***Exhibit 4.1***

* *

*THIS WARRANT HAS NOT BEENREGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) AND NEITHERTHIS WARRANT NOR ANY WARRANT SHARES (AS DEFINED BELOW) MAY BE OFFERED, SOLD OROTHERWISE TRANSFERRED, OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THEACT OR, IN THE OPINION OF COUNSEL, IN FORM AND SUBSTANCE REASONABLYSATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER ORHYPOTHECATION IS IN COMPLIANCE THEREWITH.*

 

 

**WARRANT**

**TO PURCHASE COMMON STOCK**

**OF**

**PHARMACOPEIA DRUG DISCOVERY, INC.**

 

 

No.W-  

 

THISCERTIFIES THAT, for value received, «NAME» or its permitted transferees orpermitted assigns (the “Holder”), from and after the Issuance Date (as definedbelow), and subject to the terms and conditions herein set forth, is entitledto purchase from Pharmacopeia Drug Discovery, Inc., a Delaware corporation (the“Company”), at any time before 5:00 p.m. New York City time on the earlier tooccur of (i) March 24, 2011 and (ii) the effective date of a termination underthe Product Development Agreement (as defined below) by the Company, in thecase of Sections 12.2.1 or 12.2.4(c) of the Product Development Agreement, orby GSK (as defined in the Product Development Agreement), in the case ofSection 12.2.5 of the Product Development Agreement (the “Termination Date”), «WordNumberOfWarrantShares»(«NumberOfWarrantShares») shares (as adjusted from time to time pursuant toSection 2 hereof, the “Warrant Shares”) of the Company’s common stock, $0.01par value per share (the “Common Stock”), at a price per share equal to theWarrant Price (as defined below) upon exercise of this Warrant pursuant toSection 5 hereof.  The number of WarrantShares is subject to adjustment under Section 2.

 

1.             Definitions.  As used in this Warrant, thefollowing terms have the definitions ascribed to them below:

 

(a)            “Issuance Date” means March 24, 2006.

 

(b)            “Person” means any individual, corporation,partnership, limited liability company, trust, incorporated or unincorporatedassociation, joint venture, joint stock company, governmental authority orother entity of any kind, and shall include any successor (by merger orotherwise) of such entity.

 

(c)           “Product Development Agreement” means thatcertain Product Development and Commercialization Agreement dated as of March 24,2006 between the Company and the initial Holder of this Warrant.

 

(d)           “Warrant Price” means 125% of the Company’saverage closing price for a 30 day period ending one day prior to the effectivedate of the Product Development Agreement, which is $5.67, subject toadjustment under Section 2.

 

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2.             Adjustments and Notices.  TheWarrant Price and/or the Warrant Shares shall be subject to adjustment fromtime to time in accordance with this Section 2. The Warrant Price and/or the Warrant Shares shall be adjusted to reflectall of the following events that occur on or after the Issuance Date.

 

(a)           Subdivision, Stock Dividends or Combinations.  Incase the Company shall at any time subdivide the outstanding shares of theCommon Stock (through a stock split or otherwise), the Warrant Price in effectimmediately prior to such subdivision shall be proportionately decreased, andthe number of Warrant Shares for which this Warrant may be exercisedimmediately prior to such subdivision shall be proportionately increased.  In case the Company shall at any time combinethe outstanding shares of the Common Stock (through a reverse stock split orotherwise), the Warrant Price in effect immediately prior to such combinationshall be proportionately increased, and the number of Warrant Shares for whichthis Warrant may be exercised immediately prior to such combination shall beproportionately decreased.  In each ofthe foregoing cases, the adjustment shall be effective automatically upon, andsimultaneously with, the effectiveness of the subdivision or combination givingrise to the adjustment.  If the Companyat any time pays a dividend, or makes any other distribution, to holders ofCommon Stock payable in shares of Common Stock, or fixes a record date for thedetermination of holders of Common Stock entitled to receive a dividend orother distribution payable in shares of Common Stock, then the number ofWarrant Shares in effect immediately prior to such action shall beproportionately increased so that the Holder hereof may receive upon exerciseof the Warrant the aggregate number of shares of Common Stock which he or itwould have owned immediately following such action if the Warrant had beenexercised immediately prior to such action. The adjustment shall become effective immediately as of the date theCompany shall take a record of the holders of its Common Stock for the purposeof receiving such dividend or distribution (or if no such record is taken, asof the effectiveness of such dividend or distribution).

 

(b)           Reclassification, Exchange, Substitution,In-Kind Distribution.  Upon any capital reorganization, reclassification,exchange, substitution or other event (other than an event described in Section2(a) above) that results in a change of the number and/or class of thesecurities issuable upon exercise or conversion of this Warrant or upon thepayment of a dividend in securities or property other than shares of the CommonStock, the Holder shall be entitled to receive, upon exercise of this Warrant,the number and kind of securities and property that Holder would have receivedif this Warrant had been exercised immediately before the record date for suchreclassification, exchange, substitution, or other event or immediately priorto the record date for such dividend.  Theadjustment shall become effective immediately as of the date the Company shalltake a record of the holders of its Common Stock for the purpose of receivingsuch dividend or distribution (or if no such record is taken, as of theeffectiveness of such dividend or distribution), and the Company or itssuccessor shall promptly issue to Holder a new warrant for such new securitiesor other property.  The new warrant shallprovide for adjustments which shall be as nearly equivalent as may bepracticable to the adjustments provided for in this Section 2 including,without limitation, adjustments to the Warrant Price and to the number ofsecurities or property issuable upon exercise or conversion of the new warrant.  The provisions of this Section 2(b) shallsimilarly apply to successive reclassifications, exchanges, substitutions, orother events and successive dividends.

 

(c)           Reorganization, Merger, etc. In case of any merger or consolidation ofthe Company into or with another corporation where the Company is not thesurviving corporation, or a merger or consolidation which results in the terminationof the Company’s registration under the Exchange Act, or sale, transfer orlease (but not including a transfer or lease by pledge or mortgage 

 

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toa bona fide lender as collateral in connection with the incurrence ofindebtedness by the Company) of all or substantially all of the assets of theCompany, the Company, or such successor or purchasing corporation, as the casemay be, shall, as a condition to closing any such reorganization, merger orsale, duly execute and deliver to the Holder hereof a new warrant so that theHolder shall have the right to receive, at a total purchase price not to exceedthat payable upon the exercise or conversion of this Warrant, and in lieu ofthe Warrant Shares theretofore issuable upon exercise or conversion of thisWarrant, the kind and amount of any class or classes of shares of stock orother ownership interests of the Company or other corporation or entity, othersecurities, money and property that would have been receivable upon suchreorganization, consolidation, merger or sale by the Holder with respect to theWarrant Shares if this Warrant had been exercised immediately before theconsummation of such transaction.  Suchnew warrant shall provide for adjustments that shall be as nearly equivalent asmay be practicable to the adjustments provided for in this Section 2.  The provisions of this subparagraph (c) shallsimilarly apply to successive transactions of the type described in thissubparagraph (c).

 

(d)           Certificate of Adjustment.  Ineach case of an adjustment or readjustment of the Warrant Price or anadjustment of the kind or number of securities issuable upon exercise of theWarrant, or both, the Company, at its own expense, shall cause its principal financialofficer to compute such adjustment or readjustment in accordance with theprovisions hereof and prepare a certificate showing such adjustment orreadjustment, and shall mail such certificate, by first class mail, postageprepaid, to the Holder at the address provided in or pursuant to Section 12hereof not later than 20 days following the event prompting such adjustment orreadjustment.  Such certificate shall setforth such adjustment or readjustment, showing in reasonable detail the factsupon which such adjustment or readjustment is based (including a description ofthe basis on which the Board of Directors of the Company made any determinationhereunder).  No adjustment of the WarrantPrice shall be required to be made unless it would result in an increase ordecrease of at least one cent ($0.01), but any adjustments not made because ofthis sentence shall be carried forward and taken into account in any subsequentadjustment otherwise required hereunder.

 

(e)           No Impairment.  TheCompany shall not, by amendment of its Certificate of Incorporation, by-laws orother organizational documents, or through a reorganization, transfer ofassets, consolidation, merger, dissolution, issue, or sale of securities or anyother voluntary action, avoid or seek to avoid the observance or performance ofany of the terms to be observed or performed under this Warrant by the Company,but shall subject to Section 9 at all times in good faith assist in carryingout all of the provisions of this Section 2 and in taking all such action asmay be necessary or appropriate to protect the Holder’s rights under thisSection 2 against impairment.

 

(f)            Fractional Shares.  Nofractional shares shall be issuable upon exercise or conversion of the Warrantand the number of shares to be issued shall be rounded down to the nearestwhole share.  If a fractional shareinterest arises upon any exercise or conversion of the Warrant, the Companyshall eliminate such fractional share interest by paying the Holder an amountcomputed by multiplying the fractional interest by the fair market value of afull share.

 

3.             No Stockholder Rights.  ThisWarrant, by itself, as distinguished from any shares purchased hereunder, shallnot (i) entitle the Holder to any of the rights of a stockholder of the Companyor (ii) impose any liabilities on the Holder to purchase any securities or as astockholder of the Company, whether such liabilities are asserted by theCompany or by creditors of the Company.

 

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4.             Reservation of Stock.  TheCompany covenants and agrees that it will reserve at all times from itsauthorized and unissued stock a sufficient number of shares to provide for theissuance of the Warrant Shares upon the exercise of this Warrant.  The Company further covenants and agrees thatthis Warrant is, and any Warrants issued in substitution for or replacement ofthis Warrant and all Warrant Shares, will upon issuance be duly authorized andvalidly issued and, in the case of Warrant Shares, upon issuance will be fullypaid and non-assessable and free from all preemptive rights of any stockholder,and from all taxes, liens and charges with respect to the issue thereof (otherthan transfer taxes) and, if the Common Stock of the Company is then listed onany national securities exchanges (as defined in the Exchange Act) or quoted onNASDAQ, shall be duly listed or quoted thereon, as the case may be. In theevent that the number of authorized but unissued shares of such Common Stockshall not be sufficient to effect the exercise of this entire Warrant intoWarrant Shares, then in addition to such other remedies as shall be availableto the Holder of this Warrant, the Company shall promptly take such corporateaction as may be necessary to increase its authorized but unissued shares ofsuch Common Stock to such number of shares as shall be sufficient for suchpurpose.  The duly authorized issuance ofthis Warrant and duly authorized approval of the Product Development Agreementby the Company shall constitute full authority to the Company’s officers whoare charged with the duty of executing stock certificates to execute and issuethe necessary certificates for the Warrant Shares issuable upon the exercise ofthis Warrant.

 

5.             Exercise of Warrant.

 

(a)           This Warrantmay be exercised by the Holder hereof, in whole (but not in part, except inorder to comply with Section 5(c) hereof, in part), at any time from and afterthe Issuance Date and prior to the Termination Date, at the election of theHolder hereof (with the notice of exercise substantially in the form attachedhereto as Attachment 1 duly completed and executed), by the surrender ofthis Warrant at the principal office of the Company or Transfer Agent (theaddresses of each of which are set forth in Section 12 hereof) and the paymentto the Company, by certified or bank check, or by wire transfer to an accountdesignated by the Company of an amount equal to the then applicable WarrantPrice multiplied by the number of Warrant Shares then being purchased.  This Warrant shall be deemed to have beenexercised immediately prior to the close of business on the date of itssurrender for exercise as provided above, and the person entitled to receivethe Warrant Shares issuable upon such exercise shall be treated for allpurposes as the holder of such shares of record as of the close of business onsuch date.  As promptly as practicableafter such date, the Company shall issue and deliver to the person or personsentitled to receive the same a certificate or certificates for the number offull Warrant Shares issuable upon exercise.

 

# (b)           In lieu of exercising this Warrant for cash,the Holder may elect to receive shares equal to the value of this Warrant bysurrender of this Warrant at the principal office of the Company or theTransfer Agent together with notice of such election substantially in the formattached hereto as Attachment 1 duly completed and executed (a “NetExercise”).  The Company shall issue to aHolder who Net Exercises a number of Warrant Shares computed using thefollowing formula:

# ** **

|   | Y (A - B) |   |
|--------|-----------|--------|
| X =    |      | A      |   |
|        |           |        |  |

 

Where

 

X =          The number of Warrant Shares to be issued tothe Holder.

 

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Y =          The number of Warrant Shares purchasableunder this Warrant (at the date of such calculation).

 

A =         The fair marketvalue of one (1) Warrant Share (at the date of such calculation).

 

B =          The Warrant Price (as adjusted to the date ofsuch calculation).

 

Forpurposes of this Section 5, the fair market value of a Warrant Share shallmean:

 

### (i)            If traded on a securities exchange, theNasdaq National Market or Nasdaq Capital Market, the fair market value of theCommon Stock shall be deemed to be the closing price of the Common Stock onsuch exchange or market on the trading day immediately prior to the date ofexercise by the Holder;

###  

### (ii)           If traded on the Nasdaq Stock Market (otherthan the Nasdaq National Market or Nasdaq Capital Market) or otherover-the-counter system, the fair market value of the Common Stock shall bedeemed to be the closing bid price of the Common Stock on the trading dayimmediately prior to the date of exercise; and

###  

(iii)          If there is nopublic market for the Common Stock, the fair market value shall be the priceper Warrant Share that the Company could obtain from a willing buyer forWarrant Shares sold by the Company from authorized but unissued Warrant Shares,as such prices shall be determined in good faith by the Company’s Board ofDirectors.

 

(c)           The Holder shall not be entitled to exercisethis Warrant for a number of Warrant Shares in excess of that number of WarrantShares which, upon giving effect to such exercise, would cause the aggregatenumber of shares of Common Stock beneficially owned by the Holder to exceed9.9% of the outstanding shares of the Common Stock following suchexercise.  For purposes of the foregoingproviso, the aggregate number of shares of Common Stock beneficially owned bythe Holder shall include the number of shares of Common Stock issuable uponexercise of this Warrant with respect to which determination of such proviso isbeing made, but shall exclude the shares of Common Stock which would beissuable upon (i) exercise of the remaining, unexercised Warrants beneficiallyowned by the Holder and (ii) exercise or conversion of the unexercised orunconverted portion of any other securities of the Company beneficially ownedby the Holder subject to a limitation on conversion or exercise analogous tothe limitation contained herein.  Exceptas set forth in the preceding sentence, for purposes of this Section 5(c),beneficial ownership shall be calculated in accordance with Section 13(d) ofthe Exchange Act.  The Holder may waivethe foregoing limitation by written notice to the Company upon not less than 61days prior written notice (with such waiver taking effect only upon theexpiration of such 61 day notice period). For purposes of this Section 5(c), in determining the number ofoutstanding shares of Common Stock, the Holder may rely on the number ofoutstanding shares of Common Stock as reflected in (x) the Company’s mostrecent Form 10-Q or Form 10-K, as the case may be, filed with the SEC on thedate thereof, (y) a more recent public announcement by the Company or (z) anyother notice by the Company or the Transfer Agent setting forth the number ofshares of Common Stock outstanding.  Uponthe written request of the Holder, the Company shall within three trading daysconfirm in writing or by electronic mail to the Holder the number of shares ofCommon Stock then outstanding.

 

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6.             Transfer of Warrant.  ThisWarrant may not be transferred or assigned by the Holder hereof, other than toan Affiliate (as defined in the Product Development Agreement) of the Holder; providedthat in the case of any such transfer, the transferor provides, at the Company’srequest, an opinion of counsel reasonably satisfactory to the Company that suchtransfer does not require registration under the Securities Act.

 

7.             Legends.  Upon issuance, the certificateor certificates evidencing any Warrant Shares shall bear legends as set forthin the Product Development Agreement.

 

8.             Termination.  This Warrant shall terminateat 5:00 p.m. New York City time on the Termination Date.

 

9.             Warrant Exchangeable for DifferentDenominations.  This Warrant is exchangeable, upon thesurrender hereof by the Holder at the principal office of the Company or transferagent, for new Warrants of like tenor representing in the aggregate thepurchase rights hereunder, and each of such new Warrants shall represent suchportion of such rights as is designated by the Registered Holder at the time ofsuch surrender.  At the request of theHolder (pursuant to a transfer of Warrants or otherwise), this Warrant may beexchanged for one or more Warrants to purchase Common Stock.  The date the Company initially issues thisWarrant shall be deemed to be the date of issuance hereof regardless of thenumber of times new certificates representing the unexpired and unexercisedrights formerly represented by this Warrant shall be issued.  Each warrant representing a portion of therights hereunder constitutes a Warrant as defined herein.

 

10.           Ownership of Warrants.  TheCompany may treat the person in whose name any Warrant is registered on theregister kept at the principal office of the Company as the owner and Holderthereof for all purposes, notwithstanding any notice to the contrary, but inall events recognizing any transfers made in accordance with the terms of thisWarrant.

 

11.           Warrant Register.  TheCompany shall maintain at its principal executive offices books for theregistration and the registration of transfer of the Warrant.  The Company may deem and treat the Holder soregistered as the absolute owner hereof (notwithstanding any notation ofownership or other writing thereon made by anyone) for all purposes and shallnot be affected by any notice to the contrary, other than a notice inconformity with Section 12 hereof signed by the previous registered Holderindicating that the warrant has been transferred or assigned pursuant toSection 6 hereof. The initial registered Holder is **[insert name].**

 

12.           Notices.  Any notices, consents, waiversor other communications required or permitted to be given under the terms ofthis Warrant must be in writing and will be deemed to have been delivered: (i)upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile(provided confirmation of transmission is mechanically or electronicallygenerated and kept on file by the sending party); or (iii) one trading dayafter deposit with a nationally recognized overnight delivery service, in eachcase properly addressed to the party to receive the same.  The addresses and facsimile numbers for suchcommunications shall be:

 

Ifto the Company, to:

 

PharmacopeiaDrug Discovery, Inc.

3000Eastpark Boulevard

Cranbury,NJ 08512

Attn:Chief Financial Officer

 

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witha copy to:

 

PharmacopeiaDrug Discovery, Inc.

3000Eastpark Boulevard

Cranbury,NJ 08512

Attn:General Counsel

 

Ifto the Holder, to:

 

 

orsuch other address provided to the Company pursuant to Section 11 hereof

 

Ifto the Transfer Agent, to:

 

American Stock Transfer & Trust Company

6201 15th Avenue

Brooklyn, NY11219-5498

 

orat such other address and/or facsimile number and/or to the attention of suchother person as the recipient party has specified by written notice given toeach other party three (3) trading days prior to the effectiveness of suchchange.  Written confirmation of receipt(A) given by the recipient of such notice, consent, waiver or othercommunication, (B) mechanically or electronically generated by the sender’sfacsimile machine containing the time, date, and recipient facsimile number or(C) provided by a nationally recognized overnight delivery service, shall berebuttable evidence of personal service, receipt by facsimile or receipt from anationally recognized overnight delivery service in accordance with clause (i),(ii) or (iii) above, respectively.

 

13.           Miscellaneous.  ThisWarrant shall be governed by the laws of the State of Delaware. The headings inthis Warrant are for purposes of convenience and reference only, and shall notbe deemed to constitute a part hereof. Initially capitalized terms used but not defined herein shall have themeanings ascribed to such terms in the Product Development Agreement.  Neither this Warrant nor any term hereof maybe changed or waived orally, but only by an instrument in writing signed by theCompany and****the Holder.  Upon receipt of evidence reasonablysatisfactory to the Company of the ownership of and the loss, theft,destruction or mutilation of any Warrant and, in the case of any such loss,theft or destruction, upon receipt of indemnity or security reasonablysatisfactory to the Company or, in the case of any such mutilation, uponsurrender and cancellation of such Warrant, the Company will make and deliver,in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant oflike tenor and representing the right to purchase the same aggregate number ofWarrant Shares.  This Warrant may beamended with, and only with, the written consent of the Company and theHolder.  Any waiver of any term,covenant, agreement or condition contained in this Warrant shall not be deemeda waiver of any other term, covenant, agreement or condition, and any waiver ofany default in any such term, covenant, agreement or condition shall not bedeemed a waiver of any later default thereof or of any default of any otherterm, covenant, agreement or condition. All representations, warranties and covenants contained herein shallsurvive the execution and delivery of this Warrant and the issuance of anyWarrant Shares upon the exercise hereof. In the event that any court or any governmental authority or agencydeclares all or any part of any Section of this Warrant to be unlawful or invalid,such unlawfulness or invalidity shall not serve to invalidate any other Sectionof this Warrant, and in the 

 

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eventthat only a portion of any Section is so declared to be unlawful or invalid,such unlawfulness or invalidity shall not serve to invalidate the balance ofsuch Section.  All provisions of thisWarrant shall be binding upon and inure to the benefit of the parties and theirrespective heirs, legatees, executors, administrators, legal representatives,successors, and permitted transferees and assigns.  No person other than the holder of thisWarrant and the Company shall have any legal or equitable right, remedy orclaim under or in respect of, this Warrant.

 

14.           Limitation onIssuance.  Notwithstanding anythingto the contrary in this Agreement, in no event shall the Company issue,pursuant to this Agreement, a number of shares of Common Stock equal to or inexcess of 20% of the number of shares of Common Stock outstanding at theIssuance Date, or otherwise be required to take any action that would createthe necessity of a stockholder vote under NASD Rule 4350.

 

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**Exhibit A**

 

ISSUED:March 24, 2006

 

 

**PHARMACOPEIADRUG DISCOVERY, INC.**

 

 
| By:    |   |   |
|--------|--------|--------|
|   |
| Name:  |   |   |
|   |
| Title: |   |   |
|        |        |        |  |  |

 

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Attachment 1

 

NOTICEOF EXERCISE

 

TO:        PHARMACOPEIA DRUG DISCOVERY, INC.

 

1.             The undersigned hereby:

 

•       elects to purchase    sharesof Common Stock of the Company pursuant to the terms of the attached Warrant,and tenders herewith payment of the purchase price of such shares in full, or

 

•       elects to exercise its net issuance rightspursuant to Section 5(b) of the attached Warrant with respect to   shares of Common Stock.

 

2.         Please issue a certificate or certificatesrepresenting said Warrant Shares in the name of the undersigned or in suchother name as is specified below:

 
|   |                                            |   |   |   |
|--------|-------------------------------------------------|--------|--------|--------|
|   | (Name in which certificate(s) are to be issued) |   |
|   |                                            |   |
|   |                                            |   |   |   |
|   | (Address)                                       |   |

 

 
|   |                     |
|--------|--------------------------|
|   | (Name of Warrant Holder) |
|   |                     |
|   | By:                      |   |
|   |                     |
|   | Title:                   |   |
|   |                     |
|   | Date  signed:            |   |
|        |                          |  |  |  |

 

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