Document:

EX-10.1

 

Exhibit 10.1

AGREEMENT

     THIS AGREEMENT (“Agreement”) is made as of the 17th day of January, 2005, by and
between CHRISTIAN L. ALLISON (“Executive”) and TOLLGRADE COMMUNICATIONS, INC., a
Pennsylvania corporation (the “Corporation”) (Executive and the Corporation are referred
to sometimes hereinafter individually as “Party” and collectively as, the “Parties”).

W I T N E S S E T H:

     WHEREAS, Executive is a founder of the Corporation and has served as its Chief
Executive Officer for 9 years and as its Chairman; and

     WHEREAS, pursuant to that certain Employment Agreement dated as of December 13,
1995, as amended from time to time (the “Employment Agreement”), Executive currently is
employed by the Corporation as its Chairman and Chief Executive Officer; and

     WHEREAS, Executive and the Corporation have mutually agreed that Executive’s
employment with the Corporation will terminate effective as of 12:01 a.m. on January 18,
2005 (the “Retirement Date”); and

     WHEREAS, Executive is a member of the Board of Directors of the Corporation (the
“Board” or “Board of Directors”); and

     WHEREAS, Executive and the Corporation also have mutually agreed that Executive
will resign as a director of the Corporation effective as of the Retirement Date; and

     WHEREAS, on and subject to the terms and conditions of this Agreement, Executive
and the Corporation desire to settle fully and finally all matters between them,
including, without limitation, any matters that relate to Executive’s employment, the
termination of that employment, or Executive’s association with the Corporation
generally, whether as an employee, director, officer, shareholder or otherwise.

     NOW, THEREFORE, in consideration of the premises and the covenants and agreements
set forth herein, the Parties hereto, intending to be legally bound, agree as follows:

     1. Retirement of Executive.

               (a) Executive hereby resigns his employment with the Corporation, his position as
an officer and director of the Corporation and any and all positions he holds with the
Corporation, its subsidiary companies, or any of its other affiliates, effective as of
the Retirement Date. From and after the Retirement Date, Executive shall not make any
statements or engage in conduct which would lead any person or entity to believe that he
is an employee, officer, director, consultant (except as set forth in Section 11
hereof), agent or other authorized representative of the Corporation or any of its
subsidiaries.

               (b) The Corporation acknowledges and agrees that the resignation of Executive
constitutes the termination of employment of an employee being voluntarily terminated
with the consent of the Corporation for purposes of the Corporation’s 1995 Long-

 

 

Term Incentive Compensation Plan (as amended through January 24, 2002) and that,
accordingly, all options to acquire stock of the Corporation held by Executive are
vested as of the Retirement Date shall remain exercisable by Executive for a period of
not less than one year after the Retirement Date.

     2. Separation Pay.

               (a) The Corporation shall pay to Executive as separation pay the following
payments, to be paid on the Retirement Date:

	 	(i)  	an amount equal to the sum of (A)
Executive’s base salary through the Retirement Date to the
extent not theretofore paid and (B) any vacation pay and other
cash entitlements accrued by Executive as of the Retirement
Date to the extent not theretofore paid;
	 
	 	(ii)  	two times his current base salary
of $315,000, for a total of $630,000; and
	 
	 	(iii)  	a lump sum payment of $75,000.

               (b) The Corporation will withhold from any amount to be paid to Executive pursuant
to Section 2(a) the appropriate deductions as required by federal, state and local law,
and the net amount will be paid to Executive.

               (c) If any payment or payments (“Contract Payment(s)”) due Executive pursuant to
this Agreement other than this subsection 2(c) result in an excise tax being imposed on
the Executive pursuant to Section 4999 of the Internal Revenue Code of 1986, as amended,
or any successor federal taxing provision to such Section 4999 (“Excise Tax”), then the
Corporation shall pay to Executive at the time when each Contract Payment is made an
amount (a “Gross-Up Payment”) such that after payment by Executive of all taxes
(including any interest or penalties imposed with respect to such taxes), including,
without limitation, any income taxes and Excise Tax imposed upon the Gross-Up Payment,
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Contract Payments.

     3. Employee Benefits, Corporation-Related Business Expenses and D&O
Coverage.

               (a) The Corporation shall pay on behalf of Executive all premiums for Executive and
his spouse to continue receiving, through the second anniversary of the Retirement Date,
medical, dental, prescription drug and vision insurance, no less favorable than that
provided to employees of the Corporation generally during such period, whether through
COBRA continuation coverage (which Executive agrees to elect) or otherwise.
Notwithstanding the foregoing, if Executive and his spouse become eligible for coverage
under a medical, dental, prescription drug and vision insurance plan of another employer
prior to the second anniversary of the Retirement Date, the Corporation’s obligations
under this Section 3 shall terminate as of the date Executive and his spouse become so
eligible.

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               (b) Executive shall be reimbursed by the Corporation for any and all business
expenses incurred by Executive which are eligible for reimbursement under the
Corporation’s existing policies and procedures which are incurred on or before the
Retirement Date. Such reimbursement shall be made in the ordinary course upon
Executive’s submission of all documentation in compliance with the Corporation’s
existing policies and procedures. In connection therewith, the Corporation shall either
forward to Executive upon its receipt the 2005 Home Plate Club Pirates’ tickets
previously ordered in the name of the Corporation and paid for by Executive or reimburse
him for such payment.

               (c) The Corporation shall maintain in effect indemnification rights to the fullest
extent permitted by applicable law covering Executive for Executive’s action taken or
omissions occurring at or prior to the Retirement Date.

               (d) Through the sixth anniversary of the Retirement Date, the Corporation shall
maintain, if available in the directors’ and officers liability insurance market,
directors’ and officers’ liability insurance covering Executive for Executive’s action
taken or omissions occurring at or prior to the Retirement Date on terms which in the
aggregate are not less favorable than the terms of such current insurance coverage.

               (e) Executive shall be entitled to receive any vested benefits payable to him under
the terms of any employee benefit plan or program of the Corporation (including, without
limitation, its 401(k) plan) in accordance with the terms of such plan or program.

     4. Return of Corporation Property. Executive agrees that he will promptly
return to the Corporation all property belonging to the Corporation and that he will
otherwise comply with the Corporation’s normal employment termination procedures. By
way of example only, the Corporation’s property includes, but is not limited to, items
such as keys, vehicles, credit cards, cell phones, pagers, computers, all originals and
copies (regardless of the form or format on which such originals and copies are
maintained) of all Corporation specifications and pricing information, all customer
lists and other customer-related information, all supplier lists and other
supplier-related information, computer discs, tapes and other documents which relate to
the business of the Corporation and/or its customers and/or its suppliers.
Notwithstanding the foregoing, the slides relating to the Corporation’s history,
management philosophy and classroom presentations relating to the Corporation currently
in the possession of Executive may be retained and used by him.

     5. Standstill Provision. Through the second anniversary of the Retirement
Date, Executive and his Representatives (as defined below) shall not, directly or
indirectly, without the prior written consent of the Board: (a) acquire or offer or
agree to acquire, directly or indirectly, by purchase or otherwise, more than five
percent (5%) of any outstanding class of voting securities or securities convertible
into voting securities of the Corporation, (b) propose to, or attempt to induce any
other individual or entity to, enter into, directly or indirectly, any merger,
consolidation, business combination, asset purchase (other than routine purchases in the
ordinary course of business of product offered for sale by the Corporation) or other
similar transaction involving the Corporation or any of its affiliates, (c) make, or in
any way participate in any solicitation of proxies to vote, execute any consent as a
Corporation shareholder, act to call a meeting of the Corporation’s shareholders, make a
proposal to be acted upon by the Corporation’s shareholders or seek to advise or
influence any person with respect to the voting or

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not voting of any securities of the Corporation, (d) form, join or in any way participate in a
partnership, syndicate, joint venture or other “group” (as defined under Section
13(d)(3) of the Securities Exchange Act of 1934, as amended (the “1934 Act”)), with
respect to any voting securities of the Corporation or transfer Executive’s voting
rights with respect to any securities of the Corporation (by voting trust or otherwise),
(e) otherwise act, alone or in concert with others, to seek to control or influence the
management, Board or policies of the Corporation or seek a position on the Board, (f)
disclose any intention, plan or arrangement inconsistent with the foregoing, or (g)
advise, assist or encourage any other persons in connection with any of the foregoing.
If Executive has initiated any of the foregoing activities prior to the Retirement Date,
Executive shall cease, terminate and otherwise refrain from conducting such activities
and shall take any and all necessary steps to effect the foregoing and any proposals
made by Executive as a shareholder of the Corporation on or before the Retirement Date,
are hereby withdrawn. As used herein, the term “Representative” shall include
Executive’s employees, agents, investment bankers, advisors, affiliates and associates
of any of the foregoing and persons under the control of any of the foregoing (as the
term “affiliate,” “associate” and “control” are defined under the 1934 Act). Executive
also agrees during such period not to request the Corporation or its representatives,
directly or indirectly, to amend or waive any provision of this Section 5 (including
this sentence) to take any action which might require the Corporation to make a public
announcement regarding the possibility of a merger, consolidation, business combination
or other transaction of any kind with the Executive or any affiliate of the Executive.

     6. Mutual General Release and Covenant Not-to-Sue.

               (a) By Executive.

	 	(i)  	Executive, for himself, his
agents, attorneys, representatives, affiliates, heirs and
assigns and all persons claiming by, through, for or under any
of them or on any of their behalf, hereby fully and forever
releases, discharges and holds harmless the Corporation, its
subsidiaries and other affiliates, predecessors, successors
and benefit plans, their respective shareholders, officers,
directors, employees, administrators, agents and
representatives, insurers and re-insurers, claims
professionals, attorneys, heirs and assigns (individually, a
“Releasee” and collectively, “Releasees”), from any and all
Claims which Executive may have had, may now have, or may
hereafter claim or assert against the Releasees on account of
any matter whatsoever, arising out of or relating to (A)
Executive’s employment or termination of employment or other
association with the Corporation, its subsidiaries or other
affiliates (as an employee, director, officer, shareholder or
otherwise) or (B) any other act, event, failure to act or
thing which has occurred or was created at any time on or
before the Retirement Date. As used herein, “Claims” shall
mean all claims, counterclaims, cross-claims, actions, causes
of action, demands, obligations, debts, disputes, covenants,
contracts, agreements, rights, suits, rights of contribution
and indemnity, liens, expenses, assessments, penalties,
charges, injuries, losses, costs (including, without

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	 	   	limitation, attorneys’ fees and costs of suit), damages
(including, without limitation, compensatory, consequential,
bad faith or punitive damages), and liabilities, direct or
indirect, of any and every kind, character, nature and
manner whatsoever, in law or in equity, civil or criminal,
administrative or judicial, in contract or in tort
(including, without limitation, bad faith and negligence of
any kind) or otherwise, whether now known or unknown,
claimed or unclaimed, asserted or unasserted, suspected or
unsuspected, discovered or undiscovered, accrued or
unaccrued, anticipated or unanticipated, fixed or
contingent, liquidated or unliquidated, state or federal,
under common law, statute or regulation. Without limiting
the generality hereof, this release covers Claims based upon
torts (such as, for example, negligence, fraud, defamation,
wrongful discharge); express and implied contracts (except
this Agreement); federal, state or local statutes and
ordinances; and every other source of legal rights and
obligations which may be validly waived or released.
	 
	 	(ii)  	Executive covenants and represents
that he has not filed and will not in the future file or
permit to be filed in his name, or on his behalf, any lawsuit
or other legal proceeding (including but not limited to any
claim for unemployment compensation benefits) asserting Claims
which are within the scope of the release in Section 6(a)(i)
against any of the Releasees. Further, Executive represents
and warrants that he has not suffered any on-the-job injury
for which he has not filed a claim.
	 
	 	(iii)  	Nothing contained in this Section
6(a) shall be deemed to waive any remedy available to
Executive at law or in equity in the event of a breach by the
Corporation of its obligations under this Agreement.
	 
	 	(iv)  	Excluded from the release and
covenant not to sue set forth in Sections 6(a)(i) and
6(a)(ii), respectively, are any Claims which cannot be waived
by law, any rights that may arise after the Retirement Date
(including matters arising pursuant to this Agreement) and the
right to file a charge of discrimination with an
administrative agency (such as the U.S. Equal Employment
Opportunity Commission) (Executive hereby waives, however, any
right to monetary or other recovery should any such agency
pursue any claims on Executive’s behalf).
	 
	 	(v)  	Executive acknowledges and agrees
that it is his intention that the release set forth in Section
6(a)(i) be effective as a full and final release of each and
every thing released herein.

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               (b) By the Corporation.

	 	(i)  	The Corporation, for itself, its
subsidiaries and other affiliates, agents, attorneys,
representatives, heirs and assigns and all persons claiming
by, through, for or under any of them or on any of their
behalf, hereby fully and forever releases, discharges and
holds harmless Executive, his affiliates, agents,
representatives, attorneys, heirs and assigns (individually,
an “Executive Releasee” and collectively, “Executive
Releasees”), from any and all Claims which the Corporation may
have had, may now have, or may hereafter claim or assert
against the Executive Releasees, on account of any matter
whatsoever, arising out of or relating to (A) Executive’s
employment or termination of employment, service as a director
of or fiduciary acting on behalf of the Corporation, or any
other association with the Corporation, its subsidiaries or
any of its other affiliates (whether as an employee, officer,
shareholder or otherwise), or (B) any other act, event,
failure to act or thing which has occurred or was created at
any time on or before the Retirement Date.
	 
	 	(ii)  	The Corporation covenants and
represents that it has not filed and will not in the future
file or permit to be filed in its name, or on its behalf, any
lawsuit or other legal proceeding asserting Claims which are
within the scope of this release against any of the Executive
Releasees.
	 
	 	(iii)  	Excluded from the release and
covenant not to sue set forth in Sections 6(b)(i) and
6(b)(ii), respectively, are any Claims which cannot be waived
by law, any rights that may arise after the Retirement Date
(including matters arising pursuant to this Agreement) and any
Claims against any Executive Releasee for fraud (as to which
the Corporation represents that as of the date hereof it has
no basis to believe that any fraud has been commited by
Executive) , deceit, theft or misrepresentation.
	 
	 	(iv)  	The Corporation acknowledges and
agrees that it is its intention that the release set forth in
Section 6(b)(i) be effective as a full and final release of
each and every thing released herein.

     7. Corporation’s Information; Nondisclosure; Related Matters.

               (a) Executive recognizes and acknowledges that: (i) in the course of Executive’s
employment by the Corporation it was necessary for Executive to acquire information
which included, in whole or in part, information concerning the Corporation’s sales,
sales volume, sales methods, sales proposals, customers and prospective customers,
identity of customers and prospective customers, identity of key purchasing personnel in
the employ of customers and prospective customers, amount or kind of customer’s
purchases from the Corporation, the Corporation’s sources of supply, the Corporation’s
patents, patent applications,

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licenses, computer programs, system documentation, special hardware, product
hardware, related software development, the Corporation’s present or contemplated
products, manuals, formulae, processes, methods, machines, compositions, ideas,
improvements, inventions or other confidential or proprietary information belonging to
the Corporation or relating to the Corporation’s affairs (collectively referred to
herein as the “Confidential Information”); (ii) the Confidential Information is the
property of the Corporation; (iii) the use, misappropriation or disclosure of the
Confidential Information would constitute a breach of trust and could cause irreparable
injury to the Corporation; and (iv) it is essential to the protection of the
Corporation’s good will and to the maintenance of the Corporation’s competitive position
that the Confidential Information be kept secret and that Executive not disclose the
Confidential Information to others or use the Confidential Information to Executive’s
own advantage or the advantage of others.

               (b) Executive further recognizes and understands that to the extent his duties at
the Corporation included the preparation of materials, including written or graphic
materials, any such materials conceived or written by him was done as “work made for
hire” as defined and used in the Copyright Act of 1976, 17 USC § 1 et
seq. In the event of publication of such materials, Executive understands that
since the work is a “work made for hire,” the Corporation will solely retain and own all
rights in said materials, including right of copyright, and that the Corporation may, at
its discretion, on a case-by-case basis, grant Executive by-line credit on such
materials as the Corporation may deem appropriate.

               (c) Executive agrees to continue to hold and safeguard the Confidential Information
in trust for the Corporation, its successors and assigns and agrees that he shall not,
without the prior written consent of the Corporation, either directly or indirectly,
misappropriate or disclose or make available to anyone for use outside the Corporation’s
organization at any time, any of the Confidential Information, whether or not developed
by Executive.

               (d) The restrictions on use or disclosure of Confidential Information contained
in this Section 7 shall not apply to any data or information which is or may be (i)
through no fault of Executive, generally known to the public or throughout the industry
in which the Corporation is engaged; or (ii) received by Executive from a third party
not in violation of any express or implied obligation owing to the Corporation.

               (e) Executive shall promptly deliver to the Corporation all correspondence,
drawings, blueprints, manuals, letters, notes, notebooks, reports, flow-charts,
programs, proposals and any products or processes used by the Corporation and, without
limiting the foregoing, shall promptly deliver to the Corporation any and all other
documents or materials containing or constituting Confidential Information.

               (f) Notwithstanding any other provision of this Section 7, the slides relating to
the Corporation’s history, management philosophy and classroom presentations currently
in the possession of Executive may be retained and used by him.

               (g) Executive agrees that in the event of publication by Executive of written or
graphic materials the Corporation will retain and own all rights in said materials,
including right of copyright.

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               (h) The Corporation and Executive agree that the rights conveyed by this Agreement
are of a unique and special nature. Executive and the Corporation agree that any
violation of this Section 7 will result in immediate and irreparable harm to the
Corporation and that in the event of any actual or threatened breach or violation of any
of the provisions of this Section 7, the Corporation shall be entitled as a matter of
right to an injunction or a decree of specific performance without bond from any equity
court of competent jurisdiction. Executive waives the right to assert the defense that
such breach or violation can be compensated adequately in damages in an action at law.
Nothing in this Agreement will be construed as prohibiting the Corporation from pursuing
any other remedies at law or in equity available to it for such breach or violation or
threatened violation.

     8. Executive’s Noncompetition. Executive covenants and agrees that for a
period ending on the second anniversary of the Retirement Date (except that for the
restriction in subsection (c) below the period shall end on the first anniversary of the
Retirement Date) (and any amount of time during such period during which he is in
violation of this provision) he shall not:

	 	(i)  	in the United States of America, or in any other
country of the world in which the Corporation has done business at
any time during the two (2) years immediately prior to the Retirement
Date, directly or indirectly, whether as principal or as agent,
officer, director, employee, consultant, shareholder, or otherwise,
alone or in association with any other person, corporation or other
entity, engage or participate in, be connected with, lend credit or
money to, furnish consultation or advice or permit his name to be
used in connection with, any Competing Business (provided that (i) he
may hold up to 5% of any outstanding class of publicly traded
securities of any such entity and (ii) he may be so involved with any
such person or entity provided that his involvement does not relate
to the Competing Business of such person or entity). For purposes of
this Agreement, the term “Competing Business” shall mean any person,
corporation or other entity engaged in the business of: selling or
attempting to sell any product or service which competes with (i)
products or services sold by the Corporation within the two (2) years
immediately prior to the Retirement Date or (ii) new products of the
Corporation with respect to which the Corporation had allocated
engineering resources as of the Retirement Date to develop such new
products;
	 
	 	(ii)  	for a Competing Business, solicit the trade of,
or trade with, any customer, prospective customer, supplier, or
prospective supplier of the Corporation; or
	 
	 	(iii)  	directly or indirectly, solicit or induce, or
attempt to solicit or induce, any employee of the Corporation to
leave the Corporation for any reason whatsoever.

The covenants, restrictions, agreements and obligations set forth herein are founded
upon valuable consideration (including, without limitation, any payments made pursuant
to Section 2 and/or 3 of this Agreement) and, with respect to the covenants,
restrictions, agreements and

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obligations set forth in this Section are each divisible and separable and, in the event
that any covenant not to compete contained herein is judicially held invalid or
unenforceable as to such time period and/or geographical area, it will be valid and
enforceable in such geographical area(s) and for such time period(s) which the court
determines to be reasonable and enforceable

     9. Non-Admission of Liability. It is acknowledged and agreed that nothing
contained herein, including but not limited to the consideration paid hereunder,
constitutes or will be construed as an admission of liability or of any wrongdoing or
violation of law on the part of either Party hereto.

     10. Non-Disparagement.

               (a) Executive agrees that he will not, at any time prior to the second anniversary
of the Retirement Date (or, if earlier, the breach by the Corporation of its obligations
under Section 10(b) hereof), directly or indirectly, make any disparaging statements
about the Corporation or any Releasee to any current, former or prospective employer,
any applicant referral source, any current, former or prospective employee of the
Corporation, any current, former or prospective customer or supplier of the Corporation,
the media, or to any other person or entity.

               (b) The Corporation agrees that none of the members of the Board or the executive
council of the Corporation as constituted on the date hereof, at no time prior to the
second anniversary of the Retirement Date (or, if earlier, the breach by Executive of his
obligations under Section 10(a) hereof), will make any disparaging statements about
Executive to any former or prospective employer of Executive, the media, or to any other
person or entity. The Corporation will instruct its employees not to make any
disparaging statements about Executive.

               (c) As used in this Section 10, the term “disparaging statement” means any
communication, oral or written, which would cause or tend to cause the recipient of the
communication to question the integrity, competence, or good character of the person or
entity to whom the communication relates.

               (d) Notwithstanding the foregoing provisions of Sections 10(a), in the event that
an employee of the Corporation who is not a member of the executive council of the
Corporation as constituted on the date hereof makes a disparaging statement about
Executive, then Executive shall not be in violation of Section 10(a) above if he issues
statements of fact in defense of such disparaging statement.

     11. Consulting Services. During the two (2) year period following the
Retirement Date, Executive agrees to serve as a consultant to the Corporation as may be
reasonably requested by the Corporation. Executive shall be compensated for such
services at a rate of $160 per hour, payable within thirty (30) days following
Executive’s invoicing therefor. Executive will not be required to provide more than
twenty (20) hours of consulting services in any given calendar month and such services
shall be scheduled to be performed at such time or times as may be convenient for
Executive. Executive shall be reimbursed for all legitimate business expenses incurred
in the performance of such services in accordance with the Corporation’s prevailing
policies and procedures relating thereto.

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     12. Remedies for Breach. Each Party will be entitled to pursue any remedy
available at law or in equity for any breach of this Agreement by the other Party. Each
Party acknowledges that remedies at law may be inadequate to protect against its breach
of this Agreement and hereby in advance agrees, without prejudice to any rights to
judicial relief the other Party may otherwise have, to the granting of equitable relief,
including injunctive relief, in the other Party’s favor without proof of actual damages.

     13. Representations/Warranties by Executive. Executive represents and
warrants to the Corporation that the following statements are true and correct:

	 	(a)  	Executive is signing this Agreement voluntarily
and is legally competent to do so.
	 
	 	(b)  	Executive has been advised to consult, and has
in fact consulted, an attorney of his own choice before signing this
Agreement.
	 
	 	(c)  	Executive has read and fully understands each of
the provisions of this Agreement, he has been given sufficient and
reasonable time to consider each of them and fully understands his
rights under all applicable laws and the ramifications and
consequences of his execution of this Agreement.
	 
	 	(d)  	No promises, agreements or representations have
been made to Executive to induce him to sign this Agreement, except
those that are written in this Agreement.
	 
	 	(e)  	Executive has not, in whole or in part, sold,
assigned, transferred, conveyed or otherwise disposed of any of the
Claims covered by the release set forth in Section 6(a) (the
“Executive’s Release”).
	 
	 	(f)  	The consideration received by Executive for the
Executive’s Release constitutes lawful and adequate consideration.
	 
	 	(g)  	Executive has not engaged in any of the
activities listed in subsections (a)-(g) of Section 5 hereof.
	 
	 	(h)  	Executive waives any notice requirements under
the Corporation’s by-laws with respect to any of the Board’s meetings
to consider the approval of the terms and conditions of this
Agreement.

     14. Representations/Warranties by the Corporation. The Corporation
represents and warrants to Executive that the following statements are true and correct:

	 	(a)  	This Agreement has been duly authorized and executed by the Corporation.
	 
	 	(b)  	The Corporation has not, in whole or in part, sold, assigned, transferred, conveyed
or otherwise disposed of any of the Claims covered by the release set forth in Section 6(b)
(the “Corporation’s Release”).

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	 	(c)  	The consideration received by the Corporation for the Corporation’s Release
constitutes lawful and adequate consideration.

     15. Waiver of Rights. If on one or more instances either Party fails to
insist that the other Party perform any of the terms of this Agreement, such failure
shall not be construed as a waiver by such Party of any past, present, or future right
granted under this Agreement; and the obligations of both Parties under this Agreement
shall continue in full force and effect.

     16. Severability/Applicability. If any provision, section or subsection of
this Agreement is adjudged by any court to be void or unenforceable in whole or in part,
this adjudication shall not affect the validity of the remainder of this Agreement,
including any other provision, section or subsection. Each provision, section and
subsection of this Agreement is separable from every other provision, section and
subsection, and constitutes a separate and distinct covenant.

     17. Successors & Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the Parties and their respective successors, assigns, executors,
administrators and personal representatives.

     18. Notices. All notices, requests, demands, claims and other
communications under this Agreement shall be in writing. Any notice, request, demand,
claim or other communication hereunder shall be deemed duly given the next business day
(or when received if sooner) if it is sent by (a) confirmed facsimile; (b) overnight
delivery; or (c) registered or certified mail, return receipt requested, postage
prepaid, and addressed, to the respective address of such Party specified below its or
his signature below. Either Party may send any notice, request, demand, claim or other
communication hereunder to the intended recipient at the address set forth below using
any other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail or electronic mail), but no such notice, request, demand,
claim or other communication shall be deemed to have been duly given unless and until it
is actually received by the intended recipient. Either Party may change the address to
which notices, requests, demands, claims and other communications hereunder are to be
delivered by giving the other Party notice in the manner provided in this Agreement.
Each Party irrevocably consents to service of process in connection with disputes
arising out of this Agreement or otherwise in the manner provided for notices in this
Section 18. Nothing in this Agreement will affect the right of any Party to service
process in any other manner permitted by law.

     19. Public Announcement of Retirement. The Parties agree that the
Corporation will file with the Securities and Exchange Commission (the “SEC”) a report
on Form 8-K and the Corporation will issue a press release each of which will disclose
both (i) Executive’s resignation as a director and retirement as an executive officer of
the Company and (ii) the Corporation’s preliminary earnings for the fourth quarter of
the Corporation’s 2004 fiscal year. Executive acknowledges and agrees that he has
received and reviewed those provisions of the press release that will be issued that
relate to his resignation and retirement, agrees fully with the statements made by the
Corporation therein with respect thereto, and has not provided and will not provide to
the Corporation any written correspondence concerning the circumstances surrounding his
resignation. Executive acknowledges and agrees that his resignation as a director did
not involve any disagreement with the Corporation on any matter relating to the
Corporation’s operations, policies or practices within the meaning contemplated by Form
8-K.

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The Parties agree not to issue any press release, make any public statements or
file any report with the SEC concerning Executive’s resignation as a director and
retirement as an executive officer of the Corporation that would conflict with the
statements made by the Corporation regarding Executive’s resignation as a director and
retirement as an employee as set forth in that portion of the press release referred to
above and set forth as Exhibit A hereto.

     20. Sub-certification of 2004 Annual Report. In connection with the
preparation of the Corporation’s Annual Report on Form 10-K for the 2004 fiscal year
(the “Annual Report”) and prior to the filing by the Corporation of such Annual Report
with the SEC, Executive shall provide to the Corporation promptly following the
Corporation’s request (and in no event more than seven (7) business days after such
request) a duly executed original of the Certificate attached hereto as Exhibit C (the
“Sub-certification Certificate”). The Corporation shall provide to Executive a copy of
the Annual Report and the Corporation’s Proxy Statement on Schedule 14A at the time of
requesting such Certificate. If the Corporation requests that Executive provide the
Sub-certification Certificate and Executive provides the same to the Corporation within
the foregoing time frame, the Corporation shall indemnify and hold harmless Executive,
to the fullest extent provided under applicable law, against any losses, claims,
damages, liabilities, action, suit, proceeding, cost or expense (including reasonable
attorney’s fees) (collectively, “Liabilities”) arising out of or pertaining to any
action against Executive for any material misstatement or omission in the Annual Report;
provided, however, notwithstanding the foregoing provisions of this sentence, the
Corporation shall have no obligation to indemnify or hold harmless Executive for
Liabilities arising out of or pertaining to any material misstatement or omission in the
Annual Report which is actually known to Executive (without duty of investigation) at
the time of his delivery to the Corporation of the Sub-certification Certificate.

     21. Legal Fees & Other Expenses. On the Retirement Date, the Corporation
shall pay to Kirkpatrick & Lockhart Nicholson Graham LLP, counsel to Executive
(“Kirkpatrick”), an amount equal to $50,000, the estimated reasonable attorneys fees and
expenses incurred through the Retirement Date on behalf of Executive in connection with
issues arising incident to the retirement of the Executive and his resignation from the
Board, including, without limitation, the negotiation and execution of this Agreement.
On or before the close of business on the second business day after the Retirement Date,
Kirkpatrick will deliver to the Corporation a detailed invoice reflecting the actual
fees and expenses incurred. Notwithstanding any other provision of this Agreement to
the contrary, such fees and expenses shall not exceed $50,000. In all other respects
each Party is responsible for paying his or its own fees (including legal fees), costs
and expenses incurred to date and all fees (including legal fees), costs and expenses
arising out of or incidental to the negotiation and implementation of this Agreement.

     22. Entire Agreement. This Agreement supersedes and replaces all prior and
contemporaneous written or oral agreements relating to Executive’s employment,
compensation and employment termination, including the Employment Agreement, but not
including any and all stock option agreements between Executive and the Corporation and
any employee benefit plans or programs.

     23. Interpretation; Enforcement. This Agreement will be interpreted and
enforced according to the laws of the Commonwealth of Pennsylvania, without regard to
its conflicts of laws provision. Each Party hereby consents to personal jurisdiction in
any action brought in any

12

 

court, federal or state, within the Commonwealth of Pennsylvania having subject
matter jurisdiction in this matter. Each Party hereby irrevocably waives any objection,
including, without limitation, any objection to the laying of venue or based on the
grounds of forum non conveniens, which it may now or hereafter have to the bringing of
any such action or proceeding in such jurisdiction.

     24. Amendment. No provision of this Agreement may be modified, amended or
revoked, except in a writing signed by Executive and an authorized official of the
Corporation.

[Intentionally Left Blank]

13

 

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first
above written.

	 	 	 	 	 
	WITNESS:
	 	 	 	 
	/s/
Sanford B. Ferguson
	 	 	 	 /s/ Christian L. Allison
	 	 	 
	 
	 	 	 	 
	 	 	Christian L. Allison
	 
	 	 	 	 
	

	 	Address:
	 	148 Irwin Avenue
	

	 	 	 	Pittsburgh, PA 15202
	 
	 	 	 	 
	 	 	TOLLGRADE COMMUNICATIONS, INC.
	 
	 	 	 	 
	

	 	By:	 	/s/ Sara M. Antol
	

	 	 	 	 
	

	 	Name:	 	Sara M. Antol 
	

	 	 	 	 
	

	 	Title:	 	General Counsel and Secretary
	

	 	 	 	 
	 
	 	 	 	 
	

	 	Address:
	 	493 Nixon Road
	

	 	 	 	Cheswick, PA 15024

14

 

Exhibit A

PRESS RELEASE EXCERPT

PITTSBURGH, January 18, 2005 — The Board of Directors of Tollgrade Communications, Inc. (Nasdaq:
TLGD) today announced that Company President Mark B. Peterson has been promoted to become its new
Chief Executive Officer, effective immediately. He succeeds Chairman and CEO Chris Allison, who is
retiring from both positions, as well as from the Company’s Board, to pursue early-stage
entrepreneurial ventures, teaching, philanthropic activities, business media commentary and
consulting.

	   	“We wish to thank Chris Allison for his many contributions to Tollgrade in his nine
years as chief executive, particularly his stewardship of the Company through difficult
market conditions,” said Director Daniel P. Barry. “With Mr. Allison’s leadership, the
Company was able to continue to show profitability at a time when most of its peers were
not able to do so. For some time, Mr. Allison had been contemplating such a career
change and the Board has been actively working on implementing its succession plan. We
wish Mr. Allison well in his future endeavors.”

 

 

Exhibit B

CERTIFICATE

The undersigned hereby certifies as follows:

	1.  	I understand that this certificate will be relied upon by the Chief
Executive Officer and Chief Financial Officer of Tollgrade Communications, Inc.
(the “Corporation”) in making the certifications required of them in the
Corporation’s annual report for its 2004 fiscal year on Form 10-K (the “Annual
Report”).

	2.  	I have reviewed the Annual Report (as distributed on ___, 2005). I did
not participate in the preparation of the Annual Report.

	3.  	Based on my actual knowledge (without duty of investigation) gained during
my employment by the Corporation, except as set forth in the Schedule attached
hereto, nothing has come to my attention that causes me to believe that the Annual
Report contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading.

	4.  	Based on my actual knowledge (without duty of investigation) gained during
my employment by the Corporation, except as set forth in the Schedule attached
hereto, nothing has come to my attention that causes me to believe that the
financial statements and other financial information included in the Annual Report,
do not fairly present in all material respects the financial conditions, results of
operations and cash flows of the corporation as of, and for, the year ended
December 31, 2004.

	5.  	Based on my actual knowledge (without duty of investigation) gained during
my employment by the Corporation, except as set forth in the Schedule attached
hereto, nothing has come to my attention that causes me to believe that there is
any material weakness or significant deficiency in the design or operation of the
Corporation’s disclosure controls and procedures or the Corporation’s internal
controls over financial reporting as they existed and were utilized as of the last
day of my employment by the Corporation, which could adversely affect the
Corporation’s ability to timely and accurately report the financial and other
information required to be disclosed by the Corporation in its periodic reports
required to be filed pursuant to the Securities Exchange Act of 1934, as amended.

Date: ______________, 2005

	 	 	 
	

	 	 
	

	 	Christian L. Allison<PAGE>

                                                                     EXHIBIT 4.1

                      FORM OF COMMON STOCK PURCHASE WARRANT

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES

                          COMMON STOCK PURCHASE WARRANT

                To Purchase __________ Shares of Common Stock of

                                CYTRX CORPORATION

            THIS COMMON STOCK PURCHASE WARRANT (the "Warrant") certifies that,
for value received, _____________ (the "Holder"), is entitled, upon the terms
and subject to the limitations on exercise and the conditions hereinafter set
forth, at any time on or after the date hereof (the "Initial Exercise Date") and
on or prior to the close of business on the fifth anniversary of the Initial
Exercise Date (the "Termination Date") but not thereafter, to subscribe for and
purchase from CytRx Corporation, a Delaware corporation (the "Company"), up to
______ shares (the "Warrant Shares") of Common Stock, par value $0.001 per
share, of the Company (the "Common Stock"). The purchase price of one share of
Common Stock (the "Exercise Price") under this Warrant shall be $2.00, subject
to adjustment hereunder. CAPITALIZED TERMS USED AND NOT OTHERWISE DEFINED HEREIN
SHALL HAVE THE MEANINGS SET FORTH IN THAT CERTAIN SECURITIES PURCHASE AGREEMENT
(THE "PURCHASE AGREEMENT"), DATED JANUARY 20, 2005, AMONG THE COMPANY AND THE
PURCHASERS SIGNATORY THERETO.

                                       1
<PAGE>

            1. Title to Warrant. Prior to the Termination Date and subject to
compliance with applicable laws and Section 7 of this Warrant, this Warrant and
all rights hereunder are transferable, in whole or in part, at the office or
agency of the Company by the Holder in person or by duly authorized attorney,
upon surrender of this Warrant together with the Assignment Form annexed hereto
properly endorsed. The transferee shall sign an investment letter in form and
substance reasonably satisfactory to the Company.

            2. Authorization of Warrant Shares. The Company covenants that all
Warrant Shares which may be issued upon the exercise of the purchase rights
represented by this Warrant will, upon exercise of the purchase rights
represented by this Warrant, be duly authorized, validly issued, fully paid and
nonassessable and free from all taxes, liens and charges in respect of the issue
thereof (other than taxes in respect of any transfer occurring contemporaneously
with such issue).

            3. Exercise of Warrant.

                  (a) Exercise of the purchase rights represented by this
      Warrant may be made at any time or times on or after the Initial Exercise
      Date and on or before the Termination Date by delivery to the Company of a
      duly executed facsimile copy of the Notice of Exercise Form annexed hereto
      (or such other office or agency of the Company as it may designate by
      notice in writing to the registered Holder at the address of such Holder
      appearing on the books of the Company); provided, however, within 5
      Trading Days of the date said Notice of Exercise is delivered to the
      Company, the Holder shall have surrendered this Warrant to the Company and
      the Company shall have received payment of the aggregate Exercise Price of
      the shares thereby purchased by wire transfer or cashier's check drawn on
      a United States bank. Certificates for shares purchased hereunder shall be
      delivered to the Holder within 3 Trading Days from the delivery to the
      Company of the Notice of Exercise Form, surrender of this Warrant and
      payment of the aggregate Exercise Price as set forth above ("Warrant Share
      Delivery Date"). This Warrant shall be deemed to have been exercised on
      the date the Exercise Price is received by the Company. The Warrant Shares
      shall be deemed to have been issued, and Holder or any other person so
      designated to be named therein shall be deemed to have become a holder of
      record of such shares for all purposes, as of the date the Warrant has
      been exercised by payment to the Company of the Exercise Price and all
      taxes required to be paid by the Holder, if any, pursuant to Section 5
      prior to the issuance of such shares, have been paid. If the Company fails
      to deliver to the Holder a certificate or certificates representing the
      Warrant Shares pursuant to this Section 3(a) by the Warrant Share Delivery
      Date, then the Holder will have the right to rescind such exercise. In
      addition to any other rights available to the Holder, if the Company fails
      to deliver to the Holder a certificate or certificates representing the
      Warrant Shares pursuant to an exercise on or before the Warrant Share
      Delivery Date, and if after such date the Holder is required by its broker
      to purchase (in an open market transaction or otherwise) shares of Common
      Stock to deliver in satisfaction of a sale by the Holder of the Warrant
      Shares which the Holder anticipated receiving upon such exercise (a
      "Buy-In"), then the Company shall (1) pay in cash to the Holder the amount
      by which (x) the Holder's total purchase price

                                       2
<PAGE>

      (including customary brokerage commissions, if any) for the shares of
      Common Stock so purchased exceeds (y) the amount obtained by multiplying
      (A) the number of Warrant Shares that the Company was required to deliver
      to the Holder in connection with the exercise at issue times (B) the price
      at which the sell order giving rise to such purchase obligation was
      executed, and (2) at the option of the Holder, either reinstate the
      portion of the Warrant and equivalent number of Warrant Shares for which
      such exercise was not honored or deliver to the Holder the number of
      shares of Common Stock that would have been issued had the Company timely
      complied with its exercise and delivery obligations hereunder. For
      example, if the Holder purchases Common Stock having a total purchase
      price of $11,000 to cover a Buy-In with respect to an attempted exercise
      of shares of Common Stock with an aggregate sale price giving rise to such
      purchase obligation of $10,000, under clause (1) of the immediately
      preceding sentence the Company shall be required to pay the Holder $1,000.
      The Holder shall provide the Company written notice indicating the amounts
      payable to the Holder in respect of the Buy-In, together with applicable
      confirmations and other evidence reasonably requested by the Company.
      Nothing herein shall limit a Holder's right to pursue any other remedies
      available to it hereunder, at law or in equity including, without
      limitation, a decree of specific performance and/or injunctive relief with
      respect to the Company's failure to timely deliver certificates
      representing shares of Common Stock upon exercise of the Warrant as
      required pursuant to the terms hereof.

                  (b) If this Warrant shall have been exercised in part, the
      Company shall, at the time of delivery of the certificate or certificates
      representing Warrant Shares, deliver to Holder a new Warrant evidencing
      the rights of Holder to purchase the unpurchased Warrant Shares called for
      by this Warrant, which new Warrant shall in all other respects be
      identical with this Warrant.

                  (c) The Holder shall not have the right to exercise any
      portion of this Warrant, pursuant to Section 3(a) or otherwise, to the
      extent that after giving effect to such issuance after exercise, the
      Holder (together with the Holder's affiliates), as set forth on the
      applicable Notice of Exercise, would beneficially own in excess of 4.99%
      of the number of shares of the Common Stock outstanding immediately after
      giving effect to such issuance. 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 exercise of this Warrant 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) exercise of the remaining,
      nonexercised portion of this Warrant beneficially owned by the Holder or
      any of its affiliates and (B) exercise or conversion of the unexercised or
      nonconverted portion of any other securities of the Company (including,
      without limitation, any other 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 Section 3(c),
      beneficial ownership shall be calculated in accordance with Section 13(d)
      of the Exchange Act, it being acknowledged by Holder that the Company is
      not representing to Holder that such calculation is in compliance with
      Section 13(d) of the Exchange Act and Holder is solely responsible for any
      schedules required to be filed in accordance therewith. To the extent that
      the

                                       3
<PAGE>

      limitation contained in this Section 3(c) applies, the determination of
      whether this Warrant is exercisable (in relation to other securities owned
      by the Holder) and of which a portion of this Warrant is exercisable shall
      be in the sole discretion of such Holder, and the submission of a Notice
      of Exercise shall be deemed to be such Holder's determination of whether
      this Warrant is exercisable (in relation to other securities owned by such
      Holder) and of which portion of this Warrant is exercisable, in each case
      subject to such aggregate percentage limitation, and the Company shall
      have no obligation to verify or confirm the accuracy of such
      determination. For purposes of this Section 3(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-Q or Form 10-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 Company's Transfer Agent setting forth the number of
      shares of Common Stock outstanding. Upon the written or oral request of
      the Holder, the Company shall within two Trading Days confirm orally and
      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 Warrant, by the Holder or its
      affiliates since the date as of which such number of outstanding shares of
      Common Stock was reported.

                  (d) If at any time after one year from the date of issuance of
      this Warrant there is no effective Registration Statement registering the
      resale of the Warrant Shares by the Holder, then this Warrant may also be
      exercised at such time by means of a "cashless exercise" in which the
      Holder shall be entitled to receive a certificate for the number of
      Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by
      (A), where:

            (A)  = the VWAP on the Trading Day immediately preceding
                  the date of such election;

            (B)  = the Exercise Price of this Warrant, as adjusted; and

            (X)  = the number of Warrant Shares issuable upon exercise
                   of this Warrant in accordance with the terms of this
                   Warrant by means of a cash exercise rather than a
                   cashless exercise.

            4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be entitled
to purchase upon such exercise, the Company shall pay a cash adjustment in
respect of such final fraction in an amount equal to such fraction multiplied by
the Exercise Price.

            5. Charges, Taxes and Expenses. Issuance of certificates for Warrant
Shares shall be made without charge to the Holder for any issue or transfer tax
or other incidental expense in respect of the issuance of such certificate, all
of which taxes and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the Holder or in such name or names as may be
directed by the Holder; provided, however, that in the event

                                       4
<PAGE>

certificates for Warrant Shares are to be issued in a name other than the name
of the Holder, this Warrant when surrendered for exercise shall be accompanied
by the Assignment Form attached hereto duly executed by the Holder; and the
Company may require, as a condition thereto, the payment of a sum sufficient to
reimburse it for any transfer tax incidental thereto.

            6. Closing of Books. The Company will not close its stockholder
books or records in any manner which prevents the timely exercise of this
Warrant, pursuant to the terms hereof.

            7. Transfer, Division and Combination.

                  (a) Subject to compliance with any applicable securities laws
      and the conditions set forth in Sections 1 and 7(e) hereof and to the
      provisions of Section 4.1 of the Purchase Agreement, this Warrant and all
      rights hereunder are transferable, in whole or in part, upon surrender of
      this Warrant at the principal office of the Company, together with a
      written assignment of this Warrant substantially in the form attached
      hereto duly executed by the Holder or its agent or attorney and funds
      sufficient to pay any transfer taxes payable upon the making of such
      transfer. 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 Warrant Shares without
      having a new Warrant issued.

                  (b) This Warrant may be divided or combined with other
      Warrants upon presentation hereof at the aforesaid office of the Company,
      together with a written notice specifying the names and denominations in
      which new Warrants are to be issued, signed by the Holder or its agent or
      attorney. Subject to compliance with Section 7(a), as to any transfer
      which may be involved in such division or combination, the Company shall
      execute and deliver a new Warrant or Warrants in exchange for the Warrant
      or Warrants to be divided or combined in accordance with such notice.

                  (c) The Company shall prepare, issue and deliver at its own
      expense (other than transfer taxes) the new Warrant or Warrants under this
      Section 7.

                  (d) The Company agrees to maintain, at its aforesaid office,
      books for the registration and the registration of transfer of the
      Warrants.

                  (e) 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

                                       5
<PAGE>

      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.

            8. No Rights as Shareholder until Exercise. This Warrant does not
entitle the Holder to any voting rights or other rights as a shareholder of the
Company prior to the exercise hereof. Upon the surrender of this Warrant and the
payment of the aggregate Exercise Price (or by means of a cashless exercise),
the Warrant Shares so purchased shall be and be deemed to be issued to such
Holder as the record owner of such shares as of the close of business on the
later of the date of such surrender or payment.

            9. Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant or any stock
certificate relating to the Warrant Shares, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it (which, in
the case of the Warrant, shall not include the posting of any bond), and upon
surrender and cancellation of such Warrant or stock certificate, if mutilated,
the Company will make and deliver a new Warrant or stock certificate of like
tenor and dated as of such cancellation, in lieu of such Warrant or stock
certificate.

            10. Saturdays, Sundays, Holidays, etc. If the last or appointed day
for the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a Saturday,
Sunday or legal holiday.

            11. Adjustments of Exercise Price and Number of Warrant Shares.

                  (a) Stock Splits, etc. The number and kind of securities
      purchasable upon the exercise of this Warrant and the Exercise Price shall
      be subject to adjustment from time to time upon the happening of any of
      the following. In case the Company shall (i) pay a dividend in shares of
      Common Stock or make a distribution in shares of Common Stock to holders
      of its outstanding Common Stock, (ii) subdivide its outstanding shares of
      Common Stock into a greater number of shares, (iii) combine its
      outstanding shares of Common Stock into a smaller number of shares of
      Common Stock, or (iv) issue any shares of its capital stock in a
      reclassification of the Common Stock, then the number of Warrant Shares
      purchasable upon exercise of this Warrant immediately prior thereto shall
      be adjusted so that the Holder shall be entitled to receive the kind and
      number of Warrant Shares or other securities of the Company which it would
      have owned or have been entitled to receive had such Warrant been
      exercised in advance thereof. Upon each such adjustment of the kind and
      number of Warrant Shares or other securities of the Company which are
      purchasable hereunder, the Holder shall thereafter be entitled to purchase
      the number of Warrant Shares or other securities resulting from such
      adjustment at an Exercise Price per Warrant Share or other security
      obtained by multiplying the Exercise Price in effect immediately prior to
      such adjustment by the number of Warrant Shares purchasable pursuant
      hereto immediately prior to such adjustment and dividing by the number of

                                       6
<PAGE>

      Warrant Shares or other securities of the Company that are purchasable
      pursuant hereto immediately after such adjustment. An adjustment made
      pursuant to this paragraph shall become effective immediately after the
      effective date of such event retroactive to the record date, if any, for
      such event.

                  (b) Offerings of Other Property to Common Stock Holders. If
      the Company, at any time prior to the Termination Date, shall distribute
      to all holders of Common Stock (and not to Holders of the Warrants)
      evidences of its indebtedness or assets or rights or warrants to subscribe
      for or purchase any security other than the Common Stock (which shall be
      subject to Section 11(b)(i)), then in each such case the Exercise Price
      shall be adjusted by multiplying the Exercise Price in effect immediately
      prior to the record date fixed for determination of stockholders entitled
      to receive such distribution by a fraction of which the denominator shall
      be the VWAP determined as of the record date mentioned above, and of which
      the numerator shall be such VWAP on such record date less the then per
      share fair market value at such record date of the portion of such assets
      or evidence of indebtedness so distributed applicable to one outstanding
      share of the Common Stock as determined by the Board of Directors in good
      faith. In either case the adjustments shall be described in a statement
      provided to the Holders of the portion of assets or evidences of
      indebtedness so distributed or such subscription rights applicable to one
      share of Common Stock. Such adjustment shall be made whenever any such
      distribution is made and shall become effective immediately after the
      record date mentioned above.

            12. Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of its property, assets or business to
another corporation and, pursuant to the terms of such reorganization,
reclassification, merger, consolidation or disposition of assets, shares of
common stock of the successor or acquiring corporation, or any cash, shares of
stock or other securities or property of any nature whatsoever (including
warrants or other subscription or purchase rights) in addition to or in lieu of
common stock of the successor or acquiring corporation ("Other Property"), are
to be received by or distributed to the holders of Common Stock of the Company,
then the Holder shall have the right thereafter to receive upon exercise of this
Warrant the number of shares of Common Stock of the successor or acquiring
corporation or of the Company, if it is the surviving corporation, and Other
Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a Holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of Warrant Shares
for which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 12. For purposes of
this Section 12, "common stock of

                                       7
<PAGE>

the successor or acquiring corporation" shall include stock of such corporation
of any class which is not preferred as to dividends or assets over any other
class of stock of such corporation and which is not subject to redemption and
shall also include any evidences of indebtedness, shares of stock or other
securities which are convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event and any warrants or other rights to subscribe for or purchase
any such stock. The foregoing provisions of this Section 12 shall similarly
apply to successive reorganizations, reclassifications, mergers, consolidations
or disposition of assets.

            13. Voluntary Adjustment by the Company. The Company may at any time
during the term of this Warrant reduce the then current Exercise Price to any
amount and for any period of time deemed appropriate by the Board of Directors
of the Company.

            14. Notice of Adjustment. Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall give notice thereof to the Holder, which notice shall state the number of
Warrant Shares (and other securities or property) purchasable upon the exercise
of this Warrant and the Exercise Price of such Warrant Shares (and other
securities or property) after such adjustment, setting forth a brief statement
of the facts requiring such adjustment and setting forth the computation by
which such adjustment was made.

            15. Notice of Corporate Action. If at any time:

                  (a) the Company shall take a record of the holders of its
      Common Stock for the purpose of entitling them to receive a dividend or
      other distribution, or any right to subscribe for or purchase any
      evidences of its indebtedness, any shares of stock of any class or any
      other securities or property, or to receive any other right, or

                  (b) there shall be any capital reorganization of the Company,
      any reclassification or recapitalization of the capital stock of the
      Company or any consolidation or merger of the Company with, or any sale,
      transfer or other disposition of all or substantially all the property,
      assets or business of the Company to, another corporation or,

                  (c) there shall be a voluntary or involuntary dissolution,
      liquidation or winding up of the Company;

then, in any one or more of such cases, the Company shall give to Holder (i) at
least 20 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, liquidation or winding up, and (ii)
in the case of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, dissolution, liquidation or winding up, at least 20
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause also shall specify (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date

                                       8
<PAGE>

on which any such reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, dissolution, liquidation or winding up is to take place
and the time, if any such time is to be fixed, as of which the holders of Common
Stock shall be entitled to exchange their Warrant Shares for securities or other
property deliverable upon such disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to Holder
at the last address of Holder appearing on the books of the Company and
delivered in accordance with Section 17(d).

            16. Authorized Shares. The Company covenants that during the period
the Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of the
Warrant Shares upon the exercise of any purchase rights under this Warrant. The
Company further covenants that its issuance of this Warrant shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the Trading Market upon
which the Common Stock may be listed.

                  Except and to the extent as waived or consented to by the
Holder, the Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of Holder
as set forth in this Warrant against impairment. Without limiting the generality
of the foregoing, the Company will (a) not increase the par value of any Warrant
Shares above the amount payable therefor upon such exercise immediately prior to
such increase in par value, (b) take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use
commercially reasonable efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under this Warrant.

                  Before taking any action which would result in an adjustment
in the number of Warrant Shares for which this Warrant is exercisable or in the
Exercise Price, the Company shall obtain all such authorizations or exemptions
thereof, or consents thereto, as may be necessary from any public regulatory
body or bodies having jurisdiction thereof.

            17. Miscellaneous.

                  (a) Jurisdiction. All questions concerning the construction,
      validity, enforcement and interpretation of this Warrant shall be
      determined in accordance with the provisions of the Purchase Agreement.

                                       9
<PAGE>

                  (b) Restrictions. The Holder acknowledges that the Warrant
      Shares acquired upon the exercise of this Warrant, if not registered, will
      have restrictions upon resale imposed by state and federal securities
      laws.

                  (c) Nonwaiver and Expenses. No course of dealing or any delay
      or failure to exercise any right hereunder on the part of Holder shall
      operate as a waiver of such right or otherwise prejudice Holder's rights,
      powers or remedies, notwithstanding all rights hereunder terminate on the
      Termination Date. If the Company willfully and knowingly fails to comply
      with any provision of this Warrant, which results in any material damages
      to the Holder, the Company shall pay to Holder such amounts as shall be
      sufficient to cover any costs and expenses including, but not limited to,
      reasonable attorneys' fees, including those of appellate proceedings,
      incurred by Holder in collecting any amounts due pursuant hereto or in
      otherwise enforcing any of its rights, powers or remedies hereunder.

                  (d) Notices. Any notice, request or other document required or
      permitted to be given or delivered to the Holder by the Company shall be
      delivered in accordance with the notice provisions of the Purchase
      Agreement.

                  (e) Limitation of Liability. No provision hereof, in the
      absence of any affirmative action by Holder to exercise this Warrant or
      purchase Warrant Shares, and no enumeration herein of the rights or
      privileges of Holder, shall give rise to any liability of Holder for the
      purchase price of any Common Stock or as a stockholder of the Company,
      whether such liability is asserted by the Company or by creditors of the
      Company.

                  (f) Remedies. Holder, in addition to being entitled to
      exercise all rights granted by law, including recovery of damages, will be
      entitled to specific performance of its rights under this Warrant. The
      Company agrees that monetary damages would not be adequate compensation
      for any loss incurred by reason of a breach by it of the provisions of
      this Warrant and hereby agrees to waive the defense in any action for
      specific performance that a remedy at law would be adequate.

                  (g) Successors and Assigns. Subject to applicable securities
      laws, this Warrant and the rights and obligations evidenced hereby shall
      inure to the benefit of and be binding upon the successors of the Company
      and the successors and permitted assigns of Holder. The provisions of this
      Warrant are intended to be for the benefit of all Holders from time to
      time of this Warrant and shall be enforceable by any such Holder or holder
      of Warrant Shares.

                  (h) Amendment. This Warrant may be modified or amended or the
      provisions hereof waived with the written consent of the Company and the
      Holder.

                  (i) Severability. Wherever possible, each provision of this
      Warrant shall be interpreted in such manner as to be effective and valid
      under applicable law, but if any provision of this Warrant shall be
      prohibited by or invalid under applicable law, such provision shall be
      ineffective to the extent of such prohibition or invalidity, without
      invalidating the remainder of such provisions or the remaining provisions
      of this Warrant.

                                       10
<PAGE>

                  (j) Headings. The headings used in this Warrant are for the
      convenience of reference only and shall not, for any purpose, be deemed a
      part of this Warrant.

                              ********************

                                       11
<PAGE>

            IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.

Dated:  January __, 2005

                                              CYTRX CORPORATION

                                              By: ____________________________
                                                  Name: Steven A. Kriegsman
                                                  Title: Chief Executive Officer

                                       12
<PAGE>

                               NOTICE OF EXERCISE

TO: CYTRX CORPORATION

            (1) The undersigned hereby elects to purchase ________ Warrant
Shares of CytRx Corporation pursuant to the terms of the attached Warrant (only
if exercised in full), and tenders herewith payment of the exercise price in
full, together with all applicable transfer taxes, if any.

            (2) Payment shall take the form of (check applicable box):

                  [ ] in lawful money of the United States; or

                  [ ] the cancellation of such number of Warrant Shares as is
                  necessary, in accordance with the formula set forth in
                  subsection 3(d), to exercise this Warrant with respect to the
                  maximum number of Warrant Shares purchasable pursuant to the
                  cashless exercise procedure set forth in subsection 3(d).

            (3) Please issue a certificate or certificates representing said
Warrant Shares in the name of the undersigned or in such other name as is
specified below:

                   ____________________________

The Warrant Shares shall be delivered to the following:

                   ____________________________

                   ____________________________

                   ____________________________

            (4) Accredited Investor. The undersigned is an "accredited investor"
as defined in Regulation D promulgated under the Securities Act of 1933, as
amended.

                                               [PURCHASER]

                                                By:_____________________________
                                                   Name:
                                                   Title:

                                                Dated:__________________________

<PAGE>

                                 ASSIGNMENT FORM

                    (To assign the foregoing warrant, execute
                   this form and supply required information.
                 Do not use this form to exercise the warrant.)

            FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to

_______________________________________________ whose address is

__________________________________________________________________.

__________________________________________________________________

                                      Dated:  ______________, _______

                 Holder's Signature: __________________________

                 Holder's Address: ____________________________

                                   ____________________________

Signature Guaranteed: _________________________________________

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 whatsoever, and must be guaranteed by a bank or trust company. 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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