Document:

EXHIBIT
10.20

 

Description
Of December 8, 2003 Stock Repurchase Transaction With Insiders

 

 

On December 8, 2003, we
repurchased from Marshall G. Cox, Chairman of the Board of Directors, and Marc
H. Hadrick, MD, Chief Scientific Officer and Director, and from a trust for the
benefit of the family of Christopher I. Calhoun, Chief Executive Officer and
Director, a total of 375,000 shares of common stock for $1,393,000 in cash.  The repurchase price was established by the
Board of Directors as 100% of the mean average of the closing sale prices of
our common stock on the Frankfurt Stock Exchange over the 10 trading days before
the repurchase.  We are holding the
375,000 shares as treasury stock.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

  

 

 

 

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

  

 

 

	
  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.

  

 

2

 

	
  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

 

4

 

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).

 

5

 

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

 

6

 

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.

 

7

 

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

 

8

 

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

 

9

 

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.

 

10

 

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

 

11

 

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

 

12

 

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

 

13

 

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.

 

14

 

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

 

15

 

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

 

16

 

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

 

17

 

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

 

18

 

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.

 

19

 

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

 

20

 

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.

 

21

 

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

 

22

 

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

 

23

 

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

  

 

24

 

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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