9207 of the Code, Foothill shall not in any way or manner be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring or arising in any manner or fashion from any cause; (c) any diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other Person. All risk of loss, damage, or destruction of the Collateral shall be borne by Borrower. 11.3 Indemnification. Borrower shall pay, indemnify, defend, and hold Foothill and each of its officers, directors, employees, counsel, agents, and attorneys-in-fact (each, an "Indemnified Person") harmless (to the fullest extent permitted by law) from and against any and all claims, demands, suits, actions, investigations, proceedings, and damages, and all reasonable attorneys fees and disbursements and other costs and expenses actually incurred in connection therewith (as and when they are incurred and irrespective of whether suit is brought), at any time asserted against, imposed upon, or incurred by any of them in connection with or as a result of or related to the execution, delivery, enforcement, performance, and administration of this Agreement and any other Loan Documents or the transactions contemplated herein, and with respect to any investigation, litigation, or proceeding related to this Agreement, any other Loan Document, or the use of the proceeds of the credit provided hereunder (irrespective of whether any Indemnified Person is a party thereto), or any act, omission, event or circumstance in any manner related thereto (all the foregoing, collectively, the "Indemnified Liabilities"). Borrower shall have no obligation to any Indemnified Person under this Section 11.3 with respect to any Indemnified Liability that a court of competent jurisdiction finally determines to have resulted from the gross negligence or willful misconduct of such Indemnified Person. This provision shall survive the termination of this Agreement and the repayment of the Obligations. 12. NOTICES. Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other Loan Document shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by registered or certified mail (postage prepaid, return receipt requested), overnight courier, or telefacsimile to Borrower or to Foothill, as the case may be, at its address set forth below: [ * ] = 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 31 If to Borrower: AXYS PHARMACEUTICALS, INC. 180 Kimball Way South San Francisco, California 94080 Attn: Chief Financial Officer Fax No. 650.829.1067 with copies to: AXYS PHARMACEUTICALS, INC. 180 Kimball Way South San Francisco, California 94080 Attn: General Counsel Fax No. 650.829.1067 COOLEY GODWARD, LLP 5 Palo Alto Square 3000 El Camino Real Palo Alto, California 94306-2155 Attn: Pamela Martinson, Esq. Fax No. 650.857.0663 If to Foothill: FOOTHILL CAPITAL CORPORATION 11111 Santa Monica Boulevard Suite 1500 Los Angeles, California 90025-3333 Attn: Business Finance Division Manager Fax No. 310.478.9788 with copies to: BUCHALTER, NEMER, FIELDS & YOUNGER 601 South Figueroa Street Suite 2400 Los Angeles, California 90017 Attn: Robert C. Colton, Esq. Fax No. 213.896.0400 The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other. All notices or demands sent in accordance with this Section 12, other than notices by Foothill in connection with Sections 9504 or 9505 of the Code, shall be deemed received on the earlier of the date of actual receipt or three days after the deposit thereof in the mail. Borrower acknowledges and agrees that notices sent by Foothill in connection with Sections 9504 or 9505 of the Code shall be deemed sent when deposited in the mail or personally delivered, or, where permitted by law, transmitted by telefacsimile or other similar method set forth above. 13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. [ * ] = 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. 27 32 THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE OPTION OF FOOTHILL, IN ANY OTHER COURT IN SAN FRANCISCO, CALIFORNIA IN WHICH FOOTHILL SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF BORROWER AND FOOTHILL WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13. BORROWER AND FOOTHILL HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH OF BORROWER AND FOOTHILL REPRESENTS THAT IT HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 14. DESTRUCTION OF BORROWER'S DOCUMENTS. All documents, schedules, agings, or other papers delivered to Foothill may be destroyed or otherwise disposed of by Foothill four months after they are delivered to or received by Foothill, unless Borrower requests, in writing, the return of said documents, schedules, or other papers and makes arrangements, at Borrower's expense, for their return. 15. GENERAL PROVISIONS. 15.1 Effectiveness. This Agreement shall be binding and deemed effective when executed by Borrower and Foothill. 15.2 Successors and Assigns. This Agreement shall bind and inure to the benefit of the respective successors and assigns of each of the parties; provided, however, that Borrower may not assign this Agreement or any rights or duties hereunder without Foothill's [ * ] = 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. 28 33 prior written consent and any prohibited assignment shall be absolutely void. No consent to an assignment by Foothill shall release Borrower from its Obligations. Foothill may assign this Agreement and its rights and duties hereunder and no consent or approval by Borrower is required in connection with any such assignment to an Affiliate of Foothill or if such assignment is made in conjunction with the sale of a substantial portion of Foothill's loan portfolio. Any other assignment by Foothill shall be subject to Borrower's consent which consent shall not be unreasonably withheld. Foothill reserves the right to sell, assign, transfer, negotiate, or grant participations in all or any part of, or any interest in Foothill's rights and benefits hereunder. In connection with any such assignment or participation, Foothill may disclose all documents and information which Foothill now or hereafter may have relating to Borrower or Borrower's business to a Person so long as such Person agrees to be bound by the provisions of Section 15.10. To the extent that Foothill assigns its rights and obligations hereunder to a third Person, Foothill thereafter shall be released from such assigned obligations to Borrower and such assignment shall effect a novation between Borrower and such third Person. 15.3 Section Headings. Headings and numbers have been set forth herein for convenience only. Unless the contrary is compelled by the context, everything contained in each section applies equally to this entire Agreement. 15.4 Interpretation. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against Foothill or Borrower, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of all parties hereto. 15.5 Severability of Provisions. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. 15.6 Amendments in Writing. This Agreement can only be amended by a writing signed by both Foothill and Borrower. 15.7 Counterparts; Telefacsimile Execution. Execution. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. Delivery of an executed counterpart of this Agreement by telefacsimile shall be equally as effective as delivery of an original executed counterpart of this Agreement. Any party delivering an executed counterpart of this Agreement by telefacsimile also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect 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. 29 34 15.8 Revival and Reinstatement of Obligations. If the incurrence or payment of the Obligations by Borrower or the transfer by Borrower to Foothill of any property of Borrower should for any reason subsequently be declared to be void or voidable under any state or federal law relating to creditors' rights, including provisions of the Bankruptcy Code relating to fraudulent conveyances, preferences, and other voidable or recoverable payments of money or transfers of property (collectively, a "Voidable Transfer"), and if Foothill is required to repay or restore, in whole or in part, any such Voidable Transfer, or elects to do so upon the reasonable advice of its counsel, then, as to any such Voidable Transfer, or the amount thereof that Foothill is required or elects to repay or restore, and as to all reasonable costs, expenses, and attorneys fees of Foothill related thereto, the liability of Borrower automatically shall be revived, reinstated, and restored and shall exist as though such Voidable Transfer had never been made. 15.9 Integration. This Agreement, together with the other Loan Documents, reflects the entire understanding of the parties with respect to the transactions contemplated hereby and shall not be contradicted or qualified by any other agreement, oral or written, before the date hereof. [ * ] = 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. 30 35 15.10 Confidentiality. Foothill agrees to use commercially reasonable efforts to maintain as confidential all information provided to it by Borrower that is not public information at the time given, except that Foothill may disclose such information (a) to Persons employed or engaged by Foothill in evaluating, approving, structuring or administering this Agreement; (b) to any bona fide assignee or participant or potential assignee or participant that has agreed in writing to comply with this Section 15.10; and (c) as required or requested by any Governmental Authority or reasonably believed by Foothill to be compelled by any court decree, subpoena or legal or administrative order or process with notice to Borrower unless Foothill is prohibited from providing such notice; provided, however, that Foothill's failure to provide such notice shall not create any liability for Foothill, and shall not impair the Obligations, the Collateral or Foothill's rights under the Loan Documents. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in Los Angeles, California. AXYS PHARMACEUTICALS, INC., a Delaware corporation By /s/ William J. Newell Title: Senior Vice President FOOTHILL CAPITAL CORPORATION, a California corporation By /s/ Rhonda R. Foreman Title: Senior Vice President [ * ] = 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. 31 36 AXYS PHARMACEUTICALS, INC. SCHEDULE 5.3 LIST OF SUBSIDIARIES - --------------------------------------------------------------------------------
% OF NUMBER NUMBER NUMBER OUTSTANDING OF OF SHARES SHARES JURISDICTION COMMON PREFERRED OWNED OWNED OF SHARES SHARES BY THE BY THE NAME INCORPORATION AUTHORIZED AUTHORIZED COMPANY COMPANY - ---------------------------------------------------------------------------------------------------------------------------- 1 Sequana Therapeutics, Inc. California 50,000,000 5,000,000 100 100.0% 2 Xyris Corporation California 10,000,000 8,200,000 5,000,000 52.4% 3 PPGx, Inc. Delaware 15,000,000 10,000,000 8,200,000 82.0% 3(a) Intek Labs, Inc. North Carolina 100,000 N/A 10 100.0% 3(b) INTEK LABS LTD. England 50,000 N/A 1,500 100.0% (ordinary shares) (ordinary) 4 Arris Pharmaceuticals Canada, Inc. Quebec N/A 2,528,844 2,525,844 100.0% 5 Axys Advanced Technologies, Inc. Delaware 100 N/A 100 100.0%
Xyris Corporation: Pursuant to an Amended and Restated Stockholders Agreement, there are rights of first refusal on the issuance of new securities by Xyris Corporation and rights of co-sale. In addition, under the By-laws of Xyris Corporation, there are rights of first refusal on the sale of Xyris shares by any shareholder. Further, under a Common Stock Purchase Agreement, there are rights of first refusal on the sale of shares by an officer of Xyris Corporation. Finally, under certain Restricted Stock Award Agreements, there are rights of repurchase. PPGx, Inc.: Pursuant to an Investors' Rights Agreement, there are buy-sell rights between the shareholders of PPGx, as well as put and call rights between the shareholders in PPGx. [*] = 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. 37 SCHEDULE 5.5 [ * ] [ * ] = 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. 38 COMPLIANCE CERTIFICATE SAMPLE COPY (Loan Agreement Section 6.3) Date _______________ FOOTHILL CAPITAL CORPORATION 11111 Santa Monica Boulevard, Suite 1500 Santa Monica, California 90025-3333 Attention: ____________________________ RE: Loan Agreement, dated as of July 26, 1999 (the "Agreement") by and between FOOTHILL CAPITAL CORPORATION ("Foothill") and AXYS PHARMACEUTICALS, INC. ("Borrower"). Dear _______________: In accordance with Section 6.3 of the Agreement, this letter shall serve as certification to Foothill that to the best of my knowledge: (i) all financial statements have been prepared in accordance with GAAP (except, in the case of unaudited financial statements, for the lack of footnotes and being subject to year-end audit adjustments) and fairly represent the financial condition of Borrower, (ii) the representations and warranties of Borrower set forth in the Agreement and other Loan Documents are true and correct in all material respects on and as of the date of this certification (except to the extent such representations and warranties relate solely to an earlier date), and (iii) there does not exist any condition or event that constitutes an Event of Default. Such certification is made as of the fiscal month ending ______________, 199___. Sincerely, Chief Financial Officer [ * ] = 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 C-1 EX-10.115 4 REEDLAND CAPITAL WARRANT 1 THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO SUCH SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. Exhibit 10.115 AXYS PHARMACEUTICALS, INC. WARRANT TO PURCHASE COMMON STOCK NO. CW-19 JULY 30, 1999 THIS CERTIFIES THAT, in consideration of services rendered in connection with a senior credit facility (the "SENIOR CREDIT FACILITY"), REEDLAND CAPITAL PARTNERS or its assigns (the "HOLDER") is entitled to subscribe for and purchase from AXYS PHARMACEUTICALS, INC., a Delaware corporation, with its principal office at 180 Kimball Way, South San Francisco, CA 94080 (the "COMPANY"), up to fifty thousand (50,000) of the fully paid and nonassessable shares of the Company's Common Stock (the "COMMON STOCK") for cash at an exercise price per share equal to one hundred thirty percent (130%) of the closing bid price of the Common Stock (as quoted on Nasdaq) on (i) June 9, 1999, (ii) the first trading day immediately prior to the first public announcement of the Senior Credit Facility, or (iii) the first trading day immediately prior to the closing of the Senior Credit Facility, whichever is lowest (the "STOCK PURCHASE PRICE"), at any time or from time to time up to and including 5:00 p.m. (Pacific time) five (5) years from the date of this Warrant, such date being referred to herein as the "EXPIRATION DATE", upon surrender to the Company at its principal office (or at such other location as the Company may advise the Holder in writing) of this Warrant properly endorsed with the Form of Subscription attached hereto duly filled in and signed and, if applicable, upon payment in cash or by check of the aggregate Stock Purchase Price for the number of shares for which this Warrant is being exercised determined in accordance with the provisions hereof. The Stock Purchase Price and the number of shares purchasable hereunder are subject to adjustment as provided in Section 3 of this Warrant. This Warrant is subject to the following terms and conditions: 1. 2 1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES. 1.1 GENERAL. This Warrant is exercisable at the option of the holder of record hereof, at any time or from time to time, up to the Expiration Date for all or any part of the shares of Common Stock (but not for a fraction of a share) which may be purchased hereunder. The Company agrees that the shares of Common Stock purchased under this Warrant shall be and are deemed to be issued to the Holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered, properly endorsed, the completed, executed Form of Subscription delivered and payment made for such shares. Certificates for the shares of Common Stock so purchased, together with any other securities or property to which the Holder hereof is entitled upon such exercise, shall be delivered to the Holder hereof by the Company at the Company's expense within a reasonable time after the rights represented by this Warrant have been so exercised. In case of a purchase of less than all the shares which may be purchased under this Warrant, the Company shall cancel this Warrant and execute and deliver a new Warrant or Warrants of like tenor for the balance of the shares purchasable under the Warrant surrendered upon such purchase to the Holder hereof within a reasonable time. Each stock certificate so delivered shall be in such denominations of Common Stock as may be requested by the Holder hereof and shall be registered in the name of such Holder. 1.2 NET ISSUE EXERCISE. Notwithstanding any provisions herein to the contrary, if the fair market value of one share of the Company's Common Stock is greater than the Stock Purchase Price (at the date of calculation as set forth below), in lieu of exercising this Warrant for cash, the Holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Form of Subscription and notice of such election in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula: X = Y (A-B) ------- A Where X = the number of shares of Common Stock to be issued to the Holder Y = the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being canceled (at the date of such calculation) A = the fair market value of one share of the Company's Common Stock (at the date of such calculation) B = Stock Purchase Price (as adjusted to the date of such calculation) For purposes of the above calculation, fair market value of one share of Common Stock shall be determined based upon the average closing bid price of Common Stock on Nasdaq 2. 3 for the five (5) trading days preceding the date of the Form of Subscription making the election pursuant to this Section 1.2. 2. COVENANTS OF THE COMPANY. 2.1 SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company covenants and agrees that all shares of Common Stock which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights of any shareholder and free of all taxes, liens and charges with respect to the issue thereof. The Company further covenants and agrees that, during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved, for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant, a sufficient number of shares of authorized but unissued Common Stock, or other securities and property, when and as required to provide for the exercise of the rights represented by this Warrant. The Company will take all such action as may be necessary to assure that such shares of Common Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any domestic securities exchange upon which the Common Stock may be listed; provided, however, that the Company shall not be required to effect a registration under Federal or State securities laws with respect to such exercise (other than as may be required by that certain Registration Rights Agreement between the Holder and the Company (the "REGISTRATION RIGHTS AGREEMENT")). The Company will not take any action which would result in any adjustment of the Stock Purchase Price (as set forth in Section 3 hereof) (i) if the total number of shares of Common Stock issuable after such action upon exercise of all outstanding warrants, together with all shares of Common Stock then outstanding and all shares of Common Stock then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding, would exceed the total number of shares of Common Stock then authorized by the Company's Certificate of Incorporation, or (ii) if the total number of shares of Common Stock issuable after such action upon the conversion of all such shares of Common Stock, together with all shares of Common Stock then issuable upon exercise of all options and upon the conversion of all such shares of Common Stock, together with all shares of Common Stock then outstanding and all shares of Common Stock then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding would exceed the total number of shares of Common Stock then authorized by the Company's Certificate of Incorporation. 2.2 NO IMPAIRMENT. Except and to the extent as waived or consented to by the Holder, the Company will not, by amendment of its Certificate 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 performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may be necessary or appropriate in order to protect the exercise rights of the Holder against impairment. 3. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The Stock Purchase Price and the number of shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events described in this 3. 4 Section 3. Upon each adjustment of the Stock Purchase Price, the Holder of this Warrant shall thereafter be entitled to purchase, at the Stock Purchase Price resulting from such adjustment, the number of shares obtained by multiplying the Stock Purchase Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment, and dividing the product thereof by the Stock Purchase Price resulting from such adjustment. 3.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares, the Stock Purchase Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Common Stock of the Company shall be combined into a smaller number of shares, the Stock Purchase Price in effect immediately prior to such combination shall be proportionately increased. 3.2 DIVIDENDS IN COMMON STOCK, OTHER STOCK, PROPERTY, RECLASSIFICATION. If at any time or from time to time the holders of Common Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefor, (a) Common Stock or any shares of stock or other securities which are at any time directly or indirectly convertible into or exchangeable for Common Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution, (b) any cash paid or payable otherwise than as a cash dividend, or (c) Common Stock or additional stock or other securities or property (including cash) by way of spinoff, split-up, reclassification, combination of shares or similar corporate rearrangement, (other than shares of Common Stock issued as a stock split or adjustments in respect of which shall be covered by the terms of Section 3.1 above), then and in each such case, the Holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Common Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of stock and other securities and property (including cash in the cases referred to in clause (b) above and this clause (c)) which such Holder would hold on the date of such exercise had it been the holder of record of such Common Stock as of the date on which holders of Common Stock received or became entitled to receive such shares or all other additional stock and other securities and property. 3.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. If any recapitalization, reclassification or reorganization of the capital stock of the Company, or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets or other transaction shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities, or other assets or property (an "Organic Change"), then, as a condition of such Organic Change, lawful and adequate provisions shall be made by the Company whereby the Holder hereof shall thereafter have the right to purchase and receive (in lieu of the shares of the Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby) such 4. 5 shares of stock, securities or other assets or property as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby; provided, however, that in the event the value of the stock, securities or other assets or property (determined in good faith by the Board of Directors of the Company) issuable or payable with respect to one share of the Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby is in excess of the Stock Purchase Price hereof effective at the time of a merger and securities received in such reorganization, if any, are publicly traded, then this Warrant shall expire unless exercised prior to such Organic Change. In the event of any Organic Change, appropriate provision shall be made by the Company with respect to the rights and interests of the Holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Stock Purchase Price and of the number of shares purchasable and receivable upon the exercise of this Warrant) shall thereafter be applicable, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The Company will not effect any such consolidation, merger or sale unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or the corporation purchasing such assets shall assume by written instrument reasonably satisfactory in form and substance to the Holders of a majority of the warrants to purchase Common Stock then outstanding, executed and mailed or delivered to the registered Holder hereof at the last address of such Holder appearing on the books of the Company, the obligation to deliver to such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to purchase. 3.4 CERTAIN EVENTS. If any change in the outstanding Common Stock of the Company or any other event occurs as to which the other provisions of this Section 3 are not strictly applicable or if strictly applicable would not fairly protect the purchase rights of the Holder of the Warrant in accordance with such provisions, then the Board of Directors of the Company shall make an adjustment in the number and class of shares available under the Warrant, the Stock Purchase Price or the application of such provisions, so as to protect such purchase rights as aforesaid. The adjustment shall be such as will give the Holder of the Warrant upon exercise for the same aggregate Stock Purchase Price the total number, class and kind of shares as he would have owned had the Warrant been exercised prior to the event and had he continued to hold such shares until after the event requiring adjustment. 3.5 NOTICES OF CHANGE. (a) Immediately upon any adjustment in the number or class of shares subject to this Warrant and of the Stock Purchase Price, the Company shall give written notice thereof to the Holder, setting forth in reasonable detail and certifying the calculation of such adjustment. (b) The Company shall give written notice to the Holder at least 10 business days prior to the date on which the Company closes its books or takes a record for determining rights to receive any dividends or distributions. 5. 6 (c) The Company shall also give written notice to the Holder at least 30 days prior to the date on which an Organic Change shall take place. 4. REPRESENTATIONS OF HOLDER. By acceptance hereof, the Holder represents and warrants that: 4.1 ACQUISITION OF WARRANT FOR PERSONAL ACCOUNT. The Holder represents and warrants that it is acquiring the Warrant solely for its account for investment and not with a view to or for sale or distribution of said Warrant or any part thereof. The Holder also represents that the entire legal and beneficial interests of the Warrant and Common Stock the Holder is acquiring is being acquired for, and will be held for, its account only. 4.2 INFORMATION AND SOPHISTICATION. Holder acknowledges that it has received all the information it has requested from the Company and it considers necessary or appropriate for deciding whether to acquire the Warrant. Holder represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Warrant and Common Stock and to obtain any additional information necessary to verify the accuracy of the information given the Holder. Holder further represents that it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risk of this investment. 4.3 ABILITY TO BEAR ECONOMIC RISK. Holder acknowledges that investment in the Warrant and Common Stock involves a high degree of risk, and represents that it is able, without materially impairing its financial condition, to hold the Warrant and Common Stock for an indefinite period of time and to suffer a complete loss of its investment. 4.4 ACCREDITED INVESTOR STATUS. Holder is an "ACCREDITED INVESTOR" as such term is defined in Rule 501 under the Securities Act. 4.5 SECURITIES ARE NOT REGISTERED. (a) The Holder understands that the Warrant and the Common Stock have not been registered under the Securities Act of 1933, as amended (the "ACT"). The Holder realizes that the basis for the exemption may not be present if, notwithstanding its representations, it has in mind merely acquiring the securities for a fixed or determinable period in the future, or for a market rise, or for sale if the market does not rise. The Holder has no such intention. (b) The Holder recognizes that the Warrant and the Common Stock must be held indefinitely unless they are subsequently registered under the Act or an exemption from such registration is available. The Holder recognizes that the Company has no obligation to register the Warrant or the Common Stock of the Company, or to comply with any exemption from such registration, except as set forth in the Registration Rights Agreement. (c) The Holder is aware that neither the Warrant nor the Common Stock may be sold pursuant to Rule 144 adopted under the Act unless certain conditions are met, 6. 7 including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale following the required holding period under Rule 144 and the number of shares being sold during any three month period not exceeding specified limitations. 4.6 DISPOSITION OF WARRANT AND COMMON STOCK. (a) The Holder further agrees not to make any disposition of all or any part Warrant or Common Stock in any event unless and until: (i) The Company shall have received a letter secured by the Holder from the Securities and Exchange Commission stating that no action will be recommended to the Commission with respect to the proposed disposition; or (ii) There is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with said registration statement; or (iii) The 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, the Holder shall have furnished the Company with an opinion of counsel for the Holder to the effect that such disposition will not require registration of such Warrant or shares under the Act, and such opinion of counsel for the Holder shall have been concurred in by the Company's counsel and the Company shall have advised the Holder of such concurrence. (b) Notwithstanding the provisions of the paragraphs above, no such registration statement or opinion of counsel shall be necessary for a transfer by such Holder to a shareholder or partner (or retired partner) of such Holder, or transfers by gift, will or intestate succession to any spouse or lineal descendants or ancestors, if all transferees agree in writing to be subject to the terms hereof to the same extent as if they were Holders hereunder. (c) The Holder understands and agrees that all certificates evidencing the shares to be issued to the Holder upon exercise hereof may bear the following legend: THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. (d) The Holder further agrees that the Company (or a representative of the underwriters of the Company) may, in connection with the underwritten registrations of the offering of any securities of the Company under the Act, require that Holder not sell or otherwise transfer or dispose of all or any part of this Warrant or any Common Stock during such period 7. 8 (not to exceed one hundred eighty (180) days) following the effective date of the registration statement of the Company filed under the Act as may be requested by the Company or the representative of the underwriters. Holder further agrees that the Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such period. 5. ISSUE TAX. The issuance of certificates for shares of Common Stock upon the exercise of the Warrant shall be made without charge to the Holder of the Warrant for any issue tax (other than any applicable income taxes) in respect thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the then Holder of the Warrant being exercised. 6. CLOSING OF BOOKS. The Company will at no time close its transfer books against the transfer of any warrant or of any shares of Common Stock issued or issuable upon the exercise of any warrant in any manner which interferes with the timely exercise of this Warrant. 7. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing contained in this Warrant shall be construed as conferring upon the Holder hereof the right to vote or to consent or to receive notice as a shareholder of the Company or any other matters or any rights whatsoever as a shareholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. No provisions hereof, in the absence of affirmative action by the holder to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of the holder hereof, shall give rise to any liability of such Holder for the Stock Purchase Price or as a shareholder of the Company, whether such liability is asserted by the Company or by its creditors. 8. TRANSFER OF WARRANT. Subject to applicable laws and the restriction on transfer set forth in Section 4 of this Warrant, this Warrant and all rights hereunder are transferable, by the Holder in person or by duly authorized attorney, upon delivery of this Warrant and the form of assignment attached hereto to any transferee designated by Holder. The transferee shall sign an investment letter in form and substance satisfactory to the Company. 9. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and obligations of the Company, of the holder of this Warrant and of the holder of shares of Common Stock issued upon exercise of this Warrant, shall survive the exercise of this Warrant. 10. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought. 11. NOTICES. Any notice, request or other document required or permitted to be given or delivered to the holder hereof or the Company shall be delivered or shall be sent by certified mail, postage prepaid, to each such holder at its address as shown on the books of the Company or to the Company at the address indicated therefor in the first paragraph of this Warrant or such other address as either may from time to time provide to the other. 8. 9 12. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. All of the obligations of the Company relating to the Common Stock issuable upon the exercise of this Warrant shall survive the exercise and termination of this Warrant. All of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the holder hereof. 13. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of California. 14. LOST WARRANTS. The Company represents and warrants to the Holder hereof that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant, the Company, at its expense, will make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant. 15. FRACTIONAL SHARES. No fractional shares shall be issued upon exercise of this Warrant. The Company shall, in lieu of issuing any fractional share, pay the holder entitled to such fraction a sum in cash equal to such fraction multiplied by the then effective Stock Purchase Price. IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer as of July 30, 1999. AXYS PHARMACEUTICALS, INC. By /s/ John P. Walker ---------------------------- ATTEST: /s/ William J. Newell - ------------------------------- Secretary 9. 10 EXHIBIT A SUBSCRIPTION FORM Date: _________________, _____ Axys Pharmaceuticals, Inc. 180 Kimball Way, South San Francisco, CA 94080 Ladies and Gentlemen: [ ] The undersigned hereby elects to exercise the warrant issued to it by Axys Pharmaceuticals, Inc. (the "Company") and dated July 30, 1999 Warrant No. CW-19 (the "Warrant") and to purchase thereunder __________________________________ shares of the Common Stock of the Company (the "Shares") at an aggregate purchase price of __________________________________ Dollars ($__________) (the "Purchase Price"). [ ] The undersigned hereby elects to convert _______________________ percent (____%) of the value of the Warrant pursuant to the provisions of Section 1.2 of the Warrant. (i) The undersigned represents that (i) the aforesaid shares of Common Stock are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares; (ii) the undersigned is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision regarding its investment in the Company; (iii) the undersigned is experienced in making investments of this type and has such knowledge and background in financial and business matters that the undersigned is capable of evaluating the merits and risks of this investment and protecting the undersigned's own interests; (iv) the undersigned understands that the shares of Common Stock issuable upon exercise of this Warrant have not been registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"), by reason of a specific exemption from the registration provisions of the Securities Act, which exemption depends upon, among other things, the bona fide nature of the investment intent as expressed herein, and, because such securities have not been registered under the Securities Act, they must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available; (v) the undersigned is aware that the aforesaid shares of Common Stock may not be sold pursuant to Rule 144 adopted under the Securities Act unless certain conditions are met, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale owning following the required holding period under Rule 144 and the number of shares being sold during any three month period not exceeding specified limitations; and (vi) the undersigned agrees not to make any disposition of all or any part of the aforesaid shares of Common Stock unless and until the Company shall have received a letter secured by the undersigned from the Securities and Exchange Commission stating that no 11 action will be recommended to the Commission with respect to the proposed disposition; there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with said registration statement; or the undersigned 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, the undersigned shall have furnished the Company with an opinion of counsel for the undersigned to the effect that such disposition will not require registration of such Shares under the Act, and such opinion of counsel for the undersigned shall have been concurred in by the Company's counsel and the Company shall have advised the undersigned of such concurrence.. Pursuant to the terms of the Warrant the undersigned has delivered the Purchase Price herewith in full in cash or by certified check or wire transfer. Very truly yours, ---------------------------------------- By: ------------------------------------- Title: ---------------------------------- 12 ASSIGNMENT FORM (To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.) FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to Name: --------------------------------------------------------------------------- (Please Print) Address: ------------------------------------------------------------------------ (Please Print) Dated: ----------------- Holder's Signature: ---------------------------------------- Holder's Address: ------------------------------------------ NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant. EX-10.116 5 REEDLAND CAPITAL REGISTRATION RIGHTS AGREEMENT 1 Exhibit 10.116 REGISTRATION RIGHTS AGREEMENT JULY 30, 1999 2 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT") is entered into as of the 30th day of July, 1999, by and among AXYS PHARMACEUTICALS, INC., a Delaware corporation (the "COMPANY"), and REEDLAND CAPITAL PARTNERS ("REEDLAND"). RECITALS WHEREAS, the Company proposes to sell and issue Fifty Thousand (50,000) shares of its Common Stock pursuant to the exercise by Reedland of its Warrant No. CW-19 (the "WARRANT") issued in connection with that certain Engagement Letter between the Company and Reedland (the "PLACEMENT AGENT AGREEMENT"). WHEREAS, as a condition of entering into the Placement Agent Agreement, Reedland has requested that the Company extend to it registration rights as set forth below upon the exercise of the Warrant. NOW, THEREFORE, in consideration of the mutual promises, representations, warranties, covenants and conditions set forth in this Agreement and the Placement Agent Agreement, 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. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement. "REGISTRABLE SECURITIES" means (a) Common Stock of the Company issued to Reedland in connection with its exercise of the Warrant; 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 1. 3 Securities shall not include any securities sold by a person to the public pursuant to a registration statement or Rule 144 promulgated under the Securities Act or sold in a private transaction in which the transferor's rights under Section 2 of this Agreement are not assigned. "REGISTRATION EXPENSES" shall mean 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 Holder, 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" shall mean the Securities Act of 1933, as amended. "SELLING EXPENSES" shall mean all underwriting discounts and selling commissions applicable to the sale. SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER 2.1 RESTRICTIONS ON TRANSFER. (a) The Holder agrees not to make any disposition of all or any portion of the Registrable Securities unless and until: (i) The Company shall have received a letter secured by the Holder from the Securities and Exchange Commission stating that no action will be recommended to the Commission with respect to the proposed disposition; or (ii) There is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with said registration statement; or (iii) The 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, the Holder shall have furnished the Company with an opinion of counsel for the Holder to the effect that such disposition will not require registration of such shares under the Securities Act, and such opinion of counsel for the Holder shall have been concurred in by the Company's counsel and the Company shall have advised the Holder of such concurrence. (iv) 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 or to any entity which directly or indirectly controls, is under common control with, or is controlled by, such Holder, (C) a limited liability company to its members or former members in 2. 4 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 (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 the Holder of Registrable Securities in writing at least fifteen (15) 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 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 3. 5 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 Holder of Registrable Securities. In such event, the right of the 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. The Holder proposing to distribute its Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form among the underwriter or underwriters selected for such underwriting by the Company and 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 extent Registrable Securities then exist and there are no other securities which would have priority in such allocation, then to the Holder and any other shareholders of the Company's securities then having registration rights with respect to the Company's securities on a pro rata basis based on the total number of Registrable Securities held by the Holder and the total number of registrable shares held by such other shareholders, or if there are other securities which would have priority over the Registrable Securities in such allocation, then to the holders of such other securities and thereafter to the Holder and any other shareholders of the Company's securities then having registration rights with respect to the Company's securities on a pro rata basis based on the total number of Registrable Securities held by the Holder and the total number of registrable shares held by such other shareholders; and third, to any shareholder of the Company (other than the 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 Holder 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 Holder may be excluded in accordance with the immediately preceding sentence. In no event will shares of any other selling shareholder be included in such registration which would reduce the number of shares which may be included by Holder without the written consent of Holder 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 the 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. (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 4. 6 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 EXPENSES OF REGISTRATION. Except as specifically provided herein, all Registration Expenses incurred in connection with any registration under Section 2.2 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. 2.4 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 Holder of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to thirty (30) days or, if earlier, until the Holder has 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 Holder such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by it. (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 Holder; 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. The Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (f) Notify the 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 5. 7 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. 2.5 TERMINATION OF REGISTRATION RIGHTS. All registration rights granted under this Section 2 shall terminate and be of no further force and effect five (5) years after the date of this Agreement. In addition, the 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. 2.6 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 that the selling Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of such securities as shall be required to effect the registration of its Registrable Securities. 2.7 INDEMNIFICATION. In the event any Registrable Securities are included in a registration statement under Section 2.2.: (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 6. 8 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 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 7. 9 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. (e) The obligations of the Company and Holder 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. 2.8 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to register Registrable Securities pursuant to this Section 2 may be assigned by Reedland to a transferee or assignee which is an affiliate, subsidiary, parent, general partner, limited partner, retired partner, member or retired member of Reedland; provided, however, (i) Reedland 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. 2.9 RULE 144 REPORTING. With a view to making available to the Holder 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: (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 8. 10 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. 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 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 and the Placement Agent Agreement 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. 9. 11 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 Holder under this Agreement may be waived only with the 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 Holder, 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. 10. 12 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. REEDLAND CAPITAL PARTNERS By: /s/ William J. Newell By: /s/ David Schachter ------------------------------------ ------------------------------ Title: Senior Vice President Title: Managing Director Address: 180 Kimball Way Address: 1875 Century Park, South San Francisco, CA 94080 Suite 4000 Attn: Chief Executive Officer Los Angeles, CA 90067 FAX: (650) 829-1067 FAX: (310) 449-1185 11. EX-10.117 6 FIFTH AMENDMENT TO EXPANSION LEASE 1 EXHIBIT 10.117 FIFTH AMENDMENT TO EXPANSION LEASE THIS FIFTH AMENDMENT TO EXPANSION LEASE ("Amendment"), dated and effective as of October ____, 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 Lease dated as of May 20, 1997, by that certain Third Amendment to Expansion Lease dated as of August 24, 1998, and by that certain Fourth Amendment to Expansion Lease dated as of March ___, 1999 (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 and to entirely replace and supercede the Fourth Amendment 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 "Tl Allowance" to "Suite 160 & 210 Tl Allowance," and (v) adding the following as Section 4.6(b): "(b) Landlord shall provide Tenant with a tenant improvement allowance (the "Suite 100 Tl Allowance") of up to Two Hundred Ninety-One Thousand, Eight Hundred Fifty-Eight and 44/100ths Dollars ($291,858.44) for tenant improvements which Tenant desires to make to Suite 100 (the "Suite 100 Tl's"). Such amount shall be paid by Landlord to Tenant in one lump sum payment upon: (i) lien free completion of the Suite 100 Tl'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 Tl's as Landlord shall reasonably request. If the total cost of the Suite 100 Tl's exceeds the Suite 100 Tl 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 Tl 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 Tl's, which shall be subject to all of the approvals and conditions described in Article 17 with 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 October 1, 1999, tenant improvement rent equal to Two Hundred Ninety-One Thousand, Eight Hundred Fifty-Eight and 44/100ths Dollars ($291,858.44), fully amortized, with interest at a rate of 13% per annum, in 27 equal monthly installments commencing October 1, 1999 and ending December 1, 2001 ($12,525.46 per month) 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. 2 3 2.10 This Fifth Amendment entirely replaces and supercedes the Fourth Amendment, which is hereby terminated and of no further force or effect. 2.11 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 & COO "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 3 EX-27 7 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 September 30, 1998, and is qualified in its entirety by reference to such financial statements and notes thereto. 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 4,099 39,118 4,170 0 793 51,184 54,962 (34,170) 73,767 26,600 0 0 0 291,229 20,381 73,767 8,822 29,111 2,844 0 60,200 0 1,844 (40,902) 0 (40,902) 0 0 0 (40,902) (1.35) (1.35)
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