Document:

Exhibit 10.2

                                   May 5, 2005

The Board of Directors
Data Systems & Software Inc.
200 Route 17
Mahwah, New Jersey 07430

                  Re:      Employment Agreement and Consulting Arrangement

Dear Members of the Board:

         Reference is made to that certain Employment Agreement (the "Employment
Agreement") dated as of January 1, 1997, as amended as of May 17, 2001, as
further amended as of March 13, 2002 and December 30, 2004, by and between the
undersigned and Data Systems & Software Inc., a Delaware corporation (the
"Company").

         I hereby agree and acknowledge that for the period beginning on the
date hereof and ending on May 31, 2006 I will not seek to enforce Section
2(a)(2)(iii) of the Employment Agreement, which requires the Company to fund the
payment of all consulting fees to become payable to me throughout the entire
Consulting Period (as such term is defined in the Employment Agreement), and
will accept payments in respect thereof in accordance with the Company's usual
and customary payroll practices for executive officers, provided that, if any
one of the following events occur:

      (1)   the Company receives net proceeds of at least $1.5 million from an
            equity or long-term debt transaction or sale of assets;
      (2)   I die or become disabled; or
      (3)   I am terminated as Chief Executive Officer of the Company for any
            reason other than my voluntary resignation,

then, unless otherwise agreed to by me in writing, the Company shall be required
to comply with Section 2(a)(2)(iii) of the Employment Agreement and forthwith
make payment in full to me (or my estate, as the case may be) in accordance with
such provision.

<PAGE>

         This letter supersedes any and all prior agreements and understandings,
written or oral, with respect to the subject matter hereof.

         If the foregoing accurately sets forth our agreement with respect to
the foregoing, please execute a copy of this letter and return the same to the
undersigned.

                               Very truly yours,

                               /s/ George Morgenstern
                               George Morgenstern

AGREED AND ACKNOWLEDGED:

By:/s/ Yacov Kaufman
   ---------------------------
       Yacov Kaufman
       Chief Financial Officer

                                      -2-Exhibit
4.1

CERTIFICATE
OF DESIGNATIONS

OF

SERIES
E CONVERTIBLE PREFERRED STOCK

OF

COLUMBIA
LABORATORIES, INC.

PURSUANT
TO SECTION 151 OF THE GENERAL CORPORATION LAW

OF
THE STATE OF DELAWARE

The
undersigned officer of Columbia Laboratories, Inc., a corporation organized and
existing under the laws of the State of Delaware (the “Company”),
hereby certifies that the resolutions set forth below were duly adopted by the
Board of Directors of the Company pursuant to authority conferred upon the Board
of Directors by the provisions of the Certificate of Incorporation and the
By-laws of the Company at a meeting of the Board of Directors held on May 6,
2005.

The Board
of Directors adopted the resolutions set forth below authorizing the designation
of 100,000 shares of a new class of stock designated Series E Convertible
Preferred Stock (the “Series
E Preferred Stock”) and
the issuance of 70,000 shares thereof, and fixing the relative powers,
preferences, rights, qualifications, limitations and restrictions of the Series
E Preferred Stock. 

The
resolutions adopted by the Board of Directors are as follows:

 

	 	 	“RESOLVED
      that the designation of 100,000 shares of the Company’s 1,000,000
      authorized shares of preferred stock, par value $0.01 per share, as Series
      E Convertible Preferred Stock (“Series
      E Preferred Stock”)
      is hereby authorized and approved; and

	 	 	 

	
      
	
      
	
      RESOLVED,
      that the number, powers, designations, preferences and relative,
      participating, optional and other special rights, and the qualifications,
      limitations and restrictions of the Series E Preferred Stock are to be
      fixed as follows:

1. Designation
and Rank.

This
series of preferred stock shall be designated as “Series E Convertible Preferred
Stock.” The Series E Convertible Preferred Stock shall have $0.01 par value per
share. The number of authorized shares constituting the Series E Convertible
Preferred Stock shall be 100,000 shares. Shares of Series E Convertible
Preferred Stock have a stated value of $100 per share (the “Stated
Value”).

 

The
Series E Convertible Preferred Stock shall rank (i) prior to the Company’s
common stock, par value $0.01 per share (the “Common
Stock”), (ii)
prior to any class or series of capital stock of the Company hereafter created
ranking junior to the Series E Convertible Preferred Stock (together with the
Common Stock, the “Junior
Securities”), (iii)
pari passu with the Company’s Series B Convertible Preferred Stock, par value
$0.01 per share (the “Series
B Preferred Stock”) and
the Company’s Series C Convertible Preferred Stock, par value $0.01 per share
(the “Series
C Preferred Stock”) and
(iv) pari passu with any class or series of capital stock of the Company
hereafter created specifically ranking on parity with the Series E Convertible
Preferred Stock (collectively with the Series B Preferred Stock and the Series C
Preferred Stock, “Pari
Passu Securities”).

2. Dividends.

(a) Holders
of Series E Convertible Preferred Stock shall be entitled to receive dividends
when, as and if declared by the Board of Directors of the Company (the
“Board
of Directors”);
provided that the
Board of Directors has no obligation to declare any dividends.

(b) In the
event that the Board of Directors shall elect to pay or declare and set apart
for payment any dividend on any shares of Common Stock in cash out of funds
legally available therefor or in stock or other consideration, the holders of
the Series E Convertible Preferred Stock shall be entitled to receive dividends
payable in the form and in an amount per share equal to the per share amount
that would have been payable to such holders had such holders converted their
shares of Series E Convertible Preferred Stock into Common Stock pursuant to
Section 5 below prior to the record date with respect to such
dividend.

3. Liquidation
Preference.

(a) In the
event of any bankruptcy, liquidation, dissolution or winding up of the Company,
either voluntary or involuntary (a “Liquidation
Event”), each
holder of Series E Convertible Preferred Stock at the time thereof shall be
entitled to receive, prior and in preference to any distribution of any of the
assets or funds of the Company to the holders of the Common Stock or any other
Junior Securities, by reason of their ownership of such stock, an amount per
share of Series E Convertible Preferred Stock equal to the applicable Stated
Value (the “Liquidation
Preference”). After
the payment of the full Liquidation Preference on account of all shares of
Series E Convertible Preferred Stock as set forth in this Section 3 and
Pari Passu Securities, the remaining assets of the Company legally available for
distribution, if any, shall be distributed ratably to the holders of the Common
Stock and/or holders of any Junior Securities in accordance with the terms
thereof. If, upon the occurrence of a Liquidation Event, the assets and funds of
the Company available for distribution among the holders of the Series E
Convertible Preferred Stock and holders of Pari Passu Securities shall be
insufficient to permit the payment to such holders of the preferential amounts
payable thereon, then the entire assets and funds of the Company legally
available for distribution to the Series E Convertible Preferred Stock and the
Pari Passu Securities shall be distributed ratably among such shares in
proportion to the ratio that the preferential amounts payable on each such share
bears to the aggregate preferential amounts payable on all such shares.

2

(b) A merger,
recapitalization, reorganization, sale of stock or assets or other business
combination transaction involving the Company shall not be deemed to be a
Liquidation Event.

(c) In any
Liquidation Event, if the consideration received by the Company is other than
cash, the value thereof will be deemed its fair market value as determined in
good faith by the Board of Directors.

(d) The
Company will provide each holder of Series E Convertible Preferred Stock with
reasonable advance notice of any Liquidation Event, to the extent possible,
together with a summary of the material terms of such Liquidation
Event.

4. Voting
Rights.

(a) Each
holder of record of Series E Convertible Preferred Stock shall be entitled to
one vote for each share of Common Stock that such holder would be entitled to
receive upon conversion of all of its shares of Series E Convertible Preferred
Stock as of the record date for the determination of stockholders entitled to
vote on any matter. Except as otherwise provided by law and subject to Section
4(b), holders of Series E Convertible Preferred Stock shall vote together as a
single class with holders of Common Stock (and any other capital stock of the
Company at that time entitled to vote) on all matters upon which stockholders
are entitled to vote.

(b) So long
as 20,000 shares of Series E Convertible Preferred Stock are outstanding, the
Company shall not, without the affirmative vote or consent of a majority of the
outstanding shares of Series E Convertible Preferred Stock, voting as a separate
class, create any class or series of stock ranking prior to the Series E
Convertible Preferred Stock as to dividends or upon liquidation, or amend the
Company’s Certificate of Incorporation to affect adversely the powers (except as
such powers may be limited by the voting rights given to additional shares of
any class of stock), rights or preferences of the Series E Convertible Preferred
Stock. For the purposes of this Section 4(b), each holder of Series E
Convertible Preferred Stock shall be entitled to one vote for each share
held.

(c) Other
than the voting rights set forth in this Section 4, the holders of Series E
Convertible Preferred Stock shall not be entitled to vote as a separate class on
any matter, including the election of directors of the Company.

5. Conversion.

Shares of
Series E Convertible Preferred Stock may be converted into shares of Common
Stock, on the terms and conditions set forth in this Section 5.

3

 

(a) Optional
Conversion. At any
time and from time to time, each holder of a share of Series E Convertible
Preferred Stock may, upon 30 days’ prior written notice to the Company, convert
each share held by such holder into 50 shares of Common Stock, subject to
adjustment as provided in Section 5(g) below (the “Conversion
Rate”). In
order to convert shares of Series E Convertible Preferred Stock into shares of
Common Stock pursuant to this Section 5(a), the holder shall surrender the
certificate or certificates therefor, duly endorsed for transfer, at any time
during normal business hours, to the Company at its principal or at such other
office or agency then maintained by it for such purpose (the “Payment
Office”),
accompanied by written notice to the Company of such holder’s election to
convert and (if so required by the Company or any conversion agent) by an
instrument of transfer, in form reasonably satisfactory to the Company and to
any conversion agent, duly executed by the registered holder or by its duly
authorized attorney, and any taxes required pursuant to Section 5(d)(ii).
As promptly as practicable after the surrender for conversion of any share of
Series E Convertible Preferred Stock in the manner provided in the preceding
sentence, and the payment in cash of any amount required by the provisions of
Section 5(d)(ii), the Company will deliver or cause to be delivered at the
Payment Office to or upon the written order of the holder of such shares,
certificates representing the number of full shares of Common Stock issuable
upon such conversion, issued in such name or names as such holder may direct.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the shares in proper order for
conversion, and all rights of the holder of such shares as a holder of such
shares shall cease at such time and the person or persons in whose name or names
the certificates for such shares of Common Stock are to be issued shall be
treated for all purposes as having become the record holder or holders thereof
at such time; provided,
however, that
any such surrender and payment on any date when the stock transfer books of the
Company shall be closed shall constitute the person or persons in whose name or
names the certificates for such shares of Common Stock are to be issued as the
record holder or holders thereof for all purposes immediately prior to the close
of business on the next succeeding day on which such stock transfer books are
opened.

(b) Automatic
Conversion. Each
share of Series E Convertible Preferred Stock shall be converted into Common
Stock at the Conversion Rate automatically in the manner provided herein upon
the date on which the Current Market Price (as defined below) of the Common
Stock exceeds $6.00 per share. All holders of record of shares of Series E
Convertible Preferred Stock will be given written notice of the date fixed (the
“Automatic
Conversion Date”) for
automatic conversion of all shares of Series E Convertible Preferred Stock
pursuant to this Section. Such notice will be sent by first class mail, postage
prepaid, to each holder of record of the shares of Series E Convertible
Preferred Stock, at the address appearing on the records of the Company. Upon
receipt of notice of the Automatic Conversion Date, each holder of shares of
Series E Convertible Preferred Stock will surrender such holder’s certificate or
certificates for all such shares to the Company at the place designated in such
notice. If required by the Company, certificates surrendered for conversion will
be endorsed or accompanied by a written instrument or instruments of transfer,
in form satisfactory to the Company, duly executed by the registered holder. On
and after the Automatic Conversion Date, all rights with respect to the Series E
Convertible Preferred Stock so converted, including, without limitation, the
rights, if any, to receive dividends and notices, and to vote, will terminate,
except for the rights of the holders thereof, upon surrender of their
certificate or certificates therefor, to receive certificates for the number of
shares of Common Stock into which such Series E Convertible Preferred Stock has
been converted, and payment of any declared but unpaid dividends thereon through
the Automatic Conversion Date. As soon as practicable after the Automatic
Conversion Date and the surrender of the certificate or certificates
representing shares of Series E Convertible Preferred Stock, the Company will
issue and deliver to such holder a certificate or certificates for the number of
whole shares of Common Stock issuable upon such conversion in accordance with
the provisions hereof.

4

 

“Current
Market Price” per
share of Common Stock on any date means, except as hereinafter provided, the
average of the daily market prices of the Common Stock for the 20 consecutive
trading days preceding such date. The market price for each such day shall be
the last sale price on such day as quoted on the Nasdaq Stock Market’s National
Market (or such other national stock exchange which is the primary exchange on
with the Common Stock is then listed or admitted for trading), or, if no sale
takes place on such day or if the Common Stock is not then quoted on the Nasdaq
Stock Market’s National Market (or any other national stock exchange), the
market price for each such trading day shall be the average of the reported
closing bid and asked price quotation on such day in the over-the-counter
market, as reported by Nasdaq, or, if not so reported, as furnished by the
National Quotation Bureau, Inc., or, if such firm at the time is not engaged in
the business of reporting such prices, as furnished by any similar firm then
engaged in such business as selected by the Company, or if there is no such
firm, as furnished by any member of the NASD selected by the Company. If at any
time the Common Stock is not listed for trading on a national stock exchange or
quoted on the over-the-counter market, the Current Market Price shall be the
fair market value per share of Common Stock as determined by the Board of
Directors of the Company in good faith. 

(c) Common
Stock. The
Common Stock to be issued upon conversion hereunder shall be fully paid and
nonassessable.

(d) Fractional
Shares; Taxes.

(i) The
Company shall not be required to issue fractional shares of Common Stock upon
conversion of shares of Series E Convertible Preferred Stock. At the Company’s
discretion, in the event the Company determines not to issue fractional shares,
in lieu of any fractional shares to which the holder would otherwise be
entitled, the Company shall pay cash equal to such fraction multiplied by the
fair market value of a share of Common Stock on the date of conversion (as
determined in good faith by the Board of Directors).

(ii) The
issuance of certificates for shares of Common Stock upon conversion shall be
made without charge for any issue, stamp or other similar tax in respect of such
issuance. However, if any such certificate is to be issued in a name other than
that of the holder of record of the shares converted, the surrendered
certificates representing the shares of Series E Convertible Preferred Stock to
be converted must be endorsed or accompanied by a written instrument or
instruments of transfer, in form satisfactory to the Company, duly executed by
the registered holder, and the person or persons requesting the issuance of
certificates for shares of Common Stock upon conversion shall pay to the Company
the amount of any tax which may be payable in respect of any transfer involved
in such issuance or shall establish to the satisfaction of the Company that such
tax has been paid or is not payable.

5

 

(e) Reservation
of Stock Issuable Upon Conversion. The
Company shall reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series E Convertible Preferred Stock, a sufficient number of
shares of Common Stock to permit the conversion of the shares of Series E
Convertible Preferred Stock. If at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of Series E Convertible Preferred Stock without
regard to whether the holders of Series E Convertible Preferred Stock are then
entitled to convert, the Company will use its reasonable best efforts to take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose, including, without limitation,
taking appropriate board action, recommending such an increase to the holders of
Common Stock, holding stockholders’ meetings and soliciting votes and proxies in
favor of such increase to obtain the requisite stockholder approval, and upon
such approval, the Company shall reserve and keep available such additional
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of Series E Convertible Preferred Stock.

(f) Merger,
Etc.

(i) Notwithstanding
any other provision hereof, in case of any merger or other business combination
transaction involving the Company in which the Company is the surviving entity,
then, concurrently with the consummation of such transaction, provision shall be
made so that each share of Series E Convertible Preferred Stock shall thereafter
be convertible into the number of shares of stock or other securities or
property (including cash) to which a holder of the number of shares of Common
Stock deliverable upon conversion of such share of Series E Convertible
Preferred Stock would have been entitled assuming conversion immediately prior
to the closing of the transaction.

(ii)In case
of any merger or other business combination transaction involving the Company in
which the Company is not the surviving entity, and the Company or the holders do
not otherwise convert all outstanding shares of Series E Convertible Preferred
Stock, the Series E Convertible Preferred Stock shall be converted into or
exchanged for and shall become shares of the surviving company having, in
respect of the surviving company, substantially the same powers, preferences and
relative participating, optional or other special rights, and the
qualifications, limitations or restrictions thereon, that the Series E
Convertible Preferred Stock had immediately prior to such
transaction.

(g) Adjustments. If the
Company at any time while the Series E Convertible Preferred Stock, or any
portion thereof, remains outstanding shall split, subdivide or combine the
securities as to which conversion rights under this Certificate of Designations
exist into a different number of securities of the same class, the Conversion
Rate shall be proportionately increased in the case of a split or subdivision or
proportionately decreased in the case of a combination.

6

 

6. No
Redemption.

The
shares of Series E Convertible Preferred Stock shall not be
redeemable.

 

  IN
WITNESS WHEREOF, the Company has caused this Certificate of Designations to be
been signed by Fred Wilkinson, its President and CEO, and attested by Michael
McGrane, its Secretary, whereby said Secretary affirms, under penalties of
perjury, that this Certificate of Designations is the act and deed of the
Company and that the facts stated herein are true, this 9th day of May,
2005.

 

	 	 	 
	 	COLUMBIA LABORATORIES,
      INC.
	 
 	 
 	 
 
		By:  	/s/ Fred Wilkinson  
	 	
      

      Name: Fred Wilkinson
	 	Title: President and
      CEO

	Attest: 	 	 	 
	 	 	 	 
	By: 
      /s/ Michael McGrane	 	 	
	
      

      Name: Michael McGrane	 	 	
	Secretary	 	 	

7

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