Exhibit 10.1

 

PURCHASE AGREEMENT

 

THIS PURCHASE AGREEMENT (“Agreement”) is made as of this 4th day of March, 2005
(the “Signing Date”) by and among GlycoGenesys, Inc., a Nevada corporation (the
“Company”), Bristol Investment Fund, Ltd., a Cayman Island exempt company (the
“Lead Investor”), and the other investors set forth on Schedule I and Schedule
II affixed hereto, as such Schedules may be amended from time to time in
accordance with the terms of this Agreement (each an “Investor” and collectively
the “Investors”; for the avoidance of doubt, the Lead Investor is an Investor).

 

Recitals:

 

A. The Company desires, pursuant to this Agreement, to raise up to $8,000,000
through the issuance and sale of the following to the Investors (the “Private
Placement”): (i) up to 8,000 shares of a newly created series of the Company’s
Preferred Stock, designated “Series D Convertible Preferred Stock”, par value
$0.01 per share (the “Preferred Stock”), which Preferred Stock shall have the
rights, preferences and privileges set forth in the Certificate of Designations,
Preferences and Rights, in the form of Exhibit A annexed hereto and made a part
hereof (the “Certificate of Designations”), and each share of Preferred Stock
shall have a stated value of $1,000 and shall initially be convertible into
shares of the Company’s Common Stock, par value $0.01 per share (the “Common
Stock”), at a price of $1.00 per share (the “Conversion Price”); and (ii)
warrants to acquire up to 8,000,000 shares of Common Stock at an exercise price
equal to one hundred ten percent (110%) of the market price (as determined in
accordance with the rules of the NASDAQ Stock Market) of a share of Common Stock
on the Signing Date, in the form of Exhibit B annexed hereto and made a part
hereof (the “Warrants”); and

 

B. The Private Placement is structured to occur in two closings, subject to the
conditions hereinafter set forth, and (i) at the First Closing, the Investors
will purchase $2,000,000 of the Preferred Stock and Warrants in the Private
Placement and (ii) if stockholder approval (“Stockholder Approval”) of the
issuance and sale to the Investors of the Securities pursuant to the Private
Placement is obtained at the Stockholders Meeting, the Investors will purchase
at the Second Closing up to an additional $6,000,000 of the Preferred Stock and
Warrants in the Private Placement; and

 

C. At the First Closing, the Investors desire to purchase from the Company, and
the Company desires to issue and sell to the Investors, upon the terms and
conditions stated in this Agreement, such number of shares of Preferred Stock
and Warrants to purchase such number of shares of Common Stock as are set forth
next to each such Investor’s name on Schedule I affixed hereto; and

 

D. Assuming Stockholder Approval, at the Second Closing, the Investors desire to
purchase from the Company, and the Company desires to issue and sell to the
Investors, upon the terms and conditions stated in this Agreement, such number
of shares of Preferred Stock and Warrants to purchase such number of shares of
Common Stock as are set forth next to each such Investor’s name on Schedule II
affixed hereto; and

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E. The Company has engaged Roth Capital Partners, LLC as its placement agent
(the “Placement Agent”) for the Private Placement on a “best efforts” basis; and

 

F. Contemporaneous with the sale of the Preferred Stock and the Warrants at the
First Closing, the parties hereto will enter into a Registration Rights
Agreement, in the form attached hereto as Exhibit C (the “Registration Rights
Agreement”), pursuant to which, among other things, the Company will provide
certain registration rights to the Investors with respect to the Private
Placement under the Securities Act of 1933 and the rules and regulations
promulgated thereunder (as amended, the “1933 Act”), and applicable state
securities laws; and

 

G. 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 1933 Act or the
exemption provided by Section 4(2) of the 1933 Act;

 

NOW, THEREFORE, 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 in this Section 1:

 

“1933 Act” has the meaning set forth in the Recitals.

 

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

 

“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.

 

“Agreement” has the meaning set forth in the Recitals.

 

“Alternative Transaction” has the meaning set forth in Section 6.10.

 

“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.

 

“Cash Placement Agent Fee” has the meaning set forth in Section 3.19.

 

“Certificate of Designations” has the meaning set forth in the Recitals.

 

“Closing” has the meaning set forth in Section 2.2.

 

“Closing Date” means, as applicable, the First Closing Date or the Second
Closing Date.

 

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“Common Stock” has the meaning set forth in the Recitals, and also includes any
securities into which the Common Stock may be reclassified.

 

“Company” has the meaning set forth in the Recitals.

 

“Company’s Knowledge” means the actual knowledge of the officers of the Company,
after due inquiry and investigation.

 

“Company Counsel Opinion” means a legal opinion from Torys LLP, the Company’s
counsel, dated as of the applicable Closing Date, in the form attached hereto as
Exhibit D-1 in the case of the First Closing, and Exhibit D-2 in the case of the
Second Closing.

 

“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” means, with respect to a Person, 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.

 

“Conversion Price” has the meaning set forth in the Recitals.

 

“Covenant Expiration Event” has the meaning set forth in Section 6.8.

 

“Disclosure Schedules” has the meaning set forth in Section 3.

 

“Environmental Laws” has the meaning set forth in Section 3.15.

 

“First Closing” has the meaning ascribed thereto in Section 2.1.

 

“First Closing Date” has the meaning set forth in Section 2.3.

 

“First Closing Deadline” means March 15, 2005.

 

“Indemnified Person” has the meaning set forth in Section 7.3.

 

“Intellectual Property” means all of the following: (i) patents and 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; (iv) registrations, applications and renewals for any of the
foregoing; (v) Confidential Information; and (vi) computer software (including,
but not limited to, data, data bases and documentation).

 

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“Investor(s)” has the meaning set forth in the Recitals.

 

“Lead Investor” has the meaning set forth in the Recitals.

 

“License Agreements” has the meaning set forth in Section 3.14(b).

 

“Losses” has the meaning set forth in Section 7.2.

 

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

 

“Material Contract” means any contract of the Company or any Subsidiary (i) that
was required to be filed as an exhibit to the SEC Filings pursuant to Item
601(b)(4) or Item 601(b)(10) of Regulation S-K of the 1933 Act and (ii) the loss
of which could reasonably be expected to have a Material Adverse Effect.

 

“Minimum Investment Amount” means an amount equal to or greater than $6,500,000.

 

“NASDAQ Stock Market” has the meaning set forth in Section 3.25.

 

“Notice of Transaction Proposal” has the meaning set forth in Section 6.13(a).

 

“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.

 

“Placement Agent” has the meaning set forth in the Recitals.

 

“Placement Agent Counsel” means Lowenstein Sandler PC, counsel for the Placement
Agent.

 

“Preferred Shares” means the shares of Common Stock issuable upon conversion or
redemption of the Preferred Stock.

 

“Preferred Stock” has the meaning set forth in the Recitals.

 

“Private Placement” has the meaning set forth in the Recitals.

 

“Proposal” has the meaning set forth in Section 6.7(a).

 

“Proxy Statement” has the meaning set forth in Section 6.7(a).

 

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

 

“Regulation D” has the meaning set forth in the Recitals.

 

“Requisite Holders” shall mean, with respect to any consent, vote or other
action, the holders of at least two-thirds of the then outstanding shares of
Preferred Stock.

 

“SEC” has the meaning set forth in the Recitals.

 

“SEC Filings” has the meaning set forth in Section 3.6.

 

“Second Closing” has the meaning set forth in Section 2.2.

 

“Second Closing Date” the meaning set forth in Section 2.3.

 

“Second Closing Deadline” means June 1, 2005.

 

“Securities” means the Preferred Stock, the Preferred Shares, the shares of
Preferred Stock issuable as payment-in-kind dividends on the Preferred Stock in
accordance with the terms thereof and the shares of Common Stock issuable upon
conversion thereof, the Warrants and the Warrant Shares.

 

“Short Sales” shall mean all “short sales” as defined in Rule 3b-3 of the 1934
Act and all types of direct and indirect stock pledges, forward sale contracts,
options, puts, calls, short sales, swaps and similar arrangements (including on
a total return basis), and sales and other transactions through non-US broker
dealers or foreign regulated brokers having the effect of hedging the securities
or investment made under this Agreement.

 

“Signing Date” has the meaning set forth in the Recitals.

 

“Stockholder Approval” has the meaning set forth in the Recitals.

 

“Stockholders Meeting” has the meaning set forth in Section 6.7(a).

 

“Stockholders Meeting Deadline” has the meaning set forth in Section 6.7(a).

 

“Subsidiary” has the meaning set forth in Section 3.1.

 

“Termination Fee” has the meaning set forth in Section 5.3(c).

 

“Third Party” has the meaning set forth in the definition of Transaction
Proposal.

 

“Trading Activities” shall mean any of the following: (a) any Short Sales
involving the Company’s securities; (b) the establishment of or change in any
“put equivalent position” with the meaning of Rule 16b-3 of the 1934 Act with
respect to the Company’s securities; and (c) any other transactions in the
securities of the Company.

 

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

 

“Transaction Proposal” means any of the following: (i) a transaction pursuant to
which any Person (or “group” of Persons as such term is defined under Section
13(d) of the 1934 Act) other than the Investors (such other Person or “group”, a
“Third Party”) acquires 15% or more of the outstanding shares of Company Common
Stock; (ii) a merger or other business combination involving the Company
pursuant to which any Third Party acquires securities representing 15% or more
of the aggregate voting power of all outstanding securities of the Company
surviving the merger or business combination; or (iii) any other transaction
pursuant to which any Third Party acquires control of assets of the Company
having a fair market value equal to 25% or more of the fair value of all of the
assets of the Company immediately prior to such a transaction; provided,
however, that the term “Transaction Proposal” does not include the Private
Placement.

 

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

 

“Warrants” has the meaning set forth in the Recitals.

 

2. Purchase and Sale of Securities.

 

2.1. First Closing. Subject to the terms and conditions of this Agreement,
including without limitation, the conditions set forth in Sections 5.1 and 5.2
(excluding Stockholder Approval), there shall be an initial closing (the “First
Closing”) at which the Company shall issue and sell to each Investor listed on
Schedule I attached hereto (which Schedule I may be amended from time to time,
only with the prior written consent of the Lead Investor, to add additional
Investors who agree to purchase Preferred Stock and Warrants in the Private
Placement by executing a counterpart to this Agreement following the date
hereof), and each Investor listed on Schedule I attached hereto shall severally,
and not jointly, purchase, the number of shares of Preferred Stock in the
respective amounts set forth opposite their names on Schedule I affixed hereto
and Warrants to purchase one hundred percent (100%) of the number of shares of
Common Stock initially issuable upon conversion (without giving effect to any
limitations on conversion) of the number of shares Preferred Stock set forth
opposite their names on Schedule I affixed hereto, in exchange for the cash
consideration set forth as the “First Closing Purchase Price” opposite their
respective names on Schedule I affixed hereto, in immediately available funds,
by wire transfer to an account designated by the Company for such purpose.

 

2.2. Second Closing. Subject to the terms and conditions of this Agreement,
including without limitation, the occurrence of Stockholder Approval and the
satisfaction of the other conditions set forth in Sections 5.1 and 5.2 hereof,
there shall be an additional closing (the “Second Closing”; the First Closing
and the Second Closing are each referred to herein individually as a “Closing”)
at which the Company shall issue and sell to each Investor, and each

 

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Investor shall severally, and not jointly, purchase, the number of shares of
Preferred Stock in the respective amounts set forth opposite their names on
Schedule II affixed hereto and Warrants to purchase one hundred percent (100%)
of the number of shares of Common Stock initially issuable on the Second Closing
Date upon conversion (without giving effect to any limitations on conversion) of
the shares of Preferred Stock set forth opposite their names on Schedule II
affixed hereto, in exchange for the cash consideration set forth as the “Second
Closing Purchase Price” opposite their respective names on Schedule II affixed
hereto, in immediately available funds, by wire transfer to an account
designated by the Company for such purpose.

 

2.3. Time and Place of Closing. Subject to the terms and conditions contained in
this Agreement, each Closing shall take place at the offices of Placement Agent
Counsel, 1251 Avenue of the Americas, 18th Floor, New York, New York 10020, at
10:00 a.m. (New York Time), in the case of the First Closing, on the date (the
“First Closing Date”) that is no later than one (1) Business Day after
satisfaction or waiver (if applicable) of all of the conditions set forth in
Sections 5.1 and 5.2 that are applicable to the First Closing, and in the case
of the Second Closing, on the date (the “Second Closing Date”) that is no later
than three (3) Business Days after satisfaction or waiver (if applicable) of all
of the conditions set forth in Sections 5.1 and 5.2 that are applicable to the
Second Closing, or at such other location and on such other date as the Company
and the Lead Investor shall mutually agree.

 

3. Representations and Warranties of the Company. The Company hereby represents
and warrants to each of the Investors on and as of the Signing Date and on the
applicable Closing Date, knowing and intending their reliance hereon, that,
except as set forth in a schedule delivered on the Signing Date that corresponds
with the section number of this Section 3 (collectively, the “Disclosure
Schedules”):

 

3.1. Organization, Good Standing and Qualification. Each of the Company and its
Subsidiaries, a complete list of which is set forth in Schedule 3.1 hereto
(“Subsidiaries”), is a corporation duly incorporated, 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
its leasing of property makes such qualification or licensing necessary, unless
the failure to so qualify would not have a Material Adverse Effect.

 

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

 

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3.3. Capitalization.

 

(a) Schedule 3.3 sets forth, as of the Signing Date, (i) the authorized capital
stock of the Company, (ii) the number of shares of capital stock issued and
outstanding, (iii) the number of shares of capital stock issuable pursuant to
the Company’s stock plans, and (iv) the number of shares of capital stock
issuable and reserved for issuance pursuant to securities (other than the
Securities) 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 law and any rights of third parties. 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 law and any
rights of third parties and are owned by the Company, beneficially and of
record, and, except as described on Schedule 3.3, are subject to no lien,
encumbrance or other adverse claim. 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 3.3, 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 3.3 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
its security holders relating to the securities of the Company. Except as
described on Schedule 3.3, the Company has not granted any Person the right to
require the Company to register any of its securities 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.

 

(b) Schedule 3.3 sets forth a true and complete table setting forth the pro
forma capitalization of the Company on a fully diluted basis giving effect to
(i) the issuance of the Preferred Stock and the Warrants in the First Closing
and the Second Closing, (ii) any adjustments in other securities resulting from
the issuance of the Preferred Stock and the Warrants in the First Closing and
the Second Closing, and (iii) the exercise or conversion of all outstanding
securities. Except as described on Schedule 3.3, 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.

 

(c) Except as set forth on Schedule 3.3, the Company does not have outstanding
stockholder purchase rights 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.

 

3.4. Valid Issuance. The Preferred Stock has been duly and validly authorized
and when issued to the Investors in accordance with the terms of this Agreement
will be validly issued, fully paid and nonassessable, shall have the rights,
preferences and limitations set forth in the Certificate of Designations and
shall be free and clear of all liens, claims, encumbrances and

 

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restrictions, except for restrictions on transfer set forth in the Transaction
Documents or imposed by applicable securities laws. Upon the due conversion of
the Preferred Stock in accordance with the Certificate of Designations, the
Preferred Shares will be validly issued, fully paid and nonassessable, and shall
be free and clear of all liens, claims, encumbrances and restrictions, except
for restrictions on transfer set forth in the Transaction Documents or imposed
by applicable securities laws. The Warrants have been duly and validly
authorized and, upon the due exercise of the Warrants, the Warrant Shares will
be validly issued, fully paid and non-assessable, and shall be free and clear of
all liens, claims, encumbrances and restrictions, except for restrictions on
transfer set forth in the Transaction Documents or imposed by applicable
securities laws. The Company has reserved a sufficient number of shares of
Common Stock for issuance upon conversion of the Preferred Stock and exercise of
the Warrants. As of the applicable Closing Date, Company has filed the required
notice with the Nasdaq Stock Market with respect to the Preferred Shares and the
Warrant Shares relating to such Closing.

 

3.5. Consents. The execution, delivery and performance by the Company of the
Transaction Documents and the offer, issuance and sale of the Securities require
no consent of, action by or in respect of, or filing with, any Person,
governmental body, agency, or official other than those consents set forth on
Schedule 3.5 and 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. The Company has taken all action necessary to exempt (i) the issuance
and sale of the Securities, (ii) the issuance of the Preferred Shares upon due
conversion of the Preferred Stock, (iii) the issuance of the Warrant Shares upon
due exercise of the Warrants, and (iv) the other transactions contemplated by
the Transaction Documents from the provisions of 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 or any provision
of the Company’s Articles of Incorporation, Bylaws or any stockholder rights
agreement that is or could 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.

 

3.6. Delivery of SEC Filings; Business. Copies of the Company’s most recent
Annual Report on Form 10-K for the fiscal year ended December 31, 2003, and all
other reports filed by the Company pursuant to the 1934 Act since the filing of
such Form 10-K and prior to the date hereof (collectively, the “SEC Filings”)
are available on EDGAR. The SEC Filings are the only filings required of the
Company pursuant to the 1934 Act for such period. The Company and its
Subsidiaries are engaged 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.

 

3.7. No Material Adverse Change. Except as identified and described in the SEC
Filings or as described on Schedule 3.7(a), since December 31, 2004, 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 SEC Filings, except for changes in the ordinary course of
business which have not and could not reasonably be expected to have a Material
Adverse Effect, individually or in the aggregate;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

3.8. SEC Filings.

 

(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. The Company is not (with or without
the lapse of time or the giving of notice, or both) in breach or default of any
Material Contract and, to the Company’s Knowledge, no other party to any
Material Contract is (with or without the lapse of time or the giving of notice,
or both) in breach or default of any Material Contract. Neither the Company nor
any Subsidiary has received any notice of the intention of any party to
terminate any Material Contract.

 

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(b) Each registration statement and any amendment thereto filed by the Company
since January 1, 2002 pursuant to the 1933 Act, 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, in light of the circumstances under which
they were made, not misleading; and each prospectus filed pursuant to Rule
424(b) under the 1933 Act since January 1, 2002, 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.

 

3.9. No Conflict, Breach, Violation or Default. The execution, delivery and
performance of the Transaction Documents by the Company and the issuance and
sale of the Securities will not conflict with or result in a breach or violation
of any of the terms and provisions of, or constitute a default under (i) the
Company’s Articles of Incorporation or Bylaws, both as in effect on the date
hereof (true and accurate copies of which have been provided to the Investors
before the date hereof), 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) except as set forth on Schedule 3.9, any agreement or
instrument to which the Company or any Subsidiary is a party or by which the
Company or a Subsidiary is bound or to which any of their respective assets or
properties is subject that could reasonably be expected to have a Material
Adverse Effect, individually or in the aggregate with respect to clause (ii).

 

3.10. Tax Matters. Each of the Company and each Subsidiary has timely prepared
and filed all tax returns required to have been filed by the Company or such
Subsidiary with all appropriate governmental agencies and timely paid all taxes
shown thereon or otherwise owed by it. The charges, accruals and reserves on the
books of the Company in respect of taxes for all fiscal periods are adequate in
all material respects, and there are no material unpaid assessments against the
Company or any Subsidiary nor, to the Company’s Knowledge, any basis for the
assessment of any additional taxes, penalties or interest for any fiscal period
or audits by any federal, state or local taxing authority except for any
assessment which is not material to the Company and its Subsidiaries, taken as a
whole. All taxes and other assessments and levies that the Company or any
Subsidiary is required to withhold or to collect for payment have been duly
withheld and collected and paid to the proper governmental entity or third party
when due. There are no tax liens or claims pending or, to the Company’s
Knowledge, threatened against the Company or any Subsidiary or any of their
respective assets or properties. Except as described on Schedule 3.10, there are
no outstanding tax sharing agreements or other such arrangements between the
Company and any Subsidiary or other corporation or entity. Neither the Company
nor any Subsidiary is presently undergoing any audit by a taxing authority, or
has waived or extended any statute of limitations at the request of any taxing
authority.

 

3.11. Title to Properties. Except as disclosed in the SEC Filings or as set
forth

 

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on Schedule 3.11, the Company and each Subsidiary has good and marketable title
to all real properties and all other properties and assets owned by it, in each
case free from liens, encumbrances and defects that would materially affect the
value thereof or materially interfere with the use made or currently planned to
be made thereof by them; and except as disclosed in the SEC Filings, the Company
and each Subsidiary holds any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere with the
use made or currently planned to be made thereof by them.

 

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

 

3.13. No Labor Disputes. No material labor dispute with the employees of the
Company or any Subsidiary exists or, to the Company’s Knowledge, is imminent.

 

3.14. Intellectual Property.

 

(a) Except as disclosed in the SEC Filings or as listed on Schedule 3.14(a), no
Intellectual Property of the Company or its Subsidiaries which is materially
necessary for the conduct of Company’s and each of its Subsidiaries’ respective
businesses as currently conducted or as currently proposed to be conducted has
been or is now involved in any cancellation, dispute or litigation, and, to the
Company’s Knowledge, no such action is threatened. Except as disclosed in the
SEC Filings or as listed on Schedule 3.14(a), 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, of 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 or
the general principles of equity, and there exists no event or condition which
will result in a material violation or breach of or constitute (with or without
due notice or lapse of time or both) a material default by the Company or any of
its Subsidiaries under any such License Agreement.

 

(c) The Company and its Subsidiaries own or license all of the Intellectual

 

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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, free and clear of all liens, encumbrances, adverse
claims or obligations to license all such owned Intellectual Property, other
than licenses entered into in the ordinary course of the Company’s and its
Subsidiaries’ businesses. The Company and its Subsidiaries have a right to use
all in-licensed Intellectual Property used or held for use in the respective
businesses of the Company and its Subsidiaries as currently conducted or as
currently proposed to be conducted.

 

(d) To the Company’s Knowledge, the conduct of the Company’s and its
Subsidiaries’ businesses as currently conducted and as currently proposed to be
conducted does not and will not infringe any Intellectual Property rights of any
third party or any confidentiality obligation owed 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. Except as disclosed in the SEC Filings or as set forth on
Schedule 3.14(d), 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, validity or enforceability of any
Intellectual Property of the Company and its Subsidiaries and the Company’s and
its Subsidiaries’ use of any Intellectual Property owned by a third party, and,
to the Company’s Knowledge, there is no valid basis for the same.

 

(e) The consummation of the transactions contemplated hereby 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
which 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.

 

(f) To the Company’s Knowledge, all material software owned by the Company or
any of its Subsidiaries, and, to the Company’s Knowledge, all software licensed
from third parties by the Company or any of its Subsidiaries, (i) is free from
any material defect, bug, virus, or programming, design or documentation error;
(ii) operates and runs in a reasonable and efficient business manner; and (iii)
conforms in all material respects to the specifications and purposes thereof.

 

(g) The Company and its Subsidiaries have taken reasonable steps to protect the
Company’s and its Subsidiaries’ rights in their Intellectual Property. 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
therefor. To the Company’s Knowledge, there has been no material disclosure of
any of the Company’s or its Subsidiaries’ Confidential Information to any third
party without the Company’s consent.

 

3.15. Environmental Matters. Neither the Company nor any Subsidiary (i) is in
violation of any statute, rule, regulation, decision or order of any
governmental agency or body

 

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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”), (ii) owns or operates any real property
contaminated with any substance that is subject to any Environmental Laws, (iii)
is liable for any off-site disposal or contamination pursuant to any
Environmental Laws, and (iv) is subject to any claim relating to any
Environmental Laws; which violation, contamination, liability or claim has had
or could reasonably be expected to have a Material Adverse Effect, individually
or in the aggregate; and there is no pending or, to the Company’s Knowledge,
threatened investigation that might lead to such a claim.

 

3.16. Litigation. Except as disclosed in the SEC Filings, there are no pending
actions, suits or proceedings against or affecting the Company, its Subsidiaries
or any of its or their properties; and to the Company’s Knowledge, no such
actions, suits or proceedings are threatened or contemplated.

 

3.17. Financial Statements. The financial statements included in each SEC Filing
fairly present 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. Except as set forth in the financial statements of the Company
included in the SEC Filings filed prior to the date hereof, neither the Company
nor any of its Subsidiaries has incurred any liabilities, contingent or
otherwise, except those which, individually or in the aggregate, have not had or
could not reasonably be expected to have a Material Adverse Effect.

 

3.18. Insurance Coverage. The Company and each Subsidiary maintains in full
force and effect insurance coverage and the Company reasonably believes such
insurance coverage is adequate.

 

3.19. Brokers and Finders. Except for the cash commission to be paid (the “Cash
Placement Agent Fee”) and the other compensation payable, if any, to the
Placement Agent pursuant to the terms of the Placement Agent Agreement as
disclosed in Schedule 3.19, no Person will have, as a result of the transactions
contemplated by this Agreement, any valid right, interest or claim against or
upon the Company, any Subsidiary or any Investor for any commission, finder’s
fee or other similar compensation pursuant to any agreement, arrangement or
understanding entered into by or on behalf of the Company.

 

3.20. No Directed Selling Efforts or General Solicitation. Neither the Company
nor any Affiliate, nor to the Company’s Knowledge, 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.

 

3.21. No Integrated Offering. Neither the Company nor any of its Affiliates, nor
to the Company’s Knowledge, any Person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security issued by the
Company or solicited any offers to buy any security issued by the Company, under
circumstances that would: (a) adversely affect reliance by the Company on
Section 4(2) of the 1933 Act for the exemption from the registration

 

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requirements imposed under Section 5 of the 1933 Act for the transactions
contemplated hereby or would require such registration under the 1933 Act; or
(b) result in the Private Placement being integrated with any other offering of
securities issued by the Company under the rules of the NASDAQ Stock Market.

 

3.22. Private Placement. Subject to the accuracy of the representations and
warranties of the Investors contained in Section 4 hereof and the conduct of the
Placement Agent, the offer and sale of the Securities to the Investors as
contemplated hereby is exempt from the registration requirements of the 1933
Act.

 

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

 

3.24. Transactions with Affiliates. Except as disclosed in SEC Filings made on
or prior to the date hereof, none of the officers or directors of the Company or
a Subsidiary and, to the Company’s Knowledge, none of the employees of the
Company is presently a party to any transaction with the Company or a Subsidiary
or to a presently contemplated transaction (other than for services as
employees, officers and directors) that would be required to be disclosed
pursuant to Item 404 of Regulation S-K promulgated under the 1933 Act, without
regard to the dollar thresholds contained in such Item.

 

3.25. NASDAQ Compliance. The Common Stock is registered pursuant to Section
12(g) of the Exchange Act, and is listed on the NASDAQ SmallCap Market (the
“NASDAQ Stock Market”), and the Company has taken no action designed to, or
which to the Company’s Knowledge is likely to have the effect of, terminating
the registration of the Common Stock under the Exchange Act or delisting the
Common Stock from the NASDAQ Stock Market. No order ceasing or suspending
trading in any securities of the Company or prohibiting the issuance and/or sale
of the Securities is in effect and no proceedings for such purpose are pending
or threatened.

 

3.26. Internal Controls. The Company is in material compliance with the
provisions of the Sarbanes-Oxley Act of 2002 currently applicable to the
Company. The Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles 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

 

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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 disclosure
controls and procedures as of the end of the most recent periodic reporting
period under the 1934 Act (such date, the “Evaluation Date”). The Company
presented in its most recently filed periodic report under the 1934 Act the
conclusions of the certifying officers about the effectiveness of the disclosure
controls and procedures based on their evaluations as of the Evaluation Date.
Since the Evaluation Date, there have been no significant changes in the
Company’s internal controls (as such term is defined in Item 307(b) of
Regulation S-K) or, to the Company’s Knowledge, in other factors that could
significantly affect the Company’s internal controls. The Company maintains and
will continue to maintain a standard system of accounting established and
administered in accordance with generally accepted accounting principles and the
applicable requirements of the 1934 Act.

 

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

 

3.28 Compliance with Laws. Each of the Company and each of its Subsidiaries has
complied in all material respects with all: (a) applicable laws, statutes,
rules, regulations, judgments, orders, writs and decrees enacted, promulgated,
issued or enforced by any governmental, quasi-governmental or judicial
authority, except where the failure to so comply would not have a Material
Adverse Effect; and (b) of its obligations under the 1933 Act and the 1934 Act.

 

4. Representations and Warranties of the Investors. Each of the Investors hereby
severally, and not jointly, represents and warrants to the Company on and as of
the Signing Date and on the applicable Closing Date, knowing and intending that
the Company is relying thereon, that:

 

4.1. Organization, Good Standing and Qualification. If the Investor is not a
natural person, the Investor duly incorporated or formed, validly existing and
in good standing under the laws of the jurisdiction of its incorporation or
formation, as the case may be.

 

4.2 Authorization. The execution, delivery and performance by the 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
the Investor, enforceable against the Investor in accordance with their
respective terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium, similar laws of general applicability, relating to
or affecting creditors’ rights generally and subject to the general principles
of equity.

 

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4.3. Purchase Entirely for Own Account. The Securities to be received by the
Investor hereunder will be acquired for the 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 the Investor has no present intention
of selling, granting any participation in, or otherwise distributing the same in
violation of the 1933 Act. The Investor is acquiring the Securities hereunder in
the ordinary course of its business. The Investor is not a registered broker
dealer or an entity engaged in the business of being a broker dealer.

 

4.4. Investment Experience. The 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 and business matters that it is capable of
evaluating the merits and risks of the investment contemplated hereby and, if
resident of a certain state in the United States of America, meets any
additional standards applicable to the Investor under such state law. The
Investor has significant experience in making private investments, similar to
the purchase of the Securities hereunder. The Investor is aware of the risks
associated with an investment in the Company, including those described in the
“Risk Factors” sections of the SEC Filings. The Investor has been advised and
understands that an investment in the Company is highly speculative and has
received no representations or warranties from the Company with respect to such
investment.

 

4.5. Disclosure of Information. The Investor has had an opportunity to receive
all additional information related to the Company requested by it and to ask
questions of and receive answers from the Company regarding the Company, its
business and the terms and conditions of the offering of the Securities. The
Investor acknowledges access to copies of and its satisfactory review of the SEC
Filings. Neither such inquiries nor any other due diligence investigation
conducted by the Investor shall modify, amend or affect the Investor’s right to
rely on the Company’s representations and warranties contained in this Agreement
except to the extent the Investor has actual knowledge of a misrepresentation
made by the Company prior to the Signing Date.

 

4.6. Restricted Securities. The 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.

 

4.7. Legends.

 

(a) The Investor understands that, except as provided below, certificates
evidencing the Securities may bear the following legend:

 

“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, OR (II) THE

 

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COMPANY HAS RECEIVED AN OPINION OF COUNSEL 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
or sale of the Securities, the certificates evidencing the Securities may bear
the legend required by such state authority.

 

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

 

4.9. No General Solicitation. The Investor did not learn of the investment in
the Securities as a result of any “general advertising” or “general
solicitation” as those terms are contemplated in Regulation D, as amended, under
the 1933 Act.

 

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

 

4.11. Certain Trading Activities. The Investor has not directly or indirectly,
nor has any Person acting on behalf of or pursuant to any understanding with
such Investor, engaged in any Trading Activities since the time that the
Investor was first contacted by the Company or the Placement Agent regarding the
Private Placement. Except for the Private Placement, the Investor covenants that
neither it nor any Person acting on its behalf or pursuant to any understanding
with it will engage in any Trading Activities prior to the time that the Private
Placement (including all material terms thereof) is publicly disclosed.

 

4.12. ERISA. If the Investor is subject to the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”), to the best of the Investor’s
knowledge, neither the Company nor any affiliate of the Company is a party in
interest or disqualified person, as defined in ERISA Section 3(14) and the
Internal Revenue Code of 1954, as amended, section 4975(e)(2), respectively,
with respect to such plan;

 

4.13. Statutory Disqualification. The Investor is not subject to a statutory
disqualification, as set forth in Section 3(a)(39) of the 1934 Act;

 

5. Conditions to Closing.

 

5.1. Conditions to the Investors’ Obligations. The obligation of each of the
Investors to purchase the Securities at the applicable Closing is subject to the
fulfillment to the Requisite Holders’ reasonable satisfaction, on or prior to
the applicable Closing Date, of the following conditions, any of which may be
waived in writing by the Requisite Holders:

 

(a) The representations and warranties made by the Company in Section 3

 

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hereof that are qualified as to materiality shall be true and correct in all
respects, and those not so qualified shall be true and correct in all material
respects, on the applicable Closing Date, except to the extent any such
representation is made as of a specified date, in which case, it shall be true
and correct, in all material respects, as of such specified date;

 

(b) The Company shall have performed in all material respects all obligations
herein required to be performed or observed by it under this Agreement on or
prior to the applicable Closing Date;

 

(c) The Company shall have obtained in a timely fashion any and all consents,
permits, approvals, registrations and waivers necessary or appropriate for
consummation of the purchase and sale of the Securities then being issued and
sold, and all of which shall be and remain so long as necessary in full force
and effect, including without limitation, in the case of the Second Closing
only, the Stockholder Approval (which shall have been obtained at the
Stockholders Meeting by the Stockholders Meeting Deadline);

 

(d) In the case of the First Closing only, the Company shall have executed and
delivered a counterpart to the Registration Rights Agreement to each of the
Investors;

 

(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, or
self-regulatory organization, enjoining or preventing the consummation of the
transactions contemplated hereby or in the other Transaction Documents;

 

(f) 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 applicable Closing Date, certifying to the fulfillment of the conditions
specified in subsections (a), (b), (d) and (i) of this Section 5.1;

 

(g) The Company shall have delivered a Certificate, executed on behalf of the
Company by its Secretary, dated as of the applicable Closing Date, certifying
the resolutions adopted by the Board of Directors of the Company approving the
transactions contemplated by this Agreement and the other Transaction Documents
and the issuance and sale of the Securities, certifying (in the case of the
Second Closing) the resolutions adopted by the shareholders of the Company
approving the Proposal, certifying the current versions of the Articles of
Incorporation and Bylaws of the Company and certifying as to the signatures and
authority of persons signing the Transaction Documents and all related documents
on behalf of the Company;

 

(h) The Investors shall have received the applicable Company Counsel Opinion;

 

(i) No stop order or suspension of trading shall have been imposed by any Person
with respect to public trading in the Common Stock;

 

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(j) The Company shall have delivered (in the case of the First Closing only)
evidence satisfactory to the Requisite Holders of the filing of the Certificate
of Designations with the Secretary of State of the State of Nevada;

 

(k) The aggregate purchase price for the shares of Preferred Stock committed to
be purchased by the Investors in the First Closing and the Second Closing
(assuming the timely satisfaction of all closing conditions) shall, as of the
First Closing, equal or exceed the Minimum Investment Amount;

 

(l) The Lead Investor shall have received a lock-up and voting agreement, in the
form of Exhibit E, annexed hereto and made a part hereof, duly executed by each
of the Persons identified in Schedule 5.1(l); and

 

(m) No event or events shall have occurred from and after the Signing Date that,
individually or in the aggregate, is reasonably likely, in the reasonable
judgment of the Requisite Holders, to result in a Material Adverse Effect.

 

5.2. Conditions to Obligations of the Company. The Company’s obligation to sell
and issue the Securities at Closing is subject to the fulfillment to the
reasonable satisfaction by the Company on or prior to the applicable Closing
Date of the following conditions, any of which may be waived in writing by the
Company:

 

(a) The representations and warranties made by the Investors in Section 4 hereof
shall be true and correct in all material respects when made, and shall be true
and correct in all material respects on the applicable Closing Date with the
same force and effect as if they had been made on and as of said date; provided,
however, in the case of Section 5.2(a), (b) or (c), the failure of any Investor
to satisfy any such conditions shall not be a failure of condition for any other
Investor and not thereby entitle the Company to refuse to close with such other
Investors unless the aggregate purchase price payable at the First Closing and
the Second Closing by all Investors then obligated to close (assuming
Stockholder Approval and satisfaction of all other conditions in Section 5.1)
equals or exceeds the Minimum Investment Amount;

 

(b) The Company shall have received a duly executed counterpart of the
Registration Rights Agreement from each of the Investors purchasing Securities
at such Closing.

 

(c) Each of the Investors shall have delivered to the Company, in the case of
the First Closing, the “First Closing Purchase Price” set forth opposite such
Investor’s name on Schedule I affixed hereto and, in the case of the Second
Closing, the “Second Closing Purchase Price” set forth opposite such Investor’s
name on Schedule II affixed hereto.

 

(d) 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, or
self-regulatory organization enjoining or preventing the consummation of the
transactions contemplated hereby or in the other Transaction Documents.

 

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5.3 Termination of Obligations to Effect the Closing; Effects.

 

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

 

(i) Upon the mutual written consent of the Company and the Requisite Holders
executed before such Closing;

 

(ii) By the Requisite Holders, if any of the conditions to the Investors’
obligations set forth in Section 5.1 hereof (x) with respect to the First
Closing, have not been satisfied or waived by, or in the event that the
Requisite Holders reasonably determine that any such condition cannot possibly
be satisfied by, the First Closing Deadline, or (y) with respect to the Second
Closing, have not been materially satisfied or waived by, or in the event that
the Requisite Holders reasonably determine that any such condition cannot
possibly be materially satisfied by, the Second Closing Deadline;

 

(iii) By the Company, if any of the conditions to its obligations set forth in
Section 5.2 hereof (x) with respect to the First Closing, have not been
satisfied or waived by, or in the event that the Company reasonably determines
that any such condition cannot possibly be materially satisfied by, the First
Closing Deadline, or (y) with respect to the Second Closing, have not been
satisfied or waived by, or in the event that the Company reasonably determines
that any such condition cannot possibly be materially satisfied by, the Second
Closing Deadline;

 

(iv) By either the Company or the Requisite Holders if, in the case of the First
Closing, the First Closing shall not have occurred by the First Closing
Deadlines, or, in the case of the Second Closing, the Second Closing shall not
have occurred by the Second Closing Deadlines;

 

(v) By the Requisite Holders, if the Company shall have breached or defaulted in
its performance of any material obligation under this Agreement, any other
Transaction Document or any Material Contract, such breach or default not being
cured within 10 Business Days notice thereof;

 

(vi) By the Company, pursuant to Section 6.13(a);

 

(vii) By the Requisite Holders, pursuant to Section 6.13(a) or if the Company
breaches its obligations under Section 6.9(c), 6.10 or 6.13;

 

(viii) By the Requisite Holders, if the Company’s Board fails to make the
recommendation referred to in Section 6.7(b), or withdraws, amends, modifies, or
changes such recommendation; and

 

(ix) By the Requisite Holders or the Company, with respect to the Second Closing
only, if the Stockholder Approval is not obtained at the Stockholders Meeting;

 

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provided, however, that the right to terminate this Agreement under Section
5.3(a)(ii), (iii) or (iv) shall not be available to any party whose willful act
or willful failure to act or whose Affiliate’s willful act or willful failure to
act has been the cause of or resulted in the circumstances giving rise to such
party’s exercise of its termination right.

 

(b) In the event of the termination of this Agreement by either the Company or
the Requisite Holders, as the case may be, pursuant to Section 5.3, this
Agreement, except for the provisions of Sections 7 and 8, this Section 5.3 and,
if the First Closing shall have occurred, Sections 6.1 through and including
6.6, 6.11, 6.12 and 6.14, shall become void and have no effect, without any
liability on the part of any party or its Affiliates to consummate any Closing
that has not yet occurred. Notwithstanding the foregoing, nothing in this
Section 5.3 shall relieve any party to this Agreement of liability for a
material breach of any provision of this Agreement and if it shall be judicially
determined that termination of this Agreement was caused by an intentional
breach of this Agreement, then, in addition to other remedies at law or equity
for breach of this Agreement, the party so found to have intentionally breached
this Agreement shall indemnify and hold harmless the other parties for their
respective out-of-pocket costs, including the reasonable fees and expenses of
their counsel, accountants, financial advisors and other experts and advisors as
well as fees and expenses incident to the negotiation, preparation and execution
of this Agreement and related documentation.

 

(c) In the event of the termination of this Agreement by either the Company or
the Requisite Holders, as the case may be, pursuant to Section 5.3(a)(vi), (vii)
or (viii), then the Company shall pay, within two (2) Business Days following
such termination: (i) to each of the Investors, liquidated damages in the amount
equal to ten percent (10%) of the sum of the “First Closing Purchase Price” and
the “Second Closing Purchase Price” set forth on such Investor’s signature page
affixed hereto (it being specifically agreed that such amount represents
liquidated damages and not a penalty) (the “Termination Fee”); (ii) to the
Placement Agent, all of the compensation the Placement Agent would have received
had the First Closing and the Second Closing occurred and the aggregate purchase
price set forth on Schedules I and II been paid to the Company and all of the
Securities been issued in consideration thereof, as though the Stockholder
Approval had occurred; and (iii) all fees and expenses required by Section 8.5.
The parties hereto acknowledge and agree that the Termination Fee is an integral
element of the transactions contemplated by this Agreement, and the Investors
would not have entered into this Agreement without the termination fee
provisions in this Section 5.3(d), including the agreed upon amount of the
Termination Fee. For purposes of clarification, no Termination Fee shall be
payable by the Company if the Second Closing shall fail to occur solely as a
result of a failure to obtain Stockholder Approval as contemplated by Section
6.7.

 

6. Covenants and Agreements of the Company.

 

6.1. Reservation of Common Stock. The Company shall at all times reserve and
keep available out of its authorized but unissued shares of Common Stock, solely
for the purpose of providing for the conversion of the Preferred Stock and 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 conversion of
the Preferred Stock and the exercise of the Warrants issued pursuant to this
Agreement in accordance with their respective terms, in each case, without
regard to any exercise limitations contained therein.

 

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6.2. Reports. The Company will furnish to the Investors and/or their
assigneessuch information relating to the Company and its Subsidiaries as from
time to time may reasonably be requested by the Requisite Holders; provided,
however, that the Company shall not disclose material nonpublic information to
any Investor, or to advisors to or representatives of such Investor, unless
prior to disclosure of such information the Company identifies such information
as being material nonpublic information and provides such Investor, its 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.

 

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

 

6.4. Insurance. The Company shall not materially reduce the insurance coverages
described in Section 3.18, unless there is a valid business reason for such
reduction.

 

6.5. Compliance with Laws. The Company will comply in all material respects with
all applicable laws, rules, regulations, orders and decrees of all governmental
authorities, except to the extent non-compliance would not have a Material
Adverse Effect.

 

6.6. Termination of Certain Covenants. The provisions of Sections 6.2 through
6.5 shall terminate and be of no further force and effect upon the date on which
the Company’s obligations under the Registration Rights Agreement to register
and maintain the effectiveness of any registration covering the Registrable
Securities (as such term is defined in the Registration Rights Agreement) shall
terminate as to all Registrable Securities.

 

6.7. Proxy Statement; Stockholders Meeting.

 

(a) Promptly following the Signing Date, the Company shall take all action
necessary to call a meeting of its stockholders (the “Stockholders Meeting”),
which shall occur not later than, (x) if the Proxy Statement shall not have been
reviewed by the Staff of the SEC (e.g., it shall have received a no-review or
non-response within the applicable ten-day period), the sixtieth (60th) day,
otherwise, (y) the seventy-fifth (75th) day, after the Signing Date (the
“Stockholders Meeting Deadline”) for the purpose of seeking approval of the
Company’s stockholders for the issuance and sale to the Investors of the
Securities on the terms and conditions set forth in each of the Transaction
Documents so that the restrictions on voting, exercise and conversion need not
remain in effect under the rules of the NASDAQ Stock Market (the “Proposal”). In
connection therewith, the Company will promptly prepare proxy materials
(including a proxy statement and form of proxy) and, after providing the Lead
Investor and Placement Agent Counsel with an opportunity to review and comment
on such proxy materials provided that if the Company receives no response within
two (2) Business Days of furnishing such proxy materials, it shall be free to
file the proxy materials, file with the SEC, within fifteen (15) days after the
Signing Date, such proxy materials 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.
Prior to responding to any comments of the SEC on such proxy materials, the
Company shall furnish to the Lead Investor

 

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and Placement Agent Counsel a copy of any correspondence from the SEC relating
the proxy materials and the proposed response to the SEC’s comments and provide
the Lead Investor and Placement Agent Counsel with the opportunity to review and
comment on such proposed response to the SEC, provided that if the Company
receives no response within two (2) Business Days of furnishing such materials,
it shall be free to file its proposed response. 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 Placement Agent and the Investors thereof.

 

(b) Subject to the provisions of Section 6.13, the Company’s Board of Directors
shall recommend to the Company’s stockholders (and, subject to the provisions of
Section 6.13, not revoke or amend such recommendation) that the stockholders
vote in favor of the Proposal and shall cause the Company to take all
commercially reasonable action (including, without limitation, the hiring of a
proxy solicitation firm) to solicit the approval of the stockholders for the
Proposal. Whether or not the Company’s Board of Directors determines at any time
after the date hereof that, due to its fiduciary duties, it must revoke or amend
its recommendation to the Company’s stockholders, the Company shall be required
to, and will take, in accordance with applicable law and its Articles of
Incorporation and Bylaws, 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.

 

6.8 Affirmative Covenants. From and after the Signing Date until the earliest to
occur of the Second Closing or (ii) the termination of this Agreement in
accordance with Section 5.3 or Section 6.13 hereof (each of (i) and (ii), a
“Covenant Expiration Event”), the Company shall (and shall cause its
Subsidiaries to):

 

(a) use its best efforts to consummate the First Closing on or before the First
Closing Deadline and the Second Closing on or before the Second Closing
Deadline;

 

(b) use its best efforts to keep in full force and effect its corporate
existence and all material rights, franchises, intellectual property rights and
goodwill relating or pertaining to its businesses;

 

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(c) conduct its operations only in the ordinary course of business consistent
with past practice;

 

(d) maintain its books, accounts and records in accordance with past practice or
as required by generally accepted accounting principles;

 

(e) duly pay and discharge, or cause to be paid and discharged, before the same
shall become overdue, all material taxes, assessments and other governmental
charges imposed upon it and its properties (real and personal), sales and
activities, or any part thereof, or upon the income or profits therefrom, as
well as all material claims for labor, materials, or supplies that if unpaid
could reasonably be expected to by law become a lien on any of its property;
provided that any such tax, assessment, charge, levy or claim need not be paid
if the validity or amount thereof shall currently be contested in good faith by
appropriate proceedings and if the Company or any Subsidiary shall have set
aside on its books adequate reserves with respect thereto in accordance with
generally accepted accounting principals, consistently applied; and provided,
further that it pay all such taxes, assessments, charges, levies or claims
forthwith upon the commencement of proceedings to foreclose any lien or other
encumbrance that may have attached as security therefore;

 

(f) use its best efforts to obtain all authorizations, consents, waivers,
approvals (including without limitation the Stockholder Approval) or other
actions and to make all filings and applications necessary or desirable to
consummate the transactions contemplated hereby and to cause the conditions to
the obligation to close to be satisfied;

 

(g) promptly notify the Investors in writing if, to the Company’s Knowledge, (i)
any of the representations and warranties (together with the Disclosure
Schedules) made by it herein or in any of the other Transaction Document cease
to be accurate and complete in all material respects, or (ii) it fails to comply
with or satisfy any material covenant, condition or agreement to be complied
with or satisfied by it hereunder or under any other Transaction Document,
provided, however, that the Investors shall not be provided with material
non-public information without their express prior written consent;

 

(h) give notice to the Investors in writing within four (4) Business Days of
becoming aware of any litigation or proceedings threatened in writing against
the Company or any of its Subsidiaries or any pending litigation and proceedings
affecting the Company or any of its Subsidiaries or to which any of them is or
becomes a party involving a claim against any of them that could reasonably be
expected to result in a Material Adverse Effect, stating the nature and status
of such litigation or proceedings, provided, however, that the Investors shall
not be provided with material non-public information without their express prior
written consent;

 

(i) promptly notify the Investors in writing of the occurrence of any breach of
any term of this Agreement, provided, however, that the Investors shall not be
provided with material non-public information without their express prior
written consent; and

 

(j) comply in all material respects with (i) the applicable laws and regulations
wherever its business is conducted, (ii) the provisions of its Articles of
Incorporation and Bylaws, (iii) all Material Contracts, and (iv) all applicable
decrees, orders, and judgments.

 

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6.9 Negative Covenants. From and after the Signing Date until the occurrence of
a Covenant Expiration Event, without the prior written consent of the Requisite
Holders, the Company shall not (and shall cause its respective Subsidiaries not
to):

 

(a) take any action that would likely result in the representations and
warranties set forth herein (other than representations made as of a particular
date) becoming false or inaccurate in any material respect or, as to
representations and warranties, which, by their terms, are qualified as to
materiality, becoming false or inaccurate in any respect;

 

(b) take or omit to be taken any action, or permit any of its Affiliates to take
or to omit to take any action, which would reasonably be expected to result in a
Material Adverse Effect;

 

(c) subject to Section 6.13, directly or indirectly, merge or consolidate with
any Person, or sell, transfer, lease or otherwise dispose of all or any
substantial portion of its assets in one transaction or a series of related
transactions,

 

(d) except for the filing of the Certificate of Designations, amend, alter or
modify, its Articles of Incorporation or Bylaws, or change its jurisdiction of
organization, structure, status or existence, or liquidate or dissolve itself;

 

(e) except as expressly provided in Schedule 6.9(e), (i) increase the
compensation or benefits payable or to become payable to its directors, officers
or employees other than pursuant to the terms of any agreement as in effect on
the Signing Date, including planned standard merit increases to approved by the
Compensation Committee of the Corporation, (ii) pay any compensation or benefits
that is not pursuant to any existing plan or arrangement (including the granting
of stock options, stock appreciation rights, shares of restricted stock or
performance units) or grant any severance or termination pay to (except pursuant
to existing agreements, plans or policies), or enter into any severance
agreement with, any director, officer or other employee, or (iii) establish,
adopt, enter into, amend or take any action to accelerate rights under any
collective bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, savings, welfare, deferred
compensation, employment, termination, severance or other employee benefit plan,
agreement, trust, fund, policy or arrangement for the benefit or welfare of any
directors, officers or current or former employees, except in each case to the
extent required by applicable law;

 

(f) make any loans to its directors, officers or stockholders;

 

(g) waive, release, assign, settle or compromise any material rights, claims or
litigation;

 

(h) create, incur, assume or suffer to exist, or increase the amount of, any
liability for borrowed money, directly or indirectly other than: (i)
indebtedness existing on the date hereof; and (ii) purchase money indebtedness
of the Company (including, without limitation, capital leases to the extent
secured by purchase money security interests in equipment acquired pursuant
thereto);

 

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(i) assume, endorse, be or become liable for or guaranty the obligations of any
other Person;

 

(j) directly or indirectly, pay any dividends, other than on its Series B
Preferred Stock, or distributions on, or purchase, redeem or retire, any shares
of any class of its capital stock or other equity interests or any securities
convertible into capital stock, whether now or hereafter outstanding, or make
any payment on account of or set apart assets for a sinking or other analogous
fund for, the purchase, redemption, defeasance, retirement or other acquisition
of its capital stock or other equity interests, or make any other distribution
in respect thereof, either directly or indirectly, whether in cash or property
or in obligations of the Company or any of its Subsidiaries;

 

(k) enter into any transaction with any Affiliates or its or any of its
Affiliate’s equity holders, directors, officers, employees (including
upstreaming and downstreaming of cash and intercompany advances and payments) in
an amount in excess of $25,000 in the aggregate or amend any material provision
of any agreement with any Affiliate, or waive any material right of the Company
or any Subsidiary under any such agreement;

 

(l) at any time create any direct or indirect Subsidiary, enter into any joint
venture or similar arrangement or become a partner in any general or limited
partnership or enter into any management contract permitting third party
management rights with respect to the business of the Company or any of its
Subsidiaries, provided that the Company may take such actions in connection with
a bona fide partnering, joint venture or similar transaction with another
biotechnology or pharmaceutical company for the purpose of developing GCS-100 (a
“Partnering Transaction”);

 

(m) cancel any liability or debt owed to it, except for consideration equal to
or exceeding the outstanding balance of such liability or debt, and in any
event, in the ordinary course of business;

 

(n) create, incur, assume or suffer to exist, any lien, charge or other
encumbrance on any of their or its respective properties or assets now owned or
hereafter acquired;

 

(o) make any changes in any of its business objectives, purposes, or operations
or engage in any business other than that presently engaged in or presently
proposed to be engaged in by the Company;

 

(p) issue any capital stock or any security or instrument which, pursuant to the
terms of such stock, other security or instrument, may be converted, exercised
or exchanged for capital stock, other than pursuant to a Partnering Transaction,
upon the conversion or exercise of any presently outstanding options, warrants
or convertible securities or pursuant to existing shareholder approved equity
incentive plans; or

 

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(q) enter into an agreement to do any of the foregoing.

 

6.10. No Solicitation or Negotiation. Subject to Section 6.13, the Company
agrees that from and after the Signing Date until the occurrence of a Covenant
Expiration Event, neither the Company, nor any of its Subsidiaries, Affiliates,
officers, directors, representatives or agents will: (a) solicit, initiate,
consider, encourage or accept any other proposals or offers from any Person (i)
relating to any acquisition or purchase of all or any portion of the capital
stock of the Company or assets of the Company, or (ii) to enter into any merger,
consolidation, reorganization, or other business combination with the Company
(each of the events described in clauses (i) and (ii) an “Alternative
Transaction”); or (b) participate in any discussions, conversations,
negotiations or other communications regarding, or furnish to any other Person
any information with respect to, or otherwise cooperate in any way, assist or
participate in, facilitate or encourage any effort or attempt by any other
Person to seek to do, any Alternative Transaction. The Company shall immediately
cease and cause to be terminated all existing discussions, conversations,
negotiations and other communications with any Persons conducted heretofore with
respect to any of the foregoing. The Company shall notify the Placement Agent
and the Investors promptly if any such proposal or offer, or any inquiry or
other contact with any Person with respect thereto, is made and shall, in any
such notice to the Placement Agent and the Investors, indicate in reasonable
detail the identity of the Person making such proposal, offer, inquiry or
contact and the terms and conditions of such proposal, offer, inquiry or other
contact. This Section 6.10 shall not prohibit the Company from initiating and
conducting negotiations with respect to a Partnering Transaction. The Company
agrees not to, without the prior written consent of the Requisite Holders,
release any Person from, or waive any provision of, any confidentiality or
standstill agreement to which it is a party.

 

6.11. Listing. The Company shall promptly following the date hereof secure and
maintain the listing of the Preferred Shares and the Warrant Shares upon each
securities exchange or quotation system upon which the Common Stock is then
listed, so that as of the applicable Closing Date such Preferred Shares and
Warrant Shares shall have been authorized for listing on the relevant securities
exchange or quotation system.

 

6.12. Use of Proceeds. The proceeds of the sale of the Preferred Stock and the
Warrants hereunder shall be used primarily for funding the costs of enrolling
and conducting its Phase I/II dose ranging clinical trial for GCS-100LE in
multiple myeloma, funding the initiation of its Phase I/II dose ranging clinical
trial for GCS-100LE in chronic lymphocytic leukemia, manufacturing drug supplies
of GCS-100LE for its clinical trial needs through 2005, conducting additional
analytical and pre-clinical studies, paying license fees and working capital for
general corporate purposes.

 

6.13. Fiduciary Obligations of the Board of Directors.

 

(a) Notwithstanding the provisions of Section 6.9(c) and 6.10, nothing in this
Agreement will prohibit the Company or its Board of Directors from taking any of
the following actions if the Company’s Board of Directors determines in good
faith, after consultation with and the receipt of written legal advice from its
outside legal advisors that the

 

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failure to take such an action would be inconsistent with the fiduciary duties
of the Company’s Board of Directors to the Company’s stockholders: (i) providing
public or non-public information in response to a request therefor by a Third
Party who has made an unsolicited bona fide written Transaction Proposal, so
long as the Company’s Board of Directors receives from such Third Party an
executed confidentiality agreement with customary confidentiality provisions;
(ii) engaging in negotiations or discussions with such a Third Party who has
made an unsolicited bona fide written Transaction Proposal; (iii) approving such
a Transaction Proposal, or recommending such a Transaction Proposal to the
stockholders of the Company, or entering into a definitive agreement with
respect to such Transaction Proposal; or (iv) failing to make the recommendation
referred to in Section 6.7(b), or withdrawing, amending, modifying or changing
such recommendation, following the receipt of such a Transaction Proposal;
provided that in the case of the actions described in clauses (iii) and (iv),
other than with respect to a Partnering Transaction in the case of clause (iii),
the Company shall provide prompt written notice (within three (3) Business Days)
to the Placement Agent and each of the Investors (a “Notice of Transaction
Proposal”) advising the Placement Agent and each of the Investors of such action
and specifying the material terms and conditions of any Transaction Proposal and
identifying the person or group making any Transaction Proposal. The Requisite
Holders shall, within five (5) Business Days after the receipt of the Notice of
Transaction Proposal by the Placement Agent and all of the Investors, have a
right to terminate this Agreement. In addition, in the case of the actions
described in clauses (iii) and (iv) above, the Company shall have the right to
terminate this Agreement upon five (5) Business Days prior written notice to
each of the Investors.

 

(b) The Company will notify the Placement Agent and each of the Investors
promptly in writing (within three (3) Business Days) if any inquiries, proposals
or offers with respect to a Transaction Proposal, other than a Partnering
Transaction, are received by, any information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with the
Company after the Signing Date, and, as part of such notification, shall
disclose to each of the Investors the identity of the Person making such
inquiry, proposal or offer and the substance of such inquiry, proposal or offer
in reasonable detail and will keep the Investors informed of any developments
with respect thereto immediately upon the occurrence thereof.

 

6.14 Removal of Legends.

 

(a) From and after the earlier of (i) the registration of the Preferred Shares
and the Warrant Shares for resale pursuant to the Registration Rights Agreement
and (ii) the time when such Securities may be transferred pursuant to Rule
144(k) of the 1933 Act, the Company shall, upon an Investor’s written request,
promptly cause certificates evidencing such Securities to be replaced with
certificates which do not bear such restrictive legends; provided, however, in
the case of clause (i) (unless and until the condition of clause (ii) are
satisfied), the Company may issue stop transfer instructions to its transfer
agent restricting the transfer of the Securities evidenced by such unlegended
certificates other than pursuant to the prospectus delivery requirements of the
1933 Act, and such instructions shall provide for their termination upon
satisfaction of the condition in clause (ii). 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
four (4) Business Days of submission by that Investor of legended certificate(s)
to the Company’s transfer agent together with a representation letter in

 

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customary form, the Company shall be liable to the Investor for liquidated
damages equal to 1.5% of the aggregate purchase price of the Securities
evidenced by such certificate(s) for each 10-day period (or portion thereof)
beyond such four (4) Business Day-period that the unlegended certificates have
not been so delivered.

 

(b) Each Investor, severally and not jointly with any Investor, agrees that the
removal of the restrictive legend from certificates representing Registrable
Securities as set forth in Section 6.14(a) is predicated upon the Company’s
reliance on the Investor’s representation and warranty that it will only sell
any Registrable Securities pursuant to either the registration requirements of
the 1933 Act, including any applicable prospectus delivery requirements, or an
exemption therefrom.

 

7. Survival and Indemnification.

 

7.1 Survival. All representations, warranties, covenants and agreements
contained in this Agreement shall be deemed to be representations, warranties,
covenants and agreements as of the date hereof and shall survive the Closing
Date until the first anniversary thereof; provided, however, that the provisions
contained in: (a) Section 3.4 hereof shall survive indefinitely; and (b)
Sections 3.10 and 3.15 shall survive until 90 days after the applicable statute
of limitations. Notwithstanding the foregoing, all representations, warranties,
covenants and agreements contained in this Agreement shall expire and have no
further force and effect in the event that the Agreement is terminated pursuant
to Section 6.13 hereof.

 

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

 

7.3. 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 7.2, 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 actually and 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

 

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counsel to the Company representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them. It
is understood that the Company 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 Persons. The Company
shall not be liable for any settlement of any proceeding effected without its
written 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
Losses by reason of such settlement or judgment. Without the prior written
consent of the Indemnified Person, which consent shall not be unreasonably
withheld, delayed or conditioned, 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.

 

8. Miscellaneous.

 

8.1. Successors and Assigns. This Agreement may not be assigned by a party
hereto without the prior written consent of the Company or the Investors, as
applicable; provided, however, that an Investor may assign its rights and
delegate its duties hereunder in whole or in part to an Affiliate or to a third
party acquiring some or all of its Securities in a private transaction without
the prior written consent of the Company or the other Investors, after notice
duly given by such Investor to the Company, provided, that no such assignment or
obligation shall affect the obligations of such Investor hereunder. The
provisions of this Agreement shall inure to the benefit of and be binding upon
the respective permitted successors and assigns of the parties. Except for
provisions of this Agreement expressly to the contrary, 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. The
Placement Agent shall be an express intended third party beneficiary of this
Agreement.

 

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

 

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

 

8.4. Notices. Unless otherwise provided, any notice required or permitted under
this Agreement shall be given in writing and shall be deemed effectively given
as hereinafter described (i) if given by personal delivery, then such notice
shall be deemed given upon such delivery, (ii) if given by 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 (3) 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 (1)

 

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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 (10) days’ advance written notice to the other party:

 

If to the Company:

GlycoGenesys, Inc.

31 St. James Avenue, 8th Floor

Boston, MA 02116

Attn:

Fax:

With a copy to:

Torys LLP

Suite 3000

79 Wellington Street West

Box 270, TD Centre

Toronto, Ontario

M5K 1N2 Canada

Attention: Cheryl Reicin

Fax: 416-865-7380

If to any of the Investors:

to the address set forth on Schedule I affixed hereto.

And a copy to:

Lowenstein Sandler PC

65 Livingston Ave.

Roseland, NJ 07068

Attn: Steven E. Siesser, Esq.

Fax: 973-597-2507

 

8.5. Expenses. The Company shall pay the reasonable fees and expenses of
Placement Agent Counsel actually incurred in connection with the Private
Placement, up to a maximum of $35,000 (the “Placement Agent Counsel Fees”),
which Placement Agent Counsel Fees shall include, without limitation, the fees
and expenses associated with the negotiation, preparation and execution and
delivery of this Agreement and the other Transaction Documents and any
amendments, modifications or waivers thereto. The Placement Agent Counsel Fees
shall be paid by the Company to Placement Agent Counsel on each Closing Date.
Except as set forth above, the Company and the Investors shall each bear their
own expenses in connection with the negotiation, preparation, execution and
delivery of this Agreement. In the event that legal proceedings are commenced by
any party to this Agreement against another party to this Agreement in
connection with this Agreement or the other Transaction Documents, the party or
parties which do not prevail in such proceedings shall severally, but not
jointly, pay their pro rata share of the reasonable attorneys’ fees and other
reasonable out-of-pocket costs and expenses incurred by the prevailing party in
such proceedings.

 

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8.6. Amendments and Waivers. This Agreement shall not be amended and the
observance of any term of this Agreement shall not be waived (either generally
or in a particular instance and either retroactively or prospectively) without
the prior written consent of the Company and the Requisite Holders; provided,
however, that any provision hereof which impairs the rights or increases the
obligations of a specific Investor disproportionately to other Investors shall
not be amended or waived without the prior written consent of the Company and
that particular Investor. Any amendment or waiver effected in accordance with
this Section 8.6 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.

 

8.7. Publicity. 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 Lead Investor, as representative of 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 market on which the Securities are then listed and trading, in which
case the Company or the Lead Investor, as the case may be, shall allow the
Investors or the Company, as applicable, to the extent reasonably practicable in
the circumstances, reasonable time, but in no event greater than two (2)
Business Days, to comment on such release or announcement in advance of such
issuance.

 

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

 

8.9. Entire Agreement. This Agreement, including the Exhibits and 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. Prior
drafts or versions of this Agreement shall not be used to interpret this
Agreement.

 

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

 

8.11. Governing Law; Consent to Jurisdiction. This Agreement shall be

 

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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.
THE COMPANY AND EACH OF THE INVESTORS HEREBY IRREVOCABLY WAIVES ANY AND ALL
RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATING TO OR ARISING OUT OF
THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY.

 

8.12. Independent Nature of Investors’ Obligations and Rights. Except as
expressly provided herein and therein, the obligations of each Investor under
this Agreement and each other 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
this Agreement or any other Transaction Document. The decision of each Investor
to purchase Securities pursuant to this Agreement and the other Transaction
Documents has been made by such Investor independently of any other Investor.
Nothing contained herein or in any other Transaction Document, and no action
taken by any Investor (including, without limitation, the Lead Investor)
pursuant hereto or 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 this
Agreement or the other Transaction Documents. Each Investor acknowledges that no
other Investor (including, without limitation, Lead Investor) has acted as agent
for such Investor in connection with making its investment hereunder and that no
Investor (including, without limitation, Lead Investor) will be acting as agent
of such Investor in connection with monitoring its investment in the Securities
or enforcing its rights under this Agreement or the other 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. Notwithstanding anything contained in this Agreement or any other
Transaction Document to the contrary, the Lead Investor shall not have any duty,
fiduciary or otherwise, to any other Investor by virtue of such Investor serving
as Lead Investor or otherwise.

 

[signature page follows]

 

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[Company Signature Page]

 

IN WITNESS WHEREOF, the undersigned has executed this Purchase Agreement or
caused its duly authorized officers to execute this Purchase Agreement as of the
date first above written.

 

GLYCOGENESYS, INC.

By:

 

/s/    John W. Burns

--------------------------------------------------------------------------------

Name:

 

John W. Burns

Title:

 

Senior Vice President and Chief Financial Officer

 

 

-35-

--------------------------------------------------------------------------------

[Investor Signature Page]

 

IN WITNESS WHEREOF, the undersigned has executed this Purchase Agreement or
caused its duly authorized officers to execute this Purchase Agreement as of the
date first above written.

 

Date:  

 

--------------------------------------------------------------------------------

    IF AN INDIVIDUAL:  

IF A CORPORATION, PARTNERSHIP,

  TRUST, ESTATE OR OTHER ENTITY:

--------------------------------------------------------------------------------

    (Signature)  

--------------------------------------------------------------------------------

        Print name of entity

--------------------------------------------------------------------------------

    (Printed Name)   By:  

 

--------------------------------------------------------------------------------

        Name:  

 

--------------------------------------------------------------------------------

        Title:  

 

--------------------------------------------------------------------------------

       

--------------------------------------------------------------------------------

        Print jurisdiction of organization of entity Address:   Address:

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

 

 

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

 

 

--------------------------------------------------------------------------------

 

Aggregate dollar amount of Securities committed to be purchased pursuant to the
terms of the Agreement:

 

First Closing Purchase Price:   $             Second Closing Purchase Price  
$             Aggregate Purchase Price:   $            

 

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SCHEDULE I

 

INVESTORS

 

FIRST CLOSING

 

Name

of Investor

--------------------------------------------------------------------------------

   First Closing
Purchase Price

--------------------------------------------------------------------------------

   Number of Shares
of Preferred Stock

--------------------------------------------------------------------------------

   Warrants to
Acquire Shares of
Common Stock

--------------------------------------------------------------------------------

                                                                                
                                                                               
                                                                                
                            

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

         

Total

   $                 

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

         

 

II-1

--------------------------------------------------------------------------------

SCHEDULE II

 

INVESTORS

 

SECOND CLOSING

 

Name

of Investor

--------------------------------------------------------------------------------

   Second Closing
Purchase Price

--------------------------------------------------------------------------------

   Number of Shares
of Preferred Stock

--------------------------------------------------------------------------------

   Warrants to
Acquire Shares of
Common Stock

--------------------------------------------------------------------------------

                                                                                
                                                                               
                                                                                
                                                                                
    

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

         

Total

   $                 

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

         

 

 

II-1

--------------------------------------------------------------------------------

Exhibits

 

Exhibit A    Certificate of Designations Exhibit B    Warrant Exhibit C   
Registration Rights Agreement Exhibit D-1    Company Counsel Opinion for the
First Closing Exhibit D-2    Company Counsel Opinion for the Second Closing
Exhibit E    Lock-Up and Voting Agreement

--------------------------------------------------------------------------------

Schedule 5.1(l)

Persons Executing Lock-Up and Voting Agreement