Warrant Agreement Dated July 21, 1998

EXHIBIT 10.31


THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE
COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.


WARRANT AGREEMENT


To Purchase Shares of the Preferred Stock of


3-DIMENSIONAL PHARMACEUTICALS, INC.


Originally Dated as of April 25, 1995 (the "Effective Date")


Reissued as of July 21, 1998


WHEREAS, 3-Dimensional Pharmaceuticals, Inc., a Delaware corporation (the "Company") - has entered into a Master Lease Agreement dated as of March 7, 1994 and Equipment Schedule No. VL-2 dated as of April 25, 1995, and related Schedules (the "Leases") with Comdisco, Inc., a Delaware corporation (the "Warrantholder") and


WHEREAS, the Company desires to grant to Warrantholder, in consideration for such Leases, the right to purchase shares of its Series A Preferred Stock;


NOW, THEREFORE, in consideration of the Warrantholder executing and delivering such Leases and in consideration of mutual covenants and agreements contained herein, the Company and Warrantholder agree as follows:


1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
----------------------------------------------


The Company hereby grants to the Warrantholder, and the Warrantholder is entitled, upon the terms and subject to the conditions hereinafter set forth, to subscribe to and purchase, from the Company, 54,113 fully paid and non- assessable shares of the Company's Series A Preferred Stock ("Preferred Stock") at a purchase price of $1.00 per share (the "Exercise Price"). The number and purchase price of such shares are subject to adjustment as provided in Section 8 hereof.


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2. TERM OF THE WARRANT AGREEMENT.
-----------------------------


Except as otherwise provided for herein, the term of this Warrant Agreement and the right to purchase Preferred Stock as granted herein shall commence on the Effective Date and shall be exercisable for a period of (i) ten (10) years or (ii) five (5) years from the effective date of the Company's initial public offering, whichever is longer.


3. EXERCISE OF THE PURCHASE RIGHTS.
-------------------------------


The purchase rights set forth in this Warrant Agreement are exercisable by the Warrantholder, in whole or in part, at any time, or from time to time, prior to the expiration of the term set forth in Section 2 above, by tendering to the Company at its principal office a notice of exercise in the form attached hereto as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly upon receipt of the Notice of Exercise and the payment of the purchase price in accordance with the terms set forth below, and in no event later than twenty-one (21) days thereafter, the company shall issue to the Warrantholder a certificate for the number of shares of Preferred Stock purchased and shall execute the Notice of Exercise indicating the number of shares which remain subject to future purchases, if any.


The Exercise Price may be paid at the Warrantholder's election either (i) by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as determined below. If the Warrantholder elects the Net Issuance method, the Company will issue Preferred Stock in accordance with the following formula:


X = Y(A-B)
------


A


Where: X = the number of shares of Preferred Stock to be issued to the
warrantholder.


Y = the number of shares of Preferred Stock requested to be
exercised under this Warrant Agreement.


A = the fair market value of one (1) share of Common Stock.


B = the Exercise Price.


As used herein, current fair market value of Common Stock shall mean with respect to each share of Common Stock:


(i) if the exercise is in connection with an initial public offering, and
if the Company's Registration Statement relating to such public offering
has been declared effective by the SEC, then the initial "Price to Public"
specified in the final prospectus with respect to the offering;


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(ii) if this Warrant is exercised after, and not in connection with the
Company's initial public offering, and:


(a) if traded on a securities exchange, the fair market value shall be deemed to be the average of the closing prices on the principal securities exchange over a twenty-one (21) day period ending three days before the day the current fair market value of the securities is being determined; or


(b) if actively traded over-the-counter, the fair market value shall be deemed to be the average of the closing bid and asked prices quoted on the NASDAQ system (or similar system) over the twenty-one (21) day period ending three days before the day the current fair market value of the securities is being determined;


(iii) if at any time the Common Stock is not listed on any securities exchange
or quoted in the NASDAQ System or the over-the-counter market, the current
fair market value of Common Stock shall be the highest price per share
which the Company could obtain from a willing buyer (not a current
employee or director) for shares of Common Stock sold by the Company, from
authorized but unissued shares, as determined in good faith by its Board
of Directors, unless the Company shall become subject to a merger,
acquisition or other consolidation pursuant to which the company is not
the surviving party, in which case the fair market value of Common Stock
shall be deemed to be the value received by the holders of the Company's
Preferred Stock on a common equivalent basis pursuant to such merger or
acquisition.


Upon partial exercise by either cash or Net Issuance, the Company shall promptly issue an amended Warrant Agreement representing the remaining number of shares purchasable hereunder. All other terms and conditions of such amended Warrant Agreement shall be identical to those contained herein, including, but not limited to the Effective Date hereof.


4. RESERVATION OF SHARES.
---------------------


(a) Authorization and Reservation of Shares. During the term of this
--------------------------------------- Warrant Agreement, the Company will at all times have authorized and reserved a sufficient number of shares of its Preferred Stock to provide for the exercise of the rights to purchase Preferred Stock as provided for herein.


(b) Registration or List. If any shares of Preferred Stock required to
-------------------- be reserved hereunder require registration with or approval of any governmental authority under any Federal or State law (other than any registration under the 1933 Act, as then in effect, or any similar Federal statute then enforced, or any state securities law, required by reason of any transfer involved in such conversion), or listing on any domestic securities exchange, before such shares may be issued upon conversion, the Company will, at its expense and as expeditiously as possible, use its best efforts to cause such shares to be duly registered, listed or approved for listing on such domestic securities exchange, as the case may be.


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5. NO FRACTIONAL SHARES OR SCRIP.
-----------------------------


No fractional shares or scrip representing fractional shares shall be issued upon the exercise of the Warrant, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Exercise Price then in effect.


6. NO RIGHTS AS SHAREHOLDER.
------------------------


This Warrant Agreement does not entitle the Warrantholder to any voting rights, the right to receive cash dividends or other rights as a shareholder of the Company prior to the exercise of the Warrant.


7. WARRANTHOLDER REGISTRY.
----------------------


The Company shall maintain a registry showing the name and address of the registered holder of this Warrant Agreement.


8. ADJUSTMENT RIGHTS.
-----------------


The purchase price per share and the number of shares of Preferred Stock purchasable hereunder are subject to adjustment, as follows:


(a) Merger and Sale of Assets. If at any time there shall be a capital reorganization of the shares of the Company's Preferred Stock (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), or a merger or consolidation of the Company with or into another corporation when the Company is not the surviving corporation, or the sale of all or substantially all of the Company's properties and assets to any other person (hereinafter referred to as a "Merger Event"), then, as a part of such Merger Event, lawful provision shall be made so that the Warrantholder shall thereafter be entitled to receive, upon exercise of the Warrant, the number of shares of Preferred Stock or other securities of the successor corporation resulting from such Merger Event, equivalent in value to that which would have been issuable if Warrantholder had exercised this Warrant immediately prior to the Merger Event. In any such case, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Warrant Agreement with respect to the rights and interest of the Warrantholder after the Merger Event to the end that the provisions of this Warrant Agreement (including adjustments of the Exercise Price and number of shares of Preferred Stock purchasable) shall be applicable to the greatest extent possible.


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(b) Reclassification of Shares. If the Company at any time shall, by
-------------------------- combination, reclassification, exchange or subdivision of securities or otherwise, change any of the securities as to which purchase rights under this Warrant Agreement exist into the same or a different number of securities of any other class or classes, this Warrant Agreement shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Warrant Agreement immediately prior to such combination, reclassification, exchange, subdivision or other change.


(c) Subdivision or Combination of Shares. If the Company at any time shall
------------------------------------ combine or subdivide its Preferred Stock, the Exercise Price shall be proportionately decreased in the case of a subdivision, or proportionately increased in the case of a combination.


(d) Stock Dividends. If the Company at any time shall pay a dividend
--------------- payable in, or make any other distribution (except any distribution specifically provided for in the foregoing subsections (a) or (b)) of the Company's stock, then the Exercise Price shall be adjusted, from and after the record date of such dividend or distribution, to that price determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction (i) the numerator of which shall be the total number of all shares of the Company's stock out-standing immediately prior to such dividend or distribution, and (ii) the denominator of which shall be the total number of all shares of the Company's stock outstanding immediately after such dividend or distribution. The Warrantholder shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of shares of Preferred Stock (calculated to the nearest whole share) obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of shares of Preferred Stock issuable upon the exercise hereof immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment. Notwithstanding the foregoing, no adjustment shall be made for a dividend payable in the Company's Common Stock if adjustment hereunder would compound an adjustment made upon conversion of the Preferred Stock issuable upon exercise of this Warrant into Common Stock, which would result in double adjustment for a single Common ...