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WARRANT
THE
SECURITIES EVIDENCED BY THIS WARRANT HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
“
SECURITIES ACT ”),
OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN
RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED,
SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR
OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION
WHICH IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH
REGISTRATION.
May 22, 2008
Warrant
to Purchase up to 825,000 shares of Common Stock of Discovery
Laboratories, Inc. (the “
Company ”).
In
consideration for Kingsbridge Capital Limited (the
“
Investor ”)
agreeing to enter into that certain Common Stock Purchase
Agreement, dated as of the date hereof, between the Investor and
the Company (the “
Agreement ”),
the Company hereby agrees that the Investor or any other Warrant
Holder (as defined below) is entitled, on the terms and conditions
set forth below, to purchase from the Company at any time during
the Exercise Period (as defined below) up to 825,000 fully paid and
non-assessable shares of common stock, par value $0.001 per share,
of the Company (the “
Common Stock ”)
at the Exercise Price (as defined below), as the same may be
adjusted from time to time pursuant to Section 6 hereof. The
resale of the shares of Common Stock or other securities issuable
upon exercise or exchange of this Warrant is subject to the
provisions of the Registration Rights Agreement. Capitalized terms
used herein and not otherwise defined shall have the meanings given
them in the Agreement.
Section
1.
Definitions .
“
Affiliate ”
shall mean any Person that, directly or indirectly through one or
more intermediaries, controls or is controlled by, or is under
direct or indirect common control with any other Person. For the
purposes of this definition, “
control ,”
when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or
otherwise, and the term “
controls ”
and “
controlled ”
have meanings correlative to the foregoing.
“
Closing Price ”
as of any particular day shall mean the closing price per share of
the Company’s Common Stock as reported by the Principal
Market on such day.
“
Exercise Period ”
shall mean that period beginning six months after the date of this
Warrant and continuing until the earlier of (i) the expiration
of the five-year period thereafter or (ii) a Funding Default,
subject in each case to earlier termination in accordance with
Section 6 hereof.
“
Exercise Price ”
as of the date hereof shall mean $2.506 .
“
Funding Default ”
shall mean a failure by Investor to accept a Draw Down Notice made
by the Company and to acquire and pay for the Shares in accordance
therewith within three (3) Trading Days following the delivery of
such Shares to the Investor, provided such Draw Down Notice was
made in accordance with the terms and conditions of the Agreement
(including the satisfaction or waiver of the conditions to the
obligation of the Investor to accept a Draw Down set forth in
Article VII of the Agreement), provided further, that such failure
was reasonably within the control of the Investor.
“
Per Share Warrant Value ”
shall mean the difference resulting from subtracting the Exercise
Price from the Closing Price on the Trading Day immediately
preceding the Exercise Date.
“
Person ”
shall mean an individual, a corporation, a partnership, a limited
liability company, an association, a trust or other entity or
organization, including a government or political subdivision or an
agency or instrumentality thereof.
“
Principal Market ”
shall mean the NASDAQ Global Select Market, the NASDAQ Global
Market, the NASDAQ Capital Market, the American Stock Exchange or
the New York Stock Exchange, whichever is at the time the principal
trading exchange or market for the Common Stock.
“
SEC ”
shall mean the United States Securities and Exchange
Commission.
“
Trading Day ”
shall mean any day other than a Saturday or a Sunday on which the
Principal Market is open for trading in equity
securities.
“
Warrant Holder ”
shall mean the Investor or any permitted assignee or permitted
transferee of all or any portion of this Warrant.
“
Warrant Shares ”
shall mean those shares of Common Stock received or to be received
upon exercise of this Warrant.
Section
2.
Exercise .
(a)
Method of Exercise .
This Warrant may be exercised in whole or in part (but not as to a
fractional share of Common Stock), at any time and from time to
time during the Exercise Period, by the Warrant Holder by surrender
of this Warrant, with the form of exercise attached hereto
as
Exhibit A completed
and duly executed by the Warrant Holder (the “
Exercise Notice ”),
to the Company at the address set forth in Section 10.4 of the
Agreement, accompanied by payment of the Exercise Price multiplied
by the number of shares of Common Stock for which this Warrant is
being exercised (the “
Aggregate Exercise Price ”).
The later of the date on which an Exercise Notice or payment of the
Exercise Price (unless this Warrant is exercised in accordance with
Section 2(c) below) is received by the Company in accordance
with this clause (a) shall be deemed an “
Exercise Date .”
(b)
Payment of Aggregate Exercise Price .
Subject to paragraph (c) below, payment of the Aggregate
Exercise Price shall be made by wire transfer of immediately
available funds to an account designated by the Company. If the
amount of the payment received by the Company is less than the
Aggregate Exercise Price, the Warrant Holder will be notified of
the deficiency and shall make payment in that amount within three
(3) Trading Days. In the event the payment exceeds the Aggregate
Exercise Price, the Company will refund the excess to the Warrant
Holder within five (5) Trading Days of receipt.
(c)
Cashless Exercise .
In the event that the Warrant Shares to be received by the Warrant
Holder upon exercise of the Warrant may not be resold pursuant to
an effective registration statement or an exemption to the
registration requirements of the Securities Act of 1933, as amended
(“Securities Act”), and applicable state laws, the
Warrant Holder may, as an alternative to payment of the Aggregate
Exercise Price upon exercise in accordance with paragraph
(b) above, elect to effect a cashless exercise by so
indicating on the Exercise Notice and including a calculation of
the number of shares of Common Stock to be issued upon such
exercise in accordance with the terms hereof (a “
Cashless Exercise ”).
If a registration statement on Form S-3 under the Securities Act or
such other form as deemed appropriate by counsel to the Company for
the registration of the resale by the Warrant Holder of (x) the
shares of Common Stock of the Company that may be purchased under
the Agreement, (y) the Warrant Shares, or (z) any securities issued
or issuable with respect to any of the foregoing by way of
exchange, stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or
other reorganization or otherwise, has been declared effective by
the SEC and remains effective, the
Company may, in its sole discretion, require
the Warrant Holder to pay the Exercise Price of the Warrant Shares
being purchased by the Warrant Holder under this Warrant. The
Company may, in its sole discretion, permit the Warrant Holder to
effect a Cashless Exercise at any time. In the event of a Cashless
Exercise, the Warrant Holder shall receive that number of shares of
Common Stock determined by (i) multiplying the number of
Warrant Shares for which this Warrant is being exercised by the Per
Share Warrant Value and (ii) dividing the product by the
average Closing Price of the Common Stock during the five (5)
Trading Days immediately preceding the Exercise Date, rounded to
the nearest whole share. The Company shall cancel the total number
of Warrant Shares equal to the excess of the number of the Warrant
Shares for which this Warrant is being exercised over the number of
Warrant Shares to be received by the Warrant Holder pursuant to
such Cashless Exercise.
(d)
Replacement Warrant .
In the event that the Warrant is not exercised in full, the number
of Warrant Shares shall be reduced by the number of such Warrant
Shares for which this Warrant is exercised, and the Company, at its
expense, shall forthwith issue and deliver to or upon the order of
the Warrant Holder a new Warrant of like tenor in the name of the
Warrant Holder, reflecting such adjusted number of Warrant
Shares.
Section
3.
Ten Percent Limitation .
The Warrant Holder may not exercise this Warrant such that the
number of Warrant Shares to be received pursuant to such exercise
aggregated with all other shares of Common Stock that are then
beneficially owned or deemed to be beneficially owned by the
Warrant Holder would result in (i) the Warrant Holder owning more
than 9.9% of all of such Common Stock as would be outstanding on
such Exercise Date, as determined in accordance with
Section 13(d) of the Exchange Act or (ii) the Company being
required to file any notification or report forms under the Hart
Scott Rodino Antitrust Improvements Act of 1976, as
amended.
Section
4.
Delivery of Warrant Shares .
(a)
Subject
to the terms and conditions of this Warrant, as soon as
practicable after the exercise of this Warrant in full or in
part, and in any event within ten (10) Trading Days
thereafter, the Company at its expense (including, without
limitation, the payment by it of any applicable issue taxes)
will cause to be issued in the name of and delivered to the
Warrant Holder, or as the Warrant Holder may lawfully direct,
a certificate or certificates for, or make deposit with the
Depositary Trust Company via book-entry of, the number of
validly issued, fully paid and non-assessable Warrant Shares
to which the Warrant Holder shall be entitled on such
exercise, together with any other stock or other securities or
property (including cash, where applicable) to which the
Warrant Holder is entitled upon such exercise in accordance
with the provisions hereof.
(b)
This
Warrant may not be exercised as to fractional shares of Common
Stock. In the event that the exercise of this Warrant, in full
or in part, would result in the issuance of any fractional
share of Common Stock, then in such event the Warrant Holder
shall receive the number of shares rounded to the nearest
whole share.
Section
5.
Representations, Warranties and Covenants of the Company
.
(a)
The
Warrant Shares, when issued in accordance with the terms
hereof, will be duly authorized and, when paid for or issued
in accordance with the terms hereof, shall be validly issued,
fully paid and non-assessable.
(b)
The
Company shall take all commercially reasonable action and
proceedings as may be required and permitted by applicable
law, rule and regulation for the legal and valid issuance of
this Warrant and the Warrant Shares to the Warrant
Holder.
(c)
The
Company has authorized and reserved for issuance to the
Warrant Holder the requisite number of shares of Common Stock
to be issued pursuant to this Warrant. The Company shall at
all times reserve and keep available, solely for issuance and
delivery as Warrant Shares hereunder, such shares of Common
Stock as shall from time to time be issuable as Warrant
Shares.
(d)
From
the date hereof through the last date on which this Warrant is
exercisable, the Company shall take all steps commercially
reasonable to ensure that the Common Stock remains listed or
quoted on the Principal Market.
Section
6.
Adjustment of the Exercise Price .
The Exercise Price and, accordingly, the number of Warrant Shares
issuable upon exercise of the Warrant, shall be subject to
adjustment from time to time upon the happening of certain events
as follows:
(a)
Reclassification, Consolidation, Merger, Mandatory Share Exchange,
Sale or Transfer .
(i)
Upon
occurrence of any of the events specified in subsection
(a)(ii) below (the “
Adjustment Events ”)
while this Warrant is unexpired and not exercised in full, the
Warrant Holder may in its sole discretion require the Company, or
any successor or purchasing corporation, as the case may be,
without payment of any additional consideration therefor, upon
surrender by the Warrant Holder of the Warrant to be replaced, to
execute and deliver to the Warrant Holder a new Warrant providing
that the Warrant Holder shall have the right to exercise such new
Warrant (upon terms not less favorable to the Warrant Holder than
those then applicable to this Warrant) and to receive upon such
exercise, in lieu of each share of Common Stock theretofore
issuable upon exercise of this Warrant, the kind and amount of
shares of stock, other securities, money or property receivable
upon such Adjustment Event by the holder of one share of Common
Stock issuable upon exercise of this Warrant had this Warrant been
exercised immediately prior to such Adjustment Event. Such new
Warrant shall provide for adjustments that shall be as nearly
equivalent as may be practicable to the adjustments provided for in
this Section 6.
(ii)
The
Adjustment Events shall be (1) any reclassification or change
of Common Stock (other than a change in par value, as a result
of a subdivision or combination of Common Stock or in
connection with an Excluded Merger or Sale) and (2) any
consolidation, merger or mandatory share exchange of the
Company with or into another corporation (other than a merger
or mandatory share exchange with another corporation in which
the Company is a continuing corporation and which does not
result in any reclassification or change other than a change
in par value or as a result of a subdivision or combination of
Common Stock), other than (each of the following referred to
as an “
Excluded Merger or Sale ”)
a transaction involving (A) sale of all or substantially all
of the assets
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