Document:

Exhibit
4.2

 

THE SECURITIES
REPRESENTED HEREBY MAY NOT BE TRANSFERRED UNLESS (I) SUCH SECURITIES HAVE BEEN
REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, (II)
SUCH SECURITIES MAY BE SOLD PURSUANT TO RULE 144(K), 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 OF 1933 OR
QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS.

 

SUBJECT TO THE
PROVISIONS OF SECTION 10 HEREOF, THIS WARRANT SHALL BE VOID AFTER 5:00
P.M. EASTERN TIME ON [FIFTH ANNIVERSARY OF THE CLOSING DATE] (the “EXPIRATION
DATE”).

 

No. B-                    

 

CELLEGY
PHARMACEUTICALS, INC.

 

SERIES B
WARRANT TO PURCHASE                   
SHARES OF

COMMON
STOCK, PAR VALUE $0.0001 PER SHARE

 

For VALUE
RECEIVED,                                         
(“Warrantholder”), is entitled to purchase, subject to the provisions of this
Warrant, from Cellegy 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 $2.50 (the exercise
price in effect being herein called the “Warrant Price”),             
shares (“Warrant Shares”) of the Company’s Common Stock, par value $0.0001 per
share (“Common Stock”).  The number of
Warrant Shares purchasable upon exercise of this Warrant and the Warrant Price
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 the Warrant. 
Upon the initial issuance of this Warrant, the Company shall issue and
register the 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 of 1933, as amended (the “Securities Act”), or 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, upon surrender
thereof 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 its
counsel 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 Warrant shall be issued to
the transferee and the surrendered Warrant shall be canceled by the Company.

 

 

Section 3.                                            Exercise
of Warrant.  Subject to the
provisions hereof, the Warrantholder may exercise this Warrant in whole or in
part at any time prior to its expiration upon surrender of the Warrant,
together with delivery of the duly executed Warrant exercise 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) for 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 evidence of
loss, theft or destruction thereof and security or indemnity satisfactory 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, representing the
aggregate number of shares specified in the Exercise Agreement, 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.  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
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 the Purchase Agreement (as defined below) are
true and correct in all material respects with respect to the Warrantholder as
of the time of such exercise.

 

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 or 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 the 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.

 

2

 

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 cancellation of the mutilated Warrant,
or in lieu of and substitution for the 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 the 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 the 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 Warrant Price and number of Warrant Shares subject to
this Warrant shall be subject to adjustment from time to time as set forth
hereinafter.

 

(a)                                  If
the Company shall, at any time or from time to time while this Warrant is
outstanding, pay a dividend or make a distribution on its Common Stock in
shares of Common Stock, subdivide its outstanding shares of Common Stock into a
greater number of shares or combine its outstanding shares of Common Stock into
a smaller number of shares or issue by reclassification of its outstanding
shares of Common Stock any shares of its capital stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation), then the number of Warrant Shares purchasable
upon exercise of the Warrant and the Warrant Price in effect immediately prior
to the date upon which such change shall become effective, shall be adjusted by
the Company so that the Warrantholder thereafter exercising the Warrant shall
be entitled to receive the number of shares of Common Stock or other capital
stock which the Warrantholder would have received if the Warrant had been
exercised immediately prior to such event upon payment of a Warrant Price that
has been adjusted to reflect a fair allocation of the economics of such event
to the Warrantholder.  Such adjustments
shall be made successively whenever any event listed above shall occur.

 

(b)                                 If
any capital reorganization, reclassification of the capital stock of the
Company, consolidation or merger of the Company with another corporation in
which the Company is not the survivor, or sale, transfer or other disposition
of all or substantially all of the Company’s assets to another corporation
shall be effected, then, as a condition of such reorganization,
reclassification, consolidation, merger, sale, transfer or other disposition,
lawful and adequate provision shall be made whereby each Warrantholder shall
thereafter have the right to purchase and receive upon the basis and upon the
terms and conditions herein specified and in lieu of the Warrant Shares
immediately theretofore issuable upon exercise of the Warrant, such shares of
stock, securities or assets as would have been issuable or payable with respect
to or in exchange for a number of Warrant Shares equal to the number of Warrant
Shares immediately 

 

3

 

theretofore issuable upon
exercise of the Warrant, had such reorganization, reclassification,
consolidation, merger, sale, transfer or other disposition not taken place, and
in any such case appropriate provision shall be made with respect to the rights
and interests of each Warrantholder to the end that the provisions hereof
(including, without limitation, provision for adjustment of the Warrant Price)
shall thereafter be applicable, as nearly equivalent as may be practicable in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise hereof.  The Company
shall not effect any such consolidation, merger, sale, transfer or other
disposition unless prior to or simultaneously with the consummation thereof the
successor corporation (if other than the Company) resulting from such
consolidation or merger, or the corporation purchasing or otherwise acquiring such
assets or other appropriate corporation or entity shall assume the obligation
to deliver to the Warrantholder, at the last address of the Warrantholder
appearing on the books of the Company, such shares of stock, securities or
assets as, in accordance with the foregoing provisions, the Warrantholder may
be entitled to purchase, and the other obligations under this Warrant.  The provisions of this paragraph (b) shall
similarly apply to successive reorganizations, reclassifications,
consolidations, mergers, sales, transfers or other dispositions.

 

(c)                                  In
case the Company shall fix a payment date for the making of a distribution to
all holders of Common Stock (including any such distribution made in connection
with a consolidation or merger in which the Company is the continuing
corporation) of evidences of indebtedness or assets (other than cash dividends
or cash distributions payable out of consolidated earnings or earned surplus or
dividends or distributions referred to in Section 8(a)), or subscription
rights or warrants, the Warrant Price to be in effect after such payment date
shall be determined by multiplying the Warrant Price in effect immediately
prior to such payment date by a fraction, the numerator of which shall be the
total number of shares of Common Stock outstanding multiplied by the Market
Price (as defined below) per share of Common Stock immediately prior to such
payment date, less the fair market value (as determined by the Company’s Board
of Directors in good faith) of said assets or evidences of indebtedness so
distributed, or of such subscription rights or warrants, and the denominator of
which shall be the total number of shares of Common Stock outstanding
multiplied by such Market Price per share of Common Stock immediately prior to
such payment date.  “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
exchange or association, the closing sale price of one share of Common Stock on
Nasdaq, the Bulletin Board or such other exchange 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 exchange or association, the fair market value of
one share of Common Stock as of the Valuation Date, shall be determined in good
faith by the Board of Directors of the Company and the Warrantholder.  If the Common Stock is not then listed on a
national securities exchange, the Bulletin Board or such other exchange or
association, the Board of Directors of the Company shall respond promptly, in
writing, to an inquiry by the Warrantholder prior to the exercise hereunder as
to the 

 

4

 

fair market value of a share of
Common Stock as determined by the Board of Directors of the Company.  In the event that the Board of Directors of
the Company and the Warrantholder are unable to agree upon the fair market
value in respect of subpart (c) hereof, the Company and the Warrantholder shall
jointly select an appraiser, who is experienced in such matters.  The decision of such appraiser shall be final
and conclusive, and the cost of such appraiser shall be borne equally by the
Company and the Warrantholder.  Such
adjustment shall be made successively whenever such a payment date is fixed.

 

(d)                                 An
adjustment to the Warrant Price shall become effective immediately after the
payment date in the case of each dividend or distribution and immediately after
the effective date of each other event which requires an adjustment.

 

(e)                                  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.

 

(f)                                    Except
as provided in subsection (g) hereof, if and whenever the Company shall
issue or sell, or is, in accordance with any of subsections (f)(l) through
(f)(7) hereof, deemed to have issued or sold, any shares of Common Stock for no
consideration or for a consideration per share less than the Warrant Price in
effect immediately prior to the time of such issue or sale, then and in each
such case (a “Trigger Issuance”) the then-existing Warrant Price, shall
be reduced, as of the close of business on the effective date of the Trigger
Issuance, to a price determined as follows:

 

Adjusted
Warrant Price = (A x B) + D

A+C

 

where

 

“A” equals the
number of shares of Common Stock outstanding, including Additional Shares of
Common Stock (as defined below) deemed to be issued hereunder, immediately
preceding such Trigger Issuance;

 

“B” equals the
Warrant Price in effect immediately preceding such Trigger Issuance;

 

“C” equals the
number of Additional Shares of Common Stock issued or deemed issued hereunder
as a result of the Trigger Issuance; and

 

“D” equals the
aggregate consideration, if any, received or deemed to be received by the
Company upon such Trigger Issuance;

 

5

 

provided, however, that in no
event shall the Warrant Price after giving effect to such Trigger Issuance be
greater than the Warrant Price in effect prior to such Trigger Issuance.

 

For purposes
of this subsection (f), “Additional Shares of Common Stock” shall mean all
shares of Common Stock issued by the Company or deemed to be issued pursuant to
this subsection (f), other than Excluded Issuances (as defined in subsection (g)
hereof).

 

For purposes
of this subsection (f), the following subsections (f)(l) to (f)(8) shall
also be applicable:

 

(f)(1)  Issuance of Rights or
Options.  In case at any time the Company
shall in any manner grant (directly and not by assumption in a merger or
otherwise) any warrants or other rights to subscribe for or to purchase, or any
options for the purchase of, Common Stock or any stock or security convertible
into or exchangeable for Common Stock (such warrants, rights or options being
called “Options” and such convertible or exchangeable stock or securities being
called “Convertible Securities”) whether or not such Options or the right to
convert or exchange any such Convertible Securities are immediately
exercisable, and the price per share for which Common Stock is issuable upon
the exercise of such Options or upon the conversion or exchange of such
Convertible Securities (determined by dividing (i) the sum (which sum shall
constitute the applicable consideration) of (x) the total amount, if any,
received or receivable by the Company as consideration for the granting of such
Options, plus (y) the aggregate amount of additional consideration payable to
the Company upon the exercise of all such Options, plus (z), in the case of
such Options which relate to Convertible Securities, the 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 (ii) the
total maximum number of shares of Common Stock issuable upon the exercise of
such Options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options) shall be less than the
Warrant Price in effect immediately prior to the time of the granting of such
Options, then the total number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the total amount of
such Convertible Securities issuable upon the exercise of such Options shall be
deemed to have been issued for such price per share as of the date of granting
of such Options or the issuance of such Convertible Securities and thereafter
shall be deemed to be outstanding for purposes of adjusting the Warrant
Price.  Except as otherwise provided in
subsection 8(f)(3), no adjustment of the Warrant Price shall be made upon
the actual issue of such Common Stock or of such Convertible Securities upon
exercise of such Options or upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities.

 

(f)(2)  Issuance of Convertible
Securities.  In case the Company shall in
any manner issue (directly and not by assumption in a merger or otherwise) or
sell any Convertible Securities, whether or not the rights to exchange or
convert any 

 

6

 

such
Convertible Securities are immediately exercisable, and the price per share for
which Common Stock is issuable upon such conversion or exchange (determined by
dividing (i) the sum (which sum shall constitute the applicable consideration)
of (x) the total amount received or receivable by the Company as consideration
for the issue or sale of such Convertible Securities, plus (y) the aggregate
amount of additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (ii) the total number of shares of Common
Stock issuable upon the conversion or exchange of all such Convertible
Securities) shall be less than the Warrant Price in effect immediately prior to
the time of such issue or sale, then the total maximum number of shares of
Common Stock issuable upon conversion or exchange of all such Convertible
Securities shall be deemed to have been issued for such price per share as of
the date of the issue or sale of such Convertible Securities and thereafter
shall be deemed to be outstanding for purposes of adjusting the Warrant Price,
provided that (a) except as otherwise provided in subsection 8(f)(3), no
adjustment of the Warrant Price shall be made upon the actual issuance of such
Common Stock upon conversion or exchange of such Convertible Securities and (b)
no further adjustment of the Warrant Price shall be made by reason of the issue
or sale of Convertible Securities upon exercise of any Options to purchase any
such Convertible Securities for which adjustments of the Warrant Price have
been made pursuant to the other provisions of subsection 8(f).

 

(f)(3) Change in Option Price or Conversion Rate.  Upon the happening of any of the following
events, namely, if the purchase price provided for in any Option referred to in
subsection 8(f)(l) hereof, the additional consideration, if any, payable
upon the conversion or exchange of any Convertible Securities referred to in
subsections 8(f)(l) or 8(f)(2), or the rate at which Convertible Securities
referred to in subsections 8(f)(l) or 8(f)(2) are convertible into or
exchangeable for Common Stock shall change at any time (including, but not
limited to, changes under or by reason of provisions designed to protect
against dilution), the Warrant Price in effect at the time of such event shall
forthwith be readjusted to the Warrant Price which would have been in effect at
such time had such Options or Convertible Securities still outstanding provided
for such changed purchase price, additional consideration or conversion rate,
as the case may be, at the time initially granted, issued or sold.  On the termination of any Option for which
any adjustment was made pursuant to this subsection 8(f) or any right to
convert or exchange Convertible Securities for which any adjustment was made
pursuant to this subsection 8(f) (including without limitation upon the
redemption or purchase for consideration of such Convertible Securities by the
Company), the Warrant Price then in effect hereunder shall forthwith be changed
to the Warrant Price which would have been in effect at the time of such
termination had such Option or Convertible Securities, to the extent
outstanding immediately prior to such termination, never been issued.

 

(f)(4) Stock Dividends.  Subject
to the provisions of this Section 8(f), in case the Company shall declare
a dividend or make any other distribution upon any stock of the Company (other
than the Common Stock) payable in Common 

 

7

 

Stock, Options
or Convertible Securities, then any Common Stock, 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.

 

(f)(5) Consideration for Stock. 
In case any shares of Common Stock, Options or Convertible Securities
shall be issued or sold for cash, the consideration received therefor shall be
deemed to be the net amount received by the Company therefor, after deduction
therefrom of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Company in connection therewith.  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 deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Company, after
deduction of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Company in connection therewith.  In case any Options shall be issued in
connection with the issue and 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 for such consideration as determined in good faith by the
Board of Directors of the Company.  If
Common Stock, Options or Convertible Securities shall be issued or sold by the
Company and, in connection therewith, other Options or Convertible Securities
(the “Additional Rights”) are issued, then the consideration received or deemed
to be received by the Company shall be reduced by the fair market value of the
Additional Rights (as determined using the Black-Scholes option pricing model
or another method mutually agreed to by the Company and the
Warrantholder).  The Board of Directors
of the Company shall respond promptly, in writing, to an inquiry by the
Warrantholder as to the fair market value of the Additional Rights.  In the event that the Board of Directors of
the Company and the Warrantholder are unable to agree upon the fair market
value of the Additional Rights, the Company and the Warrantholder shall jointly
select an appraiser, who is experienced in such matters.  The decision of such appraiser shall be final
and conclusive, and the cost of such appraiser shall be borne evenly by the
Company and the Warrantholder.

 

(f)(6) Record Date.  In case the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them (i) to receive a dividend or other distribution payable in
Common Stock, Options or Convertible Securities or (ii) 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 of subscription or purchase, as the case may be.

 

(f)(7) Treasury Shares.  The
number of shares of Common Stock outstanding at any given time shall not
include shares owned or held by or for the 

 

8

 

account of the
Company or any of its wholly-owned subsidiaries, and the disposition of any
such shares (other than the cancellation or retirement thereof) shall be
considered an issue or sale of Common Stock for the purpose of this subsection (f).

 

(f)(8) Nasdaq Limitation. 
Notwithstanding any other provision in Section 8(f) to the
contrary, if a reduction in the Warrant Price pursuant to Section 8(f)
(other than as set forth in this clause (f)(8)) would require the Company to
obtain stockholder approval of the transactions contemplated by the Purchase
Agreement pursuant to Nasdaq Marketplace Rule 4350(i) and such stockholder
approval has not been obtained, (i) the Warrant Price shall be reduced to the
maximum extent that would not require stockholder approval under such Rule, and
(ii) the Company shall use its commercially reasonable efforts to obtain such
stockholder approval in accordance with the requirements of Nasdaq and the
Company’s certificate of incorporation and by-laws as soon as reasonably
practicable, including by calling a special meeting of stockholders entitled to
vote on such Warrant Price adjustment.  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
Holder may receive in the event of a transaction contemplated by Section 8
of this Warrant.

 

(g)                                 Anything
herein to the contrary notwithstanding, the Company shall not be required to
make any adjustment of the Warrant Price 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, (C) securities issued pursuant to
that certain Purchase Agreement dated May     , 2005, among
the Company and the Investors named therein (the “Purchase Agreement”) and
securities issued upon the exercise or conversion of those securities, and (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
Price pursuant to the other provisions of this Warrant) (collectively, “Excluded
Issuances”).

 

(h)                                 Upon any adjustment to the Warrant Price
pursuant to Section 8(f) above, the number of Warrant Shares purchasable
hereunder shall be adjusted by multiplying such number by a fraction, the
numerator of which shall be the Warrant Price in effect immediately prior to
such adjustment and the denominator of which shall be the Warrant Price in
effect immediately thereafter.

 

9

 

Section 9.                                            Fractional
Interest.  The Company shall not be
required to issue fractions of Warrant Shares upon the exercise of this
Warrant.  If any fractional share of
Common Stock would, except for the provisions of the first sentence of this Section 9,
be deliverable upon such exercise, the Company, in lieu of delivering such
fractional share, shall pay to the exercising Warrantholder an amount in cash
equal to the Market Price of such fractional share of Common Stock on 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
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.

 

Section 12.                                      Notices
to Warrantholder.  Upon the happening
of any event requiring an adjustment of the Warrant Price, the Company shall
promptly give written notice thereof to the Warrantholder at the address
appearing in the records of the Company, stating the adjusted Warrant Price and
the adjusted number of Warrant Shares 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                                           .  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 the
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 

 

10

 

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:

 

Cellegy
Pharmaceuticals, Inc.

1000 Marina
Boulevard, Suite 300

Brisbane,
California 94005

Attention:  Chief Financial Officer

Fax:  (650) 616-2222

 

With a copy
to:

 

Weintraub,
Genshlea, Chediak, Sproul

400 Capitol
Mall, 11th Floor

Sacramento, CA
95814

Attention:  Kevin Kelso, Esq.

Fax: (916)
446-1611

 

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

 

11

 

AND
REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

 

Section 18.                                      Call
Provision.  Notwithstanding any other
provision contained herein to the contrary, in the event that the closing bid
price of a share of Common Stock as traded on the Nasdaq (or such other
exchange or stock market on which the Common Stock may then be listed or
quoted) equals or exceeds $5.50 (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 any twenty (20)
consecutive trading days commencing after the Registration Statement (as
defined in the Registration Rights Agreement) has been declared effective, the
Company, upon thirty (30) days prior written notice (the “Notice Period”) given
to the Warrantholder within one business day immediately following the end of
such twenty (20) trading day period, may call this Warrant, in whole but not in
part, at a redemption price equal to $0.01 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 (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 is not 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).  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.

 

Section 19                                         Cashless
Exercise.  Notwithstanding any other
provision contained herein to the contrary, from and after the first
anniversary of the Closing Date (as defined in the Purchase Agreement) and so
long as the Company is required under the Registration Rights Agreement to have
effected the registration of the Warrant Shares for sale 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), the Warrantholder may
elect to receive, without the payment by the Warrantholder of the aggregate
Warrant Price in respect of the shares of Common Stock to be acquired, shares
of Common Stock equal to the value of this Warrant or any portion hereof by the
surrender of this Warrant (or such portion of this Warrant being so exercised)
together with the Net Issue Election Notice annexed hereto as Appendix B duly
executed, at the office of the Company. 
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:

 

X = Y (A - B)

       A

 

where

 

12

 

X =                             the
number of shares of Common Stock which the Warrantholder has then requested be
issued to the Warrantholder;

 

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

 

A =                            the “Market
Price” of one share of Common Stock as at the time 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                                         Limitations on Exercise. 
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 whose beneficial
ownership of Common Stock would be aggregated with the Warrantholder’s for
purposes of Section 13(d) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), does not exceed 9.999% 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. This
provision shall not restrict the number of shares of Common Stock which a
Holder may receive or beneficially own in order to determine the amount of
securities or other consideration that such Holder may receive in the event of
a transaction contemplated by Section 8 of this Warrant.  This restriction may not be waived.(1)

 

Section 21.                                      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 22.                                      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 up to 727,272 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 (the “Majority Holders”); 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.

 

(1) To be included only at the
specific request of an Investor.

 

13

 

Section 23.                                      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.

 

14

 

IN WITNESS
WHEREOF, the Company has caused this Warrant to be duly executed, as of the             
day of May, 2005.

 

	
   

  	
  CELLEGY PHARMACEUTICALS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

 

APPENDIX A

CELLEGY PHARMACEUTICALS, INC.

WARRANT EXERCISE FORM

 

To Cellegy 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,                                   
shares of Common Stock (“Warrant Shares”) provided for therein, and requests
that certificates for the Warrant Shares be issued as follows:

	
   

  	
   

  	
   

  
	
   

  	
  Name

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  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:                                           ,
        

 

 

	
  Signature:

  	
   

  	
   

  	
   

  	
   

  
	
  Note:  The signature must correspond with the name
  of the Warrantholder as written on the first page of the Warrant in every
  particular, without alteration or enlargement or any change whatever, unless
  the Warrant has been assigned.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name (please print)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Federal Identification or

  	
   

  
	
   

  	
   

  	
  Social Security No.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Assignee:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

 

APPENDIX B

CELLEGY PHARMACEUTICALS, INC.

NET ISSUE ELECTION NOTICE

 

To: Cellegy Pharmaceuticals,
Inc.

 

Date:[                                                      ]

 

The undersigned
hereby elects under Section 19 of this Warrant to surrender the
right to purchase [                        ]
shares of Common Stock pursuant to this Warrant and hereby requests the
issuance of [                              ]
shares of Common Stock.  The
certificate(s) for the shares issuable upon such net issue election shall be
issued in the name of the undersigned or as otherwise indicated below.

 

 

	
   

  	
   

  
	
  Signature

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Name for Registration

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Mailing Address

  	
   

  

 

17Exhibit
10.1

 

PURCHASE
AGREEMENT

 

THIS PURCHASE
AGREEMENT (“Agreement”) is made as of the       day of
May, 2005 by and among Cellegy Pharmaceuticals, Inc., a Delaware corporation
(the “Company”), and the Investors set forth on the signature pages affixed hereto
(each an “Investor” and collectively the “Investors”).

 

Recitals

 

A.            The Company and the Investors are
executing and delivering this Agreement in reliance upon the exemption from
securities registration afforded by the provisions of Regulation D (“Regulation
D”), as promulgated by the U.S. Securities and Exchange Commission (the “SEC”)
under the Securities Act of 1933, as amended; and

 

B.            The Investors wish to purchase from
the Company, and the Company wishes to sell and issue to the Investors, upon the
terms and conditions stated in this Agreement, (i) up to an aggregate of
3,636,363 shares of the Company’s Common Stock, par value $0.0001 per share
(together with any securities into which such shares may be reclassified the “Common
Stock”), at purchase price of $1.65 per share (other than Director Investors,
whose purchase price shall be $            
per share, the closing sales price of the Company’s Common Stock as reported on
The Nasdaq Stock Market on the date of this Agreement), (ii) Series A warrants
to purchase up to an aggregate of 727,272 shares of Common Stock (subject to
adjustment) at an exercise price of $2.25 per share (subject to adjustment) in
the form attached hereto as Exhibit A (the “Series A Warrants”), and
(iii) Series B warrants to purchase up to an aggregate of 727,272 shares of
Common Stock (subject to adjustment) at an exercise price of $2.50 per share
(subject to adjustment) in the form attached hereto as Exhibit B
(together with the Series A Warrants, the “Warrants”); provided however, the
Director Investors will not purchase any Warrants pursuant to this Agreement;
and

 

C.            Contemporaneous with the sale of the
Common Stock and Warrants, the parties hereto will execute and deliver a
Registration Rights Agreement, in the form attached hereto as Exhibit C
(the “Registration Rights Agreement”), pursuant to which the Company will agree
to provide certain registration rights under the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder, and applicable
state securities laws.

 

In
consideration of the mutual promises made herein and for other good and
valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:

 

1.             Definitions.  In addition to those terms defined above and
elsewhere in this Agreement, for the purposes of this Agreement, the following
terms shall have the meanings set forth below:

 

 

“Affiliate”
means, with respect to any Person, any other Person which directly or
indirectly through one or more intermediaries Controls, is controlled by, or is
under common control with, such Person.

 

“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.

 

“Company’s
Knowledge” means the actual knowledge of the executive officers (as defined
in Rule 405 under the 1933 Act) of the Company, after due inquiry.

 

“Confidential
Information” means trade secrets, confidential information and know-how
(including but not limited to ideas, formulae, compositions, processes,
procedures and techniques, research and development information, computer
program code, performance specifications, support documentation, drawings,
specifications, designs, business and marketing plans, and customer and
supplier lists and related information).

 

“Control”
(including the terms “controlling”, “controlled by” or “under common control
with”) means the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.

 

“Director
Investors” means those Investors who are members
of the Company’s Board of Directors.

 

“Intellectual
Property” means all of the following: (i) patents, patent applications,
patent disclosures and inventions (whether or not patentable and whether or not
reduced to practice); (ii) trademarks, service marks, trade dress, trade names,
corporate names, logos, slogans and Internet domain names, together with all
goodwill associated with each of the foregoing; (iii) copyrights and
copyrightable works; (iv) registrations, applications and renewals for any of
the foregoing; and (v) proprietary computer software (including but not limited
to data, data bases and documentation).

 

“Material
Adverse Effect” means a material adverse effect on (i) the assets,
liabilities, results of operations, condition (financial or otherwise) or
business of the Company and its Subsidiaries taken as a whole, or (ii) the
ability of the Company to perform its obligations under the Transaction
Documents.

 

“Nasdaq”
means The Nasdaq Stock Market, Inc.

 

“Person”
means an individual, corporation, partnership, limited
liability company, trust, business trust, association, joint stock
company, joint venture, sole proprietorship, unincorporated organization,
governmental authority or any other form of entity not specifically listed
herein.

 

“Purchase
Price” the gross proceeds received by the Company from the Investors from
the sale of the Shares and Warrants pursuant to this Agreement.

 

 

“SEC
Filings” has the meaning set forth in Section 4.6.

 

“Registration
Statement” has the meaning set forth in the Registration Rights Agreement.

 

“Securities”
means the Shares, the Warrants and the Warrant Shares; provided however, “Securities”
shall mean only the Shares when applicable to the Director Investors.

 

“Shares”
means the shares of Common Stock being purchased by the Investors hereunder.

 

“Subsidiary”
of any Person means another Person, an amount of the voting securities, other
voting ownership or voting partnership interests of which is sufficient to
elect at least a majority of its Board of Directors or other governing body
(or, if there are no such voting interests, 50% or more of the equity interests
of which) is owned directly or indirectly by such first Person.

 

“Transaction
Documents” means this Agreement, the Warrants and the Registration Rights
Agreement.

 

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

 

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

 

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

 

2.             Purchase and Sale of the Shares
and Warrants.  Subject to the terms
and conditions of this Agreement, on the Closing Date, each of the Investors
shall severally, and not jointly, purchase, and the Company shall sell and
issue to the Investors, the Shares and Warrants in the respective amounts set
forth opposite the Investors’ names on the signature pages attached hereto in
exchange for the Purchase Price as specified in Section 3 below.  Notwithstanding the foregoing, the Director
Investors shall not purchase any Warrants pursuant to this Agreement and any
reference to “Warrants” made herein shall not apply to the Director Investors.

 

3.             Closing.  Upon confirmation that the other conditions
to closing specified herein have been satisfied or duly waived by the
Investors, the Company shall deliver to Lowenstein Sandler PC, a copy of an
instruction letter from the Company to the Company’s transfer agent irrevocably
instructing the transfer agent to issue a certificate or certificates,
registered in such name or names as the Investors may designate, representing
the Shares and Warrants.  Upon the
receipt by Lowenstein Sandler PC of a copy of such instruction letter, each Investor
shall promptly, but no more than one Business Day thereafter, cause a wire
transfer in same day funds to be sent to the account of the Company as
instructed in writing by the Company, in an amount

 

 

representing
such Investor’s pro rata portion of the Purchase Price as set forth on the
signature pages to this Agreement.  The
closing of the purchase and sale of the Shares and Warrants (the “Closing”)
shall occur on the date (the “Closing Date”) the Company receives the Purchase
Price.  The Closing of the purchase and
sale of the Shares and Warrants shall take place at the offices of Lowenstein
Sandler PC, 1251 Avenue of the Americas, 18th Floor, New York, New York 10020,
or at such other location and on such other date as the Company and the
Investors shall mutually agree.

 

4.             Representations and Warranties
of the Company.  The Company hereby
represents and warrants to the Investors that, except as set forth in the
schedules delivered herewith (collectively, the “Disclosure Schedules”):

 

4. 1          Organization,
Good Standing and Qualification. 
Each of the Company and its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to carry on its business as now conducted and to own its
properties.  Each of the Company and its
Subsidiaries is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction in which the conduct of its business or
its ownership or leasing of property makes such qualification or leasing
necessary unless the failure to so qualify has not and could not reasonably be
expected to have a Material Adverse Effect. 
The Company’s Subsidiaries are listed on Schedule 4.1 hereto.

 

4.2           Authorization.  The Company has full power and authority and
has taken all requisite action on the part of the Company, its officers,
directors and stockholders necessary for (i) the authorization, execution and
delivery of the Transaction Documents, (ii) the authorization of the performance
of all obligations of the Company hereunder or thereunder, and (iii) the
authorization, issuance (or reservation for issuance) and delivery of the
Securities.  The Transaction Documents constitute the
legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability, relating to or affecting creditors’ rights generally.

 

4.3           Capitalization.  Schedule 4.3 sets forth (a) the
authorized capital stock of the Company on the date hereof; (b) the number of
shares of capital stock issued and outstanding; (c) the number of shares of
capital stock issuable pursuant to the Company’s stock plans; and (d) the
number of shares of capital stock issuable and reserved for issuance pursuant
to securities (other than the Shares and the Warrants) exercisable for, or
convertible into or exchangeable for any shares of capital stock of the
Company.  All of the issued and
outstanding shares of the Company’s capital stock have been duly authorized and
validly issued and are fully paid, nonassessable and free of pre-emptive rights
and were issued in full compliance with applicable state and federal securities
law and any rights of third parties. 
Except as described on Schedule 4.3, all of the issued and
outstanding shares of capital stock of each Subsidiary have been duly
authorized and validly issued and are fully paid, nonassessable and free of
pre-emptive rights, were issued in full compliance with applicable state and
federal securities law and any rights of third parties and are owned by the
Company, beneficially and of record, subject to no lien, encumbrance or other
adverse claim.  Except as described on Schedule
4.3, no Person is

 

 

 

entitled
to pre-emptive or similar statutory or contractual rights with respect to any
securities of the Company.  Except as
described on Schedule 4.3, there are no outstanding warrants, options,
convertible securities or other rights, agreements or arrangements of any
character under which the Company or any of its Subsidiaries is or may be
obligated to issue any equity securities of any kind and except as contemplated
by this Agreement, neither the Company nor any of its Subsidiaries is currently
in negotiations for the issuance of any equity securities of any kind.  Except as described on Schedule 4.3
and except for the Registration Rights Agreement, there are no voting
agreements, buy-sell agreements, option or right of first purchase agreements
or other agreements of any kind among the Company and any of the
securityholders of the Company relating to the securities of the Company held
by them.  Except as described on Schedule
4.3 and except as provided in the Registration Rights Agreement, no Person
has the right to require the Company to register any securities of the Company
under the 1933 Act, whether on a demand basis or in connection with the
registration of securities of the Company for its own account or for the
account of any other Person.

 

Except as
described on Schedule 4.3, the issuance and sale of the Securities
hereunder will not obligate the Company to issue shares of Common Stock or
other securities to any other Person (other than the Investors) and will not
result in the adjustment of the exercise, conversion, exchange or reset price
of any outstanding security.

 

Except as
described on Schedule 4.3, the Company does not have outstanding
stockholder purchase rights or “poison pill” or any similar arrangement in
effect giving any Person the right to purchase any equity interest in the
Company upon the occurrence of certain events.

 

4.4           Valid Issuance.  The Shares have been duly and validly
authorized and, when issued and paid for pursuant to this Agreement, will be
validly issued, fully paid and nonassessable, and shall be free and clear of
all encumbrances and restrictions (other than those created by the Investors),
except for restrictions on transfer set forth in the Transaction Documents or
imposed by applicable securities laws. 
The Warrants have been duly and validly authorized.  Upon the due exercise of the Warrants, the
Warrant Shares will be validly issued, fully paid and non-assessable free and
clear of all encumbrances and restrictions, except for restrictions on transfer
set forth in the Transaction Documents or imposed by applicable securities laws
and except for those created by the Investors. 
The Company has reserved a sufficient number of shares of Common Stock
for issuance upon the exercise of the Warrants, free and clear of all
encumbrances and restrictions, except for restrictions on transfer set forth in
the Transaction Documents or imposed by applicable securities laws and except
for those created by the Investors.

 

4.5           Consents.  The execution, delivery and performance by
the Company of the Transaction Documents and the offer, issuance and sale of
the Securities require no consent of, action by or in respect of, or filing
with, any Person, governmental body, agency, or official other than filings
that have been made pursuant to applicable state securities laws and post-sale
filings pursuant to applicable state and federal securities laws which the
Company undertakes to file within the applicable time periods.  Subject to the accuracy of the
representations and warranties of each Investor set forth in Section 5 hereof,
the Company has taken all action

 

 

necessary to exempt (i) the
issuance and sale of the Securities, (ii) the issuance of the Warrant Shares
upon due exercise of the Warrants, and (iii) the other transactions
contemplated by the Transaction Documents from the provisions of any
stockholder rights plan or other “poison pill” arrangement, any anti-takeover,
business combination or control share law or statute binding on the Company or
to which the Company or any of its assets and properties may be subject and any
provision of the Company’s Certificate of Incorporation or By-laws that is or
could reasonably be expected to become applicable to the Investors as a result
of the transactions contemplated hereby, including without limitation, the
issuance of the Securities and the ownership, disposition or voting of the Securities
by the Investors or the exercise of any right granted to the Investors pursuant
to this Agreement or the other Transaction Documents.

 

4.6           Delivery of SEC Filings; Business.  The Company has made available to the
Investors through the EDGAR system, true and complete copies of the Company’s
most recent Annual Report on Form 10-K for the fiscal year ended December 31,
2004 (as amended as of the date hereof, the “10-K”), and all other reports
filed by the Company pursuant to the 1934 Act since the filing of the 10-K and
prior to the date hereof (collectively, the “SEC Filings”).  The SEC Filings are the only filings required
of the Company pursuant to the 1934 Act for such period.  The Company and its Subsidiaries are engaged
in all material respects only in the business described in the SEC Filings and
the SEC Filings contain a complete and accurate description in all material
respects of the business of the Company and its Subsidiaries, taken as a whole.

 

4.7           Use of Proceeds.  The net proceeds of the sale of the Shares
and the Warrants hereunder shall be used by the Company for working capital and
general corporate purposes, including the payment of expenses incurred in
connection herewith.

 

4.8           No Material Adverse Change.  Since December 31, 2004, except as identified
and described in the SEC Filings or as described on Schedule 4.8, there
has not been:

 

(i)            any change in the consolidated
assets, liabilities, financial condition or operating results of the Company
from that reflected in the financial statements included in the 10-K, except
for changes in the ordinary course of business which have not had and could not
reasonably be expected to have a Material Adverse Effect, individually or in
the aggregate;

 

(ii)           any
declaration or payment of any dividend, or any authorization or payment of any
distribution, on any of the capital stock of the Company, or any redemption or
repurchase of any securities of the Company;

 

(iii)          any material
damage, destruction or loss, whether or not covered by insurance to any assets
or properties of the Company or its Subsidiaries;

 

(iv)          any waiver,
not in the ordinary course of business, by the Company or any Subsidiary of a
material right or of a material debt owed to it;

 

 

(v)           any satisfaction or discharge of any
lien, claim or encumbrance or payment of any obligation by the Company or a
Subsidiary, except in the ordinary course of business and which is not material
to the assets, properties, financial condition, operating results or business
of the Company and its Subsidiaries taken as a whole (as such business is
presently conducted and as it is proposed to be conducted);

 

(vi)          any change or amendment to the Company’s
Certificate of Incorporation or by-laws, or material change to any material
contract or arrangement by which the Company or any Subsidiary is bound or to
which any of their respective assets or properties is subject;

 

(vii)         any material
labor difficulties or labor union organizing activities with respect to
employees of the Company or any Subsidiary;

 

(viii)        any material
transaction entered into by the Company or a Subsidiary other than in the
ordinary course of business;

 

(ix)           the loss of
the services of any key employee, or material change in the composition or
duties of the senior management of the Company or any Subsidiary;

 

(x)            the loss or
threatened loss of any customer which has had or could reasonably be expected to
have a Material Adverse Effect; or

 

(xi)           any other
event or condition of any character that has had or could reasonably be
expected to have a Material Adverse Effect.

 

4.9           SEC Filings; S-3 Eligibility.

 

(a)           At the time of filing thereof, the
SEC Filings complied as to form in all material respects with the requirements
of the 1934 Act and did not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.

 

(b)           The Company is eligible to use Form
S-3 to register the Registrable Securities (as such term is defined in the
Registration Rights Agreement) for sale by the Investors as contemplated by the
Registration Rights Agreement.

 

4.10         No Conflict, Breach, Violation or
Default.  The execution, delivery and
performance of the Transaction Documents by the Company and the issuance and
sale of the Securities will not conflict with or result in a breach or violation
of any of the terms and provisions of, or constitute a default under (i) the
Company’s Certificate of Incorporation or the Company’s Bylaws, both as in
effect on the date hereof (true and complete copies of which have been made
available to the Investors through the EDGAR system), or (ii)(a) any statute,
rule, regulation or order of any governmental agency or body or any court,
domestic or foreign, having jurisdiction over the Company, any Subsidiary or
any of their respective assets or

 

 

 

properties,
or (b) any agreement or instrument to which the Company or any Subsidiary is a
party or by which the Company or a Subsidiary is bound or to which any of their
respective assets or properties is subject.

 

4.11         Tax Matters.  The Company and each Subsidiary has timely
prepared and filed all tax returns required to have been filed by the Company
or such Subsidiary with all appropriate governmental agencies and timely paid
all taxes shown thereon or otherwise owed by it.  The charges, accruals and reserves on the
books of the Company in respect of taxes for all fiscal periods are adequate in
all material respects, and there are no material unpaid assessments against the
Company or any Subsidiary nor, to the Company’s Knowledge, any basis for the
assessment of any additional taxes, penalties or interest for any fiscal period
or audits by any federal, state or local taxing authority except for any
assessment which is not material to the Company and its Subsidiaries, taken as
a whole.  All taxes and other assessments
and levies that the Company or any Subsidiary is required to withhold or to
collect for payment have been duly withheld and collected and paid to the
proper governmental entity or third party when due.  There are no tax liens or claims pending or,
to the Company’s Knowledge, threatened against the Company or any Subsidiary or
any of their respective assets or property. 
Except as described on Schedule 4.11, there are
no outstanding tax sharing agreements or other such arrangements between
the Company and any Subsidiary or other corporation or entity.

 

4.12         Title to Properties.  Except as disclosed in the SEC Filings, the
Company and each Subsidiary has good and marketable title to all real
properties and all other properties and assets owned by it, in each case free
from liens, encumbrances and defects that would materially affect the value
thereof or materially interfere with the use made or currently planned to be
made thereof by them; and except as disclosed in the SEC Filings, the Company
and each Subsidiary holds any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere with the
use made or currently planned to be made thereof by them.

 

4.13         Certificates, Authorities and
Permits.  The Company and each
Subsidiary possess adequate certificates, authorities or permits issued by
appropriate governmental agencies or bodies necessary to conduct the business
now operated by it, and neither the Company nor any Subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authority or permit that, if determined adversely to the Company
or such Subsidiary, could reasonably be expected to have a Material Adverse
Effect, individually or in the aggregate.

 

4.14         Labor Matters.

 

(a)           Except as set forth on Schedule
4.14, the Company is not a party to or bound by any collective bargaining
agreements or other agreements with labor organizations.  The Company has not violated in any material
respect any laws, regulations, orders or contract terms, affecting the
collective bargaining rights of employees, labor organizations or any laws,
regulations or orders affecting employment discrimination, equal opportunity
employment, or employees’ health, safety, welfare, wages and hours.

 

 

(b)           (i) There are no labor disputes
existing, or to the Company’s Knowledge, threatened, involving strikes,
slow-downs, work stoppages, job actions, disputes, lockouts or any other
disruptions of or by the Company’s employees, (ii) there are no unfair labor
practices or petitions for election pending or, to the Company’s Knowledge,
threatened before the National Labor Relations Board or any other federal,
state or local labor commission relating to the Company’s employees, (iii) no
demand for recognition or certification heretofore made by any labor
organization or group of employees is pending with respect to the Company and
(iv) to the Company’s Knowledge, the Company enjoys good labor and employee
relations with its employees and labor organizations.

 

(c)           The Company is, and at all times has
been, in compliance in all material respects with all applicable laws
respecting employment (including laws relating to classification of employees
and independent contractors) and employment practices, terms and conditions of
employment, wages and hours, and immigration and naturalization.  There no claims are pending against the
Company before the Equal Employment Opportunity Commission or any other administrative
body or in any court asserting any violation of Title VII of the Civil Rights
Act of 1964, the Age Discrimination Act of 1967, 42 U.S.C. §§ 1981 or 1983 or
any other federal, state or local Law, statute or ordinance barring
discrimination in employment.

 

(d)           Except as disclosed in the SEC
Filings or as described on Schedule 4.14, the Company is not a party to,
or bound by, any employment or other contract or agreement that contains any
severance, termination pay or change of control liability or obligation,
including, without limitation, any “excess parachute payment,” as defined in
Section 2806(b) of the Internal Revenue Code.

 

(e)           Except as specified in Schedule
4.14, each of the Company’s employees is a Person who is either a United
States citizen or a permanent resident entitled to work in the United
States.  To the Company’s Knowledge, the
Company has no liability for the improper classification by the Company of such
employees as independent contractors or leased employees prior to the Closing.

 

4.15         Intellectual Property.

 

(a)           All Intellectual Property of the
Company and its Subsidiaries is currently in compliance with all legal
requirements (including timely filings, proofs and payments of fees) and is
valid and enforceable, except where the failure to be so in compliance would
not reasonably be expected to have a Material Adverse Effect, individually or
in the aggregate.  Except as described in
the SEC Filings, no Intellectual Property of the Company or its Subsidiaries
which is necessary for the conduct of Company’s and each of its Subsidiaries’
respective businesses as currently conducted or as currently proposed to be
conducted has been or is now involved in any cancellation, dispute or
litigation, and, to the Company’s Knowledge, no such action is threatened; and
no patent of the Company or its Subsidiaries has been or is now involved in any
interference, reissue, re-examination or opposition proceeding.

 

(b)           All of the licenses and sublicenses
and consent, royalty or other agreements concerning Intellectual Property which
are necessary for the conduct of the

 

 

Company’s and each of its Subsidiaries’
respective businesses as currently conducted or as currently proposed to be
conducted to which the Company or any Subsidiary is a party or by which any of
their assets are bound (other than  generally commercially available, non-custom,
off-the-shelf software application programs having a retail acquisition price
of less than $10,000 per license) (collectively, “License Agreements”) are
valid and binding obligations of the Company or its Subsidiaries that are
parties thereto and, to the Company’s Knowledge, the other parties thereto,
enforceable in accordance with their terms, except to the extent that
enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws affecting the enforcement of
creditors’ rights generally, and there exists no event or condition which will
result in a material violation or breach of or constitute (with or without due
notice or lapse of time or both) a material default by the Company or any of
its Subsidiaries under any such License Agreement.

 

(c)           Except where the failure to have such
rights would not reasonably be expected to have a Material Adverse Effect, the
Company and its Subsidiaries own or have the valid right to use all of the
Intellectual Property that is necessary for the conduct of the Company’s and
each of its Subsidiaries’ respective businesses as currently conducted or as
currently proposed to be conducted and for the ownership, maintenance and
operation of the Company’s and its Subsidiaries’ properties and assets, free
and clear of all liens, encumbrances, adverse claims or obligations to license
all such owned Intellectual Property and Confidential Information, other than
licenses entered into in the ordinary course of the Company’s and its
Subsidiaries’ businesses.  The Company
and its Subsidiaries have a valid and enforceable right to use all third party Intellectual Property and Confidential Information
used or held for use in the respective businesses of the Company and its
Subsidiaries.

 

(d)           To the Company’s Knowledge, the
conduct of the Company’s and its Subsidiaries’ businesses as currently
conducted does not infringe or otherwise impair or conflict with (collectively,
“Infringe”) any Intellectual Property rights of any third party or any
confidentiality obligation owed to a third party, and, to the Company’s
Knowledge, the Intellectual Property and Confidential Information of the
Company and its Subsidiaries which are necessary for the conduct of Company’s
and each of its Subsidiaries’ respective businesses as currently conducted or
as currently proposed to be conducted are not being Infringed by any third
party.  There is no litigation or order
pending or outstanding or, to the Company’s Knowledge, threatened or imminent,
that seeks to limit or challenge or that concerns the ownership, use, validity
or enforceability of any Intellectual Property or Confidential Information of
the Company and its Subsidiaries and the Company’s and its Subsidiaries’ use of
any Intellectual Property or Confidential Information owned by a third party,
and, to the Company’s Knowledge, there is no valid basis for the same.

 

(e)           The consummation of the transactions
contemplated hereby and by the other Transaction Documents will not result in
the alteration, loss, impairment of or restriction on the Company’s or any of
its Subsidiaries’ ownership or right to use any of the Intellectual Property or
Confidential Information which is necessary for the conduct of Company’s and
each of its Subsidiaries’ respective businesses as currently conducted or as
currently proposed to be conducted.

 

 

(f)            The Company and its Subsidiaries
have taken reasonable steps to protect the Company’s and its
Subsidiaries’ rights in their Intellectual Property and Confidential
Information.  Each employee, consultant
and contractor who has had access to Confidential Information which is
necessary for the conduct of Company’s and each of its Subsidiaries’ respective
businesses as currently conducted or as currently proposed to be conducted has
executed an agreement to maintain the confidentiality of such Confidential
Information and has executed appropriate agreements that are substantially
consistent with the Company’s standard forms thereof.  Except under confidentiality obligations,
there has been no material disclosure of any of the Company’s or its Subsidiaries’ Confidential Information to any third
party.

 

4.16         Environmental Matters.  Neither the Company nor any Subsidiary is in
violation of any statute, rule, regulation, decision or order of any
governmental agency or body or any court, domestic or foreign, relating to the
use, disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, “Environmental Laws”), owns or operates any
real property contaminated with any substance that is subject to any
Environmental Laws, is liable for any off-site disposal or contamination
pursuant to any Environmental Laws, or is subject to any claim relating to any
Environmental Laws, which violation, contamination, liability or claim has had
or could reasonably be expected to have a Material Adverse Effect, individually
or in the aggregate; and there is no pending or, to the Company’s Knowledge,
threatened investigation that might lead to such a claim.

 

4.17         Litigation.  Except as described on Schedule 4.17,
there are no pending actions, suits or proceedings against or affecting the
Company, its Subsidiaries or any of its or their properties; and to the Company’s
Knowledge, no such actions, suits or proceedings are threatened or
contemplated.

 

4.18         Financial Statements.  The financial statements included in each SEC
Filing present fairly, in all material respects, the consolidated financial
position of the Company as of the dates shown and its consolidated results of
operations and cash flows for the periods shown, and such financial statements
have been prepared in conformity with United States generally accepted
accounting principles applied on a consistent basis (“GAAP”) (except as may be
disclosed therein or in the notes thereto, and, in the case of quarterly
financial statements, as permitted by Form 10-Q under the 1934 Act).  Except as set forth in the financial
statements of the Company included in the SEC Filings filed prior to the date
hereof or as described on Schedule 4.18, neither the Company nor any of
its Subsidiaries has incurred any liabilities, contingent or otherwise, except
those incurred in the ordinary course of business, consistent (as to amount and
nature) with past practices since the date of such financial statements, none
of which, individually or in the aggregate, have had or could reasonably be
expected to have a Material Adverse Effect.

 

4.19         Insurance Coverage.  The Company and each Subsidiary maintains in
full force and effect insurance coverage that is customary for comparably
situated companies for the business being conducted and properties owned or
leased by the Company and each Subsidiary, and the Company reasonably believes
such insurance coverage to be adequate against all

 

 

liabilities,
claims and risks against which it is customary for comparably situated
companies to insure.

 

4.20         Compliance with Nasdaq
Continued Listing Requirements. 
Except as described in the SEC Filings or in Schedule 4.20, the
Company is in compliance with applicable Nasdaq
continued listing requirements.  Except
as described in the SEC Filings or in Schedule 4.20, there are no
proceedings pending or, to the Company’s Knowledge, threatened against the
Company relating to the continued listing of the Common Stock on Nasdaq and the
Company has not received any notice of, nor to the Company’s Knowledge is there
any basis for, the delisting of the Common Stock from Nasdaq.

 

4.21         Brokers and Finders.  No Person will have, as a result of the
transactions contemplated by the Transaction Documents, any valid right,
interest or claim against or upon the Company, any Subsidiary or an Investor
for any commission, fee or other compensation pursuant to any agreement,
arrangement or understanding entered into by or on behalf of the Company, other
than as described in Schedule 4.21.

 

4.22         No Directed Selling Efforts or
General Solicitation.  Neither the
Company nor any Person acting on its behalf has conducted any general
solicitation or general advertising (as those terms are used in Regulation D)
in connection with the offer or sale of any of the Securities.

 

4.23         No Integrated Offering.  Neither the Company nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any Company security or solicited any
offers to buy any security, under circumstances that would adversely affect
reliance by the Company on Section 4(2) for the exemption from registration for
the transactions contemplated hereby or would require registration of the
Securities under the 1933 Act.

 

4.24         Private Placement.  The offer and sale of the Securities to the
Investors as contemplated hereby is exempt from the registration requirements
of the 1933 Act.

 

4.25         Questionable Payments.  Neither
the Company nor any of its Subsidiaries nor, to the Company’s Knowledge, any of
their respective current or former stockholders, directors, officers,
employees, agents or other Persons acting on behalf of the Company or any
Subsidiary, has on behalf of the Company or any Subsidiary or in connection
with their respective businesses: (a) used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity; (b) made any direct or indirect unlawful payments to any
governmental officials or employees from corporate funds; (c) established or
maintained any unlawful or unrecorded fund of corporate monies or other assets;
(d) made any false or fictitious entries on the books and records of the
Company or any Subsidiary; or (e) made any unlawful bribe, rebate, payoff,
influence payment, kickback or other unlawful payment of any nature.

 

4.26         Transactions with Affiliates.  Except as disclosed in the SEC Filings or as
disclosed on Schedule 4.26, none of the officers or directors of the
Company and, to the

 

 

Company’s Knowledge, none of
the employees of the Company is presently a party to any transaction with the
Company or any Subsidiary (other than as holders of stock options and/or
warrants, and for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or
from, or otherwise requiring payments to or from any officer, director or such
employee or, to the Company’s Knowledge, any entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.

 

4.27         Internal Controls.  The Company is in material compliance with
the provisions of the Sarbanes-Oxley Act of 2002 currently applicable to the
Company.  The Company and the
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management’s general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management’s general or specific authorization, and
(iv) the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with respect to
any differences. The Company has established disclosure controls and procedures
(as defined in 1934 Act Rules 13a-14 and 15d-14) for the Company and designed
such disclosure controls and procedures to ensure that material information
relating to the Company, including the Subsidiaries, is made known to the
certifying officers by others within those entities, particularly during the
period in which the Company’s most recently filed period report under the 1934
Act, as the case may be, is being prepared. 
The Company’s certifying officers have evaluated the effectiveness of
the Company’s controls and procedures as of the end of the period covered by
the most recently filed periodic report under the 1934 Act (such date, the “Evaluation
Date”).  The Company presented in its
most recently filed periodic report under the 1934 Act the conclusions of the
certifying officers about the effectiveness of the disclosure controls and
procedures based on their evaluations as of the Evaluation Date.  Since the Evaluation Date, there have been no
significant changes in the Company’s internal controls (as such term is defined
in Item 307(b) of Regulation S-K) or, to the Company’s Knowledge, in other
factors that could significantly affect the Company’s internal controls.  The Company maintains and will continue to
maintain a standard system of accounting established and administered in accordance
with GAAP and the applicable requirements of the 1934 Act.

 

4.28         Disclosures.  Neither the Company nor any Person acting on
its behalf has provided the Investors or their agents or counsel with any
information that constitutes or might constitute material, non-public
information.  The written materials
delivered to the Investors in connection with the transactions contemplated by
the Transaction Documents do not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
contained therein, in light of the circumstances under which they were made,
not misleading.

 

5.             Representations and Warranties
of the Investors.  Each of the
Investors hereby severally, and not jointly, represents and warrants to the
Company that:

 

 

5.1           Organization
and Existence.  Such Investor is a
validly existing corporation, limited partnership or limited liability company
and has all requisite corporate, partnership or limited liability company power
and authority to invest in the Securities pursuant to this Agreement.

 

5.2           Authorization.  The execution, delivery and performance by
such Investor of the Transaction Documents to which such Investor is a party
have been duly authorized and will each constitute the valid and legally
binding obligation of such Investor, enforceable against such Investor in
accordance with their respective terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability, relating to or affecting creditors’ rights generally.

 

5.3           Purchase
Entirely for Own Account.  The
Securities to be received by such Investor hereunder will be acquired for such
Investor’s own account, not as nominee or agent, and not with a view to the
resale or distribution of any part thereof in violation of the 1933 Act, and
such Investor has no present intention of selling, granting any participation
in, or otherwise distributing the same in violation of the 1933 Act without
prejudice, however, to such Investor’s right at all times to sell or otherwise
dispose of all or any part of such Securities in compliance with applicable
federal and state securities laws. 
Nothing contained herein shall be deemed a representation or warranty by
such Investor to hold the Securities for any period of time.  Such Investor is not a broker-dealer
registered with the SEC under the 1934 Act or an entity engaged in a business
that would require it to be so registered.

 

5.4           Investment
Experience.  Such Investor
acknowledges that it can bear the economic risk and complete loss of its
investment in the Securities and has such knowledge and experience in financial
or business matters that it is capable of evaluating the merits and risks of
the investment contemplated hereby.

 

5.5           Disclosure
of Information.  Such Investor has
had an opportunity to receive all information related to the Company requested
by it and to ask questions of and receive answers from the Company regarding
the Company, its business and the terms and conditions of the offering of the
Securities.  Such Investor acknowledges
receipt of copies of the SEC Filings. 
Neither such inquiries nor any other due diligence investigation
conducted by such Investor shall modify, amend or affect such Investor’s right
to rely on the Company’s representations and warranties contained in this
Agreement.

 

5.6           Restricted
Securities.  Such Investor
understands that the Securities are characterized as “restricted securities”
under the U.S. federal securities laws inasmuch as they are being acquired from
the Company in a transaction not involving a public offering and that under
such laws and applicable regulations such securities may be resold without
registration under the 1933 Act only in certain limited circumstances.

 

5.7           Legends.  It is understood that, except as provided
below, certificates evidencing the Securities may bear the following or any
similar legend:

 

 

(a)           “The
securities represented hereby may not be transferred unless (i) such securities
have been registered for sale pursuant to the Securities Act of 1933, as
amended, (ii) such securities may be sold pursuant to Rule 144(k), 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 of 1933 or qualification under applicable state securities laws.”

 

(b)           If
required by the authorities of any state in connection with the issuance of
sale of the Securities, the legend required by such state authority.

 

5.8           Accredited Investor.  Such Investor is an accredited investor as
defined in Rule 501(a) of Regulation D, as amended, under the 1933 Act.

 

5.9           No General Solicitation.  Such Investor did not learn of the investment
in the Securities as a result of any public advertising or general
solicitation.

 

5.10         Brokers and Finders.  No Person will have, as a result of the
transactions contemplated by the Transaction Documents, any valid right,
interest or claim against or upon the Company, any Subsidiary or an Investor
for any commission, fee or other compensation pursuant to any agreement,
arrangement or understanding entered into by or on behalf of such Investor.

 

5.11         Prohibited Transactions.  No Investor presently has a short position in
the Common Stock.  For a period of thirty
(30) days after the Closing Date, neither such Investor nor any Affiliate of
such Investor which (x) had knowledge of the transactions contemplated hereby,
(y) has or shares discretion relating to such Investor’s investments or trading
or information concerning such Investor’s investments, including in respect of
the Securities, or (z) is subject to such Investor’s review or input concerning
such Affiliate’s investments or trading (collectively, “Trading Affiliates”)
shall, directly or indirectly, effect or agree to effect any short sale,
whether or not against the box, established any “put equivalent position” (as
defined in Rule 16a-1(h) under the 1934 Act) with respect to the Common Stock,
grant any other right (including, without limitation, any put or call option)
with respect to the Common Stock or with respect to any security that includes,
relates to or derived any significant part of its value from the Common Stock
or otherwise seek to hedge its position in the Securities (each, a “Prohibited
Transaction”); provided, however, that the restrictions contained in this
Section 5.11 shall not apply (i) to any Prohibited Transaction effected at an
effective price of at least $2.50 per share (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) (ii) from and
after the public disclosure by the Company of the Food and Drug Administration’s
response to the Company’s previously disclosed request to approve the use of
the Company’s Cellegesic product.  Such
Investor acknowledges that the representations, warranties and covenants
contained in this Section 5.11 are being made for the benefit of the Investors
as well as the Company and that each of the other Investors shall have an
independent right to assert any claims against such Investor arising out of any
breach or violation of the provisions of this Section 5.11.

 

 

6.  Conditions to Closing.

 

6.1           Conditions to the Investors’
Obligations. The obligation of each Investor to purchase the Shares and the
Warrants at the Closing is subject to the fulfillment to such Investor’s
satisfaction, on or prior to the Closing Date, of the following conditions, any
of which may be waived by such Investor (as to itself only):

 

(a)           The representations and warranties
made by the Company in Section 4 hereof qualified as to materiality shall be
true and correct at all times prior to and on the Closing Date, except to the
extent any such representation or warranty expressly speaks as of an earlier
date, in which case such representation or warranty shall be true and correct
as of such earlier date, and, the representations and warranties made by the
Company in Section 4 hereof not qualified as to materiality shall be true and
correct in all material respects at all times prior to and on the Closing Date,
except to the extent any such representation or warranty expressly speaks as of
an earlier date, in which case such representation or warranty shall be true and
correct in all material respects as of such earlier date.  The Company shall have performed in all
material respects all obligations and conditions herein required to be
performed or observed by it on or prior to the Closing Date.

 

(b)           The Company shall have obtained any
and all consents, permits, approvals, registrations and waivers necessary or
appropriate for consummation of the purchase and sale of the Securities and the
consummation of the other transactions contemplated by the Transaction Documents,
all of which shall be in full force and effect.

 

(c)           The Company shall have executed and
delivered the Registration Rights Agreement.

 

(d)           The Investors shall have received
evidence satisfactory to them in their sole discretion that the issuance and
sale of the Securities as contemplated hereby will not require stockholder
approval pursuant to the requirements of Nasdaq Marketplace Rule 4350(i).

 

(e)           No judgment, writ, order, injunction,
award or decree of or by any court, or judge, justice or magistrate, including
any bankruptcy court or judge, or any order of or by any governmental
authority, shall have been issued, and no action or proceeding shall have been
instituted by any governmental authority, enjoining or preventing the
consummation of the transactions contemplated hereby or in the other
Transaction Documents.

 

(f)            The Company shall have received
gross proceeds from the sale of the Shares and Warrants as contemplated hereby
of at least Six Million Dollars ($6,000,000).

 

(g)           The Company shall have delivered a
Certificate, executed on behalf of the Company by its Chief Executive Officer
or its Chief Financial Officer, dated as of the Closing Date, certifying to the
fulfillment of the conditions specified in subsections (a), (b), (e),(f) and
(j) of this Section 6.1.

 

(h)           The Company shall have delivered a
Certificate, executed on behalf of the Company by its Secretary, dated as of
the Closing Date, certifying the resolutions

 

 

adopted by the Board of Directors of the
Company approving the transactions contemplated by this Agreement and the other
Transaction Documents and the issuance of the Securities, certifying the
current versions of the Certificate of Incorporation and Bylaws of the Company
and certifying as to the signatures and authority of persons signing the
Transaction Documents and related documents on behalf of the Company.

 

(i)            The Investors shall have received an
opinion from Weintraub, Genshlea, Chediak Sproul, the Company’s counsel, dated
as of the Closing Date, in form and substance reasonably acceptable to the
Investors and addressing such legal matters as the Investors may reasonably
request.

 

(j)            No stop order or suspension of
trading shall have been imposed by Nasdaq, the SEC or
any other governmental or regulatory body with respect to public trading in the
Common Stock.

 

6.2           Conditions to Obligations of the
Company. The Company’s obligation to sell and issue the Shares and the
Warrants at the Closing is subject to the fulfillment to the satisfaction of
the Company on or prior to the Closing Date of the following conditions, any of
which may be waived by the Company:

 

(a)           The representations and warranties
made by the Investors in Section 5 hereof, other than the representations and
warranties contained in Sections 5.3, 5.4, 5.5, 5.6, 5.7, 5.8 and 5.9 (the “Investment
Representations”), shall be true and correct in all material respects when
made, and shall be true and correct in all material respects on the Closing
Date with the same force and effect as if they had been made on and as of said
date.  The Investment Representations
shall be true and correct in all respects when made, and shall be true and
correct in all respects on the Closing Date with the same force and effect as
if they had been made on and as of said date. 
The Investors shall have performed in all material respects all
obligations and conditions herein required to be performed or observed by them
on or prior to the Closing Date.

 

(b)           The Investors shall have executed and
delivered the Registration Rights Agreement.

 

(c)           The Investors shall have delivered
the Purchase Price to the Company.

 

6.3           Termination of Obligations to
Effect Closing; Effects.

 

(a)           The obligations of the Company, on
the one hand, and the Investors, on the other hand, to effect
the Closing shall terminate as follows:

 

(i)            Upon the mutual written consent of
the Company and the Investors;

 

 

(ii)           By the Company if any of the
conditions set forth in Section 6.2 shall have become incapable of fulfillment,
and shall not have been waived by the Company;

 

(iii)          By an Investor (with respect to itself
only) if any of the conditions set forth in Section 6.1 shall have become
incapable of fulfillment, and shall not have been waived by the Investor; or

 

(iv)          By either
the Company or any Investor (with respect to itself only) if the Closing has
not occurred on or prior to June 1, 2005;

 

provided, however, that, except in the case
of clause (i) above, the party seeking to terminate its obligation to effect
the Closing shall not then be in breach of any of its representations,
warranties, covenants or agreements contained in this Agreement or the other
Transaction Documents if such breach has resulted in the circumstances giving
rise to such party’s seeking to terminate its obligation to effect the Closing.

 

(b)           In the event of termination by the
Company or any Investor of its obligations to effect the Closing pursuant to
this Section 6.3, written notice thereof shall forthwith be given to the other
Investors and the other Investors shall have the right to terminate their
obligations to effect the Closing upon written notice to the Company and the
other Investors.  Nothing in this Section
6.3 shall be deemed to release any party from any liability for any breach by
such party of the terms and provisions of this Agreement or the other
Transaction Documents or to impair the right of any party to compel specific
performance by any other party of its obligations under this Agreement or the
other Transaction Documents.

 

7.             Covenants and Agreements of the
Company.

 

7.1           Reservation of Common Stock.  The Company shall at all times reserve and
keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of providing for the exercise of the Warrants, such
number of shares of Common Stock as shall from time to time equal the number of
shares sufficient to permit the exercise of the Warrants issued pursuant to
this Agreement in accordance with their respective terms.

 

7.2           Reports.  The Company will furnish to the Investors
and/or their assignees such information relating to the Company and its
Subsidiaries as from time to time may reasonably be requested by the Investors
and/or their assignees; provided, however, that 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.

 

 

7.3           No Conflicting Agreements.  The Company will not take any action, enter
into any agreement or make any commitment that would conflict or interfere in
any material respect with the Company’s obligations to the Investors under the
Transaction Documents.

 

7.4           Insurance.  The Company shall not materially reduce the
insurance coverages described in Section 4.19.

 

7.5           Compliance with Laws.  The Company will comply in all material
respects with all applicable laws, rules, regulations, orders and decrees of
all governmental authorities.

 

7.6           Listing of Underlying Shares and
Related Matters.  Promptly following
the date hereof, the Company shall submit to Nasdaq an
additional listing application to include the Shares and the Warrant Shares in
the Nasdaq National Market System no later than fifteen days after the Closing
Date.  Further, if the Company applies to
have its Common Stock or other securities traded on any other principal stock
exchange or market, it shall include in such application the Shares and the
Warrant Shares and will take such other action as is necessary to cause such
Common Stock to be so listed.  The
Company will use commercially reasonable efforts to continue the listing and
trading of its Common Stock on the Nasdaq National Market System and, in
accordance, therewith, will use commercially reasonable efforts to comply in
all respects with the Company’s reporting, filing and other obligations under
the bylaws or rules of such market or exchange, as applicable.

 

7.7           Termination of Covenants.  The provisions of Sections 7.2 through 7.5
shall terminate and be of no further force and effect on the date on which the
Company’s obligations under the Registration Rights Agreement to register or
maintain the effectiveness of any registration covering the Registrable
Securities (as such term is defined in the Registration Rights Agreement) shall
terminate.

 

7.8           Removal of Legends.  Upon the earlier of (i) registration for
resale pursuant to the Registration Rights Agreement and receipt by the Company
of the Investor’s written confirmation that such Securities will not be
disposed of except in compliance with the prospectus delivery requirements of
the 1933 Act or (ii) Rule 144(k) becoming available the Company shall, upon an
Investor’s written request, promptly cause certificates evidencing the Investor’s
Securities to be replaced with certificates which do not bear such restrictive
legends, and Warrant Shares subsequently issued upon due exercise of the
Warrants shall not bear such restrictive legends provided the provisions of either
clause (i) or clause (ii) above, as applicable, are satisfied with respect to
such Warrant Shares.  When the Company is
required to cause unlegended certificates to replace previously issued legended
certificates, if unlegended certificates are not delivered to an Investor
within three (3) Business Days of submission by that Investor of legended
certificate(s) to the Company’s transfer agent together with a representation
letter in customary form, the Company shall be liable to the Investor for liquidated
damages in an amount equal to 1.5% of the aggregate purchase price of the
Securities evidenced by such certificate(s) for each thirty (30) day period (or
portion thereof) beyond such three (3) Business Day that the unlegended
certificates have not been so delivered.

 

 

7.9           Stockholder Approval.  In the event that the provisions of Section
8(f)(8) of the Warrants become applicable, the Company
shall use its commercially reasonable efforts to obtain the stockholder
approval required pursuant to such Section 8(f)(8) in accordance with the
requirements of Nasdaq and the Company’s certificate of incorporation and
by-laws as soon as reasonably practicable, including by calling a special
meeting of stockholders as contemplated by said Section 8(f)(8).

 

8.             Survival and Indemnification.

 

8.1  Survival.  The representations, warranties, covenants
and agreements contained in this Agreement shall survive the Closing of the
transactions contemplated by this Agreement.

 

8.2  Indemnification.  The Company agrees to indemnify and hold
harmless each Investor and its Affiliates and their respective directors,
officers, employees and agents from and against any and all losses, claims,
damages, liabilities and expenses (including without limitation reasonable
attorney fees and disbursements and other expenses incurred in connection with
investigating, preparing or defending any action, claim or proceeding, pending
or threatened and the costs of enforcement thereof) (collectively, “Losses”) to
which such Person may become subject as a result of any breach of
representation, warranty, covenant or agreement made by or to be performed on
the part of the Company under the Transaction Documents, and will reimburse any
such Person for all such amounts as they are incurred by such Person.

 

8.3  Conduct
of Indemnification Proceedings.  Promptly after receipt by any
Person (the “Indemnified Person”) of notice of
any demand, claim or circumstances which would or might give rise to a claim or
the commencement of any action, proceeding or investigation by a third party
(other than an Indemnified Person) in respect of which indemnity may be sought
pursuant to Section 8.2, such Indemnified Person shall promptly notify the
Company in writing and the Company shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such Indemnified Person,
and shall assume the payment of all fees and expenses; provided, however, that the failure of any Indemnified Person so to notify the
Company shall not relieve the Company of its obligations hereunder except to
the extent that the Company is materially prejudiced by such failure to
notify.  In any such proceeding, any
Indemnified Person shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Person
unless: (i) the Company and the Indemnified Person shall have mutually agreed
to the retention of such counsel; or (ii) in the reasonable judgment of counsel
to such Indemnified Person representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them.  The Company shall not be liable
for any settlement of any proceeding effected without its written consent,
which consent shall not be unreasonably withheld, but if settled with such
consent, or if there be a final judgment for the plaintiff, the Company shall
indemnify and hold harmless such Indemnified Person from and against any loss
or liability (to the extent stated above) by reason of such settlement or
judgment.  Without the prior written
consent of the Indemnified Person, which consent shall not be unreasonably
withheld, the Company shall not effect any settlement of any pending or
threatened proceeding in respect of which any Indemnified Person is or could
have been a party and indemnity could have been

 

 

sought hereunder
by such Indemnified Party, unless such settlement includes an unconditional
release of such Indemnified Person from all liability arising out of such
proceeding.

 

9.             Miscellaneous.

 

9.1           Successors
and Assigns.  This Agreement may not
be assigned by a party hereto without the prior written consent of the Company
or the Investors, as applicable, provided, however, that an Investor may assign
its rights and delegate its duties hereunder in whole or in part to an
Affiliate or to a third party acquiring some or all of its Securities in a
private transaction without the prior written consent of the Company or the
other Investors, after notice duly given by such Investor to the Company
provided, that no such assignment or obligation shall affect the obligations of
such Investor hereunder and, provided, further, 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, or other
similar transaction, without the prior written consent of the Investors, after
notice duly given by the Company to each Investor.  The provisions 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.

 

9.2           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.

 

9.3           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.

 

9.4           Notices.  Unless otherwise provided, any notice
required or permitted under this Agreement 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 telecopier, 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 to the party to be notified at the
address as follows, or at such other address as such party may designate by ten
days’ advance written notice to the other party:

 

 

If to the
Company:

 

Cellegy
Pharmaceuticals, Inc.

1000 Marina Boulevard,
Suite 300

Brisbane,
California 94005

Attention:  Chief Financial Officer

Fax:  (650) 616-2222

 

With a copy
to:

 

Weintraub,
Genshlea, Chediak, Sproul

400 Capitol
Mall, 11th Floor

Sacramento, CA
95814

Attention:  Kevin Kelso, Esq.

Fax: (916)
446-1611

 

If to the
Investors:

 

to
the addresses set forth on the signature pages hereto.

 

9.5           Expenses.  The parties hereto shall pay their own costs
and expenses in connection herewith, except that the Company shall pay the
reasonable fees and expenses of Lowenstein Sandler PC not to exceed
$20,000.  Such expenses shall be paid not
later than the Closing.  The Company
shall reimburse the Investors upon demand for all reasonable out-of-pocket
expenses incurred by the Investors, including without limitation reimbursement
of attorneys’ fees and disbursements, in connection with any amendment,
modification or waiver of this Agreement or the other Transaction
Documents.  In the event that legal
proceedings are commenced by any party to this Agreement against another party
to this Agreement in connection with this Agreement or the other Transaction
Documents, the party or parties which do not prevail in such proceedings shall
severally, but not jointly, pay their pro rata share of the reasonable
attorneys’ fees and other reasonable out-of-pocket costs and expenses incurred
by the prevailing party in such proceedings.

 

9.6           Amendments
and Waivers.  Any term of this
Agreement may be amended and the observance of any term of this Agreement may
be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the Investors holding a majority of the Shares.  Any amendment or waiver effected
in accordance with this paragraph shall be binding upon each holder of any
Securities purchased under this Agreement at the time outstanding, each future
holder of all such Securities, and the Company.

 

9.7           Publicity.  Except as set forth below, no public release
or announcement concerning the transactions contemplated hereby shall be issued
by the Company or the Investors without the prior consent of the Company (in
the case of a release or announcement by the Investors) or the Investors
acquiring a majority of the Shares (in the case of a release or announcement by
the Company) (which consents shall not be unreasonably withheld), except as

 

 

such release or announcement
may be required by law or the applicable rules or regulations of any securities
exchange or securities market, in which case the Company or the Investors, as
the case may be, shall allow the Investors or the Company, as applicable, to
the extent reasonably practicable in the circumstances, reasonable time to
comment on such release or announcement in advance of such issuance; provided,
however, that such prior approval requirements shall not apply to any filings
made by any Investor pursuant to the 1934 Act. 
By 8:30 a.m. (New York City time) on the trading day immediately
following the Closing Date, the Company shall issue a press release disclosing
the consummation of the transactions contemplated by this Agreement.  No later than the third trading day following
the Closing Date, the Company will file a Current Report on Form 8-K attaching
the press release described in the foregoing sentence as well as copies of the
Transaction Documents.  In addition, the
Company will make such other filings and notices in the manner and time required
by the SEC or Nasdaq. 
Notwithstanding the foregoing, the Company shall not publicly disclose
the name of any Investor, or include the name of any Investor in any filing
with the SEC (other than the Registration Statement and any exhibits to filings
made in respect of this transaction in accordance with periodic filing
requirements under the 1934 Act) or any regulatory agency or Nasdaq, without
the prior written consent of such Investor, except to the extent such disclosure
is required by law or trading market regulations, in which case the Company
shall provide the Investors with prior notice of such disclosure.

 

9.8           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 provision hereof prohibited or unenforceable in any respect.

 

9.9           Entire
Agreement.  This Agreement, including
the Exhibits and the Disclosure Schedules, and the other Transaction Documents
constitute the entire agreement among the parties hereof with respect to the
subject matter hereof and thereof and supersede all prior agreements and
understandings, both oral and written, between the parties with respect to the
subject matter hereof and thereof.

 

9.10         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.

 

9.11         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.

 

9.12         Independent Nature of Investors’
Obligations and Rights.  The
obligations of each Investor under any Transaction Document are several and not
joint with the obligations of any other Investor, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor under any Transaction Document. 
The decision of each Investor to purchase Securities pursuant to the
Transaction Documents has been made by such Investor independently of any other
Investor.  Nothing contained herein or in
any Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents.  Each Investor acknowledges that no other
Investor has acted as agent for such Investor in connection with making its
investment hereunder and that no Investor will be acting as agent of such
Investor in connection with monitoring its investment in the Securities or
enforcing its rights under the Transaction Documents.  Each Investor shall be entitled to
independently protect and enforce its rights, including, without limitation,
the rights arising out of this Agreement or out of the other Transaction
Documents, and it shall not be necessary for any other Investor to be joined as
an additional party in any proceeding for such purpose.  The Company acknowledges that each of the
Investors has been provided with the same Transaction Documents for the purpose
of closing a transaction with multiple Investors and not because it was
required or requested to do so by any Investor.

 

[signature
page follows]

 

 

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:

  	
  CELLEGY PHARMACEUTICALS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

 

	
  The Investors:

  	
   

  
	
   

  	
   

  
	
  [ENTITY INVESTORS USE THIS

  SIGNATURE BLOCK:]

  	
   

  
	
   

  	
   

  
	
  Entity

  	
   

  
	
  Name:

  	
   

  	
   

  
	
   

  	
  (Type
  or print name on line)

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  (Signature)

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
  Address:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
  Facsimile:
  (      )

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  [ENTITY INVESTORS USE THIS

  SIGNATURE BLOCK:]

  	
   

  
	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
   

  	
  (Type
  or print name on line)

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  (Signature)

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
  Address:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
  Facsimile:
  (      )

  	
   

  	
   

  
									

 

 

Aggregate Purchase Price:  $

Number of Shares:

Number of Series A Warrants:

Number of Series B Warrants:

 

	
  Address
  for Notice:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Facsimile:
  (     ) 

  	
   

  
	
   

  	
   

  
	
  With
  a copy to:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Attn:
  

  	
   

  
	
   

  	
   

  
	
   

  	
  Facsimile:
  (     )

  	
   

  
					

 

[Signature to Purchase
Agreement]

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