EXHIBIT 4.1

                               PURCHASE AGREEMENT


                  THIS PURCHASE  AGREEMENT  ("Agreement") is made as of the 28th
day of  January,  2004 by and among  Applied  NeuroSolutions,  Inc.,  a Delaware
corporation (the "Company"),  and the Investors set forth on the signature pages
affixed hereto (each an "Investor" and collectively the "Investors").

                                    RECITALS

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

                  B. The Investors  wish to purchase  from the Company,  and the
Company wishes to sell and issue to the Investors, upon the terms and conditions
stated in this Agreement,  (i) an aggregate of 6,000,000 shares of the Company's
Common  Stock,  par value  $0.0025  per share  (the  "Common  Stock"),  and (ii)
warrants  to  purchase  an  aggregate  of  6,000,000   shares  of  Common  Stock
(appropriately adjusted for any stock split, reverse stock split, stock dividend
or other reclassification or combination of the Common Stock occurring after the
date hereof) in the form attached hereto as Exhibit A (the "Warrants"); and

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

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

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

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

                  "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.

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                  "COMMON  STOCK" means the common stock,  par value $0.0025 per
share,  of the Company,  and any  securities  into which the Common Stock may be
reclassified.

                  "COMPANY'S  KNOWLEDGE"  means  the  actual  knowledge  of  the
executive  officers  (as defined in Rule 405 under the 1933 Act) of the Company,
after due inquiry.

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

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

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

                  "MATERIAL  ADVERSE EFFECT" means a material  adverse effect on
(i) the assets,  liabilities,  results of  operations,  condition  (financial or
otherwise),  business, or prospects of the Company and its Subsidiaries taken as
a whole, or (ii) the ability of the Company to perform its obligations under the
Transaction Documents.

                  "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.

                  "PURCHASE PRICE" means One Million Five Hundred Thousand
Dollars ($1,500,000).

                  "SEC FILINGS" has the meaning set forth in Section 4.6.

                  "SECURITIES"  means the Shares,  the  Warrants and the Warrant
Shares.

                  "SHARES"  means the shares of Common Stock being  purchased by
the Investors hereunder.

                  "SUBSIDIARY" has the meaning set forth in Section 4.1.


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                  "TRANSACTION DOCUMENTS" means this Agreement, the Warrants and
the Registration Rights Agreement.

                  "WARRANT  SHARES"  means the shares of Common  Stock  issuable
upon the exercise of the Warrants.

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

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

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

         3.  CLOSING.  Upon  confirmation  that the other  conditions to closing
specified  herein  have been  satisfied  or duly  waived by the  Investors,  the
Company  shall  deliver to Lowenstein  Sandler PC, in trust,  a  certificate  or
certificates,  registered in such name or names as the Investors may  designate,
representing the Shares and Warrants,  with  instructions that such certificates
are to be held for  release to the  Investors  only upon  payment in full of the
Purchase  Price to the  Company  by all the  Investors.  Upon  such  receipt  by
Lowenstein Sandler PC of the certificates,  each Investor shall promptly, but no
more than one Business Day  thereafter,  cause a wire transfer in same day funds
to be sent to the  account  of the  Company  as  instructed  in  writing  by the
Company,  in an amount  representing  such  Investor's  pro rata  portion of the
Purchase  Price as set forth on the signature  pages to this  Agreement.  On the
date  (the  "Closing  Date")  the  Company  receives  the  Purchase  Price,  the
certificates  evidencing  the  Shares  and  Warrants  shall be  released  to the
Investors  (the  "Closing").  The Closing of the purchase and sale of the Shares
and  Warrants  shall take place at the  offices of  Lowenstein  Sandler PC, 1330
Avenue of the  Americas,  21st  Floor,  New York,  New  York,  or at such  other
location and on such other date as the Company and the Investors  shall mutually
agree.

         4.  REPRESENTATIONS  AND WARRANTIES OF THE COMPANY.  The Company hereby
represents  and  warrants  to the  Investors  that,  except  as set forth in the
schedules delivered herewith (collectively, the "Disclosure Schedules"):

                  4. 1 ORGANIZATION,  GOOD STANDING AND  QUALIFICATION.  Each of
the  Company and its  Subsidiaries  is a  corporation  duly  organized,  validly
existing  and in  good  standing  under  the  laws  of the  jurisdiction  of its
incorporation  and has all requisite  corporate  power and authority to carry on
its business as now conducted and to own its properties. Each of the Company and
its  Subsidiaries is duly qualified to do business as a foreign  corporation and
is in good standing in each jurisdiction in which the conduct of its business or
its  ownership  or  leasing of  property  makes  such  qualification  or leasing
necessary unless the failure to so qualify has not



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and could not  reasonably  be expected to have a Material  Adverse  Effect.  The
Company's   subsidiaries   are   reflected   on   SCHEDULE   4.1   hereto   (the
"Subsidiaries").

                  4.2  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  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  terms,   subject  to   bankruptcy,   insolvency,   fraudulent   transfer,
reorganization,  moratorium and similar laws of general applicability,  relating
to or affecting creditors' rights generally.

                  4.3  CAPITALIZATION.  SCHEDULE 4.3 sets forth (without  giving
effect to the Reverse Split) (a) the authorized  capital stock of the Company on
the  date  hereof;  (b) the  number  of  shares  of  capital  stock  issued  and
outstanding;  (c) the number of shares of capital stock issuable pursuant to the
Company's  stock plans;  and (d) the number of shares of capital stock  issuable
and reserved for issuance  pursuant to securities (other than the Shares and the
Warrants) exercisable for, or convertible into or exchangeable for any shares of
capital stock of the Company.  All of the issued and  outstanding  shares of the
Company's  capital stock have been duly  authorized  and validly  issued and are
fully paid, nonassessable and free of pre-emptive rights and were issued in full
compliance  with applicable  state and federal  securities law and any rights of
third  parties.  Except as  described  on  SCHEDULE  4.3,  all of the issued and
outstanding shares of capital stock of each Subsidiary have been duly authorized
and validly  issued and are fully paid,  nonassessable  and free of  pre-emptive
rights,  were  issued in full  compliance  with  applicable  state  and  federal
securities  law and any rights of third  parties  and are owned by the  Company,
beneficially  and of record,  subject to no lien,  encumbrance  or other adverse
claim. Except as described on SCHEDULE 4.3, no Person is entitled to pre-emptive
or similar statutory or contractual rights with respect to any securities of the
Company. Except as described on SCHEDULE 4.3, there are no outstanding warrants,
options,  convertible securities or other rights,  agreements or arrangements of
any character  under which the Company or any of its  Subsidiaries  is or may be
obligated to issue any equity  securities of any kind and except as contemplated
by this Agreement,  neither the Company nor any of its Subsidiaries is currently
in negotiations for the issuance of any equity securities of any kind. Except as
described  on SCHEDULE  4.3 and except for the  Registration  Rights  Agreement,
there are no voting agreements,  buy-sell  agreements,  option or right of first
purchase agreements or other agreements of any kind among the Company and any of
the  securityholders  of the Company  relating to the  securities of the Company
held by them.  Except as described  on SCHEDULE  4.3, no Person has the right to
require the Company to register  any  securities  of the Company  under the 1933
Act,  whether  on a demand  basis or in  connection  with  the  registration  of
securities  of the  Company  for its own account or for the account of any other
Person.

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


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

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

                  4.5 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 filings that have
been made pursuant to applicable  state  securities  laws and post-sale  filings
pursuant  to  applicable  state and  federal  securities  laws which the Company
undertakes to file within the applicable  time periods.  Subject to the accuracy
of the  representations  and  warranties of each Investor set forth in Section 5
hereof,  the Company has taken all action  necessary  to exempt (i) the issuance
and sale of the  Securities,  (ii) the  issuance of the Warrant  Shares upon due
exercise of the Warrants,  and (iii) the other transactions  contemplated by the
Transaction  Documents  from the  provisions of any  shareholder  rights plan or
other "poison pill"  arrangement,  any  anti-takeover,  business  combination or
control  share law or statute  binding on the Company or to which the Company or
any of its  assets  and  properties  may be  subject  and any  provision  of the
Company's Certificate of Incorporation or By-laws that is or could reasonably be
expected to become  applicable to the Investors as a result of the  transactions
contemplated  hereby,   including  without  limitation,   the  issuance  of  the
Securities  and the  ownership,  disposition  or voting of the Securities by the
Investors or the exercise of any right granted to the Investors pursuant to this
Agreement or the other Transaction Documents.

                  4.6  DELIVERY OF SEC FILINGS;  BUSINESS.  The Company has made
available to the Investors through the EDGAR system, true and complete copies of
the Company's most recent Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2002 (the  "10-KSB"),  and all other  reports  filed by the Company
pursuant  to the 1934 Act since the  filing of the  10-KSB and prior to the date
hereof (collectively,  the "SEC Filings").  The SEC Filings are the only filings
required of the Company  pursuant to the 1934 Act for such  period.  The Company
and its Subsidiaries  are engaged in all material  respects only in the business
described



                                      -5-
<PAGE>


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

                  4.7 USE OF  PROCEEDS.  The  net  proceeds  of the  sale of the
Shares and the  Warrants  hereunder  shall be used by the  Company  for  working
capital and general corporate purposes.

                  4.8 NO MATERIAL  ADVERSE  CHANGE.  Since  September  30, 2003,
except as  identified  and  described  in the SEC  Filings  or as  described  on
SCHEDULE 4.8, there has not been:

                           (i)   any   change   in  the   consolidated   assets,
liabilities,  financial  condition or operating results of the Company from that
reflected in the financial statements included in the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 2003, 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;

                           (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  and which is not  material  to the
assets,  properties,  financial condition,  operating results or business of the
Company and its  Subsidiaries  taken as a whole (as such  business is  presently
conducted and as it is proposed to be conducted);

                           (vi)  any  change  or  amendment  to  the   Company's
Certificate  of  Incorporation  or by-laws,  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;


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<PAGE>


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

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

                  4.9      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.

                           (b)  The  Company  has  not  filed  any  registration
statement or any amendment to an
existing  registration  statement since September 20, 2002, the date it acquired
Molecular Geriatrics Corporation in a reverse merger transaction.

                  4.10 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  Certificate of Incorporation  or the Company's  Bylaws,
both as in effect on the date  hereof  (true and  complete  copies of which have
been made available to the Investors  through the EDGAR system),  or (ii)(a) any
statute,  rule,  regulation or order of any  governmental  agency or body or any
court, domestic or foreign, having jurisdiction over the Company, any Subsidiary
or any of  their  respective  assets  or  properties,  or (b) any  agreement  or
instrument  to which the  Company or any  Subsidiary  is a party or by which the
Company or a Subsidiary is bound or to which any of their  respective  assets or
properties is subject.

                  4.11 TAX MATTERS.  The Company and each  Subsidiary has timely
prepared and filed all tax returns required to have been filed by the Company or
such Subsidiary with all appropriate  governmental  agencies and timely paid all
taxes shown thereon or otherwise owed by it. 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 property.  Except as described on SCHEDULE 4.11, there are
no outstanding  tax sharing  agreements or other such  arrangements  between the
Company and any Subsidiary or other corporation or entity.


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                  4.12  TITLE TO  PROPERTIES.  Except  as  disclosed  in the SEC
Filings,  the Company and each  Subsidiary has good and marketable  title to all
real  properties  and all other  properties and assets owned by it, in each case
free from liens, encumbrances and defects that would materially affect the value
thereof or  materially  interfere  with the use made 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.

                  4.13  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.

                  4.14 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.

                  4.15     INTELLECTUAL PROPERTY.

                           (a) All Intellectual  Property of the Company and its
Subsidiaries is currently in compliance with all legal  requirements  (including
timely filings,  proofs and payments of fees) and is valid and  enforceable.  No
Intellectual  Property of the Company or its Subsidiaries which is necessary for
the conduct of Company's and each of its Subsidiaries'  respective businesses as
currently  conducted or as currently proposed to be conducted has been or is now
involved in any  cancellation,  dispute or  litigation,  and,  to the  Company's
Knowledge,  no such  action  is  threatened.  No patent  of the  Company  or its
Subsidiaries  has  been  or  is  now  involved  in  any  interference,  reissue,
re-examination or opposition proceeding.

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


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

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

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

                           (f) All  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 and Confidential  Information.  Each employee,  consultant
and contractor who has had access to Confidential Information which is necessary
for the conduct of Company's and each of its Subsidiaries' respective businesses
as currently  conducted or as currently proposed to be conducted has executed an
agreement to maintain the  confidentiality of such Confidential  Information and
has executed appropriate  agreements that are substantially  consistent with the
Company's standard


                                      -9-
<PAGE>


forms  thereof.  Except  under  confidentiality  obligations,  there has been no
material  disclosure of any of the Company's or its  Subsidiaries'  Confidential
Information to any third party.

                  4.16  ENVIRONMENTAL  MATTERS.  Neither  the  Company  nor  any
Subsidiary is in violation of any statute, rule,  regulation,  decision or order
of any governmental agency or body or any court,  domestic or foreign,  relating
to the use,  disposal or release of hazardous or toxic substances or relating to
the protection or restoration of the  environment or human exposure to hazardous
or toxic substances  (collectively,  "Environmental Laws"), owns or operates any
real  property   contaminated   with  any  substance  that  is  subject  to  any
Environmental  Laws,  is  liable  for any  off-site  disposal  or  contamination
pursuant to any Environmental  Laws, and 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.

                  4.17  LITIGATION.  Except as described on SCHEDULE 4.17, there
are no pending actions,  suits or proceedings  against or affecting the Company,
its  Subsidiaries  or  any  of its or  their  properties;  and to the  Company's
Knowledge, no such actions, suits or proceedings are threatened or contemplated.

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

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

                  4.20 BROKERS AND FINDERS.  No Person will have, as a result of
the  transactions  contemplated by the Transaction  Documents,  any valid right,
interest or claim against or upon the Company, any Subsidiary or an Investor for
any commission, fee or other compensation pursuant to any agreement, arrangement
or  understanding  entered  into by or on behalf of the  Company,  other than as
described in SCHEDULE 4.20.


                                      -10-
<PAGE>


                  4.21 NO  DIRECTED  SELLING  EFFORTS OR  GENERAL  SOLICITATION.
Neither  the  Company  nor any Person  acting on its behalf  has  conducted  any
general  solicitation  or  general  advertising  (as  those  terms  are  used in
Regulation D) in connection with the offer or sale of any of the Securities.

                  4.22 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 of any Company  security or solicited  any
offers to buy any security,  under  circumstances  that would  adversely  affect
reliance by the Company on Section 4(2) for the exemption from  registration for
the  transactions  contemplated  hereby  or would  require  registration  of the
Securities under the 1933 Act.

                  4.23 PRIVATE  PLACEMENT.  The offer and sale of the Securities
to the  Investors  as  contemplated  hereby  is  exempt  from  the  registration
requirements of the 1933 Act.

                  4.24 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.

                  4.25 TRANSACTIONS WITH AFFILIATES.  Except as disclosed in the
SEC Filings or as disclosed on SCHEDULE 4.25,  none of the officers or directors
of the Company and, to the  Company's  Knowledge,  none of the  employees of the
Company  is  presently  a party  to any  transaction  with  the  Company  or any
Subsidiary  (other than as holders of stock  options  and/or  warrants,  and for
services  as  employees,  officers  and  directors),   including  any  contract,
agreement or other  arrangement  providing for the  furnishing of services to or
by,  providing for rental of real or personal  property to or from, or otherwise
requiring payments to or from any officer,  director or such employee or, to the
Company's  Knowledge,  any entity in which any  officer,  director,  or any such
employee  has a  substantial  interest  or is an officer,  director,  trustee or
partner.

                  4.26  INTERNAL  CONTROLS.  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
compared with the existing assets at reasonable


                                      -11-
<PAGE>

intervals and appropriate  action is taken with respect to any differences.  The
Company has established  disclosure  controls and procedures (as defined in 1934
Act Rules  13a-14 and  15d-14)  for the Company  and  designed  such  disclosure
controls and  procedures  to ensure that  material  information  relating to the
Company, including the Subsidiaries, is made known to the certifying officers by
others  within  those  entities,  particularly  during  the  period in which the
Company's  most recently filed period report under the 1934 Act, as the case may
be, is being  prepared.  The Company's  certifying  officers have  evaluated the
effectiveness  of the Company's  controls and  procedures as of a date within 90
days prior to the filing date of the most recently filed  periodic  report under
the 1934 Act (such date, the "Evaluation  Date").  The Company  presented in its
most recently  filed periodic  report under the 1934 Act the  conclusions of the
certifying  officers  about the  effectiveness  of the  disclosure  controls and
procedures  based on their  evaluations  as of the  Evaluation  Date.  Since the
Evaluation  Date,  there  have  been no  significant  changes  in the  Company's
internal controls (as such term is defined in Item 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
GAAP and the applicable requirements of the 1934 Act.

                  4.27 DISCLOSURES. Neither the Company nor any Person acting on
its  behalf has  provided  the  Investors  or their  agents or counsel  with any
information   that  constitutes  or  might   constitute   material,   non-public
information. 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.

         5.  REPRESENTATIONS  AND  WARRANTIES  OF  THE  INVESTORS.  Each  of the
Investors  hereby  severally,  and not jointly,  represents  and warrants to the
Company that:

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

                  5.2 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 and similar laws of general applicability,  relating
to or affecting creditors' rights generally.

                  5.3 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


                                      -12-
<PAGE>


distributing  the same in  violation  of the 1933  Act.  The  Investor  is not a
registered  broker dealer or an entity engaged in the business of being a broker
dealer.

                  5.4 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 or business  matters that it
is capable of  evaluating  the merits and risks of the  investment  contemplated
hereby.

                  5.5  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  receipt  of  copies 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.

                  5.6 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.

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

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

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

                  Upon the earlier of (i)  registration  for resale  pursuant to
the  Registration  Rights Agreement and receipt by the Company of the Investor's
written  confirmation  that such  Securities  will not be  disposed of except in
compliance  with the prospectus  delivery  requirements  of the 1933 Act or (ii)
Rule 144(k)  becoming  available the Company shall,  upon an Investor's  written
request,  promptly cause  certificates  evidencing the Securities to be replaced
with certificates which do not bear such restrictive legends, and Warrant Shares
subsequently  issued  upon due  exercise  of the  Warrants  shall  not bear such
restrictive  legends provided the provisions of either clause (i) or clause (ii)
above, as applicable,  are satisfied with respect to such Warrant  Shares.  When
the Company is required to cause unlegended  certificates to replace  previously
issued legended certificates, if unlegended certificates are not delivered to an
Investor  within  five (5)  Business  Days of  submission  by that  Investor  of
legended certificate(s) to the


                                      -13-
<PAGE>


Company's  transfer  agent  together with a  representation  letter in customary
form, the Company shall be liable to the Investor for  liquidated  damages in an
amount equal to 1% of the aggregate  purchase price of the Securities  evidenced
by such  certificate(s)  for each thirty  (30) day period (or  portion  thereof)
beyond such five (5) Business Day that the unlegended certificates have not been
so delivered.

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

                  5.9 NO GENERAL SOLICITATION. The Investor did not learn of the
investment in the  Securities as a result of any public  advertising  or general
solicitation.

                  5.10 BROKERS AND FINDERS.  Except for commitments  made by the
Company as disclosed in SCHEDULE  4.20,  no Person will have, as a result of the
transactions  contemplated  by  the  Transaction  Documents,  any  valid  right,
interest or claim against or upon the Company, any Subsidiary or an Investor for
any commission, fee or other compensation pursuant to any agreement, arrangement
or understanding entered into by or on behalf of the Investors.

                  5.11 PROHIBITED TRANSACTIONS. During the last thirty (30) days
prior to the date hereof, no Investor has,  directly or indirectly,  effected or
agreed to effect any short sale, whether or not against the box, established any
"put equivalent  position" (as defined in Rule 16a-1(h) under the 1934 Act) with
respect  to the  Common  Stock,  granted  any other  right  (including,  without
limitation,  any put or call  option)  with  respect to the Common Stock or with
respect to any security  that  includes,  relates to or derived any  significant
part of its  value  from the  Common  Stock or  otherwise  sought  to hedge  its
position in the  Securities  (each,  a "Prohibited  Transaction").  Prior to the
earlier of (i) the termination of this  Agreement,  or (ii) the Closing Date, no
Investor shall engage, directly or indirectly, in a Prohibited Transaction. Each
Investor  acknowledges that the representations and warranties contained in this
Section  5.11 are being  made for the  benefit of the  Investors  as well as the
Company and that each of the other Investors shall have an independent the right
to assert any claims against any Investor arising out of any breach or violation
of the provisions of this Section 5.11.

         6. CONDITIONS TO CLOSING.

                  6.1 CONDITIONS TO THE INVESTORS'  OBLIGATIONS.  The obligation
of the  Investors  to  purchase  the Shares and the  Warrants  at the Closing is
subject to the  fulfillment to the Investors'  satisfaction,  on or prior to the
Closing  Date,  of the  following  conditions,  any of which may be waived by an
Investor (as to itself only):

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


                                      -14-
<PAGE>


speaks as of an earlier  date,  in which case such  representation  or  warranty
shall be true and correct in all material  respects as of such earlier date. The
Company  shall have  performed in all  material  respects  all  obligations  and
conditions  herein required to be performed or observed by it on or prior to the
Closing Date.

                           (b) 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 all of which shall be in full force and effect.

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

                           (d) The Company  shall have  entered into one or more
subscription  agreements  with  one  or  more  accredited  investors  reasonably
satisfactory  to the  Investors  that  contain  terms no more  favorable  to the
subscriber than the terms of this Agreement (the "Other Agreements").

                           (e) The Company  shall have received  gross  proceeds
from the sale of the Shares and  Warrants as  contemplated  hereby and under the
Other Agreements of at least $6 Million Dollars ($6,000,000).

                           (f) The holders of at least  $2,375,000  in principal
amount of the Company's  convertible  promissory  notes (the "Notes") shall have
converted  or exchanged  their Notes into shares of Common  Stock and  warrants,
each warrant  exercisable  for one share of Common Stock and  otherwise on terms
and conditions no more  favorable to the holder than the Warrant,  in a ratio of
one share and 1.1  warrant  for every $0.25 of  principal  and accrued  interest
outstanding on the Notes.

                           (g) The Board shall have duly adopted resolutions (i)
approving the listing of the Common Stock  (including the Shares and the Warrant
Shares) on the American Stock  Exchange,  Inc.  ("AMEX") or the Nasdaq  SmallCap
Market  ("Nasdaq"),  (ii) approving a reverse split of the Common Stock of up to
one-for-ten  (the terms of which shall be subject to the  Investors'  reasonable
approval)  (the  "Reverse  Split");  and (iii)  authorizing  the Company and its
officers to take all actions  necessary or  appropriate to effect the listing of
the  Common  Stock on AMEX or  Nasdaq,  as  applicable,  and the  Reverse  Split
(including, without limitation, the calling of a special meeting of stockholders
for the purpose of approving the Reverse Split),  and such resolutions shall not
have been  amended,  modified or  rescinded  and shall  remain in full force and
effect.

                           (h) The Company shall have taken all action necessary
to provide that any warrants  issued pursuant to the  arrangements  described in
SCHEDULE 4.20 are not exercisable  until at least one year after the Closing and
may not be  amended in any  respect  prior  thereto  without  the prior  written
consent of the Investors.


                                      -15-
<PAGE>


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

                           (j) The Company shall have  delivered a  Certificate,
executed  on behalf of the Company by its Chief  Executive  Officer or its Chief
Financial Officer, dated as of the Closing Date, certifying to the fulfilment of
the conditions  specified in subsections  (a), (b), (d), (e), (f), (g), (h), (i)
and (m) of this Section 6.1.

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

                           (l) The Investors shall have received an opinion from
Ehrenreich  Eilenberg  & Krause  LLP,  the  Company's  counsel,  dated as of the
Closing Date, in form and substance  reasonably  acceptable to the Investors and
addressing such legal matters as the Investors may reasonably request.

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

                  6.2 CONDITIONS TO  OBLIGATIONS  OF THE COMPANY.  The Company's
obligation  to sell and issue the  Shares  and the  Warrants  at the  Closing is
subject to the fulfillment to the satisfaction of the Company on or prior to the
Closing  Date of the  following  conditions,  any of which  may be waived by the
Company:

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

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


                                      -16-
<PAGE>


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

                  6.3     TERMINATION OF OBLIGATIONS TO EFFECT CLOSING; EFFECTS.

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

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

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

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

                                    (iv) By either the  Company or any  Investor
(with  respect to itself  only) if the Closing  has not  occurred on or prior to
February 16, 2004;

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

                  (b) In the event of termination by the Company or any Investor
of its obligations to effect the Closing  pursuant to this Section 6.3,  written
notice  thereof  shall  forthwith be given to the other  Investors and the other
Investors  shall have the right to  terminate  their  obligations  to effect the
Closing upon written notice to the Company and the other  Investors.  Nothing in
this Section 6.3 shall be deemed to release any party from any liability for any
breach by such party of the terms and  provisions of this Agreement or the other
Transaction  Documents  or to impair  the right of any party to compel  specific
performance  by any other party of its  obligations  under this Agreement or the
other Transaction Documents.

         7. COVENANTS AND AGREEMENTS OF THE COMPANY.

                  7.1  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  exercise  of the
Warrants, such number of shares of Common Stock as shall from time to time equal
the number of shares  sufficient  to permit the exercise of the Warrants  issued
pursuant to this Agreement in accordance with their respective terms.


                                      -17-
<PAGE>


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

                  7.3 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  the  company's  obligations  to the
Investors under the Transaction Documents.

                  7.4  INSURANCE.  The Company shall not  materially  reduce the
insurance coverages described in Section 4.19.

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

                  7.6  TERMINATION OF COVENANTS.  The provisions of Sections 7.2
through  7.5 shall  terminate  and be of no further  force and  effect  upon the
earlier of (i) the mutual  consent of the Company and the  Investors or (ii) the
date on which the Company's  obligations under the Registration Rights Agreement
to register or maintain  the  effectiveness  of any  registration  covering  the
Registrable  Securities  (as such term is  defined  in the  Registration  Rights
Agreement) shall terminate.

                  7.7 COMMON STOCK LISTING.  Promptly following the Closing, the
Company  shall prepare and file with AMEX or Nasdaq an  application  to list the
Common Stock (including the Shares and the Warrant Shares) on AMEX or Nasdaq, as
applicable.  The Company shall use commercially  reasonable  efforts to have the
application approved as promptly as practicable. The Company will thereafter use
commercially  reasonable  efforts to  continue  the  listing  and trading of its
Common  Stock  on  such  exchange  and,  in  accordance,   therewith,  will  use
commercially  reasonable  efforts to comply in all respects  with the  Company's
reporting, filing and other obligations under the rules of such exchange.

                  7.8 REVERSE SPLIT. Promptly following the Closing, the Company
shall  take  all  action  necessary  (including  the  calling  of a  meeting  of
stockholders) to effect the Reverse Split.


         8. SURVIVAL AND INDEMNIFICATION.

                  8.1 SURVIVAL. The representations,  warranties,  covenants and
agreements  contained  in  this  Agreement  shall  survive  the  Closing  of the
transactions contemplated by this Agreement.


                                      -18-
<PAGE>


                           8.2 INDEMNIFICATION.  The Company agrees to indemnify
and hold harmless,  on an after-tax and after  insurance  recovery  basis,  each
Investor and its Affiliates and their respective directors,  officers, employees
and agents 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  thereof)  (collectively,  "Losses") to which such
Person may become subject as a result of any breach of representation, warranty,
covenant  or  agreement  made by or to be  performed  on the part of the Company
under the Transaction Documents, and will reimburse any such Person for all such
amounts as they are incurred by such Person.

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

         9. MISCELLANEOUS.

                  9.1 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 and the other
Investors, provided, that no


                                      -19-
<PAGE>


such  assignment or  obligation  shall affect the  obligations  of such Investor
hereunder. The provisions of this Agreement shall inure to the benefit of and be
binding upon the  respective  permitted  successors  and assigns of the parties.
Nothing in this  Agreement,  express or implied,  is intended to confer upon any
party other than the parties hereto or their  respective  successors and assigns
any rights,  remedies,  obligations,  or liabilities  under or by reason of this
Agreement, except as expressly provided in this Agreement.

                  9.2 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.

                  9.3 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.

                  9.4 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
telex or  telecopier,  then such notice  shall be deemed  given upon  receipt of
confirmation of complete  transmittal,  (iii) if given by mail, then such notice
shall be deemed  given  upon the  earlier of (A)  receipt of such  notice by the
recipient  or (B) three days after such notice is deposited in first class mail,
postage prepaid,  and (iv) if given by an internationally  recognized  overnight
air  courier,  then such notice  shall be deemed  given one  business  day after
delivery to such  carrier.  All notices  shall be  addressed  to the party to be
notified at the address as follows,  or at such other  address as such party may
designate by ten days' advance written notice to the other party:

                 If to the Company:

                          Applied NeuroSolutions, Inc.
                          50 Lakeview Parkway
                          Vernon Hills, Illinois 60061
                          Attention:  Bruce N. Barron
                          Fax:  (847) 573-8030

                 With a copy to:

                          Ehrenreich Eilenberg & Krause LLP
                          11 East 44th Street, 17th Floor, New York, NY 10017
                          Attention.: Adam D. Eilenberg, Esq.
                          Fax:  (212) 986-2399

                 If to the Investors:

to the addresses set forth on the signature pages hereto.


                                      -20-
<PAGE>


                  9.5 EXPENSES. The parties hereto shall pay their own costs and
expenses  in  connection  herewith,  except  that  the  Company  shall  pay  the
reasonable  fees and expenses of  Lowenstein  Sandler PC not to exceed  $25,000.
Such  expenses  shall be paid not later  than the  Closing.  The  Company  shall
reimburse the Investors  upon demand for all reasonable  out-of-pocket  expenses
incurred  by  the  Investors,  including  without  limitation  reimbursement  of
attorneys'   fees  and   disbursements,   in  connection   with  any  amendment,
modification or waiver of this Agreement or the other Transaction Documents.  In
the event that legal  proceedings  are commenced by any party to this  Agreement
against another party to this Agreement in connection with this Agreement or the
other Transaction  Documents,  the party or parties which do not prevail in such
proceedings  shall severally,  but not jointly,  pay their pro rata share of the
reasonable attorneys' fees and other reasonable out-of-pocket costs and expenses
incurred by the prevailing party in such proceedings.

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

                  9.7 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 Special  Situations Fund III, L.P. ("SSF") (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,  in which case the Company or the Investors,  as
the case may be, shall allow SSF or the Company,  as  applicable,  to the extent
reasonably practicable in the circumstances,  reasonable time to comment on such
release or announcement in advance of such issuance.

                  9.8  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.

                  9.9 ENTIRE AGREEMENT.  This Agreement,  including the Exhibits
and the Disclosure Schedules, and the other Transaction Documents constitute the
entire  agreement  among the parties  hereof with respect to the subject  matter
hereof and thereof and supersede all prior agreements and  understandings,  both
oral and written,  between the parties with respect to the subject matter hereof
and thereof.


                                      -21-
<PAGE>


                  9.10 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.

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

                            [signature page follows]



                                      -22-
<PAGE>


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


                                   APPLIED NEUROSOLUTIONS, INC.



                                   By:
                                       ------------------------
                                       Name:
                                       Title:






                                      -23-
<PAGE>



                                    SPECIAL SITUATIONS FUND III, L.P.



                                    By:
                                        -----------------------------
                                    Name: Austin W. Marxe
                                    Title: General Partner

Aggregate Purchase Price:  $
Number of Shares:
Number of Warrants:


Address for Notice:
                                          153 E. 53rd Street
                                          55th Floor
                                          New York, NY  10022

                                          with a copy to:

                                          Lowenstein Sandler PC
                                          65 Livingston Avenue
                                          Roseland, NJ  07068
                                          Attn:  John D. Hogoboom, Esq.
                                          Telephone:        973.597.2500
                                          Facsimile:        973.597.2400


                                    SPECIAL SITUATIONS CAYMAN FUND, L.P.



                                    By:
                                        -----------------------------
                                    Name: Austin W. Marxe
                                    Title: General Partner

Aggregate Purchase Price:  $
Number of Shares:
Number of Warrants:

Address for Notice:
                                          153 E. 53rd Street
                                          55th Floor
                                          New York, NY  10022


                                      -24-
<PAGE>


                                          with a copy to:

                                          Lowenstein Sandler PC
                                          65 Livingston Avenue
                                          Roseland, NJ  07068
                                          Attn:  John D. Hogoboom, Esq.
                                          Telephone:        973.597.2500
                                          Facsimile:        973.597.2400


                                    SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.



                                    By:
                                        -----------------------------
                                    Name: Austin W. Marxe
                                    Title: General Partner

Aggregate Purchase Price:  $
Number of Shares:
Number of Warrants:

                                          153 E. 53rd Street
                                          55th Floor
                                          New York, NY  10022

                                          with a copy to:

                                          Lowenstein Sandler PC
                                          65 Livingston Avenue
                                          Roseland, NJ  07068
                                          Attn:  John D. Hogoboom, Esq.
                                          Telephone:        973.597.2500
                                          Facsimile:        973.597.2400


                                    SPECIAL SITUATIONS TECHNOLOGY FUND, L.P.



                                    By:
                                        -----------------------------
                                    Name: Austin W. Marxe
                                    Title: General Partner

Aggregate Purchase Price:  $
Number of Shares:
Number of Warrants:


                                      -25-
<PAGE>


Address for Notice:
                                          153 E. 53rd Street
                                          55th Floor
                                          New York, NY  10022

                                          with a copy to:

                                          Lowenstein Sandler PC
                                          65 Livingston Avenue
                                          Roseland, NJ  07068
                                          Attn:  John D. Hogoboom, Esq.
                                          Telephone:        973.597.2500
                                          Facsimile:        973.597.2400


                                    SPECIAL SITUATIONS TECHNOLOGY FUND II, L.P.



                                    By:
                                        -----------------------------
                                    Name: Austin W. Marxe
                                    Title: General Partner

Aggregate Purchase Price:  $
Number of Shares:
Number of Warrants:

Address for Notice:
                                          153 E. 53rd Street
                                          55th Floor
                                          New York, NY  10022

                                          with a copy to:

                                          Lowenstein Sandler PC
                                          65 Livingston Avenue
                                          Roseland, NJ  07068
                                          Attn:  John D. Hogoboom, Esq.
                                          Telephone:        973.597.2500
                                          Facsimile:        973.597.2400




                                      -26-