Exhibit 10.3
THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THEY MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO SUCH SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
ARDEA BIOSCIENCES, INC.
WARRANT TO PURCHASE COMMON STOCK
December __, 2008
Void After December ___, 2013
     This Certifies That, for value received, [                      ], or
assigns (the “Holder”), is entitled to subscribe for and purchase at the
Exercise Price (defined below) from Ardea Biosciences, Inc., a Delaware
corporation, with its principal office at 4939 Directors Place, San Diego, CA
92121 (the “Company”) up to [                      ] shares of the common stock
of the Company, par value $0.001 per share (the “Common Stock”).
     1. Definitions. As used herein, the following terms shall have the
following respective meanings:
          (a) “Exercise Period” shall mean the period commencing with the date
that is 180 days after the date hereof and ending five years from the date
hereof, unless sooner terminated as provided below.
          (b) “Exercise Price” shall mean $11.14 per share, subject to
adjustment pursuant to Section 5 below.
          (c) “Exercise Shares” shall mean the shares of Common Stock issuable
upon exercise of this Warrant.
     2. Exercise of Warrant. The rights represented by this Warrant may be
exercised in whole or in part at any time during the Exercise Period, by
delivery of the following to the Company at its address set forth above (or at
such other address as it may designate by notice in writing to the Holder):
          (a) An executed Notice of Exercise in the form attached hereto;
          (b) Payment of the Exercise Price either (i) in cash or by check,
(ii) by cancellation of indebtedness, or (iii) pursuant to Section 2.1 below;
and
          (c) This Warrant.
     Upon exercise of this Warrant, in whole or in part, the Company shall
irrevocably instruct its transfer agent to deliver to the Holder one or more
stock certificates, free and clear of all restrictive and other legends (except
as expressly provided in Section 4.3(b) hereof), evidencing the number of
Exercise Shares such Holder is purchasing upon exercise of this Warrant, within

1

--------------------------------------------------------------------------------

 

three (3) business days after the delivery to the Company by the Holder of the
Notice of Exercise, surrender of this Warrant and payment of the aggregate
Exercise Price as set forth above. This Warrant shall be deemed to have been
exercised on the date the Exercise Price is received by the Company. The
Exercise Shares shall be deemed to have been issued, and Holder or any other
person so designated to be named therein shall be deemed to have become a holder
of record of such shares for all purposes, as of the date the Warrant has been
exercised by payment to the Company of the Exercise Price.
     The person in whose name any certificate or certificates for Exercise
Shares are to be issued upon exercise of this Warrant shall be deemed to have
become the holder of record of such shares on the date on which this Warrant was
surrendered and payment of the Exercise Price was made, irrespective of the date
of delivery of such certificate or certificates, except that, if the date of
such surrender and payment is a date when the stock transfer books of the
Company are closed, such person shall be deemed to have become the holder of
such shares at the close of business on the next succeeding date on which the
stock transfer books are open.
     2.1 Net Exercise. Notwithstanding any provisions herein to the contrary, if
during the Exercise Period the fair market value of one share of the Common
Stock is greater than the Exercise Price (at the date of calculation as set
forth below), in lieu of exercising this Warrant by payment of cash or by check,
or by cancellation of indebtedness, the Holder may elect to receive shares equal
to the value (as determined below) of this Warrant (or the portion thereof being
canceled) by surrender of this Warrant at the principal office of the Company
together with the properly endorsed Notice of Exercise in which event the
Company shall issue to the Holder a number of shares of Common Stock computed
using the following formula:

     
X =
  Y (A-B)
 
   
 
  A

         
 
  Where X =   the number of shares of Common Stock to be issued to the Holder
 
       
 
  Y =   the number of shares of Common Stock purchasable under the Warrant or,
if only a portion of the Warrant is being exercised, the portion of the Warrant
being canceled (at the date of such calculation)
 
       
 
  A =   the fair market value of one share of the Company’s Common Stock (at the
date of such calculation)
 
       
 
  B =   Exercise Price (as adjusted to the date of such calculation)

     For purposes of the above calculation, the “fair market value” of one share
of Common Stock shall mean (i) the average of the closing sales prices for the
shares of Common Stock on the NASDAQ Global Market or other trading market where
such security is listed or traded as reported by Bloomberg Financial Markets (or
a comparable reporting service of national reputation selected by the Company
and reasonably acceptable to the Holder if Bloomberg Financial Markets is not
then reporting sales prices of such security) (collectively, “Bloomberg”) for
the 10 consecutive trading days immediately preceding such date, or (ii) if the
NASDAQ Global Market is not the principal trading market for the shares of
Common Stock, the average of the reported sales prices reported by Bloomberg on
the principal trading market for the

2

--------------------------------------------------------------------------------

 

Common Stock during the same period, or, if there is no sales price for such
period, the last sales price reported by Bloomberg for such period, or (iii) if
neither of the foregoing applies, the last sales price of such security in the
over-the-counter market on the pink sheets or bulletin board for such security
as reported by Bloomberg, or if no sales price is so reported for such security,
the last bid price of such security as reported by Bloomberg or (iv) if fair
market value cannot be calculated as of such date on any of the foregoing bases,
the fair market value shall be as determined by the Board of Directors of the
Company in the exercise of its good faith judgment.
     2.2 Issuance of New Warrants. Upon any partial exercise of this Warrant,
the Company, at its expense, will forthwith and, in any event within five
business days, issue and deliver to the Holder a new warrant or warrants of like
tenor, registered in the name of the Holder, exercisable, in the aggregate, for
the balance of the number of shares of Common Stock remaining available for
purchase under the Warrant.
     2.3 Payment of Taxes and Expenses. The Company shall pay any recording,
filing, stamp or similar tax which may be payable in respect of any transfer
involved in the issuance of, and the preparation and delivery of certificates
(if applicable) representing, (i) any Exercise Shares purchased upon exercise of
this Warrant and/or (ii) new or replacement warrants in the Holder’s name or the
name of any transferee of all or any portion of this Warrant.
     3. Covenants of the Company.
     3.1 Covenants as to Exercise Shares. The Company covenants and agrees that
all Exercise Shares that may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be duly authorized, validly
issued and outstanding, fully paid and nonassessable, and free from all taxes,
liens and charges with respect to the issuance thereof. The Company further
covenants and agrees that the Company will at all times during the Exercise
Period, have authorized and reserved, free from preemptive rights, a sufficient
number of shares of Common Stock to provide for the exercise of the rights
represented by this Warrant. If at any time during the Exercise Period the
number of authorized but unissued shares of Common Stock shall not be sufficient
to permit exercise of this Warrant, the Company will take such corporate action
as may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purposes. The Company further covenants that its issuance of
this Warrant shall constitute full authority to its officers who are charged
with the duty of executing stock certificates to execute and issue the necessary
certificates for the Exercise Shares upon the exercise of the purchase rights
under this Warrant. The Company will take all such reasonable action as may be
necessary to assure that such Exercise Shares may be issued as provided herein
without violation of any applicable law or regulation, or of any requirements of
the Trading Market upon which the Common Stock may be listed.
     3.2 No Impairment. Except and to the extent as waived or consented to by
the Holder, the Company will not, by amendment of its Certificate 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 to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Warrant and in
the taking of all such action

3

--------------------------------------------------------------------------------

 

as may be necessary or appropriate in order to protect the exercise rights of
the Holder against impairment. Without limiting the generality of the foregoing,
the Company will (a) not increase the par value of any Exercise 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
Exercise 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. Before
taking any action which would result in an adjustment in the number of Exercise
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.
     3.3 Notices of Record Date and Certain Other Events. In the event of any
taking by the Company of a record of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend which is the same as cash dividends paid in
previous quarters) or other distribution, the Company shall mail to the Holder,
at least 20 days prior to the date on which any such record is to be taken for
the purpose of such dividend or distribution, a notice specifying such date. In
the event of any voluntary dissolution, liquidation or winding up of the
Company, the Company shall mail to the Holder, at least 20 days prior to the
date of the occurrence of any such event, a notice specifying such date.
     3.4 Notice of Adjustments. Upon the occurrence of each adjustment pursuant
to Section 5 and Section 7, the Company at its expense will 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 Exercise Shares or
other securities, cash or property issuable upon exercise of this Warrant (as
applicable), describing the transactions giving rise to such adjustments and
showing in reasonable detail the facts upon which such adjustment is based. The
Company will promptly deliver a copy of each such certificate to the Holder
within 10 business days after the occurrence of the adjustment.
     4. Representations of Holder.
     4.1 Acquisition of Warrant for Personal Account. The Holder represents and
warrants that it is acquiring the Warrant solely for its account for investment
and not with a view to or for sale or distribution of said Warrant or any part
thereof. The Holder also represents that the entire legal and beneficial
interests of the Warrant and Exercise Shares the Holder is acquiring is being
acquired for, and will be held for, its account only.
     4.2 Securities Are Not Registered.
          (a) The Holder understands that the Warrant and the Exercise Shares
have not been registered under the Securities Act of 1933, as amended (the
“Act”) on the basis that no distribution or public offering of the stock of the
Company is to be effected. The Holder realizes that the basis for the exemption
may not be present if, notwithstanding its representations, the

4

--------------------------------------------------------------------------------

 

Holder has a present intention of acquiring the securities for a fixed or
determinable period in the future, selling (in connection with a distribution or
otherwise), granting any participation in, or otherwise distributing the
securities. The Holder has no such present intention.
          (b) The Holder recognizes that the Warrant and the Exercise Shares
must be held indefinitely unless they are subsequently registered under the Act
or an exemption from such registration is available.
          (c) The Holder is aware that neither the Warrant nor the Exercise
Shares may be sold pursuant to Rule 144 adopted under the Act unless certain
conditions are met, including, among other things, the existence of a public
market for the shares, the availability of certain current public information
about the Company, the resale following the required holding period under
Rule 144 and, in certain circumstances, the number of shares being sold not
exceeding specified limitations.
     4.3 Disposition of Warrant and Exercise Shares.
          (a) The Holder further agrees not to make any disposition of all or
any part of the Warrant or Exercise Shares in any event unless and until:
               (i) The Company shall have received a letter secured by the
Holder from the Securities and Exchange Commission stating that no action will
be recommended to the Commission with respect to the proposed disposition; or
               (ii) There is then in effect a registration statement under the
Act covering such proposed disposition and such disposition is made in
accordance with said registration statement; or
               (iii) The Holder shall have furnished the Company with an opinion
of counsel, reasonably satisfactory to the Company, for the Holder to the effect
that such disposition will not require registration of such Warrant or Exercise
Shares under the Act or any applicable state securities laws; provided, however,
that no such opinion of counsel shall be required for sales (a) under Rule 144,
(b) to one of its nominees, affiliates or a nominee thereof, (c) to a pension or
profit-sharing fund established and maintained for its employees or for the
employees of any affiliate, (d) from a nominee to any of the aforementioned
persons as beneficial owner of this Warrant or such Exercise Shares or (e) to a
qualified institutional buyer, so long as such transfer is effected in
compliance with Rule 144A under the Securities Act.
          (b) The Holder understands and agrees that all certificates evidencing
the shares to be issued to the Holder may bear the following legend:
“THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED EXCEPT AS
PROVIDED BY SECTION 4 OF THAT CERTAIN SECURITIES PURCHASE AGREEMENT, DATED AS OF
DECEMBER ___, 2008, BY AND AMONG ARDEA BIOSCIENCES, INC. AND EACH PURCHASER
IDENTIFIED ON THE SIGNATURE PAGES THERETO. ”

5

--------------------------------------------------------------------------------

 

     5. Adjustment of Exercise Price and Shares.
          (a) In the event of changes in the outstanding Common Stock of the
Company by reason of stock dividends, split-ups, recapitalizations,
reclassifications, combinations or exchanges of shares, separations,
reorganizations, liquidations, consolidation, acquisition of the Company
(whether through merger or acquisition of substantially all the assets or stock
of the Company), or the like, the number, class and type of shares available
under the Warrant in the aggregate and the Exercise Price shall be
correspondingly adjusted to give the Holder of the Warrant, on exercise for the
same aggregate Exercise Price, the total number, class, and type of shares or
other property as the Holder would have owned had the Warrant been exercised
prior to the event and had the Holder continued to hold such shares until the
event requiring adjustment. The form of this Warrant need not be changed because
of any adjustment in the number of Exercise Shares subject to this Warrant.
          (b) If at any time or from time to time the holders of Common Stock of
the Company (or any shares of stock or other securities at the time receivable
upon the exercise of this Warrant) shall have received or become entitled to
receive, without payment therefor,
               (i) Common Stock or any shares of stock or other securities which
are at any time directly or indirectly convertible into or exchangeable for
Common Stock, or any rights or options to subscribe for, purchase or otherwise
acquire any of the foregoing by way of dividend or other distribution (other
than a dividend or distribution covered in Section 5(a) above),
               (ii) any cash paid or payable otherwise than as a cash dividend,
or
               (iii) Common Stock or additional stock or other securities or
property (including cash) by way of spinoff, split-up, reclassification,
combination of shares or similar corporate rearrangement (other than shares of
Common Stock pursuant to Section 5(a) above), then and in each such case, the
Holder hereof will, upon the exercise of this Warrant, be entitled to receive,
in addition to the number of shares of Common Stock receivable thereupon, and
without payment of any additional consideration therefor, the amount of stock
and other securities and property (including cash in the cases referred to in
clauses (ii) and (iii) above) which such Holder would hold on the date of such
exercise had such Holder been the holder of record of such Common Stock as of
the date on which holders of Common Stock received or became entitled to receive
such shares or all other additional stock and other securities and property.
     6. Fractional Shares. No fractional shares shall be issued upon the
exercise of this Warrant as a consequence of any adjustment pursuant hereto. All
Exercise Shares (including fractions) issuable upon exercise of this Warrant may
be aggregated for purposes of determining whether the exercise would result in
the issuance of any fractional share. If, after aggregation, the exercise would
result in the issuance of a fractional share, the Company shall, in lieu of
issuance of any fractional share, pay the Holder otherwise entitled to such
fraction a sum in cash equal to the product resulting from multiplying the then
current fair market value of an Exercise Share by such fraction.

6

--------------------------------------------------------------------------------

 

     7. Fundamental Transactions. If, at any time while this Warrant is
outstanding, (i) the Company effects any merger of the Company with or into
another entity, (ii) the Company effects any sale of all or substantially all of
its assets in one or a series of related transactions, (iii) any tender offer or
exchange offer (whether by the Company or another individual or entity) is
completed pursuant to which holders of Common Stock are permitted to tender or
exchange their shares for other securities, cash or property or (iv) 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 5 above)
(in any such case, a “Fundamental Transaction”), then, upon any subsequent
exercise of this Warrant, the Holder shall have the right to receive, for each
Warrant Share that would have been issuable upon such exercise immediately prior
to the occurrence of such Fundamental Transaction, at the option of the Holder,
(a) upon exercise of this Warrant, the number of shares of Common Stock of the
successor or acquiring corporation or of the Company, if it is the surviving
corporation, and any additional consideration (the “Alternate Consideration”)
receivable upon or as a result of such reorganization, reclassification, merger,
consolidation or disposition of assets by a Holder of the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to such
event. For purposes of any such exercise, the determination of the Exercise
Price shall be appropriately adjusted to apply to such Alternate Consideration
based on the amount of Alternate Consideration issuable in respect of one share
of Common Stock in such Fundamental Transaction, and the Company shall apportion
the Exercise Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate Consideration it
receives upon any exercise of this Warrant following such Fundamental
Transaction. To the extent necessary to effectuate the foregoing provisions, any
successor to the Company or surviving entity in such Fundamental Transaction
shall issue to the Holder a new warrant consistent with the foregoing provisions
and evidencing the Holder’s right to exercise such warrant into Alternate
Consideration. The terms of any agreement pursuant to which a Fundamental
Transaction is effected shall include terms requiring any such successor or
surviving entity to comply with the provisions of this Section 7 and insuring
that this Warrant (or any such replacement security) will be similarly adjusted
upon any subsequent transaction analogous to a Fundamental Transaction.
     8. No Stockholder Rights. This Warrant in and of itself shall not entitle
the Holder to any voting rights or other rights as a stockholder of the Company.
     9. Transfer of Warrant. Subject to applicable laws and the restriction on
transfer set forth on the first page of this Warrant, this Warrant and all
rights hereunder are transferable, by the Holder in person or by duly authorized
attorney, upon delivery of this Warrant and the form of assignment attached
hereto to any transferee designated by Holder. The transferee shall sign an
investment letter in form and substance reasonably satisfactory to the Company
and its counsel.
     10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is lost,
stolen, mutilated or destroyed, the Company may, on such terms as to indemnity
or otherwise as

7

--------------------------------------------------------------------------------

 

it may reasonably impose (which shall, in the case of a mutilated Warrant,
include the surrender thereof), issue a new Warrant of like denomination and
tenor as the Warrant so lost, stolen, mutilated or destroyed. Any such new
Warrant shall constitute an original contractual obligation of the Company,
whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall
be at any time enforceable by anyone.
     11. Notices, etc. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day, (c) five days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (d) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the Company
at the address listed on the signature page hereto and to Holder at the
applicable address set forth on the applicable signature page to the Purchase
Agreement or at such other address as the Company or Holder may designate by
10 days advance written notice to the other parties hereto.
     12. Acceptance. Receipt of this Warrant by the Holder shall constitute
acceptance of and agreement to all of the terms and conditions contained herein.
     13. Governing Law. This Warrant and all rights, obligations and liabilities
hereunder shall be governed by the laws of the State of California.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

8

--------------------------------------------------------------------------------

 

          In Witness Whereof, the Company has caused this Warrant to be executed
by its duly authorized officer as of December ___, 2008.

                  ARDEA BIOSCIENCES, INC.    
 
           
 
  By:        
 
           
 
  Name:   Barry D. Quart, Pharm.D.    
 
  Title:   President and Chief Executive Officer    
 
  Address:    4939 Directors Place
San Diego, CA 92121    

[Signature Page to Warrant to Purchase Common Stock]

 

--------------------------------------------------------------------------------

 

NOTICE OF EXERCISE
TO: Ardea Biosciences, Inc.
     (1) o The undersigned hereby elects to purchase                      shares
of the Common Stock of Ardea Biosciences, Inc. (the “Company”) pursuant to the
terms of the attached Warrant, and tenders herewith payment of the exercise
price in full, together with all applicable transfer taxes, if any.
          o The undersigned hereby elects to purchase                     
shares of Common Stock of the Company pursuant to the terms of the net exercise
provisions set forth in Section 2.1 of the attached Warrant, and shall tender
payment of all applicable transfer taxes, if any.
     (2) Please issue a certificate or certificates representing said shares of
Common Stock of the Company in the name of the undersigned or in such other name
as is specified below:
 
(Name)
 

 
(Address)
     (3) The undersigned represents that (i) the aforesaid shares of Common
Stock are being acquired for the account of the undersigned for investment and
not with a view to, or for resale in connection with, the distribution thereof
and that the undersigned has no present intention of distributing or reselling
such shares; (ii) the undersigned is aware of the Company’s business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision regarding its investment in the
Company; (iii) the undersigned is experienced in making investments of this type
and has such knowledge and background in financial and business matters that the
undersigned is capable of evaluating the merits and risks of this investment and
protecting the undersigned’s own interests; (iv) the undersigned understands
that the shares of Common Stock issuable upon exercise of this Warrant have not
been registered (except to the extent a registration statement pursuant to and
as contemplated by Article 1 of the Registration Rights Agreement is effective)
under the Securities Act of 1933, as amended (the “Securities Act”), by reason
of a specific exemption from the registration provisions of the Securities Act,
which exemption depends upon, among other things, the bona fide nature of the
investment intent as expressed herein, and, because such securities have not
been registered under the Securities Act, they must be held indefinitely unless
subsequently registered under the Securities Act or an exemption from such
registration is available; (v) the undersigned is aware that the aforesaid
shares of Common Stock may not be sold pursuant to Rule 144 adopted under the
Securities Act unless certain conditions are met and until the undersigned has
held the shares for the period of time prescribed by Rule 144, that among the
conditions for use of the Rule is the availability of current information to the
public

 

--------------------------------------------------------------------------------

 

about the Company; and (vi) the undersigned agrees not to make any disposition
of all or any part of the aforesaid shares of Common Stock unless and until
there is then in effect a registration statement under the Securities Act
covering such proposed disposition and such disposition is made in accordance
with said registration statement, or the undersigned has provided upon the
Company’s reasonable request, an opinion of counsel satisfactory to the Company,
stating that such registration is not required.

     
 
   
(Date)
  (Signature)
 
   
 
   
 
  (Print name)

 

--------------------------------------------------------------------------------

 

ASSIGNMENT FORM
(To assign the foregoing Warrant, execute
this form and supply required information.
Do not use this form to purchase shares.)  
     For Value Received, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to

     
Name:
   
 
   

(Please Print)

     
Address:
   
 
   

(Please Print)
Dated:                     , 20____

     
Holder’s
Signature:
   
 
   
 
   
Holder’s
Address:
   
 
   

NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatever. Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of authority to assign
the foregoing Warrant.