Document:

EX-4.1

 

Exhibit 4.1

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR
THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THIS NOTE MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT FOR THE NOTE UNDER APPLICABLE SECURITIES LAWS OR
UNLESS OFFERED, SOLD, PLEDGED, HYPOTHECATED OR TRANSFERRED PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. THE COMPANY SHALL BE
ENTITLED TO REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED TO THE EXTENT THAT AN OPINION IS REQUIRED PURSUANT TO
THE AGREEMENT UNDER WHICH THE NOTE WAS ISSUED.

THE RIGHT OF THE HOLDER OF THIS CONVERTIBLE SUBORDINATED NOTE TO RECEIVE PAYMENT
HEREUNDER IS SUBJECT AND SUBORDINATED IN PAYMENT TO THE SENIOR DEBT TO THE EXTENT
AND IN THE MANNER SET FORTH IN PARAGRAPH 3 OF THIS NOTE.

Columbia Laboratories, Inc.

CONVERTIBLE SUBORDINATED

NOTE

                                               

 

	 	 	 
	Issuance Date: December 22, 2006

	 	$                    

          For value received, Columbia Laboratories, Inc., a Delaware corporation (the “Company”),
hereby promises to pay to                     , or its registered assigns (“Holder”), the principal amount
of $                     together with interest thereon from the date set out above as the Issuance Date (the
“Issuance Date”) until the date such amount becomes due and payable in accordance with the
provisions of this Note.

          This Note was issued pursuant to a Securities Purchase Agreement, dated as of December 21,
2006 (as amended and modified from time to time, the “Purchase Agreement”), between the Company and
certain investors, This Convertible Subordinated Note (including all Convertible Subordinated Notes
issued in exchange, transfer or replacement hereof, this “Note”) is one of an issue of Convertible
Subordinated Notes issued pursuant to the Purchase Agreement on the Issuance Date (collectively,
the “Notes” and such other Convertible Subordinated Notes, the “Other Notes”). The Purchase
Agreement contains terms governing the rights of the Holder, and all provisions of the Purchase
Agreement are hereby incorporated herein in full by reference. Except as defined in paragraph 9 or
unless otherwise indicated herein, capitalized terms used in this Note have the same meanings set
forth in the Purchase Agreement.

 

 

          1. Payment of Interest. Except as otherwise expressly provided in paragraph 4(b),
interest shall accrue at the Interest Rate computed on the basis of a 360 day year of twelve thirty
day months on the unpaid principal amount of this Note, outstanding from time to time and to the
extent permitted by applicable law, on any interest which has not been paid on the date on which it
is due and payable, or (if less) at the highest rate then permitted under applicable law. Subject
to paragraph 3, the Company shall pay to the Holder in cash all accrued and unpaid interest in
arrears for each calendar quarter on the first day of each April, July, October and January,
beginning April 1, 2007. Any accrued interest which for any reason has not theretofore been paid
shall be paid in full on the date on which the final principal payment on this Note is made.

          2. Payment of Principal on Note.

               Maturity. The Company shall pay the principal amount then outstanding of this Note to
the Holder on December 31, 2011, together with all accrued and unpaid interest. This Note shall
not be prepaid except with the express written consent of the holders of the Senior Debt; provided
that nothing herein shall affect the right of the Holders to convert at any time in accordance with
paragraph 5.

          3. Subordination.

          (a) Extent of Subordination. All amounts (including all principal, interest, premiums
and other payments) payable by the Company under the Notes (the “Subordinated Debt”) are and shall
be subordinate and junior in right of payment to the prior payment in full of the Senior Debt (as
defined below) to the extent and in the manner set forth in this paragraph 3. Each holder of the
Senior Debt, whether now outstanding or hereafter incurred, shall be deemed to have acquired the
Senior Debt in reliance upon the provisions contained in this paragraph 3. This paragraph 3 shall
constitute a continuing offer to all persons who become holders of, or continue to hold, the Senior
Debt, and the provisions herein are made for the benefit of the holders of the Senior Debt, and
such holders are made obligees hereunder and any one or more of them may enforce such provisions.

          (b) Payment Suspension.

               (i) The Holder shall, at all times, be entitled to receive payments on account of the
Subordinated Debt in accordance with the terms of this Note; provided, however, that, if and so
long as a Senior Default (as defined below) has occurred and is continuing, and written notice
thereof (the “Senior Default Notice”) has been delivered by the holders of the Senior Debt to the
holders of the Subordinated Debt and the Company referencing the provisions of this paragraph 3 and
demanding a suspension of payments during the period of such continuance in accordance with this
subparagraph (b) (such period of time being referred to as the “Payment Suspension Period”), then,
except as otherwise set forth below, the Company shall not make, and the holders of the
Subordinated Debt shall not accept or receive from the Company, directly or indirectly, in cash or
other property or by set-off or in any other manner (including, without limitation, from or by way
of any collateral or redemption or sale), payment of all or any part of the Subordinated Debt
unless and until the earlier of (A) the Senior Debt has been paid in full or (B) the Senior Default
has been cured by the Company or waived by the holders of the Senior Debt or the holders of the
outstanding principal amount of the Senior Debt have terminated the Payment Suspension Period, in
each case in accordance with the terms of the relevant agreements governing such Senior Debt.

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               (ii) “Senior Default” means (i) the occurrence and continuance
(after any applicable grace
period) of a default in payment of all or any part of the Senior Debt, or (ii) the breach or
default by the Company of any term of this Note if the effect of such breach or default it to cause
an amount exceeding $500,000 to become due prior to its stated maturity or to permit the Holder of
this Note to cause an amount exceeding $500,000 to become due prior to its stated maturity, or
(iii) the occurrence of any event that provides the Holder of this Note with cash redemption rights
prior to its stated maturity.

          (c) Liquidation, Winding Up, etc. Upon any distribution of assets of the Company or
upon any dissolution, winding up, liquidation or reorganization of the Company, whether in any
bankruptcy, insolvency, reorganization or receivership proceeding or upon an assignment for the
benefit of creditors or any other marshalling of the assets and liabilities of the Company:

               (i) the holders of all Senior Debt shall be entitled to receive payment in full of the
principal thereof, the interest due thereon and any premium or other payment obligation with
respect thereto before the holders of the Subordinated Debt are entitled to receive any payment
upon the Subordinated Debt; and

               (ii) any payment or distribution of assets of the Company of any kind or character, whether in
cash, property or securities, by set-off or otherwise, to which the holders of the Subordinated
Debt would be entitled but for the provisions of this paragraph 3 shall be paid by the liquidating
trustee or agent or other Person making such payment or distribution, whether a trustee in
bankruptcy, a receiver or liquidating trustee or otherwise, directly to the holders of Senior Debt
or their agents or representatives or to the trustee or trustees under any indenture under which
any instruments evidencing any of such Senior Debt may have been issued, ratably according to the
aggregate amounts remaining unpaid on account of the principal of, interest on and any premium or
other amounts payable with respect to the Senior Debt held or represented by each such holder, to
the extent necessary to make payment in full of all Senior Debt remaining unpaid, after giving
effect to any concurrent payment or distribution to the holders of the Senior Debt.

The consolidation of the Company with, or the merger of the Company into, another entity shall not
be deemed a dissolution, winding up, liquidation or reorganization of the Company for the purposes
of this paragraph 3(c) if such other entity is organized in the United States and such entity, as a
part of such consolidation or merger, succeeds to the Company’s property and business and assumes
the Company’s obligations (including the Senior Debt and the Subordinated Debt).

          (d) Payment Held in Trust. All payments or distributions by the Company upon or with
respect to the Subordinated Debt which are received by the holders thereof in violation of or
contrary to the provisions of subparagraph (b) or (c) above shall be received in trust for the
benefit of the holders of the Senior Debt and shall be paid over upon demand to such holders in the
same form as so received (with all necessary endorsements) to be applied to the payment of the
Senior Debt.

          (e) Subrogation. Upon receipt by the holders of the Senior Debt of amounts sufficient
to pay all Senior Debt in full, to the extent any amounts which are otherwise payable with respect
to the Subordinated Debt but for the provisions of this paragraph 3 have been paid over to the
holders of the Senior Debt, the holders of the Subordinated Debt shall be subrogated to the rights
of the holders of Senior Debt to receive payments or distributions of cash, property

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or securities of the Company applicable to Senior Debt until the Subordinated Debt is paid in
full, and no such payments or distributions to the holders of the Senior Debt of cash, property or
securities otherwise distributable to the holders of Subordinated Debt shall, as between the
Company, its creditors (other than the holders of Senior Debt) and the holders of the Subordinated
Debt, be deemed to be payment by the Company to the holders of the Senior Debt. Upon any payment
or distribution of assets of the Company referred to in this paragraph 3, the holders of the
Subordinated Debt shall be entitled to rely upon a certificate of the liquidating trustee or agent
or other Person making any distribution to the holders of the Subordinated Debt for the purpose of
ascertaining the Persons entitled to participate in such distribution, the holders of Senior Debt
and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent thereto or to this paragraph 3. The
provisions of this paragraph 3 shall continue to be effective or be reinstated, as the case may be,
if at any time any payment of any of the Senior Debt is rescinded or must otherwise be returned by
the holders of the Senior Debt for any reason whatsoever (including, without limitation, the
insolvency, bankruptcy or reorganization of the Company) all as though such payment had not been
made. Subject to the foregoing, the subordination provisions in this paragraph 3 shall terminate
when all the Senior Debt has been indefeasibly and irrevocably paid in full.

          (f) Rights Not Subordinated. The provisions of this paragraph 3 are for the purpose
of defining the relative rights of the holders of Senior Debt on the one hand and the holders of
Subordinated Debt on the other hand, and nothing herein shall impair (as between the Company, the
holders of the Subordinated Debt) the Company’s obligation to the holders of the Subordinated Debt
to pay to such holders the full amount of the Subordinated Debt in accordance with the terms of the
Purchase Agreement and the Notes. No provision of this paragraph 3 shall be construed to prevent
the holders of the Subordinated Debt from exercising all rights and remedies available under the
Notes, the Purchase Agreement or under applicable law upon the occurrence of an Event of Default or
otherwise, subject to the rights of the holders of the Senior Debt as set forth above to receive
payments otherwise payable to the holders of the Subordinated Debt, and no provision of this
paragraph 3 shall be deemed to subordinate, to any extent, any claim or right of any holder of the
Subordinated Debt to any claim against the Company by any creditor or any other Person except to
the extent expressly provided herein.

          (g) Continuing Conversion Rights. Nothing in this paragraph 3 shall affect the right
of the Holder to convert at any time, in accordance with paragraph 5, including, without
limitation, during a Senior Default or the insolvency, bankruptcy or reorganization of the Company.

          (h) Amendment. The provisions of this paragraph 3 may not be amended or modified
without the written consent of the holders of all the Senior Debt.

          4. Events of Default.

          (a) Definition. For purposes of this Note, an Event of Default shall be deemed to
have occurred if:

               (i) the Company fails to pay when due and payable (whether at maturity or otherwise) any
principal, interest or other payment on the Note, and such failure to pay any such amount, other
than the principal, is not cured within 30 days after the occurrence thereof;

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               (ii) the Company breaches any covenant or other term or condition in any Transaction Document
(excluding Article 6 of the Purchase Agreement and the Events of Default set forth in this
paragraph 4), and such breach is not cured within 30 days from the Company’s knowledge thereof;

               (iii) the representations and warranties contained in the Purchase Agreement were not true and
correct at the Issuance Date (except to the extent expressly made as of an earlier date, in which
case, as of such earlier date) and such failure, individually or in the aggregate, results in a
material adverse effect on the business, results of operations or financial condition of the
Company and its Subsidiaries taken as a whole;

               (iv) the Company or any Subsidiary makes an assignment for the benefit of creditors or admits
in writing its inability to pay its debts generally as they become due; or an order, judgment or
decree is entered adjudicating the Company or any Subsidiary bankrupt or insolvent; or any order
for relief with respect to the Company or any Subsidiary is entered under the Federal Bankruptcy
Code; or the Company or any Subsidiary petitions or applies to any tribunal for the appointment of
a custodian, trustee, receiver or liquidator of the Company or any Subsidiary, or of any
substantial part of the assets of the Company or any Subsidiary, or commences any proceeding (other
than a proceeding for the voluntary liquidation and dissolution of any Subsidiary) relating to the
Company or any Subsidiary under any bankruptcy reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any jurisdiction; or any such petition or
application is filed, or any such proceeding is commenced, against the Company or any Subsidiary
and either (A) the Company or any such Subsidiary by any act indicates its approval thereof,
consent thereto or acquiescence therein or (B) such petition, application or proceeding is not
dismissed within 60 days;

               (v) a judgment, to the extent not covered under an insurance policy, in excess of $1,000,000
is rendered against the Company or any Subsidiary and, within 60 days after entry thereof, such
judgment is not discharged in full or execution thereof stayed pending appeal, or within 60 days
after the expiration of any such stay, such judgment is not discharged in full; or

               (vi) the Company or any Subsidiary defaults in the performance of any obligation if the effect
of such default is to cause an amount exceeding $500,000 to become due prior to its stated maturity
or to permit the holder or holders of such obligation to cause an amount exceeding $500,000 to
become due prior to its stated maturity.

          The foregoing shall constitute Events of Default whatever the reason or cause for any such
Event of Default and whether it is voluntary or involuntary or is effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body and regardless of the effects of any subordination provisions.

          (b) Consequences of Events of Default.

               (i) Upon the occurrence of an Event of Default the Interest Rate on the Notes shall increase
immediately by an increment of four percentage point(s) per annum to the extent permitted by law.
Any increase of the Interest Rate resulting from the operation of this subparagraph shall terminate
as of the close of business on the date on which no Events of Default exist (subject to subsequent
increases pursuant to this subparagraph).

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               (ii) If an Event of Default of the type described in subparagraph 4(a)(iv) has occurred, the
aggregate principal amount of the Notes (together with all accrued interest thereon and all other
amounts due and payable with respect thereto) shall become immediately due and payable without any
action on the part of any Holder, and the Company shall immediately pay to the holders of the Notes
all amounts due and payable with respect to the Notes.

               (iii) If any Event of Default (other than under subparagraph 4(a)(iv)) has occurred and is
continuing, the holder or holders of Notes representing at least 25% of the aggregate principal
amount of Notes then outstanding may declare all or any portion of the outstanding principal amount
of the Notes (together with all accrued interest thereon and all other amounts due and payable with
respect thereto) to be immediately due and payable and may demand immediate payment of all or any
portion of the outstanding principal amount of the Notes (together with all such other amounts then
due and payable) owned by such holder or holders. The Company shall give prompt written notice of
any such demand to the other holders of Notes, each of which may demand immediate payment of all or
any portion of such holder’s Note. If any holder or holders of the Notes demand immediate payment
of all or any portion of the Notes, the Company shall immediately pay to such holder or holders all
amounts due and payable with respect to such Notes.

               (iv) Each Holder shall also have any other rights which such Holder may have pursuant to
applicable law.

               (v) The Company hereby waives diligence, presentment, protest and demand and notice of protest
and demand, dishonor and nonpayment of this Note and expressly agrees that this Note, or any
payment hereunder, may be extended from time to time and that the holder hereof may accept security
for this Note or release security for this Note, all without in any way affecting the liability of
the Company hereunder.

          5. Conversion.

          This Note shall be convertible into shares of Common Stock on the terms and conditions set
forth in this paragraph 5.

          (a) Conversion Procedure.

               (i) The Holder may convert all or any portion of the outstanding principal amount of this Note
into a number of shares of the Conversion Stock (excluding any fractional share) determined by
dividing the principal amount designated by such Holder to be converted by the Conversion Price
then in effect.

               (ii) To convert any principal amount into shares of Conversion Stock on any date (a
“Conversion Date”), the Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt
on or prior to 11:59 p.m., New York Time, on such date, a copy of an executed notice of conversion
in the form attached hereto as Annex A (the “Conversion Notice”) to the Company and (B) if required
by paragraph 5(a)(iv), surrender this Note to a nationally recognized overnight delivery service
for delivery to the Company (or an indemnification undertaking with respect to this Note in the
case of its loss, theft or destruction). On or before the first Business Day following the date of
receipt of a Conversion Notice, the Company shall transmit by facsimile a confirmation of receipt
of such Conversion Notice to the Holder and the Company’s transfer agent (the “Transfer Agent”).
On or before the third

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Business Day following the date of receipt of a Conversion Notice (the “Share Delivery Date”), the Company shall (1)
(X) if legends are not required to be placed on certificates of Conversion Stock pursuant to the
Purchase Agreement and provided that the Transfer Agent is participating in the Depository Trust
Company’s (“DTC”) Fast Automated Securities Transfer Program, credit such aggregate number of
shares of Conversion Stock to which the Holder shall be entitled to the Holder’s or its designee’s
balance account with DTC through its Deposit Withdrawal Agent Commission system or (Y) if the
Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue
and deliver to the address as specified in the Conversion Notice, a certificate, registered in the
name of the Holder or its designee, for the number of shares of Conversion Stock to which the
Holder shall be entitled which certificates shall not bear any restrictive legends unless required
pursuant to Section 3.6 of the Purchase Agreement. The Person or Persons entitled to receive the
shares of Conversion Stock issuable upon a conversion of this Note shall be treated for all
purposes as the record holder or holders of such shares of Conversion Stock on the Conversion Date.
On the date that the Conversion Stock is delivered to the Holder, the Company shall also deliver
to the Holder a payment in an amount equal to the sum of all accrued interest with respect to the
principal amount converted, which has not been paid prior thereto.

               (iii) If within three Trading Days after the Company’s receipt of the facsimile copy of a
Conversion Notice the Company shall fail to issue and deliver a certificate to the Holder or credit
the Holder’s balance account with DTC for the number of shares of Conversion Stock to which the
Holder is entitled upon such holder’s conversion of any principal amount (a “Conversion Failure”),
and if on or after such Trading Day the Holder purchases (in an open market transaction or
otherwise) Common Stock to deliver in satisfaction of a sale by the Holder of Conversion Stock
issuable upon such conversion that the Holder anticipated receiving from the Company (a “Buy-In”),
then the Company shall, within three Business Days after the Holder’s request and in the Holder’s
discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total purchase
price (including brokerage commissions and other out of pocket expenses, if any) for the shares of
Common Stock so purchased (the “Buy-In Price”), at which point the Company’s obligation to deliver
such certificate (and to issue such Conversion Stock) shall terminate, or (ii) promptly honor its
obligation to deliver to the Holder a certificate or certificates representing such Conversion
Stock and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over
the product of (A) such number of shares of Common Stock, times (B) the Closing Bid Price on the
Conversion Date.

               (iv) The Company shall maintain a register (the “Register”) for the
recordation of the names
and addresses of the holders of each Note and the principal amount of the Notes held by such
holders (the “Registered Notes”). The entries in the Register shall be conclusive and binding for
all purposes absent manifest error. The Company and the holders of the Notes shall treat each
Person whose name is recorded in the Register as the owner of a Note for all purposes, including,
without limitation, the right to receive payments of Principal and Interest hereunder,
notwithstanding notice to the contrary. A Registered Note may be assigned or sold in whole or in
part only by registration of such assignment or sale on the Register. Upon its receipt of a
request to assign or sell all or part of any Registered Note by a Holder, the Company shall record
the information contained therein in the Register and issue one or more new Registered Notes in the
same aggregate principal amount as the principal amount of the surrendered Registered Note to the
designated assignee or transferee pursuant to paragraph 13. Notwithstanding anything to the
contrary set forth herein, upon conversion of any portion of this Note in accordance with the terms
hereof, the Holder shall not be required to physically surrender this Note to the Company unless
(A) the full principal amount represented by this Note is being converted or (B) the Holder has
provided the Company with prior written notice

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(which notice may be included in a Conversion Notice) requesting reissuance of this Note upon
physical surrender of this Note. The Holder and the Company shall maintain records showing the
principal converted and the dates of such conversions or shall use such other method, reasonably
satisfactory to the Holder and the Company, so as not to require physical surrender of this Note
upon conversion.

               (v) If any fractional share of Conversion Stock would, except for the provisions hereof, be
deliverable upon conversion of this Note, the Company, in lieu of delivering such fractional share,
shall pay an amount equal to the Market Price of such fractional share as of the date of such
conversion.

               (vi) All certificates evidencing the Conversion Shares to be issued to the Holder may bear a
legend in substantially the following form:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES. THE SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED,
SOLD, PLEDGED, HYPOTHECATED OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THOSE LAWS. THE COMPANY SHALL BE ENTITLED TO
REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED TO THE EXTENT THAT AN OPINION IS REQUIRED PURSUANT TO THE AGREEMENT
UNDER WHICH THE SECURITIES WERE ISSUED.

               (vii) The issuance of certificates for shares of Conversion Stock upon conversion of this Note
shall be made without charge to the Holder for any issuance tax in respect thereof or other cost
incurred by the Company in connection with such conversion and the related issuance of shares of
Conversion Stock. Upon conversion of this Note, the Company shall take all such actions as are
necessary in order to ensure that the Conversion Stock issuable with respect to such conversion
shall be validly issued, fully paid and nonassessable.

               (viii) The Company shall not close its books against the transfer of Conversion Stock issued
or issuable upon conversion of this Note in any manner which interferes with the timely conversion
of this Note. The Company shall assist and cooperate with any Holder required to make any
governmental filings or obtain any governmental approval prior to or in connection with the
conversion of this Note (including, without limitation, making any filings required to be made by
the Company).

          (b) Conversion Price. The initial Conversion Price shall be $5.25, subject to
adjustment as set forth in this Note.

          (c) Limitations on Conversions.

               (i) Beneficial Ownership. The Company shall not effect any conversion of this Note or
otherwise issue shares of Common Stock pursuant to paragraphs

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5(e) and 5(h) hereof, and the Holder of this Note shall not have the right to convert any
portion of this Note pursuant to paragraph 5(a), to the extent that after giving effect to such
conversion, the Holder (together with the Holder’s affiliates) would beneficially own in excess of
9.99% (the “Maximum Percentage”) of the number of shares of Common Stock outstanding immediately
after giving effect to such conversion. For purposes of the foregoing sentence, the number of
shares of Common Stock beneficially owned by the Holder and its affiliates shall include the number
of shares of Common Stock issuable upon conversion of this Note with respect to which the
determination of such sentence is being made, but shall exclude the number of shares of Common
Stock which would be issuable upon (A) conversion of the remaining, non-converted portion of this
Note beneficially owned by the Holder or any of its affiliates and (B) exercise or conversion of
the unexercised or non-converted portion of any other securities of the Company (including, without
limitation, any Other Notes or warrants) subject to a limitation on conversion or exercise
analogous to the limitation contained herein beneficially owned by the Holder or any of its
affiliates. Except as set forth in the preceding sentence, for purposes of this paragraph 5(c),
beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended. For purposes of this paragraph 5(c), in determining the number
of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of
Common Stock as reflected in (x) the Company’s most recent Form 10-K, Form 10-Q or Form 8-K, as the
case may be (y) a more recent public announcement by the Company or (z) any other notice by the
Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. For
any reason at any time, upon the written request of the Holder, the Company shall within one
Business Day confirm in writing to the Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock shall be determined
after giving effect to the conversion or exercise of securities of the Company, including this
Note, by the Holder or its affiliates since the date as of which such number of outstanding shares
of Common Stock was reported.

               (ii) Principal Market Regulation. The Company shall not be obligated to issue any
shares of Common Stock upon conversion of this Note, and the Holder of this Note shall not have the
right to receive upon conversion of this Note any shares of Common Stock, if the issuance of such
shares of Common Stock would exceed the aggregate number of shares of Common Stock which the
Company may issue upon conversion or exercise, as applicable, of the Notes and Warrants without
breaching the Company’s obligations under the rules or regulations of the applicable Principal
Market (the number of shares which may be issued without violating such rules and regulations, the
"Exchange Cap”), except that such limitation shall not apply in the event that the Company (A)
obtains the approval of its stockholders as required by the applicable rules of such Principal
Market for issuances of Common Stock in excess of such amount or (B) obtains a written opinion from
outside counsel to the Company that such approval is not required, which opinion shall be
reasonably satisfactory to the Holders. Unless and until such approval or written opinion is
obtained, no purchaser of the Notes pursuant to the Purchase Agreement (the “Purchasers”) shall be
issued in the aggregate, upon conversion or exercise or otherwise, as applicable, of Notes or
Warrants, shares of Common Stock in an amount greater than the product of the Exchange Cap
multiplied by a fraction, the numerator of which is the principal amount of Notes issued to such
Purchasers pursuant to the Purchase Agreement on the Closing Date and the denominator of which is
the aggregate principal amount of all Notes issued to the Purchasers pursuant to the Securities
Purchase Agreement on the Closing Date (with respect to each Purchaser, the “Exchange Cap
Allocation”). In the event that any Purchaser shall sell or otherwise transfer any of such
Purchaser’s Notes, the transferee shall be allocated a pro rata portion of such Purchaser’s
Exchange Cap Allocation, and the restrictions of the prior sentence shall apply to such transferee
with respect to the portion of the Exchange Cap Allocation allocated to such

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transferee. In the event that any holder of Notes shall convert all of such holder’s Notes
into a number of shares of Common Stock which, in the aggregate, is less than such holder’s
Exchange Cap Allocation, then the difference between such holder’s Exchange Cap Allocation and the
number of shares of Common Stock actually issued to such holder shall be allocated to the
respective Exchange Cap Allocations of the remaining holders of Notes on a pro rata basis in
proportion to the aggregate principal amount of the Notes then held by each such holder.

          (d) Subdivision or Combination of Common Stock. If the Company at any time subdivides
(by any stock split, stock dividend or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to
such subdivision shall be proportionately reduced, and if the Company at any time combines (by
reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock
into a smaller number of shares, the Conversion Price in effect immediately prior to such
combination shall be proportionately increased.

          (e) Rights Upon Fundamental Transaction and Change of Control.

               (i) Assumption. The Company shall not enter into or be party to a Fundamental
Transaction unless (i) the Successor Entity assumes in writing all of the obligations of the
Company under this Note and the other Transaction Documents in accordance with the provisions of
this paragraph 5(e) pursuant to written agreements in form and substance reasonably satisfactory to
the Holders and approved by the Holders prior to such Fundamental Transaction, including agreements
to deliver to each holder of Notes in exchange for such Notes a security of the Successor Entity
evidenced by a written instrument substantially similar in form and substance to the Notes,
including, without limitation, having a principal amount and interest rate equal to the principal
amounts and the interest rates of the Notes then outstanding held by such holder, having similar
conversion rights and having similar ranking to the Notes, and reasonably satisfactory to the
Holders and (ii) the Successor Entity (including its Parent Entity) is a publicly traded
corporation whose common stock is quoted on or listed for trading on an Eligible Market (a “Public
Successor Entity”). Upon the occurrence of any Fundamental Transaction, the Successor Entity shall
succeed to, and be substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Note referring to the “Company” shall refer instead to the
Successor Entity), and may exercise every right and power of the Company and shall assume all of
the obligations of the Company under this Note with the same effect as if such Successor Entity had
been named as the Company herein. Upon consummation of the Fundamental Transaction, the Successor
Entity shall deliver to the Holder confirmation that there shall be issued upon conversion of this
Note at any time after the consummation of the Fundamental Transaction, in lieu of the shares of
the Common Stock (or other securities, cash, assets or other property) issuable upon the conversion
of the Notes prior to such Fundamental Transaction, such shares of the publicly traded common stock
(or their equivalent) of the Successor Entity (including its Parent Entity), as adjusted in
accordance with the provisions of this Note. The provisions of this paragraph shall apply
similarly and equally to successive Fundamental Transactions and shall be applied without regard to
any limitations on the conversion of this Note.

               (ii) Redemption Right. No sooner than 20 Trading Days nor later than ten Trading Days
prior to the consummation of a Change of Control, but not prior to the public announcement of such
Change of Control, the Company shall deliver written notice thereof via facsimile and overnight
courier to the Holder (a “Change of Control Notice”). At any time during the period beginning
after the Holder’s receipt of a Change of Control Notice and ending on 20 Trading Days after the
effective date of the Change of Control (the “Effective

- 10 -

 

Date”, and such period between the date of the Holder’s receipt of a Change of Control Notice
and the date ending on 20 Trading Days after the Effective Date, “Change of Control
Redemption/Conversion Period”), the Holder may require the Company to redeem all or any portion of
this Note by delivering written notice thereof (“Change of Control Redemption Notice”) to the
Company, which Change of Control Redemption Notice shall indicate the principal amount of the Note
being redeemed plus all accrued interest thereon and all other amounts due and payable with respect
thereto (the “Conversion Amount”) the Holder is electing to redeem. The portion of this Note
subject to redemption pursuant to this paragraph 5(e) shall be redeemed by the Company in cash at a
price equal to the Conversion Amount being redeemed (the “Change of Control Redemption Price”).
Redemptions required by this paragraph 5(e) shall be made in accordance with the provisions of this
paragraph 5(e) and shall have priority to payments to stockholders in connection with a Change of
Control. To the extent redemptions required by this paragraph 5(e) are deemed or determined by a
court of competent jurisdiction to be prepayments of the Note by the Company, such redemptions
shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this
paragraph 5(e), but subject to paragraph 5(c), until the Change of Control Redemption Price
(together with any interest thereon) is paid in full, the principal amount submitted for redemption
under this paragraph 5(e) (together with any interest thereon) may be converted, in whole or in
part, by the Holder into Common Stock pursuant to paragraph 5.

          (iii) Make-Whole Premium.

          (A) Upon the occurrence of a Change of Control, the Holder shall be entitled to receive
from the Company, on the applicable Change of Control Purchase Date, a Make-Whole Premium,
if any, if the Holder converts, in whole or in part, this Note pursuant to paragraph 5
hereof at any time during the Change of Control Redemption/Conversion Period. The
Make-Whole Premium shall be equal to an additional number of shares of Common Stock
calculated in accordance with paragraph 5(e)(iii)(B) hereof. The Make-Whole Premium will be
in addition to, and not in substitution for, any cash, securities or other assets otherwise
due to Holder upon conversion as described in this Note. For purposes of paragraph 5
hereof, the “Change of Control Purchase Date” shall mean the Effective Date; provided that
with respect to any conversion for which a Conversion Notice is delivered after the
Effective Date and during the Change of Control Redemption/Conversion Period, the Change of
Control Purchase Date shall mean the date that is three Business Days following the
applicable Conversion Date.

          (B) The “Make-Whole Premium” shall be equal to the principal amount of the portion of
the note being converted divided by $1,000 and multiplied by the applicable number of shares
of Common Stock determined by reference to the table below (the “Make-Whole Premium Table”)
and is based on the Effective Date and the Stock Price.

- 11 -

 

Make-Whole Premium Table

(Number of Additional Shares of Common Stock)

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Stock Price/	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Effective Date	 	$3.50	 	$3.85	 	$4.20	 	$4.55	 	$4.90	 	$5.25	 	$5.60	 	$5.95	 	$6.30	 	$6.65	 	$7.00	 	$7.35	 	$7.70	 	$8.05	 	$8.40	 	$8.75	 	$9.10	 	$9.45	 	$9.80	 	$10.15	 	$10.50
	 
	12/31/2006
	 	 	119.133	 	 	 	104.543	 	 	 	92.711	 	 	 	82.959	 	 	 	74.809	 	 	 	67.917	 	 	 	62.027	 	 	 	56.948	 	 	 	52.532	 	 	 	48.666	 	 	 	45.257	 	 	 	42.236	 	 	 	39.543	 	 	 	37.130	 	 	 	34.960	 	 	32.999	 	 	 	31.221	 	 	 	29.602	 	 	 	28.215	 	 	 	26.771	 	 	 	25.528	 
	12/31/2007
	 	 	114.372	 	 	 	99.254	 	 	 	87.056	 	 	 	77.054	 	 	 	68.739	 	 	 	61.745	 	 	 	55.801	 	 	 	50.705	 	 	 	46.300	 	 	 	42.466	 	 	 	39.106	 	 	 	36.146	 	 	 	33.525	 	 	 	31.191	 	 	 	29.106	 	 	27.234	 	 	 	25.548	 	 	 	24.023	 	 	 	22.641	 	 	 	21.383	 	 	 	20.236	 
	12/31/2008
	 	 	108.820	 	 	 	92.885	 	 	 	80.084	 	 	 	69.633	 	 	 	60.984	 	 	 	53.743	 	 	 	47.621	 	 	 	42.400	 	 	 	37.917	 	 	 	34.042	 	 	 	30.674	 	 	 	27.733	 	 	 	25.153	 	 	 	22.882	 	 	 	20.876	 	 	19.098	 	 	 	17.518	 	 	 	16.110	 	 	 	14.853	 	 	 	13.727	 	 	 	12.717	 
	12/31/2009
	 	 	103.252	 	 	 	86.470	 	 	 	73.153	 	 	 	62.402	 	 	 	53.583	 	 	 	46.243	 	 	 	40.046	 	 	 	34.746	 	 	 	30.155	 	 	 	26.131	 	 	 	22.564	 	 	 	19.371	 	 	 	16.488	 	 	 	13.866	 	 	 	11.468	 	 	9.266	 	 	 	7.237	 	 	 	5.364	 	 	 	3.654	 	 	 	2.042	 	 	 	0.382	 
	12/31/2010
	 	 	95.392	 	 	 	76.648	 	 	 	62.150	 	 	 	50.824	 	 	 	41.895	 	 	 	34.790	 	 	 	29.081	 	 	 	24.444	 	 	 	20.635	 	 	 	17.467	 	 	 	14.795	 	 	 	12.510	 	 	 	10.530	 	 	 	8.790	 	 	 	7.245	 	 	5.857	 	 	 	4.601	 	 	 	3.456	 	 	 	2.408	 	 	 	1.463	 	 	 	0.445	 
	12/31/2011
	 	 	95.238	 	 	 	69.264	 	 	 	47.619	 	 	 	29.304	 	 	 	13.703	 	 	 	0.000	 	 	 	0.000	 	 	 	0.000	 	 	 	0.000	 	 	 	0.000	 	 	 	0.000	 	 	 	0.000	 	 	 	0.000	 	 	 	0.000	 	 	 	0.000	 	 	0.000	 	 	 	0.000	 	 	 	0.000	 	 	 	0.000	 	 	 	0.000	 	 	 	0.000	 

 

 

               (iv) The exact Stock Price and Effective Date may not be set forth on the
Make-Whole Premium Table, in which case, if the Stock Price is between two Stock Prices on
the Make-Whole Premium Table or the Effective Date is between two Effective Dates on the
Make-Whole Premium Table, the Make-Whole Premium shall be determined by straight-line
interpolation between Make-Whole Premium amounts set forth for the higher and lower Stock
Prices and the two Effective Dates, as applicable, based on a 365-day year (or a 366-day
year if the Effective Date occurs in a leap year). The Stock Prices set forth in the column
headers are subject to adjustment pursuant to paragraph 5(d).

               (A) If the Stock Price is less than or equal to $3.50 (subject to adjustment
pursuant to paragraph 5(d), the “Stock Price Threshold”), the Make-Whole Premium
shall be equal to zero shares of Common Stock.

               (B) If the Stock Price is equal to or greater than $10.50 (subject to
adjustment pursuant to paragraph 5(d), the “Stock Price Cap”), the Make-Whole
Premium shall be equal to zero shares of Common Stock.

               (C) “Stock Price” means the price paid per share of Common Stock
in the
transaction constituting the Change of Control, determined as follows: (i) if
holders of Common Stock receive only cash in the transaction constituting the Change
of Control, the Stock Price shall equal the cash amount paid per share of Common
Stock; and (ii) in all other cases, the Stock Price shall equal the arithmetic
average of the Closing Sale Prices of a share of Common Stock over the five (5)
Trading Day period ending on the fifth (5th) Trading Day immediately
preceding the Effective Date.

               (v) The Company shall pay the Make-Whole Premium solely in shares of Common Stock
(other than cash paid in lieu of fractional shares) or in the same form of consideration
into which all or substantially all of the shares of Common Stock have been converted or
exchanged in connection with the Change of Control. If holders of the Common Stock receive
or have the right to receive more than one form of consideration in connection with such
Change of Control, then, for purposes of the foregoing, the forms of consideration in which
the Make-Whole Premium shall be paid shall be in proportion to the different forms of
consideration paid to holders of Common Stock in connection with such Change of Control.

               (vi) The Company shall, from time to time, appoint an independent nationally
recognized
investment bank to serve as calculation agent with respect to calculation of the Make-Whole
Premium (the “Calculation Agent”). The Calculation Agent shall, on behalf of and on request
by the Company, calculate (1) the Stock Price and (2) the Make-Whole Premium in respect of
such Stock Price, based on the Effective Date specified by the Company, and shall deliver
its calculation of the Stock Price and Make-Whole Premium to the Company and the Holder
within three Business Days of the request by the Company or the Required Holders. The
Company, (A) shall notify the Holder of the Stock Price and the estimated Make-Whole Premium
per $1,000 of Conversion Amount in respect of a Change of Control as part of the Change of
Control Notice and (B) shall notify the holder of the Notes, promptly upon the opening of
business on the Effective Date, of the number of shares of Common Stock (or such other
securities, assets or property (including cash) into which all or

 

 

substantially all of the
shares of Common Stock have been converted as of the Effective Date as described above) to be paid in respect of the Make-Whole Premium in connection
with such Change of Control, in the manner provided in this Note. The Company shall verify,
in writing, all calculations made by the Calculation Agent pursuant to this paragraph
5(e)(vi).

               (vii) Adjustment to the Make-Whole Premium. Whenever the Conversion Price shall be
adjusted from time to time by the Company pursuant to paragraph 5, the Stock Price Threshold, the
Stock Price Cap and each of the Stock Prices set forth in the Make-Whole Premium Table shall be
adjusted. The adjusted Stock Price Threshold, Stock Price Cap, and Stock Prices set forth in the
Make-Whole Premium Table shall equal such Stock Prices immediately prior to such adjustment
multiplied by a fraction, the numerator of which is the Conversion Price as so adjusted and the
denominator of which is the Conversion Price immediately prior to the adjustment giving rise to
such adjustment. Each of the share amounts set forth in the body of the Make-Whole Premium Table
shall also be adjusted in the same manner and at the same time.

               (viii) If the Holder has submitted a Change of Control Redemption Notice in accordance with
paragraph 5(e), the Company shall deliver the applicable Change of Control Redemption Price to the
Holder concurrently with the consummation of such Change of Control if such notice is received
prior to the consummation of such Change of Control and within five Business Days after the
Company’s receipt of such notice otherwise. In the event of a redemption of less than all of the
Conversion Amount of this Note, the Company shall promptly cause to be issued and delivered to the
Holder a new Note representing the outstanding principal which has not been redeemed. In the event
that the Company does not pay the applicable Change of Control Redemption Price to the Holder
within the time period required, at any time thereafter and until the Company pays such unpaid
Change of Control Redemption Price in full, the Holder shall have the option, in lieu of
redemption, to require the Company to promptly return to the Holder all or any portion of this Note
representing the Conversion Amount that was submitted for redemption and for which the applicable
Change of Control Redemption Price that has not been paid. Upon the Company’s receipt of such
notice, (x) the applicable Redemption Notice shall be null and void with respect to such Conversion
Amount, (y) the Company shall immediately return this Note, or issue a new Note to the Holder
representing the sum of such Conversion Amount to be redeemed together with accrued and unpaid
Interest with respect to such Conversion Amount and (z) the Conversion Price of this Note or such
new Notes shall be adjusted to the lesser of (A) the Conversion Price as in effect on the date on
which the applicable Change of Control Redemption Notice is voided and (B) the lowest Closing Bid
Price of the Common Stock during the period beginning on and including the date on which the
applicable Change of Control Redemption Notice is delivered to the Company and ending on and
including the date on which the applicable Change of Control Redemption Notice is voided.

          (f) Certain Events. If any event occurs of the type contemplated by the provisions of
this paragraph 5 but not expressly provided for by such provisions (including, without limitation,
the granting of stock appreciation rights, phantom stock rights or other rights with equity
features), then the Company’s Board of Directors shall make an appropriate adjustment in the
Conversion Price so as to protect the rights of each Holder; provided, that no such
adjustment shall increase the Conversion Price as otherwise determined pursuant to this paragraph 5
or decrease the number of shares of Conversion Stock issuable upon conversion of the Notes then
outstanding.

 

 

          (g) Notices.

               (i) Immediately upon any adjustment of the Conversion Price, the Company shall send written
notice thereof to the Holder, setting forth in reasonable detail and certifying the calculation of
such adjustment.

               (ii) The Company shall send written notice to the Holder at least 20 days prior to the
date on
which the Company closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any pro rata subscription offer to holders
of Common Stock or (C) for determining rights to vote with respect to any Fundamental Change,
dissolution or liquidation.

               (iii) The Company shall also give at least 20 days prior written notice of the date on
which
any Fundamental Change, dissolution or liquidation shall take place.

          (h) Mandatory Conversion.

               (i) Subject to paragraph 5(c), if at any time from and after December 22, 2009, the
Weighted
Average Price of the Common Stock for each of 20 consecutive Trading Days (the “Mandatory
Conversion Measuring Period”) equals or exceeds 200% of the Conversion Price and there is not then
an Equity Conditions Failure, the Company shall have the right to require the Holder to convert up
to 100% of the outstanding principal amount then remaining under this Note, in each case as
designated in the Mandatory Conversion Notice (as defined below) into fully paid, validly issued
and nonassessable shares of Common Stock in accordance with paragraph 5(a) hereof at the Conversion
Rate as of the Mandatory Conversion Date (as defined below) (a “Mandatory Conversion”).

               (ii) The Company may exercise its right to require conversion under this paragraph 5(h) by
delivering within not more than three Trading Days following the end of such Mandatory Conversion
Measuring Period a written notice thereof to all, but not less than all, of the holders of Notes
(the “Mandatory Conversion Notice” and the date all of the holders received such notice is referred
to as the “Mandatory Conversion Notice Date”). The Mandatory Conversion Notice shall be
irrevocable. The Mandatory Conversion Notice shall state (w) the Trading Day selected for the
Mandatory Conversion in accordance with paragraph 5(h)(i), which Trading Day shall be no later than
five Business Days following the Mandatory Conversion Notice Date (the “Mandatory Conversion
Date”), (x) the aggregate principal amount of the Notes subject to mandatory conversion from the
Holder and all of the other holders of the Notes pursuant to this paragraph 5(i) (and analogous
provisions under such other Notes), (y) the number of shares of Common Stock to be issued to such
Holder on the Mandatory Conversion Date, and (z) certify that there is not then an Equity
Conditions Failure.

               (iii) If the Company elects to cause a conversion of any principal amount of this Note
pursuant to this paragraph 5(h), then it must simultaneously take the same action in the same
proportion with respect to the other Notes. If the Company elects a Mandatory Conversion of this
Note pursuant to this paragraph 5(h) (or similar provisions under the other Notes) with respect to
less than all of the principal amount of the Notes then outstanding, then the Company shall require
conversion of a principal amount from each of the holders of the Notes equal to the product of (x)
the aggregate principal amount of Notes which the Company has elected to cause to be converted
pursuant to this paragraph 5(h), multiplied by (y) a fraction, the numerator of which is the
principal amount of the Notes held by such holder and the denominator of which is the aggregate
principal amount of the Notes then outstanding.

 

 

          6. Dividends. If the Company declares a cash dividend upon the Common Stock (a
“Dividend”), then the Company shall pay to the holders of the Notes at the time of payment thereof
the Dividend which would have been paid to the Holder on the Conversion Stock had this Note been
fully converted immediately prior to the date on which a record is taken for such Dividend (without
regard to any limitations on conversion contained herein), or, if no record is taken, the date as
of which the record holders of Common Stock entitled to such Dividends are to be determined.

          7. Purchase Rights. If at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata
to the record holders of Common Stock (the “Purchase Rights”), then each holder of the Notes shall
be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase
Rights which such holder could have acquired if such holder had held the number of shares of
Conversion Stock acquirable upon conversion of such holder’s Note immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights (without regard to
any limitations on conversion herein or elsewhere), or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights.

          8. Amendment and Waiver. Except as otherwise expressly provided herein, the
provisions of the Notes may be amended and the Company may take any action herein prohibited, or
omit to perform any act herein required to be performed by it, only if the Company has obtained the
written consent of the holders of at least a majority of the outstanding principal amount of the
Notes; provided that no such action shall change (i) the rate at which or the manner in which
interest accrues on the Notes or the times at which such interest becomes payable, (ii) any
provision relating to the scheduled payments or prepayments of principal on the Notes, (iii) the
Conversion Price of the Notes or the number of shares or the class of stock into which the Notes
are convertible or (iv) any provision of this paragraph 8, without the written consent of the
holders of at least 75% of the outstanding principal amount of the Notes.

          9. Definitions. For purposes of the Notes, the following terms have the respective
meaning set forth in this paragraph 9.

          “2002 Investment and Royalty Agreement” means that Investment and Royalty Agreement dated July
31, 2002, by and among the Company and PharmaBio, as amended by the Letter Agreement dated January
26, 2004.

          “2003 Investment and Royalty Agreement” means that Investment and Royalty Agreement dated
March 5, 2003, by and between the Company and PharmaBio, as amended by the Letter Agreement dated
January 26, 2004 and the Letter Agreement dated April 14, 2006.

          “Bloomberg” means Bloomberg Financial Markets.

          "Capital Stock” means any and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock, including, without limitation, in respect of
partnerships, partnership interests (whether general or limited) and any other interest or
participation that confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, such partnership.

 

 

          “Change of Control” means any Fundamental Transaction other than (i) any reorganization,
recapitalization or reclassification of the Common Stock or business combination in which the
Company is the publicly traded surviving entity in which holders of the Company’s voting power
immediately prior to such reorganization, recapitalization or reclassification or business
combination continue after such reorganization, recapitalization or reclassification or business
combination to hold publicly traded securities, or (ii) pursuant to a migratory merger effected
solely for the purpose of changing the jurisdiction of incorporation of the Company.
Notwithstanding anything in this Note to the contrary, a merger or consolidation shall not be
deemed to constitute a “Change of Control” if at least 90% of the consideration (excluding cash
payments for fractional shares and cash payments pursuant to dissenters’ appraisal rights) in the
merger or consolidation consists of shares of Capital Stock that are listed on, or immediately
after the transaction will be listed on, any Eligible Market and as a result of such transaction
the obligations of the Company under the Notes are expressly assumed by the Person issuing such
consideration in such merger or consolidation and any Notes surrendered for conversion would become
convertible into such publicly traded securities.

          “Closing Bid Price” and “Closing Sale Price” means, for any security as of any
date, the last
closing bid price and last closing trade price, respectively, for such security on the Principal
Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended
hours basis and does not designate the closing bid price or the closing trade price, as the case
may be, then the last bid price or last trade price, respectively, of such security prior to
4:00:00 p.m., New York Time, as reported by Bloomberg, or, if the Principal Market is not the
principal securities exchange or trading market for such security, the last closing bid price or
last trade price, respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not
apply, the last closing bid price or last trade price, respectively, of such security in the
over-the-counter market on the electronic bulletin board for such security as reported by
Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such
security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any
market makers for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.). If the Closing Bid Price or the Closing Sale Price cannot be
calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price
or the Closing Sale Price, as the case may be, of such security on such date shall be the fair
market value as mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree upon the fair market value of such security, then such dispute shall be
resolved pursuant to paragraph 23. All such determinations to be appropriately adjusted for any
stock dividend, stock split, stock combination or other similar transaction during the applicable
calculation period.

          “Common Stock” means the Company’s Common Stock, par value $0.01 per share.

          “Convertible Securities” means any stock or securities (directly or indirectly) convertible
into or exchangeable for Common Stock.

          “Conversion Stock” means shares of the Company’s authorized but unissued Common Stock;
provided, that if there is a change such that the securities issuable upon conversion of the Notes
are issued by an entity other than the Company or there is a change in the class of securities so
issuable, then the term “Conversion Stock” shall mean one share of the security issuable upon
conversion of this Note if such security is issuable in shares, or shall

 

 

mean the smallest unit in which such security is issuable if such security is not issuable in
shares.

          “Eligible Market” means The NASDAQ Global Market, The New York Stock Exchange, Inc., the
American Stock Exchange, The NASDAQ Capital Market or The NASDAQ Global Select Market.

          “Equity Conditions” means that either (a) the Registration Statement filed pursuant to the
Purchase Agreement shall be effective and available for the resale of all remaining Registrable
Securities in accordance with the terms of the Purchase Agreement or (b) all shares of Common Stock
issuable upon conversion of the Notes shall be eligible for sale without restriction and without
the need for registration under any applicable federal or state securities laws.

          “Equity Conditions Failure” means that on any day during the period commencing ten Trading
Days prior to the applicable Mandatory Conversion Notice Date through the applicable Mandatory
Conversion Date, the Equity Conditions have not been satisfied (or waived in writing by the
Holder).

          “Fundamental Transaction” means that (A) the Company shall, directly or indirectly, in one or
more related transactions, (i) consolidate or merge with or into (whether or not the Company is the
surviving corporation) another Person or Persons, or (ii) sell, assign, transfer, convey or
otherwise dispose of all or substantially all of the properties or assets of the Company to another
Person, or (iii) allow another Person to make a purchase, tender or exchange offer that is accepted
by the holders of more than 50% of the outstanding shares of Voting Stock (not including any shares
of Voting Stock held by the Person or Persons making or party to, or associated or affiliated with
the Persons making or party to, such purchase, tender or exchange offer), or (iv) consummate a
stock purchase agreement or other business combination (including, without limitation, a
reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby
such other Person acquires more than the 50% of the outstanding shares of Voting Stock (not
including any shares of Voting Stock held by the other Person or other Persons making or party to,
or associated or affiliated with the other Persons making or party to, such stock purchase
agreement or other business combination), or (v) reorganize, recapitalize or reclassify its Common
Stock, or (B) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and
14(d) of the Exchange Act) is or shall become the “beneficial owner” (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of 50% of the aggregate Voting Stock of the
Company.

          “Indebtedness” of any Person means, without duplication (i) all indebtedness for borrowed
money, (ii) all obligations issued, undertaken or assumed as the deferred purchase price of
property or services, including (without limitation) “capital leases” in accordance with GAAP
(other than trade payables entered into in the ordinary course of business), (iii) all
reimbursement or payment obligations with respect to letters of credit, surety bonds and other
similar instruments, (iv) all obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection with the acquisition of
property, assets or businesses, (v) all indebtedness created or arising under any conditional sale
or other title retention agreement, or incurred as financing, in either case with respect to any
property or assets acquired with the proceeds of such indebtedness (even though the rights and
remedies of the seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (vi) all monetary obligations under any leasing or similar
arrangement which, in connection with GAAP, consistently applied for the periods covered

 

 

thereby, is classified as a capital lease, (vii) all indebtedness referred to in clauses (i)
through (vi) above secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or
other encumbrance upon or in any property or assets (including accounts and contract rights) owned
by any Person, even though the Person which owns such assets or property has not assumed or become
liable for the payment of such indebtedness, and (viii) all contingent obligations in respect of
indebtedness or obligations of others of the kinds referred to in clauses (i) through (vii) above.

          “Interest Rate” means (i) initially 8% per annum and (ii) following the Company’s receipt
of
Preterm Approval, 5% per annum.

          “Lien” means any mortgage, lien, pledge, charge, security interest or other encumbrance.

          “Market Price” means on any particular date:

               (a) if the Common Stock is traded on the Nasdaq Capital Market, the Nasdaq Global Market, the
Nasdaq Global Select Market (or their successors) the average of the closing prices of the Common
Stock on such market over the five trading days ending immediately prior to the applicable date of
valuation;

               (b) if the Common Stock is traded on any registered national stock exchange but is not traded
on the Nasdaq Capital Market, the Nasdaq Global Market or the Nasdaq Global Select Market (or their
successors), the average of the closing prices of the Common Stock on such exchange over the five
trading days ending immediately prior to the applicable date of valuation;

               (c) if the Common Stock is traded over-the-counter, but not on the Nasdaq Capital Market, the
Nasdaq Global Market, the Nasdaq Global Select Market or a registered national stock exchange, the
average of the closing bid prices over the 30-day period ending immediately prior to the applicable
date of valuation; and

               (d) if there is no active public market for the Common Stock, the value thereof, as determined
in good faith by the Board of Directors of the Company upon due consideration of the proposed
determination thereof by the Holder.

          “Options” means any rights or options to subscribe for or purchase Common Stock or Convertible
Securities.

          “Parent Entity” of a Person means an entity that, directly or indirectly, controls the
applicable Person and whose common stock or equivalent equity security is quoted or listed on an
Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent
Entity with the largest public market capitalization as of the date of consummation of the
Fundamental Transaction.

          “Permitted Indebtedness” of any Person means (i) all Indebtedness of a type set forth in
clause (ii) of the definition of Indebtedness, (ii) all Indebtedness of a type set forth in clause
(iii) of the definition of Indebtedness and incurred in the ordinary course of business, (iii)
unsecured Indebtedness between the Company and any of its Subsidiaries or between

 

 

Subsidiaries, and (iv) any other Indebtedness in an aggregate original principal amount not to
exceed $4,000,000 at any one time outstanding.

          “Permitted Liens” means (i) any Lien for taxes not yet due or delinquent or being contested in good
faith by appropriate proceedings, (ii) any statutory Lien arising in the ordinary course of
business by operation of law with respect to a liability that is not yet due or delinquent or that
is being contested in good faith by appropriate proceedings, (iii) any Lien created by operation of
law, such as materialmen’s liens, mechanics’ liens and other similar liens, arising in the ordinary
course of business with respect to a liability that is not yet due or delinquent or that are being
contested in good faith by appropriate proceedings, (iv) Liens (A) upon or in any equipment or
other fixed asset (together “equipment”) acquired or held by the Company or any of its Subsidiaries
to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of
financing the acquisition or lease of such equipment, or (B) existing on such equipment at the time
of its acquisition, provided that the Lien is confined solely to the property so acquired and
improvements thereon, and the proceeds of such equipment, (v) Liens incurred in connection with the
extension, renewal or refinancing of the Indebtedness secured by Liens of the type described in
(iv) above, provided that any extension, renewal or replacement Lien shall be limited to the
property encumbered by the existing Lien and the principal amount of the Indebtedness being
extended, renewed or refinanced does not increase, (vi) leases or subleases and licenses and
sublicenses granted to others in the ordinary course of the Company’s business, not interfering in
any material respect with the business of the Company and its Subsidiaries taken as a whole, (vii)
Liens in favor of customs and revenue authorities arising as a matter of law to secure payments of
custom duties in connection with the importation of goods, and (viii) Liens arising from judgments,
decrees or attachments in circumstances not constituting an Event of Default under paragraph
4(a)(iv), (ix) rights of setoff or bankers’ Liens upon deposits of cash, (x) Liens consisting of
deposits made in the ordinary course of business, (xi) Liens arising by operation of law under
Article 4 of the Uniform Commercial Code, (xii) Liens on property not securing Indebtedness for
borrowed money, which do not interfere in any material respect with the Company’s or any
Subsidiary’s use thereof in the ordinary course of business, and (xiii) Liens securing the Senior
Debt.

          “Person” means an individual, a partnership, a corporation, a limited liability company, an
association, a joint stock company, a trust, a joint venture, an unincorporated organization and a
governmental entity or any department, agency or political subdivision thereof.

          “PharmaBio” means PharmaBio Development Inc., a corporation organized under the laws of the
State of North Carolina, and its successors and assigns.

          “Preterm Approval” means approval by the United States Food and Drug Administration to the new
drug application, amendment or supplement for permitting the marketing of progesterone gel 8% for
the prevention of recurrent preterm birth.

          “Principal Market” means the principal securities exchange or securities market on which the
Common Stock is then traded.

          “Senior Debt” means (i) the total royalties payable by the Company to PharmaBio pursuant to
Section 2.3 of the 2003 Investment and Royalty Agreement up to an aggregate amount of $30,000,000,
(ii) the Repayment Amount (as defined in the 2003 Investment and Royalty Agreement), if any, owing
by the Company to PharmaBio pursuant to Section 2.2 of the 2003 Investment and Royalty Agreement,
and (iii) the total royalties payable 

 

 

by the Company to PharmaBio pursuant to Section 2.2 of the 2002 Investment and Royalty Agreement up to an
aggregate amount of $8,000,000.

          “Subsidiary” means, with respect to any Person, any corporation, limited liability company,
partnership, association or other business entity of which (i) if a corporation, a majority of the
total voting power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company,
partnership, association or other business entity, a majority of the partnership or other similar
ownership interest thereof is at the time owned or controlled, directly or indirectly, by any
Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a limited liability
company, partnership, association or other business entity if such Person or Persons shall be
allocated a majority of limited liability company, partnership, association or other business
entity gains or losses or shall be or control any managing director or general partner of such
limited liability company, partnership, association or other business entity.

          “Successor Entity” means the Person, which may be the Company, formed by, resulting from or
surviving any Fundamental Transaction or the Person with which such Fundamental Transaction shall
have been made, provided that if such Person is not a publicly traded entity whose common stock or
equivalent equity security is quoted or listed for trading on an Eligible Market, Successor Entity
shall mean such Person’s Parent Entity.

          “Trading Day” means any day on which the Common Stock is traded on the Principal Market,
provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to
trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is
suspended from trading during the final hour of trading on such exchange or market (or if such
exchange or market does not designate in advance the closing time of trading on such exchange or
market, then during the hour ending at 4:00:00 p.m., New York Time) and, for purposes of the
definition of “Weighted Average Price”, includes the period from the official open of trading to
the official close of trading on the relevant market.

          “Voting Stock” of a Person means capital stock of such Person of the class or classes pursuant
to which the holders thereof have the general voting power to elect, or the general power to
appoint, at least a majority of the board of directors, managers or trustees of such Person
(irrespective of whether or not at the time capital stock of any other class or classes shall have
or might have voting power by reason of the happening of any contingency).

          “Weighted Average Price” means, for the Common Stock as of any date, the dollar
volume-weighted average price for the Common Stock on the Principal Market during such Trading Day,
as reported by Bloomberg through its “Volume at Price” functions, or, if the foregoing does not
apply, the dollar volume-weighted average price of the Common Stock in the over-the-counter market
on the electronic bulletin board for the Common Stock during such Trading Day as reported by
Bloomberg, or, if no dollar volume-weighted average price is reported for the Common Stock by
Bloomberg for such Trading Day, the average of the highest closing bid price and the lowest closing
ask price of any of the market makers for the Common Stock as reported in the “pink sheets” by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). All such determinations shall be
appropriately adjusted for any stock dividend, stock split, stock combination or other similar
transaction during the applicable calculation period.

 

 

          10. Reservation of Authorized Shares.

          (a) The Company shall initially reserve out of its authorized and unissued Common Stock a
number of shares of Common Stock for each of the Notes equal to 100% of the Conversion Rate with
respect to the principal amount of each such Note as of the Issuance Date. So long as any of the
Notes are outstanding, the Company shall take all action necessary to reserve and keep available
out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion
of the Notes, 100% of the number of shares of Common Stock as shall from time to time be necessary
to effect the conversion of all of the Notes then outstanding; provided that at no time shall the
number of shares of Common Stock so reserved be less than the number of shares required to be
reserved by the previous sentence (without regard to any limitations on conversions) (the “Required
Reserve Amount”). The initial number of shares of Common Stock reserved for conversions of the
Notes and each increase in the number of shares so reserved shall be allocated pro rata among the
holders of the Notes based on the principal amount of the Notes held by each holder at the Closing
(as defined in the Purchase Agreement) or increase in the number of reserved shares, as the case
may be (the “Authorized Share Allocation”). In the event that a holder shall sell or otherwise
transfer any of such holder’s Notes, each transferee shall be allocated a pro rata portion of such
holder’s Authorized Share Allocation. Any shares of Common Stock reserved and allocated to any
Person which ceases to hold any Notes shall be allocated to the remaining holders of Notes, pro
rata based on the principal amount of the Notes then held by such holders.

          (b) If at any time while any of the Notes remain outstanding the Company does not have a
sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to
reserve for issuance upon conversion of the Notes at least a number of shares of Common Stock equal
to the Required Reserve Amount (an “Authorized Share Failure”), then the Company shall immediately
take all action necessary to increase the Company’s authorized shares of Common Stock to an amount
sufficient to allow the Company to reserve the Required Reserve Amount for the Notes then
outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable
after the date of the occurrence of an Authorized Share Failure, but in no event later than 90 days
after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its
stockholders for the approval of an increase in (the “Authorized Share Failure Deadline”), the
number of authorized shares of Common Stock. In connection with such meeting, the Company shall
provide each stockholder with a proxy statement and shall use its best efforts to solicit its
stockholders’ approval of such increase in authorized shares of Common Stock and to cause its board
of directors to recommend to the stockholders that they approve such proposal. During all or part
of any thirty-day period (the “Authorized Share Failure Payment Period”) during which the
Authorized Share Failure remains uncured, the Company shall pay to each holder 1% of such holder’s
principal amount of his or her Notes for each Authorized Share Failure Payment Period during which
the Authorized Share Failure remains uncured.

          11. Covenants.

               (a) All payments due under this Note shall rank pari passu with all Other Notes and shall be
senior to all other Indebtedness of the Company and its Subsidiaries, other than the Senior Debt
and Permitted Indebtedness.

               (b) So long as this Note is outstanding, the Company shall not, and the Company shall not
permit any of its Subsidiaries to, directly or indirectly, incur or guarantee, assume or suffer to
exist any Indebtedness that would rank senior or pari passu to the Notes,

 

 

other than (i) the Indebtedness evidenced by this Note and the Other Notes, (ii) the Senior
Debt and (iii) Permitted Indebtedness.

               (c) So long as this Note is outstanding, the Company shall not, and the Company shall not
permit any of its Subsidiaries to, directly or indirectly, allow or suffer to exist any Lien, other
than Permitted Liens.

          12. Notice by the Company. The Company shall send Notice to the Holder of the
Company’s receipt of the Preterm Approval within ten business days of its receipt thereof.

          13. Transfers. The Company shall maintain a register for recording the ownership and
the transfer of the Notes. Upon surrender of this Note for registration of transfer or for
exchange to the Company at its principal office, the Company at its sole expense shall execute and
deliver in exchange therefor a new Note or Notes, as the case may be, as requested by the holder or
transferee, which aggregate the unpaid principal amount of such Note, registered as such holder or
transferee may request, dated so that there will be no loss of interest on such surrendered Note
and otherwise of like tenor. The issuance of new Note(s) shall be made without charge to the
holder(s) of the surrendered Note for any issuance tax in respect thereof or other cost incurred by
the Company in connection with such issuance; provided that the Holder shall pay any transfer taxes
associated therewith. The Company shall be entitled to regard the registered holder of this Note
as the owner and holder of the Notes so registered for all purposes until the Company is required
to record a transfer of this Note on its register.

          14. Replacement. Upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of this Note and, in the case of any such loss, theft or
destruction of this Note, upon receipt of an indemnity reasonably satisfactory to the Company
(provided that, if the holder of this Note is a financial institution, its own unsecured agreement
shall be satisfactory) or, in the case of any such mutilation, upon the surrender and cancellation
of this Note, the Company, at its expense, shall execute and deliver, in lieu thereof, a new Note
of like tenor and dated the date of such lost, stolen, destroyed or mutilated Note. Any Note in
lieu of which any such new Note has been so executed and delivered by the Company shall not be
deemed to be an outstanding Note.

          15. Waivers. The Company hereby waives presentation for payment, demand, notice of
nonpayment and notice of protest with respect to this Note.

          16. Cancellation. After all principal and accrued interest at any time owed on this
Note has been paid in full, this Note shall be surrendered to the Company for cancellation and
shall not be reissued.

          17. Form of Payments. All payments to be made to the holders of the Notes shall be
made in the lawful money of the United States of America in immediately available funds, with no
offsets against or withholding from any payments due hereunder.

          18. Place of Payment. Payments of principal and interest shall be delivered to
                     at the following address:

                              
                                        

                              
                                        

                              
                                        

 

 

or to such other address or to the attention of such other person as specified by prior written
notice to the Company.

          19. Notices. All notices, demands or other communications to be given or delivered
under or by reason of the provisions of this Note shall be in writing and shall be deemed to have
been given when delivered personally to the recipient, sent to the recipient by reputable overnight
courier service (charges prepaid) or mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid. Such notices, demands and other communications shall
be sent to the Holder and to the Company at the respective addresses indicated below:

If to the Company:

Columbia Laboratories, Inc.

354 Eisenhower Parkway

Livingston, New Jersey 07039

Telecopier No.: (973) 994-3001

Telephone No.: (973) 994-3999

Attention: General Counsel

With a copy to:

Kaye Scholer LLP

425 Park Avenue

New York, New York 10022

Telecopier No.: (212) 836-8689

Telephone No.: (212) 836-8673

Attention: Adam H. Golden, Esq.

If to the Holder:

                             
                               

                                        
                    

                                        
                    

or to such other address or to the attention of such other person as the recipient party has
specified by prior written notice to the sending party.

          20. Business Days. If any payment is due, or any time period for giving notice or
taking action expires, on a day which is a Saturday, Sunday or legal holiday in the State of New
York, the payment shall be due and payable on, and the time period shall automatically be extended
to, the next business day immediately following such Saturday, Sunday or legal holiday, and
interest shall continue to accrue at the required rate hereunder until any such payment is made.

          21. Governing Law. All issues and questions concerning the construction, validity,
enforcement and interpretation of this Note shall be governed by, and construed in accordance with,
the laws of the State of New York, without giving effect to any choice of law or
conflict of law rules or provisions (whether of the State of

          

 

 

New York or any other
jurisdiction) that would cause the application of the laws of any jurisdiction other than the State
of New York.

          22. Usury Laws. It is the intention of the Company and the Holder to conform strictly
to all applicable usury laws now or hereafter in force, and any interest payable under this Note
shall be subject to reduction to the amount not in excess of the maximum legal amount allowed under
the applicable usury laws as now or hereafter construed by the courts having jurisdiction over such
matters. If the maturity of this Note is accelerated by reason of an election by the Holder
resulting from an Event of Default, voluntary prepayment by the Company or otherwise, then earned
interest may never include more than the maximum amount permitted by law, computed from the
Issuance Date until payment, and any interest in excess of the maximum amount permitted by law
shall be canceled automatically and, if theretofore paid, shall at the option of the Holder either
be rebated to the Company or credited on the principal amount of this Note, or if this Note has
been paid, then the excess shall be rebated to the Company. The aggregate of all interest (whether
designated as interest, service charges, points or otherwise) contracted for, chargeable, or
receivable under this Note shall under no circumstances exceed the maximum legal rate upon the
unpaid principal balance of this Note remaining unpaid from time to time. If such interest does
exceed the maximum legal rate, it shall be deemed a mistake and such excess shall be canceled
automatically and, if theretofore paid, rebated to the Company or credited on the principal amount
of this Note, or if this Note has been repaid, then such excess shall be rebated to the Company.

          23. Dispute Resolution. In the case of a dispute as to the determination of a Market
Price, the Closing Bid Price, the Closing Sale Price, Change of Control Redemption Price or the
Weighted Average Price or the arithmetic calculation of the Conversion Rate, the Company shall
submit the disputed determinations or arithmetic calculations via facsimile within two Business
Days of receipt, or deemed receipt, of the applicable notice or other event giving rise to such
dispute, as the case may be, to the Holder. If the Holder and the Company are unable to agree upon
such determination or calculation within two Business Days of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall, within two Business
Days submit via facsimile (a) the disputed determination of a Market Price, the Closing Bid Price,
the Closing Sale Price, Change of Control Redemption Price or the Weighted Average Price to an
independent, reputable investment bank selected by the Company and approved by the Holder or (b)
the disputed arithmetic calculation of the Conversion Rate to the Company’s independent, outside
accountant. The Company, at the Company’s expense, shall cause the investment bank or the
accountant, as the case may be, to perform the determinations or calculations and notify the
Company and the Holder of the results no later than five Business Days from the time it receives
the disputed determinations or calculations. Such investment bank’s or accountant’s determination
or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.

* * *

[Signature Page Follows]

 

 

          IN WITNESS WHEREOF, the Company has executed and delivered this Note on December 22, 2006.

	 	 	 	 	 	 	 
	 	 	COLUMBIA LABORATORIES, INC.	 	 
	 
	 	 	 	 	 	 
	Attest

	 	By	 	 	 	 
	 

	 	Its
	 	 

	 	 
	 

	 	 	 	 

	 	 

Convertible Subordinate Note Signature Page

 

 

ANNEX A

COLUMBIA LABORATORIES, INC.

CONVERSION NOTICE

Reference is made to the Convertible Subordinated Note (the “Note”) issued to the undersigned by
Columbia Laboratories, Inc. (the “Company”). In accordance with and pursuant to the Note, the
undersigned hereby elects to convert the principal amount of the Note indicated below into shares
of Common Stock par value $0.01 per share (the “Common Stock”) of the Company, as of the date
specified below.

	 	 	 	 	 	 	 
	 

	 	Date of Conversion:	 	 	 	 
	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	Aggregate Principal Amount to be converted:	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Please confirm the following information:
	 
	 	 	 	 	 	 
	 

	 	Conversion Price:	 	 	 	 
	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	Number of shares of Common Stock to be issued:	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Please issue the Common Stock into which the Note is being converted in the
following name and to the following address:

	 	 	 	 	 
	 

	 	Issue to:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 

	 	 	 	 	 	 	 	 	 
	 	 	Facsimile Number:	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Authorization:	 	 
	 

	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	Title:	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 

	 	 	 
	Dated:
	 	 
	 

	 	 

	 	 	 	 	 
	 

	 	Account Number:	 	 
	 

	 	 	 	 
	 	 	(if electronic book entry transfer)
	 
	 	 	 	 
	 

	 	Transaction Code Number:	 	 
	 

	 	 	 	 
	 	 	(if electronic book entry transfer)

	 	 	 	 	 	 	 
	 

(Date)

	 	 	 	 

(Signature)
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

(Print Name)
	 	 

A-1 

 

ACKNOWLEDGMENT

          The Company hereby acknowledges this Conversion Notice and hereby directs American Stock
Transfer & Trust Company to issue the above indicated number of shares of Common Stock in
accordance with the Transfer Agent Instructions dated December 21, 2006 from the Company and
acknowledged and agreed to by American Stock Transfer & Trust Company.

	 	 	 	 	 
	 	COLUMBIA LABORATORIES, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

A-2EX-4.2

 

Exhibit 4.2

THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES. THE SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, HYPOTHECATED, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS OR
UNLESS OFFERED, SOLD, PLEDGED, HYPOTHECATED OR TRANSFERRED PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. THE
COMPANY SHALL BE ENTITLED TO REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED TO THE EXTENT THAT AN OPINION IS
REQUIRED PURSUANT TO THE AGREEMENT UNDER WHICH THE SECURITIES WERE ISSUED.

COLUMBIA LABORATORIES, INC.

WARRANT TO PURCHASE COMMON STOCK

			
	 	 	 
	No. W-          
	 	December 22, 2006

Void After December 22, 2011

     This Certifies That, for value received,
                                        
            
        , with its
principal office at            
              
              
              
       , or its permitted assigns (the
“Holder”), is
entitled to subscribe for and purchase at the Exercise Price (defined below) from Columbia
Laboratories, Inc., a Delaware corporation, with its principal office at 354 Eisenhower Parkway,
Livingston, New Jersey 07039 (the “Company”), up to    
                
  shares of common stock of the
Company, par value $0.01 per share (the “Common Stock”), subject to adjustment as provided herein.
This Warrant is one of a series of Warrants being issued pursuant to the terms of the Securities
Purchase Agreement (the “SPA Warrants”), as of December 22, 2006, by and among the Company and the
original Holder of this Warrant and the other parties named therein (the “Purchase Agreement”).
Capitalized terms not otherwise defined herein shall have the respective meanings ascribed to such
terms in the Purchase Agreement.

     1. Definitions. As used herein, the following terms shall have the
following respective meanings:

          (a) “Business Day” means any day other than Saturday, Sunday or other day on which
commercial banks in The City of New York are authorized or required by law to remain closed.

          (b) “Closing Bid Price” and “Closing Sale Price” means, for any security as
of any
date, the last closing bid price and last closing trade price, respectively, for such security on
the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an
extended hours basis and does not designate the closing bid price or the closing trade price, as
the case may be, then the last bid price or last trade price, respectively, of such security prior
to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the
principal securities exchange or trading market for such security, the last closing bid price or
last trade price, respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not
apply, the last closing bid price or last trade

1

 

price, respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last
trade price, respectively, is reported for such security by Bloomberg, the average of the bid
prices, or the ask prices, respectively, of any market makers for such security as reported in the
“pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing
Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any
of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case may be, of
such security on such date shall be the fair market value as mutually determined by the Company and
the Holder. All such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable calculation period.

          (c) “Exercise Period” shall mean the period commencing 180 days after the date
hereof and ending at 5:00 p.m., New York time, on December 22, 2011, unless sooner exercised or
terminated as provided below.

          (d) “Exercise Price” shall mean $5.50 per share, subject to adjustment pursuant to
Section 5 below.

          (e) “Exercise Shares” shall mean the shares of the Common Stock issued upon exercise
of this Warrant, subject to adjustment pursuant to the terms herein, including but not limited to
adjustment pursuant to Section 5 below.

          (f) “Principal Market” means the principal securities exchange or securities market
on which the Common Stock is then traded.

          (g) “SPA Securities” means the Notes issued pursuant to the Purchase Agreement.

          (h) “Trading Day” means any day on which the Common Stock is traded on the Principal
Market; provided that “Trading Day” shall not include any day on which the Common Stock is
scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common
Stock is suspended from trading during the final hour of trading on such exchange or market (or if
such exchange or market does not designate in advance the closing time of trading on such exchange
or market, then during the hour ending at 4:00:00 p.m., New York Time).

     2. Exercise of Warrant.

          2.1 Method of Exercise. Subject to the terms and conditions hereof (including,
without limitation, the limitations set forth in Section 2.5), this Warrant may be exercised by the
Holder at any time during the Exercise Period, in whole or in part, by (i) delivery of a written
notice, in the form attached hereto as Exhibit A (the “Exercise Notice”), of the Holder’s election
to exercise this Warrant to the Company and (ii) (A) payment to the Company of an amount equal to
the applicable Exercise Price multiplied by the number of shares of Common Stock as to which this
Warrant is being exercised (the “Aggregate Exercise Price”) in cash or by wire transfer of
immediately available funds or (B) by notifying the Company that this Warrant is being exercised
pursuant to a Cashless Exercise (as defined in Section 2.3). The Holder shall not be required to
deliver the original Warrant in order to effect an exercise hereunder. Execution and delivery of
the Exercise Notice with respect to less than all of the Common Stock shall have the same effect as
cancellation of the original Warrant and

2.

 

issuance of a new Warrant evidencing the right to purchase the remaining number of Exercise
Shares. On or before the first Business Day following the date on which the Company has received
each of the Exercise Notice and the Aggregate Exercise Price (or notice of a Cashless Exercise)
(the “Exercise Delivery Documents”), the Company shall transmit by facsimile an acknowledgment of
confirmation of receipt of the Exercise Delivery Documents to the Holder and the Company’s transfer
agent (the “Transfer Agent”). On or before the third Business Day following the date on which the
Company has received all of the Exercise Delivery Documents (the “Share Delivery Date”), the
Company shall (X) provided that the Transfer Agent is participating in The Depository Trust Company
(“DTC”) Fast Automated Securities Transfer Program, upon the request of the Holder, credit such
aggregate number of Exercise Shares to which the Holder is entitled pursuant to such exercise to
the Holder’s or its designee’s balance account with DTC through its Deposit Withdrawal Agent
Commission system, or (Y) if the Transfer Agent is not participating in the DTC Fast Automated
Securities Transfer Program, issue and dispatch by overnight courier to the address as specified in
the Exercise Notice, a certificate, registered in the Company’s share register in the name of the
Holder or its designee, for the number of Exercise Shares to which the Holder is entitled pursuant
to such exercise which certificates shall not bear any restrictive legends unless required pursuant
to Section 3.6 of the Purchase Agreement. Upon delivery of the Exercise Delivery Documents, the
Holder shall be deemed for all corporate purposes to have become the holder of record of the
Exercise Shares with respect to which this Warrant has been exercised, irrespective of the date
such Exercise Shares are credited to the Holder’s DTC account or the date of delivery of the
certificates evidencing such Exercise Shares as the case may be. If this Warrant is submitted in
connection with any exercise pursuant to this Section 2.1 and the number of Exercise Shares
represented by this Warrant submitted for exercise is greater than the number of Exercise Shares
being acquired upon an exercise, then the Company shall as soon as practicable and in no event
later than three Business Days after any exercise and at its own expense, issue a new Warrant (in
accordance with Section 2.4) representing the right to purchase the number of Exercise Shares
purchasable immediately prior to such exercise under this Warrant, less the number of Exercise
Shares with respect to which this Warrant is exercised. No fractional shares of Common Stock are
to be issued upon the exercise of this Warrant. Fractional shares shall be treated as provided in
Section 6. The Company shall pay any and all taxes which may be payable with respect to the
issuance and delivery of Exercise Shares upon exercise of this Warrant.

          2.2 Company’s Failure to Timely Deliver Securities. If within three Trading Days
after the Company’s receipt of the facsimile copy of a Exercise Notice the Company shall fail to
issue and deliver a certificate to the Holder and register such Exercise Shares on the Company’s
share register or credit the Holder’s balance account with DTC for the number of Exercise Shares to
which the Holder is entitled upon such holder’s exercise hereunder or if the Company fails to
deliver to the Holder the certificate or certificates representing the applicable Exercise Shares
(or credit the Holder’s balance account at DTC with the applicable Exercise Shares) within three
Trading Days after its obligation to do so under clause (ii) below and if on or after such Trading
Day the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Holder of Exercise Shares issuable upon such exercise that
the Holder anticipated receiving from the Company (a “Buy-In”), then the Company shall, within
three Business Days after the Holder’s request and in the Holder’s discretion, either (i) pay cash
to the Holder in an amount equal to the Holder’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which
point the Company’s obligation to deliver such certificate (and to issue such Exercise Shares) or
credit such Holder’s balance account with DTC shall terminate, or (ii) promptly honor its
obligation to deliver to the

3.

 

Holder a certificate or certificates representing such Exercise Shares or credit such Holder’s
balance account with DTC and pay cash to the Holder in an amount equal to the excess (if any) of
the Buy-In Price over the product of (A) such number of Exercise Shares, times (B) the Closing Bid
Price on the date of exercise.

     2.3 Cashless Exercise. Notwithstanding any provisions herein to the contrary, if,
at any time during the Exercise Period, the Current Market Price (as defined below) of one share of
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, the Holder may exercise this Warrant by a
cashless exercise by surrender of this Warrant at the principal office of the Company together with
the properly endorsed Notice of Exercise and the Company shall issue to the Holder a number of
Exercise Shares computed using the following formula:

	 	 	 	 	 
	 

	 	X =
	 	Y (B-A)
	 

	 	 	 	     B
	 
	 	 	 	 
	Where:

	 	X =
	 	the number of Exercise Shares to be issued to the Holder.
	 
	 	 	 	 
	 

	 	Y =
	 	the number of Exercise Shares purchasable upon exercise of
all of the Warrant or, if only a portion of the Warrant is being exercised, the
portion of the Warrant being exercised.

     A = the Exercise Price.

     B = the Current Market Price of one share of Common Stock.

     “Current Market Price” means on any particular date:

               (a) if the Common Stock is traded on the Nasdaq Capital Market, the Nasdaq Global
Market or the Nasdaq Global Select Market (or their successors), the average of the closing prices
of the Common Stock of the Company on such market over the five trading days ending immediately
prior to the applicable date of valuation;

               (b) if the Common Stock is traded on any registered national stock exchange but is
not traded on the Nasdaq Capital Market, the Nasdaq Global Market or the Nasdaq Global Select
Market (or their successors), the average of the closing prices of the Common Stock of the Company
on such exchange over the five trading days ending immediately prior to the applicable date of
valuation;

               (c) if the Common Stock is traded over-the-counter, but not on the Nasdaq Capital
Market, the Nasdaq Global Market, the Nasdaq Global Select Market or a registered national stock
exchange, the average of the closing bid prices over the 30-day period ending immediately prior to
the applicable date of valuation; and

               (d) if there is no active public market for the Common Stock, the value thereof, as
determined in good faith by the Board of Directors of the Company upon due consideration of the
proposed determination thereof by the Holder.

          2.4 Partial Exercise. If this Warrant is exercised in part only, the Company shall,
upon surrender of this Warrant, execute and deliver, within 10 days of the date of exercise, a new
Warrant evidencing the rights of the Holder, or, subject to Section 8, such other

4.

 

person as shall be designated in the Notice of Exercise, to purchase the balance of the
Exercise Shares purchasable hereunder. In no event shall this Warrant be exercised for a
fractional Exercise Share, and the Company shall not distribute a Warrant exercisable for a
fractional Exercise Share. Fractional shares shall be treated as provided in Section 6.

          2.5 Limitations on Exercise.

               (a) The Company shall not effect the exercise of this Warrant, and the Holder shall
not have the right to exercise this Warrant, to the extent that after giving effect to such
exercise, such Person (together with such Person’s affiliates) would beneficially own in excess of
9.99% of the shares of Common Stock outstanding immediately after giving effect to such exercise.
For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially
owned by such Person and its affiliates shall include the number of shares of Common Stock issuable
upon exercise of this Warrant with respect to which the determination of such sentence is being
made, but shall exclude shares of Common Stock which would be issuable upon (i) exercise of the
remaining, unexercised portion of this Warrant beneficially owned by such Person and its affiliates
and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities
of the Company beneficially owned by such Person and its affiliates (including, without limitation,
any convertible notes or convertible preferred stock or warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein. Except as set forth in the
preceding sentence, for purposes of this paragraph, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes of
this Warrant, in determining the number of outstanding shares of Common Stock, the Holder may rely
on the number of outstanding shares of Common Stock as reflected in (1) the Company’s most recent
Form 10-K, Form 10-Q, Current Report on Form 8-K or other public filing with the Securities and
Exchange Commission, as the case may be, (2) a more recent public announcement by the Company or
(3) any other notice by the Company or the Transfer Agent setting forth the number of shares of
Common Stock outstanding. For any reason at any time, upon the written request of the Holder, the
Company shall within one Business Day confirm in writing to the Holder the number of shares of
Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to the conversion or exercise of securities of the Company,
including the SPA Securities and the SPA Warrants, by the Holder and its affiliates since the date
as of which such number of outstanding shares of Common Stock was reported.

               (b) The Company shall not be obligated to issue any shares of Common Stock upon
exercise of this Warrant, if the issuance of such shares of Common Stock would exceed that number
of shares of Common Stock which the Company may issue upon exercise, redemption or conversion, as
applicable, of the SPA Warrants and SPA Securities or otherwise without breaching the Company’s
obligations under the rules or regulations of the applicable Principal Market (the number of shares
which may be issued without violating such rules and regulations, the “Exchange Cap”), except that
such limitation shall not apply in the event that the Company (A) obtains the approval of its
stockholders as required by the applicable rules of the applicable Principal Market for issuances
of shares of Common Stock in excess of such amount or (B) obtains a written opinion from outside
counsel to the Company that such approval is not required, which opinion shall be reasonably
satisfactory to the holders. Unless and until such approval or written opinion is obtained, no
Holder shall be issued in the aggregate, upon exercise or conversion, as applicable, of any SPA
Warrants or SPA Securities, shares of Common Stock in an amount greater than the product of the
Exchange Cap multiplied by a fraction, the numerator of which is the total number of shares of
Common Stock underlying

5.

 

the SPA Warrants issued to such Holder pursuant to the Purchase Agreement on the Issuance Date
and the denominator of which is the aggregate number of shares of Common Stock underlying the SPA
Warrants issued to the Purchasers pursuant to the Purchase Agreement on the Issuance Date (with
respect to each Purchaser, the “Exchange Cap Allocation”). In the event that any Holder shall sell
or otherwise transfer any of such Holder’s SPA Warrants, the transferee shall be allocated a pro
rata portion of such Holder’s Exchange Cap Allocation, and the restrictions of the prior sentence
shall apply to such transferee with respect to the portion of the Exchange Cap Allocation allocated
to such transferee. In the event that any Holder of SPA Warrants shall exercise all of such
Holder’s SPA Warrants into a number of shares of Common Stock which, in the aggregate, is less than
such Holder’s Exchange Cap Allocation, then the difference between such Holder’s Exchange Cap
Allocation and the number of shares of Common Stock actually issued to such Holder shall be
allocated to the respective Exchange Cap Allocations of the remaining holders of SPA Warrants on a
pro rata basis in proportion to the shares of Common Stock underlying the SPA Warrants then held by
each such holder. In the event that the Company is prohibited from issuing any Warrant Shares for
which an Exercise Notice has been received as a result of the operation of this Section 2.5(b), the
Company shall pay cash in exchange for cancellation of such Warrant Shares, at a price per Warrant
Share equal to the difference between the Closing Sale Price and the Exercise Price as of the date
of the attempted exercise.

          2.6 Insufficient Authorized Shares. If at any time while any of the Warrants remain
outstanding the Company does not have a sufficient number of authorized and unreserved shares of
Common Stock to satisfy its obligation to reserve for issuance upon exercise of the Warrants at
least a number of shares of Common Stock equal to 100% of the number of shares of Common Stock as
shall from time to time be necessary to effect the exercise of all of the Warrants then outstanding
(the “Required Reserve Amount”) (such event an “Authorized Share Failure”), then the Company shall
immediately take all action necessary to increase the Company’s authorized shares of Common Stock
to an amount sufficient to allow the Company to reserve the Required Reserve Amount for the
Warrants then outstanding. Without limiting the generality of the foregoing sentence, as soon as
practicable after the date of the occurrence of an Authorized Share Failure, but in no event later
than 90 days after the occurrence of such Authorized Share Failure, the Company shall hold a
meeting of its stockholders for the approval of an increase in the number of authorized shares of
Common Stock. In connection with such meeting, the Company shall provide each stockholder with a
proxy statement and shall use its best efforts to solicit its stockholders’ approval of such
increase in authorized shares of Common Stock and to cause its board of directors to recommend to
the stockholders that they approve such proposal.

     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 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 its 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

6.

 

authorized but unissued shares of Common Stock (or other securities as provided herein) to
such number of shares as shall be sufficient for such purposes.

          3.2 Notices of Record Date. 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 ten days prior to the date specified herein, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend or distribution.

     4. Representations of Holder.

          4.1 Acquisition of Warrant for Personal Account. The Holder represents and warrants
that it is acquiring the Warrant and the Exercise Shares solely for its account for investment and
not with a present view toward the public sale or distribution of said Warrant or Exercise Shares
or any part thereof and has no intention of selling or distributing said Warrant or Exercise Shares
or any arrangement or understanding with any other persons regarding the sale or distribution of
said Warrant or, except in accordance with the provisions of Article 6 of the Purchase Agreement,
the Exercise Shares, and except as would not result in a violation of the Securities Act. The
Holder will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or
solicit any offers to buy, purchase or otherwise acquire or take a pledge of) the Warrant except in
accordance with the Securities Act and will not, directly or indirectly, offer, sell, pledge,
transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or
take a pledge of) the Exercise Shares except in accordance with the provisions of Article 6 of the
Purchase Agreement or pursuant to and in accordance with the Securities Act.

          4.2 Securities Are Not Registered.

               (a) The Holder understands that the offer and sale of the Warrant or the Exercise
Shares have not been registered under the Securities Act on the basis that no distribution or
public offering of the Securities of the Company is to be effected and/or pursuant to specific
exemptions from the registration provisions of the Securities Act, which exemptions depend upon,
among other things, the bona fide nature of the Holder’s investment intent as expressed herein.
The Holder realizes that the basis for such exemptions may not be present if, notwithstanding its
representations, the 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 represents and
warrants that it 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 Securities Act or an exemption from
such registration is available. The Holder recognizes that the Company has no obligation to
register the Warrant or, except as provided in the Purchase Agreement, the Exercise Shares of the
Company, or to comply with any exemption from such registration.

          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:

7.

 

                    (i) 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

                    (ii) If reasonably requested by the Company, 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 Securities Act or any applicable state securities laws; provided, that no opinion shall be
required for any disposition made or to be made in accordance with the provisions of Rule 144.

               (b) The Holder understands and agrees that all certificates evidencing the Exercise
Shares to be issued to the Holder may bear a legend in substantially the following form:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES. THE SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED,
SOLD, PLEDGED, HYPOTHECATED OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THOSE LAWS. THE COMPANY SHALL BE ENTITLED TO
REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED TO THE EXTENT THAT AN OPINION IS REQUIRED PURSUANT TO THE AGREEMENT
UNDER WHICH THE SECURITIES WERE ISSUED.

     5. Adjustments. In the event of changes in the outstanding Common Stock of
the Company by reason of any stock split, stock dividend, recapitalization, reclassification,
combination or exchange of shares, reorganization, liquidation, dissolution, consolidation or
merger effected by the Company, the number and class 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 kind of
shares or other property, including cash, 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 after the event
requiring adjustment. The form of this Warrant need not be changed because of any adjustment in
the Exercise Price and/or number, class and kind of shares subject to this Warrant. The Company
shall promptly provide a certificate from its Chief Financial Officer notifying the Holder in
writing of any adjustment in the Exercise Price and/or the total number, class and kind of shares
issuable upon exercise of this Warrant, which certificate shall specify the Exercise Price and
number, class and kind of shares under this Warrant after giving effect to such adjustment. For the
avoidance of doubt, if necessary to effectuate the provisions of this paragraph 5, any successor to
the Company or surviving entity in a reorganization, consolidation or merger effected by the
Company shall deliver to the Holder confirmation (or a new warrant to the effect) that such
successor or surviving entity shall have all of the obligations of the Company under this Warrant
with the same effect as if such successor or surviving entity had been named as the Company herein,
and that there shall be

8.

 

issued upon exercise of this Warrant (or a new warrant) at any time after the consummation of
such reorganization, consolidation or merger, in lieu of the shares of Common Stock issuable upon
the exercise of this Warrant prior to such transaction, the total number, class and kind of shares
or other property, including cash, as the Holder would have owned had the Warrant been exercised
prior to such transaction and had the Holder continued to hold such shares until after such
transaction.

     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 fair market value of the Common Stock
on the date of exercise of this Warrant by such fraction.

     7. 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.

     8. Transfer of Warrant. Subject to applicable laws and compliance with
Section 4.3, 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.

          8.1 Upon such surrender and, if required, such payment, the Company shall execute
and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the
denomination or denominations specified in such instrument of assignment, and shall issue to the
assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant
shall promptly be cancelled. A Warrant, if properly assigned, may be exercised by a new holder for
the purchase of shares of Common Stock without having a new Warrant issued.

          8.2 If, at the time of the surrender of this Warrant in connection with any transfer
of this Warrant, the transfer of this Warrant shall not be registered pursuant to an effective
registration statement under the Securities Act and under applicable state securities or blue sky
laws, the Company may require, as a condition of allowing such transfer (i) that the Holder or
transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel
(which opinion shall be in form, substance and scope customary for opinions of counsel in
comparable transactions) to the effect that such transfer may be made without registration under
the Securities Act and under applicable state securities or blue sky laws, (ii) that the holder or
transferee execute and deliver to the Company an investment letter in form and substance acceptable
to the Company and (iii) that the transferee be an “accredited investor” as defined in Rule
501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8) promulgated under the Securities Act or a “qualified
institutional buyer” as defined in Rule 144A(a) under the Securities Act.

     9. 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 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

9.

 

obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed
Warrant shall be at any time enforceable by anyone.

     10. Modifications and Waiver. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing signed by the Company
and (i) Purchasers holding Warrants representing at least a majority of the number of Exercise
Shares then issuable upon exercise of any then unexercised Warrants sold in the Offering, provided,
however, that such modification, amendment or waiver is made with respect to all unexercised
Warrants issued in the Offering and does not adversely affect the Holder without adversely
affecting all holders of Warrants in a similar manner; or (ii) the Holder.

     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 email, 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 business 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 and to the Holders at the addresses on the Company records, or at such
other address as the Company or Holder may designate by ten days’ advance written notice to the
other party 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 New York without regard to the
principles of conflict of laws.

     14. Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this
Warrant. The language in this Warrant shall be construed as to its fair meaning without regard to
which party drafted this Warrant.

     15. Severability.  The invalidity or unenforceability of any provision of
this Warrant in any jurisdiction shall not affect the validity or enforceability of such provision
in any other jurisdiction, or affect any other provision of this Warrant, which shall remain in
full force and effect.

     16. Entire Agreement.  This Warrant constitutes the entire agreement
between the parties pertaining to the subject matter contained in it and supersedes all prior and
contemporaneous agreements, representations, and undertakings of the parties, whether oral or
written, with respect to such subject matter.

     17. Remedies, Other Obligations, Breaches And Injunctive Relief.  The
remedies provided in this Warrant shall be cumulative and in addition to all other remedies
available under this Warrant and the other Transaction Documents, at law or in equity (including a
decree of specific performance and/or other injunctive relief), and nothing herein shall limit the
right of the Holder right to pursue actual damages for any failure by the Company to comply with
the terms of this Warrant. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at law for any such

10.

 

breach may be inadequate. The Company therefore agrees that, in the event of any such breach
or threatened breach, the holder of this Warrant shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach, without the necessity of showing
economic loss and without any bond or other security being required.

[Signature Page Follows]

11.

 

     In Witness Whereof, the Company has caused this Warrant to be executed by its duly
authorized officer as of December 22, 2006.

	 	 	 	 	 	 	 	 	 
	 	 	COLUMBIA LABORATORIES, INC.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	Name: Robert S. Mills	 	 
	 	 	Title: President and Chief Executive Officer	 	 
	 	 	Address:	 	354 Eisenhower Parkway	 	 
	 

	 	 	 	 	 	Livingston, New Jersey 07039	 	 
	 

	 	 	 	 	 	Attention: General Counsel	 	 
	 

	 	 	 	 	 	Facsimile: (973) 994-3001	 	 

12.

 

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

COLUMBIA LABORATORIES, INC.

     The undersigned holder hereby exercises the right to purchase
                                        
 of the shares
of Common Stock (“Exercise Shares”) of Columbia Laboratories, Inc., a Delaware corporation (the
“Company”), evidenced by the attached Warrant to Purchase Common Stock (the “Warrant”).
Capitalized terms used herein and not otherwise defined shall have the respective meanings set
forth in the Warrant.

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

                              
a “Cash Exercise” with respect to                                
          Exercise
Shares; and/or

                              
a “Cashless Exercise” with respect to                               
          
Exercise Shares.

     2. Payment of Exercise Price. In the event that the holder has elected a Cash Exercise with
respect to some or all of the Exercise Shares to be issued pursuant hereto, the holder shall pay
the Aggregate Exercise Price in the sum of
$                                       
  to the Company in accordance with
the terms of the Warrant.

     3. Delivery of Exercise Shares. The Company shall deliver to the holder
                     Exercise
Shares in accordance with the terms of the Warrant.

Date:
                                        
      ,           

	 	 	 	 	 
	 	 	 
	   Name of Registered Holder	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	Title:	 	 

1.

 

ACKNOWLEDGMENT

     The Company hereby acknowledges this Exercise Notice and, if applicable, hereby directs
American Stock Transfer & Trust Company to issue the above indicated number of shares of Common
Stock in accordance with the Transfer Agent Instructions dated December 21, 2006 from the Company
and acknowledged and agreed to by American Stock Transfer & Trust Company.

	 	 	 	 	 
	 	COLUMBIA LABORATORIES, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

1.

 

ASSIGNMENT FORM

(To assign the foregoing Warrant, subject to

compliance with Section 4.3, 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.

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