8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 2, 2006

Tapestry Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

Delaware	0-24320	84-1187753
(State of incorporation)	(Commission File Number)	IRS Employer Identification No.)

4840 Pearl East Circle, Suite 300W

Boulder, Colorado 80301

(Address of principal executive offices and zip code)

(303) 516-8500

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01  Entry into a Material Definitive Agreement.

On February 2, 2006, Tapestry Pharmaceuticals, Inc. (the “Company”) entered into a Purchase Agreement (the “Purchase Agreement”) with Special Situations Cayman Fund, L.P., Special Situations Fund III, L.P. (“SSF”), Special Situations Fund III QP, L.P., Special Situations Life Sciences Fund, L.P., Special Situations Private Equity Fund, L.P., Tang Capital Partners, LP, Baker Biotech Fund II (Z), L.P., Baker Biotech Fund III, L.P., Baker Biotech Fund III (Z), L.P., Baker Bros. Investments II, L.P., 14159, L.P., Biotechnology Value Fund, L.P., Biotechnology Value Fund II, L.P., BVF Investments, L.L.C., Investment 10, L.L.C., Fort Mason Master, L.P., Fort Mason Partners, L.P., Capital Ventures International, Merlin BioMed Long Term Appreciation, LP, Merlin BioMed Offshore Master Fund, Versant Capital Management LLC, Xmark JV Investment Partners, LLC, Xmark Opportunity Fund, L.P., Xmark Opportunity Fund, Ltd. and the other parties signatory thereto (collectively, the “Purchasers”) that provides for the sale of common stock and warrants to purchase common stock to the Purchasers for gross proceeds to the Company of $25.5 million.  Pursuant to the terms of the Purchase Agreement, the Company will issue to the Purchasers, subject to the approval of the Company’s stockholders, (i) an aggregate of 12,750,000 shares of the Company’s common stock at a purchase price per share equal to $2.00 (after giving effect to the Reverse Split (as defined below)), and (ii) warrants to purchase an aggregate of 12,750,000 shares of the Company’s common stock (subject to adjustment in accordance with the terms thereof) at an exercise price of $2.40 per share (subject to certain anti-dilution protections set forth therein) (the “Warrants”).  The issuance of the shares of the Company’s common stock and the Warrants and the other actions contemplated by the Purchase Agreement are collectively referred to herein as the “Transaction.”

The Transaction is expected to close (the “Closing”) in April 2006 and is subject to stockholder approval, the consummation of the Reverse Split and other customary closing conditions.  The Purchase Agreement provides that, following the Closing, the Company will have an eleven-member board of directors, which may include two members designated by SSF.  SSF would have the right to designate two members for election to the Company’s board of directors, so long as SSF and/or one or more of its affiliates continues to beneficially own at least 25% of the number of shares of common stock and shares of common stock underlying the Warrants acquired by it under the Purchase Agreement.  Upon such designation, the Company would be obligated to use its commercially reasonable efforts to cause the designated directors to be elected to the Company’s board of directors.

Pursuant to the Purchase Agreement, the Company will be required to use the net proceeds from the Transaction solely to fund the development of the Company’s TPI 287 compound in accordance with a budget for calendar years 2006 and 2007 to be adopted by the board of directors of the Company prior to the Closing.  Any amendment or variance with respect to such aspect of the budget will require the prior written approval of a majority of the independent members of the board of directors.

Pursuant to the Purchase Agreement, from and after the Closing, each Purchaser that owns at least 50% of the shares of common stock acquired by it under the Purchase Agreement would have preemptive subscription rights in respect of any future issuance by the Company of its equity securities, subject to certain exceptions.  If the Company decided to issue any equity securities not subject to such exceptions, then it would be required to provide notice to such Purchasers and offer to sell a pro rata amount of such securities to such Purchasers, on the same terms it proposes to sell such securities to other parties, based on each Purchaser’s pro rata ownership of the Company’s outstanding common stock acquired under the Purchase Agreement or upon exercise of the Warrant held by such Purchaser.

The Company has agreed to issue to the Purchasers within three business days following the execution of the Purchase Agreement, for no additional consideration, warrants to purchase an aggregate of 522,815 shares of Common Stock (subject to adjustment as set forth therein) (the “Alternative Warrants”).  The Alternative Warrants become exercisable only if one of the events specified in the following clauses (i) through (iv) (each a “Trigger Event”) occurs: (i) the stockholders of the Company fail to approve the Transaction, (ii) the Company terminates its obligations to effect the Closing pursuant to the terms of the Purchase Agreemnt and the Company has received an alternative investment proposal prior to such time which has not been withdrawn, (iii) the Company enters into an agreement governing the consummation of an alternative investment with any person other than the Purchasers prior to the termination of the Purchase Agreement in accordance with the terms of the Purchase Agreement or (iv) the stockholders’ meeting shall not have occurred prior to May 2, 2006 and the Company shall have breached its obligations under the Purchase Agreement with respect thereto.  In the event that a Trigger Event has not occurred

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prior to or in connection with the termination of the Purchase Agreement (in whole or with respect to any particular Purchaser) or the Closing shall occur, then all outstanding Alternative Warrants held by all Purchasers or, in the case of a termination with respect a particular Purchaser, that Purchaser, shall terminate and be of no further force and effect.  The Alternative Warrants in the aggregate will represent the right to acquire shares of common stock representing 15 percent of the Company’s issued and outstanding shares of common stock determined as of February 2, 2006.  The Alternative Warrants will be immediately exercisable following the occurrence of a Trigger Event, have a per share exercise price equal to $0.01 (subject to adjustment as set forth in such warrants) and will remain exercisable for five years following the Closing.

The Warrants to be issued at the Closing will be immediately exercisable when issued, will have an exercise price per share of $2.40 and will remain exercisable for five years following the Closing.  One-half of such Warrants will be exercisable on a cashless basis.  The Company has agreed to enter into a Registration Rights Agreement with the Purchasers at Closing, pursuant to which the Company would be required to file with the Securities and Exchange Commission a registration statement for the resale of the shares of common stock and the shares of common stock underlying the Warrants within thirty days following the closing.  The Company also has agreed to enter into a substantially similar registration rights agreement with the Purchasers at the time of the issuance of the Alternative Warrants requiring the Company to file a registration statement for the resale of the shares of common stock issuable upon exercise of the Alternative Warrants.

The shares issued pursuant to the Purchase Agreement, the Alternative Warrants, the Warrants and any shares of common stock issued pursuant to the Alternative Warrants or the Warrants, as the case may be, have not been registered under the Securities Act of 1933, as amended (the “Securities Act”).  The securities will be issued to accredited investors in reliance upon exemptions from registration under Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder.  Therefore, the securities may not be offered or sold in the United States absent registration under or exemption from the Securities Act and any applicable state securities laws.

In order to induce the Purchasers to enter into the Purchase Agreement, certain officers and directors of the Company have entered into a Lock-Up Agreement (the “Lock-Up Agreement”) pursuant to which they have agreed, among other things, to refrain from engaging in trading activity in the Company’s common stock until the earliest to occur of (i) the first date following termination of the Purchase Agreement, (ii) 90 days after the effective date of a registration statement filed in accordance with the Registration Rights Agreement or (iii) with respect to any such officer or director, the first date following termination of such individual’s employment by or directorship with the Company that is six months following the last opposite-way transaction that occurred prior to such termination of employment or directorship.

The foregoing is a summary of the terms of the Transaction and is qualified in its entirety by reference to the Purchase Agreement, the form of Registration Rights Agreement, the form of Warrant and Alternative Warrant and the Lock-Up Agreement.  The Purchase Agreement has been included to provide investors and security holders with information regarding its terms.  It is not intended to provide any other factual information about the Company.  The Purchase Agreement contains representations and warranties that the parties to the Purchase Agreement made to and solely for the benefit of each other.  The assertions embodied in such representations and warranties are qualified by information contained in confidential disclosure schedules that the parties exchanged in connection with signing the Purchase Agreement.  Accordingly, investors and security holders should not rely on such representations and warranties as characterizations of the actual state of facts or circumstances, since they were only made as of the date of the Purchase Agreement and are modified in important part by the underlying disclosure schedules.  Moreover, information concerning the subject matter of such representations and warranties may change after the date of the Purchase Agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures.  The Purchase Agreement, the form of Registration Rights Agreement, the form of Warrant and Alternative Warrant and the Lock-Up Agreement are attached hereto as Exhibits 10.1, 10.2, 10.3 and 10.4, respectively.  The press release announcing the Transaction is attached hereto as Exhibit 99.1.  Exhibits 10.1, 10.2, 10.3, 10.4 and 99.1 are incorporated herein by reference.

The Company intends to hold a special meeting of stockholders in order to approve the Transaction and certain related matters.  Stockholder approval of the Transaction is necessary to consummate the Transaction.  The Company intends to mail a definitive proxy statement and proxy card to all stockholders of record as of the record date (to be determined) along with detailed voting instructions.

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Each of this Current Report on Form 8-K and the press release filed as an exhibit hereto contains forward-looking statements within the meaning of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are based on assumptions that the Company, as of the date of this Current Report, believes to be reasonable and appropriate.  The Company cautions, however, that actual facts and conditions may exist in the future that could vary materially from the assumed facts and conditions upon which such forward-looking statements are based.  These facts and conditions include, but are not limited to, that the Transaction will not close on the anticipated closing date, or will not close at all, if the stockholders do not approve the Transaction or if the Company fails to satisfy any other closing condition.  The Company does not undertake any obligation to update forward-looking statements.

Item 3.02 Unregistered Sales of Equity Securities.

The information required by this Item 3.02 is set forth in Item 1.01, which is incorporated herein by reference.

In connection with the Transaction, the Company entered into a Finder’s Fee Agreement under which it will, upon the Closing, pay to a placement agent cash compensation of 2.75% of the gross amount financed and issue to the placement agent a warrant to acquire 100,000 shares of the Company’s common stock on substantially similar terms as the Warrants.  In addition, under a letter agreement with a financial and strategic advisor it engaged in October 2005, the Company paid the advisor an advisory fee of $400,000 in addition to monthly retainer payments and, upon the Closing, will issue a warrant to such advisor to acquire 50,000 shares of the Company’s common stock on substantially similar terms as the Warrants.  The Company has agreed to include these warrants in any registration statement filed by the Company on behalf of the Purchasers.

Item 5.03.  Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

On February 3, 2006, the Company filed an amendment to its Restated Certificate of Incorporation effecting a one for ten reverse stock split of all issued and outstanding shares of the Company’s common stock (the “Reverse Split”), which will become effective as of 5:01 p.m. Eastern Time on February 3, 2006 (the “Effective Time”).  At the Company’s Annual Meeting of Stockholders held in June 2005, the Company’s stockholders approved an amendment to the Company’s Restated Certificate of Incorporation to effect a reverse stock split in the range of one for five to one for forty shares (including every whole number in between five and forty).

On January 26, 2006, the Board fixed the ratio of the Reverse Split at ten and authorized the Company to file an amendment to the Company’s Restated Certificate of Incorporation to effect the Reverse Split.  A copy of the Certificate of Amendment to the Company’s Restated Certificate of Incorporation filed with the Secretary of State of the State of Delaware is attached hereto as Exhibit 3.1 and is incorporated herein by reference.

The Company’s common stock will begin trading on the Nasdaq Capital Market on a reverse split basis as of the opening of trading on February 6, 2006.  For a period of 20 trading days, shares of the Company’s common stock will trade under the ticker symbol “TPPHD.”  After 20 trading days, trading will resume under the ticker “TPPH.”  The Reverse Split will reduce, as of the Effective Time, the Company’s total number of outstanding shares of common stock from approximately 34,857,500 shares to approximately 3,485,750 shares, subject to adjustment for fractional shares.  The Reverse Split will not change the number of authorized shares of the Company’s common stock.

Fractional Shares will not be issued as a result of the Reverse Split, and cash will be paid in lieu of fractional shares.  The Company has instructed its transfer agent, American Stock Transfer and Trust Company, to act as exchange agent for the purpose of implementing the exchange of stock certificates in connection with the Reverse Split and to deliver to stockholders cash in lieu of fractional shares as a result of the Reverse Split.

The shares of common stock to be issued as a result of the Reverse Split will possess a new CUSIP number.  A copy of the form of the new specimen common stock certificate is attached hereto as Exhibit 4.1.

Item 9.01 Financial Statements and Exhibits.

(c)Exhibits

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The following exhibits are filed with this Current Report on Form 8-K:

Exhibit No.	Description
3.1	Second Amended and Restated Certificate of Incorporation of Tapestry Pharmaceuticals, Inc., as amended February 3, 2006.
4.1	Specimen Common Stock Certificate.
10.1	Purchase Agreement, dated as of February 2, 2006, by and among Tapestry Pharmaceuticals, Inc., Special Situations Cayman Fund, L.P., Special Situations Fund III, L.P., Special Situations Fund III QP, L.P., Special Situations Life Sciences Fund, L.P., Special Situations Private Equity Fund, L.P., Tang Capital Partners, LP, Baker Biotech Fund II (Z), L.P., Baker Biotech Fund III, L.P., Baker Biotech Fund III (Z), L.P., Baker Bros. Investments II, L.P., 14159, L.P., Biotechnology Value Fund, L.P., Biotechnology Value Fund II, L.P., BVF Investments, L.L.C., Investment 10, L.L.C., Fort Mason Master, L.P., Fort Mason Partners, L.P., Capital Ventures International, Merlin BioMed Long Term Appreciation, LP, Merlin BioMed Offshore Master Fund, Versant Capital Management LLC, Xmark JV Investment Partners, LLC, Xmark Opportunity Fund, L.P., Xmark Opportunity Fund, Ltd. and the other parties signatory thereto.
10.2	Form of Registration Rights Agreement to be entered into by and among Tapestry Pharmaceuticals, Inc. and the Purchasers.
10.3	Form of Warrant and Alternative Warrant.
10.4	Lock-Up Agreement by and among Tapestry Pharmaceuticals, Inc. and certain officers and directors thereof.
99.1	Press Release, dated February 2, 2006.

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SIGNATURES

According to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

Date: February 3, 2006	TAPESTRY PHARMACEUTICALS, INC.
	By:	/s/ Gordon Link
	Name:		Gordon Link
	Title:		Senior Vice President, Chief Financial
			Officer

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INDEX TO EXHIBITS

Exhibit No.	Description
3.1	Second Amended and Restated Certificate of Incorporation of Tapestry Pharmaceuticals, Inc., as amended February 3, 2006.
4.1	Specimen Common Stock Certificate.
10.1	Purchase Agreement, dated as of February 2, 2006, by and among Tapestry Pharmaceuticals, Inc., Special Situations Cayman Fund, L.P., Special Situations Fund III, L.P., Special Situations Fund III QP, L.P., Special Situations Life Sciences Fund, L.P., Special Situations Private Equity Fund, L.P., Tang Capital Partners, LP, Baker Biotech Fund II (Z), L.P., Baker Biotech Fund III, L.P., Baker Biotech Fund III (Z), L.P., Baker Bros. Investments II, L.P., 14159, L.P., Biotechnology Value Fund, L.P., Biotechnology Value Fund II, L.P., BVF Investments, L.L.C., Investment 10, L.L.C., Fort Mason Master, L.P., Fort Mason Partners, L.P., Capital Ventures International, Merlin BioMed Long Term Appreciation, LP, Merlin BioMed Offshore Master Fund, Versant Capital Management LLC, Xmark JV Investment Partners, LLC, Xmark Opportunity Fund, L.P., Xmark Opportunity Fund, Ltd. and the other parties signatory thereto.
10.2	Form of Registration Rights Agreement to be entered into by and among Tapestry Pharmaceuticals, Inc. and the Purchasers.
10.3	Form of Warrant and Alternative Warrant.
10.4	Lock-Up Agreement by and among Tapestry Pharmaceuticals, Inc. and certain officers and directors thereof.
99.1	Press Release, dated February 2, 2006.

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EX-3.1

Exhibit 3.1

CERTIFICATE OF AMENDMENT OF

SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF

TAPESTRY PHARMACEUTICALS, INC.

Tapestry Pharmaceuticals, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the “Corporation”), does hereby certify:

1.That the original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on September 8, 1993, under the name of NB Merger Sub Corp.

2.That the Board of Directors of the Corporation, acting in accordance with the provisions of Section 141 of the Delaware General Corporation Law (the “DGCL”), adopted resolutions providing for the amendment of the Corporation’s Second Amended and Restated Certificate of Incorporation, filed with the Secretary of State of the State of Delaware on August 8, 2005, as set forth in paragraph 5 below (the “Amendment”).

3.That, at the Corporation’s Annual Meeting of Stockholders called and held on June 10, 2005 upon notice in accordance with Section 222 of the DGCL, the holders of not less than a majority of the outstanding stock of the Corporation entitled to vote thereon voted in favor of the Amendment.

4.That the Amendment was duly adopted in accordance with Section 242 of the DGCL.

5.Paragraph A of Article Four of the Second Amended and Restated Certificate of Incorporation of the Corporation is amended by adding the following text at the end thereof:

“Effective as of 5:01 p.m., Eastern time, on February 3, 2006, the date the Certificate of Amendment that includes this paragraph is filed with the Secretary of State of the State of Delaware, each 10 shares of the Corporation’s Common Stock issued and outstanding shall, automatically and without any action on the part of the respective holders thereof, be combined and converted into one (1) share of Common Stock, par value $.0075 per share, of the Corporation. No fractional shares shall be issued and, in lieu thereof, any holder of less than one share of Common Stock shall be entitled to receive cash for such holder’s fractional share based upon the closing sales price of the Corporation’s Common Stock as reported on the Nasdaq SmallCap Market as of the date this Certificate of Amendment is filed with the Secretary of State of the State of Delaware.”

IN WITNESS WHEREOF, Tapestry Pharmaceuticals, Inc. has caused this Certificate of Amendment tobe signed by its Assistant Secretary on this 3rd day of February, 2006.

TAPESTRY PHARMACEUTICALS, INC.
By:	/s/ Kai P. Larson
	Kai P. Larson
	Vice President, General Counsel, Assistant
	Secretary

TAPESTRY PHARMACEUTICALS, INC.

SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

Kai P. Larson, as Vice President, General Counsel and Assistant Secretary of Tapestry Pharmaceuticals, Inc. (the “Corporation”), a corporation organized and existing under and by virtue of the Delaware General Corporation Law, does hereby certify as follows:

1.That the Corporation was originally incorporated in the Sate of Delaware on September 8, 1993, under the name of NB Merger Sub Corp.

2.That the Board of Directors of the Corporation, in accordance with Sections 242 and 245 of the Delaware General Corporation Law, adopted resolutions as of April 14, 2005 providing for the adoption of a Second Amended and Restated Certificate of Incorporation of the Corporation in the form attached hereto as Exhibit A, which amends and restates the Certificate of Incorporation in its entirety. The resolution further directed that the Second Amended and Restated Certificate of Incorporation be submitted to the stockholders of the Corporation for their consideration and approval at the Corporation’s annual meeting to be held June 10, 2005.

3That, the Corporation’s annual meeting held on June 10, 2005 was called and held upon notice, and a proposal adopting the Second Amended and Restated Certificate of Incorporation in the form attached hereto was submitted to the stockholders of the Corporation in accordance with Sections 222 and 242 of the Delaware General Corporation Law. A majority of the outstanding stock entitled to vote thereon, and a majority of the outstanding stock of each class entitled to vote thereon as a class has been voted in favor of the Second Amended and Restated Certificate of Incorporation.

IN WITNESS WHEREOF, Tapestry Pharmaceuticals, Inc. has caused this Second Amended and Restated Certificate of Incorporation to be executed as of this 8th day of August, 2005.

TAPESTRY PHARMACEUTICALS, INC.
By:	/s/ Kai P. Larson
	Kai P. Larson
	Vice President, General Counsel and
	Assistant Secretary

SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION

OF
TAPESTRY PHARMACEUTICALS, INC.

ARTICLE ONE

The name of the corporation is Tapestry Pharmaceuticals, Inc. (the “Corporation”)

ARTICLE TWO

The address of the Corporation’s registered office in the State of Delaware is 2711 Centerville Road, Suite 400, County of New Castle, Wilmington, Delaware, 19808. The name of its registered agent at such address is Corporation Service Company.

ARTICLE THREE

The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.

ARTICLE FOUR

A.AUTHORIZED SHARES

The total number of shares of stock which the Corporation has authority to issue is 102,000,000 shares, 100,000,000 of which shall be Common Stock, with a par value of $ .0075 per share, and 2,000,000 of which shall be Preferred Stock, with a par value of $ .001 per share.

B.COMMON STOCK

The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares of Common Stock then outstanding) by the affirmative vote of the holders of a majority of the stock of the Corporation (voting together on an as-if-converted basis).

C.PREFERRED STOCK

The Board of Directors of the Corporation (the “Board of Directors”) is expressly authorized, at any time and from time to time, to provide for the issuance of shares of Preferred Stock in one or more series with such designations, preferences and relative, participating, optional or other special rights, and such qualifications, limitations or restrictions thereof, as shall be expressed in the resolution or resolutions providing for the issuance thereof adopted by the Board of Directors (a “Preferred Stock Designation”) and as are not inconsistent with this Certificate of Incorporation or any amendment hereto, and as may be permitted by the General Corporation Law of the State of Delaware Except as otherwise expressly required by law and

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except for such voting powers as may be stated in the Preferred Stock Designation relating to any series of Preferred Stock (a “Preferred Stock Designation”), the holders of any such series shall have no voting power whatsoever.

D.SERIES B JUNIOR PARTICIPATING PREFERRED STOCK

Section 1.Designation and Amount. One million (1,000,000) shares of the authorized shares of Preferred Stock are hereby designated “Series B Junior Participating Preferred Stock.” The rights, preferences, privileges, restrictions and other matters relating to such series (the “Series B Stock”) are as follows.

Section 2.Dividends and Distributions.

(A)Subject to the prior and superior rights of the holders of any series of Preferred Stock ranking prior and superior to the Series B Stock with respect to dividends, the holders of Series B Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for such purpose, quarterly dividends payable in cash on the first day of March, June, September, and December in each year (each such date being referred to herein as a “Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series B Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b) the product of the Adjustment Number (defined below) multiplied by the aggregate per share amount of all cash dividends, and the Adjustment Number multiplied by the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of common stock or a subdivision of the outstanding shares of common stock (by reclassification or otherwise), declared on the common stock, par value $.0075 per share, of the Corporation (the “Common Stock”) since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series B Stock. As used herein, the “Adjustment Number” shall initially be 100, but if the Corporation at any time after November 8, 1996 (the “Declaration Date”) (i) declares any dividend on Common Stock payable in shares of Common Stock, (ii) subdivides the outstanding Common Stock, or (iii) combines the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number immediately after such event shall equal the Adjustment Number immediately before such event multiplied by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately before such event.

(B)The Corporation shall declare a dividend or distribution on the Series B Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, if the total dividends declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date is less than $ .01 per share, a dividend equal $1.00 per share on the Series B Stock, minus an amount per share equal to the dividends already paid on the Series B Stock during such period, shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.

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(C)Dividends shall begin to accrue and be cumulative on outstanding shares of Series B Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the Series B Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series B Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof.

Section 3.Voting Rights. The holders of the Series B Stock shall have the following voting rights:

(A)Each share of Series B Stock shall entitle the holder thereof to a number of votes equal to the Adjustment Number on each matter submitted to a vote of the stockholders of the Corporation.

(B)Except as otherwise provided herein or by law, the holders of Series B Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation.

(C)If at the time of any annual meeting of stockholders for the election of directors a default in preference dividends on the shares of the Series B Stock shall exist, the number of directors constituting the Board of Directors shall be increased by two, and the holders of Series B Stock (whether or not the holders of the Series B Preferred Stock would be entitled to vote for the election of Directors if such default in preference dividends did not exist), shall have the right at such meeting, voting together as a single class, to the exclusion of the holders of Common Stock, to elect two directors of the Company to fill such newly created directorships. Such right shall continue until there are no dividends in arrears upon the Series B Stock.  Each director elected by the holders of shares of Series B Stock (herein called a “Preferred Director”) shall continue to serve as such director for the full term for which he shall have been elected, notwithstanding that prior to the end of such term a default in preference dividends shall cease to exist.   Any Preferred Director may be removed by, and shall not be removed except by, the vote of the holders of record of the outstanding shares of Series B Stock, voting together as a single class, at a meeting of the stockholders, or of the holders of shares of Series B Stock, called for that purpose. So long as a default in any preference dividends on the Series B Stock shall exist, (i) any vacancy in the office of a Preferred Director may be filled (except as provided in the following clause (ii)) by an instrument in writing signed by the remaining Preferred Director and filed with the corporation and (ii) in the case of the removal of any Preferred Director, the vacancy may be filled by the vote of the holders of the outstanding shares of Series B Stock, voting together as a single class, at the same meeting at which such

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removal shall be voted. Each director appointed as aforesaid by the remaining Preferred Director shall be deemed, for all purposes hereof, to be a Preferred Director. Whenever the term of office of the Preferred Directors shall end and a default in preference dividends shall no longer exist, the number of Directors constituting the Board of Directors of the Corporation shall be reduced by two. For the purposes hereof, a “default in preference dividends on the Series B Stock” shall be deemed to have occurred whenever the amount of accrued dividends upon the Series B Stock shall be equivalent to six full quarter-yearly dividends or more, and, having so occurred such default shall be deemed to exist thereafter until, but only until, all accrued dividends on all shares of Series B Stock shall have been paid, or declared and set aside for payment, to the end of the last preceding quarterly dividend.

(D)Except as set forth herein, holders of Series B Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action.

Section 4.Certain Restrictions.

(A)Whenever quarterly dividends or other dividends or distributions payable on the Series B Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series B Stock outstanding have been paid in full, the Corporation shall not

(i)declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series B Stock;

(ii)declare or pay dividends or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series B Stock, except dividends paid ratably on the Series B Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;

(iii)redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series B Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series B Stock;

(iv)purchase or otherwise acquire for consideration any shares of Series B Stock except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors shall determine in good faith will result in fair and equitable treatment among the respective series or classes.

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(B)The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner.

Section 5.Re-acquired Shares. Any shares of Series B Stock purchased or otherwise acquired by the Corporation in any manner shall be retired and canceled promptly after such acquisition. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein.

Section 6.Liquidation, Dissolution or Winding Up.

(A)Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series B Stock unless, prior thereto, the holders of Series B Stock have received, for each such share, a number of dollars equal to the Adjustment Number, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the “Series B Liquidation Preference”). Following the payment of the full amount of the Series B Liquidation Preference, no additional distributions shall be made to the holders of Series B Stock unless, prior thereto, the holders of Common Stock shall have received an amount per share (the “Common Adjustment”) equal to the quotient obtained by dividing (i) the Series B Liquidation Preference by (ii) the Adjustment Number.   Following the payment of the full amount of the Series B Liquidation Preference and the Common Adjustment in respect of all outstanding shares of Series B Stock and Common Stock, respectively, holders of Series B Stock and holders of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed to them in the ratio of the Adjustment Number to one with respect to such Preferred Stock and Common Stock, on a per share basis, respectively.

(B)If there are not sufficient assets available to permit payment in full of the Series B Liquidation Preference and the liquidation preferences of all other series of preferred stock, if any, that rank on a parity with the Series B Stock, then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preferences. If thereafter there are not sufficient assets available to permit payment in fullof the Common Adjustment, then such remaining assets shall be distributed ratably to the holders of Common Stock (subject to the rights of any Preferred Stock other than the Series B Stock).

Section 7.Consolidation, Merger, etc. If the Corporation enters into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in each such case the Series B Stock shall at the same time be similarly exchanged or changed in an amount per share equal to the Adjustment Number multiplied by the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged.

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Section 8.No Redemption. The Series B Stock shall not be redeemable.

Section 9.Ranking. The Series B Stock shall rank junior to all other series of the Corporation’s Preferred Stock as to the payment of dividends and the distribution of assets, unless the terms of any such series provide otherwise.

Section 10.Amendment. Whenever any Series B Stock is outstanding, the Certificate of Incorporation of the Corporation shall not be amended in any manner that would materially adversely affect the powers, preferences or special lights of the Series B Stock without the affirmative vote of the holders of a majority of the outstanding shares of Series B Stock, voting separately as a class.

Section 11.Fractional Shares. Series B Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder’s fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series B Stock.

ARTICLE FIVE

The Corporation is to have perpetual existence.

ARTICLE SIX

The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders:

A.The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. The Board of Directors shall be divided into three classes, designated as Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. At the 1996 annual meeting of stockholders, Class I directors shall be elected for a one-year term, Class II directors for a two-year term and Class III directors for a three-Year term. At each succeeding annual meeting of stockholders beginning in 1997, successors to the class of directors whose term expires at such annual meeting shall be elected to a three-year term.  If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class who is elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of such class, but in no case will a decrease in the number of directors shorten the term of any incumbent director.

B.Except for any directors who may be elected under specified circumstances set forth in a Preferred Stock Designation by the holders, if any, of any class or series of Preferred Stock then existing, the exact number of directors of the Corporation shall be determined from time to time by resolution of the Board of Directors.

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C.Except as may be otherwise provided pursuant to Part II of Article Four of the Certificate of Incorporation of the Corporation in connection with rights to elect additional directors under specified circumstances which may be granted to the holders of any class or series of preferred stock, any director or the entire Board of Directors may be removed only for cause by the affirmative vote of the holders of at least 80% of the voting power of all of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class.

D.the Board of Directors is expressly authorized to make, alter, amend, change, add to or repeal the Bylaws of the Corporation. Notwithstanding anything contained in this Certificate of Incorporation or Bylaws of the Corporation to the contrary, the stockholders of the Corporation, at a duly called annual or special meeting of stockholders, may not take any action to alter, amend, repeal or adopt any provision inconsistent with paragraphs 2, 3, 4 and 6 of the Bylaws of the Corporation without the affirmative vote of the holders of at least 80% of the voting power of all of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class.

E.The Corporation shall indemnify, to the fullest extent permitted by Section 145 of the General Corporation Law of the State of Delaware, as amended from time to time, all persons whom it may indemnify pursuant thereto. The personal liability of a director or officer of the Corporation to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director or officer shall be limited to the fullest extent permitted by the General Corporation Law of the State of Delaware, as it now exists or may hereafter be amended. Any repeal or modification of this paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such repeal or modification.

F.In addition to the power and authority hereinbefore or by statute expressly conferred upon them, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the provisions of the General Corporation Law of the State of Delaware, this Certificate of Incorporation and any Bylaws adopted by the stockholders; provided, however, that no Bylaws hereafter adopted by the stockholders shall invalidate any prior act of the directors which would have been valid if such Bylaws had not been adopted.

G.Notwithstanding Section 228(a) of the General Corporation Law of the State of Delaware, no action shall be taken by the stockholders of the Corporation by written consent in lieu of any annual or special meeting of the stockholders.

ARTICLE SEVEN

Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws of the Corporation may provide. The books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation. Election of directors need not be by written ballot unless the Bylaws of the Corporation so provide.

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ARTICLE EIGHT

The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed herein and by the laws of the State of Delaware, and all rights conferred upon stockholders herein are granted subject to this reservation.

ARTICLE NINE

Notwithstanding anything contained in this Certificate of Incorporation to the contrary, Article Six hereof shall not be altered, amended or repealed and no provision inconsistent therewith shall be adopted without the affirmative vote of the holders of at least 80% of the voting power of all of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class. Notwithstanding anything contained in this Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least 80% of the voting power of all of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to alter, amend, repeal or adopt any provision inconsistent with this Article Nine.

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EX-4.1

Exhibit 4.1

[FACE OF CERTIFICATE]

Number

[LOGO]

TAPESTRY Pharmaceuticals

TAPESTRY PHARMACEUTICALS, INC.

INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE

COMMON STOCK

Shares

CUSIP 876031 20 4

SEE REVERSE FOR CERTAIN DEFINITIONS

THIS IS TO CERTIFY that

is the owner of

fully paid and non-assessable shares of Common Stock of the par value of seventy-five hundredths of One Cent ($.0075) each of

Tapestry Pharmaceuticals, Inc.

transferable on the books of the Corporation by holder hereof in person or by duly authorized attorney upon the surrender of this Certificate properly endorsed. This Certificate is not valid until countersigned by the Transfer Agent and Registrar.

WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.

Dated:

/s/

SECRETARY

[SEAL]

/s/

CHAIRMAN

COUNTERSIGNED AND REGISTERED:

AMERICAN STOCK TRANSFER & TRUST COMPANY

(New York, N.Y.)

TRANSFER AGENT AND REGISTRAR

BY

AUTHORIZED SIGNATURE

[REVERSE OF CERTIFICATE]

TAPESTRY PHARMACEUTICALS, INC.

The Corporation will furnish without charge to any stockholder who so requests a full statement of, and the authority of the Board of Directors to fix, the designation, relative rights, preferences and limitations of the shares of each class of stock, or series thereof, authorized to be issued.

The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:

TEN COM - as tenants in common

TEN ENT - as tenants by the entireties

JT TEN - as joint tenants with right of survivorship and not as tenants in common

Additional abbreviations may also be used though not in the above list.

For Value Received,            hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE

(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)

shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint

Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises.

Dated

NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.

EX-10.1

Exhibit 10.1

EXECUTION COPY

PURCHASE AGREEMENT

THIS PURCHASE AGREEMENT (“Agreement”) is made as of the 2nd day of February, 2006 by and among Tapestry Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and the Investors set forth on the signature pages affixed hereto (each an “Investor” and collectively the “Investors”).

Recitals

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

B.The Investors wish to purchase from the Company, and the Company wishes to sell and issue to the Investors, upon the terms and conditions stated in this Agreement, (i) the number of shares of the Company’s Common Stock, par value $0.0075 per share (together with any securities into which such shares may be reclassified, the “Common Stock”), determined in accordance with the terms of this Agreement at a per share purchase price equal to $2.00 (after giving effect to the Reverse Split) (the “Shares”), and (ii) warrants to purchase an aggregate number of shares of Common Stock (subject to adjustment) equal to the number of shares of Common Stock acquired by the Investors pursuant to clause (i) above at a per share exercise price equal to $2.40 (after giving effect to the Reverse Split) (subject to adjustment as set forth therein) in the form attached hereto as Exhibit A (the “Warrants”); and

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

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

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

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

“Alternative Investment” means the issuance or sale of any equity securities, debt securities or material assets of the Company or any of its Subsidiaries, or any merger, material

joint venture or disposition or transfer of control of all or any material portion of the Company’s or any of its Subsidiaries’ respective businesses, in each case whether by way of any business combination, purchase of equity securities, purchase of assets, license, lease, tender or exchange offer or otherwise, to any Person other than, with respect to any such transaction other than a Counter Proposal, the Investors or any of their Affiliates.

“Board” means the board of directors of the Company.

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

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

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

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

“Effective Date” means the date on which the initial Registration Statement is declared effective by the SEC.

“Effectiveness Deadline” means the date on which the initial Registration Statement is required to be declared effective by the SEC under the terms of the Registration Rights Agreement.

“Independent Directors” means the directors of the Company who are “Independent Directors,” as defined in The Nasdaq Stock Market’s Marketplace Rule 4200(a)(15) as in effect on the date hereof.

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

“Material Adverse Effect” means a material adverse effect on (i) the assets, liabilities, results of operations, condition (financial or otherwise), business, or prospects of the

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Company and its Subsidiaries taken as a whole, or (ii) the ability of the Company to perform its obligations under the Transaction Documents.

“Nasdaq” means The Nasdaq Stock Market, Inc.

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

“Proposal” has the meaning set forth in Section 7.9.

“Purchase Price” means the aggregate purchase price for the Shares and the Warrants to be acquired by the Investors in accordance with the terms hereof.

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

“Reverse Split” means a one-for-10 reverse split of the Common Stock that does not alter the number of shares of Common Stock the Company is authorized to issue.

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

“Securities” means the Alternative Warrants, the Shares, the Warrants and the Warrant Shares.

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

“Superior Proposal” means any Alternative Investment that (i) the Board reasonably determines (after consultation with a financial advisor of nationally recognized reputation) to be (A) more favorable to the Company’s stockholders from a financial point of view than the sale of the Shares and the Warrants hereunder (taking into account all the terms and conditions of such proposal and this Agreement and any other factors as the Board deems relevant) and (B) reasonably capable of being completed on the terms so proposed, taking into account all financial, legal, regulatory and other aspects of such proposal, (ii) was not solicited by the Company after the date hereof, (iii) was proposed after the date hereof and (iv) did not otherwise result from a breach of Section 7.13(a).

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

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“Warrant Shares” means the shares of Common Stock issuable upon the exercise of the Alternative Warrants or the Warrants, as the case may be.

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

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

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

3.Closing; Payment of Purchase Price.  Upon confirmation that the other conditions to closing specified herein have been satisfied or duly waived by the Investors, the Company shall deliver to Lowenstein Sandler PC, in trust, a certificate or certificates, registered in such name or names as the Investors may designate, representing the Shares and the Warrants, with instructions that such certificates are to be held for release to a particular Investor only upon payment in full of the portion of the Purchase Price to be paid to the Company by such Investor.  Upon such receipt by Lowenstein Sandler PC of the certificates, each Investor shall promptly, but no more than one Business Day thereafter, cause a wire transfer in same day funds to be sent to the account of the Company as instructed in writing by the Company, in an amount representing such Investor’s pro rata portion of the Purchase Price as set forth on the signature pages to this Agreement.  On the date the Company receives the Purchase Price (the “Closing Date”), the certificates evidencing the Shares and the Warrants shall be released to the Investors (the “Closing”).  The Closing of the purchase and sale of the Shares and the Warrants shall take place at the offices of Lowenstein Sandler PC, 1251 Avenue of the Americas, 18th Floor, New York, New York 10020, or at such other location and on such other date as the Company and the Investors shall mutually agree.

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

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

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4.2Authorization.  The Company has full power and authority and, except for approval of the Proposal by its stockholders as contemplated in Section 7.9,has taken all requisite action on the part of the Company, its officers, directors and stockholders necessary for (i) the authorization, execution and delivery of the Transaction Documents, (ii) the authorization of the performance of all obligations of the Company hereunder or thereunder, (iii) the authorization, issuance (or reservation for issuance) and delivery of the Securities and (iv) the effectuation of the Reverse Split.  This Agreement constitutes, and the other Transaction Documents will constitute when executed and delivered, the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability, relating to or affecting creditors’ rights generally.

4.3Capitalization.  Schedule 4.3 sets forth (a) the authorized capital stock of the Company on the date hereof; (b) the number of shares of capital stock issued and outstanding; (c) the number of shares of capital stock issuable pursuant to the Company’s stock plans; and (d) the number of shares of capital stock issuable and reserved for issuance pursuant to securities (other than the Shares, the Alternative Warrants and the Warrants) exercisable for, or convertible into or exchangeable for any shares of capital stock of the Company.  All of the issued and outstanding shares of the Company’s capital stock have been duly authorized and validly issued and are fully paid, nonassessable and free of pre-emptive rights and were issued in full compliance with applicable state and federal securities law and any rights of third parties.  Except as described on Schedule 4.3, all of the issued and outstanding shares of capital stock of each Subsidiary have been duly authorized and validly issued and are fully paid, nonassessable and free of pre-emptive rights, were issued in full compliance with applicable state and federal securities law and any rights of third parties and are owned by the Company, beneficially and of record, subject to no lien, encumbrance or other adverse claim.  Except as described on Schedule 4.3, no Person is entitled to pre-emptive or similar statutory or contractual rights with respect to any securities of the Company.  Except as described on Schedule 4.3, there are no outstanding warrants, options, convertible securities or other rights, agreements or arrangements of any character under which the Company or any of its Subsidiaries is or may be obligated to issue any equity securities of any kind and except as contemplated by this Agreement, neither the Company nor any of its Subsidiaries is currently in negotiations for the issuance of any equity securities of any kind.  Except as described on Schedule 4.3 and except for the Registration Rights Agreement, there are no voting agreements, buy-sell agreements, option or right of first purchase agreements or other agreements of any kind among the Company and any of the securityholders of the Company relating to the securities of the Company held by them.  Except as described on Schedule 4.3 and except as provided in the Registration Rights Agreement, no Person has the right to require the Company to register any securities of the Company under the 1933 Act, whether on a demand basis or in connection with the registration of securities of the Company for its own account or for the account of any other Person.

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

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

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

4.5Consents.  Except for approval of the Proposal by the Company’s stockholders as contemplated in Section 7.9, the execution, delivery and performance by the Company of the Transaction Documents and the offer, issuance and sale of the Securities require no consent of, action by or in respect of, or filing with, any Person, governmental body, agency, or official other than filings that have been made pursuant to applicable state securities laws and post-sale filings pursuant to applicable state and federal securities laws which the Company undertakes to file within the applicable time periods.  Subject to the accuracy of the representations and warranties of each Investor set forth in Section 5 hereof, the Company has taken all action necessary to exempt (i) the issuance and sale of the Securities, (ii) the issuance of the Warrant Shares upon due exercise of the Alternative Warrants or the Warrants, as the case may be, and (iii) the other transactions contemplated by the Transaction Documents from the provisions of any stockholder rights plan or other “poison pill” arrangement, any anti-takeover, business combination or control share law or statute binding on the Company or to which the Company or any of its assets and properties may be subject and any provision of the Company’s Certificate of Incorporation or Bylaws that is or could reasonably be expected to become applicable to the Investors as a result of the transactions contemplated hereby, including without limitation, the issuance of the Securities and the ownership, disposition or voting of the Securities by the Investors or the exercise of any right granted to the Investors pursuant to this Agreement or the other Transaction Documents.

4.6Delivery of SEC Filings; Business.  The Company has made available to the Investors through the EDGAR system, true and complete copies of the Company’s most recent Annual Report on Form 10-K for the fiscal year ended December 29, 2004 (the “10-K”), and all other reports filed by the Company pursuant to the 1934 Act since the filing of the 10-K and prior to the date hereof (collectively, the “SEC Filings”).  The SEC Filings are the only filings required of the Company pursuant to the 1934 Act for such period.  The Company and its

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Subsidiaries are engaged in all material respects only in the business described in the SEC Filings and the SEC Filings contain a complete and accurate description in all material respects of the business of the Company and its Subsidiaries, taken as a whole.

4.7Use of Proceeds.  The net proceeds of the sale of the Shares and the Warrants hereunder shall be used by the Company in accordance with the budget of the Company for the calendar years 2006 and 2007 adopted in accordance with Section 6.1(f), as such budget may be amended or modified from time to time by the majority of the Independent Directors.  Any proceeds remaining following use as provided in the prior sentence shall be used by the Company for general corporate purposes.

4.8No Material Adverse Change.  Since December 29, 2004, except for the Reverse Split and except as identified and described in the SEC Filings or as described on Schedule 4.8, there has not been:

(i)any change in the consolidated assets, liabilities, financial condition or operating results of the Company from that reflected in the financial statements included in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 28, 2005, except for changes in the ordinary course of business which have not had and could not reasonably be expected to have a Material Adverse Effect, individually or in the aggregate;

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

(iii)any damage, destruction or loss, whether or not covered by insurance to any assets or properties of the Company or its Subsidiaries, in each case in excess of $25,000 individually or $50,000 in the aggregate;

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

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

(vi)(A) any change or amendment to the Company’s Certificate of Incorporation or Bylaws, or (B) any material change to any material contract or arrangement that requires the payment by any Person party thereto of at least $50,000 in the aggregate in any fiscal year by which the Company or any Subsidiary is bound or to which any of their respective assets or properties is subject, other than, in the case of clause (B) above, any such change made in the ordinary course of business;

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

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

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

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

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

4.9SEC Filings; S-3 Eligibility.

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

(b)Each registration statement and any amendment thereto filed by the Company since January 1, 2003 pursuant to the 1933 Act and the rules and regulations thereunder, as of the date such statement or amendment became effective, complied as to form in all material respects with the 1933 Act and did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein not misleading; and each prospectus filed pursuant to Rule 424(b) under the 1933 Act, as of its issue date and as of the closing of any sale of securities pursuant thereto did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading.

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

4.10No Conflict, Breach, Violation or Default.  Subject to the approval of the Proposal by its stockholders as contemplated in Section 7.9, the execution, delivery and performance of the Transaction Documents by the Company and the issuance and sale of the Securities will not conflict with or result in a breach or violation of any of the terms and provisions of, or constitute a default under (i) the Company’s Certificate of Incorporation or the Company’s Bylaws, both as in effect on the date hereof (true and complete copies of which have been made available to the Investors through the EDGAR system), or (ii)(a) any statute, rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company, any Subsidiary or any of their respective assets or properties, or (b) any agreement or instrument to which the Company or any Subsidiary is a

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party or by which the Company or a Subsidiary is bound or to which any of their respective assets or properties is subject, except, in the case of clause (ii) above, for any conflict, breach, violation or default that has not had or could not reasonably be expected to have a Material Adverse Effect.

4.11Tax Matters.  The Company and each Subsidiary has timely prepared and filed all tax returns required to have been filed by the Company or such Subsidiary with all appropriate governmental agencies and timely paid all taxes shown thereon or otherwise owed by it, except where the failure to make such payment or filing has not had or could not reasonably be expected to have a Material Adverse Effect.  The charges, accruals and reserves on the books of the Company in respect of taxes for all fiscal periods are adequate in all material respects, and there are no material unpaid assessments against the Company or any Subsidiary for the assessment of any additional taxes, penalties or interest for any fiscal period or audits by any federal, state or local taxing authority except for any assessment which is not material to the Company and its Subsidiaries, taken as a whole.  All taxes and other assessments and levies that the Company or any Subsidiary is required to withhold or to collect for payment have been duly withheld and collected and paid to the proper governmental entity or third party when due, except for any withholding, collection and payment that has not had or could not reasonably be expected to have a Material Adverse Effect.  There are no tax liens or claims pending or, to the Company’s Knowledge, threatened against the Company or any Subsidiary or any of their respective assets or property.  Except as described on Schedule 4.11, there are no outstanding tax sharing agreements or other such arrangements between the Company and any Subsidiary or other corporation or entity.

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

4.13Certificates, Authorities and Permits.  The Company and each Subsidiary possess adequate certificates, authorities or permits issued by appropriate governmental agencies or bodies necessary to conduct the business now operated by it, except where the failure to so possess has not had or could not reasonably be expected to have a Material Adverse Effect, individually or in the aggregate, and neither the Company nor any Subsidiary has received any written notice of proceedings relating to the revocation or modification of any such certificate, authority or permit that, if determined adversely to the Company or such Subsidiary, could reasonably be expected to have a Material Adverse Effect, individually or in the aggregate.

4.14Labor Matters.

(a)Except as set forth on Schedule 4.14, the Company is not a party to or bound by any collective bargaining agreements or other agreements with labor organizations.  The Company has not violated in any material respect any laws, regulations, orders or contract

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terms, affecting the collective bargaining rights of employees, labor organizations or any laws, regulations or orders affecting employment discrimination, equal opportunity employment, or employees’ health, safety, welfare, wages and hours.

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

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

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

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

4.15Intellectual Property.  Except as described in Schedule 4.15:

(a)All Intellectual Property of the Company and its Subsidiaries owned by the Company or any Subsidiary or licensed by any of them and necessary for the conduct of their respective businesses is currently in compliance with all legal requirements (including timely filings, proofs and payments of fees) and, to the Company’s Knowledge, are valid and enforceable, subject, in the case of any patent application, to any modification or other action that may be taken by the Patent and Trademark Office.  No Intellectual Property of the Company or its Subsidiaries which is necessary for the conduct of Company’s and each of its Subsidiaries’ respective businesses as currently conducted or as currently proposed to be conducted has been or is now involved in any cancellation, dispute or litigation, and, to the

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Company’s Knowledge, no such action is threatened.  No patent of the Company or its Subsidiaries has been or is now involved in any interference, reissue, re-examination or opposition proceeding.

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

(c)To the Company’s Knowledge, the Company and its Subsidiaries own or have the valid right to use all of the Intellectual Property that is necessary for the conduct of the Company’s and each of its Subsidiaries’ respective businesses as currently conducted or as currently proposed to be conducted and for the ownership, maintenance and operation of the Company’s and its Subsidiaries’ properties and assets, free and clear of all liens, encumbrances, adverse claims or obligations to license such owned Intellectual Property and Confidential Information known to or created by the Company, other than licenses entered into in the ordinary course of the Company’s and its Subsidiaries’ businesses.  The Company and its Subsidiaries have a valid and enforceable right to use all third party Intellectual Property and Confidential Information used or held for use in the respective businesses of the Company and its Subsidiaries.

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

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

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

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

4.17Litigation.  Except as described on Schedule 4.17, there are no pending actions, suits or proceedings against or affecting the Company, its Subsidiaries or any of its or their properties that have had or could reasonably be expected to have a Material Adverse Effect, individually or in the aggregate; and to the Company’s Knowledge, no such actions, suits or proceedings are threatened or contemplated.

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

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which, individually or in the aggregate, have had or could reasonably be expected to have a Material Adverse Effect.

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

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

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

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

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

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

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

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(d) made any false or fictitious entries on the books and records of the Company or any Subsidiary; or (e) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment of any nature.

4.26Transactions with Affiliates.  Except as disclosed in the SEC Filings or as disclosed on Schedule 4.26, none of the officers or directors of the Company and, to the Company’s Knowledge, none of the employees of the Company is presently a party to any transaction with the Company or any Subsidiary (other than as holders of stock options and/or warrants, and for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the Company’s Knowledge, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.

4.27Internal Controls.  The Company is in material compliance with the provisions of the Sarbanes-Oxley Act of 2002 currently applicable to the Company.  The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company has established disclosure controls and procedures (as defined in 1934 Act Rules 13a-14 and 15d-14) for the Company and designed such disclosure controls and procedures to ensure that material information relating to the Company, including the Subsidiaries, is made known to the certifying officers by others within those entities, particularly during the period in which the Company’s most recently filed period report under the 1934 Act, as the case may be, is being prepared.  The Company’s certifying officers have evaluated the effectiveness of the Company’s controls and procedures as of the end of the period covered by the most recently filed periodic report under the 1934 Act (such date, the “Evaluation Date”).  The Company presented in its most recently filed periodic report under the 1934 Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date.  Since the Evaluation Date, there have been no significant changes in the Company’s internal controls (as such term is defined in Item 308 of Regulation S-K) or, to the Company’s Knowledge, in other factors that could significantly affect the Company’s internal controls.  The Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with GAAP and the applicable requirements of the 1934 Act.

4.28Disclosures.  Neither the Company nor any Person acting on its behalf has provided the Investors or their agents or counsel with any information that constitutes or might constitute material, non-public information, other than the existence of this Agreement and the other Transaction Documents and the transactions contemplated hereby and thereby.

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4.29Most Favored Nations.  Except as expressly contemplated by Section 7.10 and except for any restrictions on the exercise of the Warrants to which any Investor may agree, none of the Investors shall be entitled to any rights, preferences or privileges under the Transaction Documents that are more favorable to such Investor than the rights, preferences and privileges applicable to any other Investor under the Transaction Documents (such more favorable terms, the “More Favorable Terms”).

4.30Disclosure.  No representation or warranty of the Company contained in this Section 4, as qualified by the Disclosure Schedules, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein not misleading in light of the circumstances under which they were made.

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

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

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

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

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

5.5Disclosure of Information.  Such Investor has had an opportunity to receive all information related to the Company requested by it and to ask questions of and receive answers from the Company regarding the Company, its business and the terms and

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conditions of the offering of the Securities.  Such Investor acknowledges receipt of copies of the SEC Filings.  Neither such inquiries nor any other due diligence investigation conducted by such Investor shall modify, amend or affect such Investor’s right to rely on the Company’s representations and warranties contained in this Agreement.

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

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

(a)“The securities represented hereby may not be transferred unless (i) such securities have been registered for sale pursuant to the Securities Act of 1933, as amended, (ii) such securities may be sold pursuant to Rule 144(k), or (iii) the Company has received an opinion of counsel reasonably satisfactory to it that such transfer may lawfully be made without registration under the Securities Act of 1933 or qualification under applicable state securities laws.”

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

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

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

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

5.11Prohibited Transactions.  During the last thirty (30) days prior to the date hereof, neither such Investor nor any Affiliate of such Investor which (x) had knowledge of the transactions contemplated hereby, (y) has or shares discretion relating to such Investor’s investments or trading or information concerning such Investor’s investments, including in respect of the Securities, or (z) is subject to such Investor’s review or input concerning such Affiliate’s investments or trading (collectively, “Trading Affiliates”) has, directly or indirectly, effected or agreed to effect any short sale, whether or not against the box, established any “put equivalent position” (as defined in Rule 16a-1(h) under the 1934 Act) with respect to the Common Stock, borrowed or pre-borrowed any shares of Common Stock, granted any other right (including, without limitation, any put or call option) with respect to the Common Stock or

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with respect to any security that includes, relates to or derived any significant part of its value from the Common Stock or otherwise sought to hedge its position in the Securities (each, a “Prohibited Transaction”).  Prior to the earliest to occur of (i) the termination of this Agreement, (ii) the Effective Date or (iii) the Effectiveness Deadline, such Investor shall not, and shall cause its Trading Affiliates not to, (A) engage, directly or indirectly, in a Prohibited Transaction, or (B) effect any sale, assignment, pledge, hypothecation, put, call, transfer or other disposition of any Securities.  Such Investor acknowledges that the representations, warranties and covenants contained in this Section 5.11 are being made for the benefit of the Investors as well as the Company and that each of the other Investors shall have an independent right to assert any claims against such Investor arising out of any breach or violation of the provisions of this Section 5.11.

6.  Conditions to Closing.

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

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

(b)The Company shall have obtained any and all consents, permits, approvals, registrations and waivers (including, without limitation, approval of the Proposal by its stockholders in accordance with applicable law and the applicable requirements of any stock exchange or market on which the Common Stock is traded or quoted) necessary for consummation of the purchase and sale of the Securities and the consummation of the other transactions contemplated by the Transaction Documents, all of which shall be in full force and effect.

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

(d)The Company shall have taken all action necessary to effect the listing of the Shares and the Warrant Shares on the Nasdaq Capital Market upon official notice of issuance.

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(e)The Reverse Split shall have become effective.

(f)The Board shall have adopted a budget for calendar years 2006 and 2007 (the “Approved Budget”), which Approved Budget shall include a covenant that the net proceeds from the sale of the Shares and the Warrants hereunder will be used solely to fund the development of the Company’s TPI 287 compound and that any amendment or variance with respect to such aspect of the Approved Budget shall require the prior written approval of a majority of the Independent Directors.

(g)The Company shall have received gross proceeds from the sale of the Shares and the Warrants as contemplated hereby of at least Twenty Million Dollars ($20,000,000).

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

(i)The Company shall have delivered a Certificate, executed on behalf of the Company by its Chief Executive Officer or its Chief Financial Officer, dated as of the Closing Date, certifying to the fulfillment of the conditions specified in subsections (a), (b), (d), (e), (f), (g), (h) (which subsection (h) shall be qualified to the Company’s Knowledge) and (l) of this Section 6.1.

(j)The Company shall have delivered a Certificate, executed on behalf of the Company by its Secretary, dated as of the Closing Date, certifying the resolutions adopted by the Board approving the transactions contemplated by this Agreement and the other Transaction Documents, the calling of the Stockholders Meeting (as defined below), the Reverse Split and the issuance of the Securities, certifying the current versions of the Certificate of Incorporation and Bylaws of the Company and certifying as to the signatures and authority of persons signing the Transaction Documents and related documents on behalf of the Company.

(k)The Investors shall have received an opinion from Kirkland & Ellis LLP, the Company’s counsel, dated as of the Closing Date, in form and substance reasonably acceptable to the Investors and addressing such legal matters as set forth on Exhibit D attached hereto.

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

(m)The Company shall have delivered to the Investors one or more executed Lock-Up Agreements in the form attached hereto as Exhibit C from each officer and director of the Company that is, as of the date hereof, subject to the reporting requirements of Section 16 of the 1934 Act.

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

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

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

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

(d)The Company shall have obtained any and all consents, permits, approvals, registrations and waivers (including, without limitation, approval of the Proposal by its stockholders in accordance with applicable law and the applicable requirements of any stock exchange or market on which the Common Stock is traded or quoted) necessary or appropriate for consummation of the purchase and sale of the Securities and the consummation of the other transactions contemplated by the Transaction Documents, all of which shall be in full force and effect.

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

(f)The Company shall have received gross proceeds from the sale of the Shares and the Warrants as contemplated hereby of at least Twenty Million Dollars ($20,000,000).

6.3Termination of Obligations to Effect Closing; Effects.

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

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

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

(iii)By the Company if the stockholders of the Company fail to approve the Proposal at the Stockholders Meeting;

(iv)By the Company if the Board authorizes the Company to enter into a definitive agreement governing a Superior Proposal (subject to compliance with Section 7.13);

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

(vi)By either the Company or any Investor (with respect to itself only) if the Closing has not occurred on or prior to May 31, 2006;

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

(b)In the event of termination by the Company or any Investor of its obligations to effect the Closing pursuant to this Section 6.3, written notice thereof shall forthwith be given to the other Investors, and each other Investor shall have the right, if such termination results in any of the conditions set forth in Section 6.1 becoming incapable of fulfillment with respect to such Investor, to terminate its obligations to effect the Closing upon written notice to the Company and the other Investors; provided that, if any Investor terminates its obligations to effect the Closing pursuant to this Section 6.3, then each other Investor shall have the right (but not the obligation) to reduce its portion of the Purchase Price, and the corresponding number of Shares and Warrant Shares to be acquired by such Investor, such that such Investor’s beneficial ownership (determined in accordance with Rule 13d-3 under the 1934 Act) of Common Stock following the Closing does not exceed 9.999% of the total number of issued and outstanding shares of Common Stock (including for such purpose any shares of Common Stock issuable upon the exercise of the Warrant to be issued to such Investor at the Closing that would be required to be included for purposes of such determination).  Nothing in this Section 6.3 shall be deemed to release any party from any liability for any breach by such party of the terms and provisions of this Agreement or the other Transaction Documents or to impair the right of any party to compel specific performance by any other party of its obligations under this Agreement or the other Transaction Documents.

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7.Covenants and Agreements of the Company and the Investors.

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

7.2Reports.  The Company will furnish to the Investors and/or their assignees such information relating to the Company and its Subsidiaries as from time to time may reasonably be requested by the Investors and/or their assignees; provided, however, that the Company shall not disclose material nonpublic information to the Investors, or to advisors to or representatives of the Investors, unless prior to disclosure of such information the Company identifies such information as being material nonpublic information and provides the Investors, such advisors and representatives with the opportunity to accept or refuse to accept such material nonpublic information for review and any Investor wishing to obtain such information enters into an appropriate confidentiality agreement with the Company with respect thereto.

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

7.4Management Equity Incentive Plan.  Each of the Investors shall, and shall cause each of its controlled Affiliates to, at any meeting of the stockholders of the Company called for such purpose after the Closing Date, consent to and vote, in person or by proxy, all shares of the Company held by such Person or with respect to which such Person has voting authority, in favor of the adoption and implementation of a management equity incentive plan of the Company containing terms and conditions that are substantially the same as the terms and conditions set forth on Schedule 7.4.  The commitment set forth in this Section 7.4 shall continue to be applicable at any meeting called by the Company for such purpose, notwithstanding the fact that such matter may have been previously voted upon but not approved by the Company’s stockholders.  The implementation of the management equity incentive plan as set forth on Schedule 7.4 will not result in any material adverse tax consequence to the Company or require the payment by the Company of any cash amount to any taxing authority in respect of such plan (other than income and employment tax withholding payments related to taxable income recognized by participants with respect to awards under such plan).

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

7.6Listing of Underlying Shares and Related Matters.  Promptly following the date hereof, the Company shall take all necessary action to cause the Shares and the Warrant Shares to be listed on the Nasdaq Capital Market no later than the Closing Date.  Further, if the Company applies to have its Common Stock or other securities traded on any other principal stock exchange or market, it shall include in such application the Shares and the Warrant Shares

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and will take such other action as is necessary to cause such Common Stock to be so listed.  The Company will use commercially reasonable efforts to continue the listing and trading of its Common Stock on Nasdaq and, in accordance, therewith, will use commercially reasonable efforts to comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of such market or exchange, as applicable.

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

7.8Removal of Legends.  Upon the earlier of (i) registration for resale pursuant to the Registration Rights Agreement, (ii) Rule 144(k) becoming available the Company, (iii) any sale pursuant to Rule 144 (assuming the transferor is not an Affiliate of the Company) or (iv) such time as a legend is no longer required under applicable requirements of the Securities Act (including controlling judicial interpretations and pronouncements issued by the SEC), the Company shall (A) deliver to the transfer agent for the Common Stock (the “Transfer Agent”) irrevocable instructions that the Transfer Agent shall reissue a certificate representing shares of Common Stock without legends upon receipt by such Transfer Agent of the legended certificates for such shares, together with either (1) a customary representation by the Investor that Rule 144(k) or Rule 144 applies to the shares of Common Stock represented thereby or (2) in connection with any sale of Common Stock by any Investor pursuant to the registration contemplated by the Registration Rights Agreement, a statement by such Investor that it has sold the shares of Common Stock represented thereby in accordance with the Plan of Distribution contained in the Registration Statement, and (B) cause its counsel to deliver to the Transfer Agent one or more blanket opinions to the effect that the removal of such legends in such circumstances may be effected under the 1933 Act.  From and after the earlier of such dates, upon an Investor’s written request, the Company shall promptly cause certificates evidencing the Investor’s Securities to be replaced with certificates which do not bear such restrictive legends, and Warrant Shares subsequently issued upon due exercise of the Alternative Warrants or the Warrants, as the case may be, shall not bear such restrictive legends provided the provisions of either clause (i) or clause (ii) above, as applicable, are satisfied with respect to such Warrant Shares.  When the Company is required to cause unlegended certificates to replace previously issued legended certificates, if unlegended certificates are not delivered to an Investor within three (3) Business Days of submission by that Investor of legended certificate(s) to the Transfer Agent as provided above (or to the Company, in the case of the Warrants), the Company shall be liable to the Investor for liquidated damages in an amount equal to 1.5% of the aggregate purchase price of the Securities evidenced by such certificate(s) for each thirty (30) day period (or portion thereof) beyond such three (3) Business Day that the unlegended certificates have not been so delivered.

7.9Proxy Statement; Stockholders Meeting.  (a)  Promptly following the execution and delivery of this Agreement the Company shall take all action necessary to call a meeting of its stockholders (the “Stockholders Meeting”), which shall occur not later than May 2, 2006 (the “Stockholders Meeting Deadline”), for the purpose of seeking approval of the

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Company’s stockholders for the issuance and sale to the Investors of the Securities (the “Proposal”).  In connection therewith, the Company will promptly prepare and file with the SEC proxy materials (including a proxy statement and form of proxy) for use at the Stockholders Meeting and, after receiving and promptly responding to any comments of the SEC thereon, shall promptly mail such proxy materials to the stockholders of the Company.  Each Investor shall promptly furnish in writing to the Company such information relating to such Investor and its investment in the Company as the Company may reasonably request for inclusion in the Proxy Statement.  The Company will comply with Section 14(a) of the 1934 Act and the rules promulgated thereunder in relation to any proxy statement (as amended or supplemented, the “Proxy Statement”) and any form of proxy to be sent to the stockholders of the Company in connection with the Stockholders Meeting, and the Proxy Statement shall not, on the date that the Proxy Statement (or any amendment thereof or supplement thereto) is first mailed to stockholders or at the time of the Stockholders Meeting, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein not false or misleading, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of proxies or the Stockholders Meeting which has become false or misleading.  If the Company should discover at any time prior to the Stockholders Meeting, any event relating to the Company or any of its Subsidiaries or any of their respective affiliates, officers or directors that is required to be set forth in a supplement or amendment to the Proxy Statement, in addition to the Company’s obligations under the 1934 Act, the Company will promptly inform the Investors thereof.

(b)Subject to the following sentence, the Board shall recommend to the Company’s stockholders that the stockholders vote in favor of the Proposal (the “Company Board Recommendation”) and take all commercially reasonable action (including, without limitation, the hiring of a proxy solicitation firm of nationally recognized standing) to solicit the approval of the stockholders for the Proposal unless the Board shall have modified, amended or withdrawn the Company Board Recommendation pursuant to the provisions of the immediately succeeding sentence.  The Company covenants that the Board shall not modify, amend or withdraw the Company Board Recommendation unless (i) the Company shall have received a Superior Proposal and (ii) the Board (after consultation with the Company’s outside counsel) shall have determined in the good faith exercise of its business judgment that maintaining the Company Board Recommendation would violate its fiduciary duty to the Company’s stockholders.  Whether or not the Board modifies, amends or withdraws the Company Board Recommendation pursuant to the immediately preceding sentence, the Company shall in accordance with Section 146 of the Delaware General Corporation Law and the provisions of its Certificate of Incorporation and Bylaws, (i) take all action necessary to convene the Stockholders Meeting as promptly as practicable, but no later than the Stockholders Meeting Deadline, to consider and vote upon the approval of the Proposal and (ii) submit the Proposal at the Stockholders Meeting to the stockholders of the Company for their approval.

7.10Director Designees.

(a)From and after the Closing Date, so long as Special Situations Fund III, L.P. (“SSF”) and/or one or more of its Affiliates collectively are the beneficial owners (determined in accordance with Rule 13d-3 under the 1934 Act) of at least 25% of the Shares

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and Warrant Shares acquired by it pursuant to this Agreement, SSF shall have the right to designate up to two Persons for election to the Board (the “SSF Designees”).  Upon any such designation by SSF, the Company shall use its commercially reasonable efforts to cause the SSF Designees to be elected to the Board.  SSF shall have the right to remove or replace any SSF Designee by giving notice to such SSF Designee and the Company and the Company shall use its commercially reasonable efforts to effect the removal or replacement of any such SSF Designee.

(b)Subject to any limitations imposed by applicable law, any SSF Designee shall be entitled to the same perquisites, including stock options, reimbursement of expenses and other similar rights in connection with such Person’s membership on the Board, as every other non-employee member of the Board.

(c)So long as SSF has the right to appoint an SSF Designee, the Company shall not increase the number of directors constituting the Board without the prior written approval of SSF.

(d)Promptly following the time that SSF no longer has the right to designate any SSF Designee, such SSF Designee shall, and SSF shall cause such SSF Designee to, promptly tender his or her resignation as a member of the Board, which resignation may be accepted by the Board in its discretion.

7.11Most Favored Nations.  Each Investor shall receive “most favorite nations status” with respect to the Transaction Documents, meaning that if the Company takes any action contemplated by Section 4.29, the terms of the Transaction Documents to which such Investor is a party automatically shall be amended, without further action, so as to provide such Investor the benefits of such More Favorable Terms.

7.12Preemptive Rights.

(a)From and after the Closing, the Company shall not sell any Common Stock or any securities exercisable or exchangeable for or convertible into, directly or indirectly, Common Stock (collectively, the “Preemptive Securities”) to any Person unless the Company shall have first offered to sell to each Investor (for so long as such Investor holds at least 50% of the Shares acquired by such Investor hereunder) (each a “Preemptive Holder”) such Preemptive Holder’s Preemptive Share of the Preemptive Securities, at a price and on such other terms as shall have been specified by the Company in writing delivered to each such Preemptive Holder (the “Preemptive Offer”) at the address set forth on the signature page hereto, which Preemptive Offer shall by its terms remain open and irrevocable for a period of at least fifteen business days from the date it is delivered by the Company (the “Preemptive Offer Period”).  Each Preemptive Holder may elect to purchase all or any portion of such Preemptive Holder’s Preemptive Share of the Preemptive Securities as specified in the Preemptive Offer at the price and upon the terms specified therein by delivering written notice of such election to the Company as soon as practical but in any event within the Preemptive Offer Period; provided that if the Company is issuing Common Stock together as a unit with any debt securities or other equity securities, then any Preemptive Holder who elects to purchase the Preemptive Securities pursuant to this Section 7.12 must purchase the same proportionate mix of all of such securities.

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(b)Each Preemptive Holder’s “Preemptive Share” of Preemptive Securities shall be determined as follows: the total number of Preemptive Securities, multiplied by a fraction, (i) the numerator of which is the number of shares of Common Stock that were purchased by such Preemptive Holder pursuant to this Agreement or pursuant to an exercise of a Warrant and that, in each case, continue to be held by such Preemptive Holder, and (ii) the denominator of which is the number of shares of Common Stock then issued and outstanding.

(c)Upon the expiration of the Preemptive Offer Period, the Company shall be entitled during the 180 day period following expiration of the Preemptive Offer Period to sell such Preemptive Securities which the Preemptive Holders have not elected to purchase on terms and conditions not materially more favorable to the purchasers thereof than those offered to the Preemptive Holders.

(d)The provisions of this Section 7.12 shall not apply to the following issuances of Common Stock:

(i)Common Stock issued to employees, officers, directors and other service providers of or to the Company or any of its Subsidiaries in accordance with the terms of any applicable incentive plan of the Company approved by the Board;

(ii)Common Stock issued for consideration other than cash in connection with consulting, licensing, acquisition, equipment leasing, lending, merger or other business transactions;

(iii)Common Stock issued upon exercise of the Warrants; and

(iv)in connection with the subdivision of Common Stock (including any split), any combination of Common Stock (including any reverse split, including the Reverse Split) or any recapitalization, reorganization, reclassification or conversion of the Company.

7.13Non-Solicitation of Alternative Investment.

(a)From and after the date hereof until the earlier to occur of the Closing or the termination of the obligations to effect the Closing pursuant to Section 6.3, the Company shall not, and neither shall it authorize or permit any of its Subsidiaries or any of their respective directors, officers or employees to, nor knowingly authorize or permit the Company’s and its Subsidiaries’ investment bankers, financial advisors, attorneys, accountants or other advisors, agents or representatives (collectively, “Representatives”) to, directly or indirectly through another Person, (i) solicit, initiate, participate in or knowingly encourage, or take any other action designed to, or which could reasonably be expected to, facilitate, any Alternative Investment or (ii) enter into, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any Person any information, or otherwise cooperate in any way with, any Alternative Investment.  The Company shall, and shall cause its Subsidiaries and Representatives to, immediately cease and cause to be terminated all existing discussions or negotiations with any Person (other than the Investors) conducted heretofore with respect to any Alternative

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Investment.  Notwithstanding the foregoing, if and to the extent that (1) the Stockholders Meeting has not occurred, (2) in response to a bona fide written Alternative Investment proposal that the Board reasonably determines (after consultation with outside counsel and a financial advisor of nationally recognized reputation) constitutes a Superior Proposal, and (3) the Board believes in good faith, considering the advice of the Company’s counsel, that the failure to participate in such negotiations or discussions or disclose such information would be inconsistent with the fiduciary duties of the Board under applicable law, the Company and its Representatives may, subject to compliance with Section 7.13(b), (x) furnish information with respect to the Company and its Subsidiaries to the Person making such Alternative Investment proposal (and its Representatives) pursuant to a customary confidentiality agreement, provided that all such information has previously been provided to the Investors or is provided to the Investors prior to or substantially concurrent with the time it is provided to such Person, and (y) participate in discussions or negotiations with the Person making such Alternative Investment proposal (and its Representatives) regarding such Alternative Investment proposal.

(b)In addition to the obligations of the Company set forth in Section 7.13(a), the Company shall promptly (and in any event within 24 hours of the receipt thereof by the Company) advise the Investors orally and in writing of the existence of any Alternative Investment proposal, the material terms and conditions of any such Alternative Investment proposal (including any changes thereto) and the identity of the Person making any such Alternative Investment proposal.  The Company shall (i) keep the Investors fully informed in all material respects of the status of any Alternative Investment proposal and (ii) provide to the Investors as soon as practicable (and in any event within 24 hours) after receipt or delivery thereof copies of all correspondence and other written material sent or provided to the Company or any of its Subsidiaries from any Person that describes any of the terms or conditions of any Alternative Investment proposal.

(c)During the period from the date of this Agreement until the Closing or the effective date of termination of the obligations to effect the Closing under Section 6.3, if the Board determines in good faith to accept a Superior Proposal, prior to accepting such Superior Proposal, the Company shall first (i) disclose to each of the Investors the terms and conditions of such Superior Proposal and (ii) offer each of the Investors the opportunity to enter into a transaction with the Company on terms no less favorable to the Company and its stockholders from a financial point of view (including conditions to consummation of the contemplated transactions) than those contained in the Superior Proposal (the “Offer”).  Any one or more of the Investors (the “Proposing Investor(s)”) shall be entitled to notify the Company within three business days of the terms of a transaction with the Company in response to the Offer (a “Counter Proposal”).  If the terms of the Counter Proposal are determined by the Board (after consultation with its legal and financial advisors) in good faith to be no less favorable to the Company and its stockholders from a financial point of view (including conditions to consummation of the contemplated transaction) than those contained in the Superior Proposal, then the Company shall accept the Counter Proposal.  In the event that more than one Investor make a Counter Proposal that is a Superior Proposal, then the Board shall determine which among them is superior to the others and that proposal will be the Counter Proposal accepted by the Company.  If the Company does not receive a Counter Proposal from any of the Investors within such three-business day period, or the Counter Proposal(s) received do not constitute a Superior Proposal, then the Company may accept the Superior Proposal, provided there are no

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subsequent material changes to the terms of such Superior Proposal.  If the terms of such Superior Proposal are materially changed, then such Superior Proposal shall be deemed a new proposal and shall be subject to each of the terms of this Section 7.13(c).  This Section 7.13(c) shall apply to any Superior Proposal made by any Person at any time prior to the termination of the Investors’ rights under this Section 7.13(c).  If the Company agrees to enter into an agreement governing the transaction contemplated by the Counter Proposal, then the Proposing Investor(s) shall promptly give written notice thereof (the “Proposal Notice”) to the other Investors.  The Proposal Notice shall specify in reasonable detail the price and other material terms and conditions of the Counter Proposal and the notice address at which the other Investors may give notice to the Proposing Investor(s) as hereinafter provided.  In such Proposal Notice, the Proposing Investor(s) shall offer the other Investors the right to participate in such transaction on the same terms and conditions as the Proposing Investor(s), which offer shall be irrevocable for a period of three business days after the date of receipt of the notice by the other Investors.  Upon receipt of the Proposal Notice, each of the other Investors shall have the right to elect to participate in such transaction on a pro rata basis based on its pro rata portion of the Purchase Price (or on such other basis as such Investors may agree) by giving the Proposing Investor(s) written notice of their election to participate within such three-business day period.  Each Investor that sends such a notice is being referred to as an “Electing Investor.”  If any Investor does not respond during the applicable period, it shall be deemed to have waived its rights under this Section 7.13(c) with respect to such Counter Proposal.   The Proposing Investor(s) and the Electing Investors together shall consummate the transaction contemplated by the Counter Proposal on such terms and conditions as set forth in the Counter Proposal or as may otherwise be agreed by the Proposing Investor(s), the Electing Investors and the Company; it being understood that the Proposing Investor(s) and the Electing Investors must agree to purchase or acquire 100% of the securities that are contemplated to be acquired from the Company or its stockholders by the Counter Proposal.  Notwithstanding any other provision in this Agreement, none of the Investors or any of their respective Affiliates shall be permitted to participate in any Alternative Investment, other than a Counter Proposal as contemplated in this Section 7.13(c).

7.14Issuance of Alternative Warrants.  Within three business days following the date hereof, the Company shall issue to each Investor, for no additional consideration, a warrant to purchase an aggregate number of shares of Common Stock (subject to adjustment as set forth in such warrant) equal to the number of shares of Common Stock set forth opposite such Investor’s name on Schedule 7.14 at a per share exercise price equal to $0.01 (subject to adjustment as set forth in such warrant), which warrant shall be in form and substance substantially as set forth in Exhibit A attached hereto (all such warrants issued to the Investors pursuant to this Section 7.14, the “Alternative Warrants”).  At the time that the Alternative Warrants are issued, (a) Kirkland & Ellis LLP, the Company’s counsel, shall deliver to the Investors an opinion dated as of such date, in form and substance reasonably acceptable to the Investors and addressing such legal matters as set forth on Exhibit D attached hereto (addressing those matters relevant to the issuance of the Alternative Warrants and shares of Common Stock subject thereto), and (b) the Company and each of the Investors shall execute and deliver a registration rights agreement with respect to the registration of the shares of Common Stock purchasable upon exercise of such Alternative Warrants in substantially the form attached as Exhibit B hereto, with such modifications as may be necessary or reasonably required to give effect to the terms of this Section 7.14.  The Alternative Warrants shall become exercisable only if one of the events specified in the

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following clauses (i) through (iv) (each a “Trigger Event”) occurs: (i) the stockholders of the Company fail to approve the Proposal at the Stockholders Meeting, (ii) the Company terminates its obligations to effect the Closing pursuant to Section 6.3 and the Company has received an Alternative Investment proposal prior to such time which has not been withdrawn, (iii) the Company enters into an agreement governing the consummation of an Alternative Investment with any Person other than the Investors, as contemplated by Section 7.13(c) above, prior to the termination of this Agreement in accordance with Section 6.3 or (iv) the Stockholders Meeting shall not have occurred prior to the Stockholders Meeting Deadline and the Company shall have breached its obligations under Section 7.9; provided, however, that notwithstanding any other provision herein, the Alternative Warrant issued to any non-Electing Investor shall become exercisable immediately if the Company consummates the transactions contemplated by a Counter Proposal and this Agreement is terminated pursuant to Section 6.3; it being understood that those Alternative Warrants held by any Investor participating in a Counter Proposal shall not become exercisable and shall terminate and be of no further force and effect on the date on which the Company consummates the transactions contemplated by a Counter Proposal.  In the event that a Trigger Event has not occurred prior to or in connection with the termination of this Agreement (in whole or with respect to any particular Investor) or the Closing shall occur, then all outstanding Alternative Warrants held by all Investors or, in the case of a termination with respect a particular Investor, that Investor, shall terminate and be of no further force and effect.  The Alternative Warrants in the aggregate will represent the right to acquire shares of Common Stock representing 15 percent of the issued and outstanding shares of Common Stock determined as of the date hereof.

7.15Use of Proceeds; Approved Budget.  The net proceeds from the sale of the Shares and the Warrants hereunder shall be used solely to fund the development of the Company’s TPI 287 compound in accordance with the Approved Budget.  Any amendment or variance with respect to such aspect of the Approved Budget shall require the prior approval of a majority of the Independent Directors.  For the avoidance of doubt, the Investors agree that the Approved Budget shall not restrict the Company’s use of its other assets, including any cash-on-hand as of the Closing.

7.16Prohibition on Sale.  The Company shall use its reasonable best efforts to cause each of Leonard P. Shaykin, Martin M. Batt, Patricia A. Pilia, Gordon Link, Kai P. Larson, Bruce W. Fiedler, Stephen K. Carter, M.D., George M. Gould, Arthur H. Hayes, Jr., Elliot M. Maza, The Honorable Richard N. Perle and Robert E. Pollack to execute and deliver to the Company within five business days after the date hereof an lock-up agreement in form and substance substantially as set forth on Exhibit C hereto.  The Company shall not terminate, amend, modify or waive any provision of such agreement without the consent of the Investors.

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8.Survival and Indemnification.

8.1  Survival.  The representations, warranties, covenants and agreements contained in this Agreement shall survive the Closing of the transactions contemplated by this Agreement; provided, however, that any claim for Losses as a result of a breach of a representation or warranty contained herein must be must be made, if at all, within 18 months of the Closing, except that any claim for Losses as a result of a breach of any representation or warranty contained in Section 4.15 hereof must be made, if at all, on or prior to the first anniversary of the Closing Date.

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

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

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consent shall not be unreasonably withheld, the Company shall not effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Person from all liability arising out of such proceeding.

9.Miscellaneous.

9.1Successors and Assigns.  This Agreement may not be assigned by a party hereto without the prior written consent of the Company or the Investors, as applicable, provided, however, that an Investor may assign its rights and delegate its duties hereunder in whole or in part to an Affiliate or to a third party acquiring some or all of its Securities in a private transaction without the prior written consent of the Company or the other Investors, after notice duly given by such Investor to the Company provided, that no such assignment or obligation shall affect the obligations of such Investor hereunder.  The provisions of this Agreement shall inure to the benefit of and be binding upon the respective permitted successors and assigns of the parties.  Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement (including in Section 9.6).

9.2Counterparts; Faxes.  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.  This Agreement may also be executed via facsimile, which shall be deemed an original.

9.3Titles and Subtitles.  The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

9.4Notices.  Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given as hereinafter described (i) if given by personal delivery, then such notice shall be deemed given upon such delivery, (ii) if given by telex or telecopier, then such notice shall be deemed given upon receipt of confirmation of complete transmittal, (iii) if given by mail, then such notice shall be deemed given upon the earlier of (A) receipt of such notice by the recipient or (B) three days after such notice is deposited in first class mail, postage prepaid, and (iv) if given by an internationally recognized overnight air courier, then such notice shall be deemed given one Business Day after delivery to such carrier.  All notices shall be addressed to the party to be notified at the address as follows, or at such other address as such party may designate by ten days’ advance written notice to the other party:

If to the Company:

Tapestry Pharmaceuticals, Inc.

4840 Pearl East Circle, Suite 300W

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Boulder, Colorado 80301

Attention:  Leonard Shaykin, Chairman and Chief Executive Officer

Fax:  (212) 319-2808

With a copy to:

Kirkland & Ellis LLP

Citigroup Center

153 East 53rd Street

New York, New York 10022-4611

Attention:  Michael Movsovich

Fax:  (212) 446-6460

If to any Investor:

to such Investor’s address(es) set forth on the signature pages hereto.

9.5Expenses.  The parties hereto shall pay their own costs and expenses in connection herewith, except that the Company shall pay the reasonable and documented fees and expenses of Lowenstein Sandler PC in connection with the negotiation and execution of the Transaction Documents in an amount not to exceed $35,000.  Such expenses shall be paid not later than the Closing.  The Company shall reimburse the Investors upon demand for all reasonable and documented out-of-pocket expenses incurred by the Investors, including without limitation reimbursement of attorneys’ fees and disbursements, in connection with any amendment, modification or waiver of this Agreement or the other Transaction Documents.  In the event that legal proceedings are commenced by any party to this Agreement against another party to this Agreement in connection with this Agreement or the other Transaction Documents, the party or parties which do not prevail in such proceedings shall severally, but not jointly, pay their pro rata share of the reasonable attorneys’ fees and other reasonable and documented out-of-pocket costs and expenses incurred by the prevailing party in such proceedings.

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

9.7Publicity.  Except as set forth below, no public release or announcement concerning the transactions contemplated hereby shall be issued by the Company or the Investors without the prior consent of the Company (in the case of a release or announcement by the Investors) or the Investors (in the case of a release or announcement by the Company) (which consents shall not be unreasonably withheld), except as such release or announcement may be required by law or the applicable rules or regulations of any securities exchange or securities

31

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

9.8Severability.  Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof but shall be interpreted as if it were written so as to be enforceable to the maximum extent permitted by applicable law, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.  To the extent permitted by applicable law, the parties hereby waive any provision of law which renders any provision hereof prohibited or unenforceable in any respect.

9.9Entire Agreement.  This Agreement, including the Exhibits and the Disclosure Schedules, and the other Transaction Documents constitute the entire agreement among the parties hereof with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter hereof and thereof (including that certain Term Sheet, dated as of November 16, 2005, by and between the Company and Special Situations Funds).

9.10Further Assurances.  The parties shall execute and deliver all such further instruments and documents and take all such other actions as may reasonably be required to carry out the transactions contemplated hereby and to evidence the fulfillment of the agreements herein contained.

9.11Governing Law; Consent to Jurisdiction; Waiver of Jury Trial.  This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York without regard to the choice of law principles thereof.  Each of the parties hereto irrevocably submits to the exclusive jurisdiction of the courts of the State of New York located in New York County and the United States District Court for the Southern District of New York for

32

the purpose of any suit, action, proceeding or judgment relating to or arising out of this Agreement and the transactions contemplated hereby.  Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Agreement.  Each of the parties hereto irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court.  Each party hereto irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.  EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

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

[signature pages follow]

33

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

The Company:	TAPESTRY PHARMACEUTICALS, INC.
	By:	/s/ Leonard Shaykin
	Name:		Leonard Shaykin
	Title:		Chairman and Chief Executive Officer

Signature Page to Purchase Agreement

The Investors:

Baker Bros. Investments II, L.P.
By: Baker Bros. Capital, L.P., (general partner)	Baker Biotech Fund III (Z) L.P.
By: Baker Bros. Capital (GP), LLC, (general partner)	By: Baker Biotech Capital III (Z), L.P. (general partner)
By: Julian Baker, Managing Member	By: Baker Biotech Capital III (Z) (GP), LLC, (general partner)
	By: Julian Baker, Managing Member
/s/ Julian Baker	/s/ Julian Baker
Baker Biotech Fund II (Z) L.P.
By: Baker Biotech Capital II (Z), L.P. (general partner)	14159, L.P.
By: Baker Biotech Capital II (Z) (GP), LLC, (general partner)	By: 14159 Capital, L.P., (general partner)
By: Julian Baker, Managing Member	By: 14159 Capital (GP), LLC, (general partner)
	By: Julian Baker, Managing Member
/s/ Julian Baker	/s/ Julian Baker
Baker Biotech Fund III L.P.
By: Baker Biotech Capital III, L.P. (general partner)
By: Baker Biotech Capital III (GP), LLC, (general partner)
By: Julian Baker, Managing Member
/s/ Julian Baker

Aggregate Purchase Price: $
Number of Shares:		See Attachment A
Number of Warrant Shares:
Address for Notice:
Attn:	Leo Kirby, CFO

Signature Page to Purchase Agreement

Tapestry Pharmaceuticals

Attachment A

SCHEDULE OF PURCHASERS

2/1/2006

Purchaser Name and Address and Federal Taxpayer ID*	Aggregate Number of Shares	Purchase Price Per Share	Aggregate Number of Warrants	Purchase Price Per Warrant	Aggregate Purchase Price
Baker Bros. Investments II, L.P. 667 Madison Avenue, 17th Floor New York, NY 10021 Tax ID: 36-4448341	41,641	2.00	41,641	0	$	83,282.00
Baker Biotech Fund II (Z), L.P. 667 Madison Avenue, 17th Floor New York, NY 10021 Tax ID: 30-0089643	54,481	2.00	54,481	0	$	108,962.00
Baker Biotech Fund III, L.P. 667 Madison Avenue, 17th Floor New York, NY 10021 Tax ID: 30-0089645	1,525,130	2.00	1,525,130	0	$	3,050,260.00
Baker Biotech Fund III (Z), L.P. 667 Madison Avenue, 17th Floor New York, NY 10021 Tax ID: 731719525	264,874	2.00	264,874	0	$	529,748.00
14159, L.P. 667 Madison Avenue, 17th Floor New York, NY 10021 Tax ID: 86-1123269	113,874	2.00	113,874	0	$	227,748.00
Total:	2,000,000		2,000,000		$	4,000,000.00

	NAME OF INVESTOR:
	BIOTECHNOLOGY VALUE FUND, L.P.
	By:		BVF Partners L.P., its general partner
			By:	BVF Inc., its general partner
				By:	/s/ Mark N. Lampert
					Mark N. Lampert
					President
Aggregate Purchase Price:		$672,000
Number of Shares:		336,000
Number of Warrant Shares:		336,000
Address for Notice:
					Grosvenor Capital Management, L.P.
					900 N. Michigan Avenue
					Suite 1100
					Chicago, IL 60611
					Attention: Elizabeth Delaney
					Telephone: 312-506-6862
					Facsimile:  312-506-6870

	NAME OF INVESTOR:
	BIOTECHNOLOGY VALUE FUND II, L.P.
	By:		BVF Partners L.P., its general partner
			By:	BVF Inc., its general partner
				By:	/s/ Mark N. Lampert
					Mark N. Lampert
					President
Aggregate Purchase Price:		$459,600
Number of Shares:		229,800
Number of Warrant Shares:		229,800
Address for Notice:
					Grosvenor Capital Management, L.P.
					900 N. Michigan Avenue
					Suite 1100
					Chicago, IL 60611
					Attention: Elizabeth Delaney
					Telephone: 312-506-6862
					Facsimile:  312-506-6870

	NAME OF INVESTOR:
	BVF INVESTMENTS, L.L.C.
	By:		BVF Partners L.P., its manager
			By:	BVF Inc., its general partner
				By:	/s/ Mark N. Lampert
					Mark N. Lampert
					President
Aggregate Purchase Price:		$1,666,200
Number of Shares:		833,100
Number of Warrant Shares:		833,100
Address for Notice:
					Grosvenor Capital Management, L.P.
					900 N. Michigan Avenue
					Suite 1100
					Chicago, IL 60611
					Attention: Elizabeth Delaney
					Telephone: 312-506-6862
					Facsimile:  312-506-6870

	NAME OF INVESTOR:
	INVESTMENTS 10, L.L.C.
	By:		BVF Partners L.P., its attonery-in-fact
			By:	BVF Inc., its general partner
				By:	/s/ Mark N. Lampert
					Mark N. Lampert
					President
Aggregate Purchase Price:		$202,200
Number of Shares:		101,100
Number of Warrant Shares:		101,100
Address for Notice:
					Grosvenor Capital Management, L.P.
					900 N. Michigan Avenue
					Suite 1100
					Chicago, IL 60611
					Attention: Elizabeth Delaney
					Telephone: 312-506-6862
					Facsimile:  312-506-6870

		NAME OF INVESTOR:
		Fort Mason Master, LP
		By:		/s/ Dan German
		Name:		Fort Mason Capital, LLC
		Title:		Managing Member
Aggregate Purchase Price:	$2,817,300
Number of Shares:	1,408,650
Number of Warrant Shares:	1,408,650
Address for Notice:
			456 Montgomery Street
			San Francisco, CA 94104
			Attention:		Marshall Jensen
			Telephone:		415-249-3380
			Facsimile:		415-249-3389
			With a copy to:
			N/A
			Attention:
			Telephone:
			Facsimile:

Signature Page to Purchase Agreement

		NAME OF INVESTOR:
		Fort Mason Partners, LP
		By:		/s/ Dan German
		Name:		Fort Mason Capital, LLC
		Title:		Managing Member
Aggregate Purchase Price:	$182,700
Number of Shares:	91,350
Number of Warrant Shares:	91,350
Address for Notice:
			456 Montgomery Street
			San Francisco, CA 94104
			Attention:		Marshall Jensen
			Telephone:		415-249-3380
			Facsimile:		415-249-3389
			With a copy to:
			N/A
			Attention:
			Telephone:
			Facsimile:

Signature Page to Purchase Agreement

		NAME OF INVESTOR:
		Capital Ventures International by: Heights Capital Management, Inc. its authorized agent
		By:		/s/ Martin Kobinger
		Name:		Martin Kobinger
		Title:		Investment Manager
Aggregate Purchase Price:	$2,000,000
Number of Shares:	1,000,000
Number of Warrant Shares:	1,000,000
Address for Notice:
			c/o Heights Capital Management
			101 California Street, Suite 3250
			San Francisco, CA 94111
			Attention:		Martin Kobinger
			Telephone:		415-403-6500
			Facsimile:		415-403-6525
			With a copy to:
			Attention:
			Telephone:
			Facsimile:

Signature Page to Purchase Agreement

		NAME OF INVESTOR:
		Merlin BioMed Long Term Appreciation, LP
		By:		/s/ Norman Schleifer
		Name:		Norman Schleifer
		Title:		Chief Financial Officer
Aggregate Purchase Price:	$350,000
Number of Shares:	175,000
Number of Warrant Shares:	175,000
Address for Notice:
			Merlin BioMed Group
			230 Park Ave, Suite 928
			New York NY 10169
			Attention:		Norman Schleifer
			Telephone:		646 227 5200
			Facsimile:		646 227 5201

Signature Page to Purchase Agreement

		NAME OF INVESTOR:
		Merlin BioMed Offshore Master Fund
		By:		/s/ Norman Schleifer
		Name:		Norman Schleifer
		Title:		Chief Financial Officer
Aggregate Purchase Price:	$650,000
Number of Shares:	325,000
Number of Warrant Shares:	325,000
Address for Notice:
			Merlin BioMed Group
			230 Park Ave, Suite 928
			New York NY 10169
			Attention:		Norman Schleifer
			Telephone:		646 227 5200
			Facsimile:		646 227 5201

Signature Page to Purchase Agreement

		NAME OF INVESTOR:
		Special Situations Fund III Q.P. L.P.
		By:		/s/ David Greenhouse
		Name:		David Greenhouse
		Title:
Aggregate Purchase Price:	$2,400,000.00
Number of Shares:	1,200,000
Number of Warrant Shares:	1,200,000
Address for Notice:
			Attention:
			Telephone:
			Facsimile:
			With a copy to:
			Attention:
			Telephone:
			Facsimile:

Signature Page to Purchase Agreement

		NAME OF INVESTOR:
		Special Situations Fund L.P.
		By:		/s/ David Greenhouse
		Name:		David Greenhouse
		Title:
Aggregate Purchase Price:	$200,000.00
Number of Shares:	100,000
Number of Warrant Shares:	100,000
Address for Notice:
			Attention:
			Telephone:
			Facsimile:
			with a copy to:
			Attention:
			Telephone:
			Facsimile:

Signature Page to Purchase Agreement

		NAME OF INVESTOR:
		Special Situations Life Science Fund III L.P.
		By:		/s/ David Greenhouse
		Name:		David Greenhouse
		Title:
Aggregate Purchase Price:	$700,000
Number of Shares:	350,000
Number of Warrant Shares:	350,000
Address for Notice:
			Attention:
			Telephone:
			Facsimile:
			with a copy to:
			Attention:
			Telephone:
			Facsimile:

Signature Page to Purchase Agreement

		NAME OF INVESTOR:
		Special Situations Cayman Fund L.P.
		By:		/s/ David Greenhouse
		Name:		David Greenhouse
		Title:
Aggregate Purchase Price:	$700,000.00
Number of Shares:	350,000
Number of Warrant Shares:	350,000
Address for Notice:
			Attention:
			Telephone:
			Facsimile:
			with a copy to:
			Attention:
			Telephone:
			Facsimile:

		NAME OF INVESTOR:
		Special Situations Private Equity Fund L.P.
		By:		/s/ David Greenhouse
		Name:		David  Greenhouse
		Title:
Aggregate Purchase Price:	$1,000,000.00
Number of Shares:	500,000
Number of Warrant Shares:	500,000
Address for Notice:
			Attention:
			Telephone:
			Facsimile:
			with a copy to:
			Attention:
			Telephone:
			Facsimile:

		NAME OF INVESTOR:
		IBA FBO Chung W. Kong DB Securities Inc.
		Custodian Roth Conversion Account
		By:		/s/ Chung W. Kong
		Name:		Chung W. Kong
		Title:		Beneficiary
Aggregate Purchase Price:	$20,000.00
Number of Shares:	10,000
Number of Warrant Shares:	10,000
Address for Notice:
			C/O Tang Capital Partners, LP
			4401 Eastgate Mall
			San Diego, CA 92121
			Attention:		Kevin Tang
			Telephone:		858-200-3030
			Facsimile:		858-200-3837
			With a copy to:
			Attention:
			Telephone:
			Facsimile:

Signature Page to Purchase Agreement

		NAME OF INVESTOR:
		IBA FBO Chang L. Kong DB Securities Inc.
		Custodian Roth Conversion Account
		By:		/s/ Chang L. Kong
		Name:		Chang L. Kong
		Title:		Beneficiary
Aggregate Purchase Price:	$20,000.00
Number of Shares:	10,000
Number of Warrant Shares:	10,000
Address for Notice:
			C/O Tang Capital Partners, LP
			4401 Eastgate Mall
			San Diego, CA 92121
			Attention:		Kevin Tang
			Telephone:		858-200-3830
			Facsimile:		858-200-3837
			With a copy to:
			Attention:
			Telephone:
			Facsimile:

Signature Page to Purchase Agreement

		NAME OF INVESTOR:
		Tang Capital Partners, LP
		By:		/s/ Kevin C. Tang
		Name:		Kevin C. Tang
		Title:		Managing Member
Aggregate Purchase Price:	$3,410,000.00
Number of Shares:	1,705,000
Number of Warrant Shares:	1,705,000
Address for Notice:
			4401 Eastgate Mall
			San Diego, CA 92121
			Attention:		Kevin Tang
			Telephone:		858-200-3830
			Facsimile:		858-200-3837
			with a copy to:
			Attention:
			Telephone:
			Facsimile:

Signature Page to Purchase Agreement

		NAME OF INVESTOR:
		Kevin C. Tang as Custodian for Julian Kong Tang
		Under the CA Transfer to Minors Act
		By:		/s/ Kevin C. Tang
		Name:		Kevin C. Tang
		Title:		Trustee
Aggregate Purchase Price:	$70,000.00
Number of Shares:	35,000
Number of Warrant Shares:	35,000
Address for Notice:
			C/O Tang Capital Partners, LP
			4401 Eastgate Mall
			San Diego, CA 92121
			Attention:		Kevin C. Tang
			Telephone:		858-200-3830
			Facsimile:		858-200-3837
			with a copy to:
			Attention:
			Telephone:
			Facsimile:

Signature Page to Purchase Agreement

		NAME OF INVESTOR:
		Kevin C. Tang as Custodian for Justin Lee Tang
		Under the CA Transfer to Minors Act
		By:		/s/ Kevin C. Tang
		Name:		Kevin C. Tang
		Title:		Trustee
Aggregate Purchase Price:	$100,000.00
Number of Shares:	50,000
Number of Warrant Shares:	50,000
Address for Notice:
			C/O Tang Capital Partners, LP
			4401 Eastgate Mall
			San Diego, CA 92121
			Attention:		Kevin C. Tang
			Telephone:		858-200-3830
			Facsimile:		858-200-3837
			with a copy to:
			Attention:
			Telephone:
			Facsimile:

Signature Page to Purchase Agreement

		NAME OF INVESTOR:
		Kevin C. Tang as Custodian for Noa Young Tang
		Under the CA Transfer to Minors Act
		By:		/s/ Kevin C. Tang
		Name:		Kevin C. Tang
		Title:		Trustee
Aggregate Purchase Price:	$30,000.00
Number of Shares:	15,000
Number of Warrant Shares:	15,000
Address for Notice:
			C/O Tang Capital Partners, LP
			4401 Eastgate Mall
			San Diego, CA 92121
			Attention:		Kevin C. Tang
			Telephone:		858-200-3830
			Facsimile:		858-200-3837
			with a copy to:
			Attention:
			Telephone:
			Facsimile:

Signature Page to Purchase Agreement

		NAME OF INVESTOR:
		Kevin Tang and Haeyoung Tang Trustees The Tang Family Trust Dated 8-27-02
		By:		/s/ Kevin C. Tang
		Name:		Kevin C. Tang
		Title:		Trustee
Aggregate Purchase Price:	$300,000.00
Number of Shares:	150,000
Number of Warrant Shares:	150,000
Address for Notice:
			C/O Tang Capital Partners, LP
			4401 Eastgate Mall
			San Diego, CA 92121
			Attention:		Kevin Tang
			Telephone:		858-200-3830
			Facsimile:		858-200-3837
			with a copy to:
			Attention:
			Telephone:
			Facsimile:

Signature Page to Purchase Agreement

		NAME OF INVESTOR:
		IRA FBO Keven Tang DB Securities Inc.
		Custodian Rollover Account
		By:		/s/ Kevin C. Tang
		Name:		Kevin C. Tang
		Title:		Beneficiary
Aggregate Purchase Price:	$50,000.00
Number of Shares:	25,000
Number of Warrant Shares:	25,000
Address for Notice:
			C/O Tang Capital Partners, LP
			4401 Eastgate Mall
			San Diego, CA 92121
			Attention:		Kevin Tang
			Telephone:		858-200-3830
			Facsimile:		858-200-3837
			with a copy to:
			Attention:
			Telephone:
			Facsimile:

Signature Page to Purchase Agreement

		NAME OF INVESTOR:
		VERSANT CAPITAL MANAGEMENT LLC
		By:		/s/ Herriot Tabuteau
		Name:		HERRIOT TABUTEAU
		Title:		MANAGING MEMBER
Aggregate Purchase Price:	$1,500,000.00
Number of Shares:	750,000
Number of Warrant Shares:	750,000
Address for Notice:
			VERSANT CAPITAL MANAGEMENT LLC
			45 ROCKEFELLER PLAZA SUITE 2074
			NEW YORK, NY 10111
			Attention:		HERRIOT TABUTEAU
			Telephone:		212-332-3467
			Facsimile:		212-332-3468
			with a copy to:
			Attention:
			Telephone:
			Facsimile:

Signature Page to Purchase Agreement

		NAME OF INVESTOR:
		XMARK JV INVESTMENT PARTNERS, LLC
		By:		/s/ MITCHELL D. KAYE
		Name:		MITCHELL D. KAYE
		Title:		CHIEF INVESTMENT OFFICER
Aggregate Purchase Price:	$1,000,000
Number of Shares:	500,000
Number of Warrant Shares:	500,000
Address for Notice:
			XMARK FUNDS
			301 TRESSER BLVD. SUITE 1320
			STAMFORD, CT 06901
			Attention:		MITCHELL KAYE
			Telephone:		203-653-2500
			Facsimile:		203-653-2501
			with a copy to:
			Attention:
			Telephone:
			Facsimile:

Signature Page to Purchase Agreement

		NAME OF INVESTOR:
		XMARK OPPORTUNITY FUND, L.P.
		By:		/s/ MITCHELL D. KAYE
		Name:		MITCHELL D. KAYE
		Title:		C.I.O.
Aggregate Purchase Price:	$450,000
Number of Shares:	225,000
Number of Warrant Shares:	225,000
Address for Notice:
			XMARK FUNDS
			301 TRESSER BLVD. SUITE 1320
			STAMFORD, CT 06901
			Attention:		MITCHELL KAYE
			Telephone:		203 653 2500
			Facsimile:		203 653 2501
			with a copy to:
			Attention:
			Telephone:
			Facsimile:

Signature Page to Purchase Agreement

		NAME OF INVESTOR:
		XMARK OPPORTUNITY FUND, LTD.
		By:		/s/ MITCHELL D. KAYE
		Name:		MITCHELL D. KAYE
		Title:		C.I.O.
Aggregate Purchase Price:	$550,000
Number of Shares:	275,000
Number of Warrant Shares:	275,000
Address for Notice:
			XMARK FUNDS
			301 TRESSER BLVD. SUITE 1320
			STAMFORD, CT 06901
			Attention:		MITCHELL D. KAYE
			Telephone:		203-653-2500
			Facsimile:		203-653-2501
			with a copy to:
			Attention:
			Telephone:
			Facsimile:

Signature Page to Purchase Agreement

EX-10.2

Exhibit 10.2

AGREED FORM

REGISTRATION RIGHTS AGREEMENT

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

The parties hereby agree as follows:

1.     Certain Definitions.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2.     Registration.

(a)           Registration Statements.

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

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

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

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

(c)           Effectiveness.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

5.     Obligations of the Investors.

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

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

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

6.     Indemnification.

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

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

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

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

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

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

7.     Miscellaneous.

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

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

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

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

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

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

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

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

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

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

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

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

The Company:	TAPESTRY PHARMACEUTICALS, INC.
	By:
	Name:	Leonard Shaykin
	Title:	Chairman and Chief Executive Officer

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The Investors:	SPECIAL SITUATIONS FUND III QP, L.P.
	By:
	Name: Austin W. Marxe
	Title: General Partner
	SPECIAL SITUATIONS FUND III, L.P.
	By:
	Name: Austin W. Marxe
	Title: General Partner
	SPECIAL SITUATIONS CAYMAN FUND, L.P.
	By:
	Name: Austin W. Marxe
	Title: General Partner
	SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.
	By:
	Name: Austin W. Marxe
	Title: General Partner
	SPECIAL SITUATIONS TECHNOLOGY FUND, L.P.
	By:
	Name: Austin W. Marxe
	Title: General Partner

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SPECIAL SITUATIONS TECHNOLOGY FUND II, L.P.

By:

Name: Austin W. Marxe

Title: General Partner

SPECIAL SITUATIONS LIFE SCIENCES FUND, L.P.

By:

Name: Austin W. Marxe

Title: General Partner

[other investors]

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Exhibit A

Plan of Distribution

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

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

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

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

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

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

• privately negotiated transactions;

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

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

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

• a combination of any such methods of sale.

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

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

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

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

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

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

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

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

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

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

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

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EX-10.3

Exhibit 10.3

AGREED FORM

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

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

No.                     

TAPESTRY PHARMACEUTICALS, INC.

WARRANT TO PURCHASE                SHARES OF

COMMON STOCK, PAR VALUE $0.0075 PER SHARE

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(b)           If any capital reorganization, reclassification of the capital stock of the Company, consolidation or merger of the Company with another corporation in which the Company is not the survivor, or sale, transfer or other disposition of all or substantially all of the Company’s assets to another corporation shall be effected, then, as a condition of such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition, lawful and adequate provision shall be made whereby each Warrantholder shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions herein specified and in lieu of the Warrant Shares immediately theretofore issuable upon exercise of this Warrant, such shares of stock, securities or assets as would have been issuable or payable with respect to or in exchange for a number of Warrant Shares equal to the number of Warrant Shares immediately theretofore issuable upon exercise of this Warrant, had such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of each Warrantholder to the end that the provisions hereof (including, without limitation, provision for adjustment of the Warrant Price) shall thereafter be applicable, as nearly equivalent as may be practicable in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof.  The Company shall not effect any such consolidation, merger, sale, transfer or other disposition unless prior to or simultaneously with the consummation thereof the successor corporation (if

4

other than the Company) resulting from such consolidation or merger, or the corporation purchasing or otherwise acquiring such assets or other appropriate corporation or entity shall assume the obligation to deliver to the Warrantholder, at the last address of the Warrantholder appearing on the books of the Company, such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Warrantholder may be entitled to purchase, and the other obligations under this Warrant.  The provisions of this paragraph (b) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales, transfers or other dispositions.

(c)           In case the Company shall fix a payment date for the making of a distribution to all holders of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of evidences of indebtedness or assets (other than dividends or distributions referred to in Section 8(a)), or subscription rights or warrants, the Warrant Price to be in effect after such payment date shall be determined by multiplying the Warrant Price in effect immediately prior to such payment date by a fraction, the numerator of which shall be the total number of shares of Common Stock outstanding multiplied by the Market Price (as defined below) per share of Common Stock immediately prior to such payment date, less the fair market value (as determined by the Company’s Board of Directors in good faith) of said assets or evidences of indebtedness so distributed, or of such subscription rights or warrants, and the denominator of which shall be the total number of shares of Common Stock outstanding multiplied by such Market Price per share of Common Stock immediately prior to such payment date.  “Market Price” as of a particular date (the “Valuation Date”) shall mean the following: (a) if the Common Stock is then listed on a national stock exchange, the closing sale price of one share of Common Stock on such exchange on the last trading day prior to the Valuation Date; (b) if the Common Stock is then quoted on The Nasdaq Stock Market, Inc. (“Nasdaq”), the National Association of Securities Dealers, Inc. OTC Bulletin Board (the “Bulletin Board”) or such similar quotation system or association, the closing sale price of one share of Common Stock on Nasdaq, the Bulletin Board or such other quotation system or association on the last trading day prior to the Valuation Date or, if no such closing sale price is available, the average of the high bid and the low asked price quoted thereon on the last trading day prior to the Valuation Date; or (c) if the Common Stock is not then listed on a national stock exchange or quoted on Nasdaq, the Bulletin Board or such other quotation system or association, the fair market value of one share of Common Stock as of the Valuation Date, as determined in good faith by the Board of Directors of the Company and the Warrantholder.  If the Common Stock is not then listed on a national securities exchange, the Bulletin Board or such other quotation system or association, the Board of Directors of the Company shall respond promptly, in writing, to an inquiry by the Warrantholder prior to the exercise hereunder as to the fair market value of a share of Common Stock as determined by the Board of Directors of the Company.  In the event that the Board of Directors of the Company and the Warrantholder are unable to agree upon the fair market value in respect of subpart (c) of this paragraph, the Company and the Warrantholder shall jointly select an appraiser, who is experienced in such matters.  The decision of such appraiser shall be final and conclusive, and the cost of such appraiser shall be borne equally by the Company and the Warrantholder.  Such adjustment shall be made successively whenever such a payment date is fixed.

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

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

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

Adjusted Warrant Price = (A x B) + D

A+C

where

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

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

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

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

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

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

For purposes of this subsection (f), the following subsections (f)(l) to (f)(7) shall also be applicable:

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

(f)(2)  Issuance of Convertible Securities.  In case the Company shall in any manner issue (directly and not by assumption in a merger or otherwise) or sell any Convertible Securities, whether or not the rights to exchange or convert any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange (determined by dividing (i) the sum (which sum shall constitute the applicable consideration) of (x) the total amount received or receivable by the Company as consideration for the issue or sale of such Convertible Securities, plus (y) the aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange thereof, by (ii) the total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities) shall be less than the Warrant Price in effect immediately prior to the

7

time of such issue or sale, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall be deemed to have been issued for such price per share as of the date of the issue or sale of such Convertible Securities and thereafter shall be deemed to be outstanding for purposes of adjusting the Warrant Price, provided that (a) except as otherwise provided in subsection 8(f)(3), no adjustment of the Warrant Price shall be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities and (b) no further adjustment of the Warrant Price shall be made by reason of the issue or sale of Convertible Securities upon exercise of any Options to purchase any such Convertible Securities for which adjustments of the Warrant Price have been made pursuant to the other provisions of subsection 8(f).

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

(f)(4) Stock Dividends.  Subject to the provisions of this Section 8(f), in case the Company shall declare a dividend or make any other distribution upon any stock of the Company (other than the Common Stock) payable in Common Stock, Options or Convertible Securities, then any Common Stock, Options or Convertible Securities, as the case may be, issuable in payment of such dividend or distribution shall be deemed to have been issued or sold without consideration.

(f)(5) Consideration for Stock.  In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for cash, the consideration received therefor shall be deemed to be the net amount received by the Company therefor, after deduction therefrom of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Company in

8

connection therewith.  In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company shall be deemed to be the fair value of such consideration as determined in good faith by the Board of Directors of the Company, after deduction of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Company in connection therewith.  In case any Options shall be issued in connection with the issue and sale of other securities of the Company, together comprising one integral transaction in which no specific consideration is allocated to such Options by the parties thereto, such Options shall be deemed to have been issued for such consideration as determined in good faith by the Board of Directors of the Company.  If Common Stock, Options or Convertible Securities shall be issued or sold by the Company and, in connection therewith, other Options or Convertible Securities (the “Additional Rights”) are issued, then the consideration received or deemed to be received by the Company shall be reduced by the fair market value of the Additional Rights (as determined using the Black-Scholes option pricing model or another method mutually agreed to by the Company and the Warrantholder).  The Board of Directors of the Company shall respond promptly, in writing, to an inquiry by the Warrantholder as to the fair market value of the Additional Rights.  In the event that the Board of Directors of the Company and the Warrantholder are unable to agree upon the fair market value of the Additional Rights, the Company and the Warrantholder shall jointly select an appraiser, who is experienced in such matters.  The decision of such appraiser shall be final and conclusive, and the cost of such appraiser shall be borne evenly by the Company and the Warrantholder.

(f)(6) Record Date.  In case the Company shall take a record of the holders of its Common Stock for the purpose of entitling them (i) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities or (ii) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

(f)(7) Treasury Shares.  The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company or any of its wholly-owned subsidiaries, and the disposition of any such shares (other than the cancellation or retirement thereof) shall be considered an issue or sale of Common Stock for the purpose of this subsection (f).

(g)           Anything herein to the contrary notwithstanding, the Company shall not be required to make any adjustment of the Warrant Price in the case of the issuance of (A) capital stock, Options or Convertible Securities issued to directors, officers, employees or consultants of the Company in connection with their service as directors of the Company, their employment by

9

the Company or their retention as consultants by the Company pursuant to an equity compensation program approved by the Board of Directors of the Company or the compensation committee of the Board of Directors of the Company, (B) shares of Common Stock issued upon the conversion or exercise of Options or Convertible Securities issued prior to the date hereof, provided such securities are not amended after the date hereof to increase the number of shares of Common Stock issuable thereunder or to lower the exercise or conversion price thereof, (C) securities issued pursuant to that certain Purchase Agreement dated February 1, 2006, among the Company and the Investors named therein (the “Purchase Agreement”) and securities issued upon the exercise or conversion of those securities, (D) shares of Common Stock issued or issuable by reason of a dividend, stock split or other distribution on shares of Common Stock (but only to the extent that such a dividend, split or distribution results in an adjustment in the Warrant Price pursuant to the other provisions of this Warrant), and (E) capital stock, Options or Convertible Securities issued to suppliers, vendors and service providers of and to the Company and its subsidiaries with an aggregate Market Price (determined as of the time of such issuance) not to exceed $250,000 in any fiscal year (collectively, “Excluded Issuances”).

(h)           Upon any adjustment to the Warrant Price pursuant to Section 8(f) above, the number of Warrant Shares purchasable hereunder shall be adjusted by multiplying such number by a fraction, the numerator of which shall be the Warrant Price in effect immediately prior to such adjustment and the denominator of which shall be the Warrant Price in effect immediately thereafter.(3)

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

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

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

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

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a total of 90 days, then the Expiration Date of this Warrant shall be extended one day for each day beyond the 60-day or 90-day limits, as the case may be, that the Blackout Period continues.

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

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

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

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

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If to the Company:

Tapestry Pharmaceuticals, Inc.

4840 Pearl East Circle, Suite 300W

Boulder, Colorado 80301

Attention:  Leonard Shaykin, Chairman and Chief Executive Officer

Fax:  (212) 319-2808

With a copy to:

Kirkland & Ellis LLP

Citigroup Center

153 East 53rd Street

New York, New York 10022-4611

Attention:  Michael Movsovich

Fax: (212) 446-6460

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

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

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

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

Section 18.             Call Provision.

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

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

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

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

13

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

X = Y (A - B)

       A

where

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

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

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

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

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

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

14

Section 8 of this Warrant) upon the written consent of the Company and the holders of Company Warrants representing at least 50% of the number of shares of Common Stock then subject to all outstanding Company Warrants (the “Majority Holders”); provided, that (x) any such amendment or waiver must apply to all Company Warrants; and (y) the number of Warrant Shares subject to this Warrant, the Warrant Price and the Expiration Date may not be amended, and the right to exercise this Warrant may not be altered or waived, without the written consent of the Warrantholder.

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

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

TAPESTRY PHARMACEUTICALS, INC.
By:
Name:	Leonard Shaykin
Title:	Chairman and Chief Executive Officer

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APPENDIX A

TAPESTRY PHARMACEUTICALS, INC.

WARRANT EXERCISE FORM

To: Tapestry Pharmaceuticals, Inc.

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

Name

Address

Federal Tax ID or Social Security No.

and delivered by	(certified mail to the above address, or
	(electronically (provide DWAC Instructions:                                 ), or
	(other (specify):                                                                               ).

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

Dated:                                       ,
Note: The signature must correspond with	Signature:
the name of the Warrantholder as written
on the first page of the Warrant in every
particular, without alteration or enlargement	Name (please print)
or any change whatever, unless the Warrant
has been assigned.
	Address
	Federal Identification or
	Social Security No.
	Assignee:

APPENDIX B

TAPESTRY PHARMACEUTICALS, INC.

NET ISSUE ELECTION NOTICE

To: Tapestry Pharmaceuticals, Inc.

Date:[                                                  ]

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

Signature

Name for Registration

Mailing Address

EX-10.4

Exhibit 10.4

EXECUTION COPY

February 1, 2006

Tapestry Pharmaceuticals, Inc.

4840 Pearl East Circle, Suite 300W

Boulder, Colorado  80301

Attention:  Leonard Shaykin, Chairman and Chief Executive Officer

Re:          Lock-Up Agreement

Ladies and Gentlemen:

Reference hereby is made to that certain Purchase Agreement, dated as of even date herewith (the “Purchase Agreement”), by and among Tapestry Pharmaceuticals, Inc. (the “Company”) and each of the Investors party thereto (the “Investors”).  Terms used but not otherwise defined herein shall have the meaning set forth in Purchase Agreement.

In consideration of the Investors’ agreement to enter into the Purchase Agreement and to proceed with the transactions contemplated thereby, and for other good and valuable consideration, receipt of which is hereby acknowledged, each of the undersigned hereby agrees for the benefit of the Company and the Investors that the undersigned will not, during the period beginning on the date hereof and ending on the earliest to occur of (i) the first date following termination of the Purchase Agreement, (ii) ninetydays after the Effective Date or (iii) with respect to any of the undersigned, the first date following termination of such undersigned’s employment by or directorship with the Company that is six months following the last opposite-way transaction that occurred prior to such termination of employment or directorship, directly or indirectly (A) offer, pledge, assign, encumber, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock owned either of record or beneficially (as defined in the 1934 Act) by the undersigned on the date hereof or hereafter acquired or (B) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (A) or (B) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise, or publicly announce an intention to do any of the foregoing.

In furtherance of the foregoing, the Company, and any duly appointed transfer agent for the registration or transfer of the securities described herein, are hereby authorized to decline to make any transfer of securities if such transfer would constitute a violation or breach of this letter agreement.

Each of the undersigned hereby represents and warrants that the undersigned has full power and authority to enter into this letter agreement.  All authority herein conferred or agreed to be conferred and any obligations of the undersigned shall be binding upon the successors, assigns, heirs or personal representatives of the undersigned.

Each of the undersigned understands that the Investors and the Company are entering into the Purchase Agreement and proceeding with the transactions contemplated thereby in reliance upon this letter agreement.  The Investors are intended third party beneficiaries of this letter agreement.

This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York without regard to the choice of law principles thereof.

Very truly yours,

/s/ Leonard P. Shaykin

Leonard P. Shaykin

/s/ Martin M. Batt

Martin M. Batt

Patricia A. Pilia

/s/ Gordon Link

Gordon Link

/s/ Kai P. Larson

Kai P. Larson

/s/ Bruce W. Fiedler

Bruce W. Fiedler

Stephen K. Carter, M.D.

/s/ George M. Gould

George M. Gould

Arthur H. Hayes, Jr.

/s/ Elliot M. Maza

Elliot M. Maza

/s/ Richard N. Perle

The Honorable Richard N. Perle

/s/ Robert E. Pollack

Robert E. Pollack

EX-99.1

Exhibit 99.1

Tapestry Signs Agreement for $25.5 Million Financing to Support Clinical Development of TPI 287

Company Announces One for Ten Reverse Stock Split

BOULDER, Colo., Feb. 2 /PRNewswire-FirstCall/ — Tapestry Pharmaceuticals, Inc. (Nasdaq: TPPH) today announced that it has entered into definitive agreements with a number of institutional investors, led by Special Situations Funds, Tang Capital Partners, LP, and Baker Brothers Investments for the sale of $25.5 million of the company’s common stock and warrants. The financing will support Tapestry’s ongoing clinical development of TPI 287, a third generation taxane, which is currently in two Phase I clinical trials in the United States and overseas.

In conjunction with this financing, Tapestry today announced that its board of directors has approved a 1 for 10 reverse split of Tapestry’s outstanding common stock and authorized the Company to file an amendment to its Certificate of Incorporation to effect the reverse split as of 5:01 p.m. Eastern time on February 3, 2006. Stockholders previously authorized the board to implement a reverse split of the Company’s common stock at the Company’s Annual Meeting of Stockholders held in June 2005. It is anticipated that Tapestry’s common stock will begin trading on the Nasdaq Capital Market on a reverse split basis as of the opening of trading on February 6, 2005. For a period of 20 trading days, shares of Tapestry’s common stock will trade under the ticker symbol “TPPHD.” After 20 trading days, trading will resume under the current symbol: “TPPH.” The reverse split affects all Tapestry common stock, stock options and warrants outstanding immediately prior to the effective time of the reverse split. Tapestry will pay cash in lieu of fractional shares based on Tapestry’s common stock closing price on February 3, 2006.

“We are pleased that our new institutional investors here recognize the potential for TPI 287. This financing allows us to generate preliminary Phase II efficacy data on TPI 287 in a number of major tumor types, as well as develop, upon continued confirmatory data, an oral form of this drug candidate. Virtually all of the resources of the company are now focused on the worldwide development of this unique taxane,” commented Leonard Shaykin, Chairman and CEO of Tapestry Pharmaceuticals.

About TPI 287

TPI 287, a proprietary third generation taxane, is Tapestry’s lead clinical compound. This compound was designed to overcome multi-drug resistance in solid tumors that have become resistant to taxane therapy. In preclinical testing, TPI 287 demonstrated the ability to inhibit tumor cell growth in a number of in vitro cell lines and has shown inhibition of human tumors in certain animal xenograft models when tested against standard comparative agents. The in vitro activity was seen across multiple cell lines including cell lines known to be sensitive to taxanes and cell lines known to be resistant to taxanes. In in vivo testing TPI 287 demonstrated reduction in the rate of tumor growth in both taxane resistant and taxane sensitive breast cancer xenografts. Taxane sensitive cell lines in which TPI 287 shows activity include cell lines derived from breast cancer, uterine cancer and non-small cell lung cancer. Taxane resistant cell lines in which TPI 287 shows activity include lines derived from breast cancer, colon cancer, prostate cancer and pancreatic cancer. A number of these studies were presented at the November 2005 AACR/NCI/EORTC International Conference on Molecular Targets and Cancer Therapeutics.

TPI 287 is currently in two Phase I studies in the United States and overseas to determine the safety and pharmacokinetic profile of the compound. A number of Phase II studies are planned in several of the major tumor types and are projected to begin in this calendar year.

Both in vitro and in vivo studies suggest that TPI 287 may be orally bioavailable. An oral form of the compound is currently in preclinical development.

About the Financing

Under the terms of the agreements, Tapestry has agreed to sell to the institutional investors 12.75 million shares of its common stock at $2.00 per share on a post split basis. Investors in the private placement will also receive five year warrants to purchase up to an additional 12.75 million shares of common stock at an exercise price of $2.40 per share on a post split basis. One half of such warrants would be exercisable on a cashless basis. Special Situations Funds will have the right to appoint two representatives to Tapestry’s Board of Directors at closing.

The closing of this financing is subject to the satisfaction of customary closing conditions, including the approval of Tapestry’s current stockholders and the absence of any material adverse change to Tapestry prior to closing.

Tapestry intends to mail to all stockholders a proxy statement that will contain important information regarding the terms of the financing. When available, copies of the proxy statement, and other relevant documents, will be available free of charge at the Securities and Exchange Commission’s web site and Tapestry’s web site at www.tapestrypharma.com.

Ferghana Securities, Inc. (New York) provided financial and strategic advice to the company’s Board and management.

Reedland Capital Partners, an Institutional Division of Financial West Group, assisted the Company in securing the financing.

About Tapestry Pharmaceuticals, Inc.

Tapestry Pharmaceuticals, Inc. is a company focused on the development of proprietary therapies for the treatment of cancer.

For more information about Tapestry and its technologies, visit Tapestry’s web site at www.tapestrypharma.com.

Forward-Looking Statements

Statements in this press release that are not historical facts are “forward-looking statements” that involve risks and uncertainties. Forward-looking statements can be identified by the use of words such as “opportunities,” “trends,” “potential,” “estimates,” “may,” “will,” “should,” “anticipates,” “expects” or comparable terminology or by discussions of strategy. Such forward-looking statements include statements relating to the clinical development program for TPI 287, the ability of TPI 287 to overcome drug resistance, the potential of TPI 287 as an orally administered compound, the occurrence and timing of Phase II studies for TPI 287 and the adequacy of the financing to generate preliminary Phase II efficacy data. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties and other factors include: the risk that the financing will not close and the Company will receive no proceeds because the closing conditions are not met or for other reasons; the risk that Tapestry will be unsuccessful in the clinical development of TPI 287 or that clinical development of TPI 287 will demonstrate that TPI 287 is unsafe and/or ineffective; the risk that Tapestry will be unable to develop an oral formulation of TPI 287; the risk that Phase II studies will be delayed; the risk that the Company’s development or future sales of TPI 287 may be hindered by third party intellectual property; and the risk that the Company’s resources (even assuming that the financing closes) will be inadequate to carry out development of TPI 287. Additional risks, uncertainties and other factors are identified under the captions “Risk Factors” and “Special Note Regarding Forward-Looking Statements” in the Company’s reports filed from time to time with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the year ended December 29, 2004 and Quarterly Report on Form 10-Q for the period ended September 28, 2005. The Company disclaims any intention or obligation to update publicly or revise any forward-looking statements, whether as a result of new or additional information, future events or otherwise.

For further information, please contact Gordon Link, Senior Vice President, Chief Financial Officer, at 303 516 8500.