Document:

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

 

 

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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

 

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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

 

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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

 

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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,

 

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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;

 

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(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

 

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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.

 

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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:

  	
   

  	
   

  

 

26Exhibit 10.2

 

FORM OF

 

COMMON STOCK PURCHASE WARRANT

 

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 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.

 

Dated:
September 11, 2003

 

No.                         AXONYX
INC.

 

WARRANT TO
PURCHASE           SHARES
OF COMMON STOCK

 

THIS CERTIFIES THAT, for value received,
               
(the “Holder”) is entitled to subscribe for and purchase
               shares
(as adjusted pursuant to Section 4 hereof) of the fully paid and
nonassessable Common Stock, par value $0.001 per share (the “Shares”), of
Axonyx Inc., a Nevada corporation (the “Company”), at the price of $3.50  per
share (the “Exercise Price”) (as adjusted pursuant to Section 4 hereof),
upon the terms and subject to the conditions hereinafter set forth.

 

1.                                       Method
of Exercise; Payment.

 

(a)                                  Cash
Exercise.  The purchase rights
represented by this Warrant may be exercised by the Holder, in whole or in
part, at any time or from time to time, by the surrender of this Warrant (with
the notice of exercise form attached hereto as Exhibit A duly
executed) at the principal office of the Company, and by the payment to the
Company, by certified, cashier’s or other check acceptable to the Company, of
an amount equal to the aggregate Exercise Price of the shares being purchased.

 

(b)                                 Net
Issue Exercise.

 

(i)                                     If,
at any time which is more than one year after the issuance date of this Warrant
there is not an effective registration statement registering the Warrant Shares
for resale by the Holder (other than as permitted by Section 5.6 of the
Purchase Agreement), then in lieu of exercising this Warrant for cash, the
Holder may elect to receive, without the payment by the Holder of any
additional consideration, shares equal to the value of this Warrant (or the
portion thereof being cancelled) by surrender of this Warrant at the principal
office of the Company together with notice of such election, in which event the
Company shall issue to the Holder a number of shares of the Company’s Common
Stock computed using the following formula:

 

 

	
  X

  	
   

  	
  =

  	
   

  	
  Y (A-B)

  
	
   

  	
   

  	
   

  	
   

  	
  A

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Where:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  X

  	
   

  	
  =

  	
   

  	
  the number of shares of
  Common Stock to be issued to the Holder.

  
	
  Y

  	
   

  	
  =

  	
   

  	
  the number of shares of
  Common Stock purchasable under this Warrant, or if only a portion of this
  Warrant is being exercised, the number of shares of Common Stock represented
  by the portion of the Warrant being exercised.

  
	
  A

  	
   

  	
  =

  	
   

  	
  the fair market value
  of one share of the Company’s Common Stock at the time the net issue exercise
  election is made.

  
	
  B

  	
   

  	
  =

  	
   

  	
  the Exercise Price (as
  adjusted to the date of such calculation).

  

 

(c)                                  Fair
Market Value.  For purposes of this
Section 1, the fair market value of the Company’s Common Stock shall mean:

 

(i)                                     if
the Company’s Common Stock is traded on a securities exchange, the closing
price on the trading day prior to the day on which the fair market value of the
securities is being determined;

 

(ii)                                  if
the Company’s Common Stock is actively traded over-the counter, the average of
the closing bid and asked prices quoted on the NASDAQ system (or similar
system) on the trading day prior to the day on which the fair market value of the
securities is being determined; or

 

(iii)                               if
at any time the Company’s Common Stock is not listed on any securities exchange
or quoted in the NASDAQ System or the over-the-counter market, then as
determined by the board of directors of the Company in good faith.

 

(d)                                 Stock
Certificates.  This Warrant shall be
deemed to have been exercised immediately prior to the close of business on the
date of its surrender for exercise as provided above, and the person entitled
to receive the Shares issuable upon such exercise shall be treated for all
purposes as the holder of record of such Shares as of the close of business on
such date.  As soon as practicable, but
in any event no later than five days after such date, the Company shall issue
and deliver to the person or persons entitled to receive the same a certificate
or certificates for the number of whole Shares issuable upon such
exercise.  Unless this Warrant has been
fully exercised or has expired, a new Warrant representing the Shares with
respect to which this Warrant shall not have been exercised shall also be
issued to the Holder within such time.

 

2.                                                                                       (e)                                  Limitation
on Exercise.  The Holder shall not
have the right to exercise any portion of this Warrant, to the extent that
after giving effect to such issuance after exercise, the Holder (together with
the Holder’s Affiliates), as set forth on the applicable Notice of Exercise,
would beneficially own in excess of 4.99% of the number of shares of the Common
Stock outstanding immediately after giving effect to such issuance.  For
purposes of the foregoing sentence, the number of shares of Common Stock
beneficially owned by the Holder and its Affiliates shall include the number of
shares of Common Stock issuable upon exercise of this Warrant with respect to
which the determination of such sentence is being made, but shall exclude the
number of shares of Common Stock which would be issuable upon (A) exercise of
the remaining, nonexercised portion of this Warrant beneficially owned by the
Holder or any of its Affiliates and (B) exercise or conversion of the
unexercised or nonconverted portion of any 

 

2

 

other securities of the Company (including, without
limitation, any other Warrants) subject to a limitation on conversion or
exercise analogous to the limitation contained herein beneficially owned by the
Holder or any of its Affiliates.  Except as set forth in the preceding
sentence, for purposes of this Section 1(e), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Exchange Act.  For purposes of this Section 1(e), in
determining the number of outstanding shares of Common Stock, the Holder may
rely on the number of outstanding shares of Common Stock as reflected in (x)
the Company’s most recent Form 10-Q or Form 10-K, as the case may be, (y) a
more recent public announcement by the Company or (z) any other notice by the
Company or the Company’s Transfer Agent setting forth the number of shares of
Common Stock outstanding.  Upon the written or oral request of the Holder,
the Company shall within two Trading Days confirm orally and in writing to the
Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding
shares of Company Common Stock shall be determined after giving effect to the
conversion or exercise of securities of the Company, including this Warrant, by
the Holder or its Affiliates since the date as of which such number of
outstanding shares of Common Stock was reported.  The provisions of this Section 1(e) may be waived by the
Holder upon, at the election of the Holder, not less than 61 days’ prior notice
to the Company, and the provisions of this Section 1(e) shall continue to
apply until such 61st day (or such later date, as determined by the
Holder, as may be specified in such notice of waiver). Each delivery of an
Exercise Notice hereunder will constitute a representation by the Holder that
it has evaluated the limitation set forth in this paragraph and determined that
issuance of the full number of Warrant Shares requested in such Exercise Notice
is permitted under this paragraph.

 

3.                                       Stock
Fully Paid; Reservation of Shares. 
All of the Shares issuable upon the exercise of the rights represented
by this Warrant will, upon issuance and receipt of the Exercise Price therefor,
be fully paid and nonassessable, and free from all preemptive rights, taxes,
liens and charges with respect to the issue thereof.  During the period within which the rights represented by this
Warrant may be exercised, the Company shall at all times have authorized and
reserved for issuance upon exercise of the rights evidenced by this Warrant,
sufficient shares of its Common Stock to provide for the exercise of the rights
represented by this Warrant.

 

4.                                       Adjustment
of Exercise Price and Number of Shares. 
Subject to the provisions of Section 12 hereof, the number and kind
of securities purchasable upon the exercise of this Warrant and the Exercise
Price therefor shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:

 

(a)                                  Reclassification,
Consolidation or Merger.  In case of
any reclassification or change of the Common Stock (other than a change in par
value, or as a result of a subdivision or combination), or in case of any consolidation
or merger of the Company with or into another corporation (other than a merger
with another corporation in which the Company is a continuing corporation and
which does not result in any reclassification or change of outstanding
securities issuable upon exercise of this Warrant), or in case of any sale of
all or substantially all of the assets of the Company, the Company or such
successor or purchasing corporation, as the case may be, shall execute a new
Warrant, providing that the holder of this Warrant shall have the right to
exercise such new Warrant, and procure upon such exercise and payment of the
same aggregate Exercise Price, in lieu of the shares of Common Stock
theretofore issuable upon exercise of this Warrant, the kind and amount of shares
of stock, other securities, money and property receivable upon such
reclassification, change, consolidation, sale of all or substantially all of
the Company’s assets or merger by a holder of 
an equivalent number of shares of 

 

3

 

Common Stock. 
Such new Warrant shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Section 3.  The provisions of this
Section 3(a), subject to Section 12 hereof, shall similarly apply to
successive reclassifications, changes, consolidations, mergers, transfers and
the sale of all or substantially all of the Company’s assets.

 

(b)                                 Stock
Splits, Dividends and Combinations. 
In the event that the Company shall at any time subdivide the
outstanding shares of Common Stock or shall issue a stock dividend on its
outstanding shares of Common Stock the number of Shares issuable upon exercise
of this Warrant immediately prior to such subdivision or to the issuance of
such stock dividend shall be proportionately increased, and the Exercise Price
shall be proportionately decreased, and in the event that the Company shall at
any time combine the outstanding shares of Common Stock the number of Shares
issuable upon exercise of this Warrant immediately prior to such combination
shall be proportionately decreased, and the Exercise Price shall be
proportionately increased, effective at the close of business on the date of
such subdivision, stock dividend or combination, as the case may be.

 

5.                                       Notice
of Adjustments.  Whenever the number
of Shares purchasable hereunder or the Exercise Price thereof shall be adjusted
pursuant to Section 3 hereof, the Company shall provide notice by first
class mail to the holder of this Warrant setting forth, in reasonable detail,
the event requiring the adjustment, the amount of the adjustment, the method by
which such adjustment was calculated, and the number of Shares which may be
purchased and the Exercise Price therefor after giving effect to such
adjustment.

 

6.                                       Fractional
Shares.  No fractional shares of
Common Stock will be issued in connection with any exercise hereunder.  In lieu of such fractional shares, the
Company shall make a cash payment therefor based upon the Fair Market Value of
one share of Common Stock of the Company on the date of such exercise.

 

7.                                       Representations
of the Company.  The Company
represents that all corporate actions on the part of the Company, its officers,
directors and stockholders necessary for the sale and issuance of the Shares
pursuant hereto and the performance of the Company’s obligations hereunder were
taken prior to and are effective as of the effective date of this Warrant.

 

8.                                       Representations
and Warranties by the Holder.  The
Holder represents and warrants to the Company as follows:

 

(a)                                  This
Warrant and the Shares issuable upon exercise thereof are being acquired for
its own account, for investment and not with a view to, or for resale in
connection with, any distribution or public offering thereof within the meaning
of the Securities Act of 1933, as amended (the “Act”).  Upon exercise of this Warrant, the Holder
shall, if so requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the securities issuable upon exercise of this
Warrant are being acquired for investment and not with a view toward
distribution or resale.

 

(b)                                 The
Holder understands that the Warrant and the Shares have not been registered
under the Act by reason of their issuance in a transaction exempt from the
registration and prospectus delivery requirements of the Act pursuant to
Section 4(2) thereof, and that they must be held by the Holder
indefinitely, and that the Holder must therefore bear the economic 

 

4

 

risk of such investment indefinitely, unless a
subsequent disposition thereof is registered under the Act or is exempted from
such registration.

 

(c)                                  The
Holder has such knowledge and experience in financial and business matters that
it is capable of evaluating the merits and risks of the purchase of this
Warrant and the Shares purchasable pursuant to the terms of this Warrant and of
protecting its interests in connection therewith.

 

(d)                                 The
Holder is able to bear the economic risk of the purchase of the Shares pursuant
to the terms of this Warrant.

 

9.                                       Restrictive
Legend.

 

The Shares issuable upon
exercise of this Warrant (unless registered under the Act) shall be stamped or
imprinted with a legend in the following form:

 

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 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.

 

10.                                 Restrictions
Upon Transfer and Removal of Legend.

 

(a)                                  The
Company need not register a transfer of Shares bearing the restrictive legend
set forth in Section 8 hereof, unless the conditions specified in such
legend are satisfied.  The Company may
also instruct its transfer agent not to register the transfer of the Shares,
unless one of the conditions specified in the legend referred to in
Section 8 hereof is satisfied.

 

(b)                                 Notwithstanding
the provisions of Section 8(a) above, no opinion of counsel or “no-action”
letter shall be necessary for a transfer without consideration by any holder
(i) to an affiliate of the holder, (ii) if such holder is a
partnership, to a partner or retired partner of such partnership who retires
after the date hereof or to the estate of any such partner or retired partner,
(iii) if such holder is a corporation, to a stockholder of such
corporation, or to any other corporation under common control, direct or
indirect, with such holder, (iv) if such holder is a limited liability company,
to a member or retired member of such limited liability company who retires
after the date hereof or to the estate of any such member or retired member, or
(v) by gift, will or intestate succession of any individual holder to his
spouse or siblings, or to the lineal descendants or ancestors of such holder or
his spouse, if the transferee agrees in writing to be subject to the terms
hereof to the same extent as if such transferee were the original holder
hereunder.

 

11.                                 Rights
of Stockholders.  No holder of this
Warrant shall be entitled, as a Warrant holder, to vote or receive dividends or
be deemed the holder of Common Stock or any other 

 

5

 

securities of the Company which may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon the holder of this Warrant, as such, any of
the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action
(whether upon any recapitalization, issuance of stock, reclassification of
stock, change of par value, consolidation, merger, conveyance, or otherwise) or
to receive notice of meetings, or to receive dividends or subscription rights
or otherwise until the Warrant shall have been exercised and the Shares
purchasable upon the exercise hereof shall have become deliverable, as provided
herein.

 

12.                                 Registration
Rights.  All Shares issuable upon
exercise of this Warrant shall be deemed to be “Registrable Securities” or such
other definition of securities entitled to registration rights pursuant to
Section 5 of the Common Stock and Warrant Purchase Agreement dated September 11,
2003, by and between the Company and the Holder (the “Purchase Agreement”), and
are entitled, subject to the terms and conditions of the Purchase Agreement, to
all rights granted to holders of Registrable Securities thereunder.

 

13.                                 Expiration
of Warrant.  This Warrant shall
expire and shall no longer be exercisable at 5:00 p.m., New York local
time, on the date that is five (5) years after the date of issuance of this
Warrant as set forth on the first page of this Warrant.

 

14.                                 Call
Provision.  Beginning one year after
the Registration Statement has become effective, the Company shall have the
right, upon five (5) business days’ prior written notice to the Holder (the “Call
Right Notice”), to call this Warrant, provided that (i) the Warrant Shares are
registered for resale pursuant to the Securities Act or are freely tradable
without restriction or legend, (ii) the Common Stock shall be listed or quoted
for trading on the Nasdaq SmallCap Market or a national securities exchange  immediately preceding the date of the Call
Right Notice and (iii) the volume weighted average price (as reported by
Bloomberg LP) for 25 of the 30 business days immediately preceding the date of
the Call Right Notice were equal to or greater than $8.00 (subject to adjustment for
reverse and forward stock splits, stock dividends, stock combinations and other
similar transactions of the Common Stock that occur after the date of this
Warrant).  If this Warrant has not been
exercised in full upon the expiration of such five (5) business day notice
period, this Warrant shall terminate automatically without any further action
on the part of the Holder or the Company.

 

15.                                 Notices,
Etc.  Any request, consent, notice
or other communication required or permitted under this Warrant 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
party to receive the same.  Any party
may, at any time, by providing ten days’ advance written notice to the other
party hereto, designate any other address in substitution of the an address
established pursuant to the foregoing. 
The Company’s and the Holder’s notice address shall be as set forth on
the Purchase Agreement or as may have been subsequently furnished by the Company
or the Holder, as the case may be, to the other in writing.

 

16.                                 Governing
Law; Headings.  This Warrant is
being delivered in the State of New York and shall be construed and enforced in
accordance with and governed by the laws of such 

 

6

 

State.  The
headings in this Warrant are for purposes of reference only, and shall not
limit or otherwise affect any of the terms hereof.

 

17.                                 Amendment;
Waiver.  Any term of this Warrant
may be amended, and the observance of any term of this Warrant 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 Holder.

 

18.                                 Severability.  If one or more provisions of this Warrant
are held to be unenforceable under applicable law, such provision(s) 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 Warrant shall be interpreted as if such provision were
so modified and shall be enforceable in accordance with its terms.

 

19.                                 No
Impairment.  The Company will not,
by amendment of its certificate of incorporation or bylaws, or through
reorganization, consolidation, merger, dissolution, issue or sale of
securities, sale of assets or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate in
order to protect the rights of the Holder of this Warrant against
impairment.  Without limiting the
generality of the foregoing, the Company (a) will not increase the par value of
any shares of stock issuable upon the exercise of this Warrant above the amount
payable therefor upon such exercise, and (b) will take all such action as may
be necessary or appropriate in order that the Company may validly issue fully
paid and non-assessable Shares upon exercise of this Warrant.

 

20.                                 Attorneys’
Fees.  In the event any party is
required to engage the services of any attorneys for the purpose of enforcing
this Warrant, or any provision thereof, the prevailing party shall be entitled
to recover its reasonable expenses and costs in enforcing this Warrant,
including attorneys’ fees.

 

21.                                 Loss
or Mutilation.  Upon receipt by the
Company of evidence reasonably satisfactory to it of the ownership and the
loss, theft, destruction or mutilation of this Warrant, and of indemnity
reasonably satisfactory to it, and (in the case of mutilation) upon surrender
and cancellation of this Warrant, the Company will execute and deliver in lieu
thereof a new Warrant of like tenor.

 

22.                                 Taxes.  The Company shall pay all taxes and other
governmental charges that may be imposed in respect of the issue or delivery of
any Shares.

 

[Signatures appear on the following
page.]

 

7

 

IN WITNESS WHEREOF, this Warrant has been executed as of the date first
written above by an authorized officer of the Company and the Warrant Holder.

 

	
   

  	
  AXONYX INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
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  WARRANT HOLDER

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
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