Exhibit 10.2
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL SUCH WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE PURSUANT
TO THE WARRANT ARE REGISTERED UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY IS OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS
NOT REQUIRED.
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH IN SECTIONS 3 AND
11 OF THIS WARRANT
PENWEST PHARMACEUTICALS CO.
WARRANT

Warrant No.                        Dated: March ___, 2008

     PENWEST PHARMACEUTICALS CO., a Washington corporation (the “Company”),
hereby certifies that, for value received, [     ], or its registered assigns
(the “Holder”), is entitled to purchase from the Company up to a total of
[     ] shares of common stock, $0.001 par value per share (the “Common Stock”),
of the Company (each such share as adjusted from time to time as provided in
Section 9, a “Warrant Share” and all such shares, the “Warrant Shares”) at an
exercise price equal to $3.62 (as adjusted from time to time as provided in
Section 9, the “Exercise Price”), at any time on or before 6:30 p.m. (New York
local time) on March [     ], 2013 (the “Expiration Date”), subject to the terms
and conditions set forth herein. This warrant (this “Warrant”) is one of a
series of similar warrants issued pursuant to that certain Securities Purchase
Agreement, dated as of March 5, 2008 by and among the Company and the Purchasers
identified therein (the “Securities Purchase Agreement”). All such warrants are
referred to herein, collectively, as the “Warrants.”
     1. Definitions. Capitalized terms that are not otherwise defined herein
have the meanings given to such terms in the Securities Purchase Agreement.
     2. Registration of Warrant. The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose (the “Warrant
Register”), in the name of the Holder (which shall include the initial Holder
or, as the case may be, any registered assignee to which this Warrant is
permissibly assigned hereunder from time to time). The Company may deem and
treat the registered Holder as the absolute owner of this Warrant for the
purpose of any exercise hereof, any distribution in respect hereof and for all
other purposes, absent actual notice to the contrary.
     3. Transfers. Neither this Warrant nor the Warrant Shares shall be sold or
transferred unless either (i) they first shall have been registered under the
Securities Act or

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(ii) the Company first shall have been furnished with an opinion of legal
counsel, reasonably satisfactory to the Company, to the effect that such sale or
transfer is exempt from the registration requirements of the Securities Act. In
addition, the Holder acknowledges and agrees that this Warrant and the Warrant
Shares may not be assigned or transferred in whole or in part except to an
Affiliate (as defined below) of the Holder. If the assignment or transfer is to
an Affiliate of the Holder, no registration or opinion of counsel shall be
required and the Company shall register any such assignment or transfer of all
or any portion of this Warrant in the Warrant Register, upon (i) surrender of
this Warrant, with the Form of Assignment attached hereto duly completed and
signed, and (ii) delivery by the transferee of a written statement to the
Company certifying that the transferee is an Affiliate of the Holder and an
“accredited investor” as defined in Rule 501(a) under the Securities Act and
making the representations and certifications as set forth in Section 4 of the
Securities Purchase Agreement, in each case, to the Company at its address
specified in the Securities Purchase Agreement. Upon any such registration or
transfer, a new Warrant to purchase Common Stock, in substantially the form of
this Warrant (any such new Warrant, a “New Warrant”), evidencing the portion of
this Warrant so transferred shall be issued to the transferee and a New Warrant
evidencing the remaining portion of this Warrant not so transferred, if any,
shall be issued to the transferring Holder. The acceptance of the New Warrant by
the transferee shall be deemed the acceptance by such transferee of all of the
rights and obligations in respect of the New Warrant that the Holder has in
respect of this Warrant. For the purposes of this Section 3, “Affiliate” means
any person or entity that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
person or entity, as such terms are used in and construed under Rule 144 under
the Securities Act.
     4. Exercise and Duration of Warrant.
          (a) This Warrant shall be exercisable by the registered Holder at any
time and from time to time after the date hereof and through and including the
Expiration Date. At 6:30 P.M., New York time on the Expiration Date, the portion
of this Warrant not exercised prior thereto shall be and become void and of no
value and this Warrant shall be terminated and no longer outstanding.
          (b) The Holder may exercise this Warrant by delivering to the Company
(with copies to its counsel) in accordance with the notice provisions of this
Warrant (i) by surrendering this Warrant along with an exercise notice, in the
form attached hereto (the “Exercise Notice”), completed and duly signed, and
(ii) payment of the Exercise Price for the number of Warrant Shares as to which
this Warrant is being exercised, and the date such items are delivered to the
Company (as determined in accordance with the notice provisions hereof) is an
“Exercise Date”. The delivery by (or on behalf of) the Holder of the Exercise
Notice, the Warrant and the applicable Exercise Price as provided above shall
constitute the Holder’s certification to the Company that its representations
contained in Section 4 of the Securities Purchase Agreement are true and correct
as of the Exercise Date as if remade in their entirety (or, in the case of any
assignee Holder that is not a party to the Securities Purchase Agreement, such
assignee Holder’s certification to the Company that such representations are
true and correct as to such assignee Holder as of the Exercise Date).
          (c) Cashless Exercise.

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          (i) At any time prior to and through the Expiration Date when the
resale of the Warrant Shares by the Holder is not registered pursuant to an
effective registration statement filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the “Securities Act”),
the Holder may, at its option, elect to exercise this Warrant, in whole or in
part, on a cashless basis, by surrendering this Warrant, with the purchase form
appended hereto duly executed by or on behalf of the Holder, at the principal
office of the Company, or at such other office or agency as the Company may
designate, by canceling a portion of this Warrant in payment of the Exercise
Price payable in respect of the number of Warrant Shares purchased upon such
exercise. In the event of an exercise pursuant to this subsection 4(c), the
number of Warrant Shares issued to the Holder shall be determined according to
the following formula:

     
      X = Y(A-B)
   
          A
   

     
      Where: X =
  the number of Warrant Shares that shall be issued to the Holder;
 
   
 
  Y = the number of Warrant Shares for which this Warrant is being exercised
(which shall include both the number of Warrant Shares issued to the Holder and
the number of Warrant Shares subject to the portion of the Warrant being
cancelled in payment of the Exercise Price);
 
   
 
  A = the Fair Market Value (as defined below) of one share of Common Stock; and
 
   
 
  B = the Purchase Price then in effect.

          (ii) The Fair Market Value per share of Common Stock shall be
determined as follows:
               (1) If the Common Stock is listed on a national securities
exchange, the Nasdaq Global Market, the Nasdaq Capital Market, the American
Stock Exchange or another nationally recognized trading system, including the
OTC Bulletin Board, as of the Exercise Date, the Fair Market Value per share of
Common Stock shall be deemed to be the average of the high and low reported sale
prices per share of Common Stock thereon on the trading day immediately
preceding the Exercise Date (provided that if no such price is reported on such
day, the Fair Market Value per share of Common Stock shall be determined
pursuant to clause (2) below).
               (2) If the Common Stock is not listed on a national securities
exchange, the Nasdaq Global Market, the Nasdaq Capital Market, the American
Stock Exchange or another nationally recognized trading system, including the
OTC Bulletin Board, as of the Exercise Date, the Fair Market Value per share of
Common Stock shall be deemed to be the amount most recently determined in good
faith by the Board of Directors of the Company (the “Board”) to represent the
fair market value per share of the Common Stock (including without limitation a
determination for purposes of granting Common Stock options or issuing Common
Stock under any plan, agreement or arrangement with employees of the Company);
and, upon request of the Holder, the Board (or a representative thereof) shall,
as promptly as reasonably practicable but in any event not later than 10 days
after such request, notify the Holder of the Fair Market Value per share of
Common Stock and furnish the Holder with reasonable

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documentation of the Board’s determination of such Fair Market Value.
Notwithstanding the foregoing, if the Board has not made such a determination
within the three-month period prior to the Exercise Date, then (A) the Board
shall make, and shall provide or cause to be provided to the Holder notice of, a
determination of the Fair Market Value per share of the Common Stock within 15
days of a request by the Holder that it do so, and (B) the exercise of this
Warrant pursuant to this subsection 4(c) shall be delayed until such
determination is made and notice thereof is provided to the Holder.
          (d) Holder’s Restrictions. The Holder shall not have the right to
exercise any portion of this Warrant, pursuant to Section 4 or otherwise, to the
extent that after giving effect to such issuance after exercise as set forth on
the applicable Exercise Notice, such Holder (together with such Holder’s
Affiliates, and any other person or entity acting as a group together with such
Holder or any of such Holder’s Affiliates), would beneficially own in excess of
the Beneficial Ownership Limitation (as defined below). For purposes of the
foregoing sentence, the number of shares of Common Stock beneficially owned by
such Holder and its Affiliates shall include the number of shares of Common
Stock issuable upon exercise of this Warrant with respect to which such
determination is being made, but shall exclude the number of shares of Common
Stock which would be issuable upon (A) exercise of the remaining, nonexercised
portion of this Warrant beneficially owned by such Holder or any of its
Affiliates and (B) exercise or conversion of the unexercised or nonconverted
portion of any other securities of the Company (including, without limitation,
any other Common Stock equivalents) subject to a limitation on conversion or
exercise analogous to the limitation contained herein beneficially owned by such
Holder or any of its Affiliates. Except as set forth in the preceding sentence,
for purposes of this Section 4, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”) and the rules and regulations promulgated thereunder, it
being acknowledged by the Holder that the Company is not representing to such
Holder that such calculation is in compliance with Section 13(d) of the Exchange
Act and such Holder is solely responsible for any schedules required to be filed
in accordance therewith. To the extent that the limitation contained in this
Section 4 applies, the determination of whether this Warrant is exercisable (in
relation to other securities owned by such Holder together with any Affiliates)
and of which portion of this Warrant is exercisable shall be in the sole
discretion of the Holder, and the submission of a Exercise Notice shall be
deemed to be the Holder’s determination of whether this Warrant is exercisable
(in relation to other securities owned by such Holder together with any
Affiliates) and of which portion of this Warrant is exercisable, in each case
subject the Beneficial Ownership Limitation, and the Company shall have no
obligation to verify or confirm the accuracy of such determination or any
liability under this Section 4(c). In addition, a determination as to any group
status as contemplated above shall be determined in accordance with Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder.
For purposes of this Section 4, in determining the number of outstanding shares
of Common Stock, a Holder may rely on the number of outstanding shares of Common
Stock as reflected in (x) the Company’s most recent Annual Report on Form 10-K
or Quarterly Report on Form 10-Q, or such similar form, as the case may be, or
(y) any other written notice by the Company or the Company’s Transfer Agent
setting forth the number of shares of Common Stock outstanding. In any case, the
number of outstanding shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Company, including
this Warrant, by such Holder or its Affiliates since the date as of which such
number of outstanding shares of Common Stock was reported.

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The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of
the Common Stock outstanding immediately after giving effect to the issuance of
shares of Common Stock issuable upon exercise of this Warrant. The Beneficial
Ownership Limitation provisions of this Section 4 may be waived by such Holder,
at the election of such Holder, upon not less than 61 days’ prior notice to the
Company to change the Beneficial Ownership Limitation to 9.99% of the number of
shares of the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock upon exercise of this Warrant, and the
provisions of this Section 4 shall continue to apply. Upon such a change by a
Holder of the Beneficial Ownership Limitation from such 4.99% limitation to such
9.99% limitation, the Beneficial Ownership Limitation may not be further waived
by such Holder. The provisions of this paragraph shall be construed and
implemented in a manner otherwise than in strict conformity with the terms of
this Section 4 to correct this paragraph (or any portion hereof) which may be
defective or inconsistent with the intended Beneficial Ownership Limitation
herein contained or to make changes or supplements necessary or desirable to
properly give effect to such limitation. The limitations contained in this
paragraph shall apply to a successor holder of this Warrant.
     5. Delivery of Warrant Shares.
          (a) As soon as practicable after the exercise of this Warrant (but in
no event later than five business days after the Exercise Date) in whole or in
part, the Company, at its expense, will cause to be issued in the name of, and
delivered to, the Holder, or as the Holder (upon payment by the Holder of any
applicable transfer taxes) may direct, a certificate or certificates for the
number of full Warrant Shares to which the Registered Holder shall be entitled
upon such exercise.
          (b) This Warrant is exercisable either in its entirety or, from time
to time, for a portion of the Warrant Shares. Upon surrender of this Warrant
following one or more partial exercises, the Company shall issue or cause to be
issued, at its expense, a new Warrant evidencing the right to purchase the
remaining number of Warrant Shares.
     6. Charges, Taxes and Expenses. Issuance and delivery of certificates for
shares of Common Stock upon exercise of this Warrant shall be made without
charge to the Holder for any transfer agent fee or other incidental expense in
respect of the issuance of such certificates, all of which expenses shall be
paid by the Company; 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
registration of any certificates for Warrant Shares or any Warrant. The Holder
shall be responsible for all other tax liability that may arise as a result of
holding or transferring this Warrant or receiving Warrant Shares upon exercise
hereof.
     7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and, if requested
by the Company, customary and reasonable indemnity. If the Holder seeks a New
Warrant under such circumstances, it shall also comply with such other
reasonable regulations and procedures and pay such other reasonable third party
costs as the Company may prescribe.

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     8. Reservation of Warrant Shares. The Company covenants that it will at all
times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Warrant Shares upon exercise of this Warrant as herein
provided, the number of Warrant Shares which are then issuable and deliverable
upon the exercise in full of this Warrant, free from preemptive rights or any
other contingent purchase rights of persons other than the Holder (taking into
account the adjustments and restrictions of Section 9). The Company covenants
that all Warrant Shares so issuable and deliverable shall, upon issuance and the
payment of the applicable Exercise Price in accordance with the terms hereof, be
duly and validly authorized and issued, fully paid and nonassessable. Each of
the Company and the Holder 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
securities exchange or automated quotation system upon which the Common Stock
may be listed.
     9. Certain Adjustments. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section 9.
          (a) Stock Dividends and Splits. If the Company, at any time while this
Warrant is outstanding, (i) pays a stock dividend on its Common Stock or
otherwise makes a distribution on any class of capital stock that is payable in
shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into
a larger number of shares of Common Stock, or (iii) combines outstanding shares
of Common Stock into a smaller number of shares of Common Stock, then in each
such case the Exercise Price shall be adjusted by multiplying a fraction of
which the numerator shall be the number of shares of Common Stock outstanding
immediately before such event and of which the denominator shall be the number
of shares of Common Stock outstanding immediately after such event. Any
adjustment made pursuant to clause (i) of this paragraph shall become effective
immediately after the record date for the determination of shareholders entitled
to receive such dividend or distribution; provided, however, that if such record
date shall have been fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Exercise Price
shall be recomputed accordingly as of the close of business on such record date
and thereafter the Exercise Price shall be adjusted pursuant to this paragraph
as of the time of actual payment of such dividends or distributions. Any
adjustment pursuant to clauses (ii) or (iii) of this paragraph shall become
effective immediately after the effective date of such subdivision or
combination.
          (b) Number of Warrant Shares. Simultaneously with any adjustment to
the Exercise Price pursuant to paragraph (a) of this Section, the number of
Warrant Shares that may be purchased upon exercise of this Warrant shall be
increased or decreased proportionately, so that after such adjustment the
aggregate Exercise Price payable hereunder for the increased or decreased number
of Warrant Shares shall be the same as the aggregate Exercise Price in effect
immediately prior to such adjustment.
          (c) Pro Rata Distributions. If the Company, at any time while this
Warrant is outstanding, distributes to holders of Common Stock (i) evidence of
its indebtedness, (ii) any security (other than a distribution of Common Stock
covered by Section 9(a)), (iii) rights or warrants to subscribe for or purchase
any security, or (iv) any other asset (other than regular

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cash dividends paid out of earnings or earned surplus, determined in accordance
with generally accepted accounting principles) (in each case, “Distributed
Property”), then, upon any exercise of the Warrant that occurs after the record
date fixed for determination of shareholders entitled to receive such
distribution, the Holder shall be entitled to receive, in addition to the
Warrant Shares otherwise issuable upon such exercise (if applicable), the kind
and amount of Distributed Property which the Holder would have been entitled to
receive had this Warrant been exercised immediately prior to the record date for
such distribution and had the Holder thereafter, during the period from such
record date to and including the Exercise Date, retained any such evidence of
indebtedness, securities, rights or warrants or other assets receivable during
such period, giving application to all adjustments called for during such period
under this Section 9 with respect to the rights of the Holder.
          (d) Fundamental Transactions. If there shall occur any reorganization,
recapitalization, reclassification, consolidation or merger involving the
Company in which the Common Stock is converted into or exchanged for securities,
cash or other property (other than a transaction covered by subsections 9(a) or
9(c)) (collectively, a “Fundamental Transaction”), then, following such
Fundamental Transaction, the Holder shall receive upon exercise hereof the kind
and amount of securities, cash or other property which the Holder would have
been entitled to receive pursuant to such Fundamental Transaction if such
exercise had taken place immediately prior to such Fundamental Transaction. In
any such case, appropriate adjustment (as determined in good faith by the Board
of Directors of the Company) shall be made in the application of the provisions
set forth herein with respect to the rights and interests thereafter of the
Holder, to the end that the provisions set forth in this Section 9 (including
provisions with respect to changes in and other adjustments of the Exercise
Price) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any securities, cash or other property thereafter deliverable upon
the exercise of this Warrant (the “Transaction Consideration”). The aggregate
Exercise Price for this Warrant will not be affected by any such Fundamental
Transaction, but the Company shall apportion such aggregate Exercise Price among
the Transaction Consideration in a reasonable manner reflecting the relative
value of any different components of the Transaction Consideration, if
applicable. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Transaction Consideration it
receives upon any exercise of this Warrant following such Fundamental
Transaction. At the Holder’s request, any successor to the Company or surviving
entity in such Fundamental Transaction shall issue to the Holder a new Warrant
consistent with the foregoing provisions and evidencing the Holder’s right to
purchase the Transaction Consideration for the aggregate Exercise Price upon
exercise thereof. The terms of any agreement pursuant to which a Fundamental
Transaction is effected shall include terms requiring any such successor or
surviving entity to comply with the provisions of this paragraph (d) and
insuring that the Warrant (or any such replacement security) will be similarly
adjusted upon any subsequent transaction analogous to a Fundamental Transaction.
Notwithstanding anything to the contrary, in the event of a Fundamental
Transaction that is (1) an all cash transaction, (2) a “Rule 13e-3 transaction”
as defined in Rule 13e-3 under the Securities Exchange Act of 1934, as amended,
or (3) a Fundamental Transaction involving a person or entity not traded on a
national securities exchange, the Nasdaq Global Select Market, the Nasdaq Global
Market, or the Nasdaq Capital Market, the Company or any successor entity shall
pay at the Holder’s option, exercisable at any time concurrently with or within
30 days after the consummation of the Fundamental Transaction, an

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amount of cash equal to the value of this Warrant as determined in accordance
with the Black Scholes Option Pricing Model obtained from the “OV” function on
Bloomberg L.P. using (i) a price per share of Common Stock equal to the VWAP of
the Common Stock for the Trading Day immediately preceding the date of
consummation of the applicable Fundamental Transaction, (ii) a risk-free
interest rate corresponding to the U.S. Treasury rate for a period equal to the
remaining term of this Warrant as of the date of consummation of the applicable
Fundamental Transaction and (iii) an expected volatility equal to the 100 day
volatility obtained from the “HVT” function on Bloomberg L.P. determined as of
the Trading Day immediately following the public announcement of the applicable
Fundamental Transaction; provided, however, that the foregoing sentence shall
not apply unless the aggregate Exercise Price of this Warrant at the time of the
closing of the Fundamental Transaction is less than the value of the Transaction
Consideration payable with respect to this Warrant.
          (e) Calculations. All calculations under this Section 9 shall be made
to the nearest cent or the nearest 1/100th of a share, as applicable. The number
of shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company; provided that such shares,
upon disposition to a third party, shall then be considered outstanding.
          (f) Notice of Adjustments. Upon the occurrence of each adjustment
pursuant to this Section 9, the Company at its expense will promptly compute
such adjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment, including a statement of the adjusted
Exercise Price and adjusted number or type of Warrant Shares or other securities
issuable upon exercise of this Warrant (as applicable), describing the
transactions giving rise to such adjustments and showing in reasonable detail
the facts upon which such adjustment is based, and deliver a copy of each such
certificate to the Holder.
          (g) Notice of Corporate Events. If, while this Warrant is outstanding,
the Company (i) declares a dividend or any other distribution of cash,
securities or other property in respect of its Common Stock, including, without
limitation, any granting of rights or warrants to subscribe for or purchase any
capital stock of the Company or any subsidiary of the Company, (ii) authorizes
or approves, enters into any agreement contemplating or solicits shareholder
approval for any Fundamental Transaction or (iii) authorizes the voluntary
dissolution, liquidation or winding up of the affairs of the Company, then the
Company shall deliver to the Holder a notice describing the material terms and
conditions of such transaction, at least 10 days prior to the applicable record
or effective date on which a person or entity would need to hold Common Stock in
order to participate in or vote with respect to such transaction; provided,
however, that the failure to deliver such notice or any defect therein shall not
affect the validity of the corporate action required to be described in such
notice.
     10. Payment of Exercise Price. The Holder shall pay the Exercise Price in
immediately available funds.
     11. Transfer of Warrant Shares, Restrictive Legend.
          (a) The Warrant Shares shall upon issuance be subject to the
restrictions on transfer set forth in Section 8 of the Securities Purchase
Agreement.

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          (b) The Warrant Shares deposited in the Holder’s direct registration
account upon exercise of this Warrant shall be accompanied by such tags or other
notifications substantially in the form of the following legends (in addition to
any legends required under applicable securities laws), and any stock
certificates issued to the Holder representing the Warrant Shares shall also
bear substantially the following legends (in addition to any legends required
under applicable securities laws):
THE SHARES REPRESENTED [BY THIS CERTIFICATE]/[HEREBY] HAVE BEEN ACQUIRED FOR
INVESTMENT PURPOSES ONLY AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933. THE SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM.
ADDITIONALLY THE TRANSFER OF THE SHARES REPRESENTED [BY THIS
CERTIFICATE]/[HEREBY] IS SUBJECT TO CERTAIN RESTRICTIONS SPECIFIED IN THE
SECURITIES PURCHASE AGREEMENT DATED MARCH 5, 2008 BETWEEN THE COMPANY AND THE
ORIGINAL PURCHASER, AND NO TRANSFER OF SHARES SHALL BE VALID OR EFFECTIVE ABSENT
COMPLIANCE WITH SUCH RESTRICTIONS. ALL SUBSEQUENT HOLDERS OF THIS CERTIFICATE
WILL HAVE AGREED TO BE BOUND BY CERTAIN OF THE TERMS OF THE AGREEMENT, INCLUDING
SECTIONS 8.1 AND 8.3 OF THE AGREEMENT. COPIES OF THE AGREEMENT MAY BE OBTAINED
AT NO COST BY WRITTEN REQUEST MADE BY THE REGISTERED HOLDER OF THIS CERTIFICATE
TO THE SECRETARY OF THE COMPANY.
          The legends contained in this Section 11 may be removed from a
certificate in accordance with Section 8.3 of the Securities Purchase Agreement.
     12. Fractional Shares. No fractional shares of Warrant Shares will be
issued in connection with any exercise of this Warrant. In lieu of any
fractional shares which would, otherwise be issuable, the Company shall pay cash
equal to the product of such fraction multiplied by the closing price of one
Warrant Share as reported by the NASDAQ Global Market on the date of exercise.
     13. Notices. Any and all notices or other communications or deliveries
hereunder (including without limitation any Exercise Notice) shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number of the recipient of such notice specified in the Securities
Purchase Agreement prior to 6:30 p.m. (New York local time) on a business day,
(ii) the next business day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number of the
recipient of such notice specified in the Securities Purchase Agreement on a day
that is not a business day or later than 6:30 p.m. (New York time)

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on any business day, (iii) the business day following the date of deposit with a
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given. The address and facsimile
numbers for such notices or communications shall be as set forth in the
Securities Purchase Agreement.
     14. Warrant Agent. The Company shall serve as Warrant agent under this
Warrant. Upon 30 days’ notice to the Holder, the Company may appoint a new
Warrant agent. Any corporation into which the Company or any new Warrant agent
may be merged or any corporation resulting from any consolidation to which the
Company or any new Warrant agent shall be a party or any corporation to which
the Company or any new Warrant agent transfers substantially all of its
corporate trust or shareholder services business shall be a successor Warrant
agent under this Warrant without any further act. Any such successor Warrant
agent shall promptly cause notice of its succession as Warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder’s last
address as shown on the Warrant Register.
     15. Miscellaneous.
          Subject to the restrictions on transfer set forth on the first page
hereof and in Section 3 hereof, this Warrant may be assigned by the Holder. This
Warrant may not be assigned by the Company except to a successor of the Company
in the event of a Fundamental Transaction. This Warrant shall be binding on and
inure to the benefit of the parties hereto and their respective successors and
assigns. Subject to the preceding sentence, nothing in this Warrant shall be
construed to give to any person or entity other than the Company and the Holder
any legal or equitable right, remedy or cause of action under this Warrant. This
Warrant may be amended only in writing signed by the Company and the Holder, or
their respective successors and assigns.
          (a) The Company will not, by amendment of its governing documents 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 of this Warrant,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the Holder against impairment. Without limiting the
generality of the foregoing, the Company (i) will not increase the par value of
any Warrant Shares above the amount payable therefor on such exercise, (ii) will
take all such action as may be reasonably necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable Warrant
Shares on the exercise of this Warrant, and (iii) will not close its shareholder
books or records in any manner which interferes with the timely exercise of this
Warrant.
          (b) All questions concerning the construction validity, enforcement
and interpretation of this Warrant shall be governed by and construed and
enforced in accordance with the laws of the State of New York. Each party hereby
irrevocable submits to the exclusive jurisdiction of the state and federal
courts sitting in the city of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of

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any such court, that such suit, action or proceeding is improper. Each party
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof
via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
The Company and Holder hereby waive all rights to trial by jury.
          (c) The headings herein are for convenience only, do not constitute a
part of this Warrant and shall not be deemed to limit or affect any of the
provisions hereof.
          (d) If any provision of this Warrant shall be judicially determined to
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
          (e) This Warrant and the Securities Purchase Agreement constitute the
full and entire understanding and agreement between the parties with regard to
the subjects thereof.
          (f) Prior to exercise of this Warrant, the Holder hereof shall not, by
reason of being a Holder, be entitled to any rights of a stockholder with
respect to the Warrant Shares.

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     IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
by its authorized officer as of the date first indicated above.

            PENWEST PHARMACEUTICALS CO.
      By:           Name:              

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FORM OF EXERCISE NOTICE
     To be executed by the Holder to exercise the right to purchase shares of
Common Stock under the foregoing Warrant)
To: Penwest Pharmaceuticals Co.
     The undersigned is the Holder of Warrant No. __________ (the “Warrant”)
issued by Penwest Pharmaceuticals Co., a Washington corporation (the “Company”).
Capitalized terms used herein and not otherwise defined have the respective
meanings set forth in the Warrant.

1.   The Warrant is currently exercisable to purchase a total
of                      Warrant Shares.   2.   The undersigned Holder hereby
exercises its right to purchase                      Warrant Shares pursuant to
the Warrant.   3.   The Holder shall pay the sum of $                     to the
Company in accordance with the terms of the Warrant.   4.   Pursuant to this
exercise, the Company shall deliver to the Holder                      Warrant
Shares in accordance with the terms of the Warrant.   5.   Following this
exercise, the Warrant shall be exercisable to purchase a total
of                      Warrant Shares.

Dated:                     ,     
Name of Holder:
(Print)                                         

                By:           Name:           Title:          

(Signature must conform in all respects to name of holder as specified on the
face of the Warrant)

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FORM OF ASSIGNMENT
     [To be completed and signed only upon transfer of Warrant]
     FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto                                          the right represented by the
within Warrant to purchase                      shares of Common Stock of
Penwest Pharmaceuticals Co. to which the within Warrant relates and
appoints                                   attorney to transfer said right on
the books of Penwest Pharmaceuticals Co. with full power of substitution in the
premises.
Dated:                     ,      

                                                              
(Signature must conform in all respects to name of holder as specified on the
face of the Warrant)

                                                                
                 
Address of Transferee

                                                                   
             

                                                                  
              
In the presence of:

                                                                 
               

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