Exhibit No. 10.3

 

Schedule Required by Instruction 2 to Item 601
of Regulation S-K

 

The Warrants are substantially identical in all material respects except as to
the parties thereto, the amount of Warrant Shares and the inclusion of the
bracketed language in Section 3.

 

Party

 

Amount of Warrant
Shares

 

Bracketed language
in Section 3

 

14159, L.P.

 

113,874

 

yes

 

Baker Biotech Fund II (Z), L.P.

 

54,481

 

yes

 

Baker Biotech Fund III, L.P.

 

1,525,130

 

yes

 

Baker Biotech Fund III (Z), L.P.

 

264,874

 

yes

 

Baker Bros. Investments II, L.P.

 

41,641

 

yes

 

Biotechnology Value Fund, L.P.

 

336,000

 

yes

 

Biotechnology Value Fund II, L.P.

 

229,800

 

yes

 

BVF Investments, L.L.C.

 

833,100

 

yes

 

Investment 10, L.L.C.

 

101,100

 

yes

 

Fort Mason Master, L.P.

 

1,408,650

 

yes

 

Fort Mason Partners, L.P.

 

91,350

 

yes

 

Capital Ventures International

 

1,000,000

 

yes

 

Merlin BioMed Long Term Appreciation, LP

 

175,000

 

yes

 

Merlin BioMed Offshore Master Fund

 

325,000

 

yes

 

Special Situations Cayman Fund, L.P.

 

350,000

 

no

 

Special Situations Fund III, L.P.

 

100,000

 

no

 

Special Situations Fund III QP, L.P.

 

1,200,000

 

no

 

Special Situations Life Sciences Fund, L.P.

 

350,000

 

no

 

Special Situations Private Equity Fund, L.P.

 

500,000

 

no

 

IRA FBO Chung W. Kong DB Securities Inc. Custodian Roth Conversion Account

 

10,000

 

yes

 

IRA FBO Chang L. Kong DB Securities Inc. Custodian Roth Conversion Account

 

10,000

 

yes

 

Tang Capital Partners, LP

 

1,705,000

 

yes

 

Kevin C. Tang as Custodian for Julian Kong Tang Under the CA Transfer to Minors
Act

 

35,000

 

yes

 

Kevin C. Tang as Custodian for Justin Lee Tang Under the CA Transfer to Minors
Act

 

50,000

 

yes

 

Kevin C. Tang as Custodian for Noa Young Tang Under the CA Transfer to Minors
Act

 

15,000

 

yes

 

Kevin Tang and Haeyoung Tang Trustees The Tang Family Trust Dated 8-27-02

 

150,000

 

yes

 

IRA FBO Kevin Tang DB Securities Inc. Custodian Rollover Account

 

25,000

 

yes

 

 

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Versant Capital Management LLC

 

750,000

 

yes

 

Xmark JV Investment Partners, LLC

 

500,000

 

yes

 

Xmark Opportunity Fund, L.P.

 

225,000

 

yes

 

Xmark Opportunity Fund, Ltd.

 

275,000

 

yes

 

 

2

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THE SECURITIES REPRESENTED HEREBY MAY NOT BE TRANSFERRED UNLESS (I) SUCH
SECURITIES HAVE BEEN REGISTERED FOR SALE PURSUANT TO THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), (II) SUCH SECURITIES
MAY BE SOLD PURSUANT TO RULE 144(K) OF THE SECURITIES ACT, OR (III) THE COMPANY
HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH
TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OR
QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS.

 

SUBJECT TO THE PROVISIONS OF SECTION 10 HEREOF, THIS WARRANT SHALL BE VOID AFTER
5:00 P.M. EASTERN TIME ON THE FIFTH ANNIVERSARY (THE “EXPIRATION DATE”) OF THE
DATE OF ISSUANCE OF THIS WARRANT (THE “DATE OF ISSUANCE”).

 

No.        

 

 

TAPESTRY PHARMACEUTICALS, INC.

 

WARRANT TO PURCHASE         SHARES OF

COMMON STOCK, PAR VALUE $0.0075 PER SHARE

 

For VALUE RECEIVED,                         (“Warrantholder”), is entitled to
purchase, subject to the provisions of this Warrant, from Tapestry
Pharmaceuticals, Inc., a Delaware corporation (“Company”), at any time not later
than 5:00 P.M., Eastern time, on the Expiration Date (as defined above), at an
exercise price per share equal to $2.40 (the exercise price in effect being
herein called the “Warrant Price”),                           (“Warrant Shares”)
of the Company’s Common Stock, par value $0.0075 per share (“Common Stock”). 
The number of Warrant Shares purchasable upon exercise of this Warrant and the
Warrant Price shall be subject to adjustment from time to time as described
herein.

 

Section 1.       Registration.  The Company shall maintain books for the
transfer and registration of this Warrant.  Upon the initial issuance of this
Warrant, the Company shall issue and register this Warrant in the name of the
Warrantholder.

 

Section 2.       Transfers.  As provided herein, this Warrant may be transferred
only pursuant to a registration statement filed under the Securities Act or
pursuant to an exemption from such registration.  Subject to such restrictions,
the Company shall transfer this Warrant from time to time upon the books to be
maintained by the Company for that purpose, within five calendar days following
the surrender hereof for transfer, properly endorsed or accompanied by
appropriate instructions for transfer and such other documents as may be
reasonably required by the Company, including, if required by the Company, an
opinion of counsel to the transferor to the effect that such transfer is exempt
from the registration requirements of the Securities Act, to establish that such
transfer is being made in accordance with the terms hereof, and a new Warrant
shall be issued to the transferee and the surrendered Warrant shall be canceled
by the

 

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Company within such five calendar day period; provided that the Company shall
advise the Warrantholder in writing of any and all documentation (including the
form and substance of any instruction for transfer) that the Company requires to
effectuate such transfer within five calendar days of receipt by the Company of
a written request by the Warrantholder with respect thereto.

 

Section 3.       Exercise of Warrant.  Subject to the provisions hereof, the
Warrantholder may exercise this Warrant, in whole or in part, at any time prior
to its expiration upon surrender of this Warrant, together with delivery of a
duly executed Warrant exercise form, in the form attached hereto as Appendix A
(the “Exercise Agreement”) and payment by cash, certified check or wire transfer
of funds (or, in certain circumstances, by cashless exercise as provided below)
of  the aggregate Warrant Price for that number of Warrant Shares then being
purchased, to the Company during normal business hours on any business day at
the Company’s principal executive offices (or such other office or agency of the
Company as it may designate by notice to the Warrantholder).  The Warrant Shares
so purchased shall be deemed to be issued to the Warrantholder or the
Warrantholder’s designee, as the record owner of such shares, as of the close of
business on the date on which this Warrant shall have been surrendered (or the
date evidence of loss, theft or destruction thereof and security or indemnity
satisfactory to the Company has been provided to the Company), the Warrant Price
shall have been paid and the completed Exercise Agreement shall have been
delivered.  Certificates for the Warrant Shares so purchased shall be delivered
to the Warrantholder within a reasonable time, not exceeding three (3) business
days, after this Warrant shall have been so exercised.  The certificates so
delivered shall be in such denominations as may be requested by the
Warrantholder and shall be registered in the name of the Warrantholder or such
other name as shall be designated by the Warrantholder, as specified in the
Exercise Agreement.  If this Warrant shall have been exercised only in part,
then, unless this Warrant has expired, the Company shall, at its expense, at the
time of delivery of such certificates, deliver to the Warrantholder a new
Warrant representing the right to purchase the number of shares with respect to
which this Warrant shall not then have been exercised.  As used herein,
“business day” means a day, other than a Saturday or Sunday, on which banks in
New York City are open for the general transaction of business.  Each exercise
hereof shall constitute the re-affirmation by the Warrantholder that the
representations and warranties contained in Section 5 of the Purchase Agreement
(as defined below) are true and correct in all material respects with respect to
the Warrantholder as of the time of such exercise.  [Notwithstanding anything to
the contrary contained herein, the number of Warrant Shares that may be acquired
by the Warrantholder upon any exercise of this Warrant (or otherwise in respect
hereof) shall be limited to the extent necessary to insure that, following such
exercise (or other issuance), the total number of shares of Common Stock then
beneficially owned by such Warrantholder and its Affiliates and any other
Persons (each as defined in the Purchase Agreement) whose beneficial ownership
of Common Stock would be aggregated with the Warrantholder’s for purposes of
Section 13(d) of the United States Securities Exchange Act of 1934, as amended
(the “Exchange Act”), does not exceed 9.999% (the “Maximum Percentage”) of the
total number of issued and outstanding shares of Common Stock (including for
such purpose the shares of Common Stock issuable upon such exercise).  For such
purposes, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder.  Each delivery of an Exercise Agreement hereunder will constitute an
Exercise Agreement for the lesser of (i) the full number of Warrant

 

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Shares requested in such Exercise Agreement or (ii) such number of Warrant
Shares giving effect to the limitation set forth in the foregoing sentences. 
The Company and the Warrantholder shall cooperate to determine the effect of the
limitations set forth herein.  The Company’s right and obligation to issue
shares of Common Stock in excess of the limitation referred to in this Section 3
shall be suspended (and, except as provided below, shall not terminate or expire
notwithstanding any contrary provisions hereof) until such time, if any, as such
shares of Common Stock may be issued in compliance with such limitation;
provided that, if, as of 5:00 p.m., Eastern time, on the Expiration Date, the
Company has not received written notice that the shares of Common Stock may be
issued in compliance with such limitation, the Company’s obligation to issue
such shares shall terminate.  This provision shall not restrict the number of
shares of Common Stock which a Warrantholder may receive or beneficially own in
order to determine the amount of securities or other consideration that such
Warrantholder may receive in the event of a transaction of the type contemplated
in Section 8(b) of this Warrant.  The restrictions set forth in this Section 3
may be waived by the Warrantholder upon not less than 61 days’ written notice to
the Company.]

 

Section 4.       Compliance with the Securities Act of 1933. Except as provided
in the Purchase Agreement (as defined below), the Company may cause the legend
set forth on the first page of this Warrant to be set forth on each Warrant, and
a similar legend on any security issued or issuable upon exercise of this
Warrant, unless counsel for the Company is of the opinion as to any such
security that such legend is unnecessary.

 

Section 5.       Payment of Taxes.  The Company will pay any documentary stamp
taxes attributable to the initial issuance of Warrant Shares issuable upon the
exercise of this Warrant; provided, however, that the Company shall not be
required to pay any tax or taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any certificates for Warrant Shares in a
name other than that of the Warrantholder in respect of which such shares are
issued, and in such case, the Company shall not be required to issue or deliver
any certificate for Warrant Shares or any Warrant until the person requesting
the same has paid to the Company the amount of such tax or has established to
the Company’s reasonable satisfaction that such tax has been paid.  The
Warrantholder shall be responsible for income taxes due under federal, state or
other law, if any such tax is due.

 

Section 6.       Mutilated or Missing Warrants.  In case this Warrant shall be
mutilated, lost, stolen, or destroyed, the Company shall issue in exchange and
substitution of and upon surrender and cancellation of the mutilated Warrant, or
in lieu of and substitution for this Warrant lost, stolen or destroyed, a new
Warrant of like tenor and for the purchase of a like number of Warrant Shares,
but only upon receipt of evidence reasonably satisfactory to the Company of such
loss, theft or destruction of this Warrant, and with respect to a lost, stolen
or destroyed Warrant, reasonable indemnity or bond with respect thereto, if
requested by the Company.

 

Section 7.       Reservation of Common Stock.  The Company hereby represents and
warrants that there have been reserved, and the Company shall at all applicable
times keep reserved until issued (if necessary) as contemplated by this
Section 7, out of the authorized and unissued shares of Common Stock, sufficient
shares to provide for the exercise of the rights of

 

5

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purchase represented by this Warrant.  The Company agrees that all Warrant
Shares issued upon due exercise of this Warrant shall be, at the time of
delivery of the certificates for such Warrant Shares, duly authorized, validly
issued, fully paid and non-assessable shares of Common Stock of the Company.

 

Section 8.       Adjustments.  Subject and pursuant to the provisions of this
Section 8, the Warrant Price and number of Warrant Shares subject to this
Warrant shall be subject to adjustment from time to time as set forth
hereinafter.

 

(a)   If the Company shall, at any time or from time to time while this Warrant
is outstanding, pay a dividend or make a distribution on its Common Stock in
shares of Common Stock, subdivide its outstanding shares of Common Stock into a
greater number of shares or combine its outstanding shares of Common Stock into
a smaller number of shares or issue by reclassification of its outstanding
shares of Common Stock any shares of its capital stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation), then the number of Warrant Shares
purchasable upon exercise of this Warrant and the Warrant Price in effect
immediately prior to the date upon which such change shall become effective,
shall be adjusted by the Company so that the Warrantholder thereafter exercising
this Warrant shall be entitled to receive the number of shares of Common Stock
or other capital stock which the Warrantholder would have received if this
Warrant had been exercised immediately prior to such event upon payment of a
Warrant Price that has been adjusted to reflect a fair allocation of the
economics of such event to the Warrantholder.  Such adjustments shall be made
successively whenever any event listed above shall occur.

 

(b)   If any capital reorganization, reclassification of the capital stock of
the Company, consolidation or merger of the Company with another corporation in
which the Company is not the survivor, or sale, transfer or other disposition of
all or substantially all of the Company’s assets to another corporation shall be
effected, then, as a condition of such reorganization, reclassification,
consolidation, merger, sale, transfer or other disposition, lawful and adequate
provision shall be made whereby each Warrantholder shall thereafter have the
right to purchase and receive upon the basis and upon the terms and conditions
herein specified and in lieu of the Warrant Shares immediately theretofore
issuable upon exercise of this Warrant, such shares of stock, securities or
assets as would have been issuable or payable with respect to or in exchange for
a number of Warrant Shares equal to the number of Warrant Shares immediately
theretofore issuable upon exercise of this Warrant, had such reorganization,
reclassification, consolidation, merger, sale, transfer or other disposition not
taken place, and in any such case appropriate provision shall be made with
respect to the rights and interests of each Warrantholder to the end that the
provisions hereof (including, without limitation, provision for adjustment of
the Warrant Price) shall thereafter be applicable, as nearly equivalent as may
be practicable in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof.  The Company shall not effect
any such consolidation, merger, sale, transfer or other disposition unless prior
to or simultaneously with the consummation thereof the successor corporation (if
other than the Company) resulting from such consolidation or merger, or the
corporation purchasing or otherwise acquiring such assets or other appropriate
corporation or entity shall assume the obligation to deliver to the
Warrantholder, at the last address of the Warrantholder appearing on the books
of the Company, such shares of stock, securities or assets as, in

 

6

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accordance with the foregoing provisions, the Warrantholder may be entitled to
purchase, and the other obligations under this Warrant.  The provisions of this
paragraph (b) shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers, sales, transfers or other
dispositions.

 

(c)   In case the Company shall fix a payment date for the making of a
distribution to all holders of Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness or assets (other than
dividends or distributions referred to in Section 8(a)), or subscription rights
or warrants, the Warrant Price to be in effect after such payment date shall be
determined by multiplying the Warrant Price in effect immediately prior to such
payment date by a fraction, the numerator of which shall be the total number of
shares of Common Stock outstanding multiplied by the Market Price (as defined
below) per share of Common Stock immediately prior to such payment date, less
the fair market value (as determined by the Company’s Board of Directors in good
faith) of said assets or evidences of indebtedness so distributed, or of such
subscription rights or warrants, and the denominator of which shall be the total
number of shares of Common Stock outstanding multiplied by such Market Price per
share of Common Stock immediately prior to such payment date.  “Market Price” as
of a particular date (the “Valuation Date”) shall mean the following: (a) if the
Common Stock is then listed on a national stock exchange, the closing sale price
of one share of Common Stock on such exchange on the last trading day prior to
the Valuation Date; (b) if the Common Stock is then quoted on The Nasdaq Stock
Market, Inc. (“Nasdaq”), the National Association of Securities Dealers, Inc.
OTC Bulletin Board (the “Bulletin Board”) or such similar quotation system or
association, the closing sale price of one share of Common Stock on Nasdaq, the
Bulletin Board or such other quotation system or association on the last trading
day prior to the Valuation Date or, if no such closing sale price is available,
the average of the high bid and the low asked price quoted thereon on the last
trading day prior to the Valuation Date; or (c) if the Common Stock is not then
listed on a national stock exchange or quoted on Nasdaq, the Bulletin Board or
such other quotation system or association, the fair market value of one share
of Common Stock as of the Valuation Date, as determined in good faith by the
Board of Directors of the Company and the Warrantholder.  If the Common Stock is
not then listed on a national securities exchange, the Bulletin Board or such
other quotation system or association, the Board of Directors of the Company
shall respond promptly, in writing, to an inquiry by the Warrantholder prior to
the exercise hereunder as to the fair market value of a share of Common Stock as
determined by the Board of Directors of the Company.  In the event that the
Board of Directors of the Company and the Warrantholder are unable to agree upon
the fair market value in respect of subpart (c) of this paragraph, the Company
and the Warrantholder shall jointly select an appraiser, who is experienced in
such matters.  The decision of such appraiser shall be final and conclusive, and
the cost of such appraiser shall be borne equally by the Company and the
Warrantholder.  Such adjustment shall be made successively whenever such a
payment date is fixed.

 

(d)   An adjustment to the Warrant Price shall become effective immediately
after the payment date in the case of each dividend or distribution and
immediately after the effective date of each other event which requires an
adjustment.

 

7

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(e)   In the event that, as a result of an adjustment made pursuant to this
Section 8, the Warrantholder shall become entitled to receive any shares of
capital stock of the Company other than shares of Common Stock, the number of
such other shares so receivable upon exercise of this Warrant shall be subject
thereafter to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Warrant Shares
contained in this Warrant.

 

(f)    Except as provided in subsection (g) hereof, if and whenever the Company
shall issue or sell, or is, in accordance with any of subsections (f)(l) through
(f)(7) hereof, deemed to have issued or sold, any shares of Common Stock for no
consideration or for a consideration per share less than the Warrant Price in
effect immediately prior to the time of such issue or sale, then and in each
such case (a “Trigger Issuance”) the then-existing Warrant Price, shall be
reduced, as of the close of business on the effective date of the Trigger
Issuance, to a price determined as follows:

 

Adjusted Warrant Price = (A x B) + D

A+C

 

where

 

“A” equals the number of shares of Common Stock outstanding, including
Additional Shares of Common Stock (as defined below) deemed to be issued
hereunder, immediately preceding such Trigger Issuance;

 

“B” equals the Warrant Price in effect immediately preceding such Trigger
Issuance;

 

“C” equals the number of Additional Shares of Common Stock issued or deemed
issued hereunder as a result of the Trigger Issuance; and

 

“D” equals the aggregate consideration, if any, received or deemed to be
received by the Company upon such Trigger Issuance;

 

provided, however, that in no event shall the Warrant Price after giving effect
to such Trigger Issuance be greater than the Warrant Price in effect prior to
such Trigger Issuance.

 

For purposes of this subsection (f), “Additional Shares of Common Stock” shall
mean all shares of Common Stock issued by the Company or deemed to be issued
pursuant to this subsection (f), other than Excluded Issuances (as defined in
subsection (g) hereof).

 

For purposes of this subsection (f), the following subsections (f)(l) to
(f)(7) shall also be applicable:

 

(f)(1)  Issuance of Rights or Options.  In case at any time the Company shall in
any manner grant (directly and not by assumption in a merger or otherwise) any
warrants or other rights to subscribe for or to purchase, or any

 

8

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options for the purchase of, Common Stock or any stock or security convertible
into or exchangeable for Common Stock (such warrants, rights or options being
called “Options” and such convertible or exchangeable stock or securities being
called “Convertible Securities”) whether or not such Options or the right to
convert or exchange any such Convertible Securities are immediately exercisable,
and the price per share for which Common Stock is issuable upon the exercise of
such Options or upon the conversion or exchange of such Convertible Securities
(determined by dividing (i) the sum (which sum shall constitute the applicable
consideration) of (x) the total amount, if any, received or receivable by the
Company as consideration for the granting of such Options, plus (y) the
aggregate amount of additional consideration payable to the Company upon the
exercise of all such Options, plus (z), in the case of such Options which relate
to Convertible Securities, the aggregate amount of additional consideration, if
any, payable upon the issue or sale of such Convertible Securities and upon the
conversion or exchange thereof, by (ii) the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon the conversion
or exchange of all such Convertible Securities issuable upon the exercise of
such Options) shall be less than the Warrant Price in effect immediately prior
to the time of the granting of such Options, then the total number of shares of
Common Stock issuable upon the exercise of such Options or upon conversion or
exchange of the total amount of such Convertible Securities issuable upon the
exercise of such Options shall be deemed to have been issued for such price per
share as of the date of granting of such Options or the issuance of such
Convertible Securities and thereafter shall be deemed to be outstanding for
purposes of adjusting the Warrant Price.  Except as otherwise provided in
subsection 8(f)(3), no adjustment of the Warrant Price shall be made upon the
actual issue of such Common Stock or of such Convertible Securities upon
exercise of such Options or upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities.

 

(f)(2)  Issuance of Convertible Securities.  In case the Company shall in any
manner issue (directly and not by assumption in a merger or otherwise) or sell
any Convertible Securities, whether or not the rights to exchange or convert any
such Convertible Securities are immediately exercisable, and the price per share
for which Common Stock is issuable upon such conversion or exchange (determined
by dividing (i) the sum (which sum shall constitute the applicable
consideration) of (x) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities, plus (y) the
aggregate amount of additional consideration, if any, payable to the Company
upon the conversion or exchange thereof, by (ii) the total number of shares of
Common Stock issuable upon the conversion or exchange of all such Convertible
Securities) shall be less than the Warrant Price in effect immediately prior to
the time of such issue or sale, then the total maximum number of shares of
Common Stock issuable upon conversion or exchange of all such Convertible
Securities shall be deemed to have been issued for such price per share as of
the date of the issue or sale of such Convertible Securities and thereafter
shall be deemed to be

 

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outstanding for purposes of adjusting the Warrant Price, provided that
(a) except as otherwise provided in subsection 8(f)(3), no adjustment of the
Warrant Price shall be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities and (b) no further
adjustment of the Warrant Price shall be made by reason of the issue or sale of
Convertible Securities upon exercise of any Options to purchase any such
Convertible Securities for which adjustments of the Warrant Price have been made
pursuant to the other provisions of subsection 8(f).

 

(f)(3) Change in Option Price or Conversion Rate.  Upon the happening of any of
the following events, namely, if the purchase price provided for in any Option
referred to in subsection 8(f)(l) hereof, the additional consideration, if any,
payable upon the conversion or exchange of any Convertible Securities referred
to in subsections 8(f)(l) or 8(f)(2), or the rate at which Convertible
Securities referred to in subsections 8(f)(l) or 8(f)(2) are convertible into or
exchangeable for Common Stock shall change at any time (including, but not
limited to, changes under or by reason of provisions designed to protect against
dilution), the Warrant Price in effect at the time of such event shall forthwith
be readjusted to the Warrant Price which would have been in effect at such time
had such Options or Convertible Securities still outstanding provided for such
changed purchase price, additional consideration or conversion rate, as the case
may be, at the time initially granted, issued or sold.  On the termination of
any Option for which any adjustment was made pursuant to this subsection 8(f) or
any right to convert or exchange Convertible Securities for which any adjustment
was made pursuant to this subsection 8(f) (including without limitation upon the
redemption or purchase for consideration of such Convertible Securities by the
Company), the Warrant Price then in effect hereunder shall forthwith be changed
to the Warrant Price which would have been in effect at the time of such
termination had such Option or Convertible Securities, to the extent outstanding
immediately prior to such termination, never been issued.

 

(f)(4) Stock Dividends.  Subject to the provisions of this Section 8(f), in case
the Company shall declare a dividend or make any other distribution upon any
stock of the Company (other than the Common Stock) payable in Common Stock,
Options or Convertible Securities, then any Common Stock, Options or Convertible
Securities, as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without consideration.

 

(f)(5) Consideration for Stock.  In case any shares of Common Stock, Options or
Convertible Securities shall be issued or sold for cash, the consideration
received therefor shall be deemed to be the net amount received by the Company
therefor, after deduction therefrom of any expenses incurred or any underwriting
commissions or concessions paid or allowed by the Company in connection
therewith.  In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold for a consideration other than cash, the
amount of the consideration other than cash received by the Company shall be
deemed to be the fair value of such consideration as determined in good faith by

 

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the Board of Directors of the Company, after deduction of any expenses incurred
or any underwriting commissions or concessions paid or allowed by the Company in
connection therewith.  In case any Options shall be issued in connection with
the issue and sale of other securities of the Company, together comprising one
integral transaction in which no specific consideration is allocated to such
Options by the parties thereto, such Options shall be deemed to have been issued
for such consideration as determined in good faith by the Board of Directors of
the Company.  If Common Stock, Options or Convertible Securities shall be issued
or sold by the Company and, in connection therewith, other Options or
Convertible Securities (the “Additional Rights”) are issued, then the
consideration received or deemed to be received by the Company shall be reduced
by the fair market value of the Additional Rights (as determined using the
Black-Scholes option pricing model or another method mutually agreed to by the
Company and the Warrantholder).  The Board of Directors of the Company shall
respond promptly, in writing, to an inquiry by the Warrantholder as to the fair
market value of the Additional Rights.  In the event that the Board of Directors
of the Company and the Warrantholder are unable to agree upon the fair market
value of the Additional Rights, the Company and the Warrantholder shall jointly
select an appraiser, who is experienced in such matters.  The decision of such
appraiser shall be final and conclusive, and the cost of such appraiser shall be
borne evenly by the Company and the Warrantholder.

 

(f)(6) Record Date.  In case the Company shall take a record of the holders of
its Common Stock for the purpose of entitling them (i) to receive a dividend or
other distribution payable in Common Stock, Options or Convertible Securities or
(ii) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.

 

(f)(7) Treasury Shares.  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 or any of its wholly-owned subsidiaries, and the disposition of any such
shares (other than the cancellation or retirement thereof) shall be considered
an issue or sale of Common Stock for the purpose of this subsection (f).

 

(g)   Anything herein to the contrary notwithstanding, the Company shall not be
required to make any adjustment of the Warrant Price in the case of the issuance
of (A) capital stock, Options or Convertible Securities issued to directors,
officers, employees or consultants of the Company in connection with their
service as directors of the Company, their employment by the Company or their
retention as consultants by the Company pursuant to an equity compensation
program approved by the Board of Directors of the Company or the compensation
committee of the Board of Directors of the Company, (B) shares of Common Stock
issued upon the conversion or exercise of Options or Convertible Securities
issued prior to the date hereof,

 

11

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provided such securities are not amended after the date hereof to increase the
number of shares of Common Stock issuable thereunder or to lower the exercise or
conversion price thereof, (C) securities issued pursuant to that certain
Purchase Agreement dated February 2, 2006, among the Company and the Investors
named therein (the “Purchase Agreement”) and securities issued upon the exercise
or conversion of those securities, (D) shares of Common Stock issued or issuable
by reason of a dividend, stock split or other distribution on shares of Common
Stock (but only to the extent that such a dividend, split or distribution
results in an adjustment in the Warrant Price pursuant to the other provisions
of this Warrant), and (E) capital stock, Options or Convertible Securities
issued to suppliers, vendors and service providers of and to the Company and its
subsidiaries with an aggregate Market Price (determined as of the time of such
issuance) not to exceed $250,000 in any fiscal year (collectively, “Excluded
Issuances”).

 

(h)   Upon any adjustment to the Warrant Price pursuant to Section 8(f) above,
the number of Warrant Shares purchasable hereunder shall be adjusted by
multiplying such number by a fraction, the numerator of which shall be the
Warrant Price in effect immediately prior to such adjustment and the denominator
of which shall be the Warrant Price in effect immediately thereafter.

 

Section 9.       Fractional Interest.  The Company shall not be required to
issue fractions of Warrant Shares upon the exercise of this Warrant.  If any
fractional share of Common Stock would, except for the provisions of the first
sentence of this Section 9, be deliverable upon such exercise, the Company, in
lieu of delivering such fractional share, shall pay to the exercising
Warrantholder an amount in cash equal to the Market Price of such fractional
share of Common Stock on the date of exercise.

 

Section 10.     Extension of Expiration Date.  If the Company fails to cause any
Registration Statement covering Registrable Securities (unless otherwise defined
herein, capitalized terms are as defined in the Registration Rights Agreement
relating to the Warrant Shares (the “Registration Rights Agreement”)) to be
declared effective prior to the applicable dates set forth therein, or if any of
the events specified in Section 2(c)(ii) of the Registration Rights Agreement
occurs, and the Blackout Period (whether alone, or in combination with any other
Blackout Period) continues for more than 60 days in any 12 month period, or for
more than a total of 90 days, then the Expiration Date of this Warrant shall be
extended one day for each day beyond the 60-day or 90-day limits, as the case
may be, that the Blackout Period continues.

 

Section 11.     Benefits.  Nothing in this Warrant shall be construed to give
any person, firm or corporation (other than the Company and the Warrantholder)
any legal or equitable right, remedy or claim, it being agreed that this Warrant
shall be for the sole and exclusive benefit of the Company and the
Warrantholder.

 

Section 12.     Notices to Warrantholder.  Upon the happening of any event
requiring an adjustment of the Warrant Price, the Company shall promptly give
written notice thereof to the Warrantholder at the address appearing in the
records of the Company, stating the adjusted Warrant Price and the adjusted
number of Warrant Shares resulting from such event and setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is

 

12

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based.  Failure to give such notice to the Warrantholder or any defect therein
shall not affect the legality or validity of the subject adjustment.

 

Section 13.     Identity of Transfer Agent.  The Transfer Agent for the Common
Stock is American Stock Transfer & Trust Company.  Upon the appointment of any
subsequent transfer agent for the Common Stock or other shares of the Company’s
capital stock issuable upon the exercise of the rights of purchase represented
by this Warrant, the Company will mail to the Warrantholder a statement setting
forth the name and address of such transfer agent.

 

Section 14.     Notices.  Unless otherwise provided, any notice required or
permitted under this Warrant shall be given in writing and shall be deemed
effectively given as hereinafter described (i) if given by personal delivery,
then such notice shall be deemed given upon such delivery, (ii) if given by
telex or facsimile, then such notice shall be deemed given upon receipt of
confirmation of complete transmittal, (iii) if given by mail, then such notice
shall be deemed given upon the earlier of (A) receipt of such notice by the
recipient or (B) three days after such notice is deposited in first class mail,
postage prepaid, and (iv) if given by an internationally recognized overnight
air courier, then such notice shall be deemed given one business day after
delivery to such carrier.  All notices shall be addressed as follows: if to the
Warrantholder, at its address as set forth in the Company’s books and records
and, if to the Company, at the address as follows, or at such other address as
the Warrantholder or the Company may designate by ten days’ advance written
notice to the other:

 

If to the Company:

 

Tapestry Pharmaceuticals, Inc.

4840 Pearl East Circle, Suite 300W

Boulder, Colorado 80301

Attention:  Leonard Shaykin, Chairman and Chief Executive Officer

Fax:  (212) 319-2808

 

With a copy to:

 

Kirkland & Ellis LLP

Citigroup Center

153 East 53rd Street

New York, New York 10022-4611

Attention:  Michael Movsovich

Fax: (212) 446-6460

 

Section 15.     Registration Rights.  The initial Warrantholder is entitled to
the benefit of certain registration rights with respect to the shares of Common
Stock issuable upon the exercise of this Warrant as provided in the Registration
Rights Agreement, and any subsequent Warrantholder may be entitled to such
rights.

 

13

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Section 16.     Successors.  All the covenants and provisions hereof by or for
the benefit of the Warrantholder shall bind and inure to the benefit of its
respective successors and assigns hereunder.

 

Section 17.     Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. 
This Warrant shall be governed by, and construed in accordance with, the
internal laws of the State of New York, without reference to the choice of law
provisions thereof.  The Company and, by accepting this Warrant, the
Warrantholder, each irrevocably submits to the exclusive jurisdiction of the
courts of the State of New York located in New York County and the United States
District Court for the Southern District of New York for the purpose of any
suit, action, proceeding or judgment relating to or arising out of this Warrant
and the transactions contemplated hereby.  Service of process in connection with
any such suit, action or proceeding may be served on each party hereto anywhere
in the world by the same methods as are specified for the giving of notices
under this Warrant.  The Company and, by accepting this Warrant, the
Warrantholder, each irrevocably consents to the jurisdiction of any such court
in any such suit, action or proceeding and to the laying of venue in such
court.  The Company and, by accepting this Warrant, the Warrantholder, each
irrevocably waives any objection to the laying of venue of any such suit, action
or proceeding brought in such courts and irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in an
inconvenient forum.  EACH OF THE COMPANY AND, BY ITS ACCEPTANCE HEREOF, THE
WARRANTHOLDER HEREBY WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY
LITIGATION WITH RESPECT TO THIS WARRANT AND REPRESENTS THAT COUNSEL HAS BEEN
CONSULTED SPECIFICALLY AS TO THIS WAIVER.

 

Section 18.     Call Provision.

 

(a)   Subject to the provisions of clauses (b) and (c) below, in the event that
the closing bid price of a share of Common Stock as traded on Nasdaq (or such
other exchange or stock market on which the Common Stock may then be listed or
quoted) equals or exceeds $4.80 (appropriately adjusted for any stock split,
reverse stock split, stock dividend or other reclassification or combination of
the Common Stock occurring after the date hereof) for at least twenty (20)
consecutive trading days during which the Registration Statement (as defined in
the Registration Rights Agreement) has been effective (the “Trading Condition”),
the Company, upon thirty (30) days prior written notice (the “Notice Period”)
given to the Warrantholder within three (3) business days immediately following
the end of such twenty (20) consecutive trading day period, may call this
Warrant at a redemption price equal to $0.0075 per share of Common Stock then
purchasable pursuant to this Warrant; provided that (i) the Company
simultaneously calls all Company Warrants (as defined below) on the same terms
and on a pro rata basis based on the aggregate number of shares of Common Stock
then purchasable pursuant to such Company Warrants, (ii) all of the shares of
Common Stock issuable hereunder either (A) are registered pursuant to an
effective Registration Statement (as defined in the Registration Rights
Agreement) which has not been suspended and for which no stop order is in
effect, and pursuant to which the Warrantholder is able to sell such shares of
Common Stock at all times during the Notice Period or (B) no longer constitute
Registrable Securities (as defined in the Registration Rights Agreement) and
(iii) this Warrant is fully exercisable for the full amount of

 

14

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Warrant Shares covered hereby.  Notwithstanding any such notice by the Company,
the Warrantholder shall have the right to exercise this Warrant prior to the end
of the Notice Period.

 

(b)   In any three-month period, no more than the lesser of (i) 20% of the
aggregate amount of Warrants initially issued to a Warrantholder or (ii) the
number of Warrants held by the Warrantholder, may be called by the Company and
the Company may not call additional Warrants in any subsequent three-month
period unless all the conditions specified in Section 18(a) are again met
(including without limitation, the Trading Condition) at the time that any
subsequent call notice is given.

 

(c)   In connection with any transfer or exchange of less than all of this
Warrant, the transferring Warrantholder shall deliver to the Company an
agreement or instrument executed by the transferring Warrantholder and the new
Warrantholder allocating between them on whatever basis they may determine in
their sole discretion any subsequent call of this Warrant by the Company, such
that after giving effect to such transfer the Company shall have the right to
call the same number of Warrants that it would have had if the transfer or
exchange had not occurred.

 

Section 19.     Cashless Exercise.  Notwithstanding any other provision
contained herein to the contrary, from and after the first anniversary of the
Date of Issuance, the Warrantholder may elect to receive, without payment by the
Warrantholder of the aggregate Warrant Price in respect of the shares of Common
Stock to be acquired, shares of Common Stock having a fair market value equal to
the Market Price of all shares of Common Stock that may then be purchased upon
full exercise of this Warrant, less the aggregate exercise price for all such
shares, or any specified portion thereof (including as contemplated by clause
(b) below), by the surrender to the Company of this Warrant (or such portion of
this Warrant being so exercised) together with a Net Issue Election Notice, in
the form annexed hereto as Appendix B, duly executed, to the Company; provided
that such election may be made only, (a) for so long as the Company is required
under the Registration Rights Agreement to have effected the registration of the
Warrant Shares for resale to the public pursuant to a Registration Statement (as
such term is defined in the Registration Rights Agreement), if the Warrant
Shares may not be freely sold to the public for any reason (including, but not
limited to, the failure of the Company to have effected the registration of the
Warrant Shares or to have a current prospectus available for delivery or
otherwise, but excluding the period of any Allowed Delay (as defined in the
Registration Rights Agreement), or (b) at any other time, with respect to an
aggregate number of Warrant Shares equal to up to, but not in excess of, 50% of
the Warrant Shares (in aggregate together with all prior cashless exercises of a
portion of this Warrant) initially issued to the initial Warrantholder pursuant
to the Purchase Agreement.  Thereupon, the Company shall issue to the
Warrantholder such number of fully paid, validly issued and nonassessable shares
of Common Stock as is computed using the following formula:

 

X = Y (A - B)

A

 

where

 

15

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X =          the number of shares of Common Stock to which the Warrantholder is
entitled upon such cashless exercise;

 

Y =          the total number of shares of Common Stock covered by this Warrant
for which the Warrantholder has surrendered purchase rights at such time for
cashless exercise (including both shares to be issued to the Warrantholder and
shares as to which the purchase rights are to be canceled as payment therefor);

 

A =         the “Market Price” of one share of Common Stock as at the date the
net issue election is made; and

 

B =          the Warrant Price in effect under this Warrant at the time the net
issue election is made.

 

Section 20.     No Rights as Stockholder.  Prior to the exercise of this
Warrant, the Warrantholder shall not have or exercise any rights as a
stockholder of the Company by virtue of its ownership of this Warrant.

 

Section 21.     Amendment; Waiver.  This Warrant is one of a series of Warrants
of like tenor issued by the Company pursuant to the Purchase Agreement and
initially covering an aggregate of 12,750,000 shares of Common Stock
(collectively, the “Company Warrants”).  Any term of this Warrant may be amended
or waived (including the adjustment provisions included in Section 8 of this
Warrant) upon the written consent of the Company and the holders of Company
Warrants representing at least 50% of the number of shares of Common Stock then
subject to all outstanding Company Warrants (the “Majority Holders”); provided,
that (x) any such amendment or waiver must apply to all Company Warrants; and
(y) the number of Warrant Shares subject to this Warrant, the Warrant Price and
the Expiration Date may not be amended, and the right to exercise this Warrant
may not be altered or waived, without the written consent of the Warrantholder.

 

Section 22.     Section Headings.  The section headings in this Warrant are for
the convenience of the Company and the Warrantholder and in no way alter,
modify, amend, limit or restrict the provisions hereof.

 

16

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SIGNATURE PAGE TO WARRANT

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed, as
of the            day of                 , 2006.

 

 

TAPESTRY PHARMACEUTICALS, INC.

 

 

 

 

 

 

 

By:

 

 

 

Name:

Kai P. Larson

 

Title:

Vice President, General Counsel and
Secretary

 

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SIGNATURE PAGE TO WARRANT

 

ACCEPTED AND AGREED TO AS OF THE DATE SET FORTH ABOVE BY:

 

 

 

 

 

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

18

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APPENDIX A

TAPESTRY PHARMACEUTICALS, INC.

WARRANT EXERCISE FORM

 

To: Tapestry Pharmaceuticals, Inc.

 

The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant (“Warrant”) for, and to purchase thereunder by
the payment of the Warrant Price and surrender of the Warrant,
                         shares of Common Stock (“Warrant Shares”) provided for
therein, and requests that certificates for the Warrant Shares be issued as
follows:

 

 

 

 

 

 

Name

 

 

 

 

 

 

 

Address

 

 

 

 

 

 

 

 

 

 

 

Federal Tax ID or Social Security No.

 

 

 

and delivered by

 

(certified mail to the above address, or

 

 

 

(electronically (provide DWAC Instructions:                                 ),
or

 

 

 

(other (specify):
                                                                              ).

 

and, if the number of Warrant Shares shall not be all the Warrant Shares
purchasable upon exercise of the Warrant, that a new Warrant for the balance of
the Warrant Shares purchasable upon exercise of this Warrant be registered in
the name of the undersigned Warrantholder or the undersigned’s Assignee as below
indicated and delivered to the address stated below.

 

Dated:                         ,      

 

 

 

 

 

 

 

Note: The signature must correspond with

 

 

Signature:

 

 

the name of the Warrantholder as written

 

 

 

 

on the first page of the Warrant in every

 

 

 

 

particular, without alteration or enlargement

 

 

Name (please print)

 

or any change whatever, unless the Warrant

 

 

 

 

has been assigned.

 

 

 

 

 

 

 

 

 

 

 

 

Address

 

 

 

 

 

 

 

 

 

Federal Identification or

 

 

 

 

Social Security No.

 

 

 

 

 

 

 

 

 

Assignee:

 

 

 

 

 

 

 

 

 

 

 

 

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APPENDIX B

TAPESTRY PHARMACEUTICALS, INC.

NET ISSUE ELECTION NOTICE

 

 

To: Tapestry Pharmaceuticals, Inc.

 

Date: [                                           ]

 

 

The undersigned hereby elects under Section 19 of this Warrant to surrender the
right to purchase [                       ] shares of Common Stock pursuant to
this Warrant and hereby requests the issuance of [                       ]
 shares of Common Stock.  The certificate(s) for the shares issuable upon such
net issue election shall be issued in the name of the undersigned or as
otherwise indicated below.

 

 

 

 

Signature

 

 

 

 

 

Name for Registration

 

 

 

 

 

Mailing Address

 

 

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