Exhibit 10.40
EXHIBIT A
COMMON STOCK PURCHASE WARRANT
ALEXZA PHARMACEUTICALS, INC.
     THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for
value received, Biomedical Sciences Investment Fund Pte Ltd (the “Holder”), is
entitled, upon the terms and subject to the limitations on exercise and the
conditions hereinafter set forth, at any time during the Exercise Period (as
defined below), to subscribe for and purchase from Alexza Pharmaceuticals, Inc.,
a Delaware corporation (the “Company”), up to a number of shares of Common
Stock, par value $0.0001 per share, of the Company (the “Common Stock”) as
provided for in Section 2(c) (the “Warrant Shares”). The purchase price of one
share of Common Stock under this Warrant shall be equal to the Exercise Price,
as defined in Section 2(b).
     Section 1. Definitions. Capitalized terms used and not otherwise defined
herein shall have the meanings set forth in that certain Stock and Warrant
Purchase Agreement (the “Purchase Agreement”), dated March 26, 2008, by and
between the Company and the Holder.
     Section 2. Exercise.
          a) Exercise of Warrant. Exercise of the purchase rights represented by
this Warrant may be made, in whole or in part, at any time or times during the
Exercise Period by delivery to the Company of a duly executed facsimile copy of
the Notice of Exercise Form annexed hereto (or such other office or agency of
the Company as it may designate by notice in writing to the registered Holder at
the address of such Holder appearing on the books of the Company); provided,
however, within 5 Trading Days of the date said Notice of Exercise is delivered
to the Company, the Holder shall have surrendered this Warrant to the Company
and the Company shall have received payment of the aggregate Exercise Price of
the shares thereby purchased by wire transfer or cashier’s check drawn on a
United States bank.
          b) Exercise Price. The exercise price of the Common Stock under this
Warrant shall be $8.00 (such price to be adjusted for stock splits, stock
dividends and the like) per share; provided, however, that if (i) the Pricing
Adjustment Point is not triggered, or (ii) a binding agreement to acquire
substantially all of the assets or a majority of the outstanding voting
securities of the Company (through merger, acquisition, consolidation or
otherwise) in which the aggregate purchase price is less than $8.00 (such price
to be adjusted for stock splits, stock dividends and the like) per share is
entered into prior to the earlier of (a) the triggering of a Pricing Adjustment
Point or (b) the end of the Pricing Period (a “Pricing Change in Control
Event”), then the exercise price of the Common Stock under this Warrant shall be
$7.22 (such price to be adjusted for stock splits, stock dividends and the like)
per share (the “Exercise Price”); provided, further that if this Warrant is
exercised prior to December 31, 2008 other than in connection with a Pricing
Change in Control Event the Exercise Price shall be $8.00 (such

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price to be adjusted for stock splits, stock dividends and the like) per share.
The Exercise Price shall be subject to adjustment pursuant to Section 3 hereof.
          c) Number of Warrant Shares. The number of shares of Common Stock that
the Holder may purchase by exercising this Warrant shall equal the number of
whole shares of Common Stock equal to $3,000,000 divided by the Exercise Price
determined pursuant to Section 2(b).
          d) Exercise Period. This Warrant shall not become exercisable unless
and until an Exercise Trigger Event (as defined below) occurs. If an Exercise
Trigger Event occurs, this Warrant shall be exercisable for the period
commencing on the date of the Exercise Trigger Event and ending on the close of
business on the fifth year anniversary of the date hereof (the “Exercise
Period”). For purposes of this Warrant, “Exercise Trigger Event” shall mean each
of the following events:
               i. The failure by the Company, including any of its Affiliates or
a joint venture of which the Company is stockholder or member, to achieve a
milestone set forth on Exhibit A hereto (each a “Milestone”, and collectively,
the “Milestones”); provided, however, that the Company shall have forty five
(45) days after the date on which the Company receives a Cure Notice (as defined
on Exhibit A) to cure any alleged failure before any such failure shall be
deemed an Exercise Trigger Event; and provided further that with respect to any
Milestone, the Company may request the written consent of the Holder for the
modification of such Milestone, or the modification of the timing for the
performance of such Milestone, and the Holder hereby agrees that it will not
unreasonably withhold consent to such modification; and
               ii. The termination by the Company of its operations in Singapore
or the transfer of all, or substantially all, of the Company’s Singapore
operations outside of Singapore without the prior written consent of the Holder.
          e) Cashless Exercise. This Warrant may also be exercised during the
Exercise Period by means of a “cashless exercise” in which the Holder shall be
entitled to receive a certificate for the number of Warrant Shares equal to the
quotient obtained by dividing [(A-B)*(X)] by (A), where:
          (A) = the VWAP on the Trading Day immediately preceding the date of
such election;
          (B) = the Exercise Price of this Warrant, as adjusted; and
          (X) = the number of Warrant Shares issuable upon exercise of this
Warrant in accordance with the terms of this Warrant by means of a cash exercise
rather than a cashless exercise.
     For purposes of this Section 2(e), “VWAP” shall mean the daily volume
weighted average price of the Company on the Principal Market as reported by
Bloomberg Financial L.P. using the AQR function.

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          f) Mechanics of Exercise.
               i. Authorization of Warrant Shares. The Company covenants that
all Warrant Shares which may be issued upon the exercise of the purchase rights
represented by this Warrant will, upon exercise of the purchase rights
represented by this Warrant, be duly authorized, validly issued, fully paid and
nonassessable and free from all taxes, liens and charges in respect of the issue
thereof (other than taxes in respect of any transfer occurring contemporaneously
with such issue).
               ii. Delivery of Certificates Upon Exercise. Certificates for
shares purchased hereunder shall be transmitted by the transfer agent of the
Company to the Holder by crediting the account of the Holder’s prime broker with
the Depository Trust Company through its Deposit Withdrawal Agent Commission
(“DWAC”) system if the Company is a participant in such system and such system
is available for transmitting such certificates, or otherwise by physical
delivery to the address specified by the Holder in the Notice of Exercise within
5 Trading Days from the delivery to the Company of the Notice of Exercise Form,
surrender of this Warrant and payment of the aggregate Exercise Price as set
forth above (“Warrant Share Delivery Date”). This Warrant shall be deemed to
have been exercised on the date the aggregate Exercise Price is received by the
Company. The Warrant Shares shall be deemed to have been issued, and Holder or
any other person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the date the
Warrant has been exercised by payment to the Company of the aggregate Exercise
Price and all taxes required to be paid by the Holder, if any, pursuant to
Section 2(f)(vi) prior to the issuance of such shares, have been paid.
               iii. Delivery of New Warrants Upon Exercise. If this Warrant
shall have been exercised in part, the Company shall, at the time of delivery of
the certificate or certificates representing Warrant Shares, deliver to the
Holder a new Warrant evidencing the rights of the Holder to purchase the
unpurchased Warrant Shares called for by this Warrant, which new Warrant shall
in all other respects be identical with this Warrant.
               iv. Rescission Rights. If the Company fails to cause its transfer
agent to transmit to the Holder a certificate or certificates representing the
Warrant Shares pursuant to Section 2(f)(ii) by the date that is two business
days after the Warrant Share Delivery Date, then the Holder will have the right
to rescind such exercise.
               v. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which the Holder would otherwise be
entitled to purchase upon such exercise, the Company shall pay a cash adjustment
in respect of such final fraction in an amount equal to such fraction multiplied
by the Exercise Price.
               vi. Charges, Taxes and Expenses. Issuance of certificates for
Warrant Shares shall be made without charge to the Holder for any issue or
transfer tax or other incidental expense in respect of the issuance of such
certificate, all of which taxes and expenses shall be paid by the Company, and
such certificates shall be issued in the name of the Holder or in such name or
names as may be directed by the Holder; provided, however, that in the event

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certificates for Warrant Shares are to be issued in a name other than the name
of the Holder, this Warrant when surrendered for exercise shall be accompanied
by the Assignment Form attached hereto duly executed by the Holder; and the
Company may require, as a condition thereto, the payment of a sum sufficient to
reimburse it for any transfer tax incidental thereto.
     Section 3. Certain Adjustments; Early Termination.
          a) Stock Dividends and Splits. If the Company, at any time while this
Warrant is outstanding: (A) pays a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock or any other equity
or equity equivalent securities payable in shares of Common Stock (which, for
avoidance of doubt, shall not include any shares of Common Stock issued by the
Company pursuant to this Warrant), (B) subdivides outstanding shares of Common
Stock into a larger number of shares, (C) combines (including by way of reverse
stock split) outstanding shares of Common Stock into a smaller number of shares,
or (D) issues by reclassification of shares of the Common Stock any shares of
capital stock of the Company, then in each case the Exercise Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) 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
this Section 3(a) shall become effective immediately after the record date for
the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or re-classification.
          b) Early Termination. If, at any time while this Warrant is
outstanding, (A) the Company effects any merger or consolidation of the Company
with or into another Person, (B) the Company effects any sale of all or
substantially all of its assets in one or a series of related transactions,
(C) any tender offer or exchange offer (whether by the Company or another
Person) is completed pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, cash or property, or
(D) the Company effects any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is effectively
converted into or exchanged for other securities, cash or property (in any such
case, a “Fundamental Transaction”), then, the Company shall provide to the
Holder twenty (20) days advance written notice of such Fundamental Transaction,
and this Warrant shall terminate unless exercised (if exercisable) prior to the
date such Fundamental Transaction.
          c) Calculations. All calculations under this Section 3 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may be. For
purposes of this Section 3, the number of shares of Common Stock deemed to be
issued and outstanding as of a given date shall be the sum of the number of
shares of Common Stock (excluding treasury shares, if any) issued and
outstanding.
          d) Notice to Holders.
               i. Adjustment to Exercise Price. Whenever the Exercise Price is
adjusted pursuant to this Section 3, the Company shall promptly mail to the
Holder a notice

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setting forth the Exercise Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
               ii. Notice to Allow Exercise by Holder. If (A) the Company shall
declare a dividend (or any other distribution) on the Common Stock; (B) the
Company shall declare a special nonrecurring cash dividend on or a redemption of
the Common Stock; (C) the Company shall authorize the granting to all holders of
the Common Stock rights or warrants to subscribe for or purchase any shares of
capital stock of any class or of any rights; (D) the approval of any
stockholders of the Company shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger to which the
Company is a party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share exchange whereby the Common Stock
is converted into other securities, cash or property; (E) the Company shall
authorize the voluntary or involuntary dissolution, liquidation or winding up of
the affairs of the Company; then, in each case, the Company shall cause to be
mailed to the Holder at its last address as it shall appear upon the Warrant
Register of the Company, at least 20 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the Common Stock for securities, cash or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; provided, that the failure to mail such notice
or any defect therein or in the mailing thereof shall not affect the validity of
the corporate action required to be specified in such notice. If this Warrant is
otherwise exercisable, the Holder shall be entitled to exercise this Warrant
during the 20-day period commencing on the date of such notice to the effective
date of the event triggering such notice.
     Section 4. Transfer of Warrant.
          a) Transferability. This Warrant shall not be transferable in whole or
in part.
          b) Warrant Register. 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 record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, absent actual notice to the contrary.
     Section 5. Miscellaneous.
          a) No Rights as Stockholder Until Exercise. This Warrant does not
entitle the Holder to any voting rights or other rights as a stockholder of the
Company prior to the exercise hereof. Upon the surrender of this Warrant and the
payment of the aggregate Exercise Price (or by means of a cashless exercise),
the Warrant Shares so purchased shall be and be

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deemed to be issued to the Holder as the record owner of such shares as of the
close of business on the later of the date of such surrender or payment.
          b) Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant or any stock
certificate relating to the Warrant Shares, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it (which, in
the case of the Warrant, shall not include the posting of any bond), and upon
surrender and cancellation of such Warrant or stock certificate, if mutilated,
the Company will make and deliver a new Warrant or stock certificate of like
tenor and dated as of such cancellation, in lieu of such Warrant or stock
certificate.
          c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a Saturday,
Sunday or legal holiday.
          d) Authorized Shares. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the Warrant
Shares upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant.
          e) Jurisdiction. This Warrant and all rights, obligations and
liabilities hereunder shall be governed by the laws of the State of California.
All questions concerning the construction, validity, enforcement and
interpretation of this Warrant shall be determined in accordance with the
provisions of the Purchase Agreement.
          f) Restrictions. The Holder acknowledges that the Warrant Shares
acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws. The
Holder hereby acknowledges and agrees that if the Registration Statement is not
effective at the time this Warrant is exercised, the Holder shall only be
permitted to exercise this Warrant by means of a “cashless exercise” pursuant to
Section 2(e).
          g) Nonwaiver. No course of dealing or any delay or failure to exercise
any right hereunder on the part of Holder shall operate as a waiver of such
right or otherwise prejudice Holder’s rights, powers or remedies.
          h) Notices. Any notice, request or other document required or
permitted to be given or delivered to the Holder by the Company shall be
delivered in accordance with the notice provisions of the Purchase Agreement.
          i) Limitation of Liability. No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant or purchase Warrant
Shares, and no enumeration herein of the rights or privileges of Holder, shall
give rise to any liability of Holder

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for the purchase price of any Common Stock or as a stockholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.
          j) Successors and Assigns. Subject to applicable securities laws, this
Warrant and the rights and obligations evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and permitted assigns of Holder. The provisions of this Warrant are intended to
be for the benefit of all Holders from time to time of this Warrant and shall be
enforceable by any such Holder or holder of Warrant Shares.
          k) Amendment. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the Holder.
          l) Acceptance. Receipt of this Warrant by the Holder shall constitute
acceptance of and agreement to all of the terms and conditions contained herein
and to all of the representations and warranties contained herein.
          m) Severability. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Warrant.
          n) Headings. The headings used in this Warrant are for the convenience
of reference only and shall not, for any purpose, be deemed a part of this
Warrant.
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     IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officer thereunto duly authorized.
Dated: March 27, 2008

                  ALEXZA PHARMACEUTICALS, INC.    
 
           
 
  By:   /s/ Thomas B. King    
 
     
 
Name: Thomas B. King    
 
      Title: President and Chief Executive Officer    

 

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Exhibit A
Milestones
1. The Company shall establish a subsidiary in Singapore within four weeks of
Closing.
2. The Company shall hire a President of its Singapore subsidiary within four
weeks of Closing.
3. The Company, or its Affiliates or a joint venture of which the Company is
stockholder or member, will accomplish the following activities in the time
periods described:

                  Year   Q1   Q2   Q3   Q4
2008
          Initiate recruitment of General Manager for Singapore Operations  
Create facilities/infrastructure plan for Singapore Operations
2009
  Hire General Manager for Singapore Operations   Complete quality assurance
policy and procedures   Initiate application specific integrated circuit
development activities and design of automated assembly equipment   Complete
transition plan of manual lower housing assembly (LHA) from Valtronic
2010
  Install printed circuit board assembly (PCBA) process and test equipment  
Install LHA automated assembly and test equipment   Complete PCBA manufacturing
process and test equipment   Complete transition from manual LHA manufacturing
process to automated LHA manufacturing process

The satisfaction of the milestones set forth in this Section 3 shall be
determined in good faith by the Company; provided that the Holder shall have
20 days from the end of the applicable period to dispute in writing such
determination if the Holder believes in good faith that the applicable milestone
has not been satisfied (the “Dispute Notice”). If the Holder delivers a Dispute
Notice to the Company, the Holder and Company shall negotiate in good faith to
resolve the dispute. If the dispute cannot be resolved within 14 days from the
receipt by the Company of the Dispute Notice, then the parties shall appoint a
mutually agreeable arbitrator. If the parties cannot agree upon an arbitrator,
an arbitrator shall be appointed from the International Panel members from the
United States of America by the Singapore International Arbitration Centre. The
arbitrator shall determine whether the applicable milestone has been satisfied
and such arbitration shall be binding on both parties and administered by the
Singapore International Arbitration Centre in accordance with the UNCITRAL
Arbitration Rules. If it is determined pursuant to the above procedures that an
applicable milestone has not been satisfied, the Holder may deliver to the
Company a notice of such failure (the “Cure Notice”) within 20 days after such
final determination.

 

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NOTICE OF EXERCISE

TO:   ALEXZA PHARMACEUTICALS, INC.

          (1) The undersigned hereby elects to purchase                     
Warrant Shares of the Company pursuant to the terms of the attached Warrant
(only if exercised in full), and tenders herewith payment of the exercise price
in full, together with all applicable transfer taxes, if any.
          (2) Payment shall take the form of (check applicable box):
o    in lawful money of the United States; or
o    the cancellation of such number of Warrant Shares as is necessary, in
accordance with the formula set forth in Section 2(e), to exercise this Warrant
with respect to the maximum number of Warrant Shares purchasable pursuant to the
cashless exercise procedure set forth in Section 2(e).
          (3) Please issue a certificate or certificates representing said
Warrant Shares in the name of the undersigned or in such other name as is
specified below:

         
 
 
 
   

The Warrant Shares shall be delivered to the following:

         
 
 
 
   
 
       
 
 
 
   
 
       
 
 
 
   

          (4) Accredited Investor. The undersigned represents that the aforesaid
shares 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, all except as in compliance with applicable securities laws. The
undersigned further represents that it is an “accredited investor” as defined in
Rule 501(a) of Regulation D under the Securities Act of 1933, as amended.
[SIGNATURE OF HOLDER]

                  Name of Investing Entity:                           Signature
of Authorized Signatory of Investing Entity:        
 
         
 
    Name of Authorized Signatory:                           Title of Authorized
Signatory:                          
Date: