8-K

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED):
September 4, 2003

NASTECH PHARMACEUTICAL COMPANY INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION)

000-13789 (COMMISSION FILE NUMBER)	11-2658569 (I.R.S. EMPLOYER IDENTIFICATION NO.)
3450 Monte Villa Parkway Bothell, Washington (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)	98021 (ZIP CODE)

(425) 908-3600
(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)

(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)

TABLE OF CONTENTS

	ITEM 5. OTHER EVENTS.
	ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
SIGNATURES
EXHIBIT 99.1
EXHIBIT 99.2
EXHIBIT 99.3

ITEM 5. OTHER EVENTS.

     Pursuant to Purchase Agreements by and between Nastech Pharmaceutical Company Inc. (the “Company”) and certain accredited investors, dated September 3, 2003 (the “Purchase Agreements”), a form of which is included as Exhibit 99.2 to this report and incorporated by reference herein, the Company completed the sale, on September 4, 2003, of an aggregate of 1,513,069 shares of its common stock, par value $0.006 per share (the “Common Stock”), and warrants to purchase up to an aggregate of 529,574 shares of Common Stock (the “Warrants”). A form of Warrant is included as Exhibit 99.3 to this report and incorporated by reference herein. The offering resulted in gross proceeds to the Company, prior to the deduction of fees and commissions, of $11,000,012. The net proceeds from the offering will be used by the Company for general corporate purposes, including working capital.

     The Warrants are exercisable for up to an aggregate of 529,574 shares of Common Stock, at an exercise price per share of $11.09, subject to adjustment from time to time for stock splits, stock dividends, distributions or similar transactions. The Warrants expire on September 4, 2008.

     On September 4, 2003, the Company issued a press release relating to the offering, a copy of which is also included as Exhibit 99.1 to this report and incorporated by reference herein.

     The above summarizes and does not provide a complete description of the Purchase Agreements or the Warrants. The above summary is qualified in its entirety by reference to the full text of these documents, which are attached as exhibits hereto.

ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS

Exhibit 99.1 — Press Release dated September 4, 2003.

Exhibit 99.2 — Form of Purchase Agreement.

Exhibit 99.3 — Form of Warrant.

SIGNATURES

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

NASTECH PHARMACEUTICAL COMPANY INC.
(Registrant)
By:	/s/ Gregory L. Weaver
Name:	Gregory L. Weaver
Title:	Chief Financial Officer

Dated: September 4, 2003

EX-99.1 3 v92891exv99w1.txt EXHIBIT 99.1 [NASTECH LOGO] FOR IMMEDIATE RELEASE NASTECH CLOSES $11 MILLION PRIVATE PLACEMENT BOTHELL, WASH., - SEPTEMBER 4, 2003 - Nastech Pharmaceutical Company Inc. (Nasdaq: NSTK) announced today that it has completed a private placement of equity securities to institutional investors totaling $11.0 million in gross proceeds. The net proceeds will be used for general corporate purposes, including working capital. Lehman Brothers Inc. acted as exclusive placement agent for the financing. In the private placement, the Company issued 1.513 million shares of common stock and warrants to purchase up to 0.53 million shares of common stock at an exercise price of $11.09 per share. The warrants are exercisable up to and including September 4, 2008. This press release does not constitute an offer to sell or the solicitation of an offer to buy any security. The shares issued in the private placement have not been registered under the Securities Act of 1933, as amended, or applicable state securities laws and may not be offered or sold in the United States absent registration under the Securities Act of 1933, as amended, and applicable state securities laws or an applicable exemption from registration requirements. Nastech has agreed to file a registration statement covering the resale of the shares. ABOUT NASTECH Nastech Pharmaceutical Company Inc. is a leader in nasal drug delivery. The Company is developing a platform technology for delivering both small- and large-molecule drugs by nasal administration. Intranasal drug delivery may lead to greater drug efficacy, speed of action, safety, and patient compliance. Nastech has shown great promise in delivering drugs directly to the Central Nervous System via the nasal passages where there is no blood brain barrier. Nastech has a diverse product portfolio across multiple therapeutic areas, including products targeted for the treatment of male and female sexual dysfunction, pain management, osteoporosis, cancer and hepatic illnesses, growth deficiency and multiple sclerosis. NASTECH SAFE HARBOR STATEMENT Statements contained herein that are not historical fact may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are subject to a variety of risks and uncertainties. There are a number of important factors that could cause actual results to differ materially from those projected or suggested in any forward-looking statement made by the Company. These factors include, but are not limited to: (i) the Company's ability to successfully complete product research and development, including pre-clinical and clinical studies and commercialization; (ii) the Company's ability to obtain required governmental approvals, including product and patent approvals; (iii) the Company's ability to attract and/or maintain manufacturing, sales, distribution and marketing partners; and (iv) the Company's ability to develop and commercialize its products before its competitors. In addition, significant fluctuations in quarterly results may occur as a result of varying milestone payments and the timing of costs and expenses related to the Company's research and development program. Additional factors that would cause actual results to differ materially from those projected or suggested in any forward-looking statements are contained in the Company's filings with the Securities and Exchange Commission, including, but not limited to, those factors discussed under the caption "Risk Factors" in the Company's most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, which the Company urges investors to consider. The Company undertakes no obligation to publicly release the revisions to such forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrences of unanticipated events, except as otherwise required by securities or other applicable laws. # # # CONTACT: Nastech Pharmaceutical Company Inc.: Matthew D. Haines Director, Corporate Communications (212) 297-6198 mhaines@nastech.com Burns McClellan (representing Nastech) E. Blair Clark (Investors) Kathy L. Jones, Ph.D. (Media) 212-213-0006 EX-99.2 4 v92891exv99w2.txt EXHIBIT 99.2 EXHIBIT 99.2 NASTECH PHARMACEUTICAL COMPANY INC. PURCHASE AGREEMENT THIS PURCHASE AGREEMENT (this "AGREEMENT") is made as of the 3rd day of September, 2003, by and between Nastech Pharmaceutical Company Inc., a corporation organized under the laws of the State of Delaware (the "COMPANY"), with its principal offices at 3450 Monte Villa Parkway, Bothell, Washington 98021, and the purchaser whose name and address is set forth on the signature page hereof (the "PURCHASER"). RECITALS A. The Company desires to issue and sell to the Purchaser and certain other investors ("the OTHER PURCHASERS" and together with the Purchaser, the "PURCHASERS") in a private placement (the "OFFERING"), and the Purchasers desire to purchase up to an aggregate of 1,513,069 units (each, a "UNIT"), each Unit consisting of one share of common stock, par value $0.006 per share ("COMMON STOCK"), of the Company (the "PURCHASED SHARES") and 0.35 five year warrant, substantially in the form attached to the Private Placement Memorandum as Exhibit F. Each whole warrant included in the Units shall be exercisable to purchase one share of Common Stock, at $11.09 per share (the "PURCHASED WARRANTS" and collectively with the Purchased Shares, the "SECURITIES"). Each Unit will be sold at a purchase price of $7.27 per Unit. This Agreement and the Purchased Warrants shall be referred to herein collectively as the "TRANSACTION DOCUMENTS". B. In furtherance of the Offering, the Company has prepared and delivered to the Purchaser a confidential private placement memorandum dated as of August 1, 2003 and amended and supplemented as of September 2, 2003 (such confidential private placement memorandum, as amended or supplemented and all documents incorporated by reference therein, including, without limitation, any SEC Filings (as defined in Section 4.16) and any other documents incorporated by reference in the SEC Filings, collectively, the "PRIVATE PLACEMENT MEMORANDUM"). C. The Purchaser desires, upon the terms and conditions set forth in this Agreement, to purchase Securities in the Offering. D. The Company and the Purchaser are executing and delivering this Agreement in reliance upon the exemption from securities regulation afforded by Section 4(2) of the Securities Act (as defined in Section 3) and Rule 506 under Regulation D. IN CONSIDERATION of the premises and mutual covenants contained in this Agreement and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the Company and the Purchaser agree as follows: SECTION 1. Authorization of Sale of the Securities. Subject to the terms and conditions of this Agreement, the Company has authorized the sale of up to an aggregate of 1,513,069 Units, consisting of up to an aggregate of 1,513,069 shares of Common Stock and 529,574 Purchased Warrants, at a purchase price of $7.27 per Unit. SECTION 2. Agreement to Sell and Purchase the Securities. At the Closing (as defined in Section 3), the Company will sell to the Purchaser and the Purchaser will buy from the Company, upon the terms and conditions hereinafter set forth, the Securities set forth on the signature page hereto. The Company proposes to enter into this same form of purchase agreement with the Other Purchasers and expects to complete sales of the Securities to them. This Agreement and the agreements executed by the Other Purchasers are hereinafter sometimes collectively referred to as the "AGREEMENTS." Notwithstanding any contrary provisions of the Agreements, the obligations of each Purchaser are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser. Nothing contained herein, and no action taken by any Purchaser, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Agreements. Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of its Agreement and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. The term "PLACEMENT AGENT" shall mean Lehman Brothers Inc. SECTION 3. Delivery of the Purchased Shares and Purchased Warrants at the Closing. Subject to the terms and conditions set forth in this Agreement, the completion of the purchase and sale of the Purchased Shares and the Purchased Warrants (the "CLOSING") shall occur at the offices of Kramer Levin Naftalis & Frankel LLP, 919 Third Avenue, New York, New York 10022, as soon as practicable and as agreed by the parties hereto within three (3) business days following the execution of the Agreements, or on such later date or at such different location as the parties shall agree in writing (the "CLOSING DATE"). The Closing shall occur at a time to be agreed upon by the Company and the Placement Agent and of which the Purchasers will be notified by facsimile transmission or otherwise. At the Closing, the Company shall (i) authorize its transfer agent (the "TRANSFER AGENT") to arrange delivery to the Purchaser of one or more stock certificates registered in the name of the Purchaser, or in such nominee name(s) as designated by the Purchaser in writing, representing the number of Purchased Shares set forth on the signature page hereto and (ii) issue the number of Purchased Warrants set forth on the signature page hereto to the Purchaser, each stock certificate and Purchased Warrant bearing an appropriate legend referring to the fact that the Securities were sold in reliance upon the exemption from registration under the Securities Act of 1933, as amended (the "SECURITIES ACT") provided by Section 4(2) thereof and Rule 506 thereunder. At the Closing, the Transfer Agent shall deliver to the Placement Agent a certificate of the Transfer Agent, in form and substance reasonably acceptable to the Placement Agent, certifying (i) that it is duly authorized to issue the Purchased Shares and (ii) that the Company has reserved the Underlying Shares (as defined in Section 4.4) for issuance upon the exercise of the Purchased Warrants. The name(s) in which the stock certificates and the Purchased Warrants are to be registered are set forth in the Securities Questionnaire attached hereto as part of Appendix I (the "SECURITIES QUESTIONNAIRE"). The Company's obligation to complete the purchase and sale of the Securities and deliver the stock certificate(s) representing the Purchased Shares and the Purchased 2 Warrants to the Purchaser at the Closing shall be subject to the following conditions, any one or more of which may be waived in writing by the Company: (a) receipt by the Company of same-day funds in the full amount of the purchase price for the Securities being purchased hereunder; (b) completion of the purchases and sales under the Agreements with Purchasers of Securities having an aggregate purchase price of at least $7,500,000; (c) the accuracy of the representations and warranties (as if such representations and warranties were made on the Closing Date) made by the Purchasers and the fulfillment of those undertakings and covenants of the Purchasers required to be fulfilled prior to the Closing; (d) the Purchaser shall have executed and delivered to the Company the Securities Questionnaire, pursuant to which the Purchaser shall provide information necessary to confirm such Purchaser's status as an "accredited investor" as defined in Rule 501 promulgated under the Securities Act; (e) no proceeding challenging this Agreement or agreement with any Other Purchaser or the transactions contemplated hereby or thereby or seeking to prohibit, alter, prevent or materially delay the Closing shall have been instituted or shall be pending before any court, arbitrator or governmental body, agency or official; and (f) the sale of the Securities shall not be prohibited by any law or governmental order or regulation. The Purchaser's obligation to accept delivery of such stock certificate(s) and to pay for the Purchased Shares evidenced thereby and the Purchased Warrants shall be subject to the conditions: (1) that the representations and warranties made by the Company herein are accurate as of the Closing Date; (2) that the Company has fulfilled all undertakings and covenants set forth herein required to be fulfilled prior to the Closing; (3) that the Common Stock shall be quoted on the Nasdaq National Market System; (4) that the Purchasers have purchased Securities having an aggregate purchase price of $7,500,000. SECTION 4. Representations, Warranties and Covenants of the Company. The Company hereby represents and warrants to, and covenants with, the Purchaser as follows: 4.1 Organization and Qualification. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and the Company is qualified to do business as a foreign corporation in each jurisdiction in which qualification is required, except where failure to so qualify would not reasonably be expected to have a Material Adverse Effect (as defined in Section 4.23). Atossa Healthcare, Inc. is the only entity of which the Company, directly or indirectly, owns at least 50% of the outstanding equity of (or which is otherwise directly or indirectly controlled by the Company) (the "SUBSIDIARY"). The Subsidiary is duly incorporated, validly existing and in good standing under the laws of the State of Delaware and is qualified to do business as a foreign corporation in each jurisdiction in which qualification is required, except where failure to so qualify would not have a Material Adverse Effect. 4.2. Authorized Capital Stock. As of July 29, 2003, (i) the authorized capital stock of the Company consisted of 25,000,000 shares of Common Stock and 100,000 shares of Preferred Stock, $.01 par value per share, (the "PREFERRED STOCK"), of which 10,000 shares have been designated as Series A Junior Participating Preferred Stock and none are outstanding; (ii) 10,284,933 shares of Common Stock and no shares of Preferred Stock were issued and outstanding; (iii) there were outstanding options granted pursuant to its stock purchase plans to purchase a total of 2,917,808 shares of Common Stock; (iv) there were available for issuance under the Company's stock option plans a total of 524,292 shares of Common Stock; and (v) there were outstanding warrants to purchase 569,178 shares of Common Stock. The issued and outstanding shares of the Company's Common Stock have been duly authorized and validly issued, are fully paid and 3 nonassessable, have been issued in compliance with all federal and state securities laws and were not issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase securities, and conform in all material respects to the description thereof contained in the Private Placement Memorandum. Except for stock options and other awards granted under the option, award and purchase plans of the Company described in the Private Placement Memorandum or except as otherwise disclosed in or contemplated by the Private Placement Memorandum, the Company does not have outstanding any options or warrants to purchase, or any preemptive rights or other rights to subscribe for or to purchase, any securities or obligations convertible into, or any contracts or commitments to issue or sell, shares of its capital stock or any such options, warrants, rights, convertible securities or obligations. The description of the Company's stock, stock bonus and other stock plans or arrangements and the options, warrants or other rights granted and exercised thereunder, set forth or incorporated by reference in the Private Placement Memorandum accurately and fairly presents in all material respects all information pertaining to such plans, arrangements, options and rights. With respect to the Subsidiary, (i) all the issued and outstanding shares of the Subsidiary's capital stock have been duly authorized and validly issued, are fully paid and nonassessable, have been issued in compliance with applicable federal and state securities laws, were not issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase securities, and (ii) there are no outstanding options or warrants to purchase, or any preemptive rights or other rights to subscribe for or to purchase, any securities or obligations convertible into, or any contracts or commitments to issue or sell, shares of the Subsidiary's capital stock or any such options, rights, convertible securities or obligations. The Company owns 100% of the outstanding equity of the Subsidiary. 4.3. Issuance, Sale and Delivery of the Securities. The issuance of the Purchased Shares has been duly authorized by all necessary corporate action on the part of the Company and, when issued to and paid for by the Purchaser in accordance with this Agreement and the countersigning of the certificate or certificates representing the Purchased Shares by a duly authorized signator of the registrar for the Common Stock, the Purchased Shares will be validly issued, fully paid and non-assessable. The issuance of the Purchased Warrants has been duly authorized by all necessary corporate action on the part of the Company. No preemptive rights or other rights to subscribe for or purchase exist with respect to the issuance and sale of the Securities by the Company pursuant to this Agreement. Except as set forth in this Agreement, the Private Placement Memorandum or in any document incorporated by reference therein, no Person (as defined below) has any right (which has not been waived or has not expired by reason of lapse of time following notification of the Company's intent to file the registration statement to be filed by it pursuant to Section 7.1 (the "REGISTRATION STATEMENT")) to require the Company to register any of its currently outstanding securities or any securities issuable upon exercise or conversion of its currently outstanding securities or pursuant to other agreements or rights, nor is the Company obligated to register or qualify any such securities under any state securities or Blue Sky laws. No further approval or authority of the stockholders or the Board of Directors of the Company will be required for the issuance and sale of the Securities to be sold by the Company as contemplated herein. For purposes of the Agreement, "PERSON" shall mean any other individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind. 4 4.4. Underlying Shares. The issuance of the Underlying Shares (as defined below) upon exercise of the Purchased Warrants has been duly authorized, and the Underlying Shares have been, and at all times prior to such exercise will have been, duly reserved for issuance upon such exercise and payment of the exercise price of the Purchased Warrants and, when so issued, will be validly issued, fully paid and non-assessable. "UNDERLYING SHARES" shall mean any shares of Common Stock or other securities issued or issuable from time to time upon the exercise of a Purchased Warrant. 4.5. Due Execution, Delivery and Performance of this Agreement. The Company has all requisite corporate power and authority to enter into the Transaction Documents and perform the transactions contemplated thereby. The Transaction Documents have been duly authorized, executed and delivered by the Company. The execution, delivery and performance of the Transaction Documents by the Company and the consummation of the transactions therein contemplated will not violate any provision of the organizational documents of the Company or its Subsidiary and will not result in the creation of any lien, charge, security interest or encumbrance upon any assets of the Company or of its Subsidiary pursuant to the terms or provisions of, or will not conflict with, result in the breach or violation of, or constitute, either by itself or upon notice or the passage of time or both, a default under any agreement, contract, note, bond, mortgage, deed of trust, lease, franchise, license, indenture, permit or other instrument to which the Company or its Subsidiary is a party or by which the Company or its Subsidiary or any of their respective properties may be bound or affected or, to the Knowledge of the Company (as defined below), any statute or any authorization, judgment, decree, order, rule or regulation of any court or any regulatory body, administrative agency or other governmental body applicable to the Company or its Subsidiary or any of their respective properties where such conflict, breach, violation or default is reasonably likely to result in a Material Adverse Effect. No consent, approval, authorization or other order of any court, regulatory body, administrative agency or other governmental body is required for the execution and delivery of the Transaction Documents or the consummation of the transactions contemplated by the Transaction Documents, except for compliance with the Blue Sky laws and federal securities laws applicable to the offering of the Securities. Upon the execution and delivery of the Transaction Documents, and assuming the valid execution of this Agreement by the Purchaser, the Transaction Documents will constitute valid and binding obligations of the Company, enforceable in accordance with their terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and except as the indemnification agreements of the Company in Section 7.3 hereof may be legally unenforceable. For purposes of this Agreement, "KNOWLEDGE OF THE COMPANY" shall mean, with respect to a particular fact or other matter, the actual current knowledge, after reasonable investigation, of the Chief Executive Officer or Chief Financial Officer of the Company. 4.6 Accountants. The firm of KPMG LLP, which has expressed its opinion with respect to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (portions of which are incorporated by reference in the Private Placement Memorandum), and has represented that it is an independent accountant as 5 required by the Securities Act and the rules and regulations promulgated thereunder (the "RULES AND REGULATIONS"). 4.7 Contracts. Except as disclosed in the Private Placement Memorandum, the contracts that are material to the Company are in full force and effect on the date hereof; and neither the Company nor its Subsidiary nor, to the Knowledge of the Company, any other party thereto, is in breach of or default under any of such contracts which breach or default would have a Material Adverse Effect. 4.8 No Actions. Except as disclosed in the Private Placement Memorandum, (i) there are no legal or governmental actions, suits, proceedings, pending and (ii) to the Knowledge of the Company, there are no inquiries or investigations, nor are there are any legal or governmental actions, suits, or proceedings threatened, to which the Company or its Subsidiary is or may be a party or subject or of which property owned or leased by the Company or its Subsidiary is or may be the subject, or related to environmental or discrimination matters, or instituted by the Commission (as defined in Section 4.16), the National Association of Securities Dealers, Inc., any state securities commission or other governmental or regulatory entity, which actions, suits or proceedings, individually or in the aggregate, would prevent or might reasonably be expected to prevent or materially and adversely affect the transactions contemplated by this Agreement or result in a Material Adverse Effect; and no labor disturbance by the employees of the Company or of its Subsidiary exists, or is imminent which is reasonably expected to have a Material Adverse Effect. Except as disclosed in the Private Placement Memorandum, neither the Company nor its Subsidiary is party to or subject to the provisions of any injunction, judgment, decree or order of any court, regulatory body administrative agency or other governmental body. 4.9. Properties. Each of the Company and its Subsidiary has good and marketable title to all the properties and assets reflected as owned by it in the consolidated financial statements incorporated by reference in the Private Placement Memorandum (the "PROPRIETARY ASSETS"), subject to no lien, mortgage, pledge, charge or encumbrance of any kind except (i) those, if any, reflected in such consolidated financial statements, or (ii) those which are not material in amount and do not materially adversely affect the use made of such property by the Company or its Subsidiary. Each of the Company and its Subsidiary holds its leased properties under valid and binding leases, subject to such exceptions as are not materially significant in relation to its business. To the Knowledge of the Company, the Proprietary Assets of the Company and its Subsidiary constitute all the Proprietary Assets necessary to enable the Company and its Subsidiary to conduct their respective businesses in the manner in which such businesses have been and are being conducted. Except as set forth the Private Placement Memorandum and in Schedule 4.9, (i) neither the Company nor any Subsidiary has licensed any of its Proprietary Assets to any individual, sole proprietorship, partnership, corporation, limited liability company, business trust, unincorporated association, joint stock corporation, trust, joint venture or other entity, any university or similar institution, or any government or any agency or instrumentality or political subdivision thereof (each a "PERSON") on an exclusive, semi-exclusive or royalty-free basis, and (ii) neither the Company nor any Subsidiary has entered into any covenant not to compete or contract limiting such entity's ability to exploit fully any of such entity's material Proprietary Assets or to transact business in any material market or geographical area or with any Person. "PROPRIETARY ASSETS" shall include, but shall not be limited to, the Intellectual Property of the Company, as defined in Section 4.11 below. 6 4.10. No Material Change. Since June 30, 2003 and except as described in or specifically contemplated by the Private Placement Memorandum: (i) neither the Company nor its Subsidiary has incurred any material liabilities or obligations, indirect, or contingent, or entered into any material oral or written agreement or other material transaction not in the ordinary course of business or which could reasonably be expected to have a Material Adverse Effect; (ii) neither the Company nor its Subsidiary has sustained any material loss or damage to its physical properties or assets from fire, flood, windstorm, accident or other calamity not covered by insurance; (iii) neither the Company nor its Subsidiary has paid or declared any dividends or other distributions with respect to its capital stock, and neither the Company nor its Subsidiary has defaulted in the payment of principal or interest on any outstanding debt obligations; (iv) there has not been any change in the capital stock of the Company or of its Subsidiary, other than the issuance of the Securities hereunder and shares or options issued pursuant to employee equity incentive plans or purchase plans approved by the Company's Board of Directors and repurchases of shares or options pursuant to repurchase plans already approved by the Company's Board of Directors, or any increase in indebtedness material to the Company or its Subsidiary; and (v) there has not been any other event which has caused a Material Adverse Effect. 4.11. Intellectual Property. (a) Except as disclosed in the Private Placement Memorandum: (i) the Company owns or has obtained valid and enforceable rights, licenses or options for any inventions, patent applications, patents, trademarks (both registered and unregistered), trade names, trademark applications, copyrights, copyright applications, maskworks, maskwork applications, trade secrets, fictitious business names, service marks, service mark applications, know how, customer lists, franchise systems, computer software, computer program, designs, blueprints, engineering drawings, proprietary products, source code, technology, proprietary rights or other intellectual property rights or intangible assets and all licenses and other rights required to use or exploit any of the foregoing, currently used in the conduct of the Company's business (collectively, the "INTELLECTUAL PROPERTY"); and (ii) there are no third parties who have any ownership rights to any Intellectual Property that is owned by, or has been licensed to, the Company for the products described in the Private Placement Memorandum that would preclude the Company from conducting its business as currently conducted and have a Material Adverse Effect, except for the ownership rights of the owners of the Intellectual Property licensed or optioned by the Company. To the Knowledge of the Company, (A) there are currently no sales of any products that would constitute an infringement by third parties of any Intellectual Property owned, licensed or optioned by the Company, which infringement would have a Material Adverse Effect; (B) there is no pending or threatened action, suit, proceeding or claim by others challenging the rights of the Company in or to any Intellectual Property owned, licensed or optioned by the Company, other than claims which would not reasonably be expected to have a Material Adverse Effect; (C) there is no pending or threatened action, suit, proceeding or claim by others challenging the validity or scope of any Intellectual Property owned, licensed or optioned by the Company, other than any such actions, suits, proceedings and claims that would not reasonably be expected to have a Material Adverse Effect; and (D) there is no pending or threatened action, suit, proceeding or claim by others that the Company infringes or otherwise violates any patent, trademark, copyright, trade secret or other proprietary right of others, other than non-material actions, suits, proceedings and claims. (b) Each of the Company and its Subsidiary has taken commercially reasonable and customary measures and precautions to protect and maintain the confidentiality and 7 secrecy of all Intellectual Property of the Company and its Subsidiary (except Intellectual Property whose public disclosure (i) is required by law, (ii) would not impair its value or (iii) would not have a Material Adverse Effect) and otherwise to maintain and protect the value of all Intellectual Property of the Company and its Subsidiary. Except as set forth in the Private Placement Memorandum, neither the Company nor its Subsidiary has (other than pursuant to license agreements identified in the Private Placement Memorandum) disclosed or delivered to any Person, or permitted the disclosure or delivery to any Person of (i) the source code, or any portion or aspect of the source code, of any Intellectual Property, (ii) the object code, or any portion or aspect of the object code, of any Intellectual Property of the Company and its Subsidiary, except in the ordinary course of its business or (iii) any patent applications (except as required by law). (c) Except as set forth in the Private Placement Memorandum, excluding warranty claims received by Company or its Subsidiary in the ordinary course of business, to the Knowledge of the Company, neither the Company nor its Subsidiary has received any claim by any customer or other party alleging that any Intellectual Property of the Company or its Subsidiary (including each version thereof that has ever been licensed or otherwise made available by the Company to any Person) does not conform in all material respects with any specification, documentation, performance standard, representation or statement made or provided by or on behalf of the Company. 4.12. Compliance. To the Knowledge of the Company, neither the Company nor its Subsidiary has been advised, nor has reason to believe, that either of the Company or its Subsidiary is not conducting business in compliance with all applicable laws, rules and regulations of the jurisdictions in which it is conducting its business, including, without limitation, all applicable local, state and federal environmental laws and regulations; in each case, except where failure to be in compliance would not have a Material Adverse Effect. 4.13. Taxes. Each of the Company and its Subsidiary has filed or has valid extensions of the time to file all necessary federal, state and foreign income and franchise tax returns due prior to the date hereof and has paid or accrued all taxes shown as due thereon where such failure to file such return or to pay such taxes is reasonably likely to result in a Material Adverse Effect, and, to the Knowledge of the Company, there is no material tax deficiency which has not been reserved for which has been or might be asserted or threatened against it and which is reasonably likely to have a Material Adverse Effect. 4.14. Investment Company. The Company is not an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for an investment company, within the meaning of the Investment Company Act of 1940, as amended. 4.15. Offering Materials. Neither the Company nor, to the Knowledge of the Company, any person acting on behalf of the Company, has distributed or will distribute to the Purchaser prior to the Closing Date any material non-public information, other than information related to the transactions contemplated by this Agreement, including, without limitation, the Private Placement Memorandum and any amendment or supplement thereto, all of which information related to the transactions contemplated hereby shall be disclosed by the Company pursuant to Section 4.28 hereof. Neither the Company nor any person acting on its behalf has in the past or will hereafter take any action independent of the Placement Agent to sell, offer for sale or 8 solicit offers to buy any securities of the Company which would subject the offer, issuance or sale of the Securities contemplated by this Agreement to the registration requirements of Section 5 of the Securities Act. 4.16. Additional Information. (a) To the extent incorporated by reference in the Private Placement Memorandum, including any supplements thereto, the information contained in the following documents, did not, as of the date of the applicable document, include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading, as of their respective filing dates or, if amended, as so amended (the following documents, collectively, the "SEC FILINGS") each of which has been duly filed with the Securities and Exchange Commission (the "COMMISSION") on the dates set forth below: (i) the Company's Annual Report on Form 10-K for the year ended December 31, 2002; (ii) the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 and June 30, 2003; (iii) the Company's definitive Proxy Statement with respect to its 2003 Annual Meeting of Stockholders, filed with the Commission on April 30, 2003; and (iv) the Company's Current Reports on Form 8-K filed with the Commission on May 14, 2003, June 17, 2003, July 1, 2003, July 17, 2003 and August 6, 2003. In addition, as of the date of this Agreement, the Private Placement Memorandum, which, to the Knowledge of the Company, the Placement Agent has furnished to the Purchaser, or will furnish prior to the Closing, when read together with the information, qualifications and exceptions contained in this Agreement, does not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading. (b) In furtherance and not in limitation of the provisions of Section 4.16(a), the consolidated financial statements of the Company and the related notes contained in or incorporated by reference into the SEC Filings present fairly in all material respects, in accordance with generally accepted accounting principles, the consolidated financial position of the Company and its Subsidiary as of the dates indicated, and the results of their operations, cash flows and the changes in stockholders' equity for the periods therein specified, subject, in the case of unaudited financial statements for interim periods, to normal year-end audit adjustments and the absence of full footnote disclosure as required by generally accepted accounting principles. Such consolidated financial statements (including the related notes) have been prepared in all material respects in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods therein specified, subject, in the case of unaudited financial statements for interim periods, to normal year-end audit adjustments, and except as otherwise described therein and except that unaudited financial statements may not contain all footnotes required by generally accepted 9 accounting principles. 4.17. Form D. No later than fifteen (15) days after the Closing, the Company shall file a Form D with respect to the Securities as required under Regulation D and shall provide a copy thereof to the Purchaser promptly after filing. 4.18 Legal Opinion. Prior to the Closing, Kramer Levin Naftalis & Frankel LLP, counsel to the Company, will deliver its legal opinion to the Placement Agent and the Purchasers substantially in the form attached as Exhibit A to this Agreement. Such opinion shall also state that each of the Purchasers may rely thereon as though it were addressed directly to such Purchaser. 4.19 Certificate. At the Closing, the Company will deliver to the Purchaser a certificate executed by the chief executive officer, or the chief financial or accounting officer of the Company, dated the Closing Date, in form and substance reasonably satisfactory to the Purchaser, to the effect that the representations and warranties of the Company set forth in this Section 4 are true and correct as of the Closing Date, and the Company has complied in all material respects with all the agreements and satisfied all the conditions herein on its part to be performed or satisfied on or prior to such Closing Date. 4.20 Reporting Company; Form S-3. The Company is subject to the reporting requirements of the Exchange Act and has filed all reports required thereby since June 30, 2002. The Company is eligible to register the Registrable Shares (as defined below) for resale by the Purchaser on a registration statement on Form S-3 under the Securities Act. To the Knowledge of the Company, there exist no facts or circumstances (including without limitation any required approvals or waivers or any circumstances that may delay or prevent the obtaining of accountant's consents) that reasonably could be expected to prohibit or delay the preparation and filing of a registration statement on Form S-3 that will be available for the resale of the Registrable Shares by the Purchaser. 4.21 Quotation on Nasdaq. The Company has not, in the two years preceding the date hereof, received notice (written or oral) from the Nasdaq National Market System, any stock exchange, market or trading facility on which the Common Stock is or has been listed (or on which it has been quoted) to the effect that the Company is not in compliance with the listing or maintenance requirements of such exchange, market or trading facility. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements. The Company shall use its best efforts to maintain the designation and quotation, or listing, of the Common Stock on the Nasdaq National Market System or on another national securities exchange for a minimum of two (2) years following the Closing Date. 4.22 Use of Purchaser Name. Except as may be required by applicable law or in connection with the registration of the Registrable Shares, the Company shall not use, directly or indirectly, the Purchaser's name or the name of any of its affiliates in any advertisement, announcement, press release or other similar communication unless it has received the prior written consent of the Purchaser for the specific use contemplated or as otherwise required by applicable law or regulation. 10 4.23 Material Adverse Effect. As used in this Section 4, the term "MATERIAL ADVERSE EFFECT" means a material adverse effect upon the business, financial condition, results of operation, prospects to the extent presented in the Private Placement Memorandum (subject to the safe harbor provision therein), properties or operations of the Company and its Subsidiary, taken as a whole. 4.24 No Defaults. Except as disclosed in the Private Placement Memorandum, neither the Company nor its Subsidiary is in violation or default of any provision of its articles of incorporation or bylaws, or in breach of or default with respect to any provision of any agreement, judgment, decree, order, mortgage, deed of trust, lease, franchise, license, indenture, permit or other instrument to which it is a party or by which it or any of its properties are bound and where such violation, breach or default is reasonably likely to result in a Material Adverse Effect. 4.25 Transfer Taxes. On the Closing Date, all stock transfer or other taxes (other than income or similar taxes) which are required to be paid in connection with the sale and transfer of the Securities hereunder will be, or will have been, fully paid or provided for by the Company, and all laws imposing such taxes will be or will have been complied with. 4.26 Use of Proceeds. The Company will use the proceeds from the sale of the Securities as described under "Use of Proceeds" in the Private Placement Memorandum. 4.27 Price of Common Stock. The Company has not taken any action intended to stabilize or manipulate the price of the Company's shares of the Common Stock to facilitate the sale or resale of the Securities. The Company has not repurchased any of its shares of Common Stock since June 30, 2003. 4.28 Disclosure. Except as included in the Private Placement Memorandum, neither the Company nor, to the Knowledge of the Company, any Person acting on behalf of the Company, has provided the Purchaser with any information that the Company believes constitutes material, non-public information. On or before 9:00 a.m., New York City time, on the first business day after the Closing Date, the Company shall (i) file a Current Report on Form 8-K describing the material terms of the transactions contemplated by this Agreement, and disclosing such portions of the Private Placement Memorandum as contain any material nonpublic information with respect to the Company that has not previously been publicly disclosed by the Company, and attaching as an exhibit to such Form 8-K a form of this Agreement (including such exhibit, the "8-K FILING") and (ii) issue a press release in form reasonably acceptable to counsel for the Purchaser describing the material terms of the transactions contemplated by this Agreement (the "PRESS RELEASE"). Except for information that may be provided to the Purchaser pursuant to Section 5(j) of this Agreement, the Company shall not, and shall use commercially reasonable efforts to cause each of its officers, directors, employees and agents not to, provide Purchaser with any material nonpublic information regarding the Company from and after the filing of the 8-K Filing and the issuance of the Press Release without the express written consent of such Purchaser. The Company understands and confirms that the Purchaser will rely on the representations and covenants set forth in this Section 4.28 in effecting transactions in securities of the Company. 4.29 Private Offering. Neither the Company nor anyone acting on its behalf has within the last 12 months issued, sold or offered any security of the Company (including, without 11 limitation, any Common Stock or warrants of similar tenor to the Purchased Warrants) to any Person under circumstances that would cause the issuance and sale of the Securities, as contemplated by this Agreement, to be subject to the registration requirements of the Securities Act. The Company agrees that neither the Company nor anyone acting on its behalf will offer the Securities or any part thereof or any similar securities for issuance or sale to, or solicit any offer to acquire any of the same from, anyone so as to make the issuance and sale of the Securities subject to the registration requirements of Section 5 of the Securities Act. 4.30 Related Party Transactions. Except as set forth in the Private Placement Memorandum, since January 1, 2002, no transaction has occurred between or among the Company, the Subsidiary and their affiliates, officers or directors or any affiliate or affiliates of any such officer or director. 4.31 Off-Balance Sheet Arrangements. There is no transaction, arrangement or other relationship between the Company and an unconsolidated or other off-balance sheet entity that is required to be disclosed by the Company in its Exchange Act filings and is not so disclosed or that otherwise would be reasonably likely to have a Material Adverse Effect. There are no such transactions, arrangements or other relationships with the Company that may create contingencies or liabilities that are not otherwise disclosed by the Company in its Exchange Act filings. 4.32 Governmental Permits, Etc. Each of the Company and its Subsidiary has all franchises, licenses, certificates and other authorizations from such federal, state or local government or governmental agency, department or body that are currently required for the operation of the business of the Company and its Subsidiary as currently conducted, except where the failure to possess currently such franchises, licenses, certificates and other authorizations is not reasonably expected to have a Material Adverse Effect. The Company and its Subsidiary have not received any written notice of proceedings relating to the revocation or modification of any such permit which, if the subject of an unfavorable decision, ruling or finding, could reasonably be expected to have a Material Adverse Effect. 4.33 Solvency. Based on the financial condition of the Company as of the Closing Date, (a) the Company's fair saleable value of its assets exceeds the amount that will be required to be paid on or in respect of the Company's existing debts and other liabilities (including known contingent liabilities) as they mature; (b) the Company's assets do not constitute unreasonably small capital to carry on its business for the current fiscal year as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and project capital requirements and capital availability thereof; and (c) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its debt when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). SECTION 5. Representations, Warranties and Covenants of the Purchaser. 12 (a) The Purchaser represents and warrants to, and covenants with, the Company that: (i) the Purchaser is knowledgeable, sophisticated and experienced in making, and is qualified to make, decisions with respect to investments in shares representing an investment decision like that involved in the purchase of the Securities, including investments in securities issued by the Company and comparable entities, and has requested, received, reviewed and considered all information it deems relevant in making an informed decision to purchase the Securities; (ii) the Purchaser is acquiring the Securities set forth on the signature page hereto in the ordinary course of its business and for its own account for investment only and with no present intention or view toward the public sale or distribution thereof, and no arrangement or understanding exists with any other persons regarding the public sale or distribution of any Securities (this representation and warranty not limiting the Purchaser's right to sell any Registrable Shares pursuant to the Registration Statement or in compliance with an exemption from registration under the Securities Act or, other than with respect to any claims arising out of a breach of this representation and warranty, the Purchaser's right to indemnification under Section 7.3); (iii) the Purchaser has completed or caused to be completed the Registration Statement Questionnaire attached hereto as part of Appendix I, for use in the preparation of the Registration Statement, and the answers thereto are true and correct in all material respects as of the date hereof and will be true and correct in all material respects as of the effective date of the Registration Statement, and the Purchaser will notify the Company immediately of any material change in any such information provided in the Registration Statement Questionnaire; (iv) the Purchaser has, in connection with its decision to purchase the number of Purchased Shares and Purchased Warrants set forth on the signature page hereto, relied solely upon the Private Placement Memorandum and the documents included therein or incorporated by reference and the representations and warranties of the Company contained herein; (v) the Purchaser is an "accredited investor" within the meaning of Rule 501(a) of Regulation D promulgated under the Securities Act; and (vi) the Purchaser agrees to notify the Company immediately of any change in any of the foregoing information until such time as the Purchaser has sold all of its Securities or the Company is no longer required to keep the Registration Statement effective. The Purchaser acknowledges that it may not, except in compliance with the Securities Act, the Rules and Regulations and such other securities or Blue Sky laws as may be applicable, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) any of the Securities or engage in any Short Sale (as defined below). (b) The Purchaser represents and warrants to, and covenants with, the Company that neither it nor any Purchaser/Affiliate (as defined in Section 7.3 and which (x) had knowledge about the transactions contemplated hereby, (y) has or shares discretion relating to Purchaser's investments or trading or information concerning Purchaser's investments, including the Units, or (z) is subject to Purchaser's review or input concerning such Purchaser/Affiliate's investments or trading) has or will, directly or indirectly, during the period beginning on the date on which the Purchaser was first notified that the Company intended to engage in the transactions contemplated by this Agreement and ending on the date that the Company files the 8-K Filing (as defined in Section 4.28) in accordance with Section 4.28 hereof, engage (i) in any "short sale" (as defined in Rule 3b-3 promulgated under the Exchange Act), including, without limitation, the maintaining of any short position with respect to, establishing or maintaining a "put equivalent position" (within the meaning of Rule 16a-1(h) under the Exchange Act) with respect to, entering into any swap, derivative transaction or other arrangement (whether any such transaction is to be settled by delivery of Common Stock, other securities, cash or other consideration) that transfers to another, in 13 whole or in part, any of the economic consequences of ownership, or otherwise dispose of, any of the Securities by Purchaser or (ii) in any hedging transaction which establishes a net short position with respect to the Securities (clauses (i) and (ii) together, a "SHORT SALE"); except for (A) Short Sales by a Purchaser/Affiliate which was, prior to the date on which the Purchaser was first notified that the Company intended to engage in the transactions contemplated by this Agreement, a market maker for the Common Stock, provided that such Short Sales are in the ordinary course of such Purchaser/Affiliate's business and are in compliance with the Securities Act, the Rules and Regulations and such other securities or Blue Sky laws as may be applicable or (B) Short Sales by a Purchaser/Affiliate which by virtue of the procedures of the Purchaser are made without knowledge of the transactions contemplated in this Agreement and were not induced or encouraged by the Purchaser. (c) The Purchaser understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of Securities Act, the Rules and Regulations and state securities laws, and that the Company is relying upon the truth and accuracy of, and the Purchaser's compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of the Purchaser to acquire the Securities. (d) The Purchaser agrees to use the information contained in the Private Placement Memorandum for the sole purpose of evaluating a possible investment in the Securities and the Purchaser hereby acknowledges that it is prohibited from reproducing or distributing the Private Placement Memorandum, this Purchase Agreement, or any other offering materials or other information provided by the Company in connection with the Purchaser's consideration of its investment in the Company, in whole or in part, or divulging or discussing any of their contents except to its advisors and representatives for the purpose of evaluating such investment. The Purchaser shall maintain in confidence the receipt and content of any notice of a Suspension (as defined in Section 5(h) below). The foregoing agreements shall not apply to any information that is or becomes publicly available through no fault of the Purchaser, or that the Purchaser is legally required to disclose; provided, however, that if the Purchaser is requested or ordered to disclose any such information pursuant to any court or other government order or any other applicable legal procedure, it shall provide the Company with prompt notice of any such request or order in time sufficient to enable the Company to seek an appropriate protective order and shall provide the Company with reasonable assistance in obtaining such protective order at the Company's sole expense. (e) The Purchaser understands that its investment in the Securities involves a significant degree of risk and that the market price of the Common Stock has been and continues to be volatile and that no representation is being made as to the future value of the Common Stock. The Purchaser has the knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Securities and has the ability to bear the economic risks of an investment in the Securities. The Purchaser has had a reasonable opportunity to ask questions of the Company and its representatives; and the Company has answered all inquiries that the Purchaser or the Purchaser's representatives have put to it. 14 (f) The Purchaser understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities. (g) The Purchaser understands that the Purchased Shares have not been registered under the Securities Act and will not sell, offer to sell, assign, pledge, hypothecate or otherwise transfer any of the Purchased Shares unless (i) pursuant to an effective registration statement under the Securities Act, (ii) the Purchaser provides the Company with an opinion of counsel, in a generally acceptable form, to the effect that a sale, assignment or transfer of the Securities may be made without registration under the Securities Act and the transferee agrees to be bound by the terms and conditions of this Agreement, (iii) the Purchaser provides the Company with evidence of compliance with Rule 144 promulgated under the Securities Act ("RULE 144"), including reasonable assurances (in the form of seller and broker representation letters) that the Purchased Shares can be sold pursuant to Rule 144, (iv) pursuant to Rule 144(k) following the applicable holding period, (v) pursuant to any other exception contained in the Securities Act provided that the Purchaser provides the Company with an opinion of counsel, in a generally acceptable form. (h) The Purchaser understands that, until such time as the Registration Statement has been declared effective or the Purchased Shares and Underlying Shares (the "REGISTRABLE SHARES") may be sold by non-affiliates of the Company pursuant to Rule 144 under the Securities Act without any restriction as to the number of securities as of a particular date that can then be immediately sold, the certificates for the Registrable Shares shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of the certificates for the Registrable Shares): "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE SECURITIES LAWS OF ANY OTHER JURISDICTION. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER THE SECURITIES ACT." (i) The Purchaser's principal executive offices are in the jurisdiction set forth immediately below the Purchaser's name on the signature pages hereto. (j) The Purchaser hereby covenants with the Company not to make any sale of the Registrable Shares under the Registration Statement without effectively causing the prospectus delivery requirement under the Securities Act to be satisfied, and the Purchaser acknowledges and agrees that such Registrable Shares are not transferable on the books of the Company unless the certificate submitted to the Transfer Agent evidencing the Registrable Shares is accompanied by a 15 separate Purchaser's Certificate of Subsequent Sale (i) in the form of Appendix II hereto, (ii) executed by an officer of, or other authorized person on behalf of, the Purchaser, and (iii) to the effect that (A) the Registrable Shares have been sold in accordance with the Registration Statement, the Securities Act and any applicable state securities or Blue Sky laws and (B) if applicable, the requirement of delivering a current prospectus has been satisfied. The Purchaser acknowledges that there may occasionally be times when the Company must suspend the use of the prospectus forming a part of the Registration Statement (a "SUSPENSION") until such time as an amendment to the Registration Statement has been filed by the Company and declared effective by the Commission, or such time as such prospectus has been supplemented, or until such time as the Company has filed an appropriate report with the Commission pursuant to the Exchange Act. The Purchaser hereby covenants that it will not sell any Registrable Shares pursuant to said prospectus during the period commencing at the time at which it receives written notice of the Suspension of the use of said prospectus and ending at the time the Company gives the Purchaser written notice that the Purchaser may thereafter effect sales pursuant to said prospectus. The Purchaser shall not be prohibited from selling the Registrable Shares under the Registration Statement as a result of a Suspension or Suspensions: (i) for more than thirty (30) days in the case of any Suspension, (ii) Suspensions on more than one (1) occasion in any 6-month period, (iii) Suspensions on more than two (2) occasions in any 12-month period or (iv) Suspensions aggregating forty-five (45) days or more in any 12-month period; provided that the Company shall remain liable for liquidated damages pursuant to Section 7.6 hereof with respect to any Suspension or Suspensions exceeding the maximum allowed period for a Suspension or Suspensions (or maximum number of Suspensions). (k) The Purchaser further represents and warrants to, and covenants with, the Company that (i) the Purchaser has full right, power, authority and capacity to enter into this Agreement and to consummate the transactions contemplated hereby and has taken all necessary action to authorize the execution, delivery and performance of this Agreement; (ii) upon the execution and delivery of this Agreement, this Agreement shall constitute a legal, valid and binding obligation of the Purchaser, enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and except as the indemnification agreements of the Purchaser in Section 7.3 hereof may be legally unenforceable. (l) The Purchaser acknowledges the following disclosure, which is set forth herein as required pursuant to Section 25102(a) of the California Corporate Securities Law of 1968: "THE SALE OF THE SECURITIES THAT ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED 16 UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT." SECTION 6. Survival of Representations and Warranties. Notwithstanding any investigation made by any party to this Agreement or by the Placement Agent, all representations and warranties made by the Company and the Purchaser in this Agreement shall survive the execution and delivery of this Agreement, the delivery to the Purchaser of Securities being purchased and the payment therefor until the first anniversary of the Closing. The covenants of the Company in this Agreement shall remain in effect as set forth in this Agreement. SECTION 7. Registration of the Shares; Compliance with the Securities Act. 7.1. Registration Procedures and Expenses. The Company shall: (a) as soon as reasonably practicable, but in no event later than fifteen (15) business days following the Closing Date (the "FILING DATE"), subject to timely receipt of necessary information in writing from the Purchasers, prepare and file with the Commission a Registration Statement on Form S-3 relating to the sale of the Registrable Shares by the Purchaser and the Other Purchasers from time to time on the Nasdaq National Market System or the facilities of any national securities exchange on which the Common Stock is then traded or in privately-negotiated transactions (the "REGISTRATION STATEMENT"). If Form S-3 is not available at that time, then the Company will file a registration statement or such form as is then available to effect a registration of the Registrable Shares, subject to the consent of the Purchasers, representing a majority of the Registrable Shares, which consent shall not be unreasonably withheld; (b) use its reasonable best efforts, to cause the Commission to declare the Registration Statement effective as soon as practicable but in no event later than sixty (60) calendar days after the Closing Date (the "REQUIRED EFFECTIVE DATE"), subject to timely receipt of necessary information in writing from the Purchasers. However, so long as the Company filed the Registration Statement by the Filing Date, if the Registration Statement receives Commission review, then the Required Effective Date will be the ninetieth (90th) calendar day after the Closing Date. The Company's best efforts will include, but not be limited to, promptly responding to all comments received from the staff of the Commission. If the Company receives notification from the Commission that the Registration Statement will receive no action or review from the Commission, then the Company will, subject to its rights under Section 7.2, use its commercially reasonably efforts to cause the Registration Statement to become effective within five (5) business days after such Commission notification; (c) use its best efforts to promptly prepare and file with the Commission such amendments and supplements to the Registration Statement and the prospectus used in connection therewith as may be necessary to keep the Registration Statement effective until the earliest of (i) two years after the effective date of the Registration Statement, (ii) the date on which the Purchasers may sell all of the Registrable Shares then held by the Purchasers, without registration, pursuant to Rule 144(k) of the Securities Act or (iii) such time as all Registrable Shares purchased by all Purchasers in the Offering have been sold pursuant to a Registration Statement or Rule 144 of the Securities Act; 17 (d) furnish to the Purchaser with respect to the Registrable Shares registered under the Registration Statement (and to each underwriter, if any, of such Registrable Shares) such number of copies of prospectuses and such other documents as the Purchaser may reasonably request, in order to facilitate the public sale or other disposition of all or any of the Registrable Shares by the Purchaser; (e) file documents required of the Company for normal Blue Sky clearance in states specified in writing by the Purchaser; provided, however, that the Company shall not be required to (i) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 7.1; (ii) file a general consent to service of process in any such jurisdiction; or (iii) subject itself to taxation in any such jurisdiction; and (f) bear all expenses in connection with the procedures in paragraphs (a) through (e) of this Section 7.1 and the registration of the Registrable Shares pursuant to the Registration Statement, other than fees and expenses, if any, of counsel or other advisers to the Purchaser or the Other Purchasers or underwriting discounts, brokerage fees and commissions incurred by the Purchaser or the Other Purchasers, if any. Notwithstanding the foregoing, it shall be a condition precedent to the obligations of the Company to take any action pursuant to paragraphs (a) through (f) of this Section 7.1, that the Purchaser shall furnish to the Company such information regarding itself, the Registrable Shares to be sold by the Purchaser, and the intended method of disposition of such Registrable Shares as shall be required to effect the registration of the Registrable Shares, all of which information shall be furnished to the Company in writing specifically for use in the Registration Statement. The Purchaser shall update such information as and when necessary by written notice to the Company. The Company understands that the Purchaser disclaims being an underwriter, but the Purchaser being deemed an underwriter shall not relieve the Company of any obligations it has hereunder. Notwithstanding the foregoing, the parties understand and agree that the Company shall not be obligated to retain an underwriter with respect to the offer and sale of Registrable Shares pursuant to the Registration Statement. The Company shall promptly notify the Purchaser of the effectiveness of the Registration Statement, and any post-effective amendments thereto, as well as of the receipt by the Company of any stop orders of the Commission with respect to the Registration Statement. 7.2. Transfer of Registrable Shares After Registration. While the Registration Statement is effective and available for resale, the Purchaser agrees that it will not effect any disposition of the Registrable Shares that would constitute a sale within the meaning of the Securities Act, except as contemplated in the Registration Statement referred to in Section 7.1 hereof in the section titled "Plan of Distribution" or otherwise permitted by law and that it will promptly notify the Company of any changes in the information set forth in the Registration Statement regarding the Purchaser or its plan of distribution. 7.3. Indemnification. For the purpose of this Section 7.3: (i) the term "PURCHASER/AFFILIATE" shall mean any affiliate of the Purchaser (as defined in Rule 405 under the Securities Act) and any 18 person who controls the Purchaser or any affiliate of the Purchaser within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act; and (ii) the term "REGISTRATION STATEMENT" shall include any final prospectus, exhibit, supplement or amendment included in or relating to, and any document incorporated by reference in, the Registration Statement referred to in Section 7.1 hereof. (a) The Company agrees to indemnify and hold harmless the Purchaser and the Purchaser/Affiliate against any losses, claims, damages, liabilities or expenses, to which the Purchaser or Purchaser/Affiliate may become subject, under the Securities Act, the Exchange Act, or any other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of the Company), insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof as contemplated below) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, including the prospectus, financial statements and schedules, and all other documents filed as a part thereof, as amended at the time of effectiveness of the Registration Statement, including any information deemed to be a part thereof as of the time of effectiveness pursuant to paragraph (b) of Rule 430A, or pursuant to Rule 434, of the Rules and Regulations, or the prospectus, in the form first filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations, or filed as part of the Registration Statement at the time of effectiveness if no Rule 424(b) filing is required (the "PROSPECTUS"), or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state in any of them a material fact required to be stated therein or necessary to make the statements in the Registration Statement or any amendment or supplement thereto not misleading or in the Prospectus or any amendment or supplement thereto not misleading in the light of the circumstances under which they were made, or arise out of or are based in whole or in part on any material breach of the representations and warranties of the Company contained in this Agreement, or any material breach by the Company of its obligations hereunder, and will reimburse the Purchaser or Purchaser/Affiliate for any legal and other expenses as such expenses are reasonably incurred by the Purchaser or Purchaser/Affiliate in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action; provided, however, that the Company will not be liable in any such case to the extent, but only to the extent, that any such loss, claim, damage, liability or expense arises out of or is based upon (i) an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, the Prospectus or any amendment or supplement thereto in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Purchaser expressly for use therein, (ii) the failure of the Purchaser to comply with the covenants and agreements contained in Section 7.2 hereof respecting the sale of the Registrable Shares, (iii) the inaccuracy of any representations made by the Purchaser herein, or (iv) any statement or omission in any Prospectus that is corrected in any subsequent Prospectus that was delivered to the Purchaser prior to the pertinent sale or sales by the Purchaser. (b) The Purchaser will severally, but not jointly, indemnify and hold harmless the Company, each of its directors, each of its officers who signed the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of 19 the Securities Act or Section 20 of the Exchange Act, against any losses, claims, damages, liabilities or expenses to which the Company, each of its directors, each of its officers who signed the Registration Statement or controlling person may become subject, under the Securities Act, the Exchange Act, or any other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of the Purchaser which consent shall not be unreasonably withheld) insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof as contemplated below) arise out of or are based upon (i) any failure to comply with the covenants and agreements contained in Section 7.2 hereof respecting the sale of the Registrable Shares or (ii) any untrue or alleged untrue statement of any material fact contained in the Registration Statement, the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements in the Registration Statement or any amendment or supplement thereto not misleading or in the Prospectus or any amendment or supplement thereto not misleading in the light of the circumstances under which they were made, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, the Prospectus, or any amendment or supplement thereto, in reliance upon and in conformity with written information furnished to the Company by the Purchaser expressly for use therein, and the Purchaser will reimburse the Company, each of its directors, each of its officers who signed the Registration Statement or controlling person for any legal and other expense reasonably incurred by the Company, each of its directors, each of its officers who signed the Registration Statement or controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action; provided, however, that the obligations of the Purchaser under this Section 7.3 shall not exceed the net proceeds to such Purchaser from the sale of Registrable Shares pursuant to such Registration Statement. (c) Promptly after receipt by an indemnified party under this Section 7.3 of notice of the threat or commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section 7.3, promptly notify the indemnifying party in writing thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party for contribution or otherwise than under the indemnity agreement contained in this Section 7.3 (except to the extent that such omission materially and adversely affects the indemnifying person's ability to defend such action). Subject to provisions hereinafter stated, in case any such action is brought against any indemnified party and such indemnified party seeks or intends to seek indemnity from an indemnifying party, the indemnifying party will be entitled to participate in, and, to the extent that it may wish, jointly with all other indemnifying parties similarly notified, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party; provided, however, if the defendants in any such action include both the indemnified party and the indemnifying party, and the indemnifying party and the indemnified party, based upon the advice of such indemnified party's counsel, shall have reasonably concluded that there may be a conflict of interest between the positions of the indemnifying party and the indemnified party in conducting the defense of any such action or that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assume such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. Upon 20 receipt of notice from the indemnifying party to such indemnified party of its election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section 7.3 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed such counsel in connection with the assumption of legal defenses in accordance with the proviso to the preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel, approved by such indemnifying party in the case of paragraph (a), representing the indemnified parties who are parties to such action (including indemnified parties under Agreements with Other Purchasers), plus local counsel, if appropriate) or (ii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of action, in each of which cases the reasonable fees and expenses of counsel shall be at the expense of the indemnifying party. In no event shall any indemnifying person be liable in respect of any amounts paid in settlement of any action unless the indemnifying person shall have approved in writing the terms of such settlement; provided that such consent shall not be unreasonably withheld. No indemnifying person shall, without the prior written consent of the indemnified person, effect any settlement of any pending or threatened proceeding in respect of which any indemnified person is or could have been a party and indemnification could have been sought hereunder by such indemnified person, unless such settlement includes an unconditional release of such indemnified person from all liability on claims that are the subject matter of such proceeding. (d) If the indemnification provided for in this Section 7.3 is required by its terms but is for any reason held to be unavailable to or otherwise insufficient to hold harmless an indemnified party under paragraphs (a), (b) or (c) of this Section 7.3 in respect to any losses, claims, damages, liabilities or expenses referred to herein, then each applicable indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of any losses, claims, damages, liabilities or expenses referred to herein (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Purchaser from the placement of the Common Stock contemplated by this Agreement or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but the relative fault of the Company and the Purchaser in connection with the statements or omissions or inaccuracies in the representations and warranties in this Agreement or the Registration Statement that resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Purchaser on the other shall be deemed to be in the same proportion as the amount paid by the Purchaser to the Company pursuant to this Agreement for the Registrable Shares purchased by the Purchaser that were sold (including the exercise price of the Purchased Warrants, if any) pursuant to the Registration Statement bears to the difference (the "DIFFERENCE") between the amount the Purchaser paid for the Registrable Shares that were sold (including the exercise price of the Purchased Warrants, if any) pursuant to the Registration Statement and the amount received by the Purchaser from such sale. The relative fault of the Company on the one hand and the Purchaser on the other shall be determined by reference to, among other things, whether the untrue or alleged statement of a material fact or the omission or alleged omission to state a material fact or the inaccurate or the alleged inaccurate representation and/or warranty relates to information supplied by the Company or by the Purchaser and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue 21 statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in paragraph (c) of this Section 7.3, any legal or other out-of-pocket fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. The provisions set forth in paragraph (c) of this Section 7.3 with respect to the notice of the threat or commencement of any threat or action shall apply if a claim for contribution is to be made under this paragraph (d); provided, however, that no additional notice shall be required with respect to any threat or action for which notice has been given under paragraph (c) for purposes of indemnification. The Company and the Purchaser agree that it would not be just and equitable if contribution pursuant to this Section 7.3 were determined solely by pro rata allocation (even if the Purchaser were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this paragraph. Notwithstanding the provisions of this Section 7.3, the Purchaser shall not be required to contribute any amount in excess of the amount by which the Difference exceeds the amount of any damages which such Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Purchaser's obligation to contribute pursuant to this Section 7.3 is several and not joint. 7.4. Termination of Conditions and Obligations. The conditions precedent imposed by Section 5 or this Section 7 upon the transferability of the Registrable Shares shall cease and terminate as to any particular number of the Registrable Shares upon the earliest to occur of (i) the sale of the Registrable Shares pursuant to the Registration Statement, (ii) the sale of the Registrable Shares pursuant to Rule 144 under the Securities Act or (iii) the passage of two (2) years from the effective date of the Registration Statement covering such Registrable Shares or at such time as an opinion of counsel satisfactory in form and substance to the Company shall have been rendered to the effect that such conditions are not necessary in order to comply with the Securities Act in connection with the resale of the Registrable Shares. 7.5. Information Available. As long as any Purchaser owns the Registrable Shares and the Company is subject to the filing requirements of the Exchange Act, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act. So long as the Registration Statement is effective covering the resale of the Registrable Shares owned by the Purchaser, the Company will furnish to the Purchaser upon such Purchaser's request: (a) as soon as practicable after available (but in the case of the Company's Annual Report to Stockholders, concurrently with delivery to its shareholders generally) one copy of (i) its Annual Report to Stockholders (which Annual Report shall contain financial statements audited in accordance with U.S. generally accepted accounting principles by a national firm of certified public accountants), (ii) if not included in substance in the Annual Report to Stockholders, upon the request of the Purchaser, its Annual Report on Form 10-K, (iii) upon the request of the Purchaser, its Quarterly Reports on Form 10-Q, (iv) upon the request of the Purchaser, its Current Reports on Form 8-K, and (v) a full copy of the particular Registration Statement covering the Registrable Shares; 22 (b) upon the reasonable request of the Purchaser, a reasonable number of copies of the prospectuses and supplements thereto to supply to any other party requiring such prospectuses and supplements; and the Company, upon the reasonable request of the Purchaser, will meet with the Purchaser or a representative thereof at the Company's headquarters to discuss information relevant for disclosure in the Registration Statement covering the Registrable Shares and will otherwise cooperate with any Purchaser conducting an investigation for the purpose of reducing or eliminating such Purchaser's exposure to liability under the Securities Act, including the reasonable production of information at the Company's headquarters, subject to appropriate confidentiality limitations. 7.6 Delay in Filing or Effectiveness of Registration Statement. If the Registration Statement is not filed by the Company with the Commission on or prior to the Filing Date, then for each day following the Filing Date, until but excluding the date the Registration Statement is filed, or if the Registration Statement has been filed but is not declared effective by the Commission by the Required Effective Date, then for each day following the Required Effective Date, until but excluding the date the Commission declares the Registration Statement effective, the Company shall, for each such day, pay the Purchaser with respect to any such failure, as liquidated damages and not as a penalty, an amount equal to 0.033% of the purchase price paid by such Purchaser for the Securities it continues to hold pursuant to this Agreement as of such day; and for any such day, such payment shall be made no later than the tenth business day of the calendar month next succeeding the month in which such day occurs. If the Purchaser shall be prohibited from selling the Registrable Shares under the Registration Statement as a result of (i) a Suspension of more than thirty (30) days, (ii) Suspensions on more than one (1) occasion in any 6-month period, (iii) Suspensions on more than two (2) occasions in any 12-month period or (iv) Suspensions aggregating forty-five (45) days or more in any 12-month period, then for each day on which a Suspension is in effect that exceeds the maximum allowed period for a Suspension or Suspensions (or maximum number of Suspensions), but not including any day on which a Suspension is lifted, the Company shall pay the Purchaser, as liquidated damages and not as a penalty, an amount equal to 0.033% per day of the purchase price paid by the Purchaser for the Registrable Shares the Purchaser continues to hold pursuant to this Agreement as of such day, and such payment shall be made no later than the tenth business day of the calendar month next succeeding the month in which such day occurs. For purposes of this Section 7.6, a Suspension shall be deemed lifted on the date that notice that the Suspension has been lifted is delivered to the Purchaser pursuant to Section 9 of this Agreement. Any payments made pursuant to this Section 7.6 shall not constitute the Purchaser's exclusive remedy for such events. Notwithstanding the foregoing provisions, in no event shall the Company be obligated to pay such liquidated damages to more than one Purchaser in respect of the same Registrable Shares for the same period of time. Such payments shall be made to the Purchaser in cash. SECTION 8. Broker's Fee. The Purchaser acknowledges that the Company intends to pay to the Placement Agent a fee in respect of the sale of the Securities to the Purchaser. The Purchaser and the Company hereby agree that the Purchaser shall not be responsible for such fee and that the Company will indemnify and hold harmless the Purchaser and each Purchaser/Affiliate against any losses, claims, damages, liabilities or expenses, joint or several, to which such Purchaser or Purchaser/Affiliate may become subject with respect to such fee. Each of the parties hereto hereby represents that, on the 23 basis of any actions and agreements by it, there are no other brokers or finders entitled to compensation in connection with the sale of the Securities to the Purchaser. SECTION 9. Notices. All notices, requests, consents and other communications hereunder shall be in writing, shall be mailed by first-class registered or certified airmail, confirmed facsimile or nationally recognized overnight express courier postage prepaid, and shall be deemed given (i) when so faxed , (ii) the day after so mailed by such overnight express courier and (iii) two days after so mailed otherwise than by such overnight express courier, (except that notices of Suspensions or stop orders must be made by facsimile) as follows: (a) if to the Company, to: Nastech Pharmaceutical Company Inc. 3450 Monte Villa Parkway Bothell, Washington 98021 Attention: Dr. Steven Quay Facsimile: (425) 908-3650 with a copy to: Kramer Levin Naftalis & Frankel LLP 919 Third Avenue New York, New York 10022 Attention: Richard Marlin, Esq. Facsimile: (212) 715-8000 or to such other person at such other place as the Company shall designate to the Purchaser in writing; and (b) if to the Purchaser, at its address as set forth at the end of this Agreement, or at such other address or addresses as may have been furnished to the Company in writing. SECTION 10. Changes. No provision of this Agreement may be waived, modified or amended except pursuant to an instrument in writing signed by the Company and the Purchaser. SECTION 11. Headings. The headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement. SECTION 12. Severability. In case any provision contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. SECTION 13. Governing Law; Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. Any legal suit, action or proceeding arising out of or based upon this Agreement or the transactions contemplated hereby 24 ("RELATED PROCEEDINGS") may be instituted in the federal courts of the United States of America located in New York, New York (collectively, the "SPECIFIED COURTS"), and each party irrevocably submits to the non-exclusive jurisdiction of such Specified Courts of such courts in any such suit, action or proceeding. Service of any process, summons, notice or document by mail to such party's address set forth above shall be effective service of process for any suit, action or other proceeding brought in any such court. The parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or other proceeding in the Specified Courts and irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such suit, action or other proceeding brought in any such court has been brought in an inconvenient forum. With respect to any Related Proceeding, each party irrevocably waives, to the fullest extent permitted by applicable law, all immunity (whether on the basis of sovereignty or otherwise) from jurisdiction, service of process, attachment (both before and after judgment) and execution to which it might otherwise be entitled in the Specified Courts or any other court of competent jurisdiction. SECTION 14. Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other parties. Facsimile signatures shall be deemed original signatures. SECTION 15. Entire Agreement. This Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Purchaser makes any representation, warranty, covenant or undertaking with respect to such matters. This Agreement supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof. SECTION 16. Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person. SECTION 17. Successors and Assigns. This Agreement is binding upon and inures to the benefit of the parties and their successors and assigns; provided that the Company may only assign this Agreement or any rights or obligations hereunder without the prior written consent of the Purchaser in connection with a merger, consolidation or sale of all or substantially all of the Company's assets. The Purchaser may assign its rights under this Agreement to any person to whom the Purchaser assigns any of the Securities, so long as (i) such transfer is in compliance with the federal and state securities laws, (ii) such transferee is an "accredited investor" (within the meaning of Regulation D under the Securities Act), (iii) such transferee agrees in writing to be bound by the terms and provisions of this Agreement, (iv) such transferee completes and delivers to the Company the Securities Questionnaire and Registration Statement Questionnaire attached as Appendix I and (v) any transfer of Shares to such transferee complies with Section 5 and Section 7.2 hereof; provided, however that if such assignment is made to 10 or more separate persons or entities, then the Purchaser, and not any subsequent assignee, shall have the right to enforce the terms of, and receive notices under, Section 7.3. 25 SECTION 18. Force Majeure. Neither party shall be deemed in default of any provision of this Agreement (other than provisions regarding confidentiality), to the extent that performance of its obligations or attempts to cure a breach are materially delayed or prevented by any event reasonably beyond the control of such party, including, without limitation, war, hostilities, acts of terrorism, revolution, riot, civil commotion, national emergency, strike, lockout, unavailability of supplies, epidemic, fire, flood, earthquake, force of nature, explosion, embargo, or any other Act of God, or any law, proclamation, regulation, ordinance, or other act or order of any court, government or governmental agency, provided that such party gives the other party written notice thereof promptly upon discovery thereof and uses reasonable efforts to cure or mitigate the delay or failure to perform. SECTION 19. Further Assurances. Each party will do and perform, or cause to be done and performed, all such further acts and things, and will execute and deliver all other agreements, certificates, instruments and documents, as another party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. SECTION 20. No Strict Construction. The language used in this Agreement is 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. [Remainder of page is intentionally blank] 26 SIGNATURE PAGE TO NASTECH PHARMACEUTICAL COMPANY INC. SUBSCRIPTION AGREEMENT Dated __________ __, 2003 IN WITNESS WHEREOF, the undersigned has executed this Agreement this ___ day of __________, 2003. Number of units to be purchased: _______________, including ____________ Purchased Shares and ________ Purchased Warrants Purchase Price for Units to be Purchased: $___________ __________________________________________ Print Full Legal Name of Partnership, Company, Limited Liability Company, Trust or Other Entity By: ______________________________________ (Authorized Signatory) Name: ____________________________________ Title: ___________________________________ Address and Fax Number: __________________ __________________________________________ Taxpayer Identification Number: __________ Date and State of Incorporation or Organization: _____________ Date on which Taxable Year Ends: _____________________________ E-mail Address: __________________________ ACCEPTED AND AGREED: NASTECH PHARMACEUTICAL COMPANY INC. By: ______ Name:_____________________________ Title: Dated: EX-99.3 5 v92891exv99w3.txt EXHIBIT 99.3 EXHIBIT 99.3 THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS. NASTECH PHARMACEUTICAL COMPANY INC. WARRANT Warrant No. Dated: September 4, 2003 Nastech Pharmaceutical Company, Inc., a Delaware corporation (the "Company"), hereby certifies that, for value received, _______________ or its registered assigns (the "Holder"), is entitled to purchase from the Company up to a total of __________ shares (as adjusted from time to time as provided in Section 9) of Common Stock (as defined below) (each such share, a "Warrant Share" and all such shares, the "Warrant Shares") at an exercise price equal to $11.09 (as adjusted from time to time as provided in Section 9, the "Exercise Price"), at any time and from time to time from and after the date hereof through and including September 4, 2008 (the "Expiration Date"), and subject to the following terms and conditions. This Warrant is one of a series of similar warrants (the "Warrants") issued pursuant to those certain Purchase Agreements, dated the Original Issue Date, by and among the Company and the Holder and the Company and certain other investors (each a "Purchase Agreement" and collectively, the "Purchase Agreements"), providing for the issuance of Common Stock and Warrants by the Company to the Holder and such other investors. 1. Definitions. The capitalized terms used herein and not otherwise defined shall have the meanings set forth below: "Common Stock" means the common stock of the Company, $.006 par value per share, as constituted on the Original Issue Date. "Company" includes the Company and any corporation which shall succeed to or assume the obligations of the Company hereunder. The term "corporation" shall include an association, joint stock company, business trust, limited liability company or other similar organization. "Convertible Securities" means (i) options to purchase or rights to subscribe for Common Stock, (ii) securities by their terms convertible into or exchangeable for Common Stock or (iii) options to purchase or rights to subscribe for such convertible or exchangeable securities. "Eligible Market" means any of the New York Stock Exchange, the American Stock Exchange or Nasdaq. "Market Price" shall mean (i) if the principal trading market for such securities is an exchange, the average of the last reported sale prices per share for the last five previous Trading Days in which a sale was reported, as officially reported on any consolidated tape, (ii) if clause (i) is not applicable, the average of the closing bid price per share for the last five previous Trading Days as set forth by Nasdaq or, (iii) if clauses (i) and (ii) are not applicable, the average of the closing bid price per share for the last five previous Trading Days as set forth in the National Quotation Bureau sheet listing for such securities. Notwithstanding the foregoing, if there is no reported sales price or closing bid price, as the case may be, on any of the ten Trading Days preceding the event requiring a determination of Market Price hereunder, then the Market Price shall be determined in good faith by resolution of the Board of Directors of the Company, based on the best information available to it. "Nasdaq" means the Nasdaq SmallCap Market or Nasdaq National Market. "Original Issue Date" means September 4, 2003. "Other Securities" refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the Holder of this Warrant at any time shall be entitled to receive, or shall have received, upon the exercise of this Warrant, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 9 hereof or otherwise. "Person" means any court or other federal, state, local or other governmental authority or other individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind. "Registration Statement" shall have the meaning set forth in the Purchase Agreement entered into by the original Holder and the Company. "Trading Day" means (a) any day on which the Common Stock is listed or quoted and traded on Nasdaq or (b) if the Common Stock is not then quoted and traded on any Eligible Market, then a day on which trading occurs on the Nasdaq National Market (or any successor thereto). "Transfer Agent" shall mean American Stock Transfer & Trust Company or such 2 other Person as the Company may appoint from time to time. "Warrant Shares" shall initially mean shares of Common Stock and in addition may include Other Securities and Distributed Property (as defined in Section 9(b)) issued or issuable from time to time upon exercise of this Warrant. 2. Registration of Warrant. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the "Warrant Register"), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary. 3. Registration of Transfers. The Company shall register the transfer of any portion of this Warrant in the Warrant Register, upon surrender of this Warrant, with the Form of Assignment attached hereto duly completed and signed, to the Company at its address specified herein. Upon any such registration and transfer, a new warrant in substantially the form of a Warrant (any such new warrant, a "New Warrant"), evidencing the portion of this Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations of a holder of a Warrant. 4. Exercise and Duration of Warrant. (a) This Warrant shall be exercisable by the registered Holder at any time and from time to time on and after the date hereof to and including the Expiration Date; provided, however, that the Expiration Date shall be extended for each day (i) the Registration Statement is not effective, or (ii) the Company fails to have a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock available to issue Warrant Shares upon exercise of the Warrant. At 6:30 P.M., New York City time on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value. (b) A Holder may exercise this Warrant by delivering to the Company (i) an exercise notice, in the form attached hereto (the "Exercise Notice"), appropriately completed and duly signed, and (ii) payment of the Exercise Price for the number of Warrant Shares as to which this Warrant is being exercised (as set forth in Section 4(c) below), and the date such items are received by the Company is an "Exercise Date." Execution and delivery of the Exercise Notice shall have the same effect as cancellation of the original Warrant and issuance of a New Warrant evidencing the right to purchase the remaining number of Warrant Shares. (c) The Holder shall pay the Exercise Price (i) in cash or by certified bank check payable to the order of the Company or (ii) if the Market Price exceed the Exercise Price, through a "cashless exercise," by surrendering to the Company shares of Common Stock, this Warrant or other securities issued by the Company in which event the Company shall issue to the Holder the number of Warrant Shares determined as follows: X = Y {(A-B)/A} 3 where: X = the number of Warrant Shares to be issued to the Holder. Y = the number of Warrant Shares with respect to which this Warrant is being exercised. A = the Market Price on the Exercise Date. B = the Exercise Price (d) The Company shall reserve a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock available to issue Warrant Shares upon exercise of the Warrant. (e) The Company will, at the time of any exercise of this Warrant, upon the request of the Holder hereof, acknowledge in writing its continuing obligation to afford to the Holder any rights (including, without limitation, any right to registration of the Warrant Shares) to which the Holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant, provided that if the Holder of this Warrant shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford the Holder any such rights. (f) If an exercise of this Warrant is to be made in connection with a registered public offering or sale of the Company, such exercise may, at the election of the Holder, be conditioned on the consummation of the public offering or sale of the Company, in which case such exercise shall not be deemed effective until the consummation of such transaction. 5. Delivery of Warrant Shares. (a) Upon exercise of this Warrant, the Company shall promptly (but in no event later than three Trading Days after the Exercise Date) issue or cause to be issued and deliver or cause to be delivered to or, upon the written order of the Holder and in such name or names as the Holder may designate, a certificate for the Warrant Shares issuable upon such exercise bearing (only if such legend is required by applicable law) the restrictive legend set forth in Section 5(h) of the Purchase Agreement entered into by the Holder and the Company. The Holder, or any Person so designated by the Holder to receive the Warrant Shares, shall be deemed to have become holder of record of such Warrant Shares as of the Exercise Date. (b) This Warrant is exercisable, either in its entirety or, from time to time, for a portion of the number of Warrant Shares. Upon surrender of this Warrant following one or more partial exercises, the Company shall issue or cause to be issued, at its expense, a New Warrant evidencing the right to purchase the remaining number of Warrant Shares. (c) In addition to any other rights available to the Holder, if the Company fails to deliver to the Holder a certificate representing Warrant Shares by the third Trading Day after the Exercise Date, and if after such third Trading Day the Holder purchases (in an open market 4 transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares that the Holder anticipated receiving from the Company (a "Buy-In"), then in the Holder's sole discretion, the Company shall, within three Trading Days after the Holder's prompt written request, pay cash to the Holder in an amount equal to the Holder's total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased less the total Exercise Price of such shares (the "Buy-In Price"), if greater than zero, at which point the Company's obligation to deliver such certificate (and to issue such Common Stock) shall terminate. (d) The Company's obligations to issue and deliver Warrant Shares in accordance with the terms of this Section 5 are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of Warrant Shares. Nothing herein shall limit the Holder's right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance or other injunctive relief with respect to the Company's failure to timely deliver certificates representing shares of Common Stock upon exercise of this Warrant as required pursuant to the terms hereof. 6. Charges, Taxes and Expenses. Issuance and delivery of certificates for shares of Common Stock upon exercise of this Warrant shall be made without charge to the Holder for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrant in a name other than that of the Holder or an affiliate thereof. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof. 7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and in substitution for this Warrant, a New Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, if requested. 8. Reservation of Warrant Shares. The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued and otherwise unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other contingent purchase rights of persons other than the Holder (taking into account the adjustments and restrictions of Section 9). The Company covenants that all Warrant Shares so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in 5 accordance with the terms hereof, be duly and validly authorized, issued, fully paid and nonassessable. The Company will take all such action as may be necessary to assure that such shares of Common Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any securities exchange or automated quotation system upon which the Common Stock may be listed. 9. Certain Adjustments. The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 9. (a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination. (b) Pro Rata Distributions. If the Company, at any time while this Warrant is outstanding, distributes to holders of Common Stock (i) evidences of its indebtedness, (ii) any security (other than a distribution of Common Stock covered by the preceding paragraph), (iii) rights or warrants to subscribe for or purchase any security, or (iv) any other asset (in each case, "Distributed Property"), then in each such case the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution (and the Exercise Price thereafter applicable) shall be adjusted (effective on and after such record date) to equal the product of such Exercise Price times a fraction of which the denominator shall be the Market Price on such record date and of which the numerator shall be Market Price on such record date less the then fair market value per share of the Distributed Property distributed in respect of one outstanding share of Common Stock, which, if the Distributed Property is other than cash or marketable securities, shall be as determined in good faith by the Board of Directors of the Company. (c) Fundamental Transactions. If, at any time while this Warrant is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a "Fundamental Transaction"), then the Holder shall have the right thereafter to receive, upon exercise of this Warrant, the same amount and kind of securities, cash 6 or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the number of Warrant Shares then issuable upon exercise in full of this Warrant (the "Alternate Consideration"). The aggregate Exercise Price for this Warrant will not be affected by any such Fundamental Transaction, but the Company shall apportion such aggregate Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. At the Holder's request, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a New Warrant consistent with the foregoing provisions and evidencing the Holder's right to purchase the Alternate Consideration for the aggregate Exercise Price upon exercise thereof. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this paragraph (c) and insuring that this Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. (d) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise Price pursuant to paragraphs (a) or (b) of this Section, the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the increased or decreased number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment. (e) Calculations. All calculations under this Section 9 shall be made to the nearest cent or the nearest 1/100th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock. (f) Adjustments. Notwithstanding any provision of Section 9, no adjustment of the Exercise Price shall be required if such adjustment is less than $0.05; provided, however, that any adjustments which by reason of this Section 9(g) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. (g) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this Section 9, the Company, at its expense, will promptly cause the Company's regularly retained auditor to compute such adjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment, including a statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other securities issuable upon exercise of this Warrant (as applicable), describing the transactions giving rise to such adjustments and showing in detail the facts upon which such adjustment is based. Upon written request, the Company will promptly deliver a copy of each such certificate to the Holder and to the Company's Transfer Agent. (h) Notice of Corporate Events. If the Company (i) declares a dividend or any 7 other distribution of cash, securities or other property in respect of its Common Stock, including ,without limitation, any granting of rights or warrants to subscribe for or purchase any capital stock of the Company or any subsidiary of the Company, (ii) authorizes, approves, enters into any agreement contemplating, or solicits stockholder approval for, any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or winding up of the affairs of the Company, then the Company shall deliver to the Holder a notice describing the material terms and conditions of such transaction at least 20 calendar days prior to the applicable record or effective date on which a Person would need to hold Common Stock in order to participate in or vote with respect to such transaction, and the Company will take all steps reasonably necessary in order to ensure that the Holder is given the practical opportunity to exercise this Warrant prior to such time so as to participate in or vote with respect to such transaction; provided, however, that the failure to deliver such notice or any defect therein shall not affect the validity of the corporate action required to be described in such notice. 10. Fractional Shares. The Company shall not be required to issue or cause to be issued fractional Warrant Shares on the exercise of this Warrant. If any fraction of a Warrant Share would, except for the provisions of this Section, be issuable upon exercise of this Warrant, the Company shall make a cash payment to the Holder equal to the such fraction multiplied by the Market Price on the Exercise Day of one full Warrant Share. 11. Listing on Securities Exchanges. In furtherance and not in limitation of any other provision of this Warrant, if the Company at any time shall list any Common Stock on any national securities exchange and shall register such Common Stock under the Securities and Exchange Act of 1934, as amended, the Company will, at its expense, simultaneously list on such exchange or Nasdaq, upon official notice of issuance upon the exercise of this Warrant, and maintain such listing, of Warrant Shares; and the Company will so list on any national securities exchange or Nasdaq, will so register and will maintain such listing of, any Other Securities if and at the time that any securities of like class or similar type shall be listed on such national securities exchange or Nasdaq by the Company. 12. Further Assurances. The Company will take such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares of stock upon the exercise of this Warrant. 13. Remedies. The Company stipulates that the remedies at law of the Holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 14. Notices. Any and all notices or other communications or deliveries hereunder (including without limitation any Exercise Notice) shall be in writing and shall be mailed by certified mail, return receipt requested, or by a nationally recognized courier service or delivered (in person or by facsimile), against receipt to the party to whom such notice or other communication is to be given. The address for such notices or communications shall be as set forth in the Purchase Agreement entered into by the Holder and the Company. Any notice or 8 other communication given by means permitted by this Section 14 shall be deemed given at the time of receipt thereof. 15. Warrant Agent. The Transfer Agent shall serve as warrant agent under this Warrant. Upon 30 days' notice to the Holder, the Company may appoint a new warrant agent. Any corporation into which the Transfer Agent or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Transfer Agent or any new warrant agent shall be a party or any corporation to which the Transfer Agent or any new warrant agent transfers substantially all of its corporate trust or shareholders services business shall be a successor warrant agent under this Warrant without any further act. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder's last address as shown on the Warrant Register. 16. Miscellaneous. (a) This Warrant may be assigned by the Holder. This Warrant may not be assigned by the Company, except to a successor in the event of a Fundamental Transaction. This Warrant shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. Subject to the preceding sentence, nothing in this Warrant shall be construed to give to any Person other than the Company and the Holder any legal or equitable right, remedy or cause of action under this Warrant. This Warrant may be amended only in writing signed by the Company and the Holder and their successors and assigns. (b) The Company will not, by amendment of its governing documents or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities 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 against impairment. Without limiting the generality of the foregoing, the Company (i) will not increase the par value of any Warrant Shares above the amount payable therefor on such exercise, (ii) will take all such action as may be reasonably necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares on the exercise of this Warrant, and (iii) will not close its shareholder books or records in any manner which materially interferes with the timely exercise of this Warrant. (c) GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF THE PURCHASE AGREEMENT ENTERED INTO BY THE COMPANY AND THE HOLDER), AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY 9 SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS WARRANT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. THE COMPANY HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY. (d) Neither party shall be deemed in default of any provision of this Agreement (other than provisions regarding confidentiality), to the extent that performance of its obligations or attempts to cure a breach are delayed or prevented by any event reasonably beyond the control of such party, including, without limitation, war, hostilities, acts of terrorism, revolution, riot, civil commotion, national emergency, strike, lockout, unavailability of supplies, epidemic, fire, flood, earthquake, force of nature, explosion, embargo, or any other Act of God, or any law, proclamation, regulation, ordinance, or other act or order of any court, government or governmental agency, provided that such party gives the other party written notice thereof promptly upon discovery thereof and uses reasonable efforts to cure or mitigate the delay or failure to perform. (e) The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit or affect any of the provisions hereof. (f) In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant. {REMAINDER OF PAGE INTENTIONALLY LEFT BLANK, SIGNATURE PAGE FOLLOWS} 10 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized officer as of the date first indicated above. NASTECH PHARMACEUTICAL COMPANY INC. By: _______________________________ Name: Title: FORM OF EXERCISE NOTICE (To be executed by the Holder to exercise the right to purchase shares of Common Stock under the foregoing Warrant) To: Nastech Pharmaceutical Company Inc. The undersigned is the Holder of Warrant No. _______ (the "Warrant") issued by Nastech Pharmaceutical Company Inc., a Delaware corporation (the "Company"). Capitalized terms used herein and not otherwise defined have the respective meanings set forth in the Warrant. 1. The Warrant is currently exercisable to purchase a total of _________ Warrant Shares. 2. The undersigned Holder hereby exercises its right to purchase _________ Warrant Shares pursuant to the Warrant. 3. The Holder intends that payment of the Exercise Price shall be made as (check one): Cash Exercise_______ Cashless Exercise_______ 4. If the Holder has elected a Cash Exercise, the Holder shall pay the sum of $________ to the Company in accordance with the terms of the Warrant. 5. If the Holder has elected a Cashless Exercise, a certificate shall be issued to the Holder for the number of shares equal to the whole number portion of the product of the calculation set forth below, which is ________. The Company shall pay a cash adjustment in respect of the fractional portion of the product of the calculation set forth below in an amount equal to the product of the fractional portion of such product and the Market Price on the Exercise Day, which product is ________. X = Y[(A-B)/A] X = the number of Warrant Shares to be issued to the Holder. Number of Warrant Shares being exercised:______________ ("Y"). Market Price on the Exercise Day:____________________ ("A"). Exercise Price:___________ ("B") 6. Pursuant to this exercise, the Company shall deliver to the Holder Warrant Shares in accordance with the terms of the Warrant. 7. Following this exercise, the Warrant shall be exercisable to purchase a total of __________ Warrant Shares. Dated: _________ Name of Holder: (Print)_______________________ By:___________________________ Name:_________________________ Title:________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant) 2 FORM OF ASSIGNMENT (to be completed and signed only upon transfer of Warrant) FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ________________________________________ the right represented by the within Warrant to purchase _____________ shares of Common Stock of Nastech Pharmaceutical Company Inc. to which the within warrant relates and appoints __________________________ attorney to transfer said right on the books of Nastech Pharmaceutical Company Inc. with full power of substitution in the premises. Dated:____________ ________________________ (Signature must conform in all respects to name of Holder as specified on face of the Warrant) Address of Transferee: ________________________ ________________________ ________________________ In the presence of: ________________________ 3 -----END PRIVACY-ENHANCED MESSAGE-----

EX-99.1

[NASTECH LOGO]

FOR IMMEDIATE RELEASE

                  NASTECH CLOSES $11 MILLION PRIVATE PLACEMENT

BOTHELL, WASH., - SEPTEMBER 4, 2003 - Nastech Pharmaceutical Company Inc.
(Nasdaq: NSTK) announced today that it has completed a private placement of
equity securities to institutional investors totaling $11.0 million in gross
proceeds. The net proceeds will be used for general corporate purposes,
including working capital. Lehman Brothers Inc. acted as exclusive placement
agent for the financing.

In the private placement, the Company issued 1.513 million shares of common
stock and warrants to purchase up to 0.53 million shares of common stock at an
exercise price of $11.09 per share. The warrants are exercisable up to and
including September 4, 2008.

This press release does not constitute an offer to sell or the solicitation of
an offer to buy any security. The shares issued in the private placement have
not been registered under the Securities Act of 1933, as amended, or applicable
state securities laws and may not be offered or sold in the United States absent
registration under the Securities Act of 1933, as amended, and applicable state
securities laws or an applicable exemption from registration requirements.
Nastech has agreed to file a registration statement covering the resale of the
shares.

ABOUT NASTECH

Nastech Pharmaceutical Company Inc. is a leader in nasal drug delivery. The
Company is developing a platform technology for delivering both small- and
large-molecule drugs by nasal administration. Intranasal drug delivery may lead
to greater drug efficacy, speed of action, safety, and patient compliance.
Nastech has shown great promise in delivering drugs directly to the Central
Nervous System via the nasal passages where there is no blood brain barrier.
Nastech has a diverse product portfolio across multiple therapeutic areas,
including products targeted for the treatment of male and female sexual
dysfunction, pain management, osteoporosis, cancer and hepatic illnesses, growth
deficiency and multiple sclerosis.

NASTECH SAFE HARBOR STATEMENT

Statements contained herein that are not historical fact may be forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
that are subject to a variety of risks and uncertainties. There are a number of
important factors that could cause actual results to differ materially from
those projected or suggested in any forward-looking statement made by the
Company. These factors include, but are not limited to: (i) the Company's
ability to successfully complete product research and development, including
pre-clinical and clinical studies and commercialization; (ii) the Company's
ability to obtain required governmental approvals, including product and patent
approvals; (iii) the Company's ability to attract and/or maintain manufacturing,
sales, distribution and marketing partners; and (iv) the Company's ability to
develop and commercialize its products before its competitors. In addition,
significant fluctuations in quarterly results may occur as a result of varying
milestone payments and the timing of costs and expenses related to the Company's
research and development program. Additional factors that would cause actual
results to differ materially from those projected or suggested in any
forward-looking statements are contained in the Company's filings with the
Securities and Exchange Commission, including, but not limited to, those factors
discussed under the caption "Risk Factors" in the Company's most recent Annual
Report on Form 10-K and Quarterly Reports on Form 10-Q, which the Company urges
investors to consider. The Company undertakes no obligation to publicly release
the revisions to such forward-looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrences of
unanticipated events, except as otherwise required by securities or other
applicable laws.

                                      # # #

CONTACT:

Nastech Pharmaceutical Company Inc.:
Matthew D. Haines
Director, Corporate Communications
(212) 297-6198
mhaines@nastech.com

Burns McClellan (representing Nastech)
E. Blair Clark (Investors)
Kathy L. Jones, Ph.D. (Media)
212-213-0006

EX-99.2

                                                                    EXHIBIT 99.2

                       NASTECH PHARMACEUTICAL COMPANY INC.

                               PURCHASE AGREEMENT

                  THIS PURCHASE AGREEMENT (this "AGREEMENT") is made as of the
3rd day of September, 2003, by and between Nastech Pharmaceutical Company Inc.,
a corporation organized under the laws of the State of Delaware (the "COMPANY"),
with its principal offices at 3450 Monte Villa Parkway, Bothell, Washington
98021, and the purchaser whose name and address is set forth on the signature
page hereof (the "PURCHASER").

                                    RECITALS

         A.       The Company desires to issue and sell to the Purchaser and
certain other investors ("the OTHER PURCHASERS" and together with the Purchaser,
the "PURCHASERS") in a private placement (the "OFFERING"), and the Purchasers
desire to purchase up to an aggregate of 1,513,069 units (each, a "UNIT"), each
Unit consisting of one share of common stock, par value $0.006 per share
("COMMON STOCK"), of the Company (the "PURCHASED SHARES") and 0.35 five year
warrant, substantially in the form attached to the Private Placement Memorandum
as Exhibit F. Each whole warrant included in the Units shall be exercisable to
purchase one share of Common Stock, at $11.09 per share (the "PURCHASED
WARRANTS" and collectively with the Purchased Shares, the "SECURITIES"). Each
Unit will be sold at a purchase price of $7.27 per Unit. This Agreement and the
Purchased Warrants shall be referred to herein collectively as the "TRANSACTION
DOCUMENTS".

         B.       In furtherance of the Offering, the Company has prepared and
delivered to the Purchaser a confidential private placement memorandum dated as
of August 1, 2003 and amended and supplemented as of September 2, 2003 (such
confidential private placement memorandum, as amended or supplemented and all
documents incorporated by reference therein, including, without limitation, any
SEC Filings (as defined in Section 4.16) and any other documents incorporated by
reference in the SEC Filings, collectively, the "PRIVATE PLACEMENT MEMORANDUM").

         C.       The Purchaser desires, upon the terms and conditions set forth
in this Agreement, to purchase Securities in the Offering.

         D.       The Company and the Purchaser are executing and delivering
this Agreement in reliance upon the exemption from securities regulation
afforded by Section 4(2) of the Securities Act (as defined in Section 3) and
Rule 506 under Regulation D.

                  IN CONSIDERATION of the premises and mutual covenants
contained in this Agreement and other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Purchaser agree as follows:

                  SECTION 1. Authorization of Sale of the Securities. Subject to
the terms and conditions of this Agreement, the Company has authorized the sale
of up to an aggregate of 1,513,069 Units, consisting of up to an aggregate of
1,513,069 shares of Common Stock and 529,574 Purchased Warrants, at a purchase
price of $7.27 per Unit.



                  SECTION 2. Agreement to Sell and Purchase the Securities. At
the Closing (as defined in Section 3), the Company will sell to the Purchaser
and the Purchaser will buy from the Company, upon the terms and conditions
hereinafter set forth, the Securities set forth on the signature page hereto.

                  The Company proposes to enter into this same form of purchase
agreement with the Other Purchasers and expects to complete sales of the
Securities to them. This Agreement and the agreements executed by the Other
Purchasers are hereinafter sometimes collectively referred to as the
"AGREEMENTS." Notwithstanding any contrary provisions of the Agreements, the
obligations of each Purchaser are several and not joint with the obligations of
any other Purchaser, and no Purchaser shall be responsible in any way for the
performance of the obligations of any other Purchaser. Nothing contained herein,
and no action taken by any Purchaser, shall be deemed to constitute the
Purchasers as a partnership, an association, a joint venture or any other kind
of entity, or create a presumption that the Purchasers are in any way acting in
concert or as a group with respect to such obligations or the transactions
contemplated by the Agreements. Each Purchaser shall be entitled to
independently protect and enforce its rights, including without limitation the
rights arising out of its Agreement and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. The term "PLACEMENT AGENT" shall mean Lehman Brothers Inc.

                  SECTION 3. Delivery of the Purchased Shares and Purchased
Warrants at the Closing. Subject to the terms and conditions set forth in this
Agreement, the completion of the purchase and sale of the Purchased Shares and
the Purchased Warrants (the "CLOSING") shall occur at the offices of Kramer
Levin Naftalis & Frankel LLP, 919 Third Avenue, New York, New York 10022, as
soon as practicable and as agreed by the parties hereto within three (3)
business days following the execution of the Agreements, or on such later date
or at such different location as the parties shall agree in writing (the
"CLOSING DATE"). The Closing shall occur at a time to be agreed upon by the
Company and the Placement Agent and of which the Purchasers will be notified by
facsimile transmission or otherwise.

                  At the Closing, the Company shall (i) authorize its transfer
agent (the "TRANSFER AGENT") to arrange delivery to the Purchaser of one or more
stock certificates registered in the name of the Purchaser, or in such nominee
name(s) as designated by the Purchaser in writing, representing the number of
Purchased Shares set forth on the signature page hereto and (ii) issue the
number of Purchased Warrants set forth on the signature page hereto to the
Purchaser, each stock certificate and Purchased Warrant bearing an appropriate
legend referring to the fact that the Securities were sold in reliance upon the
exemption from registration under the Securities Act of 1933, as amended (the
"SECURITIES ACT") provided by Section 4(2) thereof and Rule 506 thereunder. At
the Closing, the Transfer Agent shall deliver to the Placement Agent a
certificate of the Transfer Agent, in form and substance reasonably acceptable
to the Placement Agent, certifying (i) that it is duly authorized to issue the
Purchased Shares and (ii) that the Company has reserved the Underlying Shares
(as defined in Section 4.4) for issuance upon the exercise of the Purchased
Warrants. The name(s) in which the stock certificates and the Purchased Warrants
are to be registered are set forth in the Securities Questionnaire attached
hereto as part of Appendix I (the "SECURITIES QUESTIONNAIRE"). The Company's
obligation to complete the purchase and sale of the Securities and deliver the
stock certificate(s) representing the Purchased Shares and the Purchased

                                       2


Warrants to the Purchaser at the Closing shall be subject to the following
conditions, any one or more of which may be waived in writing by the Company:
(a) receipt by the Company of same-day funds in the full amount of the purchase
price for the Securities being purchased hereunder; (b) completion of the
purchases and sales under the Agreements with Purchasers of Securities having an
aggregate purchase price of at least $7,500,000; (c) the accuracy of the
representations and warranties (as if such representations and warranties were
made on the Closing Date) made by the Purchasers and the fulfillment of those
undertakings and covenants of the Purchasers required to be fulfilled prior to
the Closing; (d) the Purchaser shall have executed and delivered to the Company
the Securities Questionnaire, pursuant to which the Purchaser shall provide
information necessary to confirm such Purchaser's status as an "accredited
investor" as defined in Rule 501 promulgated under the Securities Act; (e) no
proceeding challenging this Agreement or agreement with any Other Purchaser or
the transactions contemplated hereby or thereby or seeking to prohibit, alter,
prevent or materially delay the Closing shall have been instituted or shall be
pending before any court, arbitrator or governmental body, agency or official;
and (f) the sale of the Securities shall not be prohibited by any law or
governmental order or regulation. The Purchaser's obligation to accept delivery
of such stock certificate(s) and to pay for the Purchased Shares evidenced
thereby and the Purchased Warrants shall be subject to the conditions: (1) that
the representations and warranties made by the Company herein are accurate as of
the Closing Date; (2) that the Company has fulfilled all undertakings and
covenants set forth herein required to be fulfilled prior to the Closing; (3)
that the Common Stock shall be quoted on the Nasdaq National Market System; (4)
that the Purchasers have purchased Securities having an aggregate purchase price
of $7,500,000.

                  SECTION 4. Representations, Warranties and Covenants of the
Company. The Company hereby represents and warrants to, and covenants with, the
Purchaser as follows:

                  4.1      Organization and Qualification. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and the Company is qualified to do business as a
foreign corporation in each jurisdiction in which qualification is required,
except where failure to so qualify would not reasonably be expected to have a
Material Adverse Effect (as defined in Section 4.23). Atossa Healthcare, Inc. is
the only entity of which the Company, directly or indirectly, owns at least 50%
of the outstanding equity of (or which is otherwise directly or indirectly
controlled by the Company) (the "SUBSIDIARY"). The Subsidiary is duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and is qualified to do business as a foreign corporation in each
jurisdiction in which qualification is required, except where failure to so
qualify would not have a Material Adverse Effect.

                  4.2.     Authorized Capital Stock. As of July 29, 2003, (i)
the authorized capital stock of the Company consisted of 25,000,000 shares of
Common Stock and 100,000 shares of Preferred Stock, $.01 par value per share,
(the "PREFERRED STOCK"), of which 10,000 shares have been designated as Series A
Junior Participating Preferred Stock and none are outstanding; (ii) 10,284,933
shares of Common Stock and no shares of Preferred Stock were issued and
outstanding; (iii) there were outstanding options granted pursuant to its stock
purchase plans to purchase a total of 2,917,808 shares of Common Stock; (iv)
there were available for issuance under the Company's stock option plans a total
of 524,292 shares of Common Stock; and (v) there were outstanding warrants to
purchase 569,178 shares of Common Stock. The issued and outstanding shares of
the Company's Common Stock have been duly authorized and validly issued, are
fully paid and

                                       3


nonassessable, have been issued in compliance with all federal and state
securities laws and were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities, and conform in
all material respects to the description thereof contained in the Private
Placement Memorandum. Except for stock options and other awards granted under
the option, award and purchase plans of the Company described in the Private
Placement Memorandum or except as otherwise disclosed in or contemplated by the
Private Placement Memorandum, the Company does not have outstanding any options
or warrants to purchase, or any preemptive rights or other rights to subscribe
for or to purchase, any securities or obligations convertible into, or any
contracts or commitments to issue or sell, shares of its capital stock or any
such options, warrants, rights, convertible securities or obligations. The
description of the Company's stock, stock bonus and other stock plans or
arrangements and the options, warrants or other rights granted and exercised
thereunder, set forth or incorporated by reference in the Private Placement
Memorandum accurately and fairly presents in all material respects all
information pertaining to such plans, arrangements, options and rights. With
respect to the Subsidiary, (i) all the issued and outstanding shares of the
Subsidiary's capital stock have been duly authorized and validly issued, are
fully paid and nonassessable, have been issued in compliance with applicable
federal and state securities laws, were not issued in violation of or subject to
any preemptive rights or other rights to subscribe for or purchase securities,
and (ii) there are no outstanding options or warrants to purchase, or any
preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of the Subsidiary's capital stock or any such options,
rights, convertible securities or obligations. The Company owns 100% of the
outstanding equity of the Subsidiary.

                  4.3.     Issuance, Sale and Delivery of the Securities. The
issuance of the Purchased Shares has been duly authorized by all necessary
corporate action on the part of the Company and, when issued to and paid for by
the Purchaser in accordance with this Agreement and the countersigning of the
certificate or certificates representing the Purchased Shares by a duly
authorized signator of the registrar for the Common Stock, the Purchased Shares
will be validly issued, fully paid and non-assessable. The issuance of the
Purchased Warrants has been duly authorized by all necessary corporate action on
the part of the Company. No preemptive rights or other rights to subscribe for
or purchase exist with respect to the issuance and sale of the Securities by the
Company pursuant to this Agreement. Except as set forth in this Agreement, the
Private Placement Memorandum or in any document incorporated by reference
therein, no Person (as defined below) has any right (which has not been waived
or has not expired by reason of lapse of time following notification of the
Company's intent to file the registration statement to be filed by it pursuant
to Section 7.1 (the "REGISTRATION STATEMENT")) to require the Company to
register any of its currently outstanding securities or any securities issuable
upon exercise or conversion of its currently outstanding securities or pursuant
to other agreements or rights, nor is the Company obligated to register or
qualify any such securities under any state securities or Blue Sky laws. No
further approval or authority of the stockholders or the Board of Directors of
the Company will be required for the issuance and sale of the Securities to be
sold by the Company as contemplated herein.

                  For purposes of the Agreement, "PERSON" shall mean any other
individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any kind.

                                       4


                  4.4.     Underlying Shares. The issuance of the Underlying
Shares (as defined below) upon exercise of the Purchased Warrants has been duly
authorized, and the Underlying Shares have been, and at all times prior to such
exercise will have been, duly reserved for issuance upon such exercise and
payment of the exercise price of the Purchased Warrants and, when so issued,
will be validly issued, fully paid and non-assessable. "UNDERLYING SHARES" shall
mean any shares of Common Stock or other securities issued or issuable from time
to time upon the exercise of a Purchased Warrant.

                  4.5.     Due Execution, Delivery and Performance of this
Agreement. The Company has all requisite corporate power and authority to enter
into the Transaction Documents and perform the transactions contemplated
thereby. The Transaction Documents have been duly authorized, executed and
delivered by the Company. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation of the transactions
therein contemplated will not violate any provision of the organizational
documents of the Company or its Subsidiary and will not result in the creation
of any lien, charge, security interest or encumbrance upon any assets of the
Company or of its Subsidiary pursuant to the terms or provisions of, or will not
conflict with, result in the breach or violation of, or constitute, either by
itself or upon notice or the passage of time or both, a default under any
agreement, contract, note, bond, mortgage, deed of trust, lease, franchise,
license, indenture, permit or other instrument to which the Company or its
Subsidiary is a party or by which the Company or its Subsidiary or any of their
respective properties may be bound or affected or, to the Knowledge of the
Company (as defined below), any statute or any authorization, judgment, decree,
order, rule or regulation of any court or any regulatory body, administrative
agency or other governmental body applicable to the Company or its Subsidiary or
any of their respective properties where such conflict, breach, violation or
default is reasonably likely to result in a Material Adverse Effect. No consent,
approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body is required for the execution
and delivery of the Transaction Documents or the consummation of the
transactions contemplated by the Transaction Documents, except for compliance
with the Blue Sky laws and federal securities laws applicable to the offering of
the Securities. Upon the execution and delivery of the Transaction Documents,
and assuming the valid execution of this Agreement by the Purchaser, the
Transaction Documents will constitute valid and binding obligations of the
Company, enforceable in accordance with their terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' and contracting parties' rights generally
and except as enforceability may be subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law) and except as the indemnification agreements of the Company in
Section 7.3 hereof may be legally unenforceable.

                  For purposes of this Agreement, "KNOWLEDGE OF THE COMPANY"
shall mean, with respect to a particular fact or other matter, the actual
current knowledge, after reasonable investigation, of the Chief Executive
Officer or Chief Financial Officer of the Company.

                  4.6      Accountants. The firm of KPMG LLP, which has
expressed its opinion with respect to the consolidated financial statements
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2002 (portions of which are incorporated by reference in the
Private Placement Memorandum), and has represented that it is an independent
accountant as

                                       5


required by the Securities Act and the rules and regulations promulgated
thereunder (the "RULES AND REGULATIONS").

                  4.7      Contracts. Except as disclosed in the Private
Placement Memorandum, the contracts that are material to the Company are in full
force and effect on the date hereof; and neither the Company nor its Subsidiary
nor, to the Knowledge of the Company, any other party thereto, is in breach of
or default under any of such contracts which breach or default would have a
Material Adverse Effect.

                  4.8      No Actions. Except as disclosed in the Private
Placement Memorandum, (i) there are no legal or governmental actions, suits,
proceedings, pending and (ii) to the Knowledge of the Company, there are no
inquiries or investigations, nor are there are any legal or governmental
actions, suits, or proceedings threatened, to which the Company or its
Subsidiary is or may be a party or subject or of which property owned or leased
by the Company or its Subsidiary is or may be the subject, or related to
environmental or discrimination matters, or instituted by the Commission (as
defined in Section 4.16), the National Association of Securities Dealers, Inc.,
any state securities commission or other governmental or regulatory entity,
which actions, suits or proceedings, individually or in the aggregate, would
prevent or might reasonably be expected to prevent or materially and adversely
affect the transactions contemplated by this Agreement or result in a Material
Adverse Effect; and no labor disturbance by the employees of the Company or of
its Subsidiary exists, or is imminent which is reasonably expected to have a
Material Adverse Effect. Except as disclosed in the Private Placement
Memorandum, neither the Company nor its Subsidiary is party to or subject to the
provisions of any injunction, judgment, decree or order of any court, regulatory
body administrative agency or other governmental body.

                  4.9.     Properties. Each of the Company and its Subsidiary
has good and marketable title to all the properties and assets reflected as
owned by it in the consolidated financial statements incorporated by reference
in the Private Placement Memorandum (the "PROPRIETARY ASSETS"), subject to no
lien, mortgage, pledge, charge or encumbrance of any kind except (i) those, if
any, reflected in such consolidated financial statements, or (ii) those which
are not material in amount and do not materially adversely affect the use made
of such property by the Company or its Subsidiary. Each of the Company and its
Subsidiary holds its leased properties under valid and binding leases, subject
to such exceptions as are not materially significant in relation to its
business. To the Knowledge of the Company, the Proprietary Assets of the Company
and its Subsidiary constitute all the Proprietary Assets necessary to enable the
Company and its Subsidiary to conduct their respective businesses in the manner
in which such businesses have been and are being conducted. Except as set forth
the Private Placement Memorandum and in Schedule 4.9, (i) neither the Company
nor any Subsidiary has licensed any of its Proprietary Assets to any individual,
sole proprietorship, partnership, corporation, limited liability company,
business trust, unincorporated association, joint stock corporation, trust,
joint venture or other entity, any university or similar institution, or any
government or any agency or instrumentality or political subdivision thereof
(each a "PERSON") on an exclusive, semi-exclusive or royalty-free basis, and
(ii) neither the Company nor any Subsidiary has entered into any covenant not to
compete or contract limiting such entity's ability to exploit fully any of such
entity's material Proprietary Assets or to transact business in any material
market or geographical area or with any Person. "PROPRIETARY ASSETS" shall
include, but shall not be limited to, the Intellectual Property of the Company,
as defined in Section 4.11 below.

                                       6


                  4.10.    No Material Change. Since June 30, 2003 and except as
described in or specifically contemplated by the Private Placement Memorandum:
(i) neither the Company nor its Subsidiary has incurred any material liabilities
or obligations, indirect, or contingent, or entered into any material oral or
written agreement or other material transaction not in the ordinary course of
business or which could reasonably be expected to have a Material Adverse
Effect; (ii) neither the Company nor its Subsidiary has sustained any material
loss or damage to its physical properties or assets from fire, flood, windstorm,
accident or other calamity not covered by insurance; (iii) neither the Company
nor its Subsidiary has paid or declared any dividends or other distributions
with respect to its capital stock, and neither the Company nor its Subsidiary
has defaulted in the payment of principal or interest on any outstanding debt
obligations; (iv) there has not been any change in the capital stock of the
Company or of its Subsidiary, other than the issuance of the Securities
hereunder and shares or options issued pursuant to employee equity incentive
plans or purchase plans approved by the Company's Board of Directors and
repurchases of shares or options pursuant to repurchase plans already approved
by the Company's Board of Directors, or any increase in indebtedness material to
the Company or its Subsidiary; and (v) there has not been any other event which
has caused a Material Adverse Effect.

                  4.11.    Intellectual Property. (a) Except as disclosed in the
Private Placement Memorandum: (i) the Company owns or has obtained valid and
enforceable rights, licenses or options for any inventions, patent applications,
patents, trademarks (both registered and unregistered), trade names, trademark
applications, copyrights, copyright applications, maskworks, maskwork
applications, trade secrets, fictitious business names, service marks, service
mark applications, know how, customer lists, franchise systems, computer
software, computer program, designs, blueprints, engineering drawings,
proprietary products, source code, technology, proprietary rights or other
intellectual property rights or intangible assets and all licenses and other
rights required to use or exploit any of the foregoing, currently used in the
conduct of the Company's business (collectively, the "INTELLECTUAL PROPERTY");
and (ii) there are no third parties who have any ownership rights to any
Intellectual Property that is owned by, or has been licensed to, the Company for
the products described in the Private Placement Memorandum that would preclude
the Company from conducting its business as currently conducted and have a
Material Adverse Effect, except for the ownership rights of the owners of the
Intellectual Property licensed or optioned by the Company. To the Knowledge of
the Company, (A) there are currently no sales of any products that would
constitute an infringement by third parties of any Intellectual Property owned,
licensed or optioned by the Company, which infringement would have a Material
Adverse Effect; (B) there is no pending or threatened action, suit, proceeding
or claim by others challenging the rights of the Company in or to any
Intellectual Property owned, licensed or optioned by the Company, other than
claims which would not reasonably be expected to have a Material Adverse Effect;
(C) there is no pending or threatened action, suit, proceeding or claim by
others challenging the validity or scope of any Intellectual Property owned,
licensed or optioned by the Company, other than any such actions, suits,
proceedings and claims that would not reasonably be expected to have a Material
Adverse Effect; and (D) there is no pending or threatened action, suit,
proceeding or claim by others that the Company infringes or otherwise violates
any patent, trademark, copyright, trade secret or other proprietary right of
others, other than non-material actions, suits, proceedings and claims.

                           (b)      Each of the Company and its Subsidiary has
taken commercially reasonable and customary measures and precautions to protect
and maintain the confidentiality and

                                       7


secrecy of all Intellectual Property of the Company and its Subsidiary (except
Intellectual Property whose public disclosure (i) is required by law, (ii) would
not impair its value or (iii) would not have a Material Adverse Effect) and
otherwise to maintain and protect the value of all Intellectual Property of the
Company and its Subsidiary. Except as set forth in the Private Placement
Memorandum, neither the Company nor its Subsidiary has (other than pursuant to
license agreements identified in the Private Placement Memorandum) disclosed or
delivered to any Person, or permitted the disclosure or delivery to any Person
of (i) the source code, or any portion or aspect of the source code, of any
Intellectual Property, (ii) the object code, or any portion or aspect of the
object code, of any Intellectual Property of the Company and its Subsidiary,
except in the ordinary course of its business or (iii) any patent applications
(except as required by law).

                           (c)      Except as set forth in the Private Placement
Memorandum, excluding warranty claims received by Company or its Subsidiary in
the ordinary course of business, to the Knowledge of the Company, neither the
Company nor its Subsidiary has received any claim by any customer or other party
alleging that any Intellectual Property of the Company or its Subsidiary
(including each version thereof that has ever been licensed or otherwise made
available by the Company to any Person) does not conform in all material
respects with any specification, documentation, performance standard,
representation or statement made or provided by or on behalf of the Company.

                  4.12.    Compliance. To the Knowledge of the Company, neither
the Company nor its Subsidiary has been advised, nor has reason to believe, that
either of the Company or its Subsidiary is not conducting business in compliance
with all applicable laws, rules and regulations of the jurisdictions in which it
is conducting its business, including, without limitation, all applicable local,
state and federal environmental laws and regulations; in each case, except where
failure to be in compliance would not have a Material Adverse Effect.

                  4.13.    Taxes. Each of the Company and its Subsidiary has
filed or has valid extensions of the time to file all necessary federal, state
and foreign income and franchise tax returns due prior to the date hereof and
has paid or accrued all taxes shown as due thereon where such failure to file
such return or to pay such taxes is reasonably likely to result in a Material
Adverse Effect, and, to the Knowledge of the Company, there is no material tax
deficiency which has not been reserved for which has been or might be asserted
or threatened against it and which is reasonably likely to have a Material
Adverse Effect.

                  4.14.    Investment Company. The Company is not an "investment
company" or an "affiliated person" of, or "promoter" or "principal underwriter"
for an investment company, within the meaning of the Investment Company Act of
1940, as amended.

                  4.15.    Offering Materials. Neither the Company nor, to the
Knowledge of the Company, any person acting on behalf of the Company, has
distributed or will distribute to the Purchaser prior to the Closing Date any
material non-public information, other than information related to the
transactions contemplated by this Agreement, including, without limitation, the
Private Placement Memorandum and any amendment or supplement thereto, all of
which information related to the transactions contemplated hereby shall be
disclosed by the Company pursuant to Section 4.28 hereof. Neither the Company
nor any person acting on its behalf has in the past or will hereafter take any
action independent of the Placement Agent to sell, offer for sale or

                                       8


solicit offers to buy any securities of the Company which would subject the
offer, issuance or sale of the Securities contemplated by this Agreement to the
registration requirements of Section 5 of the Securities Act.

                  4.16.    Additional Information. (a) To the extent
incorporated by reference in the Private Placement Memorandum, including any
supplements thereto, the information contained in the following documents, did
not, as of the date of the applicable document, include any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
in which they were made, not misleading, as of their respective filing dates or,
if amended, as so amended (the following documents, collectively, the "SEC
FILINGS") each of which has been duly filed with the Securities and Exchange
Commission (the "COMMISSION") on the dates set forth below:

                           (i)      the Company's Annual Report on Form 10-K for
                                    the year ended December 31, 2002;

                           (ii)     the Company's Quarterly Report on Form 10-Q
                                    for the quarter ended March 31, 2003 and
                                    June 30, 2003;

                           (iii)    the Company's definitive Proxy Statement
                                    with respect to its 2003 Annual Meeting of
                                    Stockholders, filed with the Commission on
                                    April 30, 2003; and

                           (iv)     the Company's Current Reports on Form 8-K
                                    filed with the Commission on May 14, 2003,
                                    June 17, 2003, July 1, 2003, July 17, 2003
                                    and August 6, 2003.

                  In addition, as of the date of this Agreement, the Private
Placement Memorandum, which, to the Knowledge of the Company, the Placement
Agent has furnished to the Purchaser, or will furnish prior to the Closing, when
read together with the information, qualifications and exceptions contained in
this Agreement, does not include any untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in the
light of the circumstances in which they were made, not misleading.

                  (b)      In furtherance and not in limitation of the
provisions of Section 4.16(a), the consolidated financial statements of the
Company and the related notes contained in or incorporated by reference into the
SEC Filings present fairly in all material respects, in accordance with
generally accepted accounting principles, the consolidated financial position of
the Company and its Subsidiary as of the dates indicated, and the results of
their operations, cash flows and the changes in stockholders' equity for the
periods therein specified, subject, in the case of unaudited financial
statements for interim periods, to normal year-end audit adjustments and the
absence of full footnote disclosure as required by generally accepted accounting
principles. Such consolidated financial statements (including the related notes)
have been prepared in all material respects in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods therein specified, subject, in the case of unaudited financial
statements for interim periods, to normal year-end audit adjustments, and except
as otherwise described therein and except that unaudited financial statements
may not contain all footnotes required by generally accepted

                                       9


accounting principles.

                  4.17.    Form D. No later than fifteen (15) days after the
Closing, the Company shall file a Form D with respect to the Securities as
required under Regulation D and shall provide a copy thereof to the Purchaser
promptly after filing.

                  4.18     Legal Opinion. Prior to the Closing, Kramer Levin
Naftalis & Frankel LLP, counsel to the Company, will deliver its legal opinion
to the Placement Agent and the Purchasers substantially in the form attached as
Exhibit A to this Agreement. Such opinion shall also state that each of the
Purchasers may rely thereon as though it were addressed directly to such
Purchaser.

                  4.19     Certificate. At the Closing, the Company will deliver
to the Purchaser a certificate executed by the chief executive officer, or the
chief financial or accounting officer of the Company, dated the Closing Date, in
form and substance reasonably satisfactory to the Purchaser, to the effect that
the representations and warranties of the Company set forth in this Section 4
are true and correct as of the Closing Date, and the Company has complied in all
material respects with all the agreements and satisfied all the conditions
herein on its part to be performed or satisfied on or prior to such Closing
Date.

                  4.20     Reporting Company; Form S-3. The Company is subject
to the reporting requirements of the Exchange Act and has filed all reports
required thereby since June 30, 2002. The Company is eligible to register the
Registrable Shares (as defined below) for resale by the Purchaser on a
registration statement on Form S-3 under the Securities Act. To the Knowledge of
the Company, there exist no facts or circumstances (including without limitation
any required approvals or waivers or any circumstances that may delay or prevent
the obtaining of accountant's consents) that reasonably could be expected to
prohibit or delay the preparation and filing of a registration statement on Form
S-3 that will be available for the resale of the Registrable Shares by the
Purchaser.

                  4.21     Quotation on Nasdaq. The Company has not, in the two
years preceding the date hereof, received notice (written or oral) from the
Nasdaq National Market System, any stock exchange, market or trading facility on
which the Common Stock is or has been listed (or on which it has been quoted) to
the effect that the Company is not in compliance with the listing or maintenance
requirements of such exchange, market or trading facility. The Company is, and
has no reason to believe that it will not in the foreseeable future continue to
be, in compliance with all such listing and maintenance requirements. The
Company shall use its best efforts to maintain the designation and quotation, or
listing, of the Common Stock on the Nasdaq National Market System or on another
national securities exchange for a minimum of two (2) years following the
Closing Date.

                  4.22     Use of Purchaser Name. Except as may be required by
applicable law or in connection with the registration of the Registrable Shares,
the Company shall not use, directly or indirectly, the Purchaser's name or the
name of any of its affiliates in any advertisement, announcement, press release
or other similar communication unless it has received the prior written consent
of the Purchaser for the specific use contemplated or as otherwise required by
applicable law or regulation.

                                       10


                  4.23     Material Adverse Effect. As used in this Section 4,
the term "MATERIAL ADVERSE EFFECT" means a material adverse effect upon the
business, financial condition, results of operation, prospects to the extent
presented in the Private Placement Memorandum (subject to the safe harbor
provision therein), properties or operations of the Company and its Subsidiary,
taken as a whole.

                  4.24     No Defaults. Except as disclosed in the Private
Placement Memorandum, neither the Company nor its Subsidiary is in violation or
default of any provision of its articles of incorporation or bylaws, or in
breach of or default with respect to any provision of any agreement, judgment,
decree, order, mortgage, deed of trust, lease, franchise, license, indenture,
permit or other instrument to which it is a party or by which it or any of its
properties are bound and where such violation, breach or default is reasonably
likely to result in a Material Adverse Effect.

                  4.25     Transfer Taxes. On the Closing Date, all stock
transfer or other taxes (other than income or similar taxes) which are required
to be paid in connection with the sale and transfer of the Securities hereunder
will be, or will have been, fully paid or provided for by the Company, and all
laws imposing such taxes will be or will have been complied with.

                  4.26     Use of Proceeds. The Company will use the proceeds
from the sale of the Securities as described under "Use of Proceeds" in the
Private Placement Memorandum.

                  4.27     Price of Common Stock. The Company has not taken any
action intended to stabilize or manipulate the price of the Company's shares of
the Common Stock to facilitate the sale or resale of the Securities. The Company
has not repurchased any of its shares of Common Stock since June 30, 2003.

                  4.28     Disclosure. Except as included in the Private
Placement Memorandum, neither the Company nor, to the Knowledge of the Company,
any Person acting on behalf of the Company, has provided the Purchaser with any
information that the Company believes constitutes material, non-public
information. On or before 9:00 a.m., New York City time, on the first business
day after the Closing Date, the Company shall (i) file a Current Report on Form
8-K describing the material terms of the transactions contemplated by this
Agreement, and disclosing such portions of the Private Placement Memorandum as
contain any material nonpublic information with respect to the Company that has
not previously been publicly disclosed by the Company, and attaching as an
exhibit to such Form 8-K a form of this Agreement (including such exhibit, the
"8-K FILING") and (ii) issue a press release in form reasonably acceptable to
counsel for the Purchaser describing the material terms of the transactions
contemplated by this Agreement (the "PRESS RELEASE"). Except for information
that may be provided to the Purchaser pursuant to Section 5(j) of this
Agreement, the Company shall not, and shall use commercially reasonable efforts
to cause each of its officers, directors, employees and agents not to, provide
Purchaser with any material nonpublic information regarding the Company from and
after the filing of the 8-K Filing and the issuance of the Press Release without
the express written consent of such Purchaser. The Company understands and
confirms that the Purchaser will rely on the representations and covenants set
forth in this Section 4.28 in effecting transactions in securities of the
Company.

                  4.29     Private Offering. Neither the Company nor anyone
acting on its behalf has within the last 12 months issued, sold or offered any
security of the Company (including, without

                                       11


limitation, any Common Stock or warrants of similar tenor to the Purchased
Warrants) to any Person under circumstances that would cause the issuance and
sale of the Securities, as contemplated by this Agreement, to be subject to the
registration requirements of the Securities Act. The Company agrees that neither
the Company nor anyone acting on its behalf will offer the Securities or any
part thereof or any similar securities for issuance or sale to, or solicit any
offer to acquire any of the same from, anyone so as to make the issuance and
sale of the Securities subject to the registration requirements of Section 5 of
the Securities Act.

                  4.30     Related Party Transactions. Except as set forth in
the Private Placement Memorandum, since January 1, 2002, no transaction has
occurred between or among the Company, the Subsidiary and their affiliates,
officers or directors or any affiliate or affiliates of any such officer or
director.

                  4.31     Off-Balance Sheet Arrangements. There is no
transaction, arrangement or other relationship between the Company and an
unconsolidated or other off-balance sheet entity that is required to be
disclosed by the Company in its Exchange Act filings and is not so disclosed or
that otherwise would be reasonably likely to have a Material Adverse Effect.
There are no such transactions, arrangements or other relationships with the
Company that may create contingencies or liabilities that are not otherwise
disclosed by the Company in its Exchange Act filings.

                  4.32     Governmental Permits, Etc. Each of the Company and
its Subsidiary has all franchises, licenses, certificates and other
authorizations from such federal, state or local government or governmental
agency, department or body that are currently required for the operation of the
business of the Company and its Subsidiary as currently conducted, except where
the failure to possess currently such franchises, licenses, certificates and
other authorizations is not reasonably expected to have a Material Adverse
Effect. The Company and its Subsidiary have not received any written notice of
proceedings relating to the revocation or modification of any such permit which,
if the subject of an unfavorable decision, ruling or finding, could reasonably
be expected to have a Material Adverse Effect.

                  4.33     Solvency. Based on the financial condition of the
Company as of the Closing Date, (a) the Company's fair saleable value of its
assets exceeds the amount that will be required to be paid on or in respect of
the Company's existing debts and other liabilities (including known contingent
liabilities) as they mature; (b) the Company's assets do not constitute
unreasonably small capital to carry on its business for the current fiscal year
as now conducted and as proposed to be conducted including its capital needs
taking into account the particular capital requirements of the business
conducted by the Company, and project capital requirements and capital
availability thereof; and (c) the current cash flow of the Company, together
with the proceeds the Company would receive, were it to liquidate all of its
assets, after taking into account all anticipated uses of the cash, would be
sufficient to pay all amounts on or in respect of its debt when such amounts are
required to be paid. The Company does not intend to incur debts beyond its
ability to pay such debts as they mature (taking into account the timing and
amounts of cash to be payable on or in respect of its debt).

                  SECTION 5. Representations, Warranties and Covenants of the
Purchaser.

                                       12


                  (a)      The Purchaser represents and warrants to, and
covenants with, the Company that: (i) the Purchaser is knowledgeable,
sophisticated and experienced in making, and is qualified to make, decisions
with respect to investments in shares representing an investment decision like
that involved in the purchase of the Securities, including investments in
securities issued by the Company and comparable entities, and has requested,
received, reviewed and considered all information it deems relevant in making an
informed decision to purchase the Securities; (ii) the Purchaser is acquiring
the Securities set forth on the signature page hereto in the ordinary course of
its business and for its own account for investment only and with no present
intention or view toward the public sale or distribution thereof, and no
arrangement or understanding exists with any other persons regarding the public
sale or distribution of any Securities (this representation and warranty not
limiting the Purchaser's right to sell any Registrable Shares pursuant to the
Registration Statement or in compliance with an exemption from registration
under the Securities Act or, other than with respect to any claims arising out
of a breach of this representation and warranty, the Purchaser's right to
indemnification under Section 7.3); (iii) the Purchaser has completed or caused
to be completed the Registration Statement Questionnaire attached hereto as part
of Appendix I, for use in the preparation of the Registration Statement, and the
answers thereto are true and correct in all material respects as of the date
hereof and will be true and correct in all material respects as of the effective
date of the Registration Statement, and the Purchaser will notify the Company
immediately of any material change in any such information provided in the
Registration Statement Questionnaire; (iv) the Purchaser has, in connection with
its decision to purchase the number of Purchased Shares and Purchased Warrants
set forth on the signature page hereto, relied solely upon the Private Placement
Memorandum and the documents included therein or incorporated by reference and
the representations and warranties of the Company contained herein; (v) the
Purchaser is an "accredited investor" within the meaning of Rule 501(a) of
Regulation D promulgated under the Securities Act; and (vi) the Purchaser agrees
to notify the Company immediately of any change in any of the foregoing
information until such time as the Purchaser has sold all of its Securities or
the Company is no longer required to keep the Registration Statement effective.
The Purchaser acknowledges that it may not, except in compliance with the
Securities Act, the Rules and Regulations and such other securities or Blue Sky
laws as may be applicable, directly or indirectly, offer, sell, pledge, transfer
or otherwise dispose of (or solicit any offers to buy, purchase or otherwise
acquire or take a pledge of) any of the Securities or engage in any Short Sale
(as defined below).

                  (b)      The Purchaser represents and warrants to, and
covenants with, the Company that neither it nor any Purchaser/Affiliate (as
defined in Section 7.3 and which (x) had knowledge about the transactions
contemplated hereby, (y) has or shares discretion relating to Purchaser's
investments or trading or information concerning Purchaser's investments,
including the Units, or (z) is subject to Purchaser's review or input concerning
such Purchaser/Affiliate's investments or trading) has or will, directly or
indirectly, during the period beginning on the date on which the Purchaser was
first notified that the Company intended to engage in the transactions
contemplated by this Agreement and ending on the date that the Company files the
8-K Filing (as defined in Section 4.28) in accordance with Section 4.28 hereof,
engage (i) in any "short sale" (as defined in Rule 3b-3 promulgated under the
Exchange Act), including, without limitation, the maintaining of any short
position with respect to, establishing or maintaining a "put equivalent
position" (within the meaning of Rule 16a-1(h) under the Exchange Act) with
respect to, entering into any swap, derivative transaction or other arrangement
(whether any such transaction is to be settled by delivery of Common Stock,
other securities, cash or other consideration) that transfers to another, in

                                       13


whole or in part, any of the economic consequences of ownership, or otherwise
dispose of, any of the Securities by Purchaser or (ii) in any hedging
transaction which establishes a net short position with respect to the
Securities (clauses (i) and (ii) together, a "SHORT SALE"); except for (A) Short
Sales by a Purchaser/Affiliate which was, prior to the date on which the
Purchaser was first notified that the Company intended to engage in the
transactions contemplated by this Agreement, a market maker for the Common
Stock, provided that such Short Sales are in the ordinary course of such
Purchaser/Affiliate's business and are in compliance with the Securities Act,
the Rules and Regulations and such other securities or Blue Sky laws as may be
applicable or (B) Short Sales by a Purchaser/Affiliate which by virtue of the
procedures of the Purchaser are made without knowledge of the transactions
contemplated in this Agreement and were not induced or encouraged by the
Purchaser.

                  (c)      The Purchaser understands that the Securities are
being offered and sold to it in reliance upon specific exemptions from the
registration requirements of Securities Act, the Rules and Regulations and state
securities laws, and that the Company is relying upon the truth and accuracy of,
and the Purchaser's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of the Purchaser set forth herein
in order to determine the availability of such exemptions and the eligibility of
the Purchaser to acquire the Securities.

                  (d)      The Purchaser agrees to use the information contained
in the Private Placement Memorandum for the sole purpose of evaluating a
possible investment in the Securities and the Purchaser hereby acknowledges that
it is prohibited from reproducing or distributing the Private Placement
Memorandum, this Purchase Agreement, or any other offering materials or other
information provided by the Company in connection with the Purchaser's
consideration of its investment in the Company, in whole or in part, or
divulging or discussing any of their contents except to its advisors and
representatives for the purpose of evaluating such investment. The Purchaser
shall maintain in confidence the receipt and content of any notice of a
Suspension (as defined in Section 5(h) below). The foregoing agreements shall
not apply to any information that is or becomes publicly available through no
fault of the Purchaser, or that the Purchaser is legally required to disclose;
provided, however, that if the Purchaser is requested or ordered to disclose any
such information pursuant to any court or other government order or any other
applicable legal procedure, it shall provide the Company with prompt notice of
any such request or order in time sufficient to enable the Company to seek an
appropriate protective order and shall provide the Company with reasonable
assistance in obtaining such protective order at the Company's sole expense.

                  (e)      The Purchaser understands that its investment in the
Securities involves a significant degree of risk and that the market price of
the Common Stock has been and continues to be volatile and that no
representation is being made as to the future value of the Common Stock. The
Purchaser has the knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of an investment in the
Securities and has the ability to bear the economic risks of an investment in
the Securities. The Purchaser has had a reasonable opportunity to ask questions
of the Company and its representatives; and the Company has answered all
inquiries that the Purchaser or the Purchaser's representatives have put to it.

                                       14


                  (f)      The Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.

                  (g)      The Purchaser understands that the Purchased Shares
have not been registered under the Securities Act and will not sell, offer to
sell, assign, pledge, hypothecate or otherwise transfer any of the Purchased
Shares unless (i) pursuant to an effective registration statement under the
Securities Act, (ii) the Purchaser provides the Company with an opinion of
counsel, in a generally acceptable form, to the effect that a sale, assignment
or transfer of the Securities may be made without registration under the
Securities Act and the transferee agrees to be bound by the terms and conditions
of this Agreement, (iii) the Purchaser provides the Company with evidence of
compliance with Rule 144 promulgated under the Securities Act ("RULE 144"),
including reasonable assurances (in the form of seller and broker representation
letters) that the Purchased Shares can be sold pursuant to Rule 144, (iv)
pursuant to Rule 144(k) following the applicable holding period, (v) pursuant to
any other exception contained in the Securities Act provided that the Purchaser
provides the Company with an opinion of counsel, in a generally acceptable form.

                  (h)      The Purchaser understands that, until such time as
the Registration Statement has been declared effective or the Purchased Shares
and Underlying Shares (the "REGISTRABLE SHARES") may be sold by non-affiliates
of the Company pursuant to Rule 144 under the Securities Act without any
restriction as to the number of securities as of a particular date that can then
be immediately sold, the certificates for the Registrable Shares shall bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of the certificates for the Registrable
Shares):

         "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
         REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
         "SECURITIES ACT"), OR UNDER THE SECURITIES LAWS OF ANY OTHER
         JURISDICTION. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED
         IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
         SECURITIES UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
         LAWS, OR AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE REASONABLY
         ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER THE
         SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD
         PURSUANT TO RULE 144 UNDER THE SECURITIES ACT."

                  (i)      The Purchaser's principal executive offices are in
the jurisdiction set forth immediately below the Purchaser's name on the
signature pages hereto.

                  (j)      The Purchaser hereby covenants with the Company not
to make any sale of the Registrable Shares under the Registration Statement
without effectively causing the prospectus delivery requirement under the
Securities Act to be satisfied, and the Purchaser acknowledges and agrees that
such Registrable Shares are not transferable on the books of the Company unless
the certificate submitted to the Transfer Agent evidencing the Registrable
Shares is accompanied by a

                                       15


separate Purchaser's Certificate of Subsequent Sale (i) in the form of Appendix
II hereto, (ii) executed by an officer of, or other authorized person on behalf
of, the Purchaser, and (iii) to the effect that (A) the Registrable Shares have
been sold in accordance with the Registration Statement, the Securities Act and
any applicable state securities or Blue Sky laws and (B) if applicable, the
requirement of delivering a current prospectus has been satisfied. The Purchaser
acknowledges that there may occasionally be times when the Company must suspend
the use of the prospectus forming a part of the Registration Statement (a
"SUSPENSION") until such time as an amendment to the Registration Statement has
been filed by the Company and declared effective by the Commission, or such time
as such prospectus has been supplemented, or until such time as the Company has
filed an appropriate report with the Commission pursuant to the Exchange Act.
The Purchaser hereby covenants that it will not sell any Registrable Shares
pursuant to said prospectus during the period commencing at the time at which it
receives written notice of the Suspension of the use of said prospectus and
ending at the time the Company gives the Purchaser written notice that the
Purchaser may thereafter effect sales pursuant to said prospectus. The Purchaser
shall not be prohibited from selling the Registrable Shares under the
Registration Statement as a result of a Suspension or Suspensions: (i) for more
than thirty (30) days in the case of any Suspension, (ii) Suspensions on more
than one (1) occasion in any 6-month period, (iii) Suspensions on more than two
(2) occasions in any 12-month period or (iv) Suspensions aggregating forty-five
(45) days or more in any 12-month period; provided that the Company shall remain
liable for liquidated damages pursuant to Section 7.6 hereof with respect to any
Suspension or Suspensions exceeding the maximum allowed period for a Suspension
or Suspensions (or maximum number of Suspensions).

                  (k)      The Purchaser further represents and warrants to, and
covenants with, the Company that (i) the Purchaser has full right, power,
authority and capacity to enter into this Agreement and to consummate the
transactions contemplated hereby and has taken all necessary action to authorize
the execution, delivery and performance of this Agreement; (ii) upon the
execution and delivery of this Agreement, this Agreement shall constitute a
legal, valid and binding obligation of the Purchaser, enforceable in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' and contracting parties' rights generally and except as
enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law)
and except as the indemnification agreements of the Purchaser in Section 7.3
hereof may be legally unenforceable.

                  (l)      The Purchaser acknowledges the following disclosure,
which is set forth herein as required pursuant to Section 25102(a) of the
California Corporate Securities Law of 1968:

         "THE SALE OF THE SECURITIES THAT ARE THE SUBJECT OF THIS AGREEMENT HAS
         NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE
         OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR THE PAYMENT OR
         RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE
         QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM
         THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA
         CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE
         EXPRESSLY CONDITIONED

                                       16


         UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT."

                  SECTION 6. Survival of Representations and Warranties.
Notwithstanding any investigation made by any party to this Agreement or by the
Placement Agent, all representations and warranties made by the Company and the
Purchaser in this Agreement shall survive the execution and delivery of this
Agreement, the delivery to the Purchaser of Securities being purchased and the
payment therefor until the first anniversary of the Closing. The covenants of
the Company in this Agreement shall remain in effect as set forth in this
Agreement.

                  SECTION 7. Registration of the Shares; Compliance with the
Securities Act.

                  7.1.     Registration Procedures and Expenses. The Company
shall:

                  (a)      as soon as reasonably practicable, but in no event
later than fifteen (15) business days following the Closing Date (the "FILING
DATE"), subject to timely receipt of necessary information in writing from the
Purchasers, prepare and file with the Commission a Registration Statement on
Form S-3 relating to the sale of the Registrable Shares by the Purchaser and the
Other Purchasers from time to time on the Nasdaq National Market System or the
facilities of any national securities exchange on which the Common Stock is then
traded or in privately-negotiated transactions (the "REGISTRATION STATEMENT").
If Form S-3 is not available at that time, then the Company will file a
registration statement or such form as is then available to effect a
registration of the Registrable Shares, subject to the consent of the
Purchasers, representing a majority of the Registrable Shares, which consent
shall not be unreasonably withheld;

                  (b)      use its reasonable best efforts, to cause the
Commission to declare the Registration Statement effective as soon as
practicable but in no event later than sixty (60) calendar days after the
Closing Date (the "REQUIRED EFFECTIVE DATE"), subject to timely receipt of
necessary information in writing from the Purchasers. However, so long as the
Company filed the Registration Statement by the Filing Date, if the Registration
Statement receives Commission review, then the Required Effective Date will be
the ninetieth (90th) calendar day after the Closing Date. The Company's best
efforts will include, but not be limited to, promptly responding to all comments
received from the staff of the Commission. If the Company receives notification
from the Commission that the Registration Statement will receive no action or
review from the Commission, then the Company will, subject to its rights under
Section 7.2, use its commercially reasonably efforts to cause the Registration
Statement to become effective within five (5) business days after such
Commission notification;

                  (c)      use its best efforts to promptly prepare and file
with the Commission such amendments and supplements to the Registration
Statement and the prospectus used in connection therewith as may be necessary to
keep the Registration Statement effective until the earliest of (i) two years
after the effective date of the Registration Statement, (ii) the date on which
the Purchasers may sell all of the Registrable Shares then held by the
Purchasers, without registration, pursuant to Rule 144(k) of the Securities Act
or (iii) such time as all Registrable Shares purchased by all Purchasers in the
Offering have been sold pursuant to a Registration Statement or Rule 144 of the
Securities Act;

                                       17


                  (d)      furnish to the Purchaser with respect to the
Registrable Shares registered under the Registration Statement (and to each
underwriter, if any, of such Registrable Shares) such number of copies of
prospectuses and such other documents as the Purchaser may reasonably request,
in order to facilitate the public sale or other disposition of all or any of the
Registrable Shares by the Purchaser;

                  (e)      file documents required of the Company for normal
Blue Sky clearance in states specified in writing by the Purchaser; provided,
however, that the Company shall not be required to (i) qualify to do business in
any jurisdiction where it would not otherwise be required to qualify but for
this Section 7.1; (ii) file a general consent to service of process in any such
jurisdiction; or (iii) subject itself to taxation in any such jurisdiction; and

                  (f)      bear all expenses in connection with the procedures
in paragraphs (a) through (e) of this Section 7.1 and the registration of the
Registrable Shares pursuant to the Registration Statement, other than fees and
expenses, if any, of counsel or other advisers to the Purchaser or the Other
Purchasers or underwriting discounts, brokerage fees and commissions incurred by
the Purchaser or the Other Purchasers, if any.

                  Notwithstanding the foregoing, it shall be a condition
precedent to the obligations of the Company to take any action pursuant to
paragraphs (a) through (f) of this Section 7.1, that the Purchaser shall furnish
to the Company such information regarding itself, the Registrable Shares to be
sold by the Purchaser, and the intended method of disposition of such
Registrable Shares as shall be required to effect the registration of the
Registrable Shares, all of which information shall be furnished to the Company
in writing specifically for use in the Registration Statement. The Purchaser
shall update such information as and when necessary by written notice to the
Company.

                  The Company understands that the Purchaser disclaims being an
underwriter, but the Purchaser being deemed an underwriter shall not relieve the
Company of any obligations it has hereunder. Notwithstanding the foregoing, the
parties understand and agree that the Company shall not be obligated to retain
an underwriter with respect to the offer and sale of Registrable Shares pursuant
to the Registration Statement.

                  The Company shall promptly notify the Purchaser of the
effectiveness of the Registration Statement, and any post-effective amendments
thereto, as well as of the receipt by the Company of any stop orders of the
Commission with respect to the Registration Statement.

                  7.2.     Transfer of Registrable Shares After Registration.
While the Registration Statement is effective and available for resale, the
Purchaser agrees that it will not effect any disposition of the Registrable
Shares that would constitute a sale within the meaning of the Securities Act,
except as contemplated in the Registration Statement referred to in Section 7.1
hereof in the section titled "Plan of Distribution" or otherwise permitted by
law and that it will promptly notify the Company of any changes in the
information set forth in the Registration Statement regarding the Purchaser or
its plan of distribution.

                  7.3.     Indemnification. For the purpose of this Section 7.3:

                           (i)      the term "PURCHASER/AFFILIATE" shall mean
                                    any affiliate of the Purchaser (as defined
                                    in Rule 405 under the Securities Act) and
                                    any

                                       18


                                    person who controls the Purchaser or any
                                    affiliate of the Purchaser within the
                                    meaning of Section 15 of the Securities Act
                                    or Section 20 of the Exchange Act; and

                           (ii)     the term "REGISTRATION STATEMENT" shall
                                    include any final prospectus, exhibit,
                                    supplement or amendment included in or
                                    relating to, and any document incorporated
                                    by reference in, the Registration Statement
                                    referred to in Section 7.1 hereof.

                           (a)      The Company agrees to indemnify and hold
harmless the Purchaser and the Purchaser/Affiliate against any losses, claims,
damages, liabilities or expenses, to which the Purchaser or Purchaser/Affiliate
may become subject, under the Securities Act, the Exchange Act, or any other
federal or state statutory law or regulation, or at common law or otherwise
(including in settlement of any litigation, if such settlement is effected with
the written consent of the Company), insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof as contemplated below)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, including the
prospectus, financial statements and schedules, and all other documents filed as
a part thereof, as amended at the time of effectiveness of the Registration
Statement, including any information deemed to be a part thereof as of the time
of effectiveness pursuant to paragraph (b) of Rule 430A, or pursuant to Rule
434, of the Rules and Regulations, or the prospectus, in the form first filed
with the Commission pursuant to Rule 424(b) of the Rules and Regulations, or
filed as part of the Registration Statement at the time of effectiveness if no
Rule 424(b) filing is required (the "PROSPECTUS"), or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state in any of them a material fact required to be stated therein
or necessary to make the statements in the Registration Statement or any
amendment or supplement thereto not misleading or in the Prospectus or any
amendment or supplement thereto not misleading in the light of the circumstances
under which they were made, or arise out of or are based in whole or in part on
any material breach of the representations and warranties of the Company
contained in this Agreement, or any material breach by the Company of its
obligations hereunder, and will reimburse the Purchaser or Purchaser/Affiliate
for any legal and other expenses as such expenses are reasonably incurred by the
Purchaser or Purchaser/Affiliate in connection with investigating, defending,
settling, compromising or paying any such loss, claim, damage, liability,
expense or action; provided, however, that the Company will not be liable in any
such case to the extent, but only to the extent, that any such loss, claim,
damage, liability or expense arises out of or is based upon (i) an untrue
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement, the Prospectus or any amendment or supplement
thereto in reliance upon and in conformity with written information furnished to
the Company by or on behalf of the Purchaser expressly for use therein, (ii) the
failure of the Purchaser to comply with the covenants and agreements contained
in Section 7.2 hereof respecting the sale of the Registrable Shares, (iii) the
inaccuracy of any representations made by the Purchaser herein, or (iv) any
statement or omission in any Prospectus that is corrected in any subsequent
Prospectus that was delivered to the Purchaser prior to the pertinent sale or
sales by the Purchaser.

                           (b)      The Purchaser will severally, but not
jointly, indemnify and hold harmless the Company, each of its directors, each of
its officers who signed the Registration Statement and each person, if any, who
controls the Company within the meaning of Section 15 of

                                       19


the Securities Act or Section 20 of the Exchange Act, against any losses,
claims, damages, liabilities or expenses to which the Company, each of its
directors, each of its officers who signed the Registration Statement or
controlling person may become subject, under the Securities Act, the Exchange
Act, or any other federal or state statutory law or regulation, or at common law
or otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of the Purchaser which consent shall not be
unreasonably withheld) insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof as contemplated below) arise out of or
are based upon (i) any failure to comply with the covenants and agreements
contained in Section 7.2 hereof respecting the sale of the Registrable Shares or
(ii) any untrue or alleged untrue statement of any material fact contained in
the Registration Statement, the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements in the Registration Statement or any amendment or supplement
thereto not misleading or in the Prospectus or any amendment or supplement
thereto not misleading in the light of the circumstances under which they were
made, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in the Registration Statement, the Prospectus, or any amendment or supplement
thereto, in reliance upon and in conformity with written information furnished
to the Company by the Purchaser expressly for use therein, and the Purchaser
will reimburse the Company, each of its directors, each of its officers who
signed the Registration Statement or controlling person for any legal and other
expense reasonably incurred by the Company, each of its directors, each of its
officers who signed the Registration Statement or controlling person in
connection with investigating, defending, settling, compromising or paying any
such loss, claim, damage, liability, expense or action; provided, however, that
the obligations of the Purchaser under this Section 7.3 shall not exceed the net
proceeds to such Purchaser from the sale of Registrable Shares pursuant to such
Registration Statement.

                           (c)      Promptly after receipt by an indemnified
party under this Section 7.3 of notice of the threat or commencement of any
action, such indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party under this Section 7.3, promptly notify the
indemnifying party in writing thereof; but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party for contribution or otherwise than under the indemnity
agreement contained in this Section 7.3 (except to the extent that such omission
materially and adversely affects the indemnifying person's ability to defend
such action). Subject to provisions hereinafter stated, in case any such action
is brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it may wish, jointly
with all other indemnifying parties similarly notified, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both the
indemnified party and the indemnifying party, and the indemnifying party and the
indemnified party, based upon the advice of such indemnified party's counsel,
shall have reasonably concluded that there may be a conflict of interest between
the positions of the indemnifying party and the indemnified party in conducting
the defense of any such action or that there may be legal defenses available to
it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnified party or parties
shall have the right to select separate counsel to assume such legal defenses
and to otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon

                                       20


receipt of notice from the indemnifying party to such indemnified party of its
election so to assume the defense of such action and approval by the indemnified
party of counsel, the indemnifying party will not be liable to such indemnified
party under this Section 7.3 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof unless
(i) the indemnified party shall have employed such counsel in connection with
the assumption of legal defenses in accordance with the proviso to the preceding
sentence (it being understood, however, that the indemnifying party shall not be
liable for the expenses of more than one separate counsel, approved by such
indemnifying party in the case of paragraph (a), representing the indemnified
parties who are parties to such action (including indemnified parties under
Agreements with Other Purchasers), plus local counsel, if appropriate) or (ii)
the indemnifying party shall not have employed counsel reasonably satisfactory
to the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of action, in each of which cases the
reasonable fees and expenses of counsel shall be at the expense of the
indemnifying party. In no event shall any indemnifying person be liable in
respect of any amounts paid in settlement of any action unless the indemnifying
person shall have approved in writing the terms of such settlement; provided
that such consent shall not be unreasonably withheld. No indemnifying person
shall, without the prior written consent of the indemnified person, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified person is or could have been a party and indemnification could have
been sought hereunder by such indemnified person, unless such settlement
includes an unconditional release of such indemnified person from all liability
on claims that are the subject matter of such proceeding.

                           (d)      If the indemnification provided for in this
Section 7.3 is required by its terms but is for any reason held to be
unavailable to or otherwise insufficient to hold harmless an indemnified party
under paragraphs (a), (b) or (c) of this Section 7.3 in respect to any losses,
claims, damages, liabilities or expenses referred to herein, then each
applicable indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of any losses, claims, damages, liabilities
or expenses referred to herein (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Purchaser from the
placement of the Common Stock contemplated by this Agreement or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but the relative fault of the Company and the
Purchaser in connection with the statements or omissions or inaccuracies in the
representations and warranties in this Agreement or the Registration Statement
that resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Purchaser on the other shall be deemed to
be in the same proportion as the amount paid by the Purchaser to the Company
pursuant to this Agreement for the Registrable Shares purchased by the Purchaser
that were sold (including the exercise price of the Purchased Warrants, if any)
pursuant to the Registration Statement bears to the difference (the
"DIFFERENCE") between the amount the Purchaser paid for the Registrable Shares
that were sold (including the exercise price of the Purchased Warrants, if any)
pursuant to the Registration Statement and the amount received by the Purchaser
from such sale. The relative fault of the Company on the one hand and the
Purchaser on the other shall be determined by reference to, among other things,
whether the untrue or alleged statement of a material fact or the omission or
alleged omission to state a material fact or the inaccurate or the alleged
inaccurate representation and/or warranty relates to information supplied by the
Company or by the Purchaser and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such untrue

                                       21


statement or omission. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in paragraph (c) of this
Section 7.3, any legal or other out-of-pocket fees or expenses reasonably
incurred by such party in connection with investigating or defending any action
or claim. The provisions set forth in paragraph (c) of this Section 7.3 with
respect to the notice of the threat or commencement of any threat or action
shall apply if a claim for contribution is to be made under this paragraph (d);
provided, however, that no additional notice shall be required with respect to
any threat or action for which notice has been given under paragraph (c) for
purposes of indemnification. The Company and the Purchaser agree that it would
not be just and equitable if contribution pursuant to this Section 7.3 were
determined solely by pro rata allocation (even if the Purchaser were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in this paragraph.
Notwithstanding the provisions of this Section 7.3, the Purchaser shall not be
required to contribute any amount in excess of the amount by which the
Difference exceeds the amount of any damages which such Purchaser has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Purchaser's obligation to contribute pursuant to this
Section 7.3 is several and not joint.

                  7.4.     Termination of Conditions and Obligations. The
conditions precedent imposed by Section 5 or this Section 7 upon the
transferability of the Registrable Shares shall cease and terminate as to any
particular number of the Registrable Shares upon the earliest to occur of (i)
the sale of the Registrable Shares pursuant to the Registration Statement, (ii)
the sale of the Registrable Shares pursuant to Rule 144 under the Securities Act
or (iii) the passage of two (2) years from the effective date of the
Registration Statement covering such Registrable Shares or at such time as an
opinion of counsel satisfactory in form and substance to the Company shall have
been rendered to the effect that such conditions are not necessary in order to
comply with the Securities Act in connection with the resale of the Registrable
Shares.

                  7.5.     Information Available. As long as any Purchaser owns
the Registrable Shares and the Company is subject to the filing requirements of
the Exchange Act, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. So long as the Registration Statement is effective covering the
resale of the Registrable Shares owned by the Purchaser, the Company will
furnish to the Purchaser upon such Purchaser's request:

                  (a)      as soon as practicable after available (but in the
case of the Company's Annual Report to Stockholders, concurrently with delivery
to its shareholders generally) one copy of (i) its Annual Report to Stockholders
(which Annual Report shall contain financial statements audited in accordance
with U.S. generally accepted accounting principles by a national firm of
certified public accountants), (ii) if not included in substance in the Annual
Report to Stockholders, upon the request of the Purchaser, its Annual Report on
Form 10-K, (iii) upon the request of the Purchaser, its Quarterly Reports on
Form 10-Q, (iv) upon the request of the Purchaser, its Current Reports on Form
8-K, and (v) a full copy of the particular Registration Statement covering the
Registrable Shares;

                                       22


                  (b)      upon the reasonable request of the Purchaser, a
reasonable number of copies of the prospectuses and supplements thereto to
supply to any other party requiring such prospectuses and supplements; and the
Company, upon the reasonable request of the Purchaser, will meet with the
Purchaser or a representative thereof at the Company's headquarters to discuss
information relevant for disclosure in the Registration Statement covering the
Registrable Shares and will otherwise cooperate with any Purchaser conducting an
investigation for the purpose of reducing or eliminating such Purchaser's
exposure to liability under the Securities Act, including the reasonable
production of information at the Company's headquarters, subject to appropriate
confidentiality limitations.

                  7.6      Delay in Filing or Effectiveness of Registration
Statement. If the Registration Statement is not filed by the Company with the
Commission on or prior to the Filing Date, then for each day following the
Filing Date, until but excluding the date the Registration Statement is filed,
or if the Registration Statement has been filed but is not declared effective by
the Commission by the Required Effective Date, then for each day following the
Required Effective Date, until but excluding the date the Commission declares
the Registration Statement effective, the Company shall, for each such day, pay
the Purchaser with respect to any such failure, as liquidated damages and not as
a penalty, an amount equal to 0.033% of the purchase price paid by such
Purchaser for the Securities it continues to hold pursuant to this Agreement as
of such day; and for any such day, such payment shall be made no later than the
tenth business day of the calendar month next succeeding the month in which such
day occurs. If the Purchaser shall be prohibited from selling the Registrable
Shares under the Registration Statement as a result of (i) a Suspension of more
than thirty (30) days, (ii) Suspensions on more than one (1) occasion in any
6-month period, (iii) Suspensions on more than two (2) occasions in any 12-month
period or (iv) Suspensions aggregating forty-five (45) days or more in any
12-month period, then for each day on which a Suspension is in effect that
exceeds the maximum allowed period for a Suspension or Suspensions (or maximum
number of Suspensions), but not including any day on which a Suspension is
lifted, the Company shall pay the Purchaser, as liquidated damages and not as a
penalty, an amount equal to 0.033% per day of the purchase price paid by the
Purchaser for the Registrable Shares the Purchaser continues to hold pursuant to
this Agreement as of such day, and such payment shall be made no later than the
tenth business day of the calendar month next succeeding the month in which such
day occurs. For purposes of this Section 7.6, a Suspension shall be deemed
lifted on the date that notice that the Suspension has been lifted is delivered
to the Purchaser pursuant to Section 9 of this Agreement. Any payments made
pursuant to this Section 7.6 shall not constitute the Purchaser's exclusive
remedy for such events. Notwithstanding the foregoing provisions, in no event
shall the Company be obligated to pay such liquidated damages to more than one
Purchaser in respect of the same Registrable Shares for the same period of time.
Such payments shall be made to the Purchaser in cash.

                  SECTION 8. Broker's Fee. The Purchaser acknowledges that the
Company intends to pay to the Placement Agent a fee in respect of the sale of
the Securities to the Purchaser. The Purchaser and the Company hereby agree that
the Purchaser shall not be responsible for such fee and that the Company will
indemnify and hold harmless the Purchaser and each Purchaser/Affiliate against
any losses, claims, damages, liabilities or expenses, joint or several, to which
such Purchaser or Purchaser/Affiliate may become subject with respect to such
fee. Each of the parties hereto hereby represents that, on the

                                       23


basis of any actions and agreements by it, there are no other brokers or finders
entitled to compensation in connection with the sale of the Securities to the
Purchaser.

                  SECTION 9. Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be mailed by first-class
registered or certified airmail, confirmed facsimile or nationally recognized
overnight express courier postage prepaid, and shall be deemed given (i) when so
faxed , (ii) the day after so mailed by such overnight express courier and (iii)
two days after so mailed otherwise than by such overnight express courier,
(except that notices of Suspensions or stop orders must be made by facsimile) as
follows:

                  (a)      if to the Company, to:

                  Nastech Pharmaceutical Company Inc.
                  3450 Monte Villa Parkway
                  Bothell, Washington 98021
                  Attention:  Dr. Steven Quay
                  Facsimile:  (425) 908-3650

                  with a copy to:

                  Kramer Levin Naftalis & Frankel LLP
                  919 Third Avenue
                  New York, New York  10022
                  Attention: Richard Marlin, Esq.
                  Facsimile:  (212) 715-8000

or to such other person at such other place as the Company shall designate to
the Purchaser in writing; and

                  (b)      if to the Purchaser, at its address as set forth at
the end of this Agreement, or at such other address or addresses as may have
been furnished to the Company in writing.

                  SECTION 10. Changes. No provision of this Agreement may be
waived, modified or amended except pursuant to an instrument in writing signed
by the Company and the Purchaser.

                  SECTION 11. Headings. The headings of the various sections of
this Agreement have been inserted for convenience of reference only and shall
not be deemed to be part of this Agreement.

                  SECTION 12. Severability. In case any provision contained in
this Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.

                  SECTION 13. Governing Law; Jurisdiction. This Agreement shall
be governed by and construed in accordance with the laws of the State of New
York. Any legal suit, action or proceeding arising out of or based upon this
Agreement or the transactions contemplated hereby

                                       24


("RELATED PROCEEDINGS") may be instituted in the federal courts of the United
States of America located in New York, New York (collectively, the "SPECIFIED
COURTS"), and each party irrevocably submits to the non-exclusive jurisdiction
of such Specified Courts of such courts in any such suit, action or proceeding.
Service of any process, summons, notice or document by mail to such party's
address set forth above shall be effective service of process for any suit,
action or other proceeding brought in any such court. The parties irrevocably
and unconditionally waive any objection to the laying of venue of any suit,
action or other proceeding in the Specified Courts and irrevocably and
unconditionally waive and agree not to plead or claim in any such court that any
such suit, action or other proceeding brought in any such court has been brought
in an inconvenient forum. With respect to any Related Proceeding, each party
irrevocably waives, to the fullest extent permitted by applicable law, all
immunity (whether on the basis of sovereignty or otherwise) from jurisdiction,
service of process, attachment (both before and after judgment) and execution to
which it might otherwise be entitled in the Specified Courts or any other court
of competent jurisdiction.

                  SECTION 14. Counterparts. This Agreement may be executed in
two (2) or more counterparts, each of which shall constitute an original, but
all of which, when taken together, shall constitute but one instrument, and
shall become effective when one or more counterparts have been signed by each
party hereto and delivered to the other parties. Facsimile signatures shall be
deemed original signatures.

                  SECTION 15. Entire Agreement. This Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Purchaser
makes any representation, warranty, covenant or undertaking with respect to such
matters. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.

                  SECTION 16. Third Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.

                  SECTION 17. Successors and Assigns. This Agreement is binding
upon and inures to the benefit of the parties and their successors and assigns;
provided that the Company may only assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Purchaser in
connection with a merger, consolidation or sale of all or substantially all of
the Company's assets. The Purchaser may assign its rights under this Agreement
to any person to whom the Purchaser assigns any of the Securities, so long as
(i) such transfer is in compliance with the federal and state securities laws,
(ii) such transferee is an "accredited investor" (within the meaning of
Regulation D under the Securities Act), (iii) such transferee agrees in writing
to be bound by the terms and provisions of this Agreement, (iv) such transferee
completes and delivers to the Company the Securities Questionnaire and
Registration Statement Questionnaire attached as Appendix I and (v) any transfer
of Shares to such transferee complies with Section 5 and Section 7.2 hereof;
provided, however that if such assignment is made to 10 or more separate persons
or entities, then the Purchaser, and not any subsequent assignee, shall have the
right to enforce the terms of, and receive notices under, Section 7.3.

                                       25


                  SECTION 18. Force Majeure. Neither party shall be deemed in
default of any provision of this Agreement (other than provisions regarding
confidentiality), to the extent that performance of its obligations or attempts
to cure a breach are materially delayed or prevented by any event reasonably
beyond the control of such party, including, without limitation, war,
hostilities, acts of terrorism, revolution, riot, civil commotion, national
emergency, strike, lockout, unavailability of supplies, epidemic, fire, flood,
earthquake, force of nature, explosion, embargo, or any other Act of God, or any
law, proclamation, regulation, ordinance, or other act or order of any court,
government or governmental agency, provided that such party gives the other
party written notice thereof promptly upon discovery thereof and uses reasonable
efforts to cure or mitigate the delay or failure to perform.

                  SECTION 19. Further Assurances. Each party will do and
perform, or cause to be done and performed, all such further acts and things,
and will execute and deliver all other agreements, certificates, instruments and
documents, as another party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

                  SECTION 20. No Strict Construction. The language used in this
Agreement is 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.

                   [Remainder of page is intentionally blank]

                                       26


                                 SIGNATURE PAGE
                                       TO
                       NASTECH PHARMACEUTICAL COMPANY INC.
                             SUBSCRIPTION AGREEMENT
                            Dated __________ __, 2003

         IN WITNESS WHEREOF, the undersigned has executed this Agreement this
___ day of __________, 2003.

Number of units to be purchased:
_______________, including
____________ Purchased Shares and
________  Purchased Warrants
Purchase Price for Units to be Purchased:
$___________

                                      __________________________________________
                                      Print Full Legal Name of Partnership,
                                      Company, Limited Liability Company, Trust
                                      or Other Entity

                                      By: ______________________________________
                                              (Authorized Signatory)
                                      Name: ____________________________________
                                      Title: ___________________________________
                                      Address and Fax Number: __________________

                                      __________________________________________

                                      Taxpayer Identification Number: __________
                  Date and State of Incorporation or Organization: _____________
                  Date on which Taxable Year Ends: _____________________________

                                      E-mail Address: __________________________

ACCEPTED AND AGREED:

NASTECH PHARMACEUTICAL COMPANY INC.

By: ______
Name:_____________________________
Title:
Dated:

EX-99.3

                                                                    EXHIBIT 99.3

THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY
BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE
REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED,
SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES
LAWS.

                       NASTECH PHARMACEUTICAL COMPANY INC.

                                     WARRANT

Warrant No.                                        Dated:      September 4, 2003

         Nastech Pharmaceutical Company, Inc., a Delaware corporation (the
"Company"), hereby certifies that, for value received, _______________ or its
registered assigns (the "Holder"), is entitled to purchase from the Company up
to a total of __________ shares (as adjusted from time to time as provided in
Section 9) of Common Stock (as defined below) (each such share, a "Warrant
Share" and all such shares, the "Warrant Shares") at an exercise price equal to
$11.09 (as adjusted from time to time as provided in Section 9, the "Exercise
Price"), at any time and from time to time from and after the date hereof
through and including September 4, 2008 (the "Expiration Date"), and subject to
the following terms and conditions. This Warrant is one of a series of similar
warrants (the "Warrants") issued pursuant to those certain Purchase Agreements,
dated the Original Issue Date, by and among the Company and the Holder and the
Company and certain other investors (each a "Purchase Agreement" and
collectively, the "Purchase Agreements"), providing for the issuance of Common
Stock and Warrants by the Company to the Holder and such other investors.

         1.       Definitions. The capitalized terms used herein and not
otherwise defined shall have the meanings set forth below:

                  "Common Stock" means the common stock of the Company, $.006
par value per share, as constituted on the Original Issue Date.

                  "Company" includes the Company and any corporation which shall
succeed to or assume the obligations of the Company hereunder. The term
"corporation" shall include an



association, joint stock company, business trust, limited liability company or
other similar organization.

                  "Convertible Securities" means (i) options to purchase or
rights to subscribe for Common Stock, (ii) securities by their terms convertible
into or exchangeable for Common Stock or (iii) options to purchase or rights to
subscribe for such convertible or exchangeable securities.

                  "Eligible Market" means any of the New York Stock Exchange,
the American Stock Exchange or Nasdaq.

                  "Market Price" shall mean (i) if the principal trading market
for such securities is an exchange, the average of the last reported sale prices
per share for the last five previous Trading Days in which a sale was reported,
as officially reported on any consolidated tape, (ii) if clause (i) is not
applicable, the average of the closing bid price per share for the last five
previous Trading Days as set forth by Nasdaq or, (iii) if clauses (i) and (ii)
are not applicable, the average of the closing bid price per share for the last
five previous Trading Days as set forth in the National Quotation Bureau sheet
listing for such securities. Notwithstanding the foregoing, if there is no
reported sales price or closing bid price, as the case may be, on any of the ten
Trading Days preceding the event requiring a determination of Market Price
hereunder, then the Market Price shall be determined in good faith by resolution
of the Board of Directors of the Company, based on the best information
available to it.

                  "Nasdaq" means the Nasdaq SmallCap Market or Nasdaq National
Market.

                  "Original Issue Date" means September 4, 2003.

                  "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the Holder of this Warrant at any time shall be entitled to
receive, or shall have received, upon the exercise of this Warrant, in lieu of
or in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 9 hereof or otherwise.

                  "Person" means any court or other federal, state, local or
other governmental authority or other individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or subdivision
thereof) or other entity of any kind.

                  "Registration Statement" shall have the meaning set forth in
the Purchase Agreement entered into by the original Holder and the Company.

                  "Trading Day" means (a) any day on which the Common Stock is
listed or quoted and traded on Nasdaq or (b) if the Common Stock is not then
quoted and traded on any Eligible Market, then a day on which trading occurs on
the Nasdaq National Market (or any successor thereto).

                  "Transfer Agent" shall mean American Stock Transfer & Trust
Company or such

                                       2


other Person as the Company may appoint from time to time.

                  "Warrant Shares" shall initially mean shares of Common Stock
and in addition may include Other Securities and Distributed Property (as
defined in Section 9(b)) issued or issuable from time to time upon exercise of
this Warrant.

         2.       Registration of Warrant. The Company shall register this
Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to time.
The Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any distribution
to the Holder, and for all other purposes, absent actual notice to the contrary.

         3.       Registration of Transfers. The Company shall register the
transfer of any portion of this Warrant in the Warrant Register, upon surrender
of this Warrant, with the Form of Assignment attached hereto duly completed and
signed, to the Company at its address specified herein. Upon any such
registration and transfer, a new warrant in substantially the form of a Warrant
(any such new warrant, a "New Warrant"), evidencing the portion of this Warrant
so transferred shall be issued to the transferee and a New Warrant evidencing
the remaining portion of this Warrant not so transferred, if any, shall be
issued to the transferring Holder. The acceptance of the New Warrant by the
transferee thereof shall be deemed the acceptance by such transferee of all of
the rights and obligations of a holder of a Warrant.

         4.       Exercise and Duration of Warrant.

                  (a)      This Warrant shall be exercisable by the registered
Holder at any time and from time to time on and after the date hereof to and
including the Expiration Date; provided, however, that the Expiration Date shall
be extended for each day (i) the Registration Statement is not effective, or
(ii) the Company fails to have a sufficient number of authorized but unissued
and otherwise unreserved shares of Common Stock available to issue Warrant
Shares upon exercise of the Warrant. At 6:30 P.M., New York City time on the
Expiration Date, the portion of this Warrant not exercised prior thereto shall
be and become void and of no value.

                  (b)      A Holder may exercise this Warrant by delivering to
the Company (i) an exercise notice, in the form attached hereto (the "Exercise
Notice"), appropriately completed and duly signed, and (ii) payment of the
Exercise Price for the number of Warrant Shares as to which this Warrant is
being exercised (as set forth in Section 4(c) below), and the date such items
are received by the Company is an "Exercise Date." Execution and delivery of the
Exercise Notice shall have the same effect as cancellation of the original
Warrant and issuance of a New Warrant evidencing the right to purchase the
remaining number of Warrant Shares.

                  (c)      The Holder shall pay the Exercise Price (i) in cash
or by certified bank check payable to the order of the Company or (ii) if the
Market Price exceed the Exercise Price, through a "cashless exercise," by
surrendering to the Company shares of Common Stock, this Warrant or other
securities issued by the Company in which event the Company shall issue to the
Holder the number of Warrant Shares determined as follows:

                                    X = Y {(A-B)/A}

                                       3


                                    where:

                                    X = the number of Warrant Shares to be
                                    issued to the Holder.

                                    Y = the number of Warrant Shares with
                                    respect to which this Warrant is being
                                    exercised.

                                    A = the Market Price on the Exercise Date.

                                    B = the Exercise Price

                  (d)      The Company shall reserve a sufficient number of
authorized but unissued and otherwise unreserved shares of Common Stock
available to issue Warrant Shares upon exercise of the Warrant.

                  (e)      The Company will, at the time of any exercise of this
Warrant, upon the request of the Holder hereof, acknowledge in writing its
continuing obligation to afford to the Holder any rights (including, without
limitation, any right to registration of the Warrant Shares) to which the Holder
shall continue to be entitled after such exercise in accordance with the
provisions of this Warrant, provided that if the Holder of this Warrant shall
fail to make any such request, such failure shall not affect the continuing
obligation of the Company to afford the Holder any such rights.

                  (f)      If an exercise of this Warrant is to be made in
connection with a registered public offering or sale of the Company, such
exercise may, at the election of the Holder, be conditioned on the consummation
of the public offering or sale of the Company, in which case such exercise shall
not be deemed effective until the consummation of such transaction.

         5.       Delivery of Warrant Shares.

                  (a)      Upon exercise of this Warrant, the Company shall
promptly (but in no event later than three Trading Days after the Exercise Date)
issue or cause to be issued and deliver or cause to be delivered to or, upon the
written order of the Holder and in such name or names as the Holder may
designate, a certificate for the Warrant Shares issuable upon such exercise
bearing (only if such legend is required by applicable law) the restrictive
legend set forth in Section 5(h) of the Purchase Agreement entered into by the
Holder and the Company. The Holder, or any Person so designated by the Holder to
receive the Warrant Shares, shall be deemed to have become holder of record of
such Warrant Shares as of the Exercise Date.

                  (b)      This Warrant is exercisable, either in its entirety
or, from time to time, for a portion of the number of Warrant Shares. Upon
surrender of this Warrant following one or more partial exercises, the Company
shall issue or cause to be issued, at its expense, a New Warrant evidencing the
right to purchase the remaining number of Warrant Shares.

                  (c)      In addition to any other rights available to the
Holder, if the Company fails to deliver to the Holder a certificate representing
Warrant Shares by the third Trading Day after the Exercise Date, and if after
such third Trading Day the Holder purchases (in an open market

                                       4


transaction or otherwise) shares of Common Stock to deliver in satisfaction of a
sale by the Holder of the Warrant Shares that the Holder anticipated receiving
from the Company (a "Buy-In"), then in the Holder's sole discretion, the Company
shall, within three Trading Days after the Holder's prompt written request, pay
cash to the Holder in an amount equal to the Holder's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased less the total Exercise Price of such shares (the "Buy-In Price"), if
greater than zero, at which point the Company's obligation to deliver such
certificate (and to issue such Common Stock) shall terminate.

                  (d)      The Company's obligations to issue and deliver
Warrant Shares in accordance with the terms of this Section 5 are absolute and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce the same,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other Person of any obligation to
the Company or any violation or alleged violation of law by the Holder or any
other Person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Company to the Holder in connection with the
issuance of Warrant Shares. Nothing herein shall limit the Holder's right to
pursue any other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance or other
injunctive relief with respect to the Company's failure to timely deliver
certificates representing shares of Common Stock upon exercise of this Warrant
as required pursuant to the terms hereof.

         6.       Charges, Taxes and Expenses. Issuance and delivery of
certificates for shares of Common Stock upon exercise of this Warrant shall be
made without charge to the Holder for any issue or transfer tax, withholding
tax, transfer agent fee or other incidental tax or expense in respect of the
issuance of such certificates, all of which taxes and expenses shall be paid by
the Company; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the
registration of any certificates for Warrant Shares or Warrant in a name other
than that of the Holder or an affiliate thereof. The Holder shall be responsible
for all other tax liability that may arise as a result of holding or
transferring this Warrant or receiving Warrant Shares upon exercise hereof.

         7.       Replacement of Warrant. If this Warrant is mutilated, lost,
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation hereof, or in lieu of and in
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
customary and reasonable indemnity, if requested.

         8.       Reservation of Warrant Shares. The Company covenants that it
will at all times reserve and keep available out of the aggregate of its
authorized but unissued and otherwise unreserved Common Stock, solely for the
purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as
herein provided, the number of Warrant Shares which are then issuable and
deliverable upon the exercise of this entire Warrant, free from preemptive
rights or any other contingent purchase rights of persons other than the Holder
(taking into account the adjustments and restrictions of Section 9). The Company
covenants that all Warrant Shares so issuable and deliverable shall, upon
issuance and the payment of the applicable Exercise Price in

                                       5


accordance with the terms hereof, be duly and validly authorized, issued, fully
paid and nonassessable. The Company will take all such action as may be
necessary to assure that such shares of Common Stock may be issued as provided
herein without violation of any applicable law or regulation, or of any
requirements of any securities exchange or automated quotation system upon which
the Common Stock may be listed.

         9.       Certain Adjustments. The Exercise Price and number of Warrant
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 9.

                  (a)      Stock Dividends and Splits. If the Company, at any
time while this Warrant is outstanding, (i) pays a stock dividend on its Common
Stock or otherwise makes a distribution on any class of capital stock that is
payable in shares of Common Stock, (ii) subdivides outstanding shares of Common
Stock into a larger number of shares, or (iii) combines outstanding shares of
Common Stock into a smaller number of shares, then in each such case the
Exercise Price shall be multiplied by a fraction of which the numerator shall be
the number of shares of Common Stock outstanding immediately before such event
and of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event. Any adjustment made pursuant to clause
(i) of this paragraph shall become effective immediately after the record date
for the determination of stockholders entitled to receive such dividend or
distribution, and any adjustment pursuant to clause (ii) or (iii) of this
paragraph shall become effective immediately after the effective date of such
subdivision or combination.

                  (b)      Pro Rata Distributions. If the Company, at any time
while this Warrant is outstanding, distributes to holders of Common Stock (i)
evidences of its indebtedness, (ii) any security (other than a distribution of
Common Stock covered by the preceding paragraph), (iii) rights or warrants to
subscribe for or purchase any security, or (iv) any other asset (in each case,
"Distributed Property"), then in each such case the Exercise Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution (and the Exercise Price thereafter
applicable) shall be adjusted (effective on and after such record date) to equal
the product of such Exercise Price times a fraction of which the denominator
shall be the Market Price on such record date and of which the numerator shall
be Market Price on such record date less the then fair market value per share of
the Distributed Property distributed in respect of one outstanding share of
Common Stock, which, if the Distributed Property is other than cash or
marketable securities, shall be as determined in good faith by the Board of
Directors of the Company.

                  (c)      Fundamental Transactions. If, at any time while this
Warrant is outstanding, (i) the Company effects any merger or consolidation of
the Company with or into another Person, (ii) the Company effects any sale of
all or substantially all of its assets in one or a series of related
transactions, (iii) any tender offer or exchange offer (whether by the Company
or another Person) is completed pursuant to which holders of Common Stock are
permitted to tender or exchange their shares for other securities, cash or
property, or (iv) the Company effects any reclassification of the Common Stock
or any compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or property
(in any such case, a "Fundamental Transaction"), then the Holder shall have the
right thereafter to receive, upon exercise of this Warrant, the same amount and
kind of securities, cash

                                       6


or property as it would have been entitled to receive upon the occurrence of
such Fundamental Transaction if it had been, immediately prior to such
Fundamental Transaction, the holder of the number of Warrant Shares then
issuable upon exercise in full of this Warrant (the "Alternate Consideration").
The aggregate Exercise Price for this Warrant will not be affected by any such
Fundamental Transaction, but the Company shall apportion such aggregate Exercise
Price among the Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the Alternate Consideration. If
holders of Common Stock are given any choice as to the securities, cash or
property to be received in a Fundamental Transaction, then the Holder shall be
given the same choice as to the Alternate Consideration it receives upon any
exercise of this Warrant following such Fundamental Transaction. At the Holder's
request, any successor to the Company or surviving entity in such Fundamental
Transaction shall issue to the Holder a New Warrant consistent with the
foregoing provisions and evidencing the Holder's right to purchase the Alternate
Consideration for the aggregate Exercise Price upon exercise thereof. The terms
of any agreement pursuant to which a Fundamental Transaction is effected shall
include terms requiring any such successor or surviving entity to comply with
the provisions of this paragraph (c) and insuring that this Warrant (or any such
replacement security) will be similarly adjusted upon any subsequent transaction
analogous to a Fundamental Transaction.

                  (d)      Number of Warrant Shares. Simultaneously with any
adjustment to the Exercise Price pursuant to paragraphs (a) or (b) of this
Section, the number of Warrant Shares that may be purchased upon exercise of
this Warrant shall be increased or decreased proportionately, so that after such
adjustment the aggregate Exercise Price payable hereunder for the increased or
decreased number of Warrant Shares shall be the same as the aggregate Exercise
Price in effect immediately prior to such adjustment.

                  (e)      Calculations. All calculations under this Section 9
shall be made to the nearest cent or the nearest 1/100th of a share, as
applicable. The number of shares of Common Stock outstanding at any given time
shall not include shares owned or held by or for the account of the Company, and
the disposition of any such shares shall be considered an issue or sale of
Common Stock.

                  (f)      Adjustments. Notwithstanding any provision of Section
9, no adjustment of the Exercise Price shall be required if such adjustment is
less than $0.05; provided, however, that any adjustments which by reason of this
Section 9(g) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment.

                  (g)      Notice of Adjustments. Upon the occurrence of each
adjustment pursuant to this Section 9, the Company, at its expense, will
promptly cause the Company's regularly retained auditor to compute such
adjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment, including a statement of the adjusted
Exercise Price and adjusted number or type of Warrant Shares or other securities
issuable upon exercise of this Warrant (as applicable), describing the
transactions giving rise to such adjustments and showing in detail the facts
upon which such adjustment is based. Upon written request, the Company will
promptly deliver a copy of each such certificate to the Holder and to the
Company's Transfer Agent.

                  (h)      Notice of Corporate Events. If the Company (i)
declares a dividend or any

                                       7


other distribution of cash, securities or other property in respect of its
Common Stock, including ,without limitation, any granting of rights or warrants
to subscribe for or purchase any capital stock of the Company or any subsidiary
of the Company, (ii) authorizes, approves, enters into any agreement
contemplating, or solicits stockholder approval for, any Fundamental Transaction
or (iii) authorizes the voluntary dissolution, liquidation or winding up of the
affairs of the Company, then the Company shall deliver to the Holder a notice
describing the material terms and conditions of such transaction at least 20
calendar days prior to the applicable record or effective date on which a Person
would need to hold Common Stock in order to participate in or vote with respect
to such transaction, and the Company will take all steps reasonably necessary in
order to ensure that the Holder is given the practical opportunity to exercise
this Warrant prior to such time so as to participate in or vote with respect to
such transaction; provided, however, that the failure to deliver such notice or
any defect therein shall not affect the validity of the corporate action
required to be described in such notice.

         10.      Fractional Shares. The Company shall not be required to issue
or cause to be issued fractional Warrant Shares on the exercise of this Warrant.
If any fraction of a Warrant Share would, except for the provisions of this
Section, be issuable upon exercise of this Warrant, the Company shall make a
cash payment to the Holder equal to the such fraction multiplied by the Market
Price on the Exercise Day of one full Warrant Share.

         11.      Listing on Securities Exchanges. In furtherance and not in
limitation of any other provision of this Warrant, if the Company at any time
shall list any Common Stock on any national securities exchange and shall
register such Common Stock under the Securities and Exchange Act of 1934, as
amended, the Company will, at its expense, simultaneously list on such exchange
or Nasdaq, upon official notice of issuance upon the exercise of this Warrant,
and maintain such listing, of Warrant Shares; and the Company will so list on
any national securities exchange or Nasdaq, will so register and will maintain
such listing of, any Other Securities if and at the time that any securities of
like class or similar type shall be listed on such national securities exchange
or Nasdaq by the Company.

         12.      Further Assurances. The Company will take such action as may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and non-assessable shares of stock upon the exercise of this
Warrant.

         13.      Remedies. The Company stipulates that the remedies at law of
the Holder of this Warrant in the event of any default or threatened default by
the Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.

         14.      Notices. Any and all notices or other communications or
deliveries hereunder (including without limitation any Exercise Notice) shall be
in writing and shall be mailed by certified mail, return receipt requested, or
by a nationally recognized courier service or delivered (in person or by
facsimile), against receipt to the party to whom such notice or other
communication is to be given. The address for such notices or communications
shall be as set forth in the Purchase Agreement entered into by the Holder and
the Company. Any notice or

                                       8


other communication given by means permitted by this Section 14 shall be deemed
given at the time of receipt thereof.

         15.      Warrant Agent. The Transfer Agent shall serve as warrant agent
under this Warrant. Upon 30 days' notice to the Holder, the Company may appoint
a new warrant agent. Any corporation into which the Transfer Agent or any new
warrant agent may be merged or any corporation resulting from any consolidation
to which the Transfer Agent or any new warrant agent shall be a party or any
corporation to which the Transfer Agent or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business shall
be a successor warrant agent under this Warrant without any further act. Any
such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed (by first class mail, postage prepaid) to the Holder
at the Holder's last address as shown on the Warrant Register.

         16.      Miscellaneous. (a) This Warrant may be assigned by the Holder.
This Warrant may not be assigned by the Company, except to a successor in the
event of a Fundamental Transaction. This Warrant shall be binding on and inure
to the benefit of the parties hereto and their respective successors and
assigns. Subject to the preceding sentence, nothing in this Warrant shall be
construed to give to any Person other than the Company and the Holder any legal
or equitable right, remedy or cause of action under this Warrant. This Warrant
may be amended only in writing signed by the Company and the Holder and their
successors and assigns.

                  (b)      The Company will not, by amendment of its governing
documents or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities 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 against impairment.
Without limiting the generality of the foregoing, the Company (i) will not
increase the par value of any Warrant Shares above the amount payable therefor
on such exercise, (ii) will take all such action as may be reasonably necessary
or appropriate in order that the Company may validly and legally issue fully
paid and nonassessable Warrant Shares on the exercise of this Warrant, and (iii)
will not close its shareholder books or records in any manner which materially
interferes with the timely exercise of this Warrant.

                  (c)      GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. THIS
WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF
NEW YORK, BOROUGH OF MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR
IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED
HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF THE PURCHASE AGREEMENT
ENTERED INTO BY THE COMPANY AND THE HOLDER), AND HEREBY IRREVOCABLY WAIVES, AND
AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT
PERSONALLY

                                       9


SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR
PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF
PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR
PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR
OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN
EFFECT FOR NOTICES TO IT UNDER THIS WARRANT AND AGREES THAT SUCH SERVICE SHALL
CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING
CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS
IN ANY MANNER PERMITTED BY LAW. THE COMPANY HEREBY WAIVES ALL RIGHTS TO A TRIAL
BY JURY.

                  (d)      Neither party shall be deemed in default of any
provision of this Agreement (other than provisions regarding confidentiality),
to the extent that performance of its obligations or attempts to cure a breach
are delayed or prevented by any event reasonably beyond the control of such
party, including, without limitation, war, hostilities, acts of terrorism,
revolution, riot, civil commotion, national emergency, strike, lockout,
unavailability of supplies, epidemic, fire, flood, earthquake, force of nature,
explosion, embargo, or any other Act of God, or any law, proclamation,
regulation, ordinance, or other act or order of any court, government or
governmental agency, provided that such party gives the other party written
notice thereof promptly upon discovery thereof and uses reasonable efforts to
cure or mitigate the delay or failure to perform.

                  (e)      The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect any
of the provisions hereof.

                  (f)      In case any one or more of the provisions of this
Warrant shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.

                  {REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
                             SIGNATURE PAGE FOLLOWS}

                                       10


          IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.

                                             NASTECH PHARMACEUTICAL COMPANY INC.

                                             By: _______________________________
                                                 Name:
                                                 Title:



                             FORM OF EXERCISE NOTICE

(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)

To:      Nastech Pharmaceutical Company Inc.

The undersigned is the Holder of Warrant No. _______ (the "Warrant") issued by
Nastech Pharmaceutical Company Inc., a Delaware corporation (the "Company").
Capitalized terms used herein and not otherwise defined have the respective
meanings set forth in the Warrant.

1.       The Warrant is currently exercisable to purchase a total of _________
         Warrant Shares.

2.       The undersigned Holder hereby exercises its right to purchase _________
         Warrant Shares pursuant to the Warrant.

3.       The Holder intends that payment of the Exercise Price shall be made as
         (check one):

                  Cash Exercise_______

                  Cashless Exercise_______

4.       If the Holder has elected a Cash Exercise, the Holder shall pay the sum
         of $________ to the Company in accordance with the terms of the
         Warrant.

5.       If the Holder has elected a Cashless Exercise, a certificate shall be
         issued to the Holder for the number of shares equal to the whole number
         portion of the product of the calculation set forth below, which
         is ________. The Company shall pay a cash adjustment in respect of the
         fractional portion of the product of the calculation set forth below in
         an amount equal to the product of the fractional portion of such
         product and the Market Price on the Exercise Day, which product
         is ________.

                  X = Y[(A-B)/A]

                  X = the number of Warrant Shares to be issued to the Holder.

                  Number of Warrant Shares being exercised:______________ ("Y").

                  Market Price on the Exercise Day:____________________ ("A").

                  Exercise Price:___________ ("B")

6.       Pursuant to this exercise, the Company shall deliver to the Holder
         Warrant Shares in accordance with the terms of the Warrant.



7.       Following this exercise, the Warrant shall be exercisable to purchase a
         total of __________ Warrant Shares.

Dated: _________                    Name of Holder:


                                    (Print)_______________________

                                    By:___________________________

                                    Name:_________________________

                                    Title:________________________

                                    (Signature must conform in all respects to
                                    name of holder as specified on the face of
                                    the Warrant)

                                       2



                               FORM OF ASSIGNMENT

           (to be completed and signed only upon transfer of Warrant)

         FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________________ the right represented by the
within Warrant to purchase _____________ shares of Common Stock of Nastech
Pharmaceutical Company Inc. to which the within warrant relates and appoints
__________________________ attorney to transfer said right on the books of
Nastech Pharmaceutical Company Inc. with full power of substitution in the
premises.

Dated:____________                  ________________________
                                    (Signature must conform in all respects to
                                    name of Holder as specified on face of the
                                    Warrant)


                                    Address of Transferee:

                                    ________________________

                                    ________________________

                                    ________________________

In the presence of:

________________________

                                       3