PURCHASE AGREEMENT
EXHIBIT
10.1
THIS
PURCHASE AGREEMENT (“Agreement”) is made as of the 28th day of September 2007 by
and among Applied NeuroSolutions, Inc., a Delaware corporation (the “Company”),
and SF Capital Partners Ltd., a British Virgin Islands corporation (the
“Investor”).
Recitals
A. The
Company and the Investor are executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by the provisions
of
Regulation D (“Regulation D”), as promulgated by the U.S. Securities and
Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended;
and
B. The
Investor wishes to purchase from the Company, and the Company wishes to sell
and
issue to the Investor, upon the terms and conditions stated in this Agreement,
(i) an aggregate of 20,714,286 shares of the Company’s Common Stock, par value
$0.0025 per share (the “Common Stock”), and (ii) warrants to purchase an
aggregate of 6,214,286 shares of Common Stock (appropriately adjusted for any
stock split, reverse stock split, stock dividend or other reclassification
or
combination of the Common Stock occurring after the date hereof) in the form
attached hereto as Exhibit A (the “Warrants”); and
C. Contemporaneous
with the sale of the Common Stock and Warrants, the parties hereto will execute
and deliver a Registration Rights Agreement, in the form attached hereto as
Exhibit B (the “Registration Rights Agreement”), pursuant to which the Company
will agree to provide certain registration rights under the Securities Act
of
1933, as amended, and the rules and regulations promulgated thereunder, and
applicable state securities laws.
In
consideration of the mutual promises made herein and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
the
parties hereto agree as follows:
1. Definitions.
In
addition to those terms defined above and elsewhere in this Agreement, for
the
purposes of this Agreement, the following terms shall have the meanings set
forth below:
“Affiliate”
means,
with respect to any Person, any other Person which directly or indirectly
through one or more intermediaries Controls, is controlled by, or is under
common control with, such Person.
“Business
Day”
means
a
day, other than a Saturday or Sunday, on which banks in New York City are open
for the general transaction of business.
“Common
Stock”
means
the common stock, par value $0.0025 per share, of the Company, and any
securities into which the Common Stock may be reclassified.
“Company’s
Knowledge”
means
the actual knowledge of the executive officers (as defined in Rule 405 under
the
0000 Xxx) of the Company, after due inquiry.
“Confidential
Information”
means
trade secrets, confidential information and know-how (including but not limited
to ideas, formulae, compositions, processes, procedures and techniques, research
and development information, computer program code, performance specifications,
support documentation, drawings, specifications, designs, business and marketing
plans, and customer and supplier lists and related information).
“Control”
(including the terms “controlling”, “controlled by” or “under common control
with”) means the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
“Intellectual
Property”
means
all of the following: (i) patents, patent applications, patent disclosures
and
inventions (whether or not patentable and whether or not reduced to practice);
(ii) trademarks, service marks, trade dress, trade names, corporate names,
logos, slogans and Internet domain names, together with all goodwill associated
with each of the foregoing; (iii) copyrights and copyrightable works; (iv)
registrations, applications and renewals for any of the foregoing; and (v)
proprietary computer software (including but not limited to data, data bases
and
documentation).
“Material
Adverse Effect”
means
a
material adverse effect on (i) the assets, liabilities, results of operations,
condition (financial or otherwise), business, or prospects of the Company,
or
(ii) the ability of the Company to perform its obligations under the Transaction
Documents.
“Person”
means
an individual, corporation, partnership, limited liability company, trust,
business trust, association, joint stock company, joint venture, sole
proprietorship, unincorporated organization, governmental authority or any
other
form of entity not specifically listed herein.
“Purchase
Price”
means
Two Million Nine Hundred Thousand Dollars ($2,900,000), in United States dollars
and in immediately available funds.
“SEC
Filings”
has
the
meaning set forth in Section 4.6.
“Securities”
means
the Shares, the Warrants and the Warrant Shares.
“Shares”
means
the shares of Common Stock being purchased by the Investor
hereunder.
“Transaction
Documents”
means
this Agreement, the Warrants and the Registration Rights Agreement.
“Warrant
Shares”
means
the shares of Common Stock issuable upon the exercise of the
Warrants.
“1933
Act”
means
the Securities Act of 1933, as amended, or any successor statute, and the rules
and regulations promulgated thereunder.
“1934
Act”
means
the Securities Exchange Act of 1934, as amended, or any successor statute,
and
the rules and regulations promulgated thereunder.
2. Purchase
and Sale of the Shares and Warrants.
Subject
to the terms and conditions of this Agreement, on the Closing Date, the Investor
shall purchase, and the Company shall sell and issue to the Investor, the Shares
and Warrants in the respective amounts set forth below the Investor’s name on
the signature page attached hereto in exchange for the Purchase
Price.
3. Closing.
Upon
execution and delivery of this Agreement and subject to the satisfaction of
the
conditions set forth in Sections 6.1 and 6.2 hereof, (a) the Company shall
deliver to the Investor the Warrant and a copy of the Company’s irrevocable
instructions for the issuance of the Shares to the Investor that the Company
has
delivered to its transfer agent along with a copy of the legal opinion delivered
to such transfer agent in regard to such issuance and (b) the Investor shall
cause a wire transfer in same day funds to be sent to the account of the Company
as instructed in writing by the Company, in an amount representing the
Investor’s Purchase Price as set forth on the signature page to this Agreement.
On the date (the “Closing Date”) the Company receives the Purchase Price, the
certificates evidencing the Shares and Warrants shall be released to the
Investor (the “Closing”). The Closing of the purchase and sale of the Shares and
Warrants shall take place at such location, and on such other date, as the
Company and the Investor shall mutually agree.
4. Representations
and Warranties of the Company.
The
Company hereby represents and warrants to the Investor that, to the best of
its
knowledge, except as set forth in the schedules delivered herewith
(collectively, the “Disclosure Schedules”):
4.
1 Organization,
Good Standing and Qualification.
The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and has all requisite
corporate power and authority to carry on its business as now conducted and
to
own its properties. The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the conduct
of
its business or its ownership or leasing of property makes such qualification
or
leasing necessary unless the failure to so qualify has not and could not
reasonably be expected to have a Material Adverse Effect. The Company has no
subsidiaries.
4.2 Authorization.
The
Company has full power and authority and has taken all requisite action on
the
part of the Company, its officers, directors and stockholders necessary for
(i)
the authorization, execution and delivery of the Transaction Documents, (ii)
authorization of the performance of all obligations of the Company hereunder
or
thereunder, and (iii) the authorization, issuance (or reservation for issuance)
and delivery of the Securities.
The
Transaction Documents constitute the legal, valid and binding obligations of
the
Company, enforceable against the Company in accordance with their terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
and
similar laws of general applicability, relating to or affecting creditors’
rights generally.
4.3 Capitalization.
Schedule
4.3
sets
forth (a) the authorized capital stock of the Company on the date hereof; (b)
the number of shares of capital stock issued and outstanding; (c) the number
of
shares of capital stock issuable and reserved for issuance pursuant to the
Company’s 2003 Stock Option Plan; (d) the number of shares of capital stock
issuable and reserved for issuance for stock options issued outside of the
Company’s 2003 Stock Option Plan; and (e) the number of shares of capital stock
issuable and reserved for issuance pursuant to securities (other than the Shares
and the Warrants) exercisable for, or convertible into or exchangeable for
shares of capital stock of the Company. All of the issued and outstanding shares
of the Company’s capital stock have been duly authorized and validly issued and
are fully paid, nonassessable and free of pre-emptive rights and were issued
in
full compliance with applicable state and federal securities law and any rights
of third parties. No Person is entitled to pre-emptive or similar statutory
or
contractual rights with respect to any securities of the Company. Except as
described in the Company’s SEC Filings (as defined in Section 4.6 below), there
are no outstanding warrants, options, convertible securities or other rights,
agreements or arrangements of any character under which the Company is or may
be
obligated to issue any equity securities of any kind and except as contemplated
by this Agreement, the Company is not currently in negotiations for the issuance
of any equity securities of any kind. Except for the Registration Rights
Agreement, there are no voting agreements, buy-sell agreements, option or right
of first purchase agreements or other agreements of any kind among the Company
and any of the securityholders of the Company relating to the securities of
the
Company held by them. No Person has the right to require the Company to register
any securities of the Company under the 1933 Act, whether on a demand basis
or
in connection with the registration of securities of the Company for its own
account or for the account of any other Person.
The
issuance and sale of the Securities hereunder will not obligate the Company
to
issue shares of Common Stock or other securities to any other Person (other
than
the Investor) and will not result in the adjustment of the exercise, conversion,
exchange or reset price of any outstanding security.
The
Company does not have outstanding stockholder purchase rights or “poison pill”
or any similar arrangement in effect giving any Person the right to purchase
any
equity interest in the Company upon the occurrence of certain
events.
4.4 Valid
Issuance.
The
Shares have been duly and validly authorized and, when issued and paid for
pursuant to this Agreement, will be validly issued, fully paid and
nonassessable, and shall be free and clear of all encumbrances and restrictions,
except for restrictions on transfer set forth in the Transaction Documents
or
imposed by applicable securities laws and except for those restrictions created
by the Investor. The Warrants have been duly and validly authorized. Upon the
due exercise of the Warrants, the Warrant Shares will be validly issued, fully
paid and non-assessable free and clear of all encumbrances and restrictions,
except for restrictions on transfer set forth in the Transaction Documents
or
imposed by applicable securities laws and except for those restrictions created
by the Investor. The Company has reserved a sufficient number of shares of
Common Stock for issuance upon the exercise of the Warrants, free and clear
of
all encumbrances and restrictions, except for restrictions on transfer set
forth
in the Transaction Documents or imposed by applicable securities laws and except
for those created by the Investor.
4.5 Consents.
The
execution, delivery and performance by the Company of the Transaction Documents
and the offer, issuance and sale of the Securities require no consent of, action
by or in respect of, or filing with, any Person, governmental body, agency,
or
official other than filings that have been made pursuant to applicable state
securities laws and post-sale filings pursuant to applicable state and federal
securities laws which the Company undertakes to file within the applicable
time
periods. Subject to the accuracy of the representations and warranties of the
Investor set forth in Section 5 hereof, the Company has taken all action
necessary to exempt (i) the issuance and sale of the Securities, (ii) the
issuance of the Warrant Shares upon due exercise of the Warrants, and (iii)
the
other transactions contemplated by the Transaction Documents from the provisions
of any shareholder rights plan or other “poison pill” arrangement, any
anti-takeover, business combination or control share law or statute binding
on
the Company or to which the Company or any of its assets and properties may
be
subject and any provision of the Company’s Certificate of Incorporation or
By-laws that is or could reasonably be expected to become applicable to the
Investor as a result of the transactions contemplated hereby, including without
limitation, the issuance of the Securities and the ownership, disposition or
voting of the Securities by the Investor or the exercise of any right granted
to
the Investor pursuant to this Agreement or the other Transaction
Documents.
4.6 Delivery
of SEC Filings; Business.
The
Company has made available to the Investor through the XXXXX system, true and
complete copies of the Company’s most recent Annual Report on Form 10-KSB for
the fiscal year ended December 31, 2006 (the “10-KSB”), and all other reports
filed by the Company pursuant to the 1934 Act since the filing of the 10-KSB
and
prior to the date hereof (collectively with the Form 10-KSB, the “SEC Filings”).
The SEC Filings are the only filings required of the Company pursuant to the
1934 Act for such period. The Company is engaged in all material respects only
in the business described in the SEC Filings and the SEC Filings contain a
complete and accurate description in all material respects of the business
of
the Company.
4.7 Use
of
Proceeds.
The net
proceeds of the sale of the Shares and the Warrants hereunder shall be used
by
the Company for working capital and general corporate purposes.
4.8 No
Material Adverse Change.
Since
June 30, 2007, except as identified and described in the SEC Filings, there
has
not been:
(i) any
change in the consolidated assets, liabilities, financial condition or operating
results of the Company from that reflected in the financial statements included
in the Company’s Quarterly Report on Form 10-QSB for the quarter ended June 30,
2007, except for changes in the ordinary course of business which have not
and
could not reasonably be expected to have a Material Adverse Effect, individually
or in the aggregate;
(ii) any
declaration or payment of any dividend, or any authorization or payment of
any
distribution, on any of the capital stock of the Company, or any redemption
or
repurchase of any securities of the Company;
(iii) any
material damage, destruction or loss, whether or not covered by insurance to
any
assets or properties of the Company;
(iv) any
waiver, not in the ordinary course of business, by the Company of a material
right or of a material debt owed to it;
(v) any
satisfaction or discharge of any lien, claim or encumbrance or payment of any
obligation by the Company, except in the ordinary course of business and which
is not material to the assets, properties, financial condition, operating
results or business of the Company (as such business is presently conducted
and
as it is proposed to be conducted);
(vi) any
change or amendment to the Company's Certificate of Incorporation or by-laws,
or
material change to any material contract or arrangement by which the Company
is
bound or to which any of its assets or properties is subject;
(vii) any
material labor difficulties or labor union organizing activities with respect
to
employees of the Company;
(viii) any
material transaction entered into by the Company other than in the ordinary
course of business;
(ix) the
loss
of the services of any key employee, or material change in the composition
or
duties of the senior management of the Company;
(x) the
loss
or threatened loss of any customer which has had or could reasonably be expected
to have a Material Adverse Effect; or
(xi) any
other
event or condition of any character that has had or could reasonably be expected
to have a Material Adverse Effect.
4.9 SEC
Filings.
At the
time of filing thereof, the SEC Filings complied as to form in all material
respects with the requirements of the 1934 Act and did not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.
4.10 No
Conflict, Breach, Violation or Default.
The
execution, delivery and performance of the Transaction Documents by the Company
and the issuance and sale of the Securities will not conflict with or result
in
a breach or violation of any of the terms and provisions of, or constitute
a
default under (i) the Company’s Certificate of Incorporation or the Company’s
Bylaws, both as in effect on the date hereof (true and complete copies of which
have been made available to the Investor through the XXXXX system), or (ii)(a)
any statute, rule, regulation or order of any governmental agency or body or
any
court, domestic or foreign, having jurisdiction over the Company or any of
its
assets or properties, or (b) any agreement or instrument to which the Company
is
a party or by which the Company is bound or to which any of its assets or
properties is subject.
4.11 Tax
Matters.
The
Company has timely prepared and filed all tax returns required to have been
filed by the Company with all appropriate governmental agencies and timely
paid
all taxes shown thereon or otherwise owed by it. The charges, accruals and
reserves on the books of the Company in respect of taxes for all fiscal periods
are adequate in all material respects, and there are no material unpaid
assessments against the Company nor, to the Company’s Knowledge, any basis for
the assessment of any additional taxes, penalties or interest for any fiscal
period or audits by any federal, state or local taxing authority except for
any
assessment which is not material to the Company. All taxes and other assessments
and levies that the Company is required to withhold or to collect for payment
have been duly withheld and collected and paid to the proper governmental entity
or third party when due. There are no tax liens or claims pending or, to the
Company’s Knowledge, threatened against the Company or any of its assets or
property. The Company has no outstanding tax sharing agreements or other such
arrangements with any other Person.
4.12 Title
to Properties.
Except
as disclosed in the SEC Filings, the Company has good and marketable title
to
all real properties and all other properties and assets owned by it, in each
case free from liens, encumbrances and defects that would materially affect
the
value thereof or materially interfere with the use made or currently planned
to
be made thereof by the Company; and except as disclosed in the SEC Filings,
the
Company holds any leased real or personal property under valid and enforceable
leases with no exceptions that would materially interfere with the use made
or
currently planned to be made thereof by the Company.
4.13 Certificates,
Authorities and Permits.
The
Company possesses adequate certificates, authorities or permits issued by
appropriate governmental agencies or bodies necessary to conduct the business
now operated by it, and the Company has not received any notice of proceedings
relating to the revocation or modification of any such certificate, authority
or
permit that, if determined adversely to the Company, could reasonably be
expected to have a Material Adverse Effect, individually or in the
aggregate.
4.14 No
Labor Disputes.
No
material labor dispute with the employees of the Company exists or, to the
Company’s Knowledge, is imminent.
4.15 Intellectual
Property.
(a) All
Intellectual Property of the Company is currently in compliance with all legal
requirements (including timely filings, proofs and payments of fees) and is
valid and enforceable. No Intellectual Property of the Company which is
necessary for the conduct of Company’s business as currently conducted or as
currently proposed to be conducted has been or is now involved in any
cancellation, dispute or litigation, and, to the Company’s Knowledge, no such
action is threatened. No patent of the Company has been or is now involved
in
any interference, reissue, re-examination or opposition proceeding.
(b) All
of
the licenses and sublicenses and consent, royalty or other agreements concerning
Intellectual Property which are necessary for the conduct of the Company’s
business as currently conducted or as currently proposed to be conducted to
which the Company is a party or by which any of its assets are bound (other
than
generally commercially available, non-custom, off-the-shelf software application
programs having a retail acquisition price of less than $10,000 per license)
(collectively, “License Agreements”) are valid and binding obligations of the
Company and, to the Company’s Knowledge, the other parties thereto, enforceable
in accordance with their terms, except to the extent that enforcement thereof
may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws affecting the enforcement of creditors’ rights
generally, and there exists no event or condition which will result in a
material violation or breach of or constitute (with or without due notice or
lapse of time or both) a default by the Company under any such License
Agreement.
(c) The
Company owns or has the valid right to use all of the Intellectual Property
that
is necessary for the conduct of the Company’s business as currently conducted or
as currently proposed to be conducted and for the ownership, maintenance and
operation of the Company’s properties and assets, free and clear of all liens,
encumbrances, adverse claims or obligations to license all such owned
Intellectual Property and Confidential Information, other than licenses entered
into in the ordinary course of the Company’s business. The Company has a valid
and enforceable right to use all third party Intellectual Property and
Confidential Information used or held for use in the Company’s
business.
(d) The
conduct of the Company’s business as currently conducted does not infringe or
otherwise impair or conflict with (collectively, “Infringe”) any Intellectual
Property rights of any third party or any confidentiality obligation owed to
a
third party, and, to the Company’s Knowledge, the Intellectual Property and
Confidential Information of the Company which are necessary for the conduct
of
Company’s business as currently conducted or as currently proposed to be
conducted are not being Infringed by any third party. There is no litigation
or
order pending or outstanding or, to the Company’s Knowledge, threatened or
imminent, that seeks to limit or challenge or that concerns the ownership,
use,
validity or enforceability of any Intellectual Property or Confidential
Information of the Company and the Company’s use of any Intellectual Property or
Confidential Information owned by a third party, and, to the Company’s
Knowledge, there is no valid basis for the same.
(e) The
consummation of the transactions contemplated hereby and by the other
Transaction Documents will not result in the alteration, loss, impairment of
or
restriction on the Company’s ownership or right to use any of the Intellectual
Property or Confidential Information which is necessary for the conduct of
Company’s business as currently conducted or as currently proposed to be
conducted.
(f) All
software owned by the Company, and, to the Company’s Knowledge, all software
licensed from third parties by the Company, (i) is free from any material
defect, bug, virus, or programming, design or documentation error; (ii) operates
and runs in a reasonable and efficient business manner; and (iii) conforms
in
all material respects to the specifications and purposes thereof.
(g) The
Company has taken reasonable steps to protect the Company’s rights in their
Intellectual Property and Confidential Information. Each employee, consultant
and contractor who has had access to Confidential Information which is necessary
for the conduct of Company’s business as currently conducted or as currently
proposed to be conducted has executed an agreement to maintain the
confidentiality of such Confidential Information and has executed appropriate
agreements that are substantially consistent with the Company’s standard forms
thereof. Except under confidentiality obligations, there has been no material
disclosure of any of the Company’s Confidential Information to any third
party.
4.16 Environmental
Matters.
The
Company is not in violation of any statute, rule, regulation, decision or order
of any governmental agency or body or any court, domestic or foreign, relating
to the use, disposal or release of hazardous or toxic substances or relating
to
the protection or restoration of the environment or human exposure to hazardous
or toxic substances (collectively, “Environmental Laws”), owns or operates any
real property contaminated with any substance that is subject to any
Environmental Laws, is liable for any off-site disposal or contamination
pursuant to any Environmental Laws, and is subject to any claim relating to
any
Environmental Laws, which violation, contamination, liability or claim has
had
or could reasonably be expected to have a Material Adverse Effect, individually
or in the aggregate; and there is no pending or, to the Company’s Knowledge,
threatened investigation that might lead to such a claim.
4.17 Litigation.
There
are no pending actions, suits or proceedings against or affecting the Company
or
any of its properties; and to the Company’s Knowledge, no such actions, suits or
proceedings are threatened or contemplated.
4.18 Financial
Statements.
The
financial statements included in each SEC Filing present fairly, in all material
respects, the consolidated financial position of the Company as of the dates
shown and its consolidated results of operations and cash flows for the periods
shown, and such financial statements have been prepared in conformity with
United States generally accepted accounting principles applied on a consistent
basis (except as may be disclosed therein or in the notes thereto, and, in
the
case of quarterly financial statements, as permitted by Form 10-QSB under the
1934 Act). Except as set forth in the financial statements of the Company
included in the SEC Filings filed prior to the date hereof, the Company has
not
incurred any liabilities, contingent or otherwise, except those incurred in
the
ordinary course of business, consistent (as to amount and nature) with past
practices since the date of such financial statements, none of which,
individually or in the aggregate, have had or could reasonably be expected
to
have a Material Adverse Effect.
4.19 Insurance
Coverage.
The
Company maintains in full force and effect insurance coverage that is customary
for comparably situated companies for the business being conducted and
properties owned or leased by the Company, and the Company reasonably believes
such insurance coverage to be adequate against all liabilities, claims and
risks
against which it is customary for comparably situated companies to
insure.
4.20 Brokers
and Finders.
No
Person will have, as a result of the transactions contemplated by the
Transaction Documents, any valid right, interest or claim against or upon the
Company or an Investor for any commission, fee or other compensation pursuant
to
any agreement, arrangement or understanding entered into by or on behalf of
the
Company.
4.21 No
Directed Selling Efforts or General Solicitation.
Neither
the Company nor any Person acting on its behalf has conducted any general
solicitation or general advertising (as those terms are used in Regulation
D) in
connection with the offer or sale of any of the Securities.
4.22 No
Integrated Offering.
Neither
the Company nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any Company security or solicited any
offers to buy any security, under circumstances that would adversely affect
reliance by the Company on Section 4(2) for the exemption from registration
for
the transactions contemplated hereby or would require registration of the
Securities under the 1933 Act.
4.23 Private
Placement.
The
offer and sale of the Securities to the Investor as contemplated hereby is
exempt from the registration requirements of the 1933 Act.
4.24 Questionable
Payments.
Neither
the Company nor, to the Company’s Knowledge, any of its current or former
stockholders, directors, officers, employees, agents or other Persons acting
on
behalf of the Company, has on behalf of the Company or in connection with the
Company’s business: (a) used any corporate funds for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to political activity;
(b) made any direct or indirect unlawful payments to any governmental officials
or employees from corporate funds; (c) established or maintained any unlawful
or
unrecorded fund of corporate monies or other assets; (d) made any false or
fictitious entries on the books and records of the Company; or (e) made any
unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful
payment of any nature.
4.25 Transactions
with Affiliates.
Except
as disclosed in the SEC Filings, none of the officers or directors of the
Company and, to the Company’s Knowledge, none of the employees of the Company is
presently a party to any transaction with the Company (other than as holders
of
stock options and/or warrants, and for services as employees, officers and
directors), including any contract, agreement or other arrangement providing
for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the Company’s Knowledge, any entity in which
any officer, director, or any such employee has a substantial interest or is
an
officer, director, trustee or partner.
4.26 Internal
Controls.
The
Company maintains a system of internal accounting controls. At December 31,
2006, the Company’s management identified the following material weaknesses in
its internal controls over financial reporting: (i) lack of segregation of
duties in the period-end financial reporting process; (ii) the Company’s chief
financial officer is the only employee with any significant knowledge of
generally accepted accounting principles and (iii) the Company’s chief financial
officer is the sole employee in charge of (A) the general ledger (including
the
preparation of routine and non-routine journal entries and journal entries
involving accounting estimates), (B) the preparation of accounting
reconciliations, (C) the selection of accounting principles, and (D) the
preparation of interim and annual financial statements (including report
combinations, consolidation entries and footnote disclosures) in accordance
with
generally accepted accounting principles. As of the date hereof, the Company
still has these material weaknesses in its internal control over financial
reporting. The Company has established disclosure controls and procedures (as
defined in 1934 Act Rules 13a-14 and 15d-14) for the Company and designed such
disclosure controls and procedures to ensure that material information relating
to the Company is made known to the certifying officers by others within those
entities, particularly during the period in which the Company’s most recently
filed period report under the 1934 Act, as the case may be, is being prepared.
The Company's certifying officers have evaluated the effectiveness of the
Company's controls and procedures as of a date within 90 days prior to the
filing date of the most recently filed periodic report under the 1934 Act (such
date, the "Evaluation Date"). The Company presented in its most recently filed
periodic report under the 1934 Act the conclusions of the certifying officers
about the effectiveness of the disclosure controls and procedures based on
their
evaluations as of the Evaluation Date. Since the Evaluation Date, there have
been no significant changes in the Company's internal controls (as such term
is
defined in Item 307(b) of Regulation S-K) or, to the Company's Knowledge, in
other factors that could significantly affect the Company's internal controls.
The Company maintains and will continue to maintain a standard system of
accounting established and administered in accordance with GAAP and the
applicable requirements of the 0000 Xxx.
4.27 Disclosures.
Neither
the Company nor any Person acting on its behalf has provided the Investor or
their agents or counsel with any information that constitutes or might
constitute material, non-public information. The written materials delivered
to
the Investor in connection with the transactions contemplated by the Transaction
Documents do not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading.
5. Representations
and Warranties of the Investor.
The
Investor hereby represents and warrants to the Company that:
5.1 Organization
and Existence.
The
Investor is a validly existing corporation, limited partnership or limited
liability company, as the case may be, and has all requisite corporate,
partnership or limited liability company power and authority to invest in the
Securities pursuant to this Agreement.
5.2 Authorization.
The
execution, delivery and performance by the Investor of the Transaction Documents
to which the Investor is a party have been duly authorized and will each
constitute the valid and legally binding obligation of the Investor, enforceable
against the Investor in accordance with their respective terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability, relating to or affecting creditors’
rights generally.
5.3 Purchase
Entirely for Own Account.
The
Securities to be received by the Investor hereunder will be acquired for the
Investor’s own account, not as nominee or agent, and not with a view to the
resale or distribution of any part thereof in violation of the 1933 Act, and
the
Investor has no present intention of selling, granting any participation in,
or
otherwise distributing the same in violation of the 1933 Act. The Investor
is
not a registered broker dealer or an entity engaged in the business of being
a
broker dealer.
5.4 Investment
Experience.
The
Investor acknowledges that it can bear the economic risk and complete loss
of
its investment in the Securities and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment contemplated hereby.
5.5 Disclosure
of Information.
The
Investor has had an opportunity to receive all additional information related
to
the Company requested by it and to ask questions of and receive answers from
the
Company regarding the Company, its business and the terms and conditions of
the
offering of the Securities. The Investor acknowledges receipt of copies of
the
SEC Filings. Neither such inquiries nor any other due diligence investigation
conducted by the Investor shall modify, amend or affect the Investor’s right to
rely on the Company’s representations and warranties contained in this
Agreement.
5.6 Restricted
Securities.
The
Investor understands that the Securities are characterized as “restricted
securities” under the U.S. federal securities laws inasmuch as they are being
acquired from the Company in a transaction not involving a public offering
and
that under such laws and applicable regulations such securities may be resold
without registration under the 1933 Act only in certain limited
circumstances.
5.7 Legends.
It is
understood that, except as provided below, certificates evidencing the
Securities may bear the following or any similar legend:
(a) “The
securities represented by this certificate have not been registered under the
Securities Act of 1933, as amended, or any state securities law and may not
be
sold, pledged, or otherwise transferred without an effective registration
thereof under applicable Federal and state securities law or an opinion of
counsel, satisfactory to the Company and its counsel that such registration
is
not required.”
(b) If
required by the authorities of any state in connection with the issuance or
sale
of the Securities, the legend required by such state authority.
Upon
the
earlier of (i) registration for resale pursuant to the Registration Rights
Agreement and receipt by the Company of the Investor’s written confirmation that
such Securities will not be disposed of except in compliance with the prospectus
delivery requirements of the 1933 Act or (ii) Rule 144(k) becoming available
to
the Investor with respect to the Securities held by the Investor, the Company
shall, upon an Investor’s written request, promptly cause certificates
evidencing the Shares to be replaced with certificates which do not bear such
restrictive legends, and Warrant Shares subsequently issued upon due exercise
of
the Warrants shall not bear such restrictive legends provided the provisions
of
either clause (i) or clause (ii) above, as applicable, are satisfied with
respect to such Warrant Shares.
5.8 Accredited
Investor.
The
Investor is an accredited investor as defined in Rule 501(a) of Regulation
D, as
amended, under the 0000 Xxx.
5.9 No
General Solicitation.
The
Investor did not learn of the investment in the Securities as a result of any
public advertising or general solicitation.
5.10 Brokers
and Finders.
No
Person will have, as a result of the transactions contemplated by the
Transaction Documents, any valid right, interest or claim against or upon the
Company or an Investor for any commission, fee or other compensation pursuant
to
any agreement, arrangement or understanding entered into by or on behalf of
the
Investor.
5.11 Prohibited
Transactions.
During
the last thirty (30) days prior to the date hereof, the Investor has not,
directly or indirectly, effected or agreed to effect any short sale, whether
or
not against the box, established any “put equivalent position” (as defined in
Rule 16a-1(h) under the 0000 Xxx) with respect to the Common Stock, granted
any
other right (including, without limitation, any put or call option) with respect
to the Common Stock or with respect to any security that includes, relates
to or
derived any significant part of its value from the Common Stock or otherwise
sought to hedge its position in the Securities (each, a “Prohibited
Transaction”). Prior to the earlier of (i) the termination of this Agreement, or
(ii) the Closing Date, the Investor shall not engage, directly or indirectly,
in
a Prohibited Transaction. The Investor acknowledges that the representations
and
warranties contained in this Section 5.11 are being made for the benefit of
the
Investor as well as the Company.
6.
Conditions
to Closing.
6.1 Conditions
to the Investor’s Obligations.
The
obligation of the Investor to purchase the Shares and the Warrants at the
Closing is subject to the fulfillment to the Investor’s reasonable satisfaction,
on or prior to the Closing Date, of the following conditions, any of which
may
be waived by the Investor:
(a) The
representations and warranties made by the Company in Section 4 hereof qualified
as to materiality shall be true and correct at all times prior to and on the
Closing Date, except to the extent any such representation or warranty expressly
speaks as of an earlier date, in which case such representation or warranty
shall be true and correct as of such earlier date, and, the representations
and
warranties made by the Company in Section 4 hereof not qualified as to
materiality shall be true and correct in all material respects at all times
prior to and on the Closing Date, except to the extent any such representation
or warranty expressly speaks as of an earlier date, in which case such
representation or warranty shall be true and correct in all material respects
as
of such earlier date. The Company shall have performed in all material respects
all obligations and conditions herein required to be performed or observed
by it
on or prior to the Closing Date.
(b) The
Company shall have obtained in a timely fashion any and all consents, permits,
approvals, registrations and waivers necessary or appropriate for consummation
of the purchase and sale of the Securities all of which shall be in full force
and effect.
(c) The
Company shall have executed and delivered the Registration Rights
Agreement.
(d) No
judgment, writ, order, injunction, award or decree of or by any court, or judge,
justice or magistrate, including any bankruptcy court or judge, or any order
of
or by any governmental authority, shall have been issued, and no action or
proceeding shall have been instituted by any governmental authority, enjoining
or preventing the consummation of the transactions contemplated hereby or in
the
other Transaction Documents.
(e) The
Company shall have delivered a Certificate, executed on behalf of the Company
by
its Chief Executive Officer or its Chief Financial Officer, dated as of the
Closing Date, certifying to the fulfillment of the conditions specified in
subsections (a), (b), (d), and (h) of this Section 6.1.
(f) The
Company shall have delivered a Certificate, executed on behalf of the Company
by
its Secretary, dated as of the Closing Date, certifying the resolutions adopted
by the Board of Directors of the Company approving the transactions contemplated
by this Agreement, which resolutions shall specify that the approval of the
transactions contemplated hereby is being made in accordance with section
203(a)(1) of the Delaware General Corporation Law, and the other Transaction
Documents and the issuance of the Securities, certifying the current versions
of
the Certificate of Incorporation and Bylaws of the Company and certifying as
to
the signatures and authority of persons signing the Transaction Documents and
related documents on behalf of the Company.
(g) The
Investor shall have received an opinion from Xxxxxxxxx
Xxxxxx & Xxxx LLP,
the
Company's counsel, dated as of the Closing Date, in form and substance
reasonably acceptable to the Investor.
(h) No
stop
order or suspension of trading shall have been imposed by Nasdaq, the SEC or
any
other governmental regulatory body with respect to public trading in the Common
Stock.
6.2 Conditions
to Obligations of the Company.
The
Company's obligation to sell and issue the Shares and the Warrants at the
Closing is subject to the fulfillment to the satisfaction of the Company on
or
prior to the Closing Date of the following conditions, any of which may be
waived by the Company:
(a) The
representations and warranties made by the Investor in Section 5 hereof, other
than the representations and warranties contained in Sections 5.3, 5.4, 5.5,
5.6, 5.7, 5.8 and 5.9 (the “Investment Representations”), shall be true and
correct in all material respects when made, and shall be true and correct in
all
material respects on the Closing Date with the same force and effect as if
they
had been made on and as of said date. The Investor shall have performed in
all
material respects all obligations and conditions herein required to be performed
or observed by them on or prior to the Closing Date.
(b) The
Investor shall have executed and delivered the Registration Rights
Agreement.
(c) The
Investor shall have delivered the Purchase Price to the Company.
6.3 Termination
of Obligations to Effect Closing; Effects.
(a) The
obligations of the Company, on the one hand, and the Investor, on the other
hand, to effect the Closing shall terminate as follows:
(i) Upon
the
mutual written consent of the Company and the Investor;
(ii) By
the
Company if any of the conditions set forth in Section 6.2 shall have become
incapable of fulfillment, and shall not have been waived by the
Company;
(iii) By
the
Investor if any of the conditions set forth in Section 6.1 shall have become
incapable of fulfillment, and shall not have been waived by the Investor;
or
(iv) By
either
the Company or the Investor if the Closing has not occurred on or prior to
September 30, 2007;
provided,
however, that, except in the case of clause (i) above, the party seeking to
terminate its obligation to effect the Closing shall not then be in breach
of
any of its representations, warranties, covenants or agreements contained in
this Agreement or the other Transaction Documents if such breach has resulted
in
the circumstances giving rise to such party’s seeking to terminate its
obligation to effect the Closing.
(b) Nothing
in this Section 6.3 shall be deemed to release any party from any liability
for
any breach by such party of the terms and provisions of this Agreement or the
other Transaction Documents or to impair the right of any party to compel
specific performance by any other party of its obligations under this Agreement
or the other Transaction Documents.
7. Covenants
and Agreements of the Company.
7.1 Reservation
of Common Stock.
The
Company shall at all times reserve and keep available out of its authorized
but
unissued shares of Common Stock, solely for the purpose of providing for the
exercise of the Warrants, such number of shares of Common Stock as shall from
time to time equal the number of shares sufficient to permit the exercise of
the
Warrants issued pursuant to this Agreement in accordance with their respective
terms.
7.2 No
Conflicting Agreements.
The
Company will not take any action, enter into any agreement or make any
commitment that would conflict or interfere in any material respect with the
company’s obligations to the Investor under the Transaction
Documents.
7.3 Insurance.
The
Company shall not materially reduce the insurance coverages described in Section
4.19.
7.4 Compliance
with Laws.
The
Company will comply in all material respects with all applicable laws, rules,
regulations, orders and decrees of all governmental authorities.
7.5 Termination
of Covenants.
The
provisions of Sections 7.2 through 7.4 shall terminate and be of no further
force and effect upon the earlier of (i) the mutual consent of the Company
and
the Investor or (ii) the date on which the Company’s obligations under the
Registration Rights Agreement to register or maintain the effectiveness of
any
registration covering the Registrable Securities (as such term is defined in
the
Registration Rights Agreement) shall terminate.
8. Survival
and Indemnification.
8.1 Survival.
The
representations, warranties, covenants and agreements contained in this
Agreement shall survive the Closing of the transactions contemplated by this
Agreement.
8.2 Indemnification.
The
Company agrees to indemnify and hold harmless, on an after-tax and after
insurance recovery basis, the Investor and its Affiliates and its directors,
officers, employees and agents from and against any and all losses, claims,
damages, liabilities and expenses (including without limitation reasonable
attorney fees and disbursements and other expenses incurred in connection with
investigating, preparing or defending any action, claim or proceeding, pending
or threatened and the costs of enforcement thereof) (collectively, “Losses”) to
which such Person may become subject as a result of any breach of
representation, warranty, covenant or agreement made by or to be performed
on
the part of the Company under the Transaction Documents, and will reimburse
any
such Person for all such amounts as they are incurred by such
Person.
8.3 Conduct
of Indemnification Proceedings.
Promptly
after receipt by any Person (the “Indemnified
Person”) of notice of any demand, claim or circumstances which would or might
give rise to a claim or the commencement of any action, proceeding or
investigation in respect of which indemnity may be sought pursuant to Section
8.2, such Indemnified Person shall promptly notify the Company in writing and
the Company shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to such Indemnified Person, and shall assume
the
payment of all fees and expenses; provided,
however, that
the
failure of any Indemnified Person so to notify the Company shall not relieve
the
Company of its obligations hereunder except to the extent that the Company
is
materially prejudiced by such failure to notify. In any such proceeding, any
Indemnified Person shall have the right to retain its own counsel, but the
fees
and expenses of such counsel shall be at the expense of such Indemnified Person
unless: (i) the Company and the Indemnified Person shall have mutually agreed
to
the retention of such counsel; or (ii) in the reasonable judgment of counsel
to
such Indemnified Person representation of both parties by the same counsel
would
be inappropriate due to actual or potential differing interests between them.
The Company shall not be liable for any settlement of any proceeding effected
without its written consent, which consent shall not be unreasonably withheld,
but if settled with such consent, or if there be a final judgment for the
plaintiff, the Company shall indemnify and hold harmless such Indemnified Person
from and against any loss or liability (to the extent stated above) by reason
of
such settlement or judgment. Without the prior written consent of the
Indemnified Person, which consent shall not be unreasonably withheld, the
Company shall not effect any settlement of any pending or threatened proceeding
in respect of which any Indemnified Person is or could have been a party and
indemnity could have been sought hereunder by such Indemnified Party, unless
such settlement includes an unconditional release of such Indemnified Person
from all liability arising out of such proceeding.
9. Miscellaneous.
9.1 Successors
and Assigns.
This
Agreement may not be assigned by a party hereto without the prior written
consent of the Company or the Investor, as applicable, provided, however, that
the Investor may assign its rights and delegate its duties hereunder in whole
or
in part to an Affiliate or to a third party acquiring some or all of its
Securities in a private transaction without the prior written consent of the
Company, after notice duly given by the Investor to the Company, provided,
that
no such assignment or obligation shall affect the obligations of the Investor
hereunder. The provisions of this Agreement shall inure to the benefit of and
be
binding upon the respective permitted successors and assigns of the parties.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
9.2 Counterparts;
Faxes.
This
Agreement may be executed in two or more counterparts, each of which shall
be
deemed an original, but all of which together shall constitute one and the
same
instrument. This Agreement may also be executed via facsimile, which shall
be
deemed an original.
9.3 Titles
and Subtitles.
The
titles and subtitles used in this Agreement are used for convenience only and
are not to be considered in construing or interpreting this
Agreement.
9.4 Notices.
Unless
otherwise provided, any notice required or permitted under this Agreement shall
be given in writing and shall be deemed effectively given as hereinafter
described (i) if given by personal delivery, then such notice shall be deemed
given upon such delivery, (ii) if given by facsimile transmission, then such
notice shall be deemed given upon receipt of confirmation of complete
transmittal, (iii) if given by mail, then such notice shall be deemed given
upon
the earlier of (A) receipt of such notice by the recipient or (B) three days
after such notice is deposited in first class mail, postage prepaid, and (iv)
if
given by an internationally recognized overnight air courier, then such notice
shall be deemed given one business day after delivery to such carrier. All
notices shall be addressed to the party to be notified at the address as
follows, or at such other address as such party may designate by ten days’
advance written notice to the other party:
If
to the
Company:
Applied
NeuroSolutions, Inc.
00
Xxxxxxxx Xxxxxxx
Xxxxxx
Xxxxx, Xxxxxxxx 00000
Attention:
Xxxxx X. Xxxxxxx
Fax:
(000) 000-0000
With
a
copy to:
Xxxxxxxxx
Xxxxxx & Xxxx LLP
00
Xxxx
00xx
Xxxxxx,
00xx Xxxxx, Xxx Xxxx, XX 00000
Attention.:
Xxxx X. Xxxxxxxxx, Esq.
Fax:
(000) 000-0000
If
to the
Investor:
to
the
addresses set forth on the signature pages hereto.
9.5 Expenses.
The
parties hereto shall pay their own costs and expenses in connection herewith,
except that the Company shall pay the reasonable fees and expenses of one legal
counsel for the Investor not to exceed $35,000. Such expenses shall be paid
upon
presentation of itemized invoices, which must be received by the Company no
later than 30 days after the Closing. In the event that legal proceedings are
commenced by any party to this Agreement against another party to this Agreement
in connection with this Agreement or the other Transaction Documents, the party
or parties which do not prevail in such proceedings shall severally, but not
jointly, pay their pro rata share of the reasonable attorneys’ fees and other
reasonable out-of-pocket costs and expenses incurred by the prevailing party
in
such proceedings.
9.6 Amendments
and Waivers.
Any
term of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the Investor. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any Securities purchased under
this Agreement at the time outstanding, each future holder of all such
Securities, and the Company.
9.7 Publicity.
No
public release or announcement concerning the transactions contemplated hereby
shall be issued by the Company or the Investor without the prior consent of
the
Company (in the case of a release or announcement by the Investor) or the
Investor (in the case of a release or announcement by the Company) (which
consents shall not be unreasonably withheld or delayed), except as such release
or announcement may be required by law or the applicable rules or regulations
of
any securities exchange or securities market, in which case the Company or
the
Investor, as the case may be, shall allow the Investor or the Company, as
applicable, to the extent reasonably practicable in the circumstances,
reasonable time to comment on such release or announcement in advance of such
issuance.
9.8 Severability.
Any
provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof but shall be interpreted as if it were written so as to be
enforceable to the maximum extent permitted by applicable law, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the parties hereby waive any provision of law
which
renders any provision hereof prohibited or unenforceable in any
respect.
9.9 Entire
Agreement.
This
Agreement, including the Exhibits and the Disclosure Schedules, and the other
Transaction Documents constitute the entire agreement among the parties hereof
with respect to the subject matter hereof and thereof and supersede all prior
agreements and understandings, both oral and written, between the parties with
respect to the subject matter hereof and thereof.
9.10 Further
Assurances.
The
parties shall execute and deliver all such further instruments and documents
and
take all such other actions as may reasonably be required to carry out the
transactions contemplated hereby and to evidence the fulfillment of the
agreements herein contained.
9.11 Governing
Law; Consent to Jurisdiction; Waiver of Jury Trial.
This
Agreement shall be governed by, and construed in accordance with, the internal
laws of the State of New York without regard to the choice of law principles
thereof. Each of the parties hereto irrevocably submits to the exclusive
jurisdiction of the courts of the State of New York located in New York County
and the United States District Court for the Southern District of New York
for
the purpose of any suit, action, proceeding or judgment relating to or arising
out of this Agreement and the transactions contemplated hereby. Service of
process in connection with any such suit, action or proceeding may be served
on
each party hereto anywhere in the world by the same methods as are specified
for
the giving of notices under this Agreement. Each of the parties hereto
irrevocably consents to the jurisdiction of any such court in any such suit,
action or proceeding and to the laying of venue in such court. Each party hereto
irrevocably waives any objection to the laying of venue of any such suit, action
or proceeding brought in such courts and irrevocably waives any claim that
any
such suit, action or proceeding brought in any such court has been brought
in an
inconvenient forum. EACH
OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY
LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN
CONSULTED SPECIFICALLY AS TO THIS WAIVER.
[signature
page follows]
IN
WITNESS WHEREOF, the parties have executed this Agreement or caused their duly
authorized officers to execute this Agreement as of the date first above
written.
APPLIED
NEUROSOLUTIONS, INC.
By:_________________________
Name:
Xxxxx X. Xxxxxxx
Title:
President & CEO
INVESTOR
SF
CAPITAL PARTNERS LTD.
By:_________________________
Name:
Title:
Purchase
Price: $2,900,000
Number
of
Shares: 20,714,286
Number
of
Warrants: 6,214,286
Address
for Notice:
c/x
Xxxxx
Offshore Management LLC
Schedule
4.3 Capitalization
Authorized
capital stock of the Company - 200,000,000 shares of common stock and 5,000,000
shares of preferred stock
Shares
of
common stock issued and outstanding - 108,884,956
Shares
of
preferred stock issued and outstanding - 0
Stock
options outstanding under the Company’s 2003 Stock Option Plan -
10,315,680
Stock
options outstanding outside the Company’s 2003 Stock Option Plan -
10,000,000
Warrants
outstanding - 38,296,417
