Document:

Exhibit 10.2

 

AGREED
FORM

 

REGISTRATION
RIGHTS AGREEMENT

 

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

 

The parties hereby agree as follows:

 

1.     Certain Definitions.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Registration Statement” shall mean
any registration statement of the Company filed under the 1933 Act that covers
the resale of any of the Registrable Securities pursuant to the provisions of
this Agreement, amendments and supplements to such Registration Statement,
including post-effective amendments, all exhibits and all material incorporated
by reference in such Registration Statement.

 

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

 

 

“SEC” means the U.S. Securities and
Exchange Commission.”Shares” means the shares of Common Stock issued
pursuant to the Purchase Agreement, including, without limitation, any
additional shares of Common Stock issuable to the Investors pursuant to Section 3(b) thereof.

 

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

 

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

 

“Warrants” means, the warrants to
purchase shares of Common Stock issued to the Investors pursuant to the
Purchase Agreement, the form of which is attached to the Purchase Agreement as Exhibit A.

 

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

 

2.     Registration.

 

(a)           Registration
Statements.

 

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

 

(ii)           Additional
Registrable Securities.  Upon the
written demand of any Investor and upon any change in the Warrant Price (as
defined in the Warrant) such that additional shares of Common Stock become
issuable upon the exercise of the Warrants, the Company shall prepare and file
with the SEC one or more Registration Statements on Form S-3 

 

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

 

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

 

(c)           Effectiveness.

 

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

 

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declared effective by the SEC within ninety (90) days following the
time such Registration Statement was required to be filed pursuant to Section 2(a)(ii) (120
days if the SEC reviews the Registration Statement), or (B) after a
Registration Statement has been declared effective by the SEC, sales cannot be
made pursuant to such Registration Statement for any reason (including without
limitation by reason of a stop order, or the Company’s failure to update the
Registration Statement), but excluding the inability of any Investor to sell
the Registrable Securities covered thereby due to market conditions and except
as excused pursuant to subparagraph (ii) below, then
the Company will make pro rata payments to each Investor, as liquidated damages
and not as a penalty, in an amount equal to 1.5% of the aggregate amount
invested by such Investor for each 30- day period or pro rata for any portion
thereof following the date by which such Registration Statement should have
been effective (the “Blackout Period”). 
Such payments shall constitute the Investors’ exclusive monetary remedy
for such events, but shall not affect the right of the Investors to seek
injunctive relief.  The amounts payable
as liquidated damages pursuant to this paragraph shall be paid monthly within
three (3) Business Days of the last day of each month following the
commencement of the Blackout Period until the termination of the Blackout
Period.  Such payments shall be made to
each Investor in cash.

 

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

 

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

 

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

 

(b)          prepare
and file with the SEC such amendments and post-effective amendments to the
Registration Statement and the Prospectus as may be necessary to keep the
Registration Statement effective for the Effectiveness Period and to comply
with the provisions of the 1933 Act and the 1934 Act with respect to the
distribution of all of the Registrable Securities covered thereby;

 

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

 

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

 

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

 

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

 

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

 

(h)          promptly
notify the Investors, at any time when a Prospectus relating to Registrable
Securities is required to be delivered under the 1933 Act (including during any
period when the Company is in compliance with Rule 172), upon discovery
that, or upon the happening of any event as a result of which, the Prospectus
included in a Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing, and at the request of any such
holder, 

 

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

 

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

 

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

 

4.     Due Diligence Review; Information.  Upon reasonable prior notice, the Company
shall make available, during normal business hours, for inspection and review
by the Investors, advisors to and representatives of the Investors (who may or
may not be affiliated with the Investors and who are reasonably acceptable to
the Company), all financial and other records, all SEC Filings (as defined in
the Purchase Agreement) and other filings with the SEC, and all other corporate
documents and properties of the Company as may be reasonably necessary for the
purpose of such review, and cause the Company’s officers, directors and
employees, within a reasonable time period, to supply all such information
reasonably requested by the Investors or any such representative, advisor or
underwriter in connection with such Registration Statement (including, without
limitation, in response to all questions and other inquiries reasonably made or
submitted by any of them), prior to and from time to time after the filing and
effectiveness of the Registration Statement for the sole purpose of enabling
the Investors and such representatives, 

 

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advisors and underwriters and
their respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of such Registration
Statement.

 

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

 

5.     Obligations of the Investors.

 

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

 

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

 

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

 

6.     Indemnification.

 

(a)           Indemnification
by the Company.  The Company will
indemnify and hold harmless each Investor and its officers, directors, members,
employees and agents, successors and assigns, and each other person, if any,
who controls such Investor within the 

 

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

 

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

 

(c)           Conduct
of Indemnification Proceedings.  Any
person entitled to indemnification hereunder shall (i) give prompt notice
to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) permit such indemnifying party to assume the
defense of such claim with counsel reasonably satisfactory to the indemnified
party; provided that any person entitled to indemnification hereunder
shall have the right to employ 

 

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

 

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

 

7.     Miscellaneous.

 

(a)           Amendments
and Waivers.  This Agreement may be
amended, modified or waived only by a writing signed by the Company and the
Required Investors; provided that if any such amendment, modification or
waiver would adversely affect in any material respect any Investor or group of
Investors who have comparable rights under this Agreement disproportionately to
the other Investors having such comparable rights, such amendment,
modification, or waiver shall also require the written consent of the
Investor(s) so adversely affected. 
Notwithstanding the foregoing, no amendment or modification of this
Agreement that would restrict or otherwise limit any Investor’s registration
rights hereunder shall be effective against such Investor without its written
consent.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

10

 

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

 

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

 

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

 

11

 

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

 

	
  The Company:

  	
  TAPESTRY
  PHARMACEUTICALS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Leonard
  Shaykin

  
	
   

  	
  Title:

  	
  Chairman and
  Chief Executive Officer

  
					

 

12

 

	
  The
  Investors:

  	
  SPECIAL
  SITUATIONS FUND III QP, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name: Austin
  W. Marxe

  	
   

  
	
   

  	
  Title:
  General Partner

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SPECIAL
  SITUATIONS FUND III, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name: Austin
  W. Marxe

  	
   

  
	
   

  	
  Title:
  General Partner

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SPECIAL
  SITUATIONS CAYMAN FUND, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name: Austin
  W. Marxe

  	
   

  
	
   

  	
  Title:
  General Partner

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SPECIAL
  SITUATIONS PRIVATE EQUITY FUND, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name: Austin
  W. Marxe

  	
   

  
	
   

  	
  Title: General
  Partner

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SPECIAL
  SITUATIONS TECHNOLOGY FUND, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name: Austin
  W. Marxe

  	
   

  
	
   

  	
  Title:
  General Partner

  	
   

  
									

 

13

 

	
   

  	
  SPECIAL
  SITUATIONS TECHNOLOGY FUND II, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name: Austin
  W. Marxe

  	
   

  
	
   

  	
  Title:
  General Partner

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SPECIAL
  SITUATIONS LIFE SCIENCES FUND, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name: Austin
  W. Marxe

  	
   

  
	
   

  	
  Title:
  General Partner

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  [other
  investors]

  	
   

  
						

 

14

 

Exhibit A

 

Plan
of Distribution

 

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

 

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

 

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

 

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

 

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

 

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

 

• privately negotiated transactions;

 

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

 

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

 

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

 

• a combination of any such methods of
sale.

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

16

 

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

 

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

 

We have agreed with the
selling stockholders to keep the registration statement of which this
prospectus constitutes a part effective until the earlier of (1) such time
as all of the shares covered by this prospectus have been disposed of pursuant
to and in accordance with the registration statement or (2) the date on
which the shares may be sold pursuant to Rule 144(k) of the Securities
Act.

 

17Exhibit 10.3

 

AGREED FORM

 

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

 

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

 

No.                     

 

TAPESTRY PHARMACEUTICALS, INC.

 

WARRANT TO PURCHASE               
SHARES OF

COMMON STOCK, PAR VALUE $0.0075 PER SHARE

 

For VALUE
RECEIVED,                                         
(“Warrantholder”), is entitled to purchase, subject to the provisions of this
Warrant, from Tapestry Pharmaceuticals, Inc., a Delaware corporation (“Company”),
at any time not later than 5:00 P.M., Eastern time, on the Expiration Date
(as defined above), at an exercise price per share equal to $2.40(1) (the exercise
price in effect being herein called the “Warrant Price”),             
shares(2) (“Warrant Shares”) of the Company’s Common Stock, par value $0.0075
per share (“Common Stock”).  The number
of Warrant Shares purchasable upon exercise of this Warrant 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 this Warrant. 
Upon the initial issuance of this Warrant, the Company shall issue and
register this Warrant in the name of the Warrantholder.

 

Section 2.               Transfers.  As provided herein, this Warrant may be
transferred only pursuant to a registration statement filed under the
Securities Act or pursuant to an exemption from such registration.  Subject to such restrictions, the Company
shall transfer this Warrant from time to time upon the books to be maintained
by the Company for that purpose, within five calendar days following the surrender
hereof for transfer, properly endorsed or accompanied by appropriate
instructions for transfer and such other documents as may be reasonably
required by 

 

(1)                                  If
this Warrant is issued pursuant to Section 7.14 of the Purchase Agreement, then
the exercise price per share shall be equal to $0.01.

(2)                                  100%
warrant coverage.  If this Warrant is
issued pursuant to Section 7.14 of the Purchase Agreement, then this Warrant
shall represent the number of shares of Common Stock set forth opposite the
initial Warrantholder’s name on Schedule 7.14 to the Purchase Agreement.

 

 

 

the Company, including, if required by the Company, an opinion of
counsel to the transferor to the effect that such transfer is exempt from the
registration requirements of the Securities Act, to establish that such
transfer is being made in accordance with the terms hereof, and a new Warrant
shall be issued to the transferee and the surrendered Warrant shall be canceled
by the Company within such five calendar day period; provided that the Company
shall advise the Warrantholder in writing of any and all documentation
(including the form and substance of any instruction for transfer) that the
Company requires to effectuate such transfer within five calendar days of
receipt by the Company of a written request by the Warrantholder with respect
thereto.

 

Section 3.               Exercise
of Warrant.  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 this Warrant,
together with delivery of a duly executed Warrant exercise form, in the form
attached hereto as Appendix A (the “Exercise Agreement”) and payment by cash,
certified check or wire transfer of funds (or, in certain circumstances, by cashless exercise as provided
below) of the aggregate Warrant Price for that number of Warrant
Shares then being purchased, to the Company during normal business hours on any
business day at the Company’s principal executive offices (or such other office
or agency of the Company as it may designate by notice to the
Warrantholder).  The Warrant Shares so
purchased shall be deemed to be issued to the Warrantholder or the
Warrantholder’s designee, as the record owner of such shares, as of the close
of business on the date on which this Warrant shall have been surrendered (or
the date evidence of loss, theft or destruction thereof and security or
indemnity satisfactory to the Company has been provided to the Company), the
Warrant Price shall have been paid and the completed Exercise Agreement shall
have been delivered.  Certificates for
the Warrant Shares so purchased shall be delivered to the Warrantholder within
a reasonable time, not exceeding three (3) business days, after this
Warrant shall have been so exercised. 
The certificates so delivered shall be in such denominations as may be
requested by the Warrantholder and shall be registered in the name of the
Warrantholder or such other name as shall be designated by the Warrantholder,
as specified in the Exercise Agreement.  If
this Warrant shall have been exercised only in part, then, unless this Warrant
has expired, the Company shall, at its expense, at the time of delivery of such
certificates, deliver to the Warrantholder a new Warrant representing the right
to purchase the number of shares with respect to which this Warrant shall not
then have been exercised.  As used
herein, “business day” means a day, other than a Saturday or Sunday, on which
banks in New York City are open for the general transaction of business.  Each exercise hereof shall constitute the re-affirmation
by the Warrantholder that the representations and warranties contained in Section 5
of 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.  [To be included upon
request of the Warrantholder: Notwithstanding anything to the contrary
contained herein, the number of Warrant Shares that may be acquired by the
Warrantholder upon any exercise of this Warrant (or otherwise in respect
hereof) shall be limited to the extent necessary to insure that, following such
exercise (or other issuance), the total number of shares of Common Stock then
beneficially owned by such Warrantholder and its Affiliates and any other
Persons (each as defined in the Purchase Agreement) whose beneficial ownership
of Common Stock would be aggregated with the Warrantholder’s for purposes of Section 13(d) of
the United States Securities Exchange Act of 1934, as amended (the “Exchange
Act”), does not exceed 9.999% (the “Maximum Percentage”) of the total number of
issued and outstanding 

 

2

 

shares of Common Stock (including for such purpose the shares of Common
Stock issuable upon such exercise).  For
such purposes, beneficial ownership shall be determined in accordance with Section 13(d) of
the Exchange Act and the rules and regulations promulgated
thereunder.  Each delivery of an Exercise
Agreement hereunder will constitute an Exercise Agreement for the lesser of (i) the
full number of Warrant Shares requested in such Exercise Agreement or (ii) such
number of Warrant Shares giving effect to the limitation set forth in the
foregoing sentences.  The Company and the
Warrantholder shall cooperate to determine the effect of the limitations set
forth herein.  The Company’s right and
obligation to issue shares of Common Stock in excess of the limitation referred
to in this Section 3 shall be suspended (and, except as provided below,
shall not terminate or expire notwithstanding any contrary provisions hereof)
until such time, if any, as such shares of Common Stock may be issued in
compliance with such limitation; provided that, if, as of 5:00 p.m.,
Eastern time, on the Expiration Date, the Company has not received written
notice that the shares of Common Stock may be issued in compliance with such
limitation, the Company’s obligation to issue such shares shall terminate.  This provision shall not restrict the number
of shares of Common Stock which a Warrantholder may receive or beneficially own
in order to determine the amount of securities or other consideration that such
Warrantholder may receive in the event of a transaction of the type
contemplated in Section 7(b) of this Warrant.  The restrictions set forth in this Section 3
may be waived by the Warrantholder upon not less than 61 days’ written notice
to the Company.]

 

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

 

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

 

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

 

3

 

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

 

Section 8.               Adjustments.  Subject and pursuant to the provisions of
this Section 8, the 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 this 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 this Warrant shall be entitled to receive
the number of shares of Common Stock or other capital stock which the
Warrantholder would have received if this 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
this 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 theretofore issuable
upon exercise of this 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 

 

4

 

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 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 quotation system or association, the closing sale price of one share of
Common Stock on Nasdaq, the Bulletin Board or such other quotation system or
association on the last trading day prior to the Valuation Date or, if no such
closing sale price is available, the average of the high bid and the low asked
price quoted thereon on the last trading day prior to the Valuation Date; or (c) if
the Common Stock is not then listed on a national stock exchange or quoted on
Nasdaq, the Bulletin Board or such other quotation system or association, the
fair market value of one share of Common Stock as of the Valuation Date, as
determined in good faith by the Board of Directors of the Company and the
Warrantholder.  If the Common Stock is
not then listed on a national securities exchange, the Bulletin Board or such
other quotation system 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 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) of this paragraph, 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.

 

5

 

(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;

 

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)(7) shall
also be applicable:

 

6

 

(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
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 

 

7

 

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 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 

 

8

 

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 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).

 

(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 

 

9

 

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 February 1, 2006, among the Company and the
Investors named therein (the “Purchase Agreement”) and securities issued upon
the exercise or conversion of those securities, (D) shares of Common Stock
issued or issuable by reason of a dividend, stock split or other distribution
on shares of Common Stock (but only to the extent that such a dividend, split
or distribution results in an adjustment in the Warrant Price pursuant to the
other provisions of this Warrant), and (E) capital stock, Options or
Convertible Securities issued to suppliers, vendors and service providers of
and to the Company and its subsidiaries with an aggregate Market Price
(determined as of the time of such issuance) not to exceed $250,000 in any
fiscal year (collectively, “Excluded Issuances”).

 

(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.(3)

 

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 

 

(3)                                  If
this Warrant is issued pursuant to Section 7.14 of the Purchase Agreement, then
the following provision shall be added to Section 8(h): 

Notwithstanding any other provision in this
Warrant, no adjustment in the Warrant Price shall be required under this
Section 8 unless the aggregate of all such adjustments would require an
increase or decrease of at least one percent (1%) in the Warrant Price;
provided, however, that any adjustments which by reason of this sentence are
not required to be made shall be carried forward and taken into account in any
subsequent adjustment.  All calculations
under this Section 8 shall be made by the Company and shall be made to the
nearest cent or to the nearest one-hundredth of a share, as the case may
be.  No adjustment need be made for a
change in the par value of the Common Stock.

 

10

 

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

 

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

 

11

 

If to the
Company:

 

Tapestry
Pharmaceuticals, Inc.

4840 Pearl
East Circle, Suite 300W

Boulder,
Colorado 80301

Attention:  Leonard Shaykin, Chairman and Chief Executive
Officer

Fax:  (212) 319-2808

 

With a copy
to:

 

Kirkland &
Ellis LLP

Citigroup
Center

153 East 53rd
Street

New York, New
York 10022-4611

Attention:  Michael Movsovich

Fax: (212) 446-6460

 

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 

 

12

 

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

 

Section 18.             Call Provision.

 

(a)           Subject to the provisions of clauses (b) and
(c) below, in the event that the closing bid price of a share of Common
Stock as traded on Nasdaq (or such other exchange or stock market on which the
Common Stock may then be listed or quoted) equals or exceeds $4.80
(appropriately adjusted for any stock split, reverse stock split, stock
dividend or other reclassification or combination of the Common Stock occurring
after the date hereof) for at least twenty (20) consecutive trading days during
which the Registration Statement (as defined in the Registration Rights
Agreement) has been effective (the “Trading Condition”), the Company, upon
thirty (30) days prior written notice (the “Notice Period”) given to the
Warrantholder within three (3) business days immediately following the end
of such twenty (20) consecutive trading day period, may call this Warrant at a
redemption price equal to $0.0075 per share of Common Stock then purchasable
pursuant to this Warrant; provided that (i) the Company simultaneously
calls all Company Warrants (as defined below) on the same terms and on a pro
rata basis based on the aggregate number of shares of Common Stock then
purchasable pursuant to such Company Warrants, (ii) all of the shares of
Common Stock issuable hereunder either (A) are registered pursuant to an effective
Registration Statement (as defined in the Registration Rights Agreement) which
has not been suspended and for which no stop order is in effect, and pursuant
to which the Warrantholder is able to sell such shares of Common Stock at all
times during the Notice Period or (B) no longer constitute Registrable
Securities (as defined in the Registration Rights Agreement) and (iii) this
Warrant is fully exercisable for the full amount of Warrant Shares covered
hereby.  Notwithstanding any such notice
by the Company, the Warrantholder shall have the right to exercise this Warrant
prior to the end of the Notice Period.

 

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

 

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

 

Section 19.             Cashless Exercise.  Notwithstanding any other provision contained
herein to the contrary, from and after the first anniversary of the Date of
Issuance, the Warrantholder may elect to receive, without payment by the
Warrantholder of the aggregate Warrant Price in respect of the shares of Common
Stock to be acquired, shares of Common Stock having a fair 

 

13

 

market value equal to the Market Price of all shares of Common Stock
that may then be purchased upon full exercise of this Warrant, less the
aggregate exercise price for all such shares, or any specified portion thereof
(including as contemplated by clause (b) below), by the surrender to the
Company of this Warrant (or such portion of this Warrant being so exercised)
together with a Net Issue Election Notice, in the form annexed hereto as
Appendix B, duly executed, to the Company; provided that such election may be
made only, (a) for so long as the Company is required under the
Registration Rights Agreement to have effected the registration of the Warrant
Shares for resale to the public pursuant to a Registration Statement (as such
term is defined in the Registration Rights Agreement), if the Warrant Shares
may not be freely sold to the public for any reason (including, but not limited
to, the failure of the Company to have effected the registration of the Warrant
Shares or to have a current prospectus available for delivery or otherwise, but
excluding the period of any Allowed Delay (as defined in the Registration
Rights Agreement), or (b) at any other time, with respect to an aggregate
number of Warrant Shares equal to up to, but not in excess of, 50% of the
Warrant Shares (in aggregate together with all prior cashless exercises of a
portion of this Warrant) initially issued to the initial Warrantholder pursuant
to the Purchase Agreement.  Thereupon,
the Company shall issue to the Warrantholder such number of fully paid, validly
issued and nonassessable shares of Common Stock as is computed using the
following formula:

 

X = Y (A - B)

       A

 

where

 

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

 

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

 

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

 

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

 

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

 

Section 21.             Amendment; Waiver.  This Warrant is one of a series of Warrants
of like tenor issued by the Company pursuant to the Purchase Agreement and
initially covering an aggregate of [    ]
shares of Common Stock (collectively, the “Company Warrants”).  Any term of this Warrant may be amended or
waived (including the adjustment provisions included in 

 

14

 

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.

 

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

 

15

 

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

 

	
   

  	
  TAPESTRY
  PHARMACEUTICALS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Leonard
  Shaykin

  
	
   

  	
  Title:

  	
  Chairman and
  Chief Executive Officer

  
					

 

16

 

APPENDIX A

TAPESTRY PHARMACEUTICALS, INC.

WARRANT EXERCISE FORM

 

To: Tapestry Pharmaceuticals, Inc.

 

The
undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant (“Warrant”) for, and to purchase thereunder
by the payment of the Warrant Price and surrender of the Warrant,                               
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:
                                        ,

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Note: The signature must correspond with

  	
   

  	
  Signature:

  	
   

  	
   

  
	
  the name of the Warrantholder as written

  	
   

  	
   

  	
   

  	
   

  
	
  on the first page of the Warrant in every

  	
   

  	
   

  	
   

  
	
  particular, without alteration or enlargement

  	
   

  	
  Name (please print)

  	
   

  	
   

  
	
  or any change whatever, unless the Warrant

  	
   

  	
   

  	
   

  	
   

  
	
  has been assigned.

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Federal Identification or

  	
   

  	
   

  
	
   

  	
   

  	
  Social Security No.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Assignee:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
						

 

 

APPENDIX B

TAPESTRY PHARMACEUTICALS, INC.

NET ISSUE ELECTION NOTICE

 

To: Tapestry 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.

 

 

	
   

  	
   

  
	
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  Name for
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  Mailing
  Address

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00097-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00097-of-00352.parquet"}]]