exv10w3




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



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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



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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]




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          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.