Document:

PROMISSORY
      NOTE

     

    
      	U.S.$2,000,000	
              Dated
                as of: September 26,
                2006

            

    

                                            

    FOR
      VALUE RECEIVED,
      the
      undersigned company executing and delivering this PROMISSORY
      NOTE
      (this
“Note”)
      as
“Borrower" and identified as such on the signature pages to this Note under
      the
      caption “The
      Borrower”
      (together with its respective successors and assigns, the “Borrower”),
      by
      this Note absolutely and unconditionally promises to pay to the order of Strakan
      International Limited, a company organized under the laws of Bermuda (together
      with its successors and assigns, the “Lender”),
      on
      the “Maturity Date” (as defined below) or such earlier date set forth herein,
      the principal sum of Two Million Dollars (U.S. $2,000,000), and to pay interest
      as hereinafter provided on the principal sum outstanding hereunder from time
      to
      time from the date hereof until such principal sum or the unpaid portion thereof
      shall have been paid in full.

     

    The
      obligation of the Borrower hereunder to pay the principal of and the interest
      on
      this Note and to pay all (if any) other sums which may become due and payable
      on
      or in respect of this Note or the Indebtedness evidenced hereby, strictly in
      accordance with the terms and the tenor of this Note, are absolute,
      unconditional and irrevocable.

     

    This
      Note
      evidences the obligation of the Borrower to repay to the Holder hereof the
      principal amount of a loan (the “Loan”)
      in the
      aggregate original principal amount of U.S. $2,000,000 made by the Lender to
      the
      Borrower on the date hereof, and to pay to the Holder of this Note interest
      thereon and also all other sums that may become due and payable hereunder in
      accordance with the terms hereof.

     

    This
      Note
      and the obligations of the Borrower hereunder to the Holder hereof shall also
      be
      governed by the following additional provisions:

     

    Section
      1.   Definitions.
      As used
      in this Note, the following terms shall have the following meanings (such
      meanings to be equally applicable to both the singular and plural forms of
      the
      terms defined):

     

    “Applicable
      Law”
means
      all applicable provisions of constitutions, statutes, rules, regulations and
      orders of all governmental bodies, authorities and agencies, and all applicable
      judgments, orders and decrees of all courts and arbitrators.

     

    “Business
      Day”
means
      any day other than a Saturday, Sunday or other day on which commercial banks
      in
      Pennsylvania, Bermuda, or London, England are authorized or required by law
      or
      executive order to close or are otherwise closed to the public for the
      transaction of banking business.

     

    “Contingent
      Obligation”
means,
      in relation to any Person, any direct or indirect liability, contingent or
      otherwise, of that Person with respect to any Indebtedness, lease, dividend,
      letter of credit or other obligation of another if the primary purpose or intent
      thereof by the Person incurring the Contingent Obligation is to provide
      assurance to the obligee of such obligation that such obligation will be paid
      or
      discharged, or that any agreements relating thereto will be complied with,
      or
      that the holder of such obligation will be protected (in whole or in part)
      against loss in respect thereof. Contingent Obligations shall in any event
      include:

     

    (a)  any
      direct or indirect guaranty, endorsement (otherwise than for collection or
      deposit in the ordinary course of business), co-making, discounting with
      recourse or sale with recourse by such Person of the obligation of another;
      and

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (b)  any
      Indebtedness of such Person of the type described in clause
      (b)
      of the
      definition of the term “Indebtedness”.

     

     

    “Default”
means
      any Event of Default or any condition or event which, after notice or lapse
      of
      time, or both, would become an Event of Default.

     

    “Event
      of Default”
      is
      defined in Section 5.1.

     

    “Governmental
      Authority”
means
      any governmental authority of the United Kingdom, Bermuda, the United States
      of
      America, or any State thereof, including any political subdivision, authority,
      agency, department, public board or body, court or instrumentality of any such
      governmental authority, having jurisdiction over the Borrower or any of the
      transactions contemplated by this Note or any of the other Loan
      Documents.

     

    “Governmental
      Authorization” means
      any
      authorization, approval, consent, franchise, license, covenant, order, ruling,
      permit, certification, exemption, notice, declaration or similar right,
      undertaking or other action of, to or by, or any filing, qualification or
      registration with, any Governmental Authority.

     

    “Holder”
means
      the Lender in possession of this Note or any other Person who is at the time
      the
      lawful holder in possession of this Note.

     

    “Indebtedness”
means
      all of the obligations of the Borrower which, in accordance with generally
      accepted accounting principles, would be included as liabilities on the
      liability side of the balance sheet of the Borrower prepared as at such time,
      and in any event shall include:

     

    (a) all
      Indebtedness for borrowed money (including all notes payable and drafts accepted
      representing extensions of credit and all obligations evidenced by bonds,
      debentures, notes or other similar instruments on which interest charges are
      customarily paid), all Indebtedness relative to the face amount of all letters
      of credit, whether or not drawn, all Indebtedness of constituting capitalized
      lease obligations, and all other obligations for the deferred purchase price
      of
      Property or services;

     

    (b) all
      indebtedness arising or incurred under or in respect of any agreement,
      contingent or otherwise, made by the Borrower (i) to purchase any indebtedness
      of any other Person or to advance or supply funds for the payment or purchase
      of
      any indebtedness of any other Person, or (ii) to purchase, sell or lease (as
      lessee or lessor) any Property, or to purchase or sell transportation or
      services, primarily for the purpose of enabling any other Person to make payment
      of any indebtedness of such other Person or to assure the owner of such other
      Person’s indebtedness against loss, regardless of the delivery or non-delivery
      of the Property or the furnishing or non-furnishing of the transportation or
      services, or (iii) to make any investment in any other Person for the purpose
      of
      assuring a minimum equity, asset base, working capital or other balance sheet
      condition for or as at any date or to provide funds for the payment of any
      liability, dividend or stock liquidation payment or otherwise to supply funds
      to
      or in any manner invest in any other Person;

     

    (c)  all
      indebtedness created or arising under any conditional sale or other title
      retention agreement with respect to Property acquired by the Borrower, even
      though recourse with respect to such indebtedness is limited to such
      Property;

     

    (d)  all
      obligations, contingent or otherwise, relative to the face amount of all letters
      of credit, whether or not drawn, and bankers’ acceptances issued for the account
      of the Borrower; and

     

    (e)  all
      indebtedness arising or incurred under or in respect of any Contingent
      Obligations.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Anything
      in the foregoing sentence of this definition to the contrary notwithstanding,
      for purposes of this Agreement and the other Loan Documents, the term
“Indebtedness”,
      shall
      in no event include any Indebtedness or Contingent Obligations in respect of
      any
      accounts payable, accrued liabilities or other Indebtedness to trade creditors,
      employees, former employees or consultants, including, but not limited to,
      accrued liabilities for or in respect of employee payroll, payroll taxes,
      deferred compensation or severance arrangements, in each case, if and to the
      extent such accounts payable, accrued liabilities or other such Indebtedness
      arise in the ordinary course of business.

     

    “Insolvency
      Laws”
means
      the bankruptcy or insolvency laws of the United States, Bermuda, or the United
      Kingdom, or any other similar Requirements of Law of any other jurisdiction
      covering the protection of creditors’ rights or the relief of
      debtors.

     

    “Insolvency
      Proceedings”
means
      any dissolution, winding up, liquidation, arrangement, reorganization,
      adjustment, protection, relief or composition of the Borrower or its debts,
      whether voluntary or involuntary, in any bankruptcy, insolvency, arrangement,
      reorganization, receivership, relief or other similar action or proceeding
      under
      any Insolvency Laws, or upon any assignment for the benefit of creditors or
      any
      marshalling of the Property and liabilities of the Borrower, or
      otherwise.

     

    “Lien”
means
      any mortgage, security interest, pledge, hypothecation, assignment, deposit
      arrangement, encumbrance, lien (statutory, judgment or otherwise), preference,
      priority or other security agreement or preferential arrangement of any kind
      or
      nature whatsoever (including any conditional sale or other title retention
      agreement, any financing lease involving substantially the same economic effect
      as any of the foregoing and the filing of any financing statement under the
      Uniform Commercial Code or comparable law of any jurisdiction), and the rights
      of the creditor or secured party under any such agreement or
      instrument.

     

    “Loan
      Documents”
means,
      collectively, this Note, the Patent Security Agreement, the Trademark Security
      Agreement and each other agreement or instrument that shall from time to time
      after the date hereof be identified by the Holder and the Borrowers as a
“Loan
      Document”
      for
      purposes of this Note.

     

    “Maturity
      Date”
      means
      the later of (a) November 30, 2006; or (b) in the event that the Borrower should
      file with the U.S. Securities Exchange Commission (the “SEC”) a preliminary
      Proxy Statement relating to the sale of certain assets to the Lender, and if
      the
      SEC has reviewed that preliminary Proxy Statement, December 21, 2006; or (c)
      such later date as may be mutually agreed in writing between the parties
      hereto.

     

    “Obligations”
means,
      collectively, all payment, performance or other obligations of the Borrower
      to
      the Holder of any kind under or in respect of this Note or any of the other
      Loan
      Documents, whether direct or indirect, absolute or contingent, and whether
      for
      principal, interest (including interest accruing after the filing of a petition
      initiating any Insolvency Proceeding, whether or not such interest accrues
      after
      the filing of such petition for purposes of any applicable Insolvency Laws,
      or
      is an allowed claim in such Insolvency Proceeding), premium, fees,
      indemnification payments, contract causes of action, costs, expenses or
      otherwise.

     

    “Original
      Principal Amount”
      means
      the aggregate original principal amount of the Loan, i.e., U.S.
      $2,000,000.

     

    “Patent
      Collateral”
      means
      “Patent Collateral” as defined in the Patent Security Agreement.

     

    “Patent
      Portfolio”
      means
      the
      patents listed on Schedule
      A
      to the
      Patent Security Agreement.

     

    “Patent
      Security Agreement”
      means
      the Patent Collateral Assignment and Security Agreement, dated as of September
      26 2006, between the Borrower and the Lender, as amended and/or restated and
      in
      effect from time to time.

     

    “Permitted
      Lien”
      means
      Liens on (a) the Patent Collateral previously granted to PDI, Inc. and to the
      Lender and (b) the Trademark Collateral granted to the Lender.

     

    “Person”
means
      an individual, partnership, corporation (including a business trust), limited
      liability company, unlimited liability company, joint stock company, trust,
      unincorporated association, joint venture or other entity, or a government
      or
      any political subdivision or agency thereof.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    “Property”
means
      any interest in any kind of property or asset, whether real, personal or mixed,
      and whether tangible or intangible.

     

    “Requirements
      of Law”
means,
      with respect to any Person, all laws, constitutions, statutes, treaties,
      ordinances, rules and regulations, all orders, writs, decrees, injunctions,
      judgments, determinations or awards of an arbitrator, a court or any other
      Governmental Authority, and all Governmental Authorizations, binding upon or
      applicable to such Person or to any of its Properties or
      businesses.

     

    “Taxes”
      is
      defined in Section
      2.6.

     

    “Trademark
      Collateral”
      means
      “Pledged Trademarks” as defined in the Trademark Security
      Agreement.

     

    “Trademark
      Portfolio”
      means
      the
      patents listed on Schedule
      A
      to the
      Trademark Security Agreement.

     

    “Trademark
      Security Agreement”
      means
      the Trademark Collateral Security and Pledge Agreement, dated as of September
      26
      2006, between the Borrower and the Lender, as amended and/or restated and in
      effect from time to time.

     

    “U.S.
      Dollars”
and
      “U.S.
      $”
mean
      the lawful currency of the United States.

     

    Section
      2.   Principal,
      Interest and Other Payments, etc.

     

    2.1   Principal
      Payments.
      Repayments and prepayments of principal of this Note shall be made in accordance
      with the following provisions of this Section
      2.1.

     

    (a)  Repayments.
      The
      Borrower hereby promises to make payment in full of all of the unpaid principal
      of this Note on the Maturity Date. All of the Obligations of the Borrower
      evidenced by this Note shall, if not sooner paid, be in any event due and
      payable in full on the Maturity Date.

     

    (b)  Prepayments.
      The
      Borrower may, from time to time on any Business Day (without premium or penalty)
      make a voluntary prepayment, in whole or in part, of the then aggregate
      outstanding principal amount of this Note.

     

    2.2   Interest
      Payments.
      The
      Borrower shall make payments of interest under this Note in accordance with
      the
      following provisions of this Section
      2.2:

     

    (a)  Interest
      Rates.
      The
      Borrower hereby absolutely and unconditionally promises to pay interest on
      the
      unpaid principal amount of this Note for the period commencing on the date
      of
      this Note until such principal is paid in full at a rate per annum equal to
      six
      percent (6%).

     

    (b)  Interest
      on Overdue Amounts.
      Each
      overdue amount payable by the Borrower to the Holder under any provision of
      this
      Note shall bear interest, from the date on which such amount shall have first
      become due and payable by the Borrower to the Holder hereunder to the date
      on
      which such amount shall be paid to the Holder (whether before or after
      judgment), at the annual interest rate that is at all times equal to three
      percent (3%). The unpaid interest accrued on each overdue amount owing to the
      Holder in accordance with the foregoing terms of this paragraph
      (b)
      shall
      become and be absolutely due and payable by the Borrower to the Holder upon
      demand by the Holder at any time and from time to time. Interest on each such
      overdue amount shall continue to accrue in accordance with this paragraph
      (b)
      and
      shall be compounded monthly until the Obligations in respect of the payment
      of
      such overdue amount are discharged (whether before or after
      judgment).

     

    (c)  Payment
      Dates.
      Interest accrued on principal of this Note shall be payable, without
      duplication:

     

    (i)  on
      the
      Maturity Date; and 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (ii)  with
      respect to any portion of the outstanding principal of this Note prepaid
      pursuant to Section
      2.1(b),
      on the
      date of such prepayment.

     

    2.3   Making
      of Payments.
      Any and
      all payments by the Borrower under or in respect of this Note shall be made,
      irrespective of any right of counterclaim or setoff, not later than 3:00 p.m.
      (Delaware time) on the due date thereof or (as the case may be) on the date
      of
      demand therefor (or, if demand therefor is made after 3:00 p.m. (Delaware time)
      on any day, on the next succeeding Business Day), in U.S. Dollars to the Holder
      in same day funds in accordance with the Holder’s payment
      instructions.

     

    2.4   Due
      Date Extension.
      If any
      payment of principal of or interest on this Note, or any payment of any fees
      or
      other sums payable under this Note, falls due on a day which is not a Business
      Day, then such due date shall be extended to the next following Business Day,
      and additional interest shall accrue and be payable for the period of such
      extension.

     

    2.5   Computations.
      Interest shall be computed on the basis of a year of 360 days, and for the
      actual number of days (including the first day, but excluding the last day)
      occurring in the period for which such interest is payable.

     

    2.6   Taxes.
      Any and
      all payments by the Borrower under or in respect of this Note shall be made
      in
      U.S. Dollars and free and clear of and without any deduction or withholding
      for
      any and all present or future taxes, levies, imposts, duties, deductions,
      charges or withholdings, and all liabilities with respect thereto, excluding,
      in the
      case of the Holder, any franchise taxes imposed on the Holder by applicable
      Governmental Authorities as a direct consequence of the Holder being organized
      and existing or qualified to do business in any jurisdiction and any taxes,
      assessments, charges, duties, fees, levies or withholdings imposed on or
      determined by reference to the Holder’s overall net income by applicable
      Governmental Authorities (all such nonexcluded taxes, levies, imposts, duties,
      deductions, charges, withholdings and liabilities in respect of payments by
      the
      Borrowers or any of them under or in respect of this Note being called,
      collectively, “Taxes”).

     

    2.7   Costs
      and Expenses.
      The
      Borrower agrees to pay to the Lender, upon execution of this Note, to be paid
      out of the proceeds of the loan evidenced by this Note, U.S.$30,000 to cover,
      in
      part, costs and expenses incurred by the Lender in connection with the
      preparation, execution, delivery, filing, recording and administration of this
      Note, the other Loan Documents, and any other documents which may be prepared
      and/or delivered in connection with this Note or the other Loan Documents,
      including, without limitation, the reasonable fees and out-of-pocket expenses
      of
      counsel for the Lender with respect hereto and thereto and with respect to
      advising the Lender as to rights and responsibilities under this Note, and
      the
      other Loan Documents. In addition to the foregoing and any amounts required
      to
      be paid to the Lender pursuant to Section 6.1
      below,
      the Borrower shall pay to the Lender any and all stamp and other taxes and
      fees
      payable or determined to be payable in connection with the execution, delivery,
      filing and recording of the Note or any such other Loan Documents, and agrees
      to
      save the Holder harmless from and against any and all liabilities with respect
      to or resulting from any delay in paying or omission to pay such taxes or
      fees.

     

    2.8   No
      Set-off or Counterclaim.
      Each
      payment payable by the Borrower to the Holder under this Note shall be made
      by
      the Borrower to the Holder without set-off or counterclaim and free and clear
      of
      and without any restrictions or conditions of any nature.

     

    2.9   Indemnification.

     

    (a)  Without
      limiting any of the other Obligations or any of the other remedies of the Lender
      under this Note, the Borrower hereby agrees to indemnify and hold harmless
      the
      Lender from and against, any and all claims, damages, losses, liabilities and
      reasonable expenses (including, without limitation, reasonable fees and expenses
      of counsel) incurred by or asserted or awarded against the Lender in connection
      with or by reason of (i) the failure of any of the Obligations to be the legal,
      valid and binding obligations of the Borrower intended to be obligated therefor,
      enforceable against the Borrower in accordance with its terms, or (ii) any
      investigation, litigation or proceeding (including any Insolvency Proceedings)
      related to this Note or the funding or administration of the Loan or any of
      the
      other Loan Documents.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (b)  The
      Borrower hereby also agrees that neither the Lender nor any of its affiliates
      nor any of its officers, directors, employees, agents, representatives or
      advisors (each, an “Indemnified
      Party”)
      shall
      have any liability (whether direct or indirect, in contract, tort or otherwise)
      to the Borrower or any of its affiliates or any of their respective officers,
      directors, stockholders, partners, members, employees, agents, representatives
      or advisors, and the Borrower hereby agrees not to assert any claim against
      any
      of the Indemnified Parties on any theory of liability, for special, indirect,
      consequential or punitive damages, arising out of or otherwise relating to
      the
      transactions contemplated by the Loan Documents (or any aspect thereof), the
      actual or proposed use of the proceeds of the Loan, or the Loan Documents or
      any
      of the other transactions contemplated thereby, except to the extent, in the
      case of any such Indemnified Party, that such claim, damage, loss, liability
      or
      expense is found in a final, nonappealable judgment by a court of competent
      jurisdiction to have resulted from such Indemnified Party’s gross negligence or
      willful misconduct.

     

    (c)  Without
      prejudice to the survival of any of the other agreements of the Borrowers under
      this Note or any of the other Loan Documents, the agreements and obligations
      of
      the Borrowers contained in Section
      2.7
      hereof
      and this Section
      2.9
      shall
      survive the payment in full of the Obligations and all of the other amounts
      payable under this Note.

     

    Section
      3.   Representations
      and Warranties of Borrowers.
      The
      Borrower represents and warrants to the Lender as follows:

     

    (a)  The
      Borrower has received from the Lender on the date hereof the cash proceeds
      of
      the Loan in the Original Principal Amount by wire transfer of such amount to
      an
      account designated in writing by the Borrower.

     

    (b)  The
      proceeds of the Loan have been or (as the case may be) will be used for working
      capital and general corporate purposes.

     

    (c)  This
      Note
      and the Obligation hereunder constitute the legal, valid and binding obligations
      of the Borrower, enforceable against the Borrower in accordance with their
      respective terms, except to the extent that the enforceability thereof may
      be
      limited by or subject to Insolvency Laws or moratorium or other similar laws
      now
      or hereafter in effect affecting creditors’ rights generally (regardless of
      whether such enforceability is considered a proceeding in equity or at
      law).

     

    (d)  The
      Obligations rank and will continue to rank at least pari passu
      in
      priority of payment and in all other respects with all other secured
      Indebtedness of the Borrower, subject to the Permitted Liens.

     

    Section
      4.   Certain
      Covenants of Borrower.
      The
      Borrower agrees with the Holder and warrants that, from and after the date
      hereof and until all of the Obligations have been paid in full, except as
      otherwise expressly consented to, in each instance, by the Holder in
      writing:

     

    (a)  Reporting
      Requirements.
      The
      Borrower will furnish to the Holder the following:

     

    (i)  promptly
      after the occurrence of each Default, a written statement of an authorized
      officer of the Borrower setting forth details of such Default and the action
      which the Borrower proposes to take with respect thereto;

     

    (ii)  promptly
      after the occurrence thereof, written notice of any event or events which are
      reasonably likely to have a materially adverse effect; and

     

    (iii)  such
      other financial information respecting the business, Property or the financial
      condition or operations of the Borrower as the Holder may from time to time
      reasonably request.

     

    (b)  Liens
      Upon Patent and Trademark Collateral.
      The
      Borrower will not create, incur, assume, or permit or suffer to exist, any
      Liens
      upon the Patent Collateral or Trademark Collateral other than Permitted
      Liens.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Section
      5.   Events
      of Default and Remedies.

     

    5.1   Events
      of Default.
      The
      term “Event
      of Default”
      shall
      mean any of the following events set forth in this Section
      5.1
      occurring or existing at any time on or after the date of this
      Note:

     

    (a)  Non-Payment
      of Obligations.
      The
      Borrower shall default in the payment when due under this Note of any sum
      (whether of principal, interest or otherwise).

     

    (b)  Non-Performance
      of Other Obligations.
      The
      Borrower shall default in the due performance or observance of any of its
      Obligations under this Note or any of the other Loan Documents (other than
      the
      Obligations specified in paragraph
      (a)),
      and
      such default shall continue unremedied for more than five (5) days after notice
      thereof shall have been given to any of the Borrower by the Holder.

     

    (c)  Breach
      of Warranty.
      Any
      representation or warranty of the Borrower under any of the Loan Documents
      shall
      be untrue or incorrect in any material respect when made or deemed
      made.

     

    (d)  Sale/Transfer
      of Property.
      The
      Borrower shall enter into an agreement to sell or otherwise transfer all or
      substantially all of its Property, the Patent Collateral or the Trademark
      Collateral.

     

    (e)  Insolvency
      Proceedings, etc.
      The
      Borrower shall:

     

    (i)  generally
      fail to pay its debts as they become due, or admit in writing its inability
      to
      pay its debts as they become due;

     

    (ii)  apply
      for, consent to, or acquiesce in, the appointment of a trustee, receiver,
      sequestrator or other custodian for the Borrower or for any substantial part
      of
      its Property, or make a general assignment for the benefit of its
      creditors;

     

    (iii)  in
      the
      absence of such application, consent or acquiescence, permit or suffer to exist
      the involuntary appointment of a trustee, receiver, sequestrator or other
      custodian for the Borrower or for a substantial part of its Property, and such
      trustee, receiver, sequestrator or other custodian shall not be discharged
      within forty-five (45) days;

     

    (iv)  permit
      or
      suffer to exist the involuntary commencement of, or voluntarily commence, any
      Insolvency Proceedings under any Insolvency Laws, or permit or suffer to exist
      the involuntary commencement of, or voluntarily commence, any dissolution,
      winding up or liquidation proceeding, in each case, by or against the Borrower,
      provided
      that, if
      not commenced by the Borrower, such proceeding shall be consented to or
      acquiesced in by the Borrower, or shall result in the entry of an order for
      relief or shall remain undismissed for more than forty-five (45)
      days;

     

    (v)  permit
      the commencement of any case, proceeding or other action seeking the issuance
      of
      a warrant of attachment, execution, distraint or similar process against all
      or
      any material part of the Property of the Borrower; or

     

    (vi)  take
      any
      corporate action authorizing any of the foregoing.

     

    (f)  Failure
      to Approve Sale of Patent Portfolio and Trademark Portfolio.
      The
      shareholders and directors of the Borrower shall not have approved of the sale
      of the Patent Portfolio and Trademark Portfolio to the Lender on or prior to
      the
      Maturity Date.

     

    (g)  Impairment
      of Loan Documents, etc.
      This
      Note or any of the other Loan Documents shall (except in accordance with their
      terms), in whole or in part, cease to be effective, or cease to be the legally
      valid, binding and enforceable Obligation of the Borrower; or the Borrower
      shall, directly or indirectly, contest in any manner such effectiveness,
      validity, binding nature or enforceability.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    5.2   Action
      if Insolvency Proceeding.
      If any
      Default or Event of Default described in Section
      5.1(e)
      shall at
      any time occur, all of the outstanding principal amount of this Note and all
      of
      the other Obligations of each of the Borrowers hereunder shall automatically
      become and be immediately due and payable, all without notice, demand,
      presentment or other action of any kind.

     

    5.3   Action
      if Any Other Event of Default.
      If any
      Event of Default (other than an Event of Default described in Section
      5.1(e))
      shall at
      any time occur for any reason, whether voluntary or involuntary, and be
      continuing, the Holder may declare all or any portion of the outstanding
      principal amount of this Note and the outstanding amount of all or any of the
      other Obligations of the Borrower hereunder to be immediately due and payable,
      whereupon such principal and other Obligations shall become and be immediately
      due and payable, in each case, without notice, demand, presentment or other
      action of any kind, all of which are hereby expressly and irrevocably waived
      by
      the Borrower. 

     

    Section
      6.   Miscellaneous
      Provisions.

     

    6.1   Costs
      and Expenses of Enforcement, etc.
      Should
      all or any part of the Indebtedness represented by this Note be collected by
      action at law, or in Insolvency Proceedings or other court proceedings, or
      should this Note be placed in the hands of attorneys for collection after
      Default, the Borrower hereby promises to pay to the Holder of this Note, upon
      demand by the Holder hereof at any time and from time to time, in addition
      to
      principal, interest and all (if any) other sums payable on or in respect of
      this
      Note or the Indebtedness evidenced hereby, all court costs and reasonable
      attorneys’ fees and all other reasonable collection charges and expenses
      incurred or sustained by the Holder in connection with the enforcement of this
      Note, any participation agreement related to this Note, the other Loan Documents
      and such other documents which may be delivered in connection with this Note
      or
      the other Loan Documents.

     

    6.2   Waivers.
      The
      Borrower hereby unconditionally and irrevocably waives notice of acceptance,
      presentment, notice of nonpayment, protest, notice of protest, suit and all
      other conditions precedent in connection with the delivery, acceptance,
      collection and/or enforcement of this Note or any collateral or security
      therefor or any guarantees hereof.

     

    6.3   CHOICE
      OF LAW.
      THIS
      NOTE SHALL IN ALL RESPECTS BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
      THE
      INTERNAL LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS MADE AND TO
      BE
      PERFORMED WHOLLY WITHIN SUCH STATE AND, IN THE CASE OF PROVISIONS RELATING
      TO
      INTEREST RATES, ANY APPLICABLE LAWS OF THE UNITED STATES OF
      AMERICA.

     

    6.4   Submission
      to Jurisdiction; Waiver of Jury Trial.

     

    (a)  THE
      BORROWER BY ITS EXECUTION HEREOF (A) HEREBY IRREVOCABLY SUBMITS TO THE
      NONEXCLUSIVE JURISDICTION OF THE STATE COURTS OF THE STATE OF DELAWARE AND
      TO
      THE NONEXCLUSIVE JURISDICTION OF ANY FEDERAL COURTS SITTING IN THE
      STATE
      OF DELAWARE
      FOR THE
      PURPOSE OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF OR BASED UPON
      THIS NOTE OR ANY OTHER LOAN DOCUMENT OR THE SUBJECT MATTER HEREOF OR THEREOF,
      AND (B) HEREBY WAIVES, TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW, AND
      AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, IN ANY SUCH
      PROCEEDING, ANY CLAIM THAT IT IS NOT SUBJECT PERSONALLY TO THE JURISDICTION
      OF
      THE ABOVE-NAMED COURTS, THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT
      OR
      EXECUTION, THAT ANY SUCH PROCEEDING BROUGHT IN ONE OF THE ABOVE-NAMED COURTS
      IS
      IMPROPER, OR THAT THIS NOTE OR ANY OTHER LOAN DOCUMENT OR THE SUBJECT MATTER
      HEREOF OR THEREOF MAY NOT BE ENFORCED IN OR BY SUCH COURT. THE BORROWER HEREBY
      CONSENTS TO SERVICE OF PROCESS IN ANY SUCH PROCEEDING IN ANY MANNER PERMITTED
      BY
      THE LAWS OF THE STATE OF DELAWARE AND AGREES THAT SERVICE OF PROCESS BY
      REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS GIVEN
      TO
      THE HOLDER HEREOF IS REASONABLY CALCULATED TO GIVE ACTUAL NOTICE.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (b) TO
      THE
      EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, THE BORROWER
      AND
      THE HOLDER HEREBY WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS
      PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM
      IN
      RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING OUT
      OF OR
      BASED UPON THIS NOTE OR ANY OTHER LOAN DOCUMENT OR THE SUBJECT MATTER HEREOF
      OR
      THEREOF OR ANY OBLIGATION OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL
      TO THE DEALINGS OF THE BORROWER OR THE HOLDER IN CONNECTION WITH ANY OF THE
      ABOVE, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER IN
      CONTRACT OR TORT OR OTHERWISE. THE BORROWER ACKNOWLEDGES THAT THE PROVISIONS
      OF
      THIS PARAGRAPH
      (b)
      CONSTITUTE A MATERIAL INDUCEMENT UPON WHICH THE HOLDER IS RELYING AND UPON
      WHICH
      THE LENDER HAS RELIED IN MAKING THE LOAN TO THE BORROWER. THE HOLDER OR THE
      BORROWER MAY FILE THE ORIGINAL OF THIS NOTE OR A COPY OF THIS PARAGRAPH
      (b)
      WITH ANY
      COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE BORROWER AND THE HOLDER TO
      THE
      WAIVER OF ITS RIGHT TO TRIAL BY JURY.

     

    

     

    
      
        
          

           

        

         

      

      
         

        
          

        

      

      
         

        
        

      

    

    IN
      WITNESS WHEREOF,
      this
PROMISSORY
      NOTE, in
      the
      face amount of U.S. $2,000,000, has been duly executed and delivered by the
      undersigned Borrower on and as of September 26, 2006.

     

    
      	 	THE BORROWER:
	 	 	 
	 	CELLEGY
              PHARMACEUTICALS, INC.
	 
 	 
 	 
 
	 	By:  	/s/ Richard
              C. Williams
	 	
              

            
	 	Title:
              Interim Chief Executive Officer

    

     

    

    

    ACCEPTANCE
      BY LENDER

     

    STRAKAN
      INTERNATIONAL LIMITED hereby accepts the foregoing PROMISSORY
      NOTE and
      all
      of the agreements, promises and covenants of the Borrower set forth therein,
      on
      and as of September 26, 2006.

     

    

    

    
      
        	 	THE
                LENDER:
	 	 	 
	 	STRAKAN
                INTERNATIONAL LIMITED
	 
 	 
 	 
 
	Dated
                as
                of: September 26, 2006  	By:  	/s/ Wilson
                Totten
	 	
                

              
	 	Title:
                CEO and DirectorPATENT
      COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT

     

    PATENT
      COLLATERAL SECURITY AND PLEDGE AGREEMENT dated as of September 26, 2006, between
      CELLEGY PHARMACEUTICALS, INC., a Delaware corporation having its principal
      place
      of business at 1800 Byberry Road, Building 13, Huntingdon Valley, PA 19006,
      USA
      (the “Assignor”), and STRAKAN INTERNATIONAL LIMITED, a company organized under
      the Laws of Bermuda having an office at Galabank Business Park, Galashiels
      TD1
      1QH, UK (the “Assignee”). 

     

    WHEREAS,
      the Assignor has issued to the Assignee a Promissory Note dated as of September
      26, 2006, (as amended and in effect from time to time, the “Note”);

     

    WHEREAS,
      it is a condition precedent to the Assignee’s making any loans to the Assignor
      under the Note that the Assignor execute and deliver to the Assignee a patent
      agreement in substantially the form hereof;

     

    NOW,
      THEREFORE, in consideration of the premises contained herein and for other
      good
      and valuable consideration, the receipt and sufficiency of which are hereby
      acknowledged, the parties hereto hereby agree as follows:

     

    1.  DEFINITIONS.

     

    Capitalized
      terms used herein and not otherwise defined herein shall have the respective
      meanings provided therefor in the Note. In addition, the following terms shall
      have the meanings set forth in this §1 or elsewhere in this Patent Agreement
      referred to below:

     

    Lien.
      Any
      mortgage, security interest, pledge, hypothecation, assignment, deposit
      arrangement, encumbrance, lien (statutory, judgment or otherwise), preference,
      priority or other security agreement or preferential arrangement of any kind
      or
      nature whatsoever (including any conditional sale or other title retention
      agreement, any financing lease involving substantially the same economic effect
      as any of the foregoing and the filing of any financing statement under the
      Uniform Commercial Code or comparable law of any jurisdiction), and the rights
      of the creditor or secured party under any such agreement or
      instrument.

     

    Patent
      Agreement.
      This
      Patent Collateral Assignment and Security Agreement, as amended and in effect
      from time to time.

     

    Patent
      Collateral.
      All of
      the Assignor’s right, title and interest in and to all of the Patents, the
      Patent License Rights, and all other Patent Rights, and all additions,
      improvements, and accessions to, all substitutions for and replacements of,
      and
      all products and Proceeds (including insurance proceeds) of any and all of
      the
      foregoing, and all books and records and technical information and data
      describing or used in connection with any and all such rights, interests, assets
      or property.

     

    Patent
      License Rights.
      Any and
      all past, present or future rights and interests of the Assignor pursuant to
      any
      and all past, present and future licensing agreements in favor of the Assignor,
      or to which the Assignor is a party, pertaining to any Patents, or Patent
      Rights, owned or used by third parties in the past, present or future, including
      the right in the name of the Assignor or the Assignee to enforce, and sue and
      recover for, any past, present or future breach or violation of any such
      agreement.

     

    Patent
      Rights.
      Any and
      all past, present or future rights in, to and associated with the Patents
      throughout the United States, whether arising under federal law, state law,
      common law, or otherwise, including but not limited to the following: all such
      rights arising out of or associated with the Patents; the right (but not the
      obligation) to register claims under any federal, or state patent law or
      regulation; the right (but not the obligation) to sue or bring opposition or
      bring cancellation proceedings in the name of the Assignor or the Assignee
      for
      any and all past, present and future infringements of or any other damages
      or
      injury to the Patents or the Patent Rights, and the rights to damages or profits
      due or accrued arising out of or in connection with any such past, present
      or
      future infringement, damage or injury; and the Patent License
      Rights.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Patents.
      All
      United States patents and patent applications listed on Schedule
      A
      hereto
      (as the same may be amended pursuant hereto from time to time), including but
      not limited to:

     

    (a)  all
      letters patent of the United States and all applications for letters patent
      of
      the United States relating thereto;

     

    (b)  all
      re-issues, continuations, divisions, continuations-in-part, renewals or
      extensions thereof;

     

    (c)  the
      inventions disclosed or claimed therein, including the right to make, have
      made,
      use, practice and/or sell (or license or otherwise transfer or dispose of)
      the
      inventions disclosed or claimed therein; and

     

    (d)  the
      right
      (but not the obligation) to make, have made and prosecute applications for
      such
      Patents.

     

    Permitted
      Liens.
      The
      Liens, and the agreements and instruments relating thereto, relating to a
      portion of the Patent Collateral previously granted by Assignor before the
      date
      of this Patent Agreement to PDI, Inc.

     

    Proceeds.
      Any
      consideration received from the sale, exchange, license, lease or other
      disposition or transfer of any right, interest, asset or property which
      constitutes all or any part of the Patent Collateral, any value received as
      a
      consequence of the ownership, possession, use or practice of any Patent
      Collateral, and any payment received from any insurer or other person or entity
      as a result of the destruction or the loss, theft or other involuntary
      conversion of whatever nature of any right, interest, asset or property which
      constitutes all or any part of the Patent Collateral.

     

    PTO.
      The
      United States Patent and Trademark Office.

     

    2.  GRANT
      OF SECURITY INTEREST.

     

    2.1.  Grant.
      To
      secure the payment and performance in full of all of the Obligations, the
      Assignor hereby grants, assigns, transfers and conveys to the Assignee, BY
      WAY
      OF COLLATERAL SECURITY, all of the Patent Collateral. THE ASSIGNEE ASSUMES
      NO
      LIABILITY ARISING IN ANY WAY BY REASON OF ITS HOLDING SUCH COLLATERAL
      SECURITY.

     

    2.2.  Permitted
      Liens.
      Assignee’s rights under this Patent Agreement, and all provisions and defined
      terms hereunder (including, without limitation, the definitions of Patent
      Collateral, Patent License Rights, Patent Rights and Proceeds), are qualified
      by
      and subject in all events, to, and, in the case of such definitions exclude
      any
      items or rights included within, the Permitted Liens and PDI’s rights
      thereunder. Nothing in this Patent Agreement shall be interpreted in any way
      so
      as to constitute a sale, assignment, transfer, disposition, pledge, lien,
      security interest or other encumbrance with respect to any of the “Pledged
      Collateral” as defined in the Permitted Liens, or to limit or impair PDI’s
      rights under the Permitted Liens in the event of an Event of Default thereunder.
      Assignee shall not take any action under this Patent Agreement that would
      impair, conflict with, or otherwise interfere with PDI’s rights under the
      Permitted Liens, or take any other action pursuant to the rights granted under
      this Patent Agreement regarding the Pledged Collateral that would cause Assignor
      to be in breach of its obligations to PDI under the Permitted Liens.

     

    3.  REPRESENTATIONS,
      WARRANTIES AND COVENANTS.

     

    The
      Assignor represents, warrants and covenants that: (a) the Patents are subsisting
      and have not been adjudged invalid or unenforceable, in whole or in part, and
      there is no litigation or proceeding pending concerning the validity or
      enforceability of the issued Patents; (b) to the best of the Assignor’s
      knowledge, each of the issued Patents is valid and enforceable; (d) to the
      best
      of the Assignor’s knowledge, there is no infringement by others of the Patents
      or Patent Rights; (d) no claim has been made that the use of any of the Patents
      does or may violate the rights of any third person, and to the best of the
      Assignor’s knowledge there is no infringement by the Assignor of the patent
      rights of others; (e) the Assignor is the sole and exclusive owner of the entire
      and unencumbered right, title and interest in and to each of the Patents (other
      than ownership and other rights reserved by third party owners with respect
      to
      Patents which the Assignor is licensed to practice or use), free and clear
      of
      any liens, charges, encumbrances and adverse claims, including without
      limitation pledges, assignments, licenses, shop rights and covenants by the
      Assignor not to sue third persons, other than Permitted Liens and the security
      agreement and mortgage created by this Patent Agreement; (f) the Assignor has
      the unqualified right to enter into this Patent Agreement and perform its terms
      and has entered and will enter into written agreements with each of its present
      and future employees, agents, consultants, licensors and licensees which will
      enable it to comply with the covenants herein contained; (g) this Patent
      Agreement will create in favor of the Assignee a valid and perfected security
      interest in the Patent Collateral second in priority only to the Permitted
      Liens
      upon making the filings referred to in clause (h) of this §3; and (h) except for
      the filing of financing statements with Secretary of State for the State of
      Delaware under the Uniform Commercial Code and the filing of this Patent
      Agreement with the PTO, no authorization, approval or other action by, and
      no
      notice to or filing with, any governmental or regulatory authority, agency
      or
      office is required either (A) for the grant by the Assignor or the effectiveness
      of the security interest and assignment granted hereby or for the execution,
      delivery and performance of this Patent Agreement by the Assignor, or (B) for
      the perfection of or the exercise by the Assignee of any of its rights and
      remedies hereunder.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    4.  NO
      TRANSFER OR INCONSISTENT AGREEMENTS.

     

    Without
      the Assignee’s prior written consent and except for licenses of the Patent
      Collateral in the ordinary course of the Assignor’s business consistent with its
      past practices and Permitted Liens, the Assignor will not (a) mortgage, pledge,
      assign, encumber, grant a security interest in, transfer, license or alienate
      any of the Patent Collateral, or (b) enter into any agreement (for example,
      a
      license agreement) that is inconsistent with the Assignor’s obligations under
      this Patent Agreement.

     

    5.  PATENT
      PROSECUTION.

     

    5.1.  Assignor
      Responsible.
      The
      Assignor shall assume full and complete responsibility for the prosecution,
      grant, enforcement or any other necessary or desirable actions in connection
      with the Patent Collateral, and shall hold the Assignee harmless from any and
      all costs, damages, liabilities and expenses which may be incurred by the
      Assignee in connection with the Assignee’s title to any of the Patent Collateral
      or any other action or failure to act in connection with this Patent Agreement
      or the transactions contemplated hereby. In respect of such responsibility,
      the
      Assignor shall retain patent counsel acceptable to the Assignee.

     

    5.2.  Assignor’s
      Duties, etc.
      The
      Assignor shall have the duty, through patent counsel acceptable to the Assignee,
      to prosecute diligently any patent applications of the Patents pending as of
      the
      date of this Patent Agreement or thereafter, and to preserve and maintain all
      rights in the Patents, including without limitation the payment when due of
      all
      maintenance fees and other fees, taxes and other expenses which shall be
      incurred or which shall accrue with respect to any of the Patents. Any expenses
      incurred in connection with such applications and actions shall be borne by
      the
      Assignor. The Assignor shall not abandon any filed patent application, or any
      pending patent application or patent, without the consent of the Assignee,
      which
      consent shall not be unreasonably withheld. The Assignee hereby appoints the
      Assignor as its agent for all matters referred to in the foregoing provisions
      of
      this §5 and agrees to execute any documents necessary to confirm such
      appointment. Upon the occurrence and during the continuance of an Event of
      Default, the Assignee may terminate such agency by providing written notice
      of
      termination to the Assignor.

     

    5.3.  Assignor’s
      Enforcement Rights.
      The
      Assignor shall have the right, with the consent of the Assignee, which shall
      not
      be unreasonably withheld, to bring suit or other action in the Assignor’s own
      name to enforce the Patents and the Patent Rights. The Assignee shall be
      required to join in such suit or action as may be necessary to assure the
      Assignor’s ability to bring and maintain any such suit or action in any proper
      forum so long as the Assignee is completely satisfied that such joinder will
      not
      subject the Assignee to any risk of liability. The Assignor shall promptly,
      upon
      demand, reimburse and indemnify the Assignee for all damages, costs and
      expenses, including legal fees, incurred by the Assignee pursuant to this
§5.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    5.4.  Protection
      of Patents, etc.
      In
      general, the Assignor shall take any and all such actions (including but not
      limited to institution and maintenance of suits, proceedings or actions) as
      may
      be necessary or appropriate to properly maintain, protect, preserve, care for
      and enforce the Patent Collateral. The Assignor shall not take or fail to take
      any action, nor permit any action to be taken or not taken by others under
      its
      control, which would affect the validity, grant or enforcement of any of the
      Patent Collateral.

     

    5.5.  Notification
      by Assignor.
      Promptly upon obtaining knowledge thereof, the Assignor will notify the Assignee
      in writing of the institution of, or any final adverse determination in, any
      proceeding in the PTO or any similar office or agency of the United States
      or
      any foreign country, or any court, regarding the validity of any of the Patents
      or the Assignor’s rights, title or interests in and to any of the Patent
      Collateral, and of any event which does or reasonably could materially adversely
      affect the value of any of the Patent Collateral, the ability of the Assignor
      or
      the Assignee to dispose of any of the Patent Collateral or the rights and
      remedies of the Assignee in relation thereto (including but not limited to
      the
      levy of any legal process against any of the Patent Collateral).

     

    6.  LICENSE
      BACK TO ASSIGNOR.

     

    Unless
      and until there shall have occurred and be continuing an Event of Default and
      the Assignee has notified the Assignor that the license granted hereunder is
      terminated, the Assignee hereby grants to the Assignor the sole and exclusive,
      nontransferable, royalty-free, worldwide right and license under the Patents
      to
      make, have made for it, use, sell and otherwise practice the inventions
      disclosed and claimed in the Patents for the Assignor’s own benefit and account
      and for none other; provided,
      however,
      that
      the foregoing right and license shall be no greater in scope than, and limited
      by, the rights assigned to the Assignee by the Assignor hereby. The Assignor
      agrees not to sell, assign, transfer, encumber or sublicense its interest in
      the
      license granted to the Assignor in this §6, without the prior written consent of
      the Assignee. Any such sublicenses granted on or after the date hereof shall
      be
      terminable by the Assignee upon termination of the Assignor’s license
      hereunder.

     

    7.  REMEDIES.

     

    If
      any
      Event of Default shall have occurred and be continuing, then upon notice by
      the
      Assignee to the Assignor, and subject in all events to the Permitted Liens
      and
      the limitations imposed on Assignee by virtue of Section 2.2 of this Patent
      Agreement: (a) the Assignor’s license with respect to the Patents as set forth
      in §6 shall terminate; (b) the Assignor shall immediately cease and desist from
      the practice, manufacture, use and sale of the inventions claimed, disclosed
      or
      covered by the Patents; and (c) the Assignee shall have, in addition to all
      other rights and remedies given it by this Patent Agreement and the Note those
      allowed by law and the rights and remedies of a secured party under the Uniform
      Commercial Code as enacted in the State of Delaware and, without limiting the
      generality of the foregoing, the Assignee may immediately, without demand of
      performance and without other notice (except as set forth next below) or demand
      whatsoever to the Assignor, all of which are hereby expressly waived, and
      without advertisement, sell or license at public or private sale or otherwise
      realize upon the whole or from time to time any part of the Patent Collateral,
      or any interest which the Assignor may have therein, and after deducting from
      the proceeds of sale or other disposition of the Patent Collateral all expenses
      (including all reasonable expenses for broker’s fees and legal services), shall
      apply the residue of such proceeds toward the payment of the Obligations as
      set
      forth in the Security Agreement. Notice of any sale, license or other
      disposition of any of the Patent Collateral shall be given to the Assignor
      at
      least fifteen (15) days before the time that any intended public sale or other
      disposition of such Patent Collateral is to be made or after which any private
      sale or other disposition of such Patent Collateral may be made, which the
      Assignor hereby agrees shall be reasonable notice of such public or private
      sale
      or other disposition. At any such sale or other disposition, the Assignee may,
      to the extent permitted under applicable law, purchase or license the whole
      or
      any part of the Patent Collateral or interests therein sold, licensed or
      otherwise disposed of.

     

    8.  COLLATERAL
      PROTECTION.

     

    If
      the
      Assignor shall fail to do any act that it has covenanted to do hereunder, or
      if
      any representation or warranty of the Assignor shall be breached, the Assignee,
      in its own name or that of the Assignor (in the sole discretion of the
      Assignee), may (but shall not be obligated to) do such act or remedy such breach
      (or cause such act to be done or such breach to be remedied), and the Assignor
      agrees promptly to reimburse the Assignee for any cost or expense incurred
      by
      the Assignee in so doing.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    9.  POWER
      OF ATTORNEY.

     

    If
      any
      Event of Default shall have occurred and be continuing, the Assignor does hereby
      make, constitute and appoint the Assignee (and any officer or agent of the
      Assignee as the Assignee may select in its exclusive discretion) as the
      Assignor’s true and lawful attorney-in-fact, with the power to endorse the
      Assignor’s name on all applications, documents, papers and instruments necessary
      for the Assignee to use any of the Patent Collateral, to practice, make, use
      or
      sell the inventions disclosed or claimed in any of the Patent Collateral, to
      grant or issue any exclusive or nonexclusive license of any of the Patent
      Collateral to any third person, or necessary for the Assignee to assign, pledge,
      convey or otherwise transfer title in or dispose of the Patent Collateral or
      any
      part thereof or interest therein to any third person, and, in general, to
      execute and deliver any instruments or documents and do all other acts which
      the
      Assignor is obligated to execute and do hereunder. The Assignor hereby ratifies
      all that such attorney shall lawfully do or cause to be done by virtue hereof,
      and releases the Assignee from any claims, liabilities, causes of action or
      demands arising out of or in connection with any action taken or omitted to
      be
      taken by the Assignee under this power of attorney (except for the Assignee’s
      gross negligence or willful misconduct). This power of attorney shall be
      irrevocable for the duration of this Patent Agreement.

     

    10.  FURTHER
      ASSURANCES.

     

    The
      Assignor shall, at any time and from time to time, and at its expense, make,
      execute, acknowledge and deliver, and file and record as necessary or
      appropriate with governmental or regulatory authorities, agencies or offices,
      such agreements, assignments, documents and instruments, and do such other
      and
      further acts and things (including, without limitation, obtaining consents
      of
      third parties), as the Assignee may request or as may be necessary or
      appropriate in order to implement and effect fully the intentions, purposes
      and
      provisions of this Patent Agreement, or to assure and confirm to the Assignee
      the grant, perfection and priority of the Assignee’s security interest in any of
      the Patent Collateral.

     

    11.  TERMINATION.

     

    At
      such
      time as all of the Obligations have been finally paid and satisfied in full,
      this Patent Agreement shall terminate and the Assignee shall, upon the written
      request and at the expense of the Assignor, execute and deliver to the Assignor
      all deeds, assignments and other instruments as may be necessary or proper
      to
      reassign and reconvey to and re-vest in the Assignor the entire right, title
      and
      interest to the Patent Collateral previously granted, assigned, transferred
      and
      conveyed to the Assignee by the Assignor pursuant to this Patent Agreement,
      as
      fully as if this Patent Agreement had not been made, subject to any disposition
      of all or any part thereof which may have been made by the Assignee pursuant
      hereto or the Security Agreement.

     

    12.  COURSE
      OF DEALING.

     

    No
      course
      of dealing among the Assignor and the Assignee, nor any failure to exercise,
      nor
      any delay in exercising, on the part of the Assignee, any right, power or
      privilege hereunder or under the Security Agreement shall operate as a waiver
      thereof; nor shall any single or partial exercise of any right, power or
      privilege hereunder or thereunder preclude any other or further exercise thereof
      or the exercise of any other right, power or privilege.

     

    13.  EXPENSES.

     

    Any
      and
      all fees, costs and expenses, of whatever kind or nature, including the
      reasonable attorneys’ fees and legal expenses incurred by the Assignee in
      connection with the enforcement hereof, the filing or recording of any documents
      (including all taxes in connection therewith) in public offices, the payment
      or
      discharge of any taxes, counsel fees, maintenance fees, encumbrances or
      otherwise protecting, maintaining or preserving any of the Patent Collateral,
      or
      in defending or prosecuting any actions or proceedings arising out of or related
      to any of the Patent Collateral, shall be borne and paid by the
      Assignor.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    14.  OVERDUE
      AMOUNTS.

     

    Until
      paid, all amounts due and payable by the Assignor hereunder shall be a debt
      secured by the Patent Collateral and shall bear, whether before or after
      judgment, interest at the rate of interest for overdue principal set forth
      in
      the Note.

     

    15.  NO
      ASSUMPTION OF LIABILITY; INDEMNIFICATION.

     

    NOTWITHSTANDING
      ANYTHING TO THE CONTRARY CONTAINED HEREIN, THE ASSIGNEE ASSUMES NO LIABILITIES
      OF THE ASSIGNOR WITH RESPECT TO ANY CLAIM OR CLAIMS REGARDING THE ASSIGNOR’S
      OWNERSHIP OR PURPORTED OWNERSHIP OF, OR RIGHTS OR PURPORTED RIGHTS ARISING
      FROM,
      ANY OF THE PATENT COLLATERAL OR ANY PRACTICE, USE, LICENSE OR SUBLICENSE
      THEREOF, OR ANY PRACTICE, MANUFACTURE, USE OR SALE OF ANY OF THE INVENTIONS
      DISCLOSED OR CLAIMED THEREIN, WHETHER ARISING OUT OF ANY PAST, CURRENT OR FUTURE
      EVENT, CIRCUMSTANCE, ACT OR OMISSION OR OTHERWISE. ALL OF SUCH LIABILITIES
      SHALL
      BE EXCLUSIVELY BORNE BY THE ASSIGNOR, AND THE ASSIGNOR SHALL INDEMNIFY THE
      ASSIGNEE FOR ANY AND ALL COSTS, EXPENSES, DAMAGES AND CLAIMS, INCLUDING LEGAL
      FEES, INCURRED BY THE ASSIGNEE WITH RESPECT TO SUCH LIABILITIES.

     

    16.  RIGHTS
      AND REMEDIES CUMULATIVE.

     

    All
      of
      the Assignee’s rights and remedies with respect to the Patent Collateral,
      whether established hereby or by any other agreements or by law, shall be
      cumulative and may be exercised singularly or concurrently. Nothing contained
      in
      this Patent Agreement shall be deemed to extend the time of attachment or
      perfection of or otherwise impair the security interest in any of the Patent
      Collateral granted to the Assignee under the Security Agreement, except to
      the
      extent of the Permitted Liens.

     

    17.  NOTICES.

     

    All
      notices and other communications made or required to be given pursuant to this
      Patent Agreement shall be in writing and shall be delivered in hand, mailed
      by
      United States registered or certified first-class mail, postage prepaid, or
      sent
      by electronic mail or telecopy and confirmed by delivery receipt and/or via
      courier or postal service, addressed as follows:

     

    (a)  if
      to the
      Assignor, at Cellegy Pharmaceuticals, Inc., 1800 Byberry Road, Building 13,
      Huntington Valley, PA 19006, Attention: President, or at such other address
      for
      notice as the Assignor shall last have furnished in writing to the person giving
      the notice, with copies to Weintraub Genshlea Chediak, 400 Capitol Mall, 11th
      floor, Sacramento, CA 95814, Attention: Kevin Kelso, Esq.; and

     

    (b)  if
      to the
      Assignee, at Strakan International Limited, Galabank Business Park, Galashiels
      TD1 1QH, UK, Attention: Andrew McLean, General Counsel and Company Secretary
      or
      at such other address for notice as the Assignee shall last have furnished
      in
      wiring to the person giving the notice with copies to Bingham McCutchen LLP.
      150
      Federal Street, Boston, MA 02110, Attention : James C. Stokes, Esq.

     

    Any
      such
      notice or demand shall be deemed to have been duly given or made and to have
      become effective (a) if delivered by hand to a responsible officer of the party
      to which it is directed, at the time of the receipt thereof by such officer,
      (b)
      if sent by registered or certified first-class mail, postage prepaid, two (2)
      Business Days after the posting thereof, and (c) if sent by electronic mail
      or
      telecopy, at the time of the dispatch thereof, if in normal business hours
      in
      the country of receipt, or otherwise at the opening of business on the following
      Business Day.

     

    18.  AMENDMENT
      AND WAIVER.

     

    This
      Patent Agreement is subject to modification only by a writing signed by the
      Assignee and the Assignor. The Assignee shall not be deemed to have waived
      any
      right hereunder unless such waiver shall be in writing and signed by the
      Assignee. A waiver on any one occasion shall not be construed as a bar to or
      waiver of any right on any future occasion.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    19.  GOVERNING
      LAW; CONSENT TO JURISDICTION.

     

    THIS
      PATENT AGREEMENT IS INTENDED TO TAKE EFFECT AS A SEALED INSTRUMENT AND SHALL
      BE
      GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
      DELAWARE. The Assignor agrees that any suit for the enforcement of this Patent
      Agreement may be brought in the courts of the State of Delaware or any federal
      court sitting therein and consents to the non-exclusive jurisdiction of such
      court and to service of process in any such suit being made upon the Assignor
      by
      mail at the address specified in §17. The Assignor hereby waives any objection
      that it may now or hereafter have to the venue of any such suit or any such
      court or that such suit is brought in an inconvenient court.

     

    20.  WAIVER
      OF JURY TRIAL.

     

    THE
      ASSIGNOR WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM
      ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS PATENT AGREEMENT, ANY RIGHTS
      OR OBLIGATIONS HEREUNDER OR THE PERFORMANCE OF ANY SUCH RIGHTS OR OBLIGATIONS.
      Except as prohibited by law, the Assignor waives any right which it may have
      to
      claim or recover in any litigation referred to in the preceding sentence any
      special, exemplary, punitive or consequential damages or any damages other
      than,
      or in addition to, actual damages. The Assignor (a) certifies that neither
      the
      Assignee nor any representative, agent or attorney of the Assignee has
      represented, expressly or otherwise, that the Assignee would not, in the event
      of litigation, seek to enforce the foregoing waivers, and (b) acknowledges
      that,
      in entering into the Note, the Assignee is relying upon, among other things,
      the
      waivers and certifications contained in this §20.

     

    To
      the
      extent not prohibited by applicable law which cannot be waived, the Assignor
      and
      the Assignee hereby waives, and covenants that it will not assert (whether
      as
      plaintiff, defendant or otherwise), any right to trial by jury in any forum
      in
      respect of any issue, claim, demand, action or cause of action arising out
      of or
      based upon this Patent Agreement or the subject matter hereof or any obligation
      or in any way connected with or related or incidental to the dealings of the
      Assignor or the Assignee in connection with any of the above, in each case
      whether now existing or hereafter arising and whether in contract or tort or
      otherwise. The Assignor or the Assignee may file the original of this Patent
      Agreement or a copy of this §20 with any court as written evidence of the
      consent of the Assignor and the Assignee to the waiver of its right to trial
      by
      jury.

     

    21.  MISCELLANEOUS.

     

    The
      headings of each section of this Patent Agreement are for convenience only
      and
      shall not define or limit the provisions thereof. This Patent Agreement and
      all
      rights and obligations hereunder shall be binding upon the Assignor and its
      successors and assigns, and shall inure to the benefit of the Assignee and
      its
      successors and assigns. In the event of any irreconcilable conflict between
      the
      provisions of this Patent Agreement and the Note the provisions of the Note
      shall control. If any term of this Patent Agreement shall be held to be invalid,
      illegal or unenforceable, the validity of all other terms hereof shall in no
      way
      be affected thereby, and this Patent Agreement shall be construed and be
      enforceable as if such invalid, illegal or unenforceable term had not been
      included herein. The Assignor acknowledges receipt of a copy of this Patent
      Agreement.

     

     

     

    
      
        
          

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
        

      

    

    IN
      WITNESS WHEREOF,
      this
      Patent Agreement has been executed as of the day and year first above
      written.

     

     

    CELLEGY
      PHARMACEUTICALS, INC.

     

    By:_/s/
      Richard C. Williams____________

    Name:
      Richard Williams

    Title:

     

    STRAKAN
      INTERNATIONAL LIMITED

     

    By:__/s/
      Wilson Totten_______________

    Name:
      Wilson Totten

    Title:
      CEO and Director

     

     

    CERTIFICATE
      OF ACKNOWLEDGMENT

     

    COMMONWEALTH
      OR STATE OF  )

    )
      ss.

    COUNTY
      OF
 )

    On
      this
      ___ day of __________________, 2006, before me, the undersigned notary public,
      personally appeared ______________________, proved to me through satisfactory
      evidence of identification, which were _____________________________, to be
      the
      person whose name is signed on the preceding or attached document, and
      acknowledged to me that (he)(she) signed it voluntarily for its stated purpose
      (as ______________ for __________________, a
      _______________________).

     

    ______________________________

     

    (official
      signature and seal of notary)

     

    My
      commission expires:

     

    

     

    
      
        --

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      A

     

    TO

     

    PATENT
      COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT

     

    Patents
      owned by Cellegy Pharmaceuticals, Inc.:

     

    
      	
               

              Patent
                Description

            	
              Patent/

              Application
                No.

            	
              Issue
                Date/

              Filing
                Date

            	
               

              Status
                of Patent

            
	 	 	 	 
	
              Compounds
                and methods for the treatment of urogenital disorders

            	
              2005236096

            	
              09/26/2005

            	
              PUBLISHED

              (20060030622
                02/09/2006)

            
	 	 	 	 
	
              Compounds
                and methods for the treatment of urogenital disorders

            	
              6,987,129

            	
              01/17/2006

            	
              ISSUED

            
	 	 	 	 
	
              Microdose
                therapy

            	
              2003460061

            	
              06/11/2003

            	
              PUBLISHED

              (20050197300
                09/08/2005)

            
	 	 	 	 
	
              Taper
                well meter dose pump

            	
              6,889,875

            	
              05/10/2005

            	
              ISSUED

            
	 	 	 	 
	
              Nitric
                oxide donor composition and method for treatment of anal
                disorders

            	
              2003669099

            	
              09/22/2003

            	
              PUBLISHED

              (20050075391
                04/07/2005)

            
	 	 	 	 
	
              Methods
                for remodeling neuronal and cardiovascular pathways

            	
              2004869755

            	
              06/15/2004

            	
              PUBLISHED

              (20040234619
                11/25/2004)

            
	 	 	 	 
	
              Methods
                for remodeling neuronal and cardiovascular pathways

            	
              6,787,553

            	
              09/07/2004

            	
              ISSUED

            
	 	 	 	 
	
              Compositions
                and methods for the treatment of anorectal disorders

            	
              6,627,632

            	
              09/30/2003

            	
              ISSUED

            
	 	 	 	 
	
              Penetration
                enhancing and irritation reducing systems

            	
              2003389715

            	
              03/12/2003

            	
              PUBLISHED

              (20030166625
                09/04/2003)

            
	 	 	 	 
	
              Microdose
                therapy

            	
              6,610,652

            	
              08/26/2003

            	
              ISSUED

            
	 	 	 	 
	
              Compositions
                and methods for the treatment of anorectal disorders

            	
              2002198250

            	
              07/17/2002

            	
              PUBLISHED

              (20020187990
                12/12/2002)

            
	 	 	 	 
	
              Penetration
                enhancing and irritation reducing systems

            	
              6,579,865

            	
              06/17/2003

            	
              ISSUED

            
	 	 	 	 
	
              Methods
                for remodeling neuronal and cardiovascular pathways

            	
              6,458,797

            	
              10/01/2002

            	
              ISSUED

            
	 	 	 	 
	
              Microdose
                therapy

            	
              6,423,683

            	
              07/23/2002

            	
              ISSUED

            
	 	 	 	 
	
              Compositions
                and methods for the treatment of anorectal disorders

            	
              6,395,736

            	
              05/28/2002

            	
              ISSUED

            
	 	 	 	 
	
              Penetration
                enhancing and irritation reducing systems

            	
              6,319,913

            	
              11/20/2001

            	
              ISSUED

            
	 	 	 	 
	
              Compositions
                and methods for the treatment of anorectal disorders

            	
              6,391,869

            	
              05/21/2002

            	
              ISSUED

            
	 	 	 	 
	
              Topical
                nitric oxide donor compositions 

            	
              6,287,601

            	
              09/11/2001

            	
              ISSUED

            
	 	 	 	 
	
              Methods
                for remodeling neuronal and cardiovascular pathways

            	
              6,284,763

            	
              09/04/2001

            	
              ISSUED

            
	 	 	 	 
	
              Microdose
                therapy

            	
              6,165,975

            	
              12/26/2000

            	
              ISSUED

            
	 	 	 	 
	
              Treatment
                of equine laminitis

            	
              6,045,827

            	
              04/04/2000

            	
              ISSUED

            
	 	 	 	 
	
              Treatment
                of equine laminitis

            	
              5,891,472

            	
              04/06/1999

            	
              ISSUED

            
	 	 	 	 
	
              Nitric
                oxide donor composition and method for treatment of anal
                disorders

            	
              5,693,676

            	
              12/02/1997

            	
              ISSUED

            
	 	 	 	 
	
              Pharmacologic
                preparation for the treatment of anal disorders

            	
              5,504,117

            	
              04/02/1996

            	
              ISSUED

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