Exhibit 10.1

 

COMMON STOCK AND WARRANT PURCHASE AGREEMENT

 

This Common Stock and Warrant Purchase Agreement (this “Agreement”) is made as
of September 11, 2003 between Axonyx Inc., a Nevada corporation (the “Company”),
and the investors listed on Exhibit A hereto, each of which is herein referred
to as an “Investor” and collectively, the “Investors”.

 

RECITALS:

 

WHEREAS, the Investors desire to purchase from the Company, and the Company
desires to sell to the Investors, shares of the Company’s common stock, par
value $0.001 per share (the “Common Stock”), and warrants to purchase shares of
Common Stock, upon the terms and subject to the conditions set forth herein;

 

NOW, THEREFORE, in consideration of the premises and mutual covenants contained
herein, the parties hereto agree as follows:

 

1.                                       PURCHASE AND SALE OF SHARES AND
WARRANT.

 

1.1                                 Purchase and Sale of Shares and Warrants. 
Upon the terms and subject to the conditions of this Agreement, at the Closing
(as defined below), the Company agrees to sell to the Investors, and each
Investor agrees to purchase from the Company (a) the number of shares of the
Company’s Common Stock set forth opposite such Investor’s name on Exhibit A
hereto (the “Shares”) at the per share purchase price of $3.25 (“Per Share
Purchase Price”), and (b) a warrant in substantially the form attached hereto as
Exhibit B to purchase a number of shares of the Company’s Common Stock (“Warrant
Shares”) equal to seventy-five percent (75%) of the total Shares purchased by
such Investor pursuant to this Agreement (each a “Warrant” and collectively for
all Investors, the “Warrants”) for a purchase price per Warrant of $0.125 (the
“Per Warrant Purchase Price”).  All dollar amounts set forth in this Agreement
shall be in United States Dollars.  The Shares and the Warrants are,
collectively, the “Securities.”

 

1.2                                 Closing.  The closing of the purchase and
sale of the Shares and the Warrants (the “Closing”) shall take place at the
offices of the Company at 10:00 a.m., Eastern time on September 11, 2003, or
such other location, time or date as the parties shall mutually agree, but only
after the satisfaction or waiver of each of the conditions set forth in Sections
7 and 8 (the “Closing Date”).

 

1.3                                 Deliveries.  At the Closing, the Company
shall deliver to each Investor at the address set forth on such Investor’s
signature page hereto, a Warrant and a certificate or certificates, registered
in the name of the applicable Investor, representing the Warrant and the Shares
purchased by such Investor, and each Investor shall deliver to the Company the
Per Share Purchase Price and the Per Warrant Purchase Price, by wire transfer of
immediately available funds to the following account:

 

Chase Manhattan Bank NYC
ABA Routing #: 021000021
FBO Salomon Smith Barney A/C # 066-198038

 

For Further Credit To:
Axonyx, Inc. A/C #: 201-90314-1-8-501

 

 

1

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

 

2.                                       REPRESENTATIONS AND WARRANTIES OF THE
COMPANY.

 

For purposes of this Section, all references to “Company” in Sections 2.1, 2.4
(with the exception of subsection (a) thereof), 2.7, 2.9 through 2.12, and 2.14
through 2.20 shall be deemed to be a reference to the Company and all of its
direct and indirect subsidiaries.  The Company hereby represents and warrants to
each Investor that, except as set forth on a Schedule of Exceptions (the
“Company Schedule of Exceptions”) attached hereto as Schedule A, which
exceptions shall be deemed to be representations and warranties as if made
hereunder:

 

2.1                                 Corporate Organization.  The Company is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation, and has the requisite corporate power and
authority to own or lease its properties and to carry on its business as now
being conducted.  The Company is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the property
owned or leased by it or the nature of the business conducted by it makes such
qualification necessary, except to the extent that the failure to be so
qualified or in good standing would not have, individually or in the aggregate,
a Material Adverse Effect.  For purposes of this Agreement, “Material Adverse
Effect” shall mean, as to any entity, any material adverse effect on the
business, operations, conditions (financial or otherwise), assets, results of
operations or prospects of that entity individually or of the Company and its
subsidiaries as a whole.

 

2.2                                 Capitalization; Organizational Documents.

 

(a)                                  The authorized capital stock of the Company
will consist immediately prior to the Closing of 75,000,000 shares of Common
Stock, of which as of the date hereof, 25,778,064 shares are issued and
outstanding, and 15,000,000 shares of preferred stock of the Company, of which,
as of the date hereof, no shares are issued or outstanding.  All of the
outstanding shares have been duly and validly issued and are fully paid and
nonassessable and have been issued in accordance with all applicable federal and
state securities laws.  No shares of Common Stock are subject to preemptive
rights or any other similar rights or any liens suffered or permitted by the
Company.  There are no preemptive rights or rights of first refusal or similar
rights which are binding on the Company permitting any person to subscribe for
or purchase from the Company shares of its capital stock pursuant to any
provision of law, the Certificate of Incorporation (as defined below) or the
Company’s By-laws or by agreement or otherwise.  There are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of any of the Securities as described in this
Agreement.  The Company has made available to each Investor true and correct
copies of the Company’s Certificate of Incorporation, as amended and as in
effect on the date hereof (the “Certificate of Incorporation”), and the
Company’s By-laws, as in effect on the date hereof (the “By-laws”).  The
designations, powers, preferences, rights, qualifications, limitations and
restrictions in respect of each class and series of authorized capital stock of
the Company are as set forth in the Certificate of Incorporation, and all such
designations, powers, preferences, rights, qualifications, limitations

 

2

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

 

and restrictions are valid, binding and enforceable against the Company and in
accordance with all applicable laws, rules and regulations.

 

(b)                                 Upon issuance of the Shares and the Warrants
and payment of the Purchase Price therefor in accordance with the terms of this
Agreement, the Shares and the Warrants will be duly authorized, validly issued,
fully paid and nonassessable, and free and clear of any restrictions on transfer
and any taxes, claims, liens, pledges, options, security interests, purchase
rights, preemptive rights, trusts, encumbrances or other rights or interests of
any other person (other than any restrictions under the Securities Act of 1933,
as amended (the “Securities Act”).  The Warrant Shares, when issued in
accordance with the terms of the Warrants, will be duly authorized, validly
issued, fully paid and non-assessable, and free and clear of any restrictions on
transfer and any taxes, claims, liens, pledges, options, security interests,
purchase rights, preemptive rights, trusts, encumbrances or other rights or
interests of any other person (other than any restrictions under the Securities
Act).

 

2.3                                 Authorization; Enforcement.  (a) The Company
has the requisite corporate power and authority to enter into and perform its
obligations under this Agreement and to issue, sell and perform its obligations
with respect to the Securities in accordance with the terms hereof, (b) the
execution and delivery of this Agreement by the Company and the consummation by
it of the transactions contemplated hereby have been duly authorized by the
Company’s Board of Directors and no further consent or authorization is required
by the Company, its Board of Directors or its stockholders, and (c) this
Agreement has been duly executed and delivered by the Company.  No other
corporate proceedings on the part of the Company are necessary to approve and
authorize the execution and delivery of this Agreement and the issuance of the
Securities.  This Agreement, when executed and delivered by the Company,
constitutes a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors’ rights and remedies.

 

2.4                                 No Conflicts.  The execution, delivery and
performance of this Agreement by the Company, and the consummation by the
Company of the transactions contemplated hereby, will not (a) result in a
violation of the Certificate of Incorporation or By-laws of the Company, or
(b) violate or conflict with, or result in a breach of, any provision of, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of any
lien on or against any of the properties of the Company, any note, bond,
mortgage, agreement, license indenture or instrument to which the Company is a
party, or result in a violation of any statute, law, rule, regulation, writ,
injunction, order, judgment or decree applicable to the Company or by which any
property or asset of the Company is bound or affected, except where such
violation, conflict, breach or other consequence would not have a Material
Adverse Effect.  Except as disclosed in the SEC Documents, the Company is not in
violation of any term of or in default under its Certificate of Incorporation or
By-laws or in violation of any material term of, or in default under, any
material contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable to the
Company.  Except as specifically contemplated by this Agreement, the Company is
not required to obtain any consent, authorization or order of, or make any
filing

 

3

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

 

or registration with, any court or governmental or regulatory or self-regulatory
agency in order for it to execute, deliver or perform any of its obligations
under or contemplated by this Agreement in accordance with the terms hereof. 
All consents, authorizations, orders, filings and registrations that the Company
is required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the date hereof.

 

2.5                                 SEC Documents; Financial Statements.  The
Common Stock is registered pursuant to Section 12(g) of the Exchange Act and the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the Securities and Exchange Commission (the
“SEC”) pursuant to the reporting requirements of the Securities Exchange Act of
1934, as amended (the “Exchange Act”) (all of the foregoing, and all other
documents and registration statements heretofore filed by the Company with the
SEC being hereinafter referred to as the “SEC Documents”).  The Common Stock is
currently listed or quoted on The Nasdaq SmallCap Market.  The Company has
delivered or made available to each Investor true and complete copies of the SEC
Documents.  As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Securities Act, and the Exchange
Act and the rules and regulations of the SEC promulgated thereunder applicable
to the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC (except those SEC Documents that were subsequently amended),
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.  As of their respective dates, the financial statements of the
Company and its subsidiaries included (or incorporated by reference) in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto.  Such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except (a)
as may be otherwise indicated in such financial statements or the notes thereto,
or (b) in the case of unaudited interim statements, to the extent they may
exclude footnotes or may be condensed or summary statements) and fairly present
the financial position of the Company and its subsidiaries as of the dates
thereof and the results of its operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments).  As of the date hereof, the Company has, on a timely basis, made
all filings required to be made by the Company with the SEC and the Company is
eligible to file a registration statement on Form S-3 with respect to
outstanding shares of its Common Stock to be offered for sale for the account of
any person other than the Company.

 

2.6                                 Securities Law Exemption.  Assuming the
truth and accuracy of each Investor’s representations set forth in this
Agreement, the offer, sale and issuance of the Shares and Warrants as
contemplated by this Agreement are exempt from the registration requirements of
the Securities Act and applicable state securities laws, and neither the Company
nor any authorized agent acting on its behalf has taken or will take any action
hereafter that would cause the loss of such exemption.

 

2.7                                 Litigation.  All actions, suits,
arbitrations or other proceedings or, to the Company’s knowledge, investigations
pending or threatened against the Company that would have a Material Adverse
Effect on the Company, are disclosed in the SEC Documents.  There is

 

4

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

 

no action, suit, proceeding or, to the Company’s knowledge, investigation that
questions this Agreement or the right of the Company to execute, deliver and
perform under same.

 

2.8                                 Use of Proceeds.  The net proceeds from the
sale of the Shares and Warrants shall be used solely for general corporate
purposes.

 

2.9                                 Intellectual Property.  The Company owns, or
has the contractual right to use, sell or license all intellectual property
necessary or required for the conduct of its business as presently conducted and
as proposed to be conducted, including, without limitation, all trade secrets,
processes, source code, licenses, trademarks, service marks, trade names, logos,
brands, copyrights, patents, franchises, domain names and permits.  The Company
has not received any communications alleging that the Company has violated or,
by conducting its business presently conducted or as proposed to be conducted,
violates or will violate any intellectual property rights of any other person or
entity.

 

2.10                           Title to Property and Assets.  The Company has
good and marketable title to or, in the case of leases and licenses, has valid
and subsisting leasehold interests or licenses in, all of its properties and
assets (whether real or personal, tangible or intangible) free and clear of any
liens or other encumbrances, except for liens or other encumbrances that do not,
individually or in the aggregate, have a Material Adverse Effect.  With respect
to property leased by the Company, the Company has a valid leasehold interest in
such property pursuant to leases which are in full force and effect, and the
Company is in compliance in all material respects with the provisions of such
leases.

 

2.11                           Compliance with Laws.  The Company is and has
been in compliance with all laws, rules, regulations, orders, judgments or
decrees that are applicable to the Company, the conduct of its business as
presently conducted and as proposed to be conducted, and the ownership of its
property and assets (including, without limitation, all Environmental Laws (as
defined below) and laws related to occupational safety, health, wage and hour,
and employment discrimination), and the Company is not aware of any state of
facts, events, conditions or occurrences which may now or hereafter constitute
or result in a violation of any of such laws, rules, regulations, orders,
judgments or decrees or which may give rise to the assertion of any such
violation, except where such violation or violations do not have a Material
Adverse Effect.  All required reports and filings with governmental authorities
have been properly made as and when required, except where the failure to report
or file would not, individually or in the aggregate, have a Material Adverse
Effect.  “Environmental Laws” means all federal, state, local and foreign laws,
ordinances, treaties, rules, regulations, guidelines and permit conditions
relating to contamination or pollution of the environment (including ambient
air, surface water, ground water, land surface or subsurface strata) or the
protection of human health and worker safety, including, without limitation,
laws and regulations relating to transportation, storage, use, manufacture,
disposal or release of, or exposure of employees or others to, Hazardous
Materials (as defined below) or emissions, discharges, releases or threatened
releases of Hazardous Materials.  “Hazardous Materials” means any substance that
has been designated by any governmental entity or by applicable Environmental
Laws to be radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBs, asbestos, petroleum, urea
formaldehyde and all substances listed as hazardous substances pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended,

 

5

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

 

or defined as a hazardous waste pursuant to the Resource Conservation and
Recovery Act of 1976, as amended, and the regulations promulgated pursuant to
Environmental Laws, but excluding office and janitorial supplies maintained in
accordance with Environmental Laws.

 

2.12                           Licenses and Permits.  The Company has obtained
and maintains all material federal, state, local and foreign licenses, permits,
consents, approvals, registrations, memberships, authorizations and
qualifications required to be maintained in connection with the operations of
the Company as presently conducted and as proposed to be conducted, the lack of
which could have a Material Adverse Effect.  The Company is not in default in
any material respect under any of such licenses, permits, consents, approvals,
registrations, memberships, authorizations and qualifications.

 

2.13                           Related Entities.  Except for the Subsidiaries
set forth on Schedule 2.13, the Company does not presently own or control,
directly or indirectly, any interest in any other subsidiary, corporation,
association or other business entity.  The Company is not a party to any joint
venture, partnership or similar arrangement.

 

2.14                           Changes.  Since June 30, 2003, the Company has
operated its business diligently and in the ordinary course of business and, to
the knowledge of the Company, there has not been, or the Company has not (as the
case may be):

 

(a)                                  any Material Adverse Effect;

 

(b)                                 any damage, destruction or loss, whether or
not covered by insurance, which would have a Material Adverse Effect;

 

(c)                                  any waiver or compromise by the Company of
a valuable right or of a material debt owed it;

 

(d)                                 sold, encumbered, assigned or transferred
any material assets or properties of the Company, other than in the ordinary
course of business;

 

(e)                                  incurred any liability, whether accrued,
absolute, contingent or otherwise, and whether due or to become due, other than
(i) in the ordinary course of business or (ii) liabilities that are not,
individually or in the aggregate, material to the business, operations,
condition (financial or otherwise), assets, results of operations or prospects
of the Company;

 

(f)                                    created, incurred, assumed or guaranteed
any indebtedness or subjected any of its assets to any lien or encumbrance,
except for indebtedness, liens or encumbrances that are not, individually or in
the aggregate, material to the business, operations, condition (financial or
otherwise), assets, results of operations or prospects of the Company;

 

(g)                                 declared, set aside or paid any dividends or
made any other distributions in cash or property on the Company’s capital stock;

 

(h)                                 directly or indirectly redeemed, purchased
or otherwise acquired any shares of capital stock of the Company;

 

6

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

 

(i)                                     except in the ordinary course of
business of the Company, materially increased the compensation payable or to
become payable by the Company to any of its officers, employees or directors or
materially increased any bonus, insurance, pension or other employee benefit
plan, payment or arrangement made by the Company for or with any such officers,
employees or directors;

 

(j)                                     made any direct or indirect loan to any
stockholder, employee, officer or director of the Company, other than advances
made in the ordinary course of business;

 

(k)                                  changed any agreement to which the Company
is a party which would have a Material Adverse Effect; or

 

(l)                                     entered into any agreement or commitment
to do any of the things described in this Section 2.14.

 

2.15                           Employee Benefit Plans.  All “employee benefit
plans,” as such term is defined in the Employee Retirement Income Security Act
of 1974, as amended (“ERISA”), to which the Company has any liability or
obligation, contingent or otherwise, comply in all material respects and have
been maintained and administered in material compliance with ERISA, the Internal
Revenue Code of 1986, as amended (the “Code”), and all other statutes, orders
and governmental rules and regulations applicable to such employee benefit
plans.  To the Company’s knowledge, the Company has not incurred any liability
pursuant to ERISA or the penalty or excise tax provisions of the Code relating
to employee benefit plans (as defined in ERISA), and no event, transaction or
condition has occurred or exists that could reasonably be expected to result in
the incurrence of any such liability by the Company, or in the imposition of any
lien on any of the rights, properties or assets of the Company pursuant to ERISA
or to such penalty or excise tax provisions of the Code.  The Company does not
maintain or contribute to, and has not maintained or contributed to, any
“multiemployer plan,” as such term is defined in ERISA.

 

2.16                           Taxes.  The Company has timely filed all tax
returns and reports (federal, state and local) required to be filed and these
returns and reports are true and correct in all material respects.  The Company
has paid all taxes and other assessments shown to be due on such returns or
reports.  Neither the Internal Revenue Service nor any state or local taxing
authority has, during the past three (3) years, examined or informed the Company
it is in the process of examining any such tax returns and reports.  The
provision for taxes of the Company, as shown on the financial statements
included in the most recent SEC Filing, is adequate for taxes due or accrued as
of the date thereof and since that date the Company has provided adequate
accruals in accordance with generally accepted accounting principals in its
financial statements for any taxes incurred that have not been paid, whether or
not shown as being due on any tax returns.  The Company has not elected,
pursuant to the Code, to be treated as a collapsible corporation pursuant to
Section 341(f) of the Code, nor has it made any other elections pursuant to the
Code (other than elections that relate solely to methods of accounting,
depreciation or amortization) that would have a Material Adverse Effect.

 

2.17                           Insurance.  The Company has in full force and
effect fire, casualty and liability insurance policies sufficient in amount
(subject to reasonable deductibles) to allow the

 

7

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

 

Company to replace any of its properties that might be damaged or destroyed to
the extent and in the manner customary for companies in similar business
similarly situated.

 

2.18                           Employees.  The Company does not have any
collective bargaining agreements with any of its employees.  There is no labor
union organizing activity pending or, to the Company’s knowledge, threatened
with respect to the Company.

 

2.19                           Material Contracts.  All contracts, agreements,
instruments, leases, licenses, arrangements, understandings or other documents
filed with or required to be filed as exhibits to the SEC Documents to which the
Company therein is a party or by which it may be bound have been so filed (the
“Material Contracts”).  The Material Contracts that have been filed as exhibits
are complete and correct copies of the contracts, agreements, instruments,
leases, licenses, arrangement, understanding or other documents of which they
purport to be copies.  The Material Contracts are valid and in full force and
effect as to the Company, and, to the Company’s knowledge, to the other parties
thereto.  Except as otherwise disclosed herein, the Company is not in violation
of, or default under (and there does not exist any event or condition which,
after notice or lapse of time or both, would constitute such a default under),
the Material Contracts, except to the extent that such violations or defaults,
individually or in the aggregate, could not reasonably be expected to (a) affect
the validity of this Agreement, (b) have a Material Adverse Effect, or (c)
impair the ability of the Company to perform fully on a timely basis any
material obligation which the Company has or will have under this Agreement.  To
the Company’s knowledge, none of the other parties to any Material Contract are
in violation of or default under any Material Contract in any material respect. 
The Company has not received any notice of cancellation or any written
communication threatening cancellation of any Material Contract by any other
party thereto.  The Company is not a party to and is not bound by any contract,
agreement or instrument, or subject to any restriction under the Certificate of
Incorporation, its bylaws or other governing documents that would have a
Material Adverse Effect.

 

2.20                           Customers and Suppliers.  No customer or supplier
that was material to the Company during the previous twenty-four (24) months,
has terminated, materially reduced or threatened to terminate or material reduce
its purchases from or provision of products or services to the Company.

 

2.21                           Brokers and Finders.  The Company has not
employed any broker, finder, consultant or intermediary in connection with the
transactions contemplated by this Agreement that would be entitled to a
broker’s, finder’s or similar fee or commission in connection herewith and
therewith, with the exception of Rodman & Renshaw, Inc. and Punk, Ziegel &
Company, L.P.

 

2.22                           Nasdaq SmallCap Market.  The Company’s common
stock is listed on the Nasdaq SmallCap Market System.

 

2.23                           Disclosure.  This Agreement, Schedules and
Exhibits hereto and all other documents delivered to the Investors in connection
herewith or therewith at the Closing, do not contain any untrue statement of a
material fact, or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not

 

8

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

 

misleading.  There are no facts that, individually or in the aggregate, would
have a Material Adverse Effect that have not been disclosed to each Investor in
this Agreement (including the Schedules and Exhibits hereto), the SEC Documents
or any other documents delivered to each Investor in connection herewith or
therewith at the Closing.

 

2.24                           No Integrated Offering.  Neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales in any security or solicited any
offers to buy any security under circumstances that would require registration
under the Securities Act of the issuance of the Securities to the Investors. 
The issuance of the Securities to the Investors will not be integrated with any
past issuance of the Company’s securities for purposes of the Securities Act or
any applicable rules of Nasdaq.

 

3.                                       REPRESENTATIONS AND WARRANTIES OF
INVESTOR.

 

Each of the Investors, severally and not jointly, hereby represents and warrants
to the Company as to itself and not as to any other Investor, that:

 

3.1                                 Organization.  The Investor is a
corporation, limited liability company or limited partnership, as the case may
be, duly organized, validly existing and in good standing in the jurisdiction of
its formation.  The Investor has all requisite power and authority to execute,
deliver and perform all of its obligations of this Agreement.

 

3.2                                 Authorization; Enforcement.  (a) The
Investor has the requisite power and authority to enter into and perform its
obligations under this Agreement, (b) the execution and delivery of this
Agreement by the Investor and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Investor, and (c) this Agreement has been duly executed and
delivered by the Investor.  To the knowledge of the Investor, no other
proceedings on the part of the Investor are necessary to approve and authorize
the execution and delivery of this Agreement.  This Agreement, when executed and
delivered, constitutes a valid and binding obligation of the Investor,
enforceable against the Investor in accordance with its terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors’ rights and
remedies.

 

3.3                                 No Conflicts.  The execution, delivery and
performance of this Agreement by the Investor, and the consummation by the
Investor of the transactions contemplated hereby will not (a) result in a
violation of the organizational documents of the Investor, or (b) result in a
violation of any statute, law, rule, regulation, writ, injunction, order,
judgment or decree applicable to the Investor, except where such violation,
conflict, breach or other consequence would not have a Material Adverse Effect. 
The Investor is not required to obtain any consent, authorization or order of,
or make any filing or registration with, any court or governmental or regulatory
or self-regulatory agency in order for it to execute, deliver or perform any of
its obligations under or contemplated by this Agreement in accordance with the
terms hereof.

 

9

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

 

3.4                                 Investment Representations.

 

(a)                                  The Investor is an “accredited investor”,
as defined in Regulation D promulgated under the Securities Act, and has such
knowledge, sophistication and experience in financial and business matters that
the Investor is capable of evaluating the merits and risks of the investment in
the Securities.

 

(b)                                 The Investor (i) has adequate means of
providing for its current financial needs and possible contingencies, and has no
need for liquidity of investment in the Company, (ii) can afford to hold
unregistered securities for an indefinite period of time and sustain a complete
loss of the entire amount of the subscription, and (iii) has not made an overall
commitment to investments which are not readily marketable that is so
disproportionate as to cause such overall commitment to become excessive.

 

(c)                                  The Investor agrees and understands that
the Securities are being offered and sold to the Investor in reliance upon
specific exemptions from the registration requirements of the Securities Act and
the rules and regulations promulgated thereunder and that, in order to determine
the availability of such exemptions and the eligibility of the Investor to
acquire the Securities, the Company is relying upon the truth and accuracy of
the Investor’s representations and warranties, and compliance with the
Investor’s covenants and agreements, set forth in this Agreement.  The Investor
further agrees with the Company that (i) no Securities were offered or sold to
the Investor by means of any form of general solicitation or general
advertising, and in connection therewith, the Investor did not (1) receive or
review any advertisement, article, notice or other communication published in a
newspaper or magazine or similar media or broadcast over television or radio,
whether closed circuit or generally available; or (2) attend any seminar meeting
or industry investor conference whose attendees were invited by any general
solicitation or general advertising.  The Investor hereby acknowledges that the
offering of the Securities has not been reviewed by the SEC or any state
regulatory authority since the offering of the Securities is intended to be
exempt from the registration requirements of Section 5 of the Securities Act
pursuant to Regulation D promulgated thereunder.  The Investor understands that
the Securities have not been registered under the Securities Act and agrees not
to sell or otherwise transfer the Securities unless they are registered under
the Securities Act or unless an exemption from such registration is available.

 

(d)                                 The Securities are being purchased by the
Investor for its own account, for investment purposes only, not for the account
of any other person, or corporation and not with a view to distribution,
assignment or resale to others in whole or in part.  The Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the Securities.  The Investor does not have any contract, undertaking, agreement
or arrangement with any person to sell, transfer, pledge, hypothecate, grant any
option to purchase or otherwise dispose of any of the Securities.  Nothing
herein shall prevent the distribution of any Securities to any subsidiary,
member, partner, stockholder, affiliate or former member, partner, stockholder
or affiliate of the Investor in compliance with the Securities Act and
applicable state “blue sky” laws.

 

10

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

 

(e)                                  The Investor has been furnished with the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
2002, as amended, and has had access to the Company’s SEC Documents and other
public filings.

 

(f)                                    With respect to corporate tax and other
economic considerations involved in an investment in the Securities, the
Investor is not relying on the Company.  The Investor has carefully considered
and has, to the extent the Investor believes such discussion necessary,
discussed with its professional legal, tax, accounting and financial advisors
the suitability of an investment in the Securities for its particular tax and
financial situation and has determined that the Securities are a suitable
investment for the Investor.

 

(g)                                 The Company has made available to the
Investor all documents and information that the Investor has requested relating
to an investment in the Securities.

 

(h)                                 Subject to the Company’s disclosures in this
Agreement and the SEC Documents, the Investor recognizes that the Company has
generated only limited revenues to date, is not expected to have any products
commercially available for a number of years, if at all, and that investment in
the Company involves substantial risks, including loss of the entire amount of
such investment and has taken full cognizance of and understands all of the risk
factors relating to the purchase of the Securities.

 

(i)                                     The Investor has not been formed for the
specific purpose of acquiring the Securities.

 

4.                                       COVENANTS.

 

4.1                                 Confidentiality.  Each Investor hereby
acknowledges that unauthorized disclosure of information regarding the offering
of the Securities pursuant to this Agreement may cause the Company to violate
Regulation FD and each Investor agrees to keep such information confidential.
The Company shall, by 8:30 a.m., Eastern Daylight Time on the business day after
the Closing Date, issue a press release disclosing all material terms of the
transactions contemplated hereby, and shall file a Form 8-K including this
Agreement and the form of Warrant as exhibits, within five calendar days of the
Closing Date.  Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Investor, or include the name of any Investor in any
filing with the Commission or any regulatory agency or trading market, without
the prior written consent of such Investor, except (i) as required by federal
securities law in connection with the Form 8-K to be filed following the Closing
Date and the registration statement contemplated by this Agreement and (ii) to
the extent such disclosure is required by law or trading market regulations.

 

4.2                                 Restrictions on Transfer.

 

(a)                                  Each Investor hereby agrees, severally and
not jointly, that, except in accordance with a registration statement filed
pursuant to Section 5.2 of this Agreement, it will not dispose of any of such
Investor’s Shares or the Warrant Shares (other than pursuant to Rule 144
promulgated under the Securities Act (“Rule 144”) or pursuant to a registration
statement filed with the SEC pursuant to the Securities Act) unless and until
such Investor shall have (A) notified the Company of the proposed disposition
and shall have furnished the

 

11

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

 

Company with a statement of the circumstances surrounding the proposed
disposition and (B) if requested by the Company, furnished the Company with an
opinion of counsel, reasonably satisfactory in form and substance to the Company
and the Company’s counsel, to the effect that such disposition will not require
registration under the Securities Act.  The restrictions on transfer imposed by
this Section 4.2 shall cease and terminate as to the Shares and Warrant Shares
held by an Investor when:  (x) such Securities shall have been effectively
registered under the Securities Act and sold by the holder thereof in accordance
with such registration, or (y) on delivery of an opinion of the kind described
in the preceding sentence with respect to such Securities.  Each Warrant and
each certificate evidencing the Securities shall bear an appropriate restrictive
legend as set forth in Section 4.2(c), except that such legend shall not be
required after a transfer is made in compliance with Rule 144 or pursuant to a
registration statement or if the opinion of counsel referred to above is issued
and provides that such legend is not required in order to establish compliance
with any provisions of the Securities Act. The Company agrees that pursuant to
the prior sentence, it will, no later than five Trading Days (“Trading Day”
shall mean any day the Nasdaq SmallCap and national securities exchange are open
for trading) following (a) receipt by the Company’s transfer agent of a
certificate representing Shares or Warrant Shares issued with a restrictive
legend, as the case may be, accompanied by a certification of the Investor in
form suitable for processing by the Company that a prospectus has been delivered
(in the case of sale pursuant to prospectus, a “Prospectus Letter”) or customary
supporting documentation, including legal opinion if required pursuant to Clause
(B) above, in form suitable for processing by the Company for a Rule 144 or
144(k) or other disposition (in the case of a disposition pursuant to Rule 144
or 144(k) or Clause (B) above, “Supporting  Documentation”) and (b) receipt by
the Company of notice of such delivery to the transfer agent and Prospectus
Letter or Supporting Documentation, as the case may be (such notice to be sent 
by facsimile to the attention of the Company’s president and CEO at the fax
number set forth in Section 8.6 hereof) deliver or cause to be delivered
(evidence of deposit for next day delivery with a nationally recognized
overnight delivery service shall be deemed delivery) to such Investor a
certificate representing such Securities that is free from all restrictive and
other legends.  The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge the restrictions
on transfer set forth in this Section. In the event the Prospectus Letter or
Supporting Documentation is not in form suitable for processing by to the
Company, the 5 Trading Days shall toll until the Company receives a Prospectus
Letter or Supporting Documentation that is in form suitable for processing.

 

(b)                                 Notwithstanding the provisions of
Section 4.2(a), no registration statement or opinion of counsel shall be
necessary for a transfer by an Investor of the Securities to a subsidiary,
member, partner, stockholder or affiliate of that Investor, if the transferee
agrees in writing to be subject to the terms hereof to the same extent as if
such transferee were an Investor hereunder.

 

(c)                                  It is understood that, subject to Sections
4.2(a) and 4.2(b), the Warrants and the certificates evidencing the Securities
will bear the following legends:

 

(i)                                     THESE SECURITIES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “SECURITIES ACT”) OR UNDER
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT

 

12

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

 

AND ANY APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AVAILABLE EXEMPTIONS
FROM SUCH REGISTRATION, PROVIDED THAT THE SELLER DELIVERS TO THE COMPANY AN
OPINION OF COUNSEL (WHICH OPINION IS REASONABLY SATISFACTORY TO THE COMPANY)
CONFIRMING THE AVAILABILITY OF SUCH EXEMPTION.

 

(ii)                                  Any legend required by the laws of any
other applicable jurisdiction.

 

(d)  In addition to such Investor’s other available remedies, the Company shall
pay to an Investor, in cash, as liquidated damages and not as a penalty, for
each $1,000 of Shares or Warrant Shares (based on the closing price of the
Common Stock on the date such Securities are submitted to the Company’s transfer
agent) delivered to the transfer agent subject to Section 4.2(a), $10 per
Trading Day (increasing to $20 per Trading Day five (5) Trading Days after such
damages have begun to accrue) for each Trading Day after such fifth Trading Day
until such certificate is delivered. Nothing herein shall limit such Investor’s
right to pursue actual damages for the Company’s failure to deliver certificates
representing any Securities as required by the transaction documents, and such
Investor shall have the right to pursue all remedies available to it at law or
in equity including, without limitation, a decree of specific performance and/or
injunctive relief.

 

4.3                                 Securities Compliance.  The Company shall
take all action necessary to comply with any federal or state securities laws
applicable to the transactions contemplated hereunder.

 

5.                                       REGISTRATION RIGHTS.

 

5.1                                 Registrable Securities.  As used herein the
term “Registrable Security” means (a) each of the Shares, and the Warrant
Shares, and (b) any Common Stock of the Company issued as (or issuable on the
conversion or exercise of any warrant, right or other security that is issued
as) a dividend or other distribution with respect to, or in exchange for, or in
replacement of, the shares referenced in clause (a) above; provided, however,
that with respect to any particular Registrable Security held by an Investor,
such security shall cease to be a Registrable Security when, as of the date of
determination, (a) it has been effectively registered under the Securities Act
and disposed of pursuant thereto, or (b) registration under the Securities Act
is no longer required for the immediate public distribution of any particular
Registrable Securities held by that Investor and its affiliates.  In the event
of any merger, reorganization, consolidation, recapitalization or other change
in corporate structure affecting the Common Stock, such adjustment shall be made
in the definition of “Registrable Security” as is appropriate in order to
prevent any dilution or enlargement of the rights granted pursuant to this
Section 5.

 

5.2                                 Mandatory Registration.

 

(a)  On or prior to the 30th day following the Closing Date, the Company shall
prepare and file with the Commission the Registration Statement covering the
resale of all of the Registrable Securities for an offering to be made on a
continuous basis pursuant to Rule 415 (the “Required Filing Date”).  The
Registration Statement required hereunder shall be on Form S-3

 

13

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

 

(except if the Company is not then eligible to register for resale the
Registrable Securities on Form S-3, in which case the Registration Statement
shall be on another appropriate form in accordance herewith).  The Registration
Statement required hereunder shall contain (except if otherwise directed by the
Investors) the “Plan of Distribution” attached hereto as Annex A.  The Company
shall use its commercially reasonable efforts to cause the Registration
Statement to be declared effective under the Securities Act as promptly as
possible after the filing thereof, but in any event not later than the 110th day
after the Closing Date (the “Effectiveness Date”), and shall use its
commercially reasonable efforts to keep the Registration Statement continuously
effective under the Securities Act until the earlier of the date when all
Registrable Securities covered by the Registration Statement (a) have been sold
pursuant to the Registration Statement or an exemption from the registration
requirements of the Securities Act or (b) may be sold without volume
restrictions pursuant to Rule 144(k) as determined by the counsel to the Company
pursuant to a written opinion letter to such effect, addressed and acceptable to
the Company’s transfer agent and the affected Investors or (c) the second
anniversary of the date on which the Registration Statement is declared
effective (the “Effectiveness Period”) or such longer time as the Company may
determine.

 

(b) If: (i) the Registration Statement is not filed on or prior to its Required
Filing Date (if the Company files a Registration Statement without affording the
Investor the opportunity to review and comment on the same as required by
Section 5.3(a), the Company shall not be deemed to have satisfied this clause
(i)); provided, however, that if an Investor fails to provide the Company with
any information that is required to be provided in the Registration Statement
with respect to such Investor pursuant to Section 5.3(k), then the required
filing date shall be extended until two business days following the date of
receipt by the Company of such required information, or (ii) the Company fails
to file with the Commission a request for acceleration in accordance with Rule
461 promulgated under the Securities Act, within five business days of the date
that the Company is notified (orally or in writing, whichever is earlier) by the
Commission that a Registration Statement will not be “reviewed,” or not subject
to further review, or (iii) [intentionally omitted], or (iv) a Registration
Statement filed or required to be filed hereunder is not declared effective by
the Commission on or before the required Effectiveness Date, or (v) after a
Registration Statement is first declared effective by the Commission, it ceases
for any reason to remain continuously effective as to all Registrable Securities
for which it is required to be effective, or the Investors are not permitted to
utilize the Prospectus therein to resell such Registrable Securities, for in any
such cases 30 business days (which need not be consecutive days) in the
aggregate during any 12-month period (any such failure or breach being referred
to as an “Event,” and for purposes of clause (i) or (iv) the date on which such
Event occurs, or for purposes of clause (ii) the date on which such five
business day period is exceeded, or for purposes of clause (v) the date on which
such 30 business day period is exceeded, being referred to as “Event Date”),
then in addition to any other rights the Investors may have hereunder or under
applicable law: (1) the Company shall pay to each Investor an amount in cash, as
liquidated damages and not as a penalty, equal to 1.5% of the aggregate purchase
price paid by such Investor pursuant to this Agreement for any Registrable
Securities then held by such Investor for the first month of an Event; and (2)
on each subsequent monthly anniversary of each such Event Date (if the
applicable Event shall not have been cured by such date) until the applicable
Event is cured, the Company shall pay to each Investor an amount in cash, as
liquidated damages and not as a penalty, equal to 2% of the aggregate purchase
price paid by such Investor pursuant to this Agreement for any Registrable
Securities then held by

 

14

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

 

such Investor.  If the Company fails to pay any liquidated damages pursuant to
this Section in full within seven days after the date payable, the Company will
pay interest thereon at a rate of 18% per annum (or such lesser maximum amount
that is permitted to be paid by applicable law) to the Investor, accruing daily
from the date such liquidated damages are due until such amounts, plus all such
interest thereon, are paid in full.  The liquidated damages pursuant to the
terms hereof shall apply on a pro-rata basis for any portion of a month prior to
the cure of an Event.

 

5.3                                 Covenants of the Company With Respect to
Registration.

 

The Company covenants and agrees as follows:

 

(a)                                  Not less than five business days prior to
the filing of the Registration Statement or any related Prospectus or any
amendment or supplement thereto, furnish to the Investors copies of all such
documents proposed to be filed (including documents incorporated or deemed
incorporated by reference to the extent requested by such person), which
documents will be subject to the review of such Investors within such five
business days. The Company shall not file the Registration Statement or any such
Prospectus or any amendments or supplements thereto to which the holders of a
majority of the Registrable Securities shall reasonably object in good faith
based on the advice of counsel and the Company shall make reasonable efforts to
address the objections raised.  In the event the holders of a majority of the
Registrable Securities object to any such filing pursuant to the previous
sentence, then the Required Filing Date or Effectiveness Date, as the case may
be, shall be extended by the number of days that elapse between the date the
Company is notified of the objection until the day following the date the
Company has been notified that such objection no longer exists.

 

(b)                                 Following the effective date of the
Registration Statement under Section 5.2, the Company shall, upon the request of
the Investors, forthwith supply such reasonable number of copies of the
Registration Statement, preliminary prospectus and prospectus meeting the
requirements of the Securities Act, and other documents necessary or incidental
to the public offering of the Registrable Securities, as shall be reasonably
requested by the Investors to permit the Investors to make a public distribution
of the Registrable Securities registered in connection with the Registration
Statement.

 

(c)                                  The Company shall prepare and file with the
SEC such amendments and supplements to such Registration Statement and the
prospectus used in connection with such Registration Statement as may be
necessary to comply with the Securities Act with respect to the disposition of
all securities covered by such Registration Statement during the period of time
such Registration Statement remains effective;

 

(d)                                 The Company shall use its commercially
reasonable efforts to register and qualify the securities covered by such
Registration Statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Investors; provided that
the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions;

 

(e)                                  During the period of time such Registration
Statement remains effective, the Company shall notify each Investor of
Registrable Securities covered by such registration

 

15

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

 

statement at any time when a prospectus relating thereto is required to be
delivered under the Securities Act or the happening of any event as a result of
which the prospectus included in such Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing;

 

(f)                                    The Company shall use its commercially
reasonable efforts to cause all such Registrable Securities registered hereunder
to be listed on each securities exchange on which securities of the same class
issued by the Company are then listed;

 

(g)                                 The Company shall provide a transfer agent
and registrar for all Registrable Securities registered hereunder and a CUSIP
number for all such Registrable Securities, in each case not later than the
effective date of such registration; and

 

(k)                                  The obligations of the Company hereunder
with respect to the Registrable Securities are subject to the Investors’
furnishing to the Company such information concerning the Investors, the
Registrable Securities and the terms of the Investors’ offering of such
Registrable Securities as are required to be included in the Registration
Statement by Commission regulations or pursuant to a specific Commission comment
on the Registration Statement.

 

5.4                                 Expenses.  All expenses incurred in
effecting a registration pursuant to this Agreement (including, without
limitation, all registration, qualification and filing fees, printing expenses,
fees and disbursements of counsel for the Company, blue sky fees and expenses
shall be borne by the Company.  All transfer taxes, underwriting discounts and
selling commissions applicable to the sale of the Registrable Securities shall
be borne by the Investors thereof.

 

5.5                                 Indemnification.  In the event any
Registrable Securities are included in a Registration Statement under this
Section 5:

 

(a)                                  To the extent permitted by law, the Company
will indemnify and hold harmless each Investor, the partners, officers,
directors, stockholders, members and managers of such Investor, each person, if
any, who controls such Investor within the meaning of the Securities Act or the
Exchange Act, against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Securities Act, the Exchange
Act or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (each, a “Violation”): (i)
any untrue statement or alleged untrue statement of a material fact contained in
such Registration Statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law; and the
Company will pay to each such Investor, underwriter or controlling person, as
incurred, any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the

 

16

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

 

indemnity agreement contained in this Section 5.5(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld or delayed), nor shall the Company be liable to any
Investor, underwriter or controlling person for any such loss, claim, damage,
liability, or action to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
any such Investor, underwriter or controlling person.

 

(b)                                 To the extent permitted by law, each selling
Investor will indemnify and hold harmless the Company, each of its directors,
each of its officers who has signed the Registration Statement, each person, if
any, who controls the Company within the meaning of the Securities Act, against
any losses, claims, damages, or liabilities (joint or several) to which any of
the foregoing persons may become subject, under the Securities Act, the Exchange
Act or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Investor expressly for use in connection with such
registration; and each such Investor will pay, as incurred, any legal or other
expenses reasonably incurred by any person indemnified pursuant to this
Section 5.5(b), in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this Section 5.5(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Investor (which consent shall
not be unreasonably withheld or delayed); provided further that in no event
shall any indemnity under this Section 5.5(b) exceed the net proceeds from the
offering received by such Investor.

 

(c)                                  Promptly after receipt by an indemnified
party under this Section 5.5 of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this
Section 5.5, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party (together with all other indemnified parties which may
be represented without conflict by one counsel) shall have the right to retain
one separate counsel, with the reasonable fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time after receipt of
notice of the commencement of any such action, if prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 5.5, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 5.5.

 

17

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

 

(d)                                 If the indemnification provided for in this
Section 5.5 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage or expense
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations; provided that in no event shall any contribution by an Investor
under this Section 5.5(d) exceed the net proceeds from the offering received by
such Investor.  The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties’ relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.

 

(e)                                  Notwithstanding the foregoing, to the
extent that the provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten public
offering are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.

 

(f)                                    The obligations of the Company and
Investors under this Section 5.5 shall survive the completion of any offering of
Registrable Securities in a registration statement and the termination of this
Agreement.

 

5.6                                 Suspension of Sales.

 

(a)                                  With respect to the Registration Statement
filed pursuant to Section 5.2, subject to the payment of any liquidated damages
which may accrue pursuant to Section 5.2(b)(v), the Company may suspend sales of
Registrable Securities under such Registration Statement for a period of not
more than sixty (60) days in any twelve (12) month period with respect to such
Registration Statement if, at any time the Company is engaged in confidential
negotiations or other confidential business activities, the disclosure of which
would be required if such sales were not suspended and the Board of Directors of
the Company determines in good faith that such suspension would be in the
Company’s best interest at such time, provided that the Company shall not be
permitted to suspend such sales for more than sixty (60) days in any twelve (12)
month period.  In order to suspend sales pursuant to this Section 5.6(a), the
Company shall promptly (but in any event within five (5) business days), upon
determining to seek such suspension, deliver to each holder of Registrable
Securities a certificate signed by an executive officer of the Company stating
that the Company is suspending such filing pursuant to this Section 5.6(a). Each
holder of Registrable Securities hereby agrees to keep confidential any
information disclosed to it in any such certificate (including the fact that a
certificate was delivered).

 

(b)                                 If the Company suspends such Registration
Statement pursuant to section 5.6(a) above, the Company shall, as promptly as
practicable following the termination of the circumstances which entitled the
Company to do so but in no event more than fifteen (15)

 

18

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

 

days thereafter, take such actions as may be necessary to file or reinstate the
effectiveness of such Registration Statement and/or give written notice to the
selling Investors authorizing them to resume sales pursuant to such Registration
Statement.  If, as a result thereof, the prospectus included in such
Registration Statement has been amended to comply with the requirements of the
Securities Act, the Company shall enclose such revised prospectus with the
notice to the selling Investors given pursuant to this Section 5.6(b), and the
selling Investors shall make no offers or sales of securities pursuant to such
Registration Statement other than by means of such revised prospectus.

 

5.7                                 Transfer or Assignment of Registration
Rights.  The rights to cause the Company to register Registrable Securities
granted to an Investor by the Company under this Section 5 may be transferred or
assigned by an Investor to a transferee or assignee of such Registrable
Securities that (i) is a subsidiary, parent, current or former partner, current
or former limited partner, current or former member, current or former manager
or stockholder of an Investor, (ii) is an entity controlling, controlled by or
under common control, or under common investment management, with an Investor,
including without limitation a corporation, partnership or limited liability
company that is a direct or indirect parent or subsidiary of the Investor, or
(iii) is a transferee or assignee of not less than 50,000 shares of Registrable
Securities (as presently constituted and subject to subsequent adjustments for
stock splits, stock dividends, reverse stock splits and the like), provided that
the Company is given written notice at the time of or within a reasonable time
after said transfer or assignment, stating the name and address of said
transferee or assignee and identifying the securities with respect to which such
registration rights are being transferred or assigned, and provided further that
the transferee or assignee of such rights assumes the obligations of such
Investor under this Section 5.

 

5.8                                 Reports Under Exchange Act.  With a view to
making available to the Investors the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit an Investor to sell securities of the Company to the public without
registration, the Company agrees to:

 

(a)                                  Make and keep public information available,
as those terms are used in SEC Rule 144, at all times;

 

(b)                                 File with the SEC in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act;

 

(c)                                  Furnish to any Investor, so long as the
Investor owns any Registrable Securities, forthwith on request, (i) a written
statement by the Company that it has complied with the reporting requirements of
SEC Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may be
reasonably requested in availing any Investor of any rule or regulation of the
SEC that permits the selling of any such securities without registration; and

 

(d)                                 Undertake any additional actions reasonably
necessary to maintain the availability of the use of Rule 144.

 

19

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

 

5.9                                 Reserve for Exercise Shares.  The Company
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock such number of shares of Common Stock (the “Exercise
Shares”) as shall be sufficient to enable it to comply with its exercise
obligations with respect to the Shares and under the Warrants.  If at any time
the number of Exercise Shares shall not be sufficient to effect the exercise of
the Warrants, the Company will forthwith take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number as will be sufficient for such purposes.  The Company will obtain
authorization, consent, approval or other action by, or make any filing with,
any administrative body that may be required under applicable state securities
laws in connection with the issuance of Exercise Shares.

 

5.10                           Delay of Registration.  No Investor shall have
any right to obtain or seek an injunction restraining or otherwise delaying any
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 5.

 

6.                                       CONDITIONS TO INVESTOR OBLIGATIONS AT
CLOSING.

 

THE OBLIGATIONS OF THE INVESTORS TO PURCHASE THE SHARES AND THE WARRANTS AT THE
CLOSING ARE SUBJECT TO THE FULFILLMENT ON OR PRIOR TO THE CLOSING OF EACH OF THE
FOLLOWING CONDITIONS:

 

6.1                                 Representations and Warranties.  The
representations and warranties of the Company contained in Section 2 shall be
true in all material respects on and as of the Closing Date with the same effect
as though such representations and warranties had been made on and as of the
Closing Date, except that any representations and warranties stated as being
true and correct as of a date other than the date hereof shall be true and
correct as of such other date.

 

6.2                                 Performance.  The Company shall have
performed and complied with all agreements, obligations and conditions contained
in this Agreement that are required to be performed or complied with by it on or
before the Closing.

 

6.3                                 Qualifications.  All authorizations,
approvals, or permits, if any, of any governmental authority or regulatory body
of the United States or of any state of the United States that are required in
connection with the lawful issuance and sale of the Securities to the Investors
pursuant to this Agreement shall have been duly obtained and shall be effective
on and as of the Closing.

 

6.4                                 Proceedings and Documents.  All corporate
and other proceedings undertaken in connection with the transactions
contemplated at the Closing and all documents incident thereto shall be
reasonably satisfactory in form and substance to each Investor, and they shall
have received all such counterpart original and certified or other copies of
such documents as they may reasonably request.

 

6.5                                 Absence of Litigation.  No proceeding
challenging this Agreement or the transactions contemplated hereby or thereby,
or seeking to prohibit, alter, prevent or delay the Closing, shall have been
instituted against the Company before any court, arbitrator or governmental
body, agency or official and shall be pending.

 

20

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

 

6.6                                 Compliance Certificate.  The Company shall
deliver to the Investors at the Closing, relating to the Investors’ purchase of
Shares and Warrants, a certificate signed by the President of the Company
stating that the Company has complied with or satisfied each of the conditions
to the Investors’ obligation to consummate the Closing set forth in Sections 6.1
through 6.5, unless waived in writing by the Investors.

 

6.7                                 Legal Prohibition.  The purchase of the
Shares and Warrants by the Investors shall not be prohibited by any law or
governmental order or regulation.

 

7.                                       CONDITIONS TO THE COMPANY’S OBLIGATIONS
AT CLOSING.

 

The obligations of the Company under Section 1 of this Agreement are subject to
the fulfillment on or before the Closing of each of the following conditions:

 

7.1                                 Representations and Warranties.  The
representations and warranties of each Investor contained in Section 3 shall be
true in all respects on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of the
Closing Date, except that any representations and warranties stated as being
true and correct as of a date other than the date hereof shall be true and
correct as of such other date.

 

7.2                                 Performance.  Each Investor shall have
performed and complied with all agreements, obligations and conditions contained
in this Agreement that are required to be performed or complied with by it on or
before the Closing.

 

7.3                                 Qualifications.  All authorizations,
approvals, or permits, if any, of any governmental authority or regulatory body
of the United States or of any state of the United States that are required in
connection with the lawful issuance and sale of the Securities to the Investors
pursuant to this Agreement shall have been duly obtained and shall be effective
on and as of the Closing.

 

7.4                                 Proceedings and Documents.  All corporate
and other proceedings undertaken in connection with the transactions
contemplated by this Agreement and all documents incident thereto shall be
reasonably satisfactory in form and substance to the Company and its counsel,
and they shall have received all such counterpart original and certified or
other copies of such documents as they may reasonably request.

 

8.                                       MISCELLANEOUS.

 

8.1                                 Survival of Warranties.  The warranties,
representations, agreements, covenants and undertakings of the Company or the
Investors contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing and shall in no way be
affected by any investigation of the subject matter thereof made by or on behalf
of the Investors or the Company.

 

8.2                                 Incorporation by Reference.  All Exhibits
and Schedules appended to this Agreement are herein incorporated by reference
and made a part hereof.

 

21

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

 

8.3                                 Successor and Assignees.  All terms,
covenants, agreements, representations, warranties and undertakings in this
Agreement made by and on behalf of any of the parties hereto shall bind and
inure to the benefit of the respective successors and assigns of the parties
hereto (including transferees of any Shares) whether so expressed or not,
subject to Section 5.8.

 

8.4                                 Amendments and Waivers.  Neither this
Agreement nor any provision hereof shall be waived, modified, changed,
discharged, terminated, revoked or canceled except by an instrument in writing
signed by the party against whom any change, discharge or termination is
sought.  Failure of either party to exercise any right or remedy under this
Agreement or any other agreement between the Company and the Investors, or
otherwise, or delay by the Company or the Investors in exercising such right or
remedy, will not operate as a waiver thereof, nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege.  The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.

 

8.5                                 Governing Law.  This Agreement shall be
deemed a contract made under the laws of the State of New York, without giving
effect to the conflicts of law principles thereof.

 

8.6                                 Notices.  All notices, requests, consents,
demands, notice or other communication required or permitted under this
Agreement shall be in writing and shall be deemed duly given and received when
delivered personally or transmitted by facsimile, or one business day after
being deposited for next-day delivery with a nationally recognized overnight
delivery service, or three days after being deposited as first class mail with
the United States Postal Services, all charges or postage prepaid, and properly
addressed:

 

to the Company at:

 

Axonyx Inc.
500 7th Avenue, 10th Floor
New York, New York 10018
Tel:  (212) 645-7704
Fax:  (212) 989-1745
Attention:  President and Chief Executive Officer

 

with a copy (which shall not constitute notice) to:

 

Torys LLP
237 Park Avenue
New York, New York 10017
Fax: (212) 682-0200
Attention: Luci Staller Altman

 

and to:

 

22

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

 

Punk, Ziegel & Company
520 Madison Avenue, 7th Avenue
New York, NY  10022
Attention:  Edwin H. Gordon

 

or to the Investors at the address set forth opposite each Investor’s name on
Exhibit A hereto

 

or such other address as may be furnished in writing by a party hereto.

 

8.7                                 Counterparts. This Agreement may be executed
in counterparts, all of which together shall constitute one and the same
instrument.

 

8.8                                 Effect of Headings.  The section and
paragraph headings herein are included for convenience only and shall not affect
the construction hereof.

 

8.9                                 Entire Agreement.  This Agreement and the
Exhibits and Schedules hereto and thereto constitute the entire agreement among
the Company and the Investors with respect to the subject matter hereof.  There
are no representations, warranties, covenants or undertakings with respect to
the subject matter hereof other than those expressly set forth herein.  This
Agreement supersedes all prior agreements between the parties with respect to
the Shares purchased hereunder and the subject matter hereof.

 

8.10                           Publicity.  Neither party shall originate any
publicity, news release or other public announcement, written or oral, whether
relating to the performance under this Agreement or the existence of any
arrangement between the parties, without the prior written consent of the other
party (which consent shall not be unreasonably withheld or delayed), except
where such publicity, news release or other public announcement is required by
law or by Section 4.1; provided that, in such event, each such party shall (a)
promptly consult the other party in connection with any such publicity, news
release or other public announcement prior to its release; (b) promptly provide
the other party a copy thereof; and (c) use commercially reasonable efforts to
ensure that such portions of such information as may reasonably be designated by
the other party are accorded confidential treatment by the applicable
governmental entity.

 

8.11                           Severability.  If any provision of this Agreement
is held by a court of competent jurisdiction to be unenforceable under
applicable law, such provision shall be replaced with a provision that
accomplishes, to the extent possible, the original business purpose of such
provision in a valid and enforceable manner, and the balance of the Agreement
shall be interpreted as if such provision were so modified and shall be
enforceable in accordance with its terms.

 

8.12                           Interpretation.  This Agreement shall be
construed according to its fair language.  The rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of this Agreement.

 

23

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

 

8.13                           No Strict Construction.  The language used in
this Agreement will be deemed to be the language chosen by the parties to
express their mutual intent, and no rules of strict construction will be applied
against any party.

 

8.14                           Independent Nature of Investors’ Obligations and
Rights.  The obligations of each Investor under this Agreement 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. The decision of each Investor to purchase
Securities pursuant to this Agreement has been made by such Investor
independently of any other Investor and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company which may have been made or given by any
other Investor or by any agent or employee of any other Investor, and no
Investor or any of its agents or employees shall have any liability to any other
Investor (or any other person) relating to or arising from any such information,
materials, statements or opinions.  Nothing contained herein, and no action
taken by any Investor pursuant thereto, shall be deemed to constitute the
Investors as a partnership, an association, a joint venture or any other kind of
entity, or create a presumption that the Investors are in any way acting in
concert or as a group with respect to such obligations or the transactions
contemplated by this Agreement. Each Investor acknowledges that no other
Investor has acted as agent for such Investor in connection with making its
investment hereunder and that no other Investor will be acting as agent of such
Investor in connection with monitoring its investment hereunder.  Each Investor
shall be entitled to independently protect and enforce its rights, including
without limitation the rights arising out of this Agreement, 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 has elected to provide all Investors
with the same terms and form of this Agreement for the convenience of the
Company and not because it was required or requested to do so by the Investors.

 

24

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

 

IN WITNESS WHEREOF, this Agreement has been executed as of the date first above
written, by the duly authorized representatives of the parties hereto.

 

 

AXONYX INC.

 

 

 

 

 

By:

 

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 

 

25

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

 

 

INVESTOR

 

 

 

 

 

By:

 

 

 

26

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