Document:

Exhibit 10.1

 

ALTERNATIVE
WARRANTS

REGISTRATION RIGHTS AGREEMENT

 

This Alternative Warrants
Registration Rights Agreement (the “Agreement”) is made and entered into as of
this 3rd day of March, 2006 by and among Tapestry Pharmaceuticals, Inc., a
Delaware corporation (the “Company”), and the “Investors” named in that certain
Purchase Agreement by and among the Company and the Investors (the “Purchase
Agreement”).

 

The parties hereby agree as
follows:

 

1.     Certain Definitions.

 

As used in this Agreement,
the following terms shall have the following meanings:

 

“Affiliate” means,
with respect to any person, any other person which directly or indirectly
controls, is controlled by, or is under common control with, such person.

 

“Alternative Warrants”
has the meaning given to such term in the Purchase Agreement.

 

“Alternative Warrant
Shares” means the shares of Common Stock issuable upon the exercise of the
Alternative Warrants.

 

“Business Day” means
a day, other than a Saturday or Sunday, on which banks in New York City, New
York and Boulder, Colorado are open for the general transaction of business.

 

“Common Stock” shall
mean the Company’s common stock, par value $0.0075 per share, and any
securities into which such shares may hereinafter be reclassified.

 

“Investors” shall
mean the Investors identified in the Purchase Agreement and any Affiliate or
permitted transferee of any Investor who is a subsequent holder of any
Alternative Warrants or Registrable Securities.

 

“Prospectus” shall
mean the prospectus included in any Registration Statement, as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Registrable Securities covered by such
Registration Statement and by all other amendments and supplements to the
prospectus, including post-effective amendments and all material
incorporated by reference in such prospectus.

 

“Register,” “registered”
and “registration” refer to a registration made by preparing and filing
a Registration Statement or similar document in compliance with the 1933 Act
(as defined below), and the declaration or ordering of effectiveness of such
Registration Statement or document.

 

“Registrable Securities”
shall mean (i) the Alternative Warrant Shares and (iii) any other securities
issued or issuable with respect to or in exchange for Registrable Securities;
provided, that, a security shall cease to be a Registrable Security upon (A)
sale pursuant to a Registration Statement or Rule 144 under the 1933 Act, or
(B) such security becoming eligible for sale by the Investors pursuant to Rule
144(k).

 

“Registration Statement”
shall mean any registration statement of the Company filed under the 1933 Act
that covers the resale of any of the Registrable Securities pursuant to the
provisions of this Agreement, amendments and supplements to such Registration
Statement,

 

 

including post-effective amendments,
all exhibits and all material incorporated by reference in such Registration
Statement.

 

“Required Investors”
means the Investors holding a majority of the Registrable Securities.

 

“SEC” means the U.S.
Securities and Exchange Commission.

 

“1933 Act” means the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder.

 

“1934 Act” means the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

 

2.     Registration.

 

(a)           Registration Statements.

 

(i)            Promptly
following the date on which the Alternative Warrants become exercisable in
accordance with their terms (the “Effective Date”) but no later than thirty
(30) days after the Effective Date (the “Filing Deadline”), the Company shall
prepare and file with the SEC one Registration Statement on Form S-3 (or,
if Form S-3 is not then available to the Company, on such form of
registration statement as is then available to effect a registration for resale
of the Registrable Securities, subject to the Required Investors’ consent),
covering the resale of the Registrable Securities in an amount at least equal
to the Alternative Warrant Shares.  Such
Registration Statement shall include the plan of distribution attached hereto
as Exhibit A.  Such Registration
Statement also shall cover, to the extent allowable under the 1933 Act and the
rules promulgated thereunder (including Rule 416), such indeterminate number of
additional shares of Common Stock resulting from stock splits, stock dividends
or similar transactions with respect to the Registrable Securities.  Such Registration Statement shall not include
any shares of Common Stock or other securities for the account of any other
holder without the prior written consent of the Required Investors.  The Registration Statement (and each
amendment or supplement thereto, and each request for acceleration of effectiveness
thereof) shall be provided in accordance with Section 3(c) to the Investors and
their counsel prior to its filing or other submission.  If a Registration Statement covering the
Registrable Securities is not filed with the SEC on or prior to the Filing
Deadline, the Company will make pro rata payments to each Investor, as
liquidated damages and not as a penalty, in an amount equal to 1.5% of the
amount that is equal to (A) the aggregate number of Alternative Warrant Shares
(i.e., 522,815), multiplied by (B) an assumed price per Warrant Share of $2.00,
for each 30-day period or pro rata for any portion thereof following the
Filing Deadline for which no Registration Statement is filed with respect to
the Registrable Securities.  Such
payments shall constitute the Investors’ exclusive monetary remedy for such
events, but shall not affect the right of the Investors to seek injunctive
relief.  Such payments shall be made to
each Investor in cash.

 

(ii)           Additional
Registrable Securities.  Upon the
written demand of any Investor and upon any change in the Warrant Price (as
defined in the Alternative Warrants) such that additional shares of Common
Stock become issuable upon the exercise of the Alternative Warrants, the
Company shall prepare and file with the SEC one or more Registration Statements
on Form S-3 or amend the Registration Statement filed pursuant to clause
(i) above, if such Registration Statement has not previously been declared
effective (or, if Form S-3 is not then

 

 

available to the Company, on
such form of registration statement as is then available to effect a
registration for resale of such additional shares of Common Stock (the “Additional
Shares”), subject to the Required Investors’ consent) covering the resale of
the Additional Shares, but only to the extent the Additional Shares are not at
the time covered by an effective Registration Statement.  Such Registration Statement also shall cover,
to the extent allowable under the 1933 Act and the rules promulgated thereunder
(including Rule 416), such indeterminate number of additional shares of Common
Stock resulting from stock splits, stock dividends or similar transactions with
respect to the Additional Shares.  Such
Registration Statement shall not include any shares of Common Stock or other
securities for the account of any other holder without the prior written
consent of the Required Investors.  The
Registration Statement (and each amendment or supplement thereto, and each
request for acceleration of effectiveness thereof) shall be provided in
accordance with Section 3(c) to the Investors and their counsel prior to its
filing or other submission.  If a
Registration Statement covering the Additional Shares is required to be filed
under this Section 2(a)(ii) and is not filed with the SEC within ten (10)
Business Days of the request of any Investor or upon the occurrence of any of
the events specified in this Section 2(a)(ii), the Company will make pro rata
payments to each Investor, as liquidated damages and not as a penalty, in an
amount equal to 1.5% of the amount that is equal to (A) the aggregate number of
Alternative Warrant Shares (i.e., 522,815), multiplied by (B) an assumed price
per Warrant Share of $2.00, for each 30-day period or pro rata for any
portion thereof following the date by which such Registration Statement should
have been filed for which no Registration Statement is filed with respect to
the Additional Shares.  Such payments
shall constitute the Investors’ exclusive monetary remedy for such events, but
shall not affect the right of the Investors to seek injunctive relief.  Such payments shall be made to each Investor
in cash.

 

(b)           Expenses. 
The Company will pay all expenses associated with each registration,
including filing and printing fees, the Company’s counsel and accounting fees
and expenses, costs associated with clearing the Registrable Securities for
sale under applicable state securities laws, listing fees, reasonable out-of-pocket
fees and expenses of one counsel to the Investors (which fees and expenses
shall not exceed $35,000 in the aggregate) and the Investors’ reasonable out-of-pocket
expenses in connection with the registration, but excluding discounts,
commissions, fees of underwriters, selling brokers, dealer managers or similar
securities industry professionals with respect to the Registrable Securities
being sold.

 

(c)           Effectiveness.

 

(i)            The
Company shall use commercially reasonable efforts to have the Registration
Statement declared effective as soon as practicable.  The Company shall notify the Investors by
facsimile or e-mail as promptly as practicable, and in any event, within
twenty-four (24) hours, after any Registration Statement is declared
effective and shall simultaneously provide the Investors with copies of any
related Prospectus to be used in connection with the sale or other disposition
of the securities covered thereby.  If
(A)(x) a Registration Statement covering the Registrable Securities is not
declared effective by the SEC prior to the earlier of (i) five (5) Business
Days after the SEC shall have informed the Company that no review of the
Registration Statement will be made or that the SEC has no further comments on
the Registration Statement or (ii) the 90th day after the Effective
Date (the 120th day if the SEC reviews the Registration Statement),
or (y) a Registration Statement covering Additional Shares is not declared
effective by the SEC within ninety (90) days following the

 

 

time such Registration
Statement was required to be filed pursuant to Section 2(a)(ii) (120 days if
the SEC reviews the Registration Statement), or (B) after a
Registration Statement has been declared effective by the SEC, sales cannot be
made pursuant to such Registration Statement for any reason (including without
limitation by reason of a stop order, or the Company’s failure to update the Registration
Statement), but excluding the inability of any Investor to sell the Registrable
Securities covered thereby due to market conditions and except as excused
pursuant to subparagraph (ii) below, then the Company will make pro rata payments to each Investor, as
liquidated damages and not as a penalty, in an amount equal to 1.5% of the
amount that is equal to (A) the aggregate number of Alternative Warrant Shares
(i.e., 522,815), multiplied by (B) an assumed price per Warrant Share of $2.00,
for each 30-day period or pro rata for any portion thereof following the
date by which such Registration Statement should have been effective (the “Blackout
Period”).  Such payments shall constitute
the Investors’ exclusive monetary remedy for such events, but shall not affect
the right of the Investors to seek injunctive relief.  The amounts payable as liquidated damages
pursuant to this paragraph shall be paid monthly within three (3) Business Days
of the last day of each month following the commencement of the Blackout Period
until the termination of the Blackout Period. 
Such payments shall be made to each Investor in cash.

 

(ii)           For
not more than twenty (20) consecutive days or for a total of not more than
forty-five (45) days in any twelve (12) month period, the Company may
delay the disclosure of material non-public information concerning the
Company, by suspending the use of any Prospectus included in any registration
contemplated by this Section containing such information, the disclosure of
which at the time is not, in the good faith opinion of the Company, in the best
interests of the Company (an “Allowed Delay”); provided, that the Company shall
promptly (a) notify the Investors in writing of the existence of (but in no
event, without the prior written consent of an Investor, shall the Company
disclose to such Investor any of the facts or circumstances regarding) material
non-public information giving rise to an Allowed Delay, (b) advise the
Investors in writing to cease all sales under the Registration Statement until
the end of the Allowed Delay and (c) use commercially reasonable efforts to
terminate an Allowed Delay as promptly as practicable.

 

3.     Company Obligations.  The Company will use commercially reasonable
efforts to effect the registration of the Registrable Securities in accordance
with the terms hereof, and pursuant thereto the Company will, as expeditiously
as possible:

 

(a)           use
commercially reasonable efforts to cause such Registration Statement to become
effective and to remain continuously effective for a period that will terminate
upon the earlier of (i) the date on which all Registrable Securities covered by
such Registration Statement as amended from time to time, have been sold, and
(ii) the date on which all Registrable Securities covered by such Registration
Statement may be sold pursuant to Rule 144(k) (the “Effectiveness Period”) and
advise the Investors in writing when the Effectiveness Period has expired;

 

(b)           prepare
and file with the SEC such amendments and post-effective amendments to
the Registration Statement and the Prospectus as may be necessary to keep the
Registration Statement effective for the Effectiveness Period and to comply
with the provisions

 

 

of the 1933 Act and the 1934
Act with respect to the distribution of all of the Registrable Securities
covered thereby;

 

(c)           provide
copies to and permit counsel designated by the Investors to review each
Registration Statement and all amendments and supplements thereto no fewer than
seven (7) days prior to their filing with the SEC and not file any document to
which such counsel reasonably objects;

 

(d)           furnish
to the Investors and their legal counsel (i) promptly after the same is
prepared and publicly distributed, filed with the SEC, or received by the
Company (but not later than two (2) Business Days after the filing date,
receipt date or sending date, as the case may be) one (1) copy of any
Registration Statement and any amendment thereto, each preliminary prospectus
and Prospectus and each amendment or supplement thereto, and each letter
written by or on behalf of the Company to the SEC or the staff of the SEC, and
each item of correspondence from the SEC or the staff of the SEC, in each case
relating to such Registration Statement (other than any portion of any thereof
which contains information for which the Company has sought confidential
treatment), and (ii) such number of copies of a Prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and such
other documents as each Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor that are
covered by the related Registration Statement;

 

(e)           use
commercially reasonable efforts to (i) prevent the issuance of any stop order
or other suspension of effectiveness and, (ii) if such order is issued, obtain
the withdrawal of any such order at the earliest possible moment;

 

(f)            prior
to any public offering of Registrable Securities, use commercially reasonable
efforts to register or qualify or cooperate with the Investors and their
counsel in connection with the registration or qualification of such
Registrable Securities for offer and sale under the securities or blue sky laws
of such jurisdictions requested by the Investors and do any and all other
commercially reasonable acts or things necessary or advisable to enable the
distribution in such jurisdictions of the Registrable Securities covered by the
Registration Statement; provided, however, that the Company
shall not be required in connection therewith or as a condition thereto to (i)
qualify to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(f), (ii) subject itself to general
taxation in any jurisdiction where it would not otherwise be so subject but for
this Section 3(f), or (iii) file a general consent to service of process in any
such jurisdiction;

 

(g)           use
commercially reasonable efforts to cause all Registrable Securities covered by
a Registration Statement to be listed on each securities exchange, interdealer
quotation system or other market on which similar securities issued by the
Company are then listed;

 

(h)           promptly
notify the Investors, at any time when a Prospectus relating to Registrable
Securities is required to be delivered under the 1933 Act (including during any
period when the Company is in compliance with Rule 172), upon discovery that,
or upon the happening of any event as a result of which, the Prospectus
included in a Registration

 

 

Statement, as then in
effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing, and at the
request of any such holder, promptly prepare, file with the SEC pursuant to
Rule 172 and furnish to such holder a supplement to or an amendment of such
Prospectus as may be necessary so that such Prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances then existing; and

 

(i)            otherwise
use commercially reasonable efforts to comply with all applicable rules and
regulations of the SEC under the 1933 Act and the 1934 Act, including Rule 172,
notify the Investors promptly if the Company no longer satisfies the conditions
of Rule 172 and take such other actions as may be reasonably necessary to
facilitate the registration of the Registrable Securities hereunder; and make
available to its security holders, as soon as reasonably practicable, but not
later than the Availability Date (as defined below), an earnings statement
covering a period of at least twelve (12) months, beginning after the effective
date of each Registration Statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the 1933 Act, including Rule 158 promulgated
thereunder (for the purpose of this subsection 3(i), “Availability Date” means
the 45th day following the end of the fourth fiscal quarter that includes the
effective date of such Registration Statement, except that, if such fourth
fiscal quarter is the last quarter of the Company’s fiscal year, “Availability
Date” means the 90th day after the end of such fourth fiscal quarter).

 

(j)            With
a view to making available to the Investors the benefits of Rule 144 (or its
successor rule) and any other rule or regulation of the SEC that may at any
time permit the Investors to sell shares of Common Stock to the public without
registration, the Company covenants and agrees to:  (i) make and keep public information
available, as those terms are understood and defined in Rule 144, until the
earlier of (A) six months after such date as all of the Registrable Securities
may be resold pursuant to Rule 144(k) or any other rule of similar effect or
(B) such date as all of the Registrable Securities shall have been resold; (ii)
file with the SEC in a timely manner all reports and other documents required
of the Company under the 1934 Act; and (iii) furnish to each Investor upon
request, as long as such Investor owns any Registrable Securities, (A) a
written statement by the Company that it has complied with the reporting
requirements of the 1934 Act, (B) a copy of the Company’s most recent Annual
Report on Form 10-K or Quarterly Report on Form 10-Q, and (C) such
other information as may be reasonably requested in order to avail such
Investor of any rule or regulation of the SEC that permits the selling of any
such Registrable Securities without registration.

 

4.     Due Diligence Review;
Information.  Upon reasonable prior
notice, the Company shall make available, during normal business hours, for
inspection and review by the Investors, advisors to and representatives of the
Investors (who may or may not be affiliated with the Investors and who are
reasonably acceptable to the Company), all financial and other records, all SEC
Filings (as defined in the Purchase Agreement) and other filings with the SEC, and
all other corporate documents and properties of the Company as may be
reasonably necessary for the purpose of such review, and cause the Company’s
officers, directors and employees, within a reasonable time period, to supply
all such information reasonably requested by the Investors or any such
representative, advisor or underwriter in connection with such Registration
Statement

 

 

(including, without limitation, in response
to all questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Investors and such
representatives, advisors and underwriters and their respective accountants and
attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of such Registration Statement.

 

The Company shall not
disclose material nonpublic information to the Investors, or to advisors to or
representatives of the Investors, unless prior to disclosure of such
information the Company identifies such information as being material nonpublic
information and provides the Investors, such advisors and representatives with
the opportunity to accept or refuse to accept such material nonpublic
information for review and any Investor wishing to obtain such information
enters into an appropriate confidentiality agreement with the Company with
respect thereto.

 

5.     Obligations of the
Investors.

 

(a)           Each
Investor shall promptly furnish in writing to the Company such information
regarding itself, the Registrable Securities held by it and the intended method
of disposition of the Registrable Securities held by it, as shall be reasonably
required to effect the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request.  At least five (5)
Business Days prior to the first anticipated filing date of any Registration
Statement, the Company shall notify each Investor of the information the
Company requires from such Investor if such Investor elects to have any of the
Registrable Securities included in the Registration Statement.  An Investor shall provide such information to
the Company at least two (2) Business Days prior to the first anticipated
filing date of such Registration Statement if such Investor elects to have any
of the Registrable Securities included in the Registration Statement.

 

(b)           Each
Investor, by its acceptance of the Registrable Securities agrees to cooperate
with the Company as reasonably requested by the Company in connection with the
preparation and filing of a Registration Statement hereunder, unless such
Investor has notified the Company in writing of its election to exclude all of
its Registrable Securities from such Registration Statement.

 

(c)           Each
Investor agrees that, upon receipt of any notice from the Company of either (i)
the commencement of an Allowed Delay pursuant to Section 2(c)(ii) or (ii) the
happening of an event pursuant to Section 3(h) hereof, such Investor will
immediately discontinue disposition of Registrable Securities pursuant to the
Registration Statement covering such Registrable Securities, until the Investor
is advised by the Company that a supplemented or amended prospectus has been
filed with the SEC and until any related post-effective amendment is
declared effective and, if so directed by the Company, the Investor shall
deliver to the Company or destroy (and deliver to the Company a certificate of
destruction) all copies in the Investor’s possession of the Prospectus covering
the Registrable Securities current at the time of receipt of such notice.

 

 

6.     Indemnification.

 

(a)           Indemnification
by the Company.  The Company will
indemnify and hold harmless each Investor and its officers, directors, members,
employees and agents, successors and assigns, and each other person, if any,
who controls such Investor within the meaning of the 1933 Act, against any
losses, claims, damages or liabilities, joint or several, to which they may
become subject under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon: (i) any untrue statement or alleged untrue statement of any
material fact contained in any Registration Statement, any preliminary
prospectus or final prospectus contained therein, or any amendment or
supplement thereof; (ii) any blue sky application or other document executed by
the Company specifically for that purpose or based upon written information
furnished by the Company filed in any state or other jurisdiction in order to
qualify any or all of the Registrable Securities under the securities laws
thereof (any such application, document or information herein called a “Blue Sky Application”); (iii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading; (iv)
any violation by the Company or its agents of any rule or regulation promulgated
under the 1933 Act applicable to the Company or its agents and relating to
action or inaction required of the Company in connection with such
registration; or (v) any failure to register or qualify the Registrable
Securities included in any such Registration in any state where the Company or
its agents has affirmatively undertaken or agreed in writing that the Company
will undertake such registration or qualification on an Investor’s behalf and
will reimburse such Investor, and each such officer, director or member and
each such controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case if and to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made
in conformity with information furnished by such Investor or any such
controlling person in writing specifically for use in such Registration
Statement or Prospectus.

 

(b)           Indemnification
by the Investors.  Each Investor
agrees, severally but not jointly, to indemnify and hold harmless, to the
fullest extent permitted by law, the Company, its directors, officers,
employees, stockholders and each person who controls the Company (within the
meaning of the 1933 Act) against any losses, claims, damages, liabilities and
expense (including reasonable attorney fees) resulting from any untrue
statement of a material fact or any omission of a material fact required to be
stated in the Registration Statement or Prospectus or preliminary prospectus or
amendment or supplement thereto or necessary to make the statements therein not
misleading, to the extent, but only to the extent that such untrue statement or
omission is contained in any information furnished in writing by such Investor
to the Company specifically for inclusion in such Registration Statement or
Prospectus or amendment or supplement thereto. 
In no event shall the liability of an Investor be greater in amount than
the dollar amount of the proceeds (net of all expense paid by such Investor in
connection with any claim relating to this Section 6 and the amount of any
damages such Investor has otherwise been required to pay by reason of such
untrue statement or omission) received by such Investor upon the sale of the
Registrable Securities included in the Registration Statement giving rise to
such indemnification obligation.

 

 

(c)           Conduct
of Indemnification Proceedings.  Any
person entitled to indemnification hereunder shall (i) give prompt notice to
the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) permit such indemnifying party to assume the defense
of such claim with counsel reasonably satisfactory to the indemnified party; provided
that any person entitled to indemnification hereunder shall have the right to
employ separate counsel and to participate in the defense of such claim, but
the fees and expenses of such counsel shall be at the expense of such person
unless (a) the indemnifying party has agreed to pay such fees or expenses, or
(b) the indemnifying party shall have failed to assume the defense of such claim
and employ counsel reasonably satisfactory to such person or (c) in the
reasonable judgment of any such person, based upon written advice of its
counsel, a conflict of interest exists between such person and the indemnifying
party with respect to such claims (in which case, if the person notifies the
indemnifying party in writing that such person elects to employ separate
counsel at the expense of the indemnifying party, the indemnifying party shall
not have the right to assume the defense of such claim on behalf of such
person); and provided, further, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations hereunder, except to the extent that such
failure to give notice shall materially adversely affect the indemnifying party
in the defense of any such claim or litigation. 
It is understood that the indemnifying party shall not, in connection
with any proceeding in the same jurisdiction, be liable for fees or expenses of
more than one separate firm of attorneys at any time for all such indemnified
parties.  No indemnifying party will,
except with the consent of the indemnified party, consent to entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect of such claim or litigation.

 

(d)           Contribution.  If for any reason the indemnification
provided for in the preceding paragraphs (a) and (b) is unavailable to an
indemnified party or insufficient to hold it harmless, other than as expressly
specified therein, then the indemnifying party shall contribute to the amount
paid or payable by the indemnified party as a result of such loss, claim,
damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnified party and the indemnifying party, as well as
any other relevant equitable considerations. 
No person guilty of fraudulent misrepresentation within the meaning of
Section 11(f) of the 1933 Act shall be entitled to contribution from any person
not guilty of such fraudulent misrepresentation.  In no event shall the contribution obligation
of a holder of Registrable Securities be greater in amount than the dollar
amount of the proceeds (net of all expenses paid by such holder in connection
with any claim relating to this Section 6 and the amount of any damages such
holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission) received by it upon the sale
of the Registrable Securities giving rise to such contribution obligation.

 

7.     Miscellaneous.

 

(a)           Amendments
and Waivers.  This Agreement may be
amended, modified or waived only by a writing signed by the Company and the
Required Investors; provided that if any such amendment, modification or
waiver would adversely affect in any material respect any Investor or group of
Investors who have comparable rights under this Agreement disproportionately to
the other Investors having such comparable rights, such

 

 

amendment, modification, or
waiver shall also require the written consent of the Investor(s) so adversely
affected.  Notwithstanding the foregoing,
no amendment or modification of this Agreement that would restrict or otherwise
limit any Investor’s registration rights hereunder shall be effective against
such Investor without its written consent.

 

(b)           Notices.  All notices and other communications provided
for or permitted hereunder shall be made as set forth in Section 9.4 of the
Purchase Agreement.

 

(c)           Assignments
and Transfers by Investors.  The
provisions of this Agreement shall be binding upon and inure to the benefit of
the Investors and their respective successors and assigns.  An Investor may transfer or assign, in whole
or from time to time in part, to one or more persons its rights hereunder in
connection with the transfer of Registrable Securities by such Investor to such
person, provided that (i) such Investor complies with all laws applicable
thereto and provides written notice of assignment to the Company promptly after
such assignment is effected and (ii) the transferee agrees in writing to be
bound by this Agreement as if it were a party hereto.

 

(d)           Assignments
and Transfers by the Company.  This
Agreement may not be assigned by the Company (whether by operation of law or
otherwise) without the prior written consent of the Required Investors,
provided, however, that the Company may assign its rights and delegate its duties
hereunder to any surviving or successor corporation in connection with a merger
or consolidation of the Company with another corporation, or a sale, transfer
or other disposition of all or substantially all of the Company’s assets to
another corporation, without the prior written consent of the Required
Investors, after notice duly given by the Company to each Investor.

 

(e)           Benefits
of the Agreement.  The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective permitted successors and assigns of the parties.  Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.

 

(f)            Counterparts;
Faxes.  This Agreement may be
executed in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.  This Agreement may also be
executed via facsimile, which shall be deemed an original.

 

(g)           Titles
and Subtitles.  The titles and
subtitles used in this Agreement are used for convenience only and are not to
be considered in construing or interpreting this Agreement.

 

(h)           Severability.  Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof but shall be interpreted as if it
were written so as to be enforceable to the maximum extent permitted by
applicable law, and any such prohibition or unenforceability in any
jurisdiction shall not

 

 

invalidate or render
unenforceable such provision in any other jurisdiction.  To the extent permitted by applicable law,
the parties hereby waive any provision of law which renders any provisions
hereof prohibited or unenforceable in any respect.

 

(i)            Further
Assurances.  The parties shall
execute and deliver all such further instruments and documents and take all
such other actions as may reasonably be required to carry out the transactions
contemplated hereby and to evidence the fulfillment of the agreements herein
contained.

 

(j)            Entire
Agreement.  This Agreement is
intended by the parties as a final expression of their agreement and intended
to be a complete and exclusive statement of the agreement and understanding of
the parties hereto in respect of the subject matter contained herein.  This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.

 

(k)           Governing
Law; Consent to Jurisdiction; Waiver of Jury Trial.  This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of New York
without regard to the choice of law principles thereof.  Each of the parties hereto irrevocably
submits to the exclusive jurisdiction of the courts of the State of New York
located in New York County and the United States District Court for the
Southern District of New York for the purpose of any suit, action, proceeding
or judgment relating to or arising out of this Agreement and the transactions
contemplated hereby.  Service of process
in connection with any such suit, action or proceeding may be served on each
party hereto anywhere in the world by the same methods as are specified for the
giving of notices under this Agreement.  Each
of the parties hereto irrevocably consents to the jurisdiction of any such
court in any such suit, action or proceeding and to the laying of venue in such
court.  Each party hereto irrevocably
waives any objection to the laying of venue of any such suit, action or
proceeding brought in such courts and irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in
an inconvenient forum.  EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO
REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND
REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

 

 

SIGNATURE PAGE TO 

ALTERNATIVE
WARRANTS

REGISTRATION RIGHTS AGREEMENT

 

IN WITNESS WHEREOF, the
parties have executed this Agreement or caused their duly authorized officers
to execute this Agreement as of the date first above written.

 

	
  The Company:

  	
  TAPESTRY PHARMACEUTICALS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Leonard Shaykin

  	
   

  
	
   

  	
  Name:

  	
  Leonard Shaykin

  
	
   

  	
  Title:

  	
  Chairman and Chief Executive Officer

  
					

 

 

	
   

  	
  BAKER BROS. INVESTMENTS II, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Baker Bros. Capital, L.P., its general partner

  
	
   

  	
  By:

  	
  Baker Bros. Capital (GP), LLC, its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Julian Baker

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Julian Baker

  
	
   

  	
   

  	
  Title:

  	
  Managing Member

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BAKER BIOTECH FUND II (Z), L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Baker Biotech Capital II (Z), L.P., its
  general partner

  
	
   

  	
  By:

  	
  Baker Biotech Capital II (Z) (GP), LLC, its
  general

  partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Julian
  Baker

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Julian Baker

  
	
   

  	
   

  	
  Title:

  	
  Managing Member

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BAKER BIOTECH FUND III, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Baker Biotech Capital III, L.P., its general partner

  
	
   

  	
  By:

  	
  Baker Biotech Capital III (GP), LLC, its general

  partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Julian Baker

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Julian Baker

  
	
   

  	
   

  	
  Title:

  	
  Managing Member

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  BAKER BIOTECH FUND III (Z), L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Baker Biotech Capital III (Z), L.P., its general partner

  
	
   

  	
  By:

  	
  Baker Biotech Capital III (Z) (GP), LLC, its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Julian Baker

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Julian Baker

  
	
   

  	
   

  	
  Title:

  	
  Managing Member

  
					

 

 

	
   

  	
  14159 L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  14159 Capital, L.P., its general partner

  
	
   

  	
  By:

  	
  14159 Capital (GP), LLC, its general partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Julian Baker

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Julian Baker

  
	
   

  	
   

  	
  Title:

  	
  Managing Member

  
						

 

 

	
   

  	
  BIOTECHNOLOGY VALUE FUND, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  BVF Partners, L.P., its general partner

  
	
   

  	
  By:

  	
  BVF Inc., its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mark N. Lampert

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Mark N. Lampert

  
	
   

  	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  BIOTECHNOLOGY VALUE FUND II, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  BVF Partners, L.P., its general partner

  
	
   

  	
  By:

  	
  BVF Inc., its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mark N. Lampert

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Mark N. Lampert

  
	
   

  	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  BVF INVESTMENTS, L.L.C.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  BVF Partners, L.P., its manager

  
	
   

  	
  By:

  	
  BVF Inc., its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mark N. Lampert

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Mark N. Lampert

  
	
   

  	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  INVESTMENT 10, L.L.C.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  BVF Partners, L.P., its attorney-in-fact

  
	
   

  	
  By:

  	
  BVF Inc., its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mark N. Lampert

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Mark N. Lampert

  
	
   

  	
   

  	
  Title:

  	
  President

  
					

 

 

	
   

  	
  FORT MASON MASTER, LP

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Fort Mason Capital, LLC, its Managing

  Member

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dan Gorman

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Dan Gorman

  
	
   

  	
   

  	
  Title:

  	
  Managing Member

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  FORT MASON PARTNERS, LP

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Fort Mason Capital, LLC, its Managing

  Member

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dan Gorman

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Dan Gorman

  
	
   

  	
   

  	
  Title:

  	
  Managing Member

  
					

 

 

	
   

  	
  CAPITAL VENTURES INTERNATIONAL

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Heights Capital Management, Inc., its

  authorized agent

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Martin Kobinger

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Martin Kobinger

  
	
   

  	
   

  	
  Title:

  	
  Investment Manager

  
					

 

 

	
   

  	
  MERLIN BIOMED LONG TERM

  APPRECIATION, LP

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Norman Schleifer

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Norman Schleifer

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  MERLIN BIOMED OFFSHORE MASTER

  FUND

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Norman Schleifer

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Norman Schleifer

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial Officer

  
					

 

 

	
   

  	
  SPECIAL SITUATIONS FUND III Q.P. L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David Greenhouse

  	
   

  
	
   

  	
   

  	
  Name:

  	
  David Greenhouse

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SPECIAL SITUATIONS LIFE SCIENCE FUND

  L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David Greenhouse

  	
   

  
	
   

  	
   

  	
  Name:

  	
  David Greenhouse

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SPECIAL SITUATIONS PRIVATE EQUITY

  FUND L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David Greenhouse

  	
   

  
	
   

  	
   

  	
  Name:

  	
  David Greenhouse

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SPECIAL SITUATIONS FUND L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David Greenhouse

  	
   

  
	
   

  	
   

  	
  Name:

  	
  David Greenhouse

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SPECIAL SITUATIONS CAYMAN FUND L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David Greenhouse

  	
   

  
	
   

  	
   

  	
  Name:

  	
  David Greenhouse

  
	
   

  	
   

  	
  Title:

  	
   

  
					

 

 

	
   

  	
  IRA FBO CHUNG W. KONG DB SECURITIES

  INC. CUSTODIAN ROTH CONVERSION

  ACCOUNT

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Chung W. Kong

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Chung W. Kong

  
	
   

  	
   

  	
  Title:

  	
  Beneficiary

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  IRA FBO CHANG L. KONG DB SECURITIES

  INC. CUSTODIAN ROTH CONVERSION

  ACCOUNT

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Chung W. Kong

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Chung W. Kong

  
	
   

  	
   

  	
  Title:

  	
  Beneficiary

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  TANG CAPITAL PARTNERS, LP

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kevin C. Tang

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Kevin C. Tang

  
	
   

  	
   

  	
  Title:

  	
  Managing Member

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  KEVIN C. TANG AS CUSTODIAN FOR JUSTIN

  LEE TANG UNDER THE CA TRANSFER TO

  MINORS ACT

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kevin C. Tang

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Kevin C. Tang

  
	
   

  	
   

  	
  Title:

  	
  Trustee

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  KEVIN TANG AND HAEYOUNG TANG

  TRUSTEES THE TANG FAMILY TRUST

  DATED 8-27-02

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kevin C. Tang

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Kevin C. Tang

  
	
   

  	
   

  	
  Title:

  	
  Trustee

  
					

 

 

	
   

  	
  KEVIN C. TANG AS CUSTODIAN FOR

  JULIAN KONG TANG UNDER THE CA

  TRANSFER TO MINORS ACT

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kevin C. Tang

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Kevin C. Tang

  
	
   

  	
   

  	
  Title:

  	
  Trustee

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  KEVIN C. TANG AS CUSTODIAN FOR NOA

  YOUNG TANG UNDER THE CA TRANSFER

  TO MINORS ACT

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kevin C. Tang

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Kevin C. Tang

  
	
   

  	
   

  	
  Title:

  	
  Trustee

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  IRA FBO KEVIN TANG DB SECURITIES INC.

  CUSTODIAN ROLLOVER ACCOUNT

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kevin C. Tang

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Kevin C. Tang

  
	
   

  	
   

  	
  Title:

  	
  Beneficiary

  
					

 

 

	
   

  	
  VERSANT CAPITAL MANAGEMENT LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Herriot Tabuteau

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Herriot Tabuteau

  
	
   

  	
   

  	
  Title:

  	
  Managing Member

  
					

 

 

	
   

  	
  XMARK JV INVESTMENT PARTNERS, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mitchell D. Kaye

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Mitchell D. Kaye

  
	
   

  	
   

  	
  Title:

  	
  Chief Investment Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  XMARK OPPORTUNITY FUND, LTD.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mitchell D. Kaye

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Mitchell D. Kaye

  
	
   

  	
   

  	
  Title:

  	
  CIO

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  XMARK OPPORTUNITY FUND, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mitchell D. Kaye

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Mitchell D. Kaye

  
	
   

  	
   

  	
  Title:

  	
  CIO

  
					

 

 

Exhibit A

 

Plan of Distribution

 

The selling stockholders, which as used herein includes donees,
pledgees, transferees or other successors-in-interest selling
shares of common stock or interests in shares of common stock received after
the date of this prospectus from a selling stockholder as a gift, pledge,
partnership distribution or other transfer, may, from time to time, sell,
transfer or otherwise dispose of any or all of their shares of common stock or
interests in shares of common stock on any stock exchange, market or trading
facility on which the shares are traded or in private transactions.  These dispositions may be at fixed prices, at
prevailing market prices at the time of sale, at prices related to the
prevailing market price, at varying prices determined at the time of sale, or
at negotiated prices.

 

The selling stockholders may use any one or more of the following
methods when disposing of shares or interests therein:

 

• ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;

 

• block trades in
which the broker-dealer will attempt to sell the shares as agent, but may
position and resell a portion of the block as principal to facilitate the
transaction;

 

• purchases by a
broker-dealer as principal and resale by the broker-dealer for its
account;

 

• an exchange
distribution in accordance with the rules of the applicable exchange;

 

• privately negotiated
transactions;

 

• short sales effected after the date the registration statement of
which this Prospectus is a part is declared effective by the SEC;

 

• through the
writing or settlement of options or other hedging transactions, whether through
an options exchange or otherwise;

 

• broker-dealers
may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per share; and

 

• a combination
of any such methods of sale.

 

The selling stockholders may, from time to time, pledge or grant a
security interest in some or all of the shares of common stock owned by them
and, if they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell the shares of common stock, from
time to time, under this prospectus, or under an amendment to this prospectus
under Rule 424(b)(3) or other applicable provision of the Securities Act
amending the list of selling stockholders to include the pledgee, transferee or
other successors in interest as

 

 

selling
stockholders under this prospectus.  The
selling stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this prospectus.

 

In connection with the sale of our common stock or interests therein,
the selling stockholders may enter into hedging transactions with broker-dealers
or other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume.  The selling stockholders may also sell shares
of our common stock short and deliver these securities to close out their short
positions, or loan or pledge the common stock to broker-dealers that in
turn may sell these securities.  The
selling stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or
more derivative securities which require the delivery to such broker-dealer
or other financial institution of shares offered by this prospectus, which
shares such broker-dealer or other financial institution may resell
pursuant to this prospectus (as supplemented or amended to reflect such
transaction).

 

The aggregate proceeds to the selling stockholders from the sale of the
common stock offered by them will be the purchase price of the common stock
less discounts or commissions, if any. 
Each of the selling stockholders reserves the right to accept and, together
with their agents from time to time, to reject, in whole or in part, any
proposed purchase of common stock to be made directly or through agents.  We will not receive any of the proceeds from
this offering. Upon any exercise of the warrants by payment of cash, however,
we will receive the exercise price of the warrants.

 

The selling stockholders also may resell all or a portion of the shares
in open market transactions in reliance upon Rule 144 under the Securities Act
of 1933, provided that they meet the criteria and conform to the requirements
of that rule.

 

The selling stockholders and any underwriters, broker-dealers or agents
that participate in the sale of the common stock or interests therein may be “underwriters”
within the meaning of Section 2(11) of the Securities Act.  Any discounts, commissions, concessions or
profit they earn on any resale of the shares may be underwriting discounts and
commissions under the Securities Act. 
Selling stockholders who are “underwriters” within the meaning of
Section 2(11) of the Securities Act will be subject to the prospectus delivery
requirements of the Securities Act.

 

To the extent required, the shares of our common stock to be sold, the
names of the selling stockholders, the respective purchase prices and public
offering prices, the names of any agents, dealer or underwriter, any applicable
commissions or discounts with respect to a particular offer will be set forth
in an accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this prospectus.

 

In order to comply with the securities laws of some states, if
applicable, the common stock may be sold in these jurisdictions only through
registered or licensed brokers or dealers. 
In addition, in some states the common stock may not be sold unless it
has been registered or qualified for sale or an exemption from registration or
qualification requirements is available and is complied with.

 

 

We have advised the selling stockholders that the anti-manipulation
rules of Regulation M under the Exchange Act may apply to sales of shares in
the market and to the activities of the selling stockholders and their
affiliates.  In addition, we will make
copies of this prospectus (as it may be supplemented or amended from time to
time) available to the selling stockholders for the purpose of satisfying the
prospectus delivery requirements of the Securities Act.  The selling stockholders may indemnify any
broker-dealer that participates in transactions involving the sale of the
shares against certain liabilities, including liabilities arising under the
Securities Act.

 

We have agreed to indemnify the selling stockholders against
liabilities, including liabilities under the Securities Act and state
securities laws, relating to the registration of the shares offered by this
prospectus.

 

We have agreed with the selling stockholders to keep the registration
statement of which this prospectus constitutes a part effective until the
earlier of (1) such time as all of the shares covered by this prospectus have
been disposed of pursuant to and in accordance with the registration statement
or (2) the date on which the shares may be sold pursuant to Rule 144(k) of the
Securities Act.Exhibit
No. 10.2

 

Schedule Prepared in Accordance with
Instruction 2

to Item 601 of Regulation S-K

 

The Alternative Warrants are substantially identical in all material
respects except as to the warrantholder, the number of shares and the inclusion
or exclusion of Section 3(c).

 

	
  Warrantholder

  	
   

  	
  Number

  of shares

  	
   

  	
  Inclusion
  of

  section 3(c)

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  14159,
  L.P.

  	
   

  	
  4,669

  	
   

  	
  Yes

  
	
  Baker
  Biotech Fund II (Z), L.P.

  	
   

  	
  2,233

  	
   

  	
  Yes

  
	
  Baker
  Biotech Fund III, L.P.

  	
   

  	
  62,540

  	
   

  	
  Yes

  
	
  Baker
  Biotech Fund III (Z), L.P.

  	
   

  	
  10,861

  	
   

  	
  Yes

  
	
  Baker
  Bros. Investments II, L.P.

  	
   

  	
  1,707

  	
   

  	
  Yes

  
	
  Biotechnology
  Value Fund, L.P.

  	
   

  	
  13,777

  	
   

  	
  Yes

  
	
  Biotechnology
  Value Fund II, L.P.

  	
   

  	
  9,423

  	
   

  	
  Yes

  
	
  BVF
  Investments, L.L.C.

  	
   

  	
  34,163

  	
   

  	
  Yes

  
	
  Investment
  10, L.L.C.

  	
   

  	
  4,145

  	
   

  	
  Yes

  
	
  Fort
  Mason Master, L.P.

  	
   

  	
  57,763

  	
   

  	
  No

  
	
  Fort
  Mason Partners, L.P.

  	
   

  	
  3,745

  	
   

  	
  No

  
	
  Capital
  Ventures International

  	
   

  	
  41,005

  	
   

  	
  Yes

  
	
  Merlin
  BioMed Long Term Appreciation, LP

  	
   

  	
  7,176

  	
   

  	
  Yes

  
	
  Merlin
  BioMed Offshore Master Fund

  	
   

  	
  13,326

  	
   

  	
  Yes

  
	
  Special
  Situations Cayman Fund, L.P.

  	
   

  	
  14,351

  	
   

  	
  No

  
	
  Special
  Situations Fund III, L.P.

  	
   

  	
  4,100

  	
   

  	
  No

  
	
  Special
  Situations Fund III QP, L.P.

  	
   

  	
  49,209

  	
   

  	
  No

  
	
  Special
  Situations Life Sciences Fund, L.P.

  	
   

  	
  14,351

  	
   

  	
  No

  
	
  Special
  Situations Private Equity Fund, L.P.

  	
   

  	
  20,502

  	
   

  	
  No

  
	
  IRA
  FBO Chung W. Kong DB Securities Inc. Custodian Roth Conversion Account

  	
   

  	
  410

  	
   

  	
  Yes

  
	
  IRA
  FBO Chang L. Kong DB Securities Inc. Custodian Roth Conversion Account

  	
   

  	
  410

  	
   

  	
  Yes

  

 

 

	
  Tang
  Capital Partners, LP

  	
   

  	
  69,915

  	
   

  	
  Yes

  
	
  Kevin C. Tang as Custodian
  for Julian Kong Tang Under the CA Transfer to Minors Act

  	
   

  	
  1,435

  	
   

  	
  Yes

  
	
  Kevin C. Tang as Custodian
  for Justin Lee Tang Under the CA Transfer to Minors Act

  	
   

  	
  2,050

  	
   

  	
  Yes

  
	
  Kevin C. Tang as Custodian
  for Noa Young Tang Under the CA Transfer to Minors Act

  	
   

  	
  615

  	
   

  	
  Yes

  
	
  Kevin
  Tang and Haeyoung Tang Trustees The Tang Family Trust Dated 8-27-02

  	
   

  	
  6,150

  	
   

  	
  Yes

  
	
  IRA
  FBO Kevin Tang DB Securities Inc. Custodian Rollover Account

  	
   

  	
  1,025

  	
   

  	
  Yes

  
	
  Versant
  Capital Management LLC

  	
   

  	
  30,754

  	
   

  	
  Yes

  
	
  Xmark
  JV Investment Partners, LLC

  	
   

  	
  20,503

  	
   

  	
  Yes

  
	
  Xmark
  Opportunity Fund, L.P.

  	
   

  	
  9,226

  	
   

  	
  Yes

  
	
  Xmark
  Opportunity Fund, Ltd.

  	
   

  	
  11,276

  	
   

  	
  Yes

  

 

2

 

THE SECURITIES REPRESENTED HEREBY MAY NOT BE TRANSFERRED UNLESS (I)
SUCH SECURITIES HAVE BEEN REGISTERED FOR SALE PURSUANT TO THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), (II) SUCH SECURITIES
MAY BE SOLD PURSUANT TO RULE 144(K) OF THE SECURITIES ACT, OR (III) THE COMPANY
HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH
TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OR
QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS.

 

SUBJECT TO THE PROVISIONS OF SECTION 10 HEREOF, THIS WARRANT BECOMES
EXERCISABLE ONLY IN ACCORDANCE WITH THE TERMS AND CONDITIONS SET FORTH IN
SECTION 3(B) HEREOF AND SHALL BE VOID AFTER THE EARLIER TO OCCUR OF (I) 5:00
P.M. EASTERN TIME ON THE FIFTH ANNIVERSARY (THE “EXPIRATION DATE”) OF THE DATE
OF ISSUANCE OF THIS WARRANT (THE “DATE OF ISSUANCE”) OR (II) THE TERMINATION OF
THIS WARRANT IN ACCORDANCE WITH SECTION 3(B) HEREOF.

 

No. AW-    

 

TAPESTRY
PHARMACEUTICALS, INC.

 

WARRANT TO PURCHASE [        ] SHARES
OF

COMMON STOCK, PAR VALUE $0.0075
PER SHARE

 

For VALUE RECEIVED, [             ]
(“Warrantholder”), is entitled to purchase, subject to the provisions of this
Warrant, from Tapestry Pharmaceuticals, Inc., a Delaware corporation (“Company”),
at any time not later than 5:00 P.M., Eastern time, on the Expiration Date (as
defined above), at an exercise price per share equal to $0.01 (the “Warrant
Price”), [          ]
shares (“Warrant Shares”) of the Company’s Common Stock, par value $0.0075 per
share (“Common Stock”).  The number of
Warrant Shares purchasable upon exercise of this Warrant shall be subject to
adjustment from time to time as described herein.

 

Section 1.               Registration.  The Company shall maintain books for the
transfer and registration of this Warrant. 
Upon the initial issuance of this Warrant, the Company shall issue and
register this Warrant in the name of the Warrantholder.

 

Section 2.               Transfers.  As provided herein, this Warrant may be
transferred only pursuant to a registration statement filed under the
Securities Act or pursuant to an exemption from such registration.  Subject to such restrictions, the Company
shall transfer this Warrant from time to time upon the books to be maintained
by the Company for that purpose, within five calendar days following the
surrender hereof for transfer, properly endorsed or accompanied by appropriate
instructions for transfer and such other documents as may be reasonably
required by the Company, including, if required by the Company, an opinion of
counsel to the transferor to the effect that such transfer is exempt from the
registration requirements of the Securities Act, to establish that such
transfer is being made in accordance with the terms hereof, and a new

 

3

 

Warrant shall be issued to the transferee and the surrendered Warrant
shall be canceled by the Company within such five calendar day period; provided
that the Company shall advise the Warrantholder in writing of any and all
documentation (including the form and substance of any instruction for
transfer) that the Company requires to effectuate such transfer within five
calendar days of receipt by the Company of a written request by the Warrantholder
with respect thereto.

 

Section 3.               Exercise of Warrant.

 

(a)           Subject to the provisions hereof, the Warrantholder may
exercise this Warrant, in whole or in part, at any time following the
occurrence of a Trigger Event (as defined below), if one shall occur, and prior
to its expiration upon surrender of this Warrant, together with delivery of a
duly executed Warrant exercise form, in the form attached hereto as Appendix A
(the “Exercise Agreement”) and payment by cash, certified check or wire
transfer of funds (or, in certain circumstances, by cashless exercise as
provided below) of the aggregate Warrant Price for that number of Warrant
Shares then being purchased, to the Company during normal business hours on any
business day at the Company’s principal executive offices (or such other office
or agency of the Company as it may designate by notice to the
Warrantholder).  The Warrant Shares so
purchased shall be deemed to be issued to the Warrantholder or the Warrantholder’s
designee, as the record owner of such shares, as of the close of business on
the date on which this Warrant shall have been surrendered (or the date
evidence of loss, theft or destruction thereof and security or indemnity
satisfactory to the Company has been provided to the Company), the Warrant
Price shall have been paid and the completed Exercise Agreement shall have been
delivered.  Certificates for the Warrant
Shares so purchased shall be delivered to the Warrantholder within a reasonable
time, not exceeding three (3) business days, after this Warrant shall have been
so exercised.  The certificates so
delivered shall be in such denominations as may be requested by the
Warrantholder and shall be registered in the name of the Warrantholder or such other
name as shall be designated by the Warrantholder, as specified in the Exercise
Agreement.  If this Warrant shall have
been exercised only in part, then, unless this Warrant has expired, the Company
shall, at its expense, at the time of delivery of such certificates, deliver to
the Warrantholder a new Warrant representing the right to purchase the number
of shares with respect to which this Warrant shall not then have been
exercised.  As used herein, “business day”
means a day, other than a Saturday or Sunday, on which banks in New York City
are open for the general transaction of business.  Each exercise hereof shall constitute the re-affirmation
by the Warrantholder that the representations and warranties contained in
Section 5 of that certain Purchase Agreement, dated as of February 2, 2006 (the
“Purchase Agreement”), by and among the Company and the Investors named
therein, are true and correct in all material respects with respect to the
Warrantholder as of the time of such exercise.

 

(b)           Notwithstanding anything to the contrary contained herein,
this Warrant shall become exercisable only if one of the events specified in
the following clauses (i) through (iv) (each a “Trigger Event”) occurs: (i) the
stockholders of the Company fail to approve the Proposal at the Stockholders
Meeting (each as defined in the Purchase Agreement), (ii) the Company
terminates its obligations to effect the Closing (as defined in the Purchase
Agreement) pursuant to Section 6.3 of the Purchase Agreement and the Company
has received an Alternative Investment (as defined in the Purchase Agreement)
proposal prior to such time which has not

 

4

 

been withdrawn, (iii) the Company enters into
an agreement governing the consummation of an Alternative Investment with any
Person or group of Persons other than one or more of the Investors (each as
defined in the Purchase Agreement), as contemplated by Section 7.13(c) of the
Purchase Agreement, prior to the termination of the Purchase Agreement in
accordance with Section 6.3 (other than Section 6.3(a)(iv)) thereof, or (iv)
the Stockholders Meeting shall not have occurred prior to the Stockholders
Meeting Deadline (as defined in the Purchase Agreement) and the Company shall
have breached its obligations under Section 7.9 of the Purchase Agreement;
provided, however, that notwithstanding any other provision herein, if the
initial Warrantholder is a non-Electing Investor (as defined in the
Purchase Agreement), then this Warrant shall become exercisable immediately
upon the Company consummating the transactions contemplated by a Counter
Proposal (as defined in the Purchase Agreement) and the Purchase Agreement is
terminated pursuant to Section 6.3 thereof; it being understood that if the
initial Warrantholder participates in a Counter Proposal, then this Warrant
shall not become exercisable and shall terminate and be of no further force and
effect on the date of the Company consummating the transactions contemplated by
a Counter Proposal.  In the event that a
Trigger Event has not occurred prior to or in connection with the termination
of the Purchase Agreement (in whole or with respect to any particular Investor)
or the Closing shall occur, then this Warrant shall terminate and be of no
further force and effect.

 

[(c)          Notwithstanding anything to the contrary contained herein,
the number of Warrant Shares that may be acquired by the Warrantholder upon any
exercise of this Warrant (or otherwise in respect hereof) shall be limited to
the extent necessary to insure that, following such exercise (or other
issuance), the total number of shares of Common Stock then beneficially owned
by such Warrantholder and its Affiliates and any other Persons (each as defined
in the Purchase Agreement) whose beneficial ownership of Common Stock would be
aggregated with the Warrantholder’s for purposes of Section 13(d) of the United
States Securities Exchange Act of 1934, as amended (the “Exchange Act”), does
not exceed 9.999% (the “Maximum Percentage”) of the total number of issued and
outstanding shares of Common Stock (including for such purpose the shares of
Common Stock issuable upon such exercise). 
For such purposes, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder.  Each delivery of
an Exercise Agreement hereunder will constitute an Exercise Agreement for the
lesser of (i) the full number of Warrant Shares requested in such Exercise
Agreement or (ii) such number of Warrant Shares giving effect to the limitation
set forth in the foregoing sentences. 
The Company and the Warrantholder shall cooperate to determine the
effect of the limitations set forth herein. 
The Company’s right and obligation to issue shares of Common Stock in
excess of the limitation referred to in this Section 3 shall be suspended (and,
except as provided below, shall not terminate or expire notwithstanding any
contrary provisions hereof) until such time, if any, as such shares of Common
Stock may be issued in compliance with such limitation; provided that, if, as
of 5:00 p.m., Eastern time, on the Expiration Date, the Company has not
received written notice that the shares of Common Stock may be issued in
compliance with such limitation, the Company’s obligation to issue such shares
shall terminate.  This provision shall
not restrict the number of shares of Common Stock which a Warrantholder may
receive or beneficially own in order to determine the amount of securities or
other consideration that such Warrantholder may receive in the event of a
transaction of the type contemplated in Section 8(d) of this Warrant.

 

5

 

The restrictions set forth in this Section
3(c) may be waived by the Warrantholder upon not less than 61 days’ written
notice to the Company.]

 

Section 4.               Compliance with the Securities
Act of 1933. Except as provided in the Purchase Agreement (as defined
below), the Company may cause the legend set forth on the first page of this
Warrant to be set forth on each Warrant, and a similar legend on any security
issued or issuable upon exercise of this Warrant, unless counsel for the
Company is of the opinion as to any such security that such legend is
unnecessary.

 

Section 5.               Payment of Taxes.  The Company will pay any documentary stamp
taxes attributable to the initial issuance of Warrant Shares issuable upon the
exercise of this Warrant; provided, however, that the Company shall not be
required to pay any tax or taxes which may be payable in respect of any
transfer involved in the issuance or delivery of any certificates for Warrant
Shares in a name other than that of the Warrantholder in respect of which such
shares are issued, and in such case, the Company shall not be required to issue
or deliver any certificate for Warrant Shares or any Warrant until the person
requesting the same has paid to the Company the amount of such tax or has
established to the Company’s reasonable satisfaction that such tax has been
paid.  The Warrantholder shall be
responsible for income taxes due under federal, state or other law, if any such
tax is due.

 

Section 6.               Mutilated or Missing Warrants.  In case this Warrant shall be mutilated,
lost, stolen, or destroyed, the Company shall issue in exchange and
substitution of and upon surrender and cancellation of the mutilated Warrant,
or in lieu of and substitution for this Warrant lost, stolen or destroyed, a
new Warrant of like tenor and for the purchase of a like number of Warrant
Shares, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction of this Warrant, and with respect to
a lost, stolen or destroyed Warrant, reasonable indemnity or bond with respect
thereto, if requested by the Company.

 

Section 7.               Reservation of Common Stock.  The Company hereby represents and warrants
that there have been reserved, and the Company shall at all applicable times
keep reserved until issued (if necessary) as contemplated by this Section 7,
out of the authorized and unissued shares of Common Stock, sufficient shares to
provide for the exercise of the rights of purchase represented by this
Warrant.  The Company agrees that all
Warrant Shares issued upon due exercise of this Warrant shall be, at the time
of delivery of the certificates for such Warrant Shares, duly authorized, validly
issued, fully paid and non-assessable shares of Common Stock of the
Company.

 

Section 8.               Adjustments.  Subject and pursuant to the
provisions of this Section 8, the number of Warrant Shares subject to this
Warrant shall be subject to adjustment from time to time as set forth
hereinafter.

 

(a)           Adjustment for Issue or Sale of Common Stock at Less
than the Trigger Price.  Except as
provided in Section 8(b) or 8(e) below, if and whenever on or after the Date of
Issuance the Company shall issue or sell, or shall in accordance with
subparagraphs 8(a)(1) to (8), inclusive, be deemed to have issued or sold, any
shares of its Common Stock for a

 

6

 

consideration per share of less than the
Warrant Price (the “Trigger Price” and such transaction being called the “Triggering
Transaction”), then forthwith upon such Triggering Transaction, the number of
Warrant Shares shall, subject to subparagraphs (1) to (8) of this Section 8(a),
be increased to the number of Warrant Shares (calculated to the nearest whole
share of Common Stock) determined as follows:

 

W’ = W + [N – (T x N  ̧ E)] x W  ̧ [O + (T x N  ̧ E)]

1 – {W  ̧ [O + (T x N  ̧ E)]}

 

Where:

 

O
=                           the number of shares of Common Stock
outstanding, on a fully diluted basis, immediately prior to the Triggering
Transaction.

 

E
=                             the Warrant Price.

 

W
=                       the number of Warrant Shares immediately
prior to the Triggering Transaction.

 

N
=                           the number of new shares of Common Stock
issued in connection with the Triggering Transaction.

 

T
=                            the aggregate consideration and deemed
consideration paid per share of Common Stock issued or issuable as a result of
the Triggering Transaction.

 

W’
=                   the adjusted number of Warrant Shares
pursuant to this Section 8.

 

By way of example, if (i) the
Company has 1,000,000 shares of Common Stock outstanding, on a fully diluted
basis, immediately prior to the Triggering Transaction (O=1,000,000), (ii) the
number of Warrant Shares immediately prior to the Triggering Transaction is
30,000 (W=30,000), (iii) the Warrant Price is $0.01 (E=$0.01), (iv) the price
per share paid for the newly issued shares of Common Stock is $0.009 (T=$0.009)
and (v) the number of new shares to be issued by the Company in connection with
the Triggering Transaction is 100,000 (N=100,000), the adjusted number of
Warrant Shares would be calculated as follows:

 

W’ = 30,000 + [100,000 – (0.009 x 100,000  ̧ 0.01)] x 30,000  ̧ [1,000,000 + (0.009x 100,000  ̧ 0.01)]= 30,283.09

1 – {30,000  ̧ [1,000,000 + (0.009 x 100,000  ̧ 0.01)]}

 

For purposes hereof, “on a fully diluted
basis” shall mean, as of any date of determination, (a) all shares of Common
Stock issued and outstanding on such date of determination; (b) all shares of
Common Stock issuable upon conversion of any preferred stock of the Company (“Preferred
Stock”), issued and outstanding on such date of determination; (c) shares of
Common Stock reserved for issuance upon conversion of warrants to purchase
shares of Common Stock issued prior to the date hereof, except to the extent
that any of such shares have been issued and are counted pursuant to clause (a)
above; and (d) all shares of Common Stock into which any Convertible Securities
and Options outstanding on such date of determination (other than those set
forth in clauses (b) and (c) above) are convertible or exercisable into.

 

7

 

For purposes of determining the number of
Warrant Shares, the following subsections (1) to (8), inclusive, shall be
applicable:

 

(1)         In case the Company at any time shall
in any manner grant (whether directly or by assumption in a merger or
otherwise) any rights to subscribe for or to purchase, or any options for the
purchase of, Common Stock or any stock or other securities convertible into or
exchangeable for Common Stock (such rights or options being herein called “Options”
and such convertible or exchangeable stock or securities being herein called “Convertible
Securities”), whether or not such Options or the right to convert or exchange
any such Convertible Securities are immediately exercisable, the purchase price
with respect to such Options shall be determined by dividing (x) the total
amount, if any, received or receivable by the Company as consideration for the
granting of such Options, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise of all such Options,
plus, in the case of such Options which relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any, payable upon the
issue or sale of such Convertible Securities and upon the conversion or
exchange thereof, by (y) the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or the conversion or exchange of
such Convertible Securities.

 

(2)         In case the Company at any time shall
in any manner issue (whether directly or by assumption in a merger or
otherwise) or sell any Convertible Securities, whether or not the rights to
exchange or convert thereunder are immediately exercisable, the purchase price
of such Convertible Securities shall be determined by dividing (x) the total
amount received or receivable by the Company as consideration for the issue or
sale of such Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
thereof, by (y) the total maximum number of shares of Common Stock issuable
upon the conversion or exchange of all such Convertible Securities).

 

(3)         If the purchase price provided for in
any Options referred to in subparagraph (1), the additional consideration, if
any, payable upon the conversion or exchange of any Convertible Securities
referred to in subparagraphs (1) or (2), or the rate at which any Convertible
Securities referred to in subparagraph (1) or (2) are convertible into or
exchangeable for Common Stock shall change at any time, including by reason of
provisions with respect thereto designed to protect against dilution, the
number of Warrant Shares in effect at the time of such change shall forthwith
be adjusted to the number of Warrant Shares which would have been in effect at
such time had such Options or Convertible Securities outstanding at the time of
such adjustment provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time initially
granted, issued or sold.

 

8

 

(4)         In case any Options shall be issued in
connection with the issue or sale of other securities of the Company, together
comprising one integral transaction in which no specific consideration is
allocated to such Options by the parties thereto, such Options shall be deemed
to have been issued without consideration.

 

(5)         In case any shares of Common Stock,
Options or Convertible Securities shall be issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor shall be
deemed to be the amount received by the Company therefor.  In case any shares of Common Stock, Options
or Convertible Securities shall be issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the
Company shall be the fair value of such consideration as determined in good
faith by the Board of Directors of the Company which will be provided in
writing to the Warrantholder as soon as possible after the transaction.  In case any shares of Common Stock, Options
or Convertible Securities shall be issued in connection with any merger in
which the Company is the surviving corporation, the amount of consideration
therefor shall be deemed to be the fair value of such portion of the net assets
and business of the non-surviving corporation as shall be attributed by
the Board of Directors of the Company in good faith to such Common Stock,
Options or Convertible Securities, as the case may be, which attribution will
be provided in writing to the Warrantholder as soon as possible after the
transaction.

 

(6)         The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any shares so owned or held
shall be considered an issue or sale of Common Stock for the purpose of this
Section 8(a).

 

(7)         In case the Company shall declare a
dividend or make any other distribution upon the stock of the Company payable
in Options or Convertible Securities, then in such case any Options or
Convertible Securities, as the case may be, issuable in payment of such
dividend or distribution shall be deemed to have been issued or sold without
consideration.

 

(8)         For purposes of this Section 8(a), in
case the Company shall take a record of the holders of its Common Stock for the
purpose of entitling them (x) to receive a dividend or other distribution
payable in Common Stock, Options or Convertible Securities, or (y) to subscribe
for or purchase Common Stock, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale of the shares
of Common Stock deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of the granting
of such right or subscription or purchase, as the case may be.

 

(b)         Dividends Not Paid Out of Earnings or Earned Surplus.  In the event the Company shall declare a
dividend upon the Common Stock (other than a dividend payable in Common Stock)
payable otherwise than out of earnings or earned surplus, determined

 

9

 

in accordance with generally accepted
accounting principles, including the making of appropriate deductions for
minority interests, if any, in subsidiaries (herein referred to as “Liquidating
Dividends”), then, as soon as possible after the exercise of this Warrant, the
Company shall pay to the person exercising such Warrant an amount equal to the
aggregate value at the time of such exercise of all Liquidating Dividends
(including but not limited to the Common Stock which would have been issued at
the time of such earlier exercise and all other securities which would have
been issued with respect to such Common Stock by reason of stock splits, stock
dividends, mergers or reorganizations, or for any other reason).  For the purposes of this Section 8(b), a
dividend other than in cash shall be considered payable out of earnings or
earned surplus only to the extent that such earnings or earned surplus are
charged an amount equal to the fair value of such dividend as determined in
good faith by the Board of Directors of the Company.

 

(c)           Subdivisions and Combinations.  In case the Company shall at any time (i)
subdivide the outstanding Common Stock or (ii) issue a stock dividend on its
outstanding Common Stock, the number of Warrant Shares in effect immediately
prior to such subdivision or dividend shall be proportionately increased by the
same ratio as the subdivision or dividend. 
In case the Company shall at any time combine its outstanding Common
Stock, the number of Warrant Shares in effect immediately prior to such
combination shall be proportionately decreased by the same ratio as the
combination.

 

(d)           Reorganization, Reclassification, Consolidation, Merger
or Sale of Assets.  If any capital
reorganization or reclassification of the capital stock of the Company, or
consolidation or merger of the Company with or into another corporation, or the
sale of all or substantially all of its assets to another corporation shall be
effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities, cash or other property with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the Warrantholder shall have the right to acquire and
receive, upon exercise of this Warrant, such shares of stock, securities, cash
or other property issuable or payable (as part of the reorganization,
reclassification, consolidation, merger or sale) with respect to or in exchange
for such number of outstanding shares of the Common Stock as would have been
received upon exercise of this Warrant at the Warrant Price.  The Company will not effect any such
consolidation, merger or sale, unless prior to the consummation thereof the successor
corporation (if other than the Company) resulting from such consolidation or
merger or the corporation purchasing such assets shall assume by written
instrument mailed or delivered to the Warrantholder at the last address of the
Warrantholder appearing on the books of the Company, the obligation to deliver
to the Warrantholder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, the Warrantholder may be entitled to
purchase.  If a purchase, tender or
exchange offer is made to and accepted by the holders of more than 50% of the
outstanding shares of Common Stock of the Company, the Company shall not effect
any consolidation, merger or sale with the person having made such offer or
with any Affiliate of such person, unless prior to the consummation of such
consolidation, merger or sale the Warrantholder shall have been given a
reasonable opportunity to then elect to receive upon the exercise of this
Warrant either the stock, securities or assets then issuable with respect to
the Common Stock or the stock, securities or assets, or the equivalent, issued
to previous holders of the Common Stock in accordance with such offer.  For purposes hereof the term “Affiliate” with

 

10

 

respect to any given person shall mean any
person controlling, controlled by or under common control with the given
person.

 

(e)           No Adjustment for Exercise of Certain Options,
Warrants, Etc.  The provisions of
this Section 8 shall not apply to any Common Stock in the case of the issuance
of (A) capital stock, Options or Convertible Securities issued to directors,
officers, employees or consultants of the Company in connection with their
service as directors of the Company, their employment by the Company or their
retention as consultants by the Company pursuant to an equity compensation
program approved by the Board of Directors of the Company or the compensation
committee of the Board of Directors of the Company, (B) shares of Common Stock
issued upon the conversion or exercise of Options or Convertible Securities
issued prior to the date hereof, provided such securities are not amended after
the date hereof to increase the number of shares of Common Stock issuable
thereunder or to lower the exercise or conversion price thereof, except as
otherwise contemplated by Schedule 7.4 to the Purchase Agreement (including
with respect to the repricing of existing Options), (C) securities issued
pursuant to the Purchase Agreement and securities issued upon the exercise or
conversion of those securities, (D) shares of Common Stock issued or issuable
by reason of a dividend, stock split or other distribution on shares of Common
Stock (but only to the extent that such a dividend, split or distribution
results in an adjustment in the Warrant Shares purchasable upon exercise of
this Warrant pursuant to the other provisions of this Warrant), and (E) capital
stock, Options or Convertible Securities issued to suppliers, vendors and
service providers of and to the Company and its subsidiaries with an aggregate
Market Price (determined as of the time of such issuance) not to exceed
$250,000 in any fiscal year (collectively, “Excluded Issuances”).  “Market Price” as of a particular date (the “Valuation
Date”) shall mean the following: (a) if the Common Stock is then listed on a
national stock exchange, the closing sale price of one share of Common Stock on
such exchange on the last trading day prior to the Valuation Date; (b) if the
Common Stock is then quoted on The Nasdaq Stock Market, Inc. (“Nasdaq”), the
National Association of Securities Dealers, Inc. OTC Bulletin Board (the “Bulletin
Board”) or such similar quotation system or association, the closing sale price
of one share of Common Stock on Nasdaq, the Bulletin Board or such other
quotation system or association on the last trading day prior to the Valuation
Date or, if no such closing sale price is available, the average of the high
bid and the low asked price quoted thereon on the last trading day prior to the
Valuation Date; or (c) if the Common Stock is not then listed on a national
stock exchange or quoted on Nasdaq, the Bulletin Board or such other quotation
system or association, the fair market value of one share of Common Stock as of
the Valuation Date, as determined in good faith by the Board of Directors of
the Company and the Warrantholder; provided, however, that if the Market Price
is to be determined by the Company and the Warrantholder and the parties are
unable to reach agreement after a reasonable period of time, the Market Price
shall be determined by the Company’s Board of Directors in good faith rather
than by an independent investment banking firm.

 

(f)            Grant, Issue or Sale of Options, Convertible
Securities, or Rights.  If at any
time or from time to time on or after the Date of Issuance hereof, the Company
shall grant, issue or sell any Options, Convertible Securities or rights to
purchase property (the “Purchase Rights”) pro rata to the record holders of any
class of Common Stock and such grants, issuances or sales do not result in an
adjustment of the number of Warrant Shares under Section 8(a) hereof, then the
Warrantholder shall be entitled to acquire (within thirty (30) days after the
later to occur of (i) the exercise of this Warrant and (ii) the earlier to
occur of the initial exercise

 

11

 

date of such Purchase Rights or receipt by
such holder of the notice concerning Purchase Rights to which such holder shall
be entitled under Section 12) and upon the terms applicable to such Purchase
Rights either:

 

(1)           the aggregate Purchase Rights which the Warrantholder
could have acquired if it had held the number of shares of Common Stock
acquirable upon exercise of this Warrant immediately before the grant, issuance
or sale of such Purchase Rights; provided that if any Purchase Rights were
distributed to holders of Common Stock without the payment of additional
consideration by such holders, corresponding Purchase Rights shall be
distributed to the exercising Warrantholder as soon as possible after such
exercise and it shall not be necessary for the Warrantholder specifically to
request delivery of such rights; or

 

(2)           in the event that any such Purchase Rights shall have
expired or shall expire prior to the end of said thirty (30) day period, the
number of shares of Common Stock or the amount of property which the
Warrantholder could have acquired upon such exercise at the time or times at
which the Company granted, issued or sold such expired Purchase Rights.

 

(g)           In the event that, as a result of an adjustment made
pursuant to this Section 8, the Warrantholder shall become entitled to receive
any shares of capital stock of the Company other than shares of Common Stock,
the number of such other shares so receivable upon exercise of this Warrant
shall be subject thereafter to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Warrant Shares contained in this Warrant.

 

Section 9.               Fractional Interest.  The
Company shall not issue fractions of shares of Common Stock upon exercise of
this Warrant or scrip in lieu thereof. 
If any fraction of a share of Common Stock would, except for the
provisions of this Section 9, be issuable upon exercise of this Warrant, the
Company shall in lieu thereof pay to the person entitled thereto an amount in
cash equal to such fraction, calculated to the nearest one-hundredth
(1/100) of a share, multiplied by the Market Price for the Common Stock,
determined as of the date of exercise.

 

Section 10.             Extension of Expiration Date.  If
the Company fails to cause any Registration Statement covering Registrable
Securities (unless otherwise defined herein, capitalized terms are as defined
in the Alternative Warrants Registration Rights Agreement relating to the
Warrant Shares (the “Registration Rights Agreement”)) to be declared effective
prior to the applicable dates set forth therein, or if any of the events
specified in Section 2(c)(ii) of the Registration Rights Agreement occurs, and
the Blackout Period (whether alone, or in combination with any other Blackout
Period) continues for more than 60 days in any 12-month period, or for more
than a total of 90 days, then the Expiration Date of this Warrant shall be
extended one day for each day beyond the 60-day or 90-day limits, as the case
may be, that the Blackout Period continues.

 

Section 11.             Benefits.  Nothing in this Warrant shall
be construed to give any person, firm or corporation (other than the Company
and the Warrantholder) any legal or equitable right, remedy or claim, it being
agreed that this Warrant shall be for the sole and exclusive benefit of the
Company and the Warrantholder.

 

12

 

Section 12.             Notices
to Warrantholder.  Upon the happening
of any event requiring an adjustment of number of Warrant Shares purchasable
upon exercise of this Warrant, the Company shall promptly give written notice
thereof to the Warrantholder at the address appearing in the records of the
Company, stating the adjusted number of Warrant Shares purchasable upon
exercise of this Warrant resulting from such event and setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.  Failure to give
such notice to the Warrantholder or any defect therein shall not affect the
legality or validity of the subject adjustment.

 

Section 13.             Identity
of Transfer Agent.  The Transfer
Agent for the Common Stock is American Stock Transfer and Trust Company.  Upon the appointment of any subsequent
transfer agent for the Common Stock or other shares of the Company’s capital
stock issuable upon the exercise of the rights of purchase represented by this
Warrant, the Company will mail to the Warrantholder a statement setting forth
the name and address of such transfer agent.

 

Section 14.             Notices.  Unless otherwise provided, any notice
required or permitted under this Warrant shall be given in writing and shall be
deemed effectively given as hereinafter described (i) if given by personal
delivery, then such notice shall be deemed given upon such delivery, (ii) if
given by telex or facsimile, then such notice shall be deemed given upon
receipt of confirmation of complete transmittal, (iii) if given by mail, then
such notice shall be deemed given upon the earlier of (A) receipt of such
notice by the recipient or (B) three days after such notice is deposited in
first class mail, postage prepaid, and (iv) if given by an internationally
recognized overnight air courier, then such notice shall be deemed given one
business day after delivery to such carrier. 
All notices shall be addressed as follows: if to the Warrantholder, at
its address as set forth in the Company’s books and records and, if to the
Company, at the address as follows, or at such other address as the
Warrantholder or the Company may designate by ten days’ advance written notice
to the other:

 

If to the Company:

 

Tapestry Pharmaceuticals,
Inc.

4840 Pearl East Circle,
Suite 300W

Boulder, Colorado 80301

Attention:  Leonard Shaykin, Chairman and Chief Executive
Officer

Fax:  (212) 319-2808

 

With a copy to:

 

Kirkland & Ellis
LLP

Citigroup Center

153 East 53rd Street

New York, New York 10022-4611

Attention:  Michael Movsovich

Fax: (212) 446-6460

 

13

 

Section 15.             Registration
Rights.  The initial Warrantholder is
entitled to the benefit of certain registration rights with respect to the
shares of Common Stock issuable upon the exercise of this Warrant as provided
in the Registration Rights Agreement, and any subsequent Warrantholder may be
entitled to such rights.

 

Section 16.             Successors.  All the covenants and provisions hereof by or
for the benefit of the Warrantholder shall bind and inure to the benefit of its
respective successors and assigns hereunder.

 

Section 17.             Governing
Law; Consent to Jurisdiction; Waiver of Jury Trial.  This Warrant shall be governed by, and
construed in accordance with, the internal laws of the State of New York,
without reference to the choice of law provisions thereof.  The Company and, by accepting this Warrant,
the Warrantholder, each irrevocably submits to the exclusive jurisdiction of
the courts of the State of New York located in New York County and the United
States District Court for the Southern District of New York for the purpose of
any suit, action, proceeding or judgment relating to or arising out of this
Warrant and the transactions contemplated hereby.  Service of process in connection with any
such suit, action or proceeding may be served on each party hereto anywhere in
the world by the same methods as are specified for the giving of notices under
this Warrant.  The Company and, by
accepting this Warrant, the Warrantholder, each irrevocably consents to the
jurisdiction of any such court in any such suit, action or proceeding and to
the laying of venue in such court.  The
Company and, by accepting this Warrant, the Warrantholder, each irrevocably
waives any objection to the laying of venue of any such suit, action or
proceeding brought in such courts and irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in
an inconvenient forum.  EACH OF THE COMPANY AND, BY ITS ACCEPTANCE
HEREOF, THE WARRANTHOLDER HEREBY WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN
ANY LITIGATION WITH RESPECT TO THIS WARRANT AND REPRESENTS THAT COUNSEL HAS
BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

 

Section 18.             Call Provision.

 

(a)           Subject to the provisions of clauses (b) and (c) below, in
the event that the closing bid price of a share of Common Stock as traded on
Nasdaq (or such other exchange or stock market on which the Common Stock may
then be listed or quoted) equals or exceeds $4.80 (appropriately adjusted for
any stock split, reverse stock split, stock dividend or other reclassification
or combination of the Common Stock occurring after the date hereof) for at
least twenty (20) consecutive trading days during which the Registration
Statement (as defined in the Registration Rights Agreement) has been effective
(the “Trading Condition”), the Company, upon thirty (30) days prior written
notice (the “Notice Period”) given to the Warrantholder within three (3)
business days immediately following the end of such twenty (20) consecutive
trading day period, may call this Warrant at a redemption price equal to
$0.0075 per share of Common Stock then purchasable pursuant to this Warrant;
provided that (i) the Company simultaneously calls all Company Warrants (as
defined below) on the same terms and on a pro rata basis based on the aggregate
number of shares of Common Stock then purchasable pursuant

 

14

 

to such Company Warrants, (ii) all of the
shares of Common Stock issuable hereunder either (A) are registered pursuant to
an effective Registration Statement (as defined in the Registration Rights
Agreement) which has not been suspended and for which no stop order is in
effect, and pursuant to which the Warrantholder is able to sell such shares of
Common Stock at all times during the Notice Period or (B) no longer constitute
Registrable Securities (as defined in the Registration Rights Agreement) and
(iii) this Warrant is fully exercisable for the full amount of Warrant Shares
covered hereby.  Notwithstanding any such
notice by the Company, the Warrantholder shall have the right to exercise this
Warrant prior to the end of the Notice Period.

 

(b)           In any three-month period, no more than the lesser
of (i) 20% of the aggregate amount of Warrants initially issued to a
Warrantholder or (ii) the number of Warrants held by the Warrantholder, may be
called by the Company and the Company may not call additional Warrants in any
subsequent three-month period unless all the conditions specified in
Section 18(a) are again met (including without limitation, the Trading
Condition) at the time that any subsequent call notice is given.

 

(c)           In connection with any transfer or exchange of less than
all of this Warrant, the transferring Warrantholder shall deliver to the
Company an agreement or instrument executed by the transferring Warrantholder
and the new Warrantholder allocating between them on whatever basis they may
determine in their sole discretion any subsequent call of this Warrant by the
Company, such that after giving effect to such transfer the Company shall have
the right to call the same number of Warrants that it would have had if the
transfer or exchange had not occurred.

 

Section 19.             Cashless
Exercise.  Notwithstanding any other
provision contained herein to the contrary, from and after the first
anniversary of the Date of Issuance, the Warrantholder may elect to receive,
without payment by the Warrantholder of the aggregate Warrant Price in respect
of the shares of Common Stock to be acquired, shares of Common Stock having a
fair market value equal to the Market Price of all shares of Common Stock that
may then be purchased upon full exercise of this Warrant, less the aggregate
exercise price for all such shares, or any specified portion thereof (including
as contemplated by clause (b) below), by the surrender to the Company of this
Warrant (or such portion of this Warrant being so exercised) together with a
Net Issue Election Notice, in the form annexed hereto as Appendix B, duly
executed, to the Company; provided that such election may be made only, (a) for
so long as the Company is required under the Registration Rights Agreement to
have effected the registration of the Warrant Shares for resale to the public
pursuant to a Registration Statement (as such term is defined in the
Registration Rights Agreement), if the Warrant Shares may not be freely sold to
the public for any reason (including, but not limited to, the failure of the
Company to have effected the registration of the Warrant Shares or to have a
current prospectus available for delivery or otherwise, but excluding the
period of any Allowed Delay (as defined in the Registration Rights Agreement),
or (b) at any other time, with respect to an aggregate number of Warrant Shares
equal to up to, but not in excess of, 50% of the Warrant Shares (in aggregate
together with all prior cashless exercises of a portion of this Warrant)
initially issued to the initial Warrantholder pursuant to the Purchase
Agreement.  Thereupon, the Company shall
issue to the Warrantholder such number of fully paid, validly issued and
nonassessable shares of Common Stock as is computed using the following
formula:

 

15

 

X
= Y (A - B)

       A

 

where

 

X =          the number of shares
of Common Stock to which the Warrantholder is entitled upon such cashless
exercise;

 

Y =          the total number of
shares of Common Stock covered by this Warrant for which the Warrantholder has
surrendered purchase rights at such time for cashless exercise (including both
shares to be issued to the Warrantholder and shares as to which the purchase
rights are to be canceled as payment therefor);

 

A =         the “Market Price” of
one share of Common Stock as at the date the net issue election is made; and

 

B =          the Warrant Price in effect under this Warrant at the time
the net issue election is made.

 

Section 20.             No Rights as Stockholder. 
Prior to the exercise of this Warrant, the Warrantholder shall not have
or exercise any rights as a stockholder of the Company by virtue of its
ownership of this Warrant.

 

Section 21.             Amendment; Waiver.  This
Warrant is one of a series of Warrants of like tenor issued by the Company
pursuant to the Purchase Agreement and initially covering an aggregate of  522,815 shares of Common Stock (collectively,
the “Company Warrants”).  Any term
of this Warrant may be amended or waived (including the adjustment provisions
included in Section 8 of this Warrant) upon the written consent of the Company
and the holders of Company Warrants representing at least 50% of the number of
shares of Common Stock then subject to all outstanding Company Warrants; provided,
that (x) any such amendment or waiver must apply to all Company Warrants; and
(y) the number of Warrant Shares subject to this Warrant, the Warrant Price and
the Expiration Date may not be amended, and the right to exercise this Warrant
may not be altered or waived, without the written consent of the Warrantholder.

 

Section 22.             Section Headings.  The
section headings in this Warrant are for the convenience of the Company and the
Warrantholder and in no way alter, modify, amend, limit or restrict the
provisions hereof.

 

[END
OF PAGE]

[SIGNATURE PAGE FOLLOWS]

 

16

 

SIGNATURE
PAGE TO ALTERNATIVE WARRANT

 

IN WITNESS WHEREOF, the Company has caused
this Warrant to be duly executed, as of the 3rd day of March, 2006.

 

 

 

	
   

  	
  TAPESTRY PHARMACEUTICALS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Leonard Shaykin

  	
   

  
	
   

  	
  Name:

  	
  Leonard Shaykin

  
	
   

  	
  Title:

  	
  Chairman and Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  [Signature of Warrantholder]

  
					

 

 

APPENDIX A

TAPESTRY PHARMACEUTICALS,
INC.

WARRANT EXERCISE FORM

 

To: Tapestry
Pharmaceuticals, Inc.

 

The undersigned hereby irrevocably elects to
exercise the right of purchase represented by the within Warrant (“Warrant”)
for, and to purchase thereunder by the payment of the Warrant Price and
surrender of the Warrant, 11,276 shares
of Common Stock (“Warrant Shares”) provided for therein, and requests that
certificates for the Warrant Shares be issued as follows:

 

	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Federal Tax ID or Social
  Security No.

  
	
   

  	
   

  	
   

  
	
  and delivered by

  	
   

  	
  (certified mail to the above address, or

  
	
   

  	
   

  	
  (electronically
  (provide DWAC Instructions:

  	
   

  	
  ),
  or

  
	
   

  	
   

  	
  (other (specify):

  	
   

  	
  ).

  
							

 

and,
if the number of Warrant Shares shall not be all the Warrant Shares purchasable
upon exercise of the Warrant, that a new Warrant for the balance of the Warrant
Shares purchasable upon exercise of this Warrant be registered in the name of
the undersigned Warrantholder or the undersigned’s Assignee as below indicated and
delivered to the address stated below.

 

	
  Dated:
                             ,
         

  	
   

  
	
  Note: The signature must correspond with

  	
  Signature:

  	
   

  	
   

  
	
  the name of the Warrantholder as written

  	
   

  
	
  on the first page of the Warrant in every

  	
   

  	
   

  
	
  particular, without alteration or enlargement

  	
  Name (please print)

  	
   

  
	
  or any change whatever, unless the Warrant

  	
   

  
	
  has been assigned.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Address

  
	
   

  	
   

  	
   

  
	
   

  	
  Federal Identification or

  
	
   

  	
  Social Security No.

  
	
   

  	
   

  
	
   

  	
  Assignee:

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