Exhibit 10.5

 

SUBLEASE

 

 

 

Sublessor:

VAXGEN, INC.,

 

a Delaware corporation

 

 

 

 

Sublessee:

CELLEGY PHARMACEUTICALS, INC.,

 

a Delaware corporation

 

 

 

 

Premises

 

Located at:

1000 Marina Blvd., Ste. 300

 

Brisbane, California

 

 

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SUBLEASE AGREEMENT

 

THIS SUBLEASE AGREEMENT (“Sublease”) is entered into effective as of this 18th
day of March, 2005, by and between VAXGEN, INC., a Delaware corporation
(“Sublessor”) and CELLEGY PHARMACEUTICALS, INC., a Delaware corporation
(“Sublessee”).

 

RECITALS

 

A.                                   Sublessor is presently the lessee of the
Master Premises pursuant to the Master Lease.  Sublessee has received a copy of
the Master Lease.

 

B.                                     Sublessor desires to sublease a portion
of the Master Premises to Sublessee and Sublessee desires to sublease such
portion of the Master Premises from Sublessor pursuant to the terms, covenants
and conditions set forth below.

 

C.                                     Except as expressly set forth below, all
capitalized terms used below without definition shall be as defined in the Basic
Sublease Information section.

 

AGREEMENT

 

NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency
of which are hereby acknowledged, the parties hereby agree as follows:

 

1                                          Basic Sublease Information.  The
information set forth in this Section (the “Basic Sublease Information”) is
intended to supplement and/or summarize the provisions set forth in the balance
of this Sublease.  Each reference in this Sublease to any of the terms set forth
below shall mean the respective information set forth next to such term as
amplified, construed or supplemented by the particular section(s) of the
Sublease pertaining to such information.  In the event of a conflict between the
provisions of this Section and the balance of the Sublease, the balance of the
Sublease shall control.

 

Sublessor:

 

VAXGEN, INC., a Delaware corporation

 

 

 

Sublessee:

 

CELLEGY PHARMACEUTICALS, INC., a Delaware corporation

 

 

 

Sublessee’s

 

 

Tax ID No.:

 

82-0429727

 

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Sublessor’s

 

 

Address:

 

VaxGen, Inc.

 

 

1000 Marina Blvd.

 

 

Suite 200

 

 

Brisbane, California 94005

 

 

Attn:   Joseph D. Robinson

 

 

           Associate Director, Administration

 

 

Tel: (650) 624-1000

 

 

 

Sublessee’s

 

 

Address:

 

1000 Marina Blvd.

 

 

Suite 300

 

 

Brisbane, California 94005

 

 

Attn:   Phyllis Kimmel

 

 

Tel: (650) 616-2208

 

 

 

Master Lease:

 

That certain Lease dated May 20, 1998, by and between Master Lessor and
Sublessor, as the same has been amended from time to time prior to the date
hereof.

 

 

 

Master Lessor:

 

Equity Office Properties

 

 

 

Land:

 

The land upon which the Building and all Common Areas are situated.

 

 

 

Building:

 

That certain building located on the Land, generally known as 1000 Marina Blvd.,
Brisbane, California, together with related improvements.

 

 

 

Project:

 

The Building and the Land and all Common Areas, known as Sierra Point 1000
Marina.

 

 

 

Master Premises:

 

The premises leased by Sublessor under the Master Lease, together with all
appurtenances thereto.

 

 

 

Premises:

 

Suite 300, consisting of approximately 5,751 rentable square feet on the third
(3rd) floor of the Building, as more particularly described on Exhibit A hereto.

 

 

 

Parking Rights:

 

Eighteen (18) surface parking spaces. Parking privileges are appurtenant to the
Sublease and may not be assigned or sublet.

 

 

 

Common Areas:

 

All areas of the Building and the Land reserved for the joint use of all tenants
and occupants of the Building pursuant to the Master Lease, including surface
parking areas.

 

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Permitted Uses:

 

General office purposes.

 

 

 

Monthly Base Rent:

 

One Dollar ($1.00) per month, increasing to the amount of the Holdover Rent
(below) on March 1, 2006.

 

 

 

Security Deposit:

 

$10,000.00, due on execution of this Sublease.

 

 

 

Holdover Rent:

 

$17,253.00 per month [$3.00/RSF].

 

 

 

Term:

 

Term Commencement Date to Expiration Date.

 

 

 

Term Commencement

 

 

Date:

 

March 10, 2005.

 

 

 

Delivery Date:

 

The date on which Master Lessor’s consent to this Sublease has been obtained in
accordance with Section 2.3.

 

 

 

Expiration Date:

 

February 28, 2006, subject to Section 4.2 below.

 

 

 

Rent Commencement

 

 

Date:

 

Delivery Date.

 

 

 

Option to Extend:

 

None.

 

 

 

Brokers:

 

None.

 

 

 

Legal
Requirements:

 

All applicable federal, state and local laws, statutes, codes, acts, ordinances,
directions, rules, regulations and requirements, including, without limitation,
local and state building, electrical, mechanical, seismic, and fire and safety
codes, which apply to the Premises or the use or occupancy thereof. Legal
Requirements shall include the Americans with Disabilities Act of 1990, 42
U.S.C. 12101 et seq. and Title 24 of the California Department of
Rehabilitation Access Code (and related statutes and regulations), and all
Environmental Requirements.

 

 

 

Environmental Requirements:

 

 

All applicable present and future statutes, regulations, rules, ordinances,
codes and orders of all governmental agencies, departments, commissions, boards,
bureaus or instrumentalities of the United States, the State of California and
political subdivisions thereof, and all applicable judicial and administrative
and regulatory decrees, judgments and orders, relating to hazardous materials

 

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(including the reporting, licensing, permitting, investigation and remediation
of emissions, discharges, releases or threatened releases of hazardous
materials, whether into the air, surface water, groundwater or land, and
including the manufacture, processing, distribution, use, treatment, storage,
disposal, transport and handling of hazardous materials) or the protection of
human health or the environment.

 

2                                          Sublease.

 

2.1                                 Premises.  Sublessor hereby subleases the
Premises to Sublessee, and Sublessee hereby subleases the Premises from
Sublessor, upon all of the terms, covenants and conditions in this Sublease.  On
the Delivery Date:  (i) the Premises shall be delivered to Sublessee in broom
clean condition; and (ii) subject to Sections 2.2 and 2.6 below, the Premises
shall be accepted by Sublessee in its “as is” condition.  Notwithstanding that
the square footage of the Premises is approximate, Base Rent shall not be
subject to adjustment by reason of subsequent recalculations of the area of the
Premises.

 

2.2                                 Sublessor’s Work.  As soon as practicable
following the Delivery Date, and with due regard to causing the least
interference with Sublessee’s use and occupancy of the Premises, Sublessor shall
commence, and complete as expeditiously as practicable, the work within the
Premises generally described in Exhibit B, attached hereto (hereinafter,
“Sublessor’s Work”).  Sublessee hereby acknowledges and agrees that neither the
commencement nor completion of Sublessor’s Work shall have any bearing on the
Term nor the Delivery Date.

 

2.3                                 Condition Precedent — Master Lessor’s
Consent.  This Sublease is conditioned upon Master Lessor’s written approval of
this Sublease, if required under the terms of the Master Lease.  If such consent
is required and for any reason Master Lessor does not consent to this Sublease
within the thirty (30) days after the full execution of this Sublease, then this
Sublease shall terminate.  In the event of any such termination, Sublessor shall
return to Sublessee any prepaid rentals and the Security Deposit, and thereupon
all rights and obligations of the parties under this Sublease shall cease and
terminate, other than Sublessee’s indemnity obligations under Section 17. 
Sublessee shall not occupy or take possession of the Premises, or commence any
construction of improvements or alterations therein, until Master Lessor’s
consent to this Sublease has been obtained in accordance with this Section 2.3.

 

2.4                                 Sublease Subject to Master Lease.  This
Sublease is and shall be at all times subject to all of the terms, covenants and
conditions of the Master Lease and shall in all respects be limited and
construed in a fashion consistent with the estate granted to Sublessor by Master
Lessor pursuant to the Master Lease.  Without limiting the generality of the
foregoing, Sublessee acknowledges that Master Lessor has reserved rights of
entry and inspection that may be greater than those reserved to Sublessor
hereunder; that all improvements and alterations made to the Premises may become
the property of Master Lessor on surrender of the Premises by Sublessee; that
Master Lessor’s consent may be required for any assignment of this Sublease or
any

 

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subletting of the Premises by Sublessee; that Master Lessor has reserved the
right to discharge liens against the Premises caused by Sublessee or persons
acting on Sublessee’s behalf and to thereafter sue to collect the same; that
Master Lessor’s consent may be required under various circumstances in addition
to or in lieu of any consent required from Sublessor; that Sublessee’s
subleasehold estate may be subordinate to liens or encumbrances of Master
Lessor; that use of the Premises may be restricted by the Master Lease to a
greater degree than by this Sublease; and that Master Lessor may have the option
of terminating this Sublease or assuming Sublessor’s rights and obligations
hereunder upon a cancellation of the Master Lease.  Sublessee shall not commit
or permit to be committed any act or omission within the Premises, the Building,
the Land or Common Areas which shall violate any terms, covenants or conditions
of the Master Lease.  Each party agrees that it shall promptly forward to the
other party any and all notices or other communications received with regard to
the Premises by the first party from the Master Lessor under the Master Lease. 
In the event that the Master Lease shall terminate for any reason, this Sublease
shall also terminate and, unless the termination was the fault of Sublessor, the
parties hereunder shall have no further obligations or liabilities to each
other; provided that any such termination shall not impair the rights of
Sublessor under Section 17 hereof.  Where any approval or consent of Master
Lessor under the Master Lease shall be required for any act of Sublessee
hereunder, obtaining the approval or consent of the Master Lessor shall be a
condition to the right of Sublessee to undertake such act hereunder.  Sublessee
acknowledges that it shall have no rights to purchase the Premises, to cancel
the Master Lease or to extend the term of the Master Lease pursuant to any such
provisions contained in the Master Lease.

 

2.5                                 Sublessor’s Responsibilities Regarding
Master Lease.  The parties understand and acknowledge that because Sublessee is
not in privity of contract with Master Lessor, Sublessee is dependent upon
Sublessor’s exercise of its rights and remedies against Master Lessor in order
to ensure that Sublessee will obtain the services, utilities and other amenities
contemplated under this Sublease and for full use and enjoyment of the
Premises.  Sublessor hereby covenants and agrees that:  (a) it shall not amend
the Master Lease in any manner as to adversely affect Sublessee’s use or
occupancy of the Premises, or its obligations hereunder, without Sublessee’s
prior written consent; (b) Sublessor shall not agree to any termination of the
Master Lease without the prior consent of Sublessee (except as otherwise
provided in Sections 14.1 and 15.1); (c) Sublessor shall observe and perform all
its obligations as tenant under the Master Lease, subject to Sublessee’s
performance of its obligations under this Sublease; and (d) Sublessor shall act
reasonably and diligently to enforce Master Lessor’s compliance with all terms
and conditions of the Master Lease as they affect the Premises, and shall
cooperate with Sublessee in connection with its obtaining, for the benefit of
the Premises and Sublessee, all services, utilities and amenities to be provided
by the Master Lessor under the Master Lease; provided, that the foregoing shall
not require Sublessor to commence any legal proceedings (including arbitration)
against Master Lessor unless all costs associated therewith are paid or
reimbursed by Sublessee (but such costs shall be reimbursed to Sublessee from
any damages obtained from Master Lessor).

 

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2.6                                 Other Improvements.  Sublessee acknowledges
and agrees that, apart from Sublessor’s Work described above in Section 2.2,
Sublessee shall be solely responsible for the design and construction (and the
payment therefor) of any and all improvements and alterations desired by or
required of Sublessee (“Leasehold Improvements”). In connection with any
Leasehold Improvements not a part of Sublessor’s Work, Sublessee agrees that it
shall construct all such Leasehold Improvements in accordance with the further
terms of this Sublease and with adherence in all material respects to the plans
and specifications therefor, which plans and specifications shall be prepared by
Sublessee at its sole cost and expense and shall be subject to (i) Master
Lessor’s prior written approval, if and to the extent so required under the
Master Lease, and (ii) Sublessor’s prior written approval, which approval of
Sublessor shall not be unreasonably withheld, conditioned or delayed (it being
understood and agreed, however, that whether or not Sublessor’s approval is
required, Sublessee shall nevertheless submit its plans and specifications (and
evidence of Master Lessor’s consent thereto) to Sublessor prior to commencing
any work of improvement to the Premises, and that:  (i) Sublessor may, promptly
after it receives the foregoing, impose the requirement that Sublessee remove
all or specifically-identified portions of Leasehold Improvements upon the
expiration or earlier termination of this Sublease; and (ii) even where
Sublessor’s consent is not required, Sublessor may nevertheless disapprove any
specific work contemplated by Sublessee’s plans that would interfere with or
damage Sublessor’s existing cabling and related equipment located in the
Premises).

 

3                                          Condition of Premises.

 

3.1                                 Sublessee’s Inspection of Premises.  As of
the date of this Sublease, Sublessee acknowledges that Sublessee has conducted
or has had the opportunity to conduct a comprehensive investigation (“Due
Diligence Investigation”) of the Premises and all other matters which in
Sublessee’s judgment may affect the value or suitability of the Premises for
Sublessee’s purposes or which may influence Sublessee’s willingness to enter
this Sublease, including, without limitation, (i) the size and configuration of
the Premises, the Building, the Common Areas and the Land, including without
limitation, access, parking, location or accessibility of utilities, (ii) the
condition of the Premises, the Building, the Land and the Common Areas (and all
improvements located in or upon the Common Areas), (iii) the existence of any
hazardous materials, (iv) soil or topographical conditions and earthquake
preparedness; (v) the Master Lease; (vi) title matters; (vii) taxes, (viii)
expense data, (ix) insurance costs, (x) permissible uses and zoning or
development entitlements; (xi) any applicable covenants, conditions and
restrictions; and (xii) compliance with any federal, state or local law,
statute, rule or regulation now or hereafter in effect (including without
limitation the Americans With Disabilities Act of 1990, 42 U.S.C. 12101 et seq.
and Title 24 of the California Department of Rehabilitation Access Code and
related statutes and regulations).

 

3.2                                 No Representations and Warranties. 
Sublessee acknowledges that Sublessor would not sublease the Premises except on
an “as is” basis (apart from Sublessor’s Work), and agrees that:  (i) subject to
Sections 2.2 and 2.6 above, Sublessee accepts the Premises “as is” and with all
faults; (ii) neither Sublessor nor any

 

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of its officers, agents, employees or representatives has made any
representations or warranties of any kind or nature, whether express or implied,
with respect to the Premises or the balance of the Project, or any of the
matters relating thereto (including without limitation the matters referred to
in Section 3.1 above), except as otherwise expressly provided in this Sublease;
(iii) Sublessor has no duty to make any disclosures concerning the condition of
the Premises or the balance of the Project and/or the fitness of the Premises
for Sublessee’s intended use, and Sublessee expressly waives any duty which
Sublessor might have to make any such disclosures, except as otherwise expressly
provided in this Sublease; (iv) Sublessee is relying on Sublessee’s own
familiarity with the Premises, the Building, the Common Areas and the Land as
described in Section 3.1, together with such further investigations as Sublessee
has deemed appropriate, in Sublessee’s sole discretion; (v) except as otherwise
provided in Section 2.2 above, neither Sublessor nor Master Lessor (except as
expressly provided in the Master Lease) shall be required to perform any work of
construction, alteration, repair or maintenance of or to the Premises or the
balance of the Project; and (vi) in the event Sublessee subleases all or any
portion of the Premises or assigns its interest in this Sublease, Sublessee
shall indemnify and defend Sublessor (in accordance with Section 17 below) for,
from and against any matters which arise as a result of Sublessee’s failure to
disclose any relevant information about the Premises to any subtenant or
assignee of Sublessee.  If Sublessor obtains or has obtained or provides to
Sublessee any services, opinions, or work product of surveyors, architects, soil
engineers, environmental auditors, engineers, title insurance companies,
governmental authorities or any other person or entity with respect to the
Premises or the balance of the Project, Sublessee and Sublessor agree that
Sublessor does so only for the convenience of the parties, Sublessor does not
vouch for the accuracy or completeness of any such items and the reliance of
Sublessee upon any such items shall not create or give rise to any liability of
or against Sublessor; provided, however, that Sublessor does hereby represent
that, to its current actual knowledge without independent investigation, none of
the foregoing documents, materials or reports provided by Sublessor to Sublessee
concerning the Premises or the Building contains any material inaccuracy that
has not been disclosed to Sublessee.

 

3.3                                 Release.  Except for the obligations arising
under this Sublease and arising by law in connection with this Sublease,
Sublessee hereby fully releases and discharges Sublessor, and its officers,
directors, employees and agents, from and relinquishes all rights, claims and
actions that Sublessee may have against Sublessor, or its officers, directors,
employees or agents, which arise out of or are in any way connected with the
Premises or the balance of the Project, or any matters related thereto,
including but not limited to the matters referred to in Section 3.1 above.  This
release applies to all described rights, claims, and actions, whether known or
unknown, foreseen or unforeseen, present or future.  Sublessee specifically
waives application of California Civil Code 1542, which provides as follows:

 

A general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if
known by him must have materially affected his settlement with the debtor.

 

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4                                          Term.

 

4.1                                 Term.  The Term of this Sublease shall
commence on the Commencement Date specified in the Basic Sublease Information,
and subject to Section 4.2 below, shall expire on the Expiration Date specified
in the Basic Sublease Information.  All obligations of Sublessee hereunder shall
commence on the Term Commencement Date.  It is expressly understood and agreed
that the Base Rent specified in the Basic Sublease Information has been agreed
upon based upon a nominal Term of twelve (12) full calendar months, and that
such Base Rent shall not be affected, nor subject to adjustment, based on the
Delivery Date occurring after the Term Commencement Date (nor by reason of
Sublessee’s possession of the Premises being less than twelve (12) full calendar
months).

 

4.2                                 Notwithstanding Section 4.1, at any time
after April 1, 2005, Sublessee may terminate this Lease upon giving not less
than ten (10) days advance written notice to Sublessor, provided that any such
early termination by Sublessee shall not entitle it to a refund of any rents
already due and/or collected.

 

4.3                                 Surrender.  Upon the expiration or earlier
termination of the Term of this Sublease, Sublessee shall surrender the
Premises, together with any Leasehold Improvements to the Premises installed by
Sublessee in accordance with Section 2.6 (except to the extent that Sublessor
(or Master Lessor) has conditioned its consent to such improvements on their
being removed on the expiration or earlier termination of the Sublease), and any
Alterations (as defined in Section 11 hereof) made thereto (other than any such
Alterations which Sublessee is required to remove as set forth in Section 11
hereof), broom clean and free of debris, and in good working order, repair and
condition, except for reasonable wear and tear and damage by casualty.  All
furniture, trade fixtures and other personal property of Sublessee, together
with all improvements and Alterations that are designated for removal, shall be
removed from the Premises on or before such expiration or earlier termination,
if such removal can be undertaken without material damage to the Premises, and
Sublessee shall immediately repair any damage resulting from such removal.  In
no event shall HVAC equipment, plumbing or sprinkler system components, air
lines, power panels, electrical distribution systems, lighting fixtures, fencing
or any other component from any major building system be removed from the
Premises.

 

4.4                                 Holding Over.  Subject to the terms of the
Master Lease, if Sublessee shall, with Sublessor’s written consent, remain in
possession of the Premises or any part thereof after the expiration of the Term
hereof, such occupancy shall constitute a tenancy from month to month,
terminable upon thirty (30) days notice by either party, upon all of the terms,
covenants and conditions of this Sublease, except that the monthly Base Rent
shall be increased to the amount of the Holdover Rent specified in the Basic
Sublease Information (Sublessee hereby acknowledging the magnitude of the
increase in Base Rent that will be caused by such holding over).  Otherwise, any
such occupancy shall constitute a tenancy at sufferance, and Sublessee shall be
liable to Sublessor for any and all claims, damages, liabilities, costs and
expenses (including attorneys’ fees and expenses) incurred by Sublessor and
arising

 

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out of Sublessee’s failure to timely surrender the Premises in accordance with
the requirements of this Sublease.

 

5                                          Rent.

 

5.1                                 Definition.  As used in this Sublease, the
term “Rent” shall include: (i) the Base Rent; and (ii) all other amounts which
Sublessee is obligated to pay under the terms of this Sublease.

 

5.2                                 Payment. Base Rent for the entire Term shall
be due and payable in advance on the date that this Sublease is executed and
delivered by the last of the parties to have executed and delivered the same. 
In addition to the Base Rent reserved above, Sublessee shall pay to the parties
respectively entitled thereto all charges, costs and expenses which arise or may
be contemplated under any provisions of this Sublease during the term hereof. 
All such charges, costs and expenses shall constitute additional Rent, and upon
the failure of Sublessee to pay any of such costs, charges or expenses,
Sublessor shall have the same rights and remedies as otherwise provided in this
Sublease for the failure of Sublessee to pay Base Rent.  It is the intention of
the parties hereto that, except as expressly provided herein, this Sublease
shall not be terminable for any reason by Sublessee, and Sublessee shall in no
event be entitled to any abatement of or reduction in rent payable under this
Sublease.  All Rent payable hereunder shall be paid in lawful money of the
United States and without prior notice or demand, deduction or offset for any
cause whatsoever.  Any delay or failure of Sublessor in computing or billing for
any of the rental adjustments or additional Rent as provided in this Sublease
shall not constitute a waiver of or in any way impair the continuing obligation
of Sublessee to pay any and all Rent.

 

5.3                                 Late Charge and Interest.  Sublessee
acknowledges that its late payment of Rent will cause Sublessor to incur certain
costs and expenses not contemplated by this Sublease, including without
limitation administrative and collection costs and processing and accounting
expenses, the exact amount of which is extremely difficult or impractical to
fix.  Accordingly, if any installment of Rent is not paid within five (5) days
after the date such Rent is due, Sublessee shall pay to Sublessor, in addition
to the installment of Rent then owing, a late payment charge equal to Five
Hundred and No/00 Dollars ($500.00), regardless of whether a notice of default
or notice of termination has been given by Sublessor.  The parties agree that
this late charge represents a reasonable estimate of the costs and expenses
incurred by Sublessor from, and is fair compensation to Sublessor for its loss
suffered by, such nonpayment by Sublessee.  In addition to Five Hundred Dollar
($500.00) late charge, any Rent or other amounts owing under this Sublease which
are not paid within five (5) days after the date they are due shall thereafter
bear interest at the rate which is the lesser of ten percent (10%) per annum or
the maximum rate permitted by law (“Interest Rate”).  Nothing in this
Section shall relieve Sublessee of its obligation to pay any Rent at the time
and in the manner provided by this Sublease or constitute a waiver of any
default of Sublessee with regard to any nonpayment of Rent.

 

6                                          Security Deposit.  Upon the execution
and delivery of this Sublease by Sublessee, Sublessee shall deposit the Security
Deposit with Sublessor in the form of

 

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Sublessee’s check payable to Sublessor.  The Security Deposit shall secure
Sublessee’s obligations under this Sublease to pay Rent and any other monetary
amounts, to maintain the Premises and repair damages thereto, to surrender the
Premises to Sublessor in the condition required by Section 4.3 above and to
discharge Sublessee’s other obligations hereunder.  Notwithstanding the above,
Sublessee acknowledges and agrees that the amount of the Security Deposit shall
not in any way be deemed to be a limitation of Sublessee’s liability under this
Sublease.  Sublessor may use and commingle the Security Deposit with other funds
of Sublessor.  If Sublessee fails to perform Sublessee’s obligations hereunder,
Sublessor may, but without any obligation to do so, apply all or any portion of
the Security Deposit towards fulfillment of Sublessee’s unperformed
obligations.  If Sublessor does so apply any portion of the Security Deposit,
Sublessee shall immediately remit to Sublessor cash in an amount to restore the
Security Deposit to its original amount.  If Sublessee fails to restore the
Security Deposit to its original amount within five (5) days after receipt of
Sublessor’s written demand to do so, Sublessee shall be in default of this
Sublease.  Upon termination of this Sublease, if Sublessee has then performed
all of Sublessee’s obligations under this Sublease, Sublessor shall return the
Security Deposit, or whatever amount remains of the Security Deposit after
Sublessor applied all or a portion of the Security Deposit to perform
Sublessee’s obligations hereunder, to Sublessee without payment of interest.

 

7                                          Utilities and Services.

 

7.1                                 Master Lessor to Provide Utilities and
Services.  Master Lessor is required to provide to the Premises the services and
utilities so provided in the Master Lease.  As to services and utilities not
Master Lessor’s responsibility under the Master Lease, Sublessee shall arrange
for, and procure all facilities necessary for the provision to the Premises of,
all other services and utilities desired by Sublessee, including without
limitation, telephone services for the Premises.  Sublessee shall make payment
for any utilities and services obtained by it directly to the person or entity
supplying such services.  The parties acknowledge and agree that to the extent
that Sublessee is required to pay for any utilities, services or amenities
provided to the Premises (including special or excess services or utilities, as
provided below), it is their intention that Sublessee be required to pay, or to
reimburse Sublessor for, only costs actually payable to the Master Lessor (or
the supplying utility) for such utilities, services or other amenities. 
Sublessee shall not be obligated to pay any surcharge, overhead or
administrative expense to Sublessor in connection with any such utilities,
services or other amenities.

 

7.2                                 Special or Excess Usage.  Pursuant to the
Master Lease, the tenant may request services and utilities in excess of those
that are the Master Lessor’s responsibility thereunder.  If Sublessee orders any
such excess services or utilities from Master Lessor, Sublessee shall advise
Sublessor of the amount and times of such additional services and utilities so
that Sublessor may apportion to Sublessee invoiced amounts periodically received
from Master Lessor relating to the Master Premises, or alternatively, Sublessee
shall arrange with Master Lessor for the direct billing to Sublessee of the
charges relating to Sublessee’s excess usage.

 

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7.3                                 Nonliability.  Sublessor shall not be liable
for any inconvenience or loss resulting to Sublessee or its business at the
Premises from any failure of Master Lessor to furnish the utilities and services
described herein if (a) Master Lessor is excused from liability to Sublessor by
reason of the terms and conditions set forth in the Master Lease, or (ii) such
failure is the result of accidents, breakage or repairs resulting from Master
Lessor’s negligence.

 

8.                                       Operating Expenses; Personal Property
Taxes.

 

8.1                                 Full Service Lease. Pursuant to the Master
Lease, Sublessor is obligated to pay a share of all “Operating Expenses” of the
Building and the Project.  It is understood and agreed by Sublessor and
Sublessee that such Operating Expenses shall be the sole responsibility of
Sublessor, that Sublessee shall have no liability to Master Lessor nor Sublessor
on account thereof, and that as between Sublessor and Sublessee, this Sublease
is intended to be full service to Sublessee.

 

8.2                                 Personal Property Taxes.  Sublessee shall
pay prior to delinquency any and all taxes and assessments against and levied
upon trade fixtures, furnishings, equipment, and personal property contained in
the Premises.  Whenever possible, Sublessee shall cause such items to be
assessed and billed separately from the real property portion of the Premises. 
Sublessee shall be responsible for any taxes and assessments attributable to any
such items assessed against the real property portion of the Premises.

 

9                                          Use; Compliance with Laws; Permits.

 

9.1                                 Use.  The Premises are to be used for
general office purposes, and for no other purpose or business.

 

9.2                                 Compliance with Law; Prohibited Activities. 
Sublessee shall observe and comply with the requirements of all covenants,
conditions and restrictions of record regarding the Premises and Legal
Requirements now or hereafter in effect which apply to the Premises or the use
or occupancy thereof by Sublessee, including but not limited to the obligation
to alter, maintain, repair, improve or restore the Premises, and all parts
thereof, in compliance and conformity with all such Legal Requirements.  The
foregoing notwithstanding, Sublessee shall not be obligated (i) to make any
structural improvements or alterations to the Building (unless required by
reason of Alterations undertaken or proposed by Sublessee), or (ii) to take any
action to observe or comply with any covenants, conditions, restrictions or
Legal Requirements that are not required to be observed or complied with by the
tenant under the Master Lease.  In addition, nothing herein shall limit or
impair Sublessee’s right to challenge in good faith (and at its own expense) any
Legal Requirements or the application thereof to the Premises, and to delay any
action in observance or compliance with such Legal Requirements being challenged
in good faith to the extent such delay does not result in a default under the
Master Lease or risk penalties or fines being assessed against Sublessor or
Master Lessor.  Sublessee shall not (i) commit, or suffer to be committed or
exist, on the Premises any waste, or any nuisance, or other act or thing which
may disturb the quiet enjoyment of any other tenant in the Building; or (ii) do
or permit to be

 

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done in or about the Premises, or bring or keep anything therein, which will in
any way increase the existing rate, or cause the cancellation, of the all risk
fire insurance on the Building.  Sublessee shall not use, store, generate,
transit or dispose of any hazardous substances upon, in about, or under the
Premises, except any use or storage of any such hazardous substances customarily
used in Sublessee’s business, provided that such use or storage complies with
all applicable Legal Requirements.  As used herein, hazardous substances means
any and all hazardous, ultra-hazardous, or toxic substances, wastes or materials
regulated under any laws or regulations applicable to the environment or the
protection of human health.

 

9.3                                 Permits and Licenses.  Sublessee shall apply
for and obtain, at its sole expense, all permits, licenses, consents,
permissions or other approvals of any governmental or quasi-governmental
authorities which may be required in order that Sublessee may construct any
improvements or Alterations proposed by Sublessee or as required to operate
Sublessee’s business.  Sublessor agrees that in all such cases, whenever
reasonably requested by Sublessee, Sublessor shall cooperate with Sublessee in
obtaining such permits, licenses, consents, permissions and other approvals,
provided that Sublessor shall not be required to incur any direct or indirect
cost or expense as a result of such cooperation.

 

10                                    Assignment and Subletting.

 

10.1                           Sublessor’s Consent.  Subject to Section 10.2,
Sublessee shall not transfer or assign this Sublease, or any right or interest
hereunder, nor sublet the Premises or any part thereof.  No transfer or
assignment, whether voluntary or involuntary, by operation of law or under legal
process or proceedings, shall be valid or effective.  Should Sublessee attempt
to make or suffer to be made any transfer or assignment of this Sublease or any
subletting of the Premises, or should any of Sublessee’s rights under this
Sublease be sold or otherwise transferred by or under court order or legal
process or otherwise, or should Sublessee be adjudged insolvent or bankrupt,
then and in any of the foregoing events Sublessor may, at its sole option,
terminate this Sublease upon written notice thereof to Sublessee.  Under no
circumstances shall any sublease of all or a part of the Premises, or assignment
of this Sublease, by Sublessee in any way modify, affect or limit the liability
of Sublessee under this Sublease.

 

10.2                           Permitted Transfers.  An assignment of this
Subease, or a subletting of the Premises, to any of the following persons shall
not be treated as an transfer prohibited by Section 10.1:  (a) the parent of
CELLEGY PHARMACEUTICALS, INC. or any wholly-owned subsidiary of CELLEGY
PHARMACEUTICALS, INC., (b) a corporation into which or with which CELLEGY
PHARMACEUTICALS, INC. may be merged or consolidated, provided that the tangible
net worth of the resulting corporation is at least equal to the greater of (i)
the tangible net worth of CELLEGY PHARMACEUTICALS, INC. on the date of this
Sublease, or (ii) the tangible net worth of CELLEGY PHARMACEUTICALS, INC.
immediately prior to such merger or consolidation, or (c) any entity to which
CELLEGY PHARMACEUTICALS, INC. sells all or substantially all of its assets,
provided in each case that such entity expressly assumes all of Sublessee’s
obligations under this Sublease.  In addition, the following

 

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transfers shall not be deemed an assignment of this Sublease:  (x) transfers of
Tenant’s stock to its owners’ immediate family members or to trusts for the
benefit of any such family members, provided that the current owners maintain a
controlling interest, and (y) if Tenant conducts a public offering of stock,
sales of stock made pursuant to such public offering and any subsequent
transfers of the offered stock.  Further, Sublessee shall not be treated as
having violated Section 10.1 by reason of the use or occupancy of the Premises
by employees of affiliated companies that are controlled by CELLEGY
PHARMACEUTICALS, INC., or which control CELLEGY PHARMACEUTICALS, INC., or which
are under common control with CELLEGY PHARMACEUTICALS, INC..

 

11                                    Alterations.  Sublessee shall not make or
suffer to be made any alterations, additions or improvements (collectively
“Alterations”) in, on, or to the Premises or the Building without the prior
written consent of Sublessor, which consent shall not be unreasonably withheld,
conditioned or delayed so long as (i) such Alterations are permitted under the
Master Lease, or Master Lessor has given its informed consent thereto, and (ii)
such proposed Alterations will not interfere with or damage Sublessor’s existing
cabling and related equipment located in the Premises, and (iii) Sublessee
agrees to remove any Alterations that Sublessor identifies for removal (at the
expiration or earlier termination of this Sublease) as a condition of
Sublessor’s giving its consent thereto.  The foregoing notwithstanding,
Sublessee shall have the right from time to time to construct and install
Alterations costing not more than Five Thousand Dollars ($5,000.00) without the
prior consent of Sublessor (but with prior written notice to Sublessor), subject
to (i) all conditions limiting or governing such Alterations set forth in the
Master Lease, and (ii) all other terms and conditions of this Sublease.  It is
understood and agreed that Sublessee shall be solely responsible for removing,
at Sublessee’s own expense, all Alterations for which Master Lessor’s consent
was required and given on condition of such removal.  Any Alterations in, on or
to the Premises that Sublessee desires to undertake, which require the consent
of Sublessor hereunder, shall be presented to Sublessor in written form, with
proposed conceptual plans.  Where Sublessor’s consent is required, Sublessor
shall to notify Sublessee in writing whether it approves or disapproves said
plans.  If Sublessor disapproves Sublessee’s plans, it shall set forth with
specificity and detail the objections it has to the same, and the changes that
are needed to make such work acceptable to Sublessor.  If Sublessor’s consent is
not required as provided above, Sublessee shall demonstrate its compliance with
the conditions which excuse the need for Sublessor’s consent.  Whether or not
Sublessor’s consent is required, Sublessor may require that Sublessee, at
Sublessee’s sole cost and expense, obtain builder’s risk insurance with regard
to such Alteration, and/or provide to Sublessor a lien and completion bond in an
amount equal to one and one-half times the estimated cost of such Alterations. 
Sublessee shall reimburse Sublessor for all costs incurred by Sublessor in
reviewing Sublessee’s plans for any proposed Alteration.  Sublessee shall pay
promptly for all work related to any Alteration, whether done by Sublessee, upon
Sublessee’s order or otherwise.  Any Alterations Sublessee may be required or
permitted to make shall be made by Sublessee at Sublessee’s sole cost and
expense (including, without limitation, all costs of complying with the
Americans with Disabilities Act, whether or not such compliance requires
structural improvements), and Sublessee shall notify Sublessor in advance of the
same so that Sublessor may, at Sublessor’s sole option, post appropriate notices
of nonresponsibility.  All Alterations shall be made under the

 

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supervision of a competent architect or licensed structural engineer, in a good
and workmanlike manner and in accordance with any plans approved by Sublessor
and all applicable laws.  Before commencement of any Alteration, Sublessee shall
provide to Sublessor a copy of the building permit for such work (if a building
permit is legally required) and a list of all contractors or subcontractors to
be used.  Upon completion of such Alteration, Sublessee shall timely and
properly record a Notice of Completion in the county recorder’s office for the
county in which the Premises are located.  Upon the expiration or sooner
termination of this Sublease, Sublessee shall, at Sublessee’s sole cost and
expense, immediately and with all due diligence:  (i) remove any Alterations
made or paid for by Sublessee that Sublessor (or Master Lessor) has designated
for removal; (ii) repair any damage to the Premises resulting from such removal;
and (iii) repair and restore the Premises to its original condition, reasonable
wear and tear excepted.  Leasehold Improvements installed by Sublessee under
Section 2.6 that are not designated for removal, and all Alteration not
designated for removal by Master Lessor, shall become a part of the Premises and
the property of Sublessor upon expiration or sooner termination of this Sublease
and shall remain on and be surrendered with the Premises.

 

12                                    Repairs and Maintenance.  Except to the
extent that Master Lessor shall be obligated to maintain, repair or replace the
same under the Master Lease, Sublessee shall, at Sublessee’s sole expense, keep,
maintain, repair and replace all of the Premises to the same extent as the
tenant under the Master Lease is so obligated (which shall include, without
limitation, the maintenance, repair and replacement of all doors, windows, plate
glass, floor coverings, interior walls and ceilings).  In addition, Sublessee
shall, at Sublessee’s sole expense, immediately repair any Common Areas or
elements or systems of the Building damaged by Sublessee or Sublessee’s agents,
employees, licensees, invitees and visitors to the extent required of the tenant
under the Master Lease.  All maintenance, repairs and replacement by Sublessee
hereunder shall be undertaken in accordance with, and shall be governed by, the
requirements of Section 11 above.  Sublessee acknowledges that Sublessor is
under no duty to make any repairs or improvements to the Premises; Sublessee
hereby waives the benefit of any statute or principal of law or equity, now or
hereinafter in effect, which would afford Sublessee the right to make repairs at
Sublessor’s expense or to terminate this Sublease because of Sublessor’s failure
to keep the Premises in good order, condition and repair.

 

13                                    Insurance Policies.  Prior to occupying
the Premises and for the duration of the Term, Sublessee shall procure and
maintain in full force and effect and at Sublessee’s sole cost and expense the
following policies of insurance.  Each policy of insurance required to be
maintained by Sublessee hereunder shall be issued by an insurance company
authorized to do business in the State of California, with a rating
classification of at least an A, Class VIII status as rated from time to time in
the most current edition of Best’s Insurance Reports and shall provide for only
such deductibles as are reasonably acceptable to Sublessor.  Such policies shall
be primary and non-contributing and shall name Sublessor and Master Lessor as
additional named insureds.  If the Master Lease requires greater or additional
insurance coverage, Sublessee shall also carry such insurance.

 

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13.1                           Property.  A policy or policies of “special form”
property, fire, and extended coverage insurance, including without limitation,
coverage of vandalism and malicious mischief, in an amount equal to one hundred
percent (100%) of the full insurance replacement value of the Sublessee’s
improvements, alterations and betterments in the Premises (to the extent such
improvements, alterations and betterments were constructed by or at the request
of Sublessee).

 

13.2                           Liability.  A policy or policies of comprehensive
general liability insurance, in the form customary to the locality in which the
Premises are located, insuring Sublessee’s activities and those of Sublessee’s
officers, employees, agents, servants, licensees, subtenants, concessionaires
and invitees with respect to the Premises against loss, damage or liability for
injury or death of any person or loss or damage to property occurring on the
Premises or as a result of occupancy or use of the Premises and contractual
liability coverage for liability obligations assumed under this Sublease
(including without limitation the indemnity provisions of Section 17 below),
with a limit of not less than Two Million Dollars ($2,000,000) for injury to any
number of persons and/or property damage in any one occurrence.  The adequacy of
the coverage afforded by such insurance shall be subject to review by Sublessor
from time to time, and, if it reasonably appears in such review that a prudent
business person in the area operating a similar business to that operated by the
Sublessee on the Premises would increase the limits of such insurance, Sublessee
shall effect such increases within thirty (30) days of receipt of notice from
Sublessor requesting such increase.

 

13.3                           Other Insurance.  Sublessee shall also keep in
full force and effect during the Term, (a) insurance payable to Sublessor
against loss of Rent in case of fire or other casualty, in an amount at least
equal to the amount of Rent payable by Sublessee during the one (1) year next
ensuing, as reasonably determined by Sublessor, and (b) workers’ compensation
insurance in amounts required by applicable law and employer’s liability
insurance in an amount equal to One Million Dollars ($1,000,000) per injury or
illness.

 

13.4                           Waiver of Subrogation.  Any policy or policies of
insurance, which either party obtains in connection with the Premises, shall, to
the extent the same can be obtained without undue expense, include a clause or
endorsement denying the insurer any rights of subrogation against the other
party to the extent rights have been waived by the insured prior to the
occurrence of injury or loss.  Sublessee and Sublessor waive any rights of
recovery against the other for injury or loss due to hazards covered by
insurance containing such a waiver of subrogation clause or endorsement to the
extent of the injury or loss covered thereby.

 

13.5                           Insurance Certificates.  Prior to occupying the
Premises (and from time to time, no later than thirty (30) days prior to the
expiration of each insurance policy) Sublessee shall furnish to Sublessor a
certificate of insurance issued by the insurance carrier of each policy of
insurance carried by Sublessee pursuant hereto.  Such certificates of insurance
shall reflect that Sublessor and Master Lessor are additional named insureds;
and (ii) that such insurance policies shall not be cancelable, subject to
reduction of coverage or any other material amendment without a minimum of

 

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thirty (30) days prior written notice to Sublessor and any other additional
named insureds.

 

14                                    Damage and Destruction.

 

14.1                           Termination of Master Lease.  If as the result of
any damage or destruction, Master Lessor or Sublessor exercises any option
either may have to terminate the Master Lease as to all of the Master Premises,
this Sublease shall terminate to the same extent, effective as of the date of
such termination of the Master Lease.  In addition, if the Sublease is not
terminated as hereinbefore provided, Sublessor shall send Sublessee a written
notice estimating the time needed to complete repairs or restoration, and
Sublessee may, by giving written notice to Sublessor within thirty (30) days
after receiving such notice from Sublessor, terminate this Sublease if the
Premises cannot be repaired and/or restored within one hundred and eighty (180)
days following such damage or destruction.

 

14.2                           Continuation of Sublease.  If this Sublease is
not terminated following any damage or destruction as provided above, this
Sublease shall remain in full force and effect and the responsible party under
the Master Lease shall diligently repair, restore or rebuild the Premises or the
Building as required by the terms of the Master Lease.  The “responsible party
under the Master Lease” shall be Master Lessor if the Master Lease so provides,
or Sublessor if the Master Lease requires such repairs, restoration or
rebuilding to be undertaken by the tenant thereunder.  Sublessee waives the
provisions of any statute or other principal of law or equity which relate to
the right to terminate a lease when the thing leased is destroyed and agrees
that such event shall be governed by the terms hereof.  Unless this Sublease
shall terminate as provided in Section 14.1 above, there shall be no abatement
of Rent payable by Sublessee hereunder by reason of any damage or destruction of
the Premises, except to the extent of any abatement of rent payable under the
Master Lease with regard to the Premises as a result of such damage or
destruction.  If this Sublease is terminated as a result of any damage or
destruction as provided in Section 14.1 above, all proceeds of insurance
resulting from such damage or destruction shall be paid to Sublessor (or Master
Lessor), and Sublessee hereby assigns such proceeds to Sublessor (and Master
Lessor) in any such event (provided that if proceeds of insurance carried
separately by Sublessee are intended to compensate Sublessee for moving and
relocation costs, equipment, personal property, trade fixtures, furnishing,
alterations and improvements that Sublessee is entitled or required to remove on
expiration of this Sublease, then such sums may be retained by Sublessee after
collection from its insurance carrier).  Payment and assignment to Sublessor of
any such insurance proceeds shall not be construed as a waiver of any right or
remedy Sublessor may have against Sublessee arising from any breach of this
Section.

 

15                                    Eminent Domain.

 

15.1                           Termination of Master Lease.  If as the result of
any condemnation by eminent domain, inverse condemnation or sale in lieu of
condemnation, for any public or a quasi-public use or purpose (“Condemned” or
“Condemnation”), the Master Lease shall terminate or Master Lessor or Sublessor
either mutually agree or exercise

 

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any option either may have to terminate the Master Lease as to all or any
portion of the Premises, this Sublease shall terminate to the same extent,
effective as of the date of such termination of the Master Lease.

 

15.2                           Partial Condemnation.  If this Sublease is not
terminated following any such Condemnation as set forth above, this Sublease
shall remain in full force and effect and the responsible party under the Master
Lease shall diligently repair, restore or rebuild the Premises or the Building
as required by the terms of the Master Lease.  The “responsible party under the
Master Lease” shall be Master Lessor if the Master Lease so provides, or
Sublessor if the Master Lease requires such repairs, restoration or rebuilding
to be undertaken by the tenant thereunder.  Sublessee hereby waives the
provisions of California Code of Civil Procedure Section 1265.130 and any other
statute or principal of law or equity permitting termination this Sublease upon
Condemnation.  Unless this Sublease shall terminate as a result of any
Condemnation, there shall be no abatement of Rent payable by Sublessee hereunder
as a result of any Condemnation, except to the extent of any abatement of rent
payable under the Master Lease with regard to the Premises as a result of such
Condemnation.

 

15.3                           Sublessee’s Award.  The entire Condemnation award
shall belong solely to Sublessor or Master Lessor, as the case may be. 
Notwithstanding the foregoing, Sublessee shall have the right to recover from
the condemning authority, but not from Sublessor or Master Lessor, such
compensation as may be separately awarded to Sublessee (as opposed to any award
to Sublessor or Master Lessor) in connection with:  its loss of business;
personal property, fixtures and leasehold improvements owned by Sublessee (as
opposed to the improvements owned by Sublessor or Master Lessor); and the costs
of moving Sublessee’s personal property, fixtures, and leasehold improvements to
a new location.

 

16                                    Default.

 

16.1                           Events of Default.  The occurrence of any one or
more of the following events shall constitute an “Event of Default” on the part
of Sublessee with or without notice from Sublessor (except as required by
Section 16.1.3 below):

 

16.1.1                  Vacation or Abandonment.  Sublessee’s vacation (which is
defined as the failure to remain open for business at any time during the Term
after Sublessee has taken possession of the Premises for a period of thirty (30)
continuous days) or abandonment of the Premises;

 

16.1.2                  Payment.  Sublessee’s failure to pay any installment of
Rent on or before five (5) days after said payment is due;

 

16.1.3                  Performance.  Sublessee’s failure to perform any of
Sublessee’s covenants, agreements or obligations hereunder (other than the
nonpayment of Rent which shall be governed by Section 16.1.2 above) on or before
thirty (30) days after written notice thereof from Sublessor, provided that if
such failure to perform cannot reasonably be remedied within a 30-day period,
Sublessee shall not

 

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be in default if it commences the cure of such failure to perform within said
thirty (30) days and diligently prosecutes such cure to completion;

 

16.1.4                  Assignment.  A general assignment by Sublessee for the
benefit of creditors;

 

16.1.5                  Bankruptcy.  The filing of a voluntary petition by
Sublessee seeking the rehabilitation, liquidation or reorganization of Sublessee
under any law relating to bankruptcy, insolvency or other relief of debtors; or
the filing of an involuntary petition by any of Sublessee’s creditors seeking
substantially the same relief if not dismissed within sixty (60) days;

 

16.1.6                  Receivership.  The appointment of a receiver or other
custodian to take possession of substantially all of Sublessee’s assets or of
this leasehold, if not dismissed within sixty (60) days;

 

16.1.7                  Insolvency, Dissolution, Etc.  Any court shall enter a
decree or order directing the winding up or liquidation of Sublessee or of
substantially all of its assets; or Sublessee shall take any action toward the
dissolution or winding up of its affairs or the cessation or suspension of its
use of the Premises; or

 

16.1.8                  Attachment.  Attachment, execution or other judicial
seizure of substantially all of Sublessee’s assets or this leasehold, if not
dismissed or released within sixty (60) days.

 

16.2                           Sublessor’s Remedies.

 

16.2.1                  Abandonment.  If Sublessee vacates or abandons the
Premises, this Sublease shall continue in effect unless and until terminated by
Sublessor in writing, and Sublessor shall have all of the rights and remedies
provided by Section 1951.4 of the California Civil Code (i.e. Sublessor may
continue this Sublease in effect after Sublessee’s breach and abandonment and
recover Rent as it becomes due, if Sublessee has the right to sublet or assign
subject only to reasonable limitations).

 

16.2.2                  Termination.  Following the occurrence of any Event of
Default (giving due regard to any grace period afforded Sublessee under
Section 16.1 above), Sublessor shall have the right, so long as the default
continues, to terminate this Sublease by written notice to Sublessee setting
forth:  (i) the default; (ii) the requirements to cure it; and (iii) a demand
for possession, which shall be effective three (3) days after it is given. 
Sublessor shall not be deemed to have terminated this Sublease other than by
delivering written notice of termination to Sublessee.

 

16.2.3                  Possession.  Following termination of the Sublease,
without prejudice to any other remedies Sublessor may have by reason of
Sublessee’s default or of such termination, Sublessor may then or at any time
thereafter (i) peaceably reenter the Premises, or any part thereof, upon
voluntary surrender by Sublessee, or, expel or remove Sublessee and any other
persons occupying the Premises, using such legal proceedings as may be
available; (ii) repossess and enjoy the Premises, or relet

 

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the Premises or any part thereof for such term or terms (which may be for a term
extending beyond the Term), at such rental or rentals and upon such other terms
and conditions as Sublessor in Sublessor’s sole discretion shall determine, with
the right to make reasonable alterations and repairs to the Premises; and (iii)
remove all personal property from the Premises.

 

16.2.4                  Recovery.  Following termination of the Sublease,
Sublessor shall have all the rights and remedies of a Sublessor provided by
Section 1951.2 of the California Civil Code which provides that Sublessor may
recover from Sublessee the following: (i) the worth at the time of the award of
the unpaid rent which had been earned at the time of termination; (ii) the worth
at the time of the award of the amount by which the unpaid rent which would have
been earned after termination until the time of the award exceeds the amount of
such rental loss that Sublessee proves could have been reasonably avoided; (iii)
the worth at the time of the award of the amount by which the unpaid rent for
the balance of the Term after the time of award exceeds the amount of such
rental loss that Sublessee proves could be reasonably avoided; and (iv) any
other amount necessary to compensate Sublessor for all detriment proximately
caused by Sublessee’s failure to perform Sublessee’s obligations under the
Sublease or which in the ordinary course of things would be likely to result
therefrom.  The “worth at the time of award” of the amounts referred to in (i)
and (ii) of this subsection, shall be computed by allowing interest at the
Interest Rate set forth in Section 5.3 above.  The “worth at the time of the
award” of the amount referred to in (iii) above shall be computed by discounting
such amount at the discount rate of the Federal Reserve Bank of San Francisco at
the time of award plus one percent (1%).

 

16.2.5                  Other.  If Sublessee causes or threatens to cause a
breach of any of the covenants, terms or conditions contained in this Sublease,
Sublessor shall be entitled to retain all sums held by Sublessor, any trustee or
in any account provided for herein, to enjoin such breach or threatened breach,
and to invoke any remedy allowed at law, in equity, by statute or otherwise as
though reentry, summary proceedings and other remedies were not provided for in
this Sublease.

 

16.2.6                  Cumulative.  Each right and remedy of Sublessor provided
for in this Sublease shall be cumulative and shall be in addition to every other
right or remedy provided for now or hereafter existing at law, in equity, by
statute or otherwise.  The exercise or beginning of the exercise by Sublessor of
any one or more of the rights or remedies provided for in this Sublease, or now
or hereafter existing at law, in equity, by statute, or otherwise, shall not
preclude the simultaneous or later exercise by Sublessor of any or all other
rights or remedies provided for in this Sublease or now or hereafter existing at
law, in equity, by statute, or otherwise.

 

16.2.7                  No Waiver.  No failure by Sublessor to insist upon the
strict performance of any term hereof or to exercise any right or remedy
consequent upon a breach thereof, and no acceptance of full or partial payment
of rent during the continuance of any such breach shall constitute a waiver of
any such breach or of any such term.  Efforts by Sublessor to mitigate the
damages caused by Sublessee’s breach of this Sublease shall not be construed to
be a waiver of Sublessor’s right to recover damages under this Section.

 

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16.2.8                  Sublessor’s Right to Perform.  Upon Sublessee’s failure
to perform any obligation of Sublessee hereunder, including, without limitation,
payment of Sublessee’s insurance premiums and charges of contractors who have
supplied materials or labor to the Premises, Sublessor shall have the right, but
not the obligation, at any time after giving five (5) days prior written notice
to Sublessee, to perform such obligations of Sublessee on behalf of Sublessee
and/or to make payment on behalf of Sublessee to such parties.  Upon demand,
Sublessee shall reimburse Sublessor for the cost of Sublessor’s performing such
obligations on Sublessee’s behalf, plus interest at the Interest Rate set forth
in Section 5.3 above, from the date of any such expenditure until the same is
repaid.

 

16.2.9                  Additional Remedies.  In addition to the foregoing
remedies and so long as this Sublease is not terminated, Sublessor shall have
the right to maintain or improve the Premises without terminating this Sublease,
to incur expenses on behalf of Sublessee in seeking a subtenant or assignee,
including, without limitation, brokers’ commissions, expenses of remodeling the
Premises, and any other inducements which Sublessor determines, in Sublessor’s
sole discretion, are necessary, to cause a receiver to be appointed to
administer the Premises and new or existing subleases and to add to the Rent
payable hereunder all of Sublessor’s costs in so doing, including reasonable
attorneys’ fees, with interest at the Interest Rate set forth in Section 5.3
above from the date of such expenditure until the same is repaid.

 

16.2.10            Additional Rent.  For purposes of any unlawful detainer
action by Sublessor against Sublessee pursuant to California Code of Civil
Procedure Sections 1161 through 1179, or any similar or successor statutes,
Sublessor shall be entitled to recover as Rent not only such sums specified as
the Base Rent which may then be overdue, but also any and all additional sums of
money as may then be overdue.

 

16.2.11            Indemnification.  Sublessor’s exercise of any one or more of
the remedies set forth in this Section shall not affect the rights of Sublessor
or the obligations of Sublessee under the indemnification set forth in
Section 17 hereof.

 

16.2.12            After Default.  Sublessor shall be under no obligation to
observe or perform any covenant of this Sublease on its part to be observed or
performed which accrues after the date of any Event of Default, and for so long
as the Event of Default continues.

 

17                                    Indemnification of Sublessor.  Sublessee
shall indemnify, protect, defend with counsel reasonably acceptable to
Sublessor, and hold Sublessor, and its officers, directors, employees and
agents, harmless from and against any and all liabilities, penalties, losses,
damages, costs and expenses, demands, causes of action, claims or judgments
(including, without limitation, attorneys’ fees and expenses) (collectively,
“Claims”) arising, claimed or incurred against or by Sublessor, or its officers,
directors, employees or agents, from any matter or thing arising from (i) the
use or occupancy of the Premises or the balance of the Project by Sublessee or
any sublessee or assignee of Sublessee, or any of their respective officers,
directors, employees, agents, licensees and invitees, the conduct of Sublessee’s
business, or from any activity, work or other

 

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thing done, permitted or suffered by Sublessee in or about the Premises or the
balance of the Project; (ii) any accident, injury to or death of Sublessee
and/or its officers, directors, employees, agents, invitees or licensees, or
loss of or damage to property of the foregoing persons occurring on or about the
Premises or any part thereof during the term hereof; (iii) any breach or default
in the performance of any obligation on Sublessee’s part or to be performed
under the terms of this Sublease; or (iv) the performance of any labor or
services or the furnishing of any materials or other property in respect of the
Premises or any part thereof at the request of Sublessee, or its officers,
directors, agents and employees; provided that Sublessee shall have no
obligation to indemnify, defend and hold Sublessor harmless from and against any
Claims to the extent resulting from the negligence or willful misconduct of
Sublessor or from Sublessor’s breach of this Sublease or its breach of the
Master Lease.  Notwithstanding any provision hereof to the contrary, the
indemnification provided in this Section shall survive any termination of this
Sublease or expiration of the Term hereof.  Sublessee shall give prompt notice
to Sublessor in case of casualty or accidents of a material nature known to
Sublessee on or about the Premises.

 

18                                    Brokerage Commission.  Sublessee
represents and warrants to Sublessor that no broker or finder, can properly
claim a right to a commission or a finder’s fee based upon contacts between the
claimant and Sublessee with respect to Sublessor, this Sublease or the
Premises.  Sublessee shall indemnify, defend (with counsel acceptable to
Sublessor) and hold Sublessor harmless from and against any loss, cost or
expense, including, but not limited to, attorneys’ fees and court costs,
resulting from any claim for a fee or commission by any broker or finder in
connection with the Premises and this Sublease.

 

19                                    General Provisions.

 

19.1                           Notices.  All notices or demands of any kind
required or desired to be given hereunder shall be in writing and mailed postage
prepaid by certified or registered mail, return receipt requested, or by
personal delivery, to the appropriate address indicated in the Basic Sublease
Information, or at such other place or places as either Sublessor or Sublessee
may, from time to time, designate in a written notice given to the other. 
Notices shall be deemed to be delivered four (4) days after the date of mailing
thereof, or upon earlier receipt.

 

19.2                           Entry by Sublessor.  Sublessor and its authorized
representatives shall have the right to enter the Premises at all reasonable
times (including all normal business hours) and upon reasonable oral or written
notice (provided that in the event of an emergency, notice need not be given)
for the purposes of:  inspecting the same; for servicing, altering or repairing
Sublessor’s existing cabling and related equipment located in the Premises; or
taking any action or doing any work permitted hereunder (but nothing herein
contained in this Lease shall create or imply any duty on the part of Sublessor
to make any such inspection or to take any such action or do any such work).  No
such entry shall constitute an eviction of Sublessee.  In connection with any
such entry, Sublessor will use reasonable efforts not to disrupt or interfere
with the normal operation of Sublessee’s business.

 

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19.3                           Estoppel Certificates.  Each party shall, from
time to time upon not less than thirty (30) days prior written notice from the
other execute, acknowledge and deliver to the other a statement in writing (a)
certifying that this Lease is unmodified and in full force and effect (or, if
modified, stating the nature of such modification), and the date to which the
Rent and other charges are paid in advance, if any, and (b) acknowledging that
there are not, to such party’s knowledge, any uncured defaults on the part of
the other hereunder, or specifying such defaults if any are claimed, and (c)
setting forth the date of expiration of the term hereof.

 

19.4                           Liens.  Sublessee covenants that it will not,
during the Term hereof, suffer or permit any lien to be attached to or upon the
Premises or the balance of the Project, or any portion thereof, by reason of any
act or omission on the part of Sublessee, and hereby agrees to save and hold
harmless Sublessor from or against any such lien or claim of lien.  In the event
any such lien does attach or any claim of lien is made against the Premises or
the balance of the Project, which is occasioned by any act or omission upon the
part of Sublessee, and shall not be released within thirty (30) days after
notice from Sublessor to Sublessee so to do, Sublessor in its sole discretion,
except as provided below, may pay and discharge the same and remove any such
lien from the Premises or the balance of the Project.  Sublessee agrees to repay
and reimburse Sublessor, upon demand, for any amount which may have been paid by
Sublessor in discharging such lien, together with interest at the Interest Rate
set forth in Section 5.3 above from the date of the expenditure by Sublessor to
the date of repayment by Sublessee.

 

19.5                           Time.  Time is of the essence of this Sublease. 
If any date set forth for the performance of any obligation or for the delivery
of any instrument or notice should be on a Saturday, Sunday or legal holiday,
compliance with such obligations or delivery shall be deemed acceptable on the
next business day following such Saturday, Sunday or legal holiday.  As used
herein, the term “legal holiday” means any state or federal holiday for which
financial institutions and post offices are generally closed in the State of
California for observance thereof.  Except as expressly provided to the contrary
in this Sublease, all references to days shall mean calendar days.

 

19.6                           Entire Agreement.  This Sublease contains all of
the covenants, conditions and agreements between the parties concerning the
Premises, and shall supersede all prior correspondence, agreements and
understandings concerning the Premises, both oral and written.  No addition or
modification of any term or provision of this Sublease shall be effective unless
set forth in writing and signed by both Sublessor and Sublessee.

 

19.7                           Successors and Assigns.  Subject to the
provisions of this Sublease relating to assignment, mortgaging and subletting,
this Sublease is intended to and does bind the heirs, executors, administrators,
successors and assigns of any and all of the parties hereto.

 

19.8                           Authority.  Each individual executing this
Sublease on behalf of Sublessee represents and warrants that he or she is duly
authorized to execute and deliver this Sublease on behalf of Sublessee, and that
this Sublease is binding upon

 

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Sublessee in accordance with its terms.  As a condition precedent to the legal
effectiveness of this Sublease, Sublessor may, at Sublessor’s option, require
corporate or partnership resolutions as are reasonably necessary to establish
the authority of Sublessee to execute this Sublease.

 

19.9                           Exhibits.  The exhibits attached hereto are made
a part of this Sublease by this reference.

 

19.10                     Attorneys’ Fees; Waiver of Jury Trial.  If any party
commences an action against the other party arising out of or in connection with
this Sublease, (a) the prevailing party shall be entitled to recover from the
losing party the cost and expenses of such action, including reasonable
collection fees, attorneys’ fees (including without limitation the allocated
cost of in-house counsel) and court costs; and (b) the parties agree that the
matter shall be tried by the court without a jury, and each party specifically
waives the right to a jury trial in any such action.

 

19.11                     Governing Law.  This Sublease shall be governed by and
construed in accordance with the laws of the State of California applicable to
contracts to be performed in such State.

 

19.12                     Captions.  All captions and headings in this Sublease
are for the purposes of reference and convenience and shall not limit or expand
the provisions of this Sublease.

 

19.13                     Definition of Sublessor.  As used in this Sublease,
the term “Sublessor” means only the current owner of the leasehold interest of
the lessee under the Master Lease at the time in question.  Each Sublessor is
obligated to perform the obligations of the Sublessor hereunder only during the
time such Sublessor owns such leasehold interest.  Any Sublessor who transfers
title to its leasehold interest in the Premises is relieved of all liabilities
of Sublessor under this Sublease to be performed on or after the date of such
transfer.

 

19.14                     Joint and Several Liability.  If more than one person
and/or entity is Sublessee, the obligations imposed under this Sublease shall be
joint and several.

 

19.15                     Waivers.  No provision of this Sublease shall be
deemed to have been waived by Sublessor unless such waiver is in writing signed
by Sublessor and addressed to Sublessee, nor shall any custom or practice which
may evolve between the parties in the administration of the terms hereof be
construed to waive Sublessor’s right to require the obligations of Sublessee be
performed in strict accordance with the terms of this Sublease.

 

19.16                     Signs.  Sublessee shall be entitled to have such
signs, advertisements or notices upon the Premises or the Building as may be
permitted under the Master Lease, and Sublessor shall cooperate with Sublessee,
provided such cooperation is without cost to Sublessor, to obtain Master
Lessor’s consent to such signs, advertisements and notices (to the extent such
consent is required under the Master Lease).  Any signs, advertisements, or
notices placed upon the Premises or the

 

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balance of the Project shall be removed by the Sublessee at the expiration or
sooner termination of the Term of this Sublease, and any damage caused thereby
shall be repaired by Sublessee, all at the sole expense of Sublessee.

 

19.17                     Rules and Regulations.  Sublessee agrees to observe
and to be bound and to cause its employees, visitors and invitees to observe and
be bound by all reasonable rules and regulations adopted or to be adopted by
Master Lessor relative to the Premises or the Building.

 

 

IN WITNESS WHEREOF, the parties shall be deemed to have executed this Sublease
as of the date first set forth above.

 

SUBLESSEE

SUBLESSOR

 

 

CELLEGY PHARMACEUTICALS, INC., a
Delaware corporation

VAXGEN, INC.,
a Delaware corporation

 

 

By 

/s/

Richard C. Williams

 

By  

/s/

James M. Cunha

 

Name: 

Richard C. Williams

 

Name: 

James M. Cunha

 

Title:

Chief Executive Officer

 

Title:

Chief Financial Officer

 

 

 

 

By 

/s/

Richard Juelis

 

By  

 

 

 

Name: 

Richard Juelis

 

Name: 

 

 

Title:

Chief Financial Officer

 

Title:

 

 

 

Date:                    , 2005

Date:                    , 2005

 

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EXHIBIT A

 

DESCRIPTION OF SUBLET PREMISES

 

[floor plan to be attached]

 

 

A-1

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

 

EXHIBIT B

 

DESCRIPTION OF SUBLESSOR’S WORK

 

[general description of work related to making the space ready for occupancy

 – to be attached]

 

 

B-1

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