Exhibit 10.40

 

THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON THE EXERCISE OF THIS SECURITY
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED EXCEPT
(1) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OR
(2) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN
EACH CASE IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES AND
OTHER JURISDICTIONS.

 

LANNETT COMPANY, INC.

 

WARRANT TO PURCHASE COMMON STOCK

 

Number of Shares: 2,500,000

(subject to adjustment)

 

Warrant No. 1

 

Original Issue Date: November 25, 2015

 

Lannett Company, Inc., a Delaware corporation (the “Company”), hereby certifies
that, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, UCB Manufacturing, Inc., a Delaware corporation, or its
permitted registered assigns (the “Holder”), is entitled, subject to the terms
set forth below, to purchase from the Company up to a total of 2,500,000 shares
of common stock, $0.001 par value per share (the “Common Stock”), of the Company
(each such share, a “Warrant Share” and all such shares, the “Warrant Shares”)
at an exercise price per share equal to $48.90 per share (as adjusted from time
to time as provided in Section 9 herein, the “Exercise Price”), upon surrender
of this warrant to purchase Common Stock (including any warrants to purchase
Common Stock issued in exchange, transfer or replacement hereof, the “Warrant”)
at any time and from time to time on or after the date hereof (the “Original
Issue Date”) and through and including 5:30 P.M., New York City time, on the
date that is three (3) years following the Original Issue Date (the “Expiration
Date”), and subject to the following terms and conditions:

 

1.  Definitions. For purposes of this Warrant, the following terms shall have
the following meanings:

 

(a)  “Affiliate” means with respect to a party hereto, any Person that, directly
or indirectly, through one or more intermediaries, controls, is controlled by or
is under common control with such Person.  For purposes of this definition,
“control” and, with correlative meanings, the terms “controlled by” and “under
common control with” as used with respect to a Person means (a) the possession,
directly or indirectly, of the power to direct, or cause the direction of, the
management or policies of such Person, whether through the ownership of voting
securities, by contract relating to voting rights or corporate governance, or
otherwise, or (b) the ownership, directly or indirectly, of more than fifty
percent (50%) of the voting securities or other ownership interest of a Person.

 

(b)  “Commission” means the United States Securities and Exchange Commission and
any successor entity thereto.

 

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(c)  “Closing Sale Price” means, for any security as of any date, the last trade
price for such security on the Principal Trading Market for such security, as
reported by Bloomberg Financial Markets, or, if such Principal Trading Market
begins to operate on an extended hours basis and does not designate the last
trade price, then the last trade price of such security immediately prior to
4:00 P.M., New York City time, as reported by Bloomberg Financial Markets, or if
the foregoing do not apply, the last trade price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg Financial Markets, or, if no last trade price is reported
for such security by Bloomberg Financial Markets, the average of the bid and ask
prices, of any market makers for such security as reported in the “pink sheets”
by Pink Sheets LLC. If the Closing Sale Price cannot be calculated for a
security on a particular date on any of the foregoing bases, the Closing Sale
Price of such security on such date shall be the fair market value as mutually
determined by the Company and the Holder. If the Company and the Holder are
unable to agree upon the fair market value of such security, then the Board of
Directors of the Company shall use its good-faith judgment to determine the fair
market value of such security on such date. The determination of the Board of
Directors shall be binding upon all parties absent demonstrable error. All such
determinations shall be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.

 

(d)  “Person” means any natural person, corporation, firm, joint venture,
partnership, limited liability company, association, enterprise, trust or other
entity or organization, or any government or political subdivision or any
agency, department or instrumentality thereof.

 

(e)  “Principal Trading Market” means the trading market on which the Common
Stock is primarily listed on and quoted for trading, and which, as of the
Original Issue Date shall be The New York Stock Exchange.

 

(f)  “Securities Act” means the Securities Act of 1933, as amended.

 

(g)  “Trading Day” means a day on which the Principal Trading Market is open for
trading.

 

(h)  “Transfer Agent” means Computershare Trust Company, N.A., the Company’s
transfer agent for the Common Stock and the Company or its designee, with
respect to the Warrants.

 

2.  Registration of Warrants. The Company shall, or shall cause its Transfer
Agent to, register this Warrant upon records to be maintained by the Company or
Transfer Agent for that purpose (the “Warrant Register”) in the name of the
record 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 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.

 

3.  Registration of Transfers. Subject to compliance with all applicable
securities laws, the Company shall, or shall cause its Transfer Agent to,
register the transfer of all or any portion of this Warrant in the Warrant
Register, upon surrender of this Warrant, and payment of all applicable transfer
taxes. Upon any such registration of transfer, a new warrant to purchase

 

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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 thereof shall be
deemed the acceptance by such transferee of all of the rights and obligations in
respect of the New Warrant that the Holder had in respect of this Warrant. The
Company shall, or shall cause its Transfer Agent to, prepare, issue and deliver
at the Company’s own expense any New Warrant under this Section 3. Until due
presentment for registration of transfer, the Company may treat the registered
Holder hereof as the owner and holder of this Warrant for all purposes, and the
Company shall not be affected by any notice to the contrary.

 

4.  Exercise and Duration of Warrants.

 

(a)  All or any part of this Warrant shall be exercisable by the registered
Holder in the manner set forth in Section 4(b) below at any time and from time
to time on or after the Original Issue Date and through and including 5:30
P.M. New York City time, on the Expiration Date. At 5:30 P.M., New York City
time, on the Expiration Date, the portion of this Warrant not exercised prior
thereto shall be void and of no value and this Warrant shall terminate and no
longer be outstanding.

 

(b)  The Holder may exercise this Warrant by delivering to the Company (i) an
exercise notice, in the form attached as Schedule 1 hereto (the “Exercise
Notice”), completed and duly signed, and (ii) payment of the Exercise Price (in
the form so indicated by the Holder on the Exercise Notice) for the number of
Warrant Shares as to which this Warrant is being exercised (which may take the
form of a “net share exercise” if so indicated in the Exercise Notice pursuant
to Section 10 below), and the date on which the last of such items is delivered
to the Company (as determined in accordance with the notice provisions hereof)
is an “Exercise Date.” If held in certificated form, the Holder shall be
required to deliver the original Warrant in order to effect an exercise
hereunder. Execution and delivery of the Exercise Notice shall have the same
effect as cancellation of the original Warrant and issuance of a New Warrant to
the Holder evidencing its right to purchase the remaining number of Warrant
Shares. For the avoidance of doubt, the Company may not substitute, and the
Holder may not request, a cash payment in satisfaction of the Company’s
obligation to issue and deliver Warrant Shares pursuant to an Exercise Notice,
other than as specified in Section 9(c) or Section 11 of this Warrant.

 

5.  Delivery of Warrant Shares.

 

(a)  Upon exercise of this Warrant, the Company shall promptly (but in no event
later than three (3) Trading Days after the Exercise Date), upon the request of
the Holder, (i) credit such aggregate number of shares of Common Stock to which
the Holder is entitled pursuant to such exercise to the Holder’s or its
designee’s account with The Depository Trust Company (“DTC”) through its Deposit
Withdrawal Agent Commission system, or (ii) issue and dispatch by overnight
courier to the address as specified in the Exercise Notice, a certificate,
registered in the Company’s share register in the name of the Holder or its
designee, for the number of shares of Common Stock to which the Holder is
entitled pursuant to such exercise; provided that, if the exercise occurs at a
time when there is no registration statement in effect registering the sale of
the Warrant Shares

 

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issued upon such exercise under the Securities Act, the Holder shall request
certificated shares pursuant to the foregoing clause (ii). The Holder, or any
Person permissibly so designated by the Holder to receive Warrant Shares, shall
be deemed to have become the holder of record of such Warrant Shares as of the
Exercise Date, irrespective of the date such Warrant Shares are credited to the
Holder’s DTC account or the date of delivery of the certificates evidencing such
Warrant Shares, as the case may be.

 

(b)  Any stock certificate representing any Warrant Shares issued upon the
exercise of this Warrant for which a registration statement registering the sale
of such Warrant Shares under the Securities Act is not then in effect shall bear
a restrictive legend in substantially the following form: “THE SECURITIES
EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE
OR OTHER JURISDICTION. THE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO (1) AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OR (2) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT, IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE
STATES AND OTHER JURISDICTIONS, AND IN THE CASE OF A TRANSACTION EXEMPT FROM
REGISTRATION, UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO IT THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION UNDER THE
SECURITIES ACT AND SUCH OTHER APPLICABLE LAWS.”

 

(c)  To the extent permitted by law, the Company’s obligations to issue and
deliver Warrant Shares in accordance with and subject to the terms hereof are
absolute and unconditional, irrespective of any action or inaction by the Holder
to enforce the same, any waiver or consent with respect to any provision hereof,
the recovery of any judgment against any Person or any action to enforce the
same, or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other Person of any obligation to
the Company or any violation or alleged violation of law by the Holder or any
other Person, and irrespective of any other circumstance that might otherwise
limit such obligation of the Company to the Holder in connection with the
issuance of Warrant Shares. Nothing herein shall limit the Holder’s right to
pursue any other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company’s failure to timely deliver
certificates representing shares of Common Stock upon exercise of the Warrant as
required pursuant to the terms hereof.

 

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 stock transfer, documentary, stamp and similar
taxes or transfer agent fees or expense that may be payable in respect of the
issuance of such certificates, all of which taxes and expenses shall be paid by
the Company; provided, however, that the Company shall not be required to pay
any tax or expense that may be payable in respect of any transfer involved in
the registration of any certificates for Warrant Shares or the Warrants in a
name other than that of the Holder or an Affiliate thereof and the Company shall
not be required to make any such issuance or delivery unless and until the
Person otherwise entitled to such issuance or delivery has paid to the

 

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Company the amount of any such tax or has established, to the reasonable
satisfaction of the Company, that such tax has been paid or is not payable. The
Holder shall be responsible for all other tax liability (including all U.S.
federal, state or local or non-U.S. income taxes payable by a Holder) or
expenses that may arise as a result of holding or transferring this Warrant or
receiving Warrant Shares upon exercise hereof.  All payments and distributions
(or deemed distributions) on the Warrants shall be subject to withholding and
backup withholding of tax to the extent required by law, subject to applicable
exemptions, and amounts withheld, if any, shall be treated as having been paid
to the Holder in respect of which such withholding was made.

 

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 (in such case)
and, in each case, a customary and reasonable indemnity and surety bond, if
requested by the Company. Applicants for a New Warrant under such circumstances
shall also comply with such other reasonable regulations and procedures and pay
such other reasonable third-party costs as the Company may prescribe. If a New
Warrant is requested as a result of a mutilation of this Warrant, then the
Holder shall deliver such mutilated Warrant to the Company as a condition
precedent to the Company’s obligation to issue the New Warrant.

 

8.  Reservation of Warrant Shares. The Company covenants that it will at all
times while this Warrant is outstanding 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 that are initially
issuable and deliverable upon the exercise of this entire 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);
provided that nothing in this Section 8 shall preclude the Company from
satisfying its obligations in respect of the exercise of this Warrant by
delivery of shares of Common Stock that are held in the treasury of the Company.
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, and fully paid
and nonassessable. The Company will take all such action as may be reasonably
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 its Common Stock, that is payable in shares of Common
Stock, (ii) subdivides its outstanding shares of Common Stock into a larger
number of shares of Common Stock, (iii) combines or otherwise reclassifies its
outstanding shares of Common Stock into a smaller number of shares of Common
Stock or (iv) issues by reclassification of shares of capital stock any
additional shares of Common Stock of the Company, then in each such case the
Exercise Price (as in effect at the time of the record date for such dividend or
distribution or the effective date of such subdivision,

 

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combination, or reclassification) shall be adjusted to the price determined by
multiplying such Exercise Price by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding immediately before such event
and the denominator of which 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 stockholders 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 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. Any adjustment
pursuant to clause (ii), (iii) or (iv) of this paragraph shall become effective
immediately after the effective date of such subdivision, combination or
reclassification.

 

(b)  Pro Rata Distributions. If the Company, at any time while this Warrant is
outstanding, distributes to all holders of Common Stock for no consideration
(i) evidences of its indebtedness, (ii) any security (other than a distribution
of Common Stock covered by the preceding paragraph), (iii) rights or warrants to
subscribe for or purchase any security, or (iv) any other asset (in each case,
“Distributed Property”), then, in each such case the Exercise Price (as in
effect at the time of the record date for such distribution) shall be reduced to
an Exercise Price equal to the quotient obtained by dividing: (x) an amount
equal to the difference resulting from (1) the number of shares of Common Stock
outstanding on such record date multiplied by the Exercise Price on such record
date, less (2) the Fair Market Value of such Distributed Property, by (y) the
number of shares of Common Stock outstanding on such record date.  Any
adjustment made pursuant to this paragraph shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such distribution, provided, however, that if such record date shall have been
fixed and 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 distribution. For purposes of this
Section 9(b), “Fair Market Value” means, with respect to any Distributed
Property, the market price (as reflected on any securities exchange, quotation
system or association or similar pricing system covering such security) for such
securities as of the end of business on the date of the distribution of such
Distributed Property; provided, that if the market price cannot be determined
based on the preceding clause, “Fair Market Value” shall mean with respect to
any Distributed Property the fair value of such Distributed Property, determined
in good faith by the Board of Directors of the Company.

 

(c)  Issuance of Securities for Consideration Below the Applicable Price. If the
Company shall, at any time while this Warrant is outstanding, issue or sell any
shares of Common Stock without consideration or for consideration per share less
than 93% of the Closing Sale Price of shares of Common Stock in effect
immediately prior to the pricing of such issuance or sale (the “Applicable
Price”), or securities exercisable or convertible into, or exchangeable for,
shares of Common Stock with an exercise, conversion or exchange price less than
the Applicable Price (excluding (x) any issuances of shares of Common Stock
covered by Section 9(a) above and (y) any issuances or sales of shares of Common
Stock pursuant to options granted prior to the Original Issue Date or granted

 

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pursuant to any of the Company’s long-term incentive plans), then immediately
upon such issuance or sale, then in each such case the Exercise Price in effect
immediately prior to such issuance or sale shall be reduced (and in no event
increased) to an Exercise Price equal to the quotient obtained by dividing:
(i) the product of (A) the Exercise Price in effect immediately prior to such
issuance or sale multiplied by (B) the sum of (I) the number of shares of Common
Stock actually outstanding immediately prior to such issuance or sale plus
(II) the number of shares of Common Stock that the aggregate gross proceeds, if
any, received by the Company (as determined in good faith by the Board of
Directors of the Company) upon such issuance or sale would purchase at the
Applicable Price, or, if applicable, the aggregate number of shares of Common
Stock issuable upon the exercise, conversion or exchange of securities
exercisable or convertible into, or exchangeable for, shares of Common Stock; by
(ii) the sum of (A) the number of shares of Common Stock actually outstanding
immediately prior to such issuance or sale plus (B) the aggregate number of
shares of Common Stock issued or sold by the Company in such issuance or sale
or, if applicable, the aggregate number of shares of Common Stock issuable upon
the exercise, conversion or exchange of securities exercisable or convertible
into, or exchangeable for, shares of Common Stock.

 

(d)  Fundamental Transactions. If, at any time while this Warrant is outstanding
(i) the Company effects any merger or consolidation of the Company with or into
another Person, in which the Company is not the surviving entity or the
stockholders of the Company immediately prior to such merger or consolidation do
not own, directly or indirectly, at least 50% of the voting power of the
surviving entity immediately after such merger or consolidation, (ii) the
Company effects any sale to another Person of all or substantially all of its
assets in one or a series of related transactions, (iii) pursuant to any tender
offer or exchange offer (whether by the Company or another Person), holders of
capital stock who tender shares representing more than 50% of the voting power
of the capital stock of the Company and the Company or such other Person, as
applicable, accepts such tender for payment, (iv) the Company consummates a
stock purchase agreement or other business combination (including, without
limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person whereby such other Person acquires more than
the 50% of the voting power of the capital stock of the Company or (v) 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 (other than as a result of a
subdivision or combination of shares of Common Stock covered by
Section 9(a) above) (in any such case, a “Fundamental Transaction”), then
following such Fundamental Transaction the Holder shall have the right to
receive, upon exercise of this Warrant, the same amount and kind of securities,
cash or property as it would have been entitled to receive upon the occurrence
of such Fundamental Transaction if it had been, immediately prior to such
Fundamental Transaction, the holder of the number of Warrant Shares then
issuable upon exercise in full of this Warrant without regard to any limitations
on exercise contained herein (the “Alternate Consideration”). The Company shall
not effect any Fundamental Transaction in which the Company is not the surviving
entity or the Alternate Consideration includes securities of another Person
unless prior to or simultaneously with the consummation thereof, any successor
to the Company, surviving entity or other Person (including any purchaser of
assets of the Company) shall

 

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assume the obligation to deliver to the Holder, such Alternate Consideration as,
in accordance with the foregoing provisions, the Holder may be entitled to
receive, and the other obligations under this Warrant.

 

(e)  Number of Warrant Shares. Simultaneously with any adjustment to the
Exercise Price pursuant to paragraph (a) or (b) of this Section 9, 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. Simultaneously with any adjustment of the
Exercise Price pursuant to paragraph (c) of this Section 9, the number of
Warrant Shares that may be purchased upon exercise of this Warrant shall be
increased (and in no event decreased) to a number of Warrant Shares equal to the
quotient obtained by dividing: (i) the product of (A) the Exercise Price in
effect immediately prior to any such adjustment multiplied by (B) the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to any
such adjustment; by (ii) the Exercise Price resulting from such adjustment.

 

(f)  Calculations. All calculations under this Section 9 shall be made to the
nearest cent or the nearest share, as applicable.

 

(g)  Notice of Adjustments. Upon the occurrence of each adjustment pursuant to
this Section 9, the Company at its expense will, at the written request of the
Holder, promptly compute such adjustment, in good faith, 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 detail the facts upon which such adjustment is based. Upon written
request, the Company will promptly deliver a copy of each such certificate to
the Holder and to the Transfer Agent.

 

(h)  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, (ii) enters into any material definitive
agreement contemplating or files a proxy statement to solicit stockholder
approval for any Fundamental Transaction or (iii) authorizes the voluntary
dissolution, liquidation or winding up of the affairs of the Company, then,
except if such notice and the contents thereof shall be deemed to constitute
material non-public information, the Company shall deliver to the Holder a
notice of such transaction at least ten (10) days prior to the applicable record
or effective date on which a Person 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
legality or the validity of the corporate action required to be described in
such notice. In addition, if while this Warrant is outstanding, if the Company
enters into any material definitive agreement contemplating or files a proxy
statement to solicit stockholder approval for any Fundamental Transaction
contemplated by Section 9(c), other than a Fundamental Transaction under clause
(iii) of Section 9(c), the Company shall deliver to the Holder a notice of such

 

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Fundamental Transaction at least fifteen (15) days prior to the date such
Fundamental Transaction is consummated; provided, however, that the failure to
deliver such notice or any defect therein shall not affect the legality or the
validity of such Fundamental Transaction or the consummation thereof. To the
extent that any notice provided hereunder constitutes, or contains, material,
non-public information regarding the Company or any of its subsidiaries, the
Holder, by its acceptance hereof, agrees that it shall keep such information
confidential until the Company shall have made public disclosure of such notice
(which disclosure may include the furnishing or filing with the Commission of a
Current Report on Form 8-K).

 

10.  Payment of Exercise Price. Notwithstanding anything contained herein to the
contrary, the Holder may, in its sole discretion, satisfy its obligation to pay
the Exercise Price through a “net share exercise”, in which event the Company
shall issue to the Holder the number of Warrant Shares determined as follows:

 

X = Y [(A-B)/A]

 

where:

 

“X” equals the number of Warrant Shares to be issued to the Holder;

 

“Y” equals the total number of Warrant Shares with respect to which this Warrant
is then being exercised;

 

“A” equals the average of the Closing Sale Prices of the shares of Common Stock
for the five (5) consecutive Trading Days ending on the date immediately
preceding the Exercise Date; and

 

“B” equals the Exercise Price then in effect for the applicable Warrant Shares
at the time of such exercise.

 

For purposes of Rule 144 promulgated under the Securities Act, the Company and
the Holder intend that the Warrant Shares issued in a “net share exercise”
transaction shall be deemed to have been acquired by the Holder, and the holding
period for the Warrant Shares shall be deemed to have commenced, on the date
this Warrant was originally acquired by the Holder (provided that the Commission
continues to take the position that such treatment is proper at the time of such
exercise).

 

11.  No Fractional Shares. No fractional Warrant Shares will be issued in
connection with any exercise of this Warrant. In lieu of any fractional shares
that would otherwise be issuable, the number of Warrant Shares to be issued
shall be rounded down to the next whole number and the Company shall pay the
Holder in cash the fair market value (based on the Closing Sale Price) for any
such fractional shares.

 

12.  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 or
confirmed e-mail at the facsimile number or e-mail address specified in the
books and records of the Transfer Agent prior to 5:30 P.M., New York City time,
on a Trading Day (with, in the case of e-mail, a copy mailed concurrently in the
manner provided in clause (iii)), (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile or
confirmed e-mail at the facsimile number

 

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or e-mail address specified in the books and records of the Transfer Agent on a
day that is not a Trading Day or later than 5:30 P.M., New York City time, on
any Trading Day (with, in the case of e-mail, a copy mailed concurrently in the
manner provided in clause (iii)), (iii) the Trading Day following the date of
mailing, if sent by nationally recognized overnight courier service specifying
next business day delivery, to the address indicated below or (iv) upon actual
receipt by the Person to whom such notice is required to be given, if by hand
delivery.

 

13.  Warrant Agent. The Transfer Agent shall serve as warrant agent under this
Warrant. Upon thirty (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 shareholders 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.

 

14.  Miscellaneous.

 

(a)  No Rights as a Stockholder. The Holder, solely in such Person’s capacity as
a holder of this Warrant, shall not be entitled to vote or receive dividends or
be deemed the holder of share capital of the Company for any purpose, nor shall
anything contained in this Warrant be construed to confer upon the Holder,
solely in such Person’s capacity as the Holder of this Warrant, any of the
rights of a stockholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, amalgamation, conveyance or
otherwise), receive notice of meetings, receive dividends or subscription
rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares
which such Person is then entitled to receive upon the due exercise of this
Warrant. In addition, nothing contained in this Warrant shall be construed as
imposing any liabilities on the Holder to purchase any securities (upon exercise
of this Warrant or otherwise) or as a stockholder of the Company, whether such
liabilities are asserted by the Company or by creditors of the Company.

 

(b)  Information Rights. For so long as the Company is required to file periodic
reports with the Commission, the Company shall deliver to the Holder all
quarterly and annual financial information that is required to be contained in a
filing with the Commission on Form 10-Q and Form 10-K, including a “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and,
with respect to the annual information only, a report on the annual financial
statements by the Company’s independent accountants.  The filing of such
periodic reports with the Commission shall constitute valid delivery of such
reports to the Holder hereunder.

 

(c)  Authorized Shares.

 

(i) Except and to the extent as waived or consented to by the Holder, the
Company shall not by any action, including, without limitation, amending its
articles of incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all

 

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times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of Holder as set forth in this Warrant against impairment. Without
limiting the generality of the foregoing, the Company will (a) not increase the
par value of any Warrant Shares above the amount payable therefor upon such
exercise immediately prior to such increase in par value, (b) take all such
action as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable Warrant Shares upon the exercise
of this Warrant and (c) use commercially reasonable efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its
obligations under this Warrant.

 

(ii) Before taking any action which would result in an adjustment in the number
of Warrant Shares for which this Warrant is exercisable or in the Exercise
Price, the Company shall obtain all such authorizations or exemptions thereof,
or consents thereto, as may be necessary from any public regulatory body or
bodies having jurisdiction thereof in order that the Company may thereafter
validly and legally issue fully paid and nonassessable Warrant Shares upon the
exercise of this Warrant.

 

(d)  Successors and Assigns. Subject to the restrictions on transfer set forth
in this Warrant and compliance with applicable securities laws, this Warrant may
be assigned by the Holder. This Warrant may not be assigned by the Company
without the written consent of the Holder except to a successor in the event of
a Fundamental Transaction. This Warrant shall be binding on and inure to the
benefit of the Company and the Holder and their respective successors and
assigns (as applicable). Subject to the preceding sentence, nothing in this
Warrant shall be construed to give to any Person other than the Company and the
Holder any legal or equitable right, remedy or cause of action under this
Warrant.

 

(e)  Amendment and Waiver. Except as otherwise provided herein, the provisions
of the Warrants may be amended and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company has obtained the written consent of the Holders of Warrants
representing no less than a majority of the Warrant Shares obtainable upon
exercise of the Warrants then outstanding.

 

(f)  Acceptance. Receipt of this Warrant by the Holder shall constitute
acceptance of and agreement to all of the terms and conditions contained herein.

 

(g)  Governing Law; Jurisdiction. 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
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF. EACH OF THE
COMPANY AND THE HOLDER HEREBY IRREVOCABLY 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

 

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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 ANY SUCH COURT. NOTHING CONTAINED HEREIN SHALL BE
DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY
LAW. EACH OF THE COMPANY AND THE HOLDER HEREBY WAIVES ALL RIGHTS TO A TRIAL BY
JURY.

 

(h)  Headings. 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.

 

(i)  Severability. In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby, and the Company and the Holder will
attempt in good faith to agree upon a valid and enforceable provision which
shall be a commercially reasonable substitute therefor, and upon so agreeing,
shall incorporate such substitute provision in this Warrant.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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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.

 

 

LANNETT COMPANY, INC.

 

 

 

 

 

By:

/s/ Arthur P. Bedrosian

 

 

 

Name: Arthur P. Bedrosian

 

 

 

Title:  Chief Executive Officer

 

[Signature Page to Lannett Warrant]

 

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Schedule 1

 

NOTICE OF EXERCISE

 

TO:         LANNETT COMPANY, INC.

 

The undersigned Holder hereby exercises the right to purchase                  
shares of Common Stock (“Warrant Shares”) of Lannett Company, Inc., a Delaware
corporation (the “Company”), evidenced by Warrant No.         (the “Warrant”).
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Warrant.

 

1.             Form of Exercise Price. The Holder intends that payment of the
Exercise Price shall be made as:

 

a “cash exercise” with respect to                Warrant Shares; and/or

 

a “net share exercise” pursuant to Section 10 of the Warrant with respect to
                Warrant Shares.

 

Warrant Shares shall be issued in the name of the undersigned Holder or in such
other name as is specified below:

 

 

 

2.             Payment of Exercise Price: Cash Exercise. In the event that the
Holder has elected a “cash exercise” with respect to some or all of the Warrant
Shares, the Holder shall pay the Exercise Price in the sum of
$                    to the Company in accordance with the terms of the Warrant.

 

3.             Payment of Exercise Price: Net Share Exercise. In the event that
the Holder has elected a net share exercise with respect to some or all of the
Warrant Shares, the Holder represents and warrants that the average of the
Closing Sale Prices of the shares of Common Stock (as reported by Bloomberg
Financial Markets) for the five (5) consecutive Trading Days ending on the date
immediately preceding the Exercise Date is $           . The calculation of the
number of Warrant Shares to be issued in accordance with Section 10 of the
Warrant is as follows:

 

4.             Delivery of Warrant Shares. The Company shall cause the Warrant
Agent to deliver to Holder, or its designee or agent as specified above,
           shares of Common Stock in respect of the exercise contemplated
hereby. The Warrant Shares shall be delivered to the following DWAC Account
Number or by physical delivery of a certificate to:

 

 

 

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Fill in if the undersigned would like to receive shares in book-entry form:

 

DTC Participant Name:

DTC Participant Number:

 

 

Date:                     ,       

 

Name of Registered Holder

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

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