Document:

Lilly Collaboration Agreement

    EXHIBIT
      10.22

    

    CONFIDENTIAL
      PORTIONS OF THIS AGREEMENT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE
      COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
      TREATMENT. 

    

    COLLABORATION
      AGREEMENT

    

     

    This
      Collaboration Agreement (this “Agreement”)
      is made
      as of this 27th day of November, 2006 (the
      “Effective Date”)
      by and
      between Applied NeuroSolutions, Inc., a corporation organized and existing
      under
      the laws of the State of Delaware, having its principal place of business at
      50
      Lakeview Parkway, Suite 111, Vernon Hills, IL 60061 (“APNS”),
      and Eli
      Lilly and Company, a corporation organized and existing under the laws of the
      State of Indiana, having its principal place of business at Lilly Corporate
      Center, Indianapolis, Indiana 46285 (“LILLY”).
      

     

    Background

     

    LILLY
      is
      a major pharmaceutical company interested in drug discovery, particularly in
      the
      neuroscience area and including target family and disease pathway mapping,
      biomarker development, and the use of drugs for treating conditions such as
      Alzheimer’s disease.

     

    APNS
      is a
      development stage biopharmaceutical company focused on diagnostics and
      therapeutics for the treatment of Alzheimer’s disease and other
      neurodegenerative diseases, and has entered into (i) a License and Collaborative
      Research Agreement dated February 1, 1994, as amended by an Amendment Agreement
      executed on March 20, 2002, a Second Amendment Agreement effective September
      21,
      2002 and a Third Amendment Agreement effective October 30, 2006 (collectively,
      the “1994
      Agreement”)
      and
      (ii) a License and Collaborative Research Agreement effective July 1, 1993,
      as
      amended by an Amendment Agreement executed on July 9, 1993, an Amendment
      Agreement executed on March 20, 2002, a Second Amendment Agreement effective
      September 21, 2002 and a Third Amendment Agreement effective October 30, 2006
      (collectively, the “1993
      Agreement”)
      (the
      1994 Agreement and the 1993 Agreement, together, the “AECOM
      Agreements”)
      with
      Albert Einstein College of Medicine (“AECOM”)
      to serve
      as a scientific collaborator with Dr. Peter Davies to commercialize all of
      Dr.
      Davies’ neurodegenerative disease related discoveries on behalf of AECOM,
      subject to the terms and conditions of the AECOM Agreements. APNS has also
      entered into a Consulting Agreement with Dr. Peter Davies dated December 1,
      2005
      (the “Davies
      Agreement”).

     

    APNS
      and
      LILLY desire to enter into this Agreement to perform the research collaboration
      (the “Collaboration”)
      as
      initially set forth in the research plan attached as Appendix A
(the
      “Research Plan”)
      for the
      purpose of generating information and data relating to the Field (all as defined
      below).

     

    
      	1.  	
              Collaboration:

            

    

    

    The
      goal
      of the Collaboration is to discover compounds directed against the pathology
      mediated by or directly associated with [***] in Alzheimer’s disease
      (“Compounds”)
      and to
develop
      such Compounds as pharmaceutical products (“Products”).
      The
      Collaboration will go forward in three stages (“Stage
      1” and “Stage 2” and “Stage 3”),
      each of
      which is described in further detail in the Research Plan (which is incorporated
      by reference herein). Stage 1 will consist of bringing Dr. Davies’ laboratory,
      APNS personnel and the LILLY Neurodegenerative Diseases Drug Hunting (NDDHT)
      team together with other essential LILLY drug discovery functions (Chemistry
      and
      ADME/Toxicology) to 

     

     

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    form
      a
      coherent team to support research and development of Compounds in the field
      of
      the following [***]: Alzheimer’s disease; [***] (collectively, the “Field”);
      notwithstanding the Field definition, the primary initial focus of the
      Collaboration shall be Alzheimer’s disease. The work conducted will initially
      focus on Target X, [***] as targets for [***] drug discovery efforts. Any other
      targets newly discovered in the execution of the Collaboration, and those
      targets identified in the Research Plan ([***]), shall be referred to herein
      as
      the “Other
      Targets”
and
      together with Target X, shall be referred to herein as the “Targets.”
For
      clarity, “Other
      Targets”
does
      not include [***] which are brought into the Collaboration; “Other
      Targets”
does,
      however, include [***] which subsequently become [***]. The work will consist
      of
      Target enablement: [***], which is further defined as “Target to Hit” in the
      Research Plan. 

     

    Stage
      1 Success Criteria: Success
      criteria for Stage 1 are as follows:

    

    
      	
              1.

            	
              Research
                Plan finalized and tasks assigned as appropriate by the Collaboration
                Management Team between LILLY scientists, including the NDDHT and
                Discovery Chemistry and Research Technologies at Lilly, APNS and
                Dr. Peter
                Davies’ laboratory at AECOM.

            

    

    

    2. Target
      X
      project underway:

    

    
      	o  	
              [***]

            

    

    
      	o  	
              Target
                X[***] 

            

    

    
      	o  	
              [***]Target
                X [***] Target X [***].

            

    

    

    3. Work
      on
      [***] initiated.

     

    4. Regular
      meetings held among Lilly personnel, APNS personnel and Dr. Davies.

    

    
      	
              5.

            	
              Successful
                completion of IP and Information Technology (IT) Due Diligence as
                it
                relates to the technologies, assets, and information provided by
                APNS that
                are relevant to the Collaboration.

            

    

    

    

    

    

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

        
           

        

      

    

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    Stage
      2
      will consist of pursuing a number of approaches focused on [***] as potential
      therapeutics for Alzheimer’s disease. 

     

    2.
      Research Plan: 

     

    The
      parties will perform the Collaboration as set forth in the Research Plan
      attached as Appendix A, which may be amended from time to time by the
      Collaboration Management Team (defined below). 

     

    3.
      Management:

     

    APNS
      and
      LILLY will form a team (the“Collaboration
      Management Team”)
      that
      will consist of two (2) member(s) from each party and will act only by unanimous
      agreement. One of the LILLY representatives in the Collaboration Management
      Team
      shall be [***]
      and
      one
      of the APNS representatives shall be [***].
      If the
      Collaboration Management Team cannot reach agreement on a given issue, then
      the
      matter shall be referred to the Chief Executive Officer of APNS and the Vice
      President of Neuroscience Research of Lilly (or successor position) for further
      discussion and resolution. If agreement cannot be reached, LILLY shall have
      the
      final decision making authority. The responsibilities of the Collaboration
      Management Team will include, in addition to those mutually agreeable to the
      parties, evaluating and discussing the handling of [***]
      IP
      (Section 8(e)), modifying the Research Plan, managing the execution of the
      Research Plan, monitoring the progress of the Research Plan, and presenting
      a
      report on the Research Plan deliverables to LILLY and APNS (the“Final
      Report”).
      [***].
      These
      processes and authority may change during the course of the
      Collaboration.
      All
      parties, including any subcontractors, will utilize good documentation practices
      when recording research results. LILLY reserves the right to assess all research
      data.

     

    4.
      Term: 

     

    The
      term
      of the Collaboration under this Agreement (the “Collaboration
      Term”)
      shall
      be three (3) years from the Effective Date with two (2) one (1) year options
      to
      extend at LILLY’s sole discretion (so long as LILLY is not in breach of this
      Agreement) (or such longer period as LILLY and APNS may mutually agree), subject
      to the early termination rights set forth in Section 17. The term of the other
      provisions in this Agreement (the “Agreement
      Term”)
      shall
      be from the Effective Date until payment of the final amount due and payable
      by
      LILLY to APNS under this Agreement, subject to the early termination rights
      set
      forth in Section 17. 

     

    5.
      Materials Transfer:

     

    In
      order
      to execute the Research Plan, LILLY and APNS will need to transfer certain
      materials from one party to the other (the“Materials”).
      A
      description of the Materials is set forth in the Research Plan. The
      Materials will be used by the receiving party only for the execution and/or
      evaluation of the results of the Collaboration. All Materials will remain the
      property
      of the sending party and will be held confidential in respect to third parties
      in accordance with the terms of Section 7. The
      Materials shall at all times remain the property of the sending party. Upon
      the
      termination at will by LILLY or for breach by LILLY, LILLY will either (a)
      dispose of any residual Materials not consumed by LILLY in performance of this
      Agreement in accordance with this Agreement and all applicable state and federal
      laws and regulations, or (b) upon request of APNS, return such Materials to
      APNS. Notwithstanding the foregoing, if the Collaboration Term is terminated
      at
      will by LILLY as provided in Section 17 and LILLY continues to develop a
      Compound(s) and remains responsible for any payments which may become due
      pursuant to Sections 9(e) and 11, then LILLY shall have a paid up license from
      APNS to use Materials transferred to LILLY hereunder. Upon the termination
      or
      expiration of the Collaboration Term, APNS will either (a) dispose of any
      residual Materials not consumed by APNS in performance of this Agreement in
      accordance with this Agreement and all applicable state and federal laws and
      regulations, or (b) upon request of LILLY, return such Materials to
      LILLY.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
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        6.
      Covenants:

    For
      the
      Collaboration Term, through APNS, LILLY shall have access
      to
[***]
      for
      the
      Collaboration in the Field. APNS shall use its reasonable efforts to require
      [***]
      to
      attend
      all meetings that are held by the parties relating to the Collaboration as
      contemplated by the Research Plan (such meetings to be (i) [***]
      and
      (ii)
      a [***],
      unless
      otherwise agreed by the parties). Re-scheduling of meetings will be permitted
      on
      both sides but only with the agreement of the other party. Persistent absence
      (as determined by the Collaboration Management Team) from meetings (required
      by
      the Research Plan) by [***]
      during
      the Collaboration Term which results in a significant impairment to the goals
      of
      the Collaboration (as determined by the Collaboration Management Team) shall
      be
      considered an Event of Default by APNS under Section 17. [***]
      and/or
      APNS’ laboratory, as decided by the Collaboration Management Team, will provide
[***]
      to
      work
      on the Collaboration as required under the Research Plan. Upon expiration or
      termination of the Collaboration Term, all rights of LILLY and obligations
      of
      APNS and [***]
      provided
      in this Section 6 shall terminate.

    

    7.
      Confidentiality: 

     

    (a)
      Each
      of APNS and LILLY will be providing to the other certain Confidential
      Information in order to perform the Collaboration. "Confidential
      Information"
      includes
      (other than as described in Section 7(g)) all information, know-how, data or
      Materials of an intellectual, technical, scientific, commercial, financial
      or
      industrial nature disclosed by either party to the other, in a written document
      received from or belonging to the disclosing party, or oral or visual
      information, whether by inspection or otherwise, which reasonably should be
      considered as confidential from the context of the disclosure at the time of
      such disclosure.

     

    (b)
      Each
      of APNS and LILLY agrees to safeguard such information from unauthorized use
      or
      disclosure to the same extent as it does its own confidential information of
      similar nature, but with no less than reasonable care.

     

    (c)
      Each
      of LILLY and APNS agrees that it will not, without the express written consent
      of the other party, or as permitted by agreement of the Collaboration Management
      Team, use the other party’s Confidential Information for any purpose other than
      the performance of the Research Plan or any other purpose expressly contemplated
      by the terms of this Agreement. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
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        (d)
      Each of
      LILLY and APNS agrees not to disclose the other party’s Confidential Information
      to any person other than to such of its (and its affiliates’) employees, agents,
      consultants, representatives, contractors and advisors who have a need to know
      such Confidential Information for purposes of the Collaboration and who shall
      be
      informed by the receiving party of the confidential nature of the Confidential
      Information and shall agree to observe the same terms and conditions set forth
      herein as if specifically named a party hereto. Each of LILLY and APNS agrees
      that it will be responsible for any breach of confidentiality terms of this
      Agreement by its (and its affiliates’) agents, employees, consultants,
      representatives, contractors or advisors. As used herein,“affiliate”
      of a
      party means, any entity controlling, controlled by or under common control
      with
      such party.

     

    (e)
      Each
      party agrees that it will maintain in confidence, and not disclose, the terms
      of
      this Agreement without the prior written permission of the other party, except
      (i) as required by law, provided that the party provides the text of the
      proposed disclosure to the other party; (ii) to its attorneys, accountants,
      and
      other professional advisors under a duty of confidentiality; or (iii) to a
      third
      party under a duty of confidentiality in connection with a financing or a
      proposed merger or a proposed sale of all or part of such party’s business. In
      addition, if a party receives a request from an authorized representative of
      a
      U.S. or foreign tax authority for a copy of the Agreement, that party may
      provide a copy of the Agreement to such tax authority representative without
      advance notice to, or the permission or cooperation of, the other party, but
      the
      disclosing party must notify the other party of the disclosure as soon as
      practicable.

    

    Any
      proposed disclosures by APNS where APNS is required to provide a copy of the
      text of the proposed disclosure to LILLY under this Subsection must be delivered
      to LILLY’s Corporate Communications Department, [***]
      for
      LILLY’s review and comment. Any proposed disclosures by LILLY where LILLY is to
      provide a copy of the text of the proposed disclosure to APNS under this
      Subsection must be delivered to APNS’ offices, 50 Lakeview Parkway, Suite 111,
      Vernon Hills IL 60061, Attn: Chief Financial Officer, for APNS’ review and
      comment. 

    

    (f)
      Each
      of the parties agrees, in the event that either party terminates this Agreement,
      or at the end of the term of this Agreement if requested by the other, to return
      to the originating party, all of the Confidential Information and all related
      material provided by the originating party. The “related
      material”
      refers
      to all memoranda, notes, reports and documents containing copies, extracts
      or
      reproductions of the Confidential Information provided by one of the parties
      to
      the other pursuant to this Agreement. The receiving party shall be entitled
      to
      retain in its legal files one copy of all Confidential Information and related
      material received under this Agreement for the sole purpose of determining
      the
      scope of the obligations incurred hereunder. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
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    (g)
      The
      provisions of this Agreement relating to Confidential Information will not
      apply
      to any part of such information where:

     

    
      	 	
               
                (i)

            	
              such
                information has been, or at any time is, made available to the public
                through no fault of the receiving party;
                or

            

    

    
      	 	
               
                (ii)

            	
              such
                information is known by the receiving party at the time of disclosure,
                as
                shown by prior written evidence of the receiving party;
                or

            

      	 	 (iii)	 such
              information is developed by or for the receiving party independently
              of
              disclosure hereunder, as shown by written evidence of the receiving
              party;
              or

      	 	 (iv)	 such
              information is disclosed by a third party, who is not under a duty
              of
              confidentiality, through no fault of the receiving
              party.

    

    

    Notwithstanding
      the foregoing, the receiving party shall be permitted to disclose Confidential
      Information to the extent that the receiving party has been authorized by the
      disclosing party to disclose such information, or to the extent the disclosure
      is required by law and the receiving party has provided the disclosing party
      reasonable advance notice of the potential disclosure and reasonable cooperation
      with efforts by the disclosing party to limit disclosure, obtain a protective
      order or take other similar steps.

    

    (h)
      Each
      of the parties acknowledges and agrees that the obligations of confidentiality
      and trust herein provided are in addition to and not in substitution for any
      duties or obligations of secrecy, confidence or trust arising from or implied
      by
      any statute or rule of law.

     

     (i)
      Nothing contained in this Agreement shall be construed as a grant of a license
      to use the Confidential Information other than for purposes described
      herein.

     

    (j)
      Each
      party’s obligation of confidentiality under this Agreement shall survive the
      termination or expiration of the Agreement Term for five (5) years.

     

    8.
      Intellectual Property:

     

    (a)
      LILLY
      will remain the sole owner of or otherwise shall continue to control rights
      in
      all IP (as defined below) relating to any and all Materials, information, plans
      or methods that may be disclosed to APNS or developed solely by LILLY or
      licensed to LILLY prior to or separate from performance of the Collaboration
      (“LILLY
      Existing IP”).
      “IP”
      means
      all discoveries, inventions (whether patentable or not), knowledge, know-how,
      data, techniques, processes, systems, formulations, designs and information
      of
      any and every kind, and all worldwide intellectual property or proprietary
      rights (including, but not limited to patent rights, copyrights and trade
      secrets) claiming, memorializing or covering the same. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
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        (b) APNS
      will
      remain the sole owner of or otherwise shall continue to control rights in all
      IP
      relating to any and all Materials, information, plans or methods, [***],
      that
      may be disclosed to LILLY or developed solely by APNS, or licensed to APNS
      prior
      to or separate from performance of the Collaboration (“APNS
      Existing IP”).
      [***].
      

     

    (c)
       [***]
      (“Product-related
      IP”),
      [***]
      (“LILLY
      New IP” and,
      together with LILLY Existing IP,
      “LILLY IP”).

     

    (d) All
      IP
      conceived in the execution of the Collaboration solely by APNS [***]
      will
      be
      owned by APNS (“APNS
      New IP” and,
      together with APNS Existing IP,
      “APNS IP”).

     

    (e) All
      IP
      [***] conceived in the [***], will be owned [***] (“[***]
      IP”),
      provided that all IP [***] created solely by [***] will be owned by [***],
      and
      will be considered part of the [***].

    

    The
      parties’ rights as [***]
      hereunder
      of [***]
      IP
      shall
      include, in all countries of the world, all rights inherent in [***]
      of
      intellectual property under the laws of the United States. For the avoidance
      of
      doubt, and without limiting or narrowing the foregoing, [***]
      shall
      expressly be permitted to use and exploit the [***]
      IP
      and to
[***]
      in
      the
[***]
      IP
      [***],
      except
      as limited by the licenses granted hereunder. [***]
      shall
      be
      responsible, at its sole discretion [***],
      for
      preparing, filing, prosecuting, maintaining, asserting in infringement actions
      and defending (collectively, “Prosecuting”) [***]
      IP
      (“[***]
      Patent”)
      that constitutes [***].
      [***]
      shall be
      responsible, at its sole discretion [***],
      for
      Prosecuting any [***]
      Patent.
      The parties shall cooperate reasonably in obtaining, maintaining and enforcing
      all intellectual property and proprietary rights (including patent rights)
      in
      and to [***]
      IP
      and
      keep the other informed of progress in Prosecuting any [***]
      Patent,
      but neither party shall be obligated to [***]
      and
      thus
[***].
      If
      either party elects not to file any [***]
      Patent
      or
      to abandon any [***]
      Patent,
      such party will notify the other party to give the other party an opportunity
      to
      file or to continue to prosecute or maintain such [***]
      Patent.
      Each party will promptly notify the other in writing of any alleged or
      threatened infringement of any [***]
      Patent.
      Both parties shall be entitled to participate in [***]
      Patent
      [***],
      but
      neither party shall be required to do so, unless such party is [***],
      in
      which case such party must [***].
      Neither
      party shall [***].
      [***]
      in
      connection with any enforcement claim or action involving any [***]
      Patent
      shall be retained by [***]
      Patent
      [***]. 

     

    (f)     Notwithstanding
      the
      foregoing, each party acknowledges that the other party also has ongoing,
      similar but separate research projects, and any inventions arising therefrom
      shall be owned by the respective party. 

     

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

        
           

        

      

    

    

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    9.
      Licenses:

     

    (a)  Research
      Licenses to LILLY. Subject to the terms and conditions of this Agreement, APNS
      hereby grants to LILLY a co-exclusive, non-sublicensable, royalty free license
      during the Collaboration Term under APNS IP solely to the extent necessary
      or
      appropriate to carry out LILLY’s responsibilities under the Research
      Plan.

    

    (b)  Research
      Licenses to APNS. Subject to the terms and conditions of this Agreement, LILLY
      hereby grants to APNS a non-exclusive, non-sublicensable, royalty free license
      during the Collaboration Term under LILLY IP solely to the extent necessary
      or
      appropriate to carry out APNS’ responsibilities under the Research
      Plan.

     

    (c)  Commercial
      Licenses to LILLY. Subject to the terms and conditions of this Agreement, APNS
      hereby grants to LILLY (i) an exclusive worldwide, [***] license during the
      Agreement Term, including the right to sublicense subject to Section 9(e),
      under
      the APNS IP and [***] IP to make, use, import, sell and offer to sell Products
      and (ii) a non-exclusive, worldwide [***] license, [***], under the APNS IP
      to
      make, use, import, sell, and offer to sell biomarkers and diagnostics relating
      to Products. The license granted under Section 9(c)(ii) shall
      [***].

     

    (d)  Commercial
      Licenses to APNS. Subject to the terms and conditions of this Agreement and
      rights previously granted to third parties by LILLY, LILLY hereby grants to
      APNS
      a [***], with the right to sublicense, under the LILLY IP to make, have made,
      use, import, sell, offer to sell, and otherwise distribute, biomarkers and
      diagnostics. The license granted under this Section 9(d) shall
      [***].

     

    (e)  Sublicense.
      LILLY shall have the right to grant commercial sublicenses under the licenses
      granted in Section 9(c)(i) and Section 9(c)(ii) to its Affiliates and to a
      third
      party (“Sublicensee”); provided that:

    

    (1) any
      Sublicensee shall: (i) affirmatively agree in writing that it is subject to
      and
      shall be governed by this Agreement and that the Sublicensee shall comply with
      all relevant obligations hereunder in accordance herewith and (ii) be
      immediately disclosed to APNS; and

     

    (2) the
      grant
      of a sublicense shall not relieve LILLY of any duty or obligation under this
      Agreement, and LILLY shall be fully liable to APNS for all failures by any
      Sublicensee to comply with the terms and conditions set forth in this Agreement;
      and

     

    (3) in
      the
      case of the grant of any sublicense under the license granted in Section
      9(c)(ii), LILLY shall [***] (A) [***] or (B) [***] in the form of [***] based
      in
      whole or in part [***], in each case on [***], with the intent that [***] will
      receive [***]from such [***].

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
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    (f)     LILLY
      acknowledges that pursuant to the AECOM Agreements, (i) AECOM retains the right
      to make and use products covered by IP licensed under those agreements in its
      own laboratories for scientific purposes and for continued research, as well
      as
      to make small quantities of biological materials developed in Dr. Davies’
laboratory covered by such intellectual property available to other scientific
      institutions and researchers solely for scientific and research purposes; and
      (ii) the research which led to the intellectual property licensed under the
      AECOM Agreements was funded with National Institutes of Health (“NIH”) and
      Federal government grants and therefore NIH and the Federal government retain
      certain rights with respect to such IP. LILLY further acknowledges that, to
      the
      extent that any APNS IP licensed to LILLY under this Agreement constitutes
      IP of
      AECOM licensed to APNS under the AECOM Agreements, such license is subject
      to
      the terms and conditions of the AECOM Agreements.

    

    10.
      Costs: 

     

    LILLY
      will bear the costs and expenses under this Agreement and, in particular, the
      Research Plan, to be paid as follows:

    

    Lilly
      shall make to APNS the following payments in consideration of the work performed
      during the Collaboration:

     

    
      	(a)  	
              One
                (1) payment of [***] due and payable within
                [***].

            

    

     

    
      	(b)  	
              Annual
                payments of [***] per year for research and development support,
                starting
                with the first payment due and payable [***], for work during the
                Collaboration Term and subsequent payments due and payable
                [***].

            

    

     

    
      	(c)  	
              The
                Parties shall enter into the Securities Purchase Agreement in
                substantially the form set forth on Appendix B concurrently with
                the
                Effective Date under which LILLY will purchase on the Effective Date
                (and
                not before or after such date) five hundred thousand dollars ($500,000)
                worth of APNS common shares at a price per share equal to [***] starting
                on [***] and ending on the [***] which payment is due and payable
                within
                [***].

            

    

     

    11.
      Milestones and Royalties and Other Payments: LILLY
      hereby agrees to make the following additional payments to APNS:

    

    (a)
      Milestone Payments: LILLY shall make the following payments upon achievement
      of
      the applicable milestones set forth below which are satisfied by [***]:

    

    

    [***]

    

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      [***]
        THE CONFIDENTIAL PORTION OF THIS AGREEMENT HAS BEEN OMITTED AND FILED SEPARATELY
        WITH THE COMMISSION PURSUANT TO A REQUEST FOR
        CONFIDENTIALITY.

    

     

        “Target
      X”
      means
      either [***].
      “Target
      X Compounds”
      means
Compounds
      discovered during [***],
      or
      within [***],
      that
[***].
      “Other
      Target Compounds”
      means
      Compounds discovered against [***].
      

     

    Payments
      will be made only once per Target for Compounds which achieve the applicable
      milestone regardless of the number of Compounds developed for such Target;
      provided, however, that there shall be no limitation on the number of Other
      Targets which may be identified and for which milestone payments may become
      payable hereunder.

    

    All
      milestone payments shall be made by LILLY to APNS within seventy-five (75)
      days
      of achievement of the applicable milestone.

    

    (b)
      Royalties

    

    LILLY
      shall pay to APNS the following royalties on Net Sales (as defined below) of
      Products sold by LILLY, its Affiliates and Sublicensees:

    

    Annual
      Sales*   [***]

     

    [***]

     

    

     

    *
      Annual
      Sales refers to [***].
      The Net
      Sales tiers shall be [***].

     

    Royalties
      are payable for APNS know-how and expertise only and are not license payments
      for any APNS patents or patents licensed to APNS existing on the Effective
      Date.
      Royalties will be paid for [***]
      from
      [***].
      There
      shall be [***]
      for
      which
      royalty payments may become payable hereunder.

     

    (c)
      “Net
      Sales”
      means
      with respect to sales of a Product, the gross amount invoiced by LILLY
      (including a LILLY Affiliate), or any Sublicensee thereof, to unrelated third
      parties, excluding any Sublicensee, for the Product in the Territory,
      less:

    

    
      	a)  	
              Trade,
                quantity and cash discounts
                allowed;

            

    

    
      	b)  	
              Commissions,
                discounts, refunds, rebates and chargebacks and any other allowances
                which
                effectively and legally reduce the net selling price, all in accordance
                with U.S. GAAP;

            

    

    
      	c)  	
              Actual
                Product returns and allowances;

            

    

    
      	d)  	
              Any
                tax actually imposed on the production, sale, delivery or use of
                the
                Product, including, without limitation, sales, use, excise or value
                added
                taxes (but not including any taxes assessed on income derived from
                such
                sales); 

            

    

    
      	e)  	
              freight,
                shipping, transportation, and insurance
                expenses;

            

    

    
      	f)  	
              The
                standard inventory cost of devices or drug delivery systems themselves
                used for dispensing or administering which accompany Product;
                and

            

    

    
      	g)  	
              Any
                other similar and customary deductions, all in accordance with U.S.
                GAAP.

            

    

     

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      [***]
        THE CONFIDENTIAL PORTION OF THIS AGREEMENT HAS BEEN OMITTED AND FILED SEPARATELY
        WITH THE COMMISSION PURSUANT TO A REQUEST FOR
        CONFIDENTIALITY.

    

     

        Such
      amounts
      shall be determined from the books and records of LILLY, its Affiliates or
      Sublicensees, maintained in accordance with U.S. generally accepted accounting
      principles (“U.S.
      GAAP”)
      or, in
      the case of Sublicensees, such similar accounting principles, consistently
      applied. LILLY further agrees that in determining such amounts, it will use
      LILLY's then current standard procedures and methodology, which
      are
      in accordance with U.S. GAAP, and including LILLY’s then current standard
      exchange rate methodology for the translation of foreign currency sales into
      U.S. dollars or, in the case of Sublicensees, such similar methodology,
      consistently applied.

    

    In
      the
      event that the Product is sold as part of a Combination Product (as defined
      below), the Net Sales of the Product, for the purposes of determining royalty
      payments, shall be determined as follows.

    

    (i)
      By
      multiplying the Net Sales of the Combination Product by the fraction, A / (A+B)
      where A is the weighted average sale price of the Product when sold separately
      in finished form, and B is the weighted average sale price of the other
      product(s) sold separately in finished form.

    

    (ii)
      In the
      event that the weighted average sale price of the Product can be determined
      but
      the weighted average sale price of the other product(s) cannot be determined,
      Net Sales for purposes of determining royalty payments shall be calculated
      by
      multiplying the Net Sales of the Combination Product by the fraction A / C
      where
      A is the weighted average sale price of the Product when sold separately in
      finished form and C is the weighted average sale price of the Combination
      Product.

    

    (iii)
      In the
      event that the weighted average sale price of the other product(s) can be
      determined but the weighted average sale price of the Product cannot be
      determined, Net Sales for purposes of determining royalty payments shall be
      calculated by multiplying the Net Sales of the Combination Product by the
      following formula: one (1) minus B / C where B is the weighted average sale
      price of the other product(s) when sold separately in finished form and C is
      the
      weighted average sale price of the Combination Product.

    

    (iv)
      In the
      event that the weighted average sale price of both the Product and the other
      product(s) in the Combination Product cannot be determined, the Net Sales of
      the
      Product shall be deemed to be equal to fifty percent (50%) of the Net Sales
      of
      the Combination Product.

    

    The
      weighted average sale price for a Product, other product(s), or Combination
      Product shall be calculated once each calendar year and such price shall be
      used
      during all applicable royalty reporting periods for the entire following
      calendar year. When determining the weighted average sale price of a Product,
      other product(s), or Combination Product, the weighted average sale price shall
      be calculated by dividing the sales dollars (translated into U.S. dollars)
      by
      the units
      of
      active ingredient sold during the twelve (12) months (or the number of months
      sold in a partial calendar year) of the preceding calendar year for the
      respective Product, other product(s), or Combination Product. In the initial
      calendar year, a forecasted weighted average sale price will be used for the
      Product, other product(s), or Combination Product. Any over or under payment
      due
      to a difference between forecasted and actual weighted average sale prices
      will
      be paid or credited in the first royalty payment of the following calendar
      year.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      [***]
        THE CONFIDENTIAL PORTION OF THIS AGREEMENT HAS BEEN OMITTED AND FILED SEPARATELY
        WITH THE COMMISSION PURSUANT TO A REQUEST FOR
        CONFIDENTIALITY.

    

    
 

    “Combination
      Product” means
      any
      pharmaceutical product which contains one or more pharmacologically or
      therapeutically active compound(s), product(s) and/or ingredient(s) in addition
      to Product.

    

    (d) Royalty
      Payment [***]. Royalty payments [***] for Net Sales shall be calculated [***]
      for each calendar quarter. All royalty payments due to APNS shall be paid within
      [***] after the end of each [***]. Each payment of royalties shall be
      [***].

    

    (e) Late
      Payments. In the event that any payment, including royalty, milestone and
      research payments, due hereunder is not made when due, the payment shall accrue
      interest from the date due at the rate of one percent (1%) per month; provided,
      however, that in no event shall such rate exceed the maximum legal annual
      interest rate. 

    

    (f) Records.
      During the term of this Agreement and for a period of three (3) years
      thereafter, LILLY shall keep complete and accurate records pertaining to [***]
      in sufficient detail to permit APNS to confirm the accuracy of all payments
      due
      hereunder. 

     

    (g) Audit.
      LILLY agrees that APNS shall have reasonable audit rights during reasonable
      times to confirm Net Sales and the accuracy of all payments due hereunder.
      Such
      audit shall be performed by APNS’ auditors and at the cost of APNS. If such
      audit discloses an underpayment, LILLY shall pay APNS within thirty (30) days
      the amount of such underpayment unless LILLY disputes such amount in good faith.
      If such audit reveals an underpayment for any calendar year of seven and one
      half percent (7.5%) or more, then LILLY shall reimburse APNS for the reasonable
      costs of the audit.
      If such
      report shows any overpayment by LILLY, then at APNS’ option, such overpayment
      shall either be refunded to LILLY by APNS within thirty (30) days of receipt
      of
      the audit report, or creditable against amounts payable by LILLY in subsequent
      payment periods. The parties agree that all information subject to review under
      this Section is Confidential Information and that each party shall retain and
      cause the accountant to retain all such information in confidence.

    

    (h) Revenues
      from Sale of Diagnostics and Biomarkers. LILLY
      shall share with APNS profit received by LILLY from the sale by it or its
      Affiliates or sublicensees of diagnostics and biomarkers related to the
      Compounds or Products or related to disease states, in each case on financial
      and other terms to be negotiated in good faith by LILLY and APNS, with the
      intent that APNS will receive most of the financial benefit from such
      sales.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      [***]
        THE CONFIDENTIAL PORTION OF THIS AGREEMENT HAS BEEN OMITTED AND FILED SEPARATELY
        WITH THE COMMISSION PURSUANT TO A REQUEST FOR
        CONFIDENTIALITY.

    

    
 

    12.
      Representations
      and Warranties:

     

    (a)
      Each
      party represents and warrants to the other that it has full corporate power
      and
      authority to enter into this Agreement and to carry out the provisions
      hereof.

     

    (b)
      Each
      party represents and warrants that all necessary consents, approvals and
      authorizations of all governmental authorities and other persons required to
      be
      obtained by such party in connection with the execution and delivery of this
      Agreement have been obtained. 

     

    (c)
      Each
      party represents and warrants that the execution and delivery of this Agreement
      and the performance of such party’s obligations hereunder (a) do not conflict
      with or violate any requirement of applicable laws or regulations and (b) do
      not
      conflict with, or constitute a default under, any contractual obligation of
      such
      party.

     

    (d)
      APNS
      represents and warrants that: (i) there is no pending litigation which alleges
      that any of its activities relating to the APNS Existing IP have violated any
      of
      the intellectual property rights of any third person (nor has it received any
      written communication threatening such litigation); (ii) to the best of its
      knowledge, no litigation has been otherwise threatened which alleges that any
      of
      its activities relating to the APNS Existing IP have violated any of the
      intellectual property rights of any third person; (iii) it owns all right,
      title
      and interest in and to the APNS Existing IP free and clear of all encumbrances,
      security interests, options and licenses which would conflict with the licenses
      granted under this Agreement; (iv) to APNS's actual knowledge as of the
      Effective Date, there is no unauthorized use, infringement or misappropriation
      of any of its intellectual property rights licensed hereunder to LILLY; (v)
      to
      APNS's actual knowledge as of the Effective Date, there is no intellectual
      property which could act as a blocking patent to the APNS IP; (vi) it has
      disclosed to LILLY all license agreements pursuant to which APNS has received
      a
      license to third party’s patents relevant to the Collaboration, including the
      AECOM Agreements, and APNS is not in breach or default under any such agreement
      that may give rise to a right of termination and has not received from any
      licensor any notice of such breach or default; and (vii) as of the Effective
      Date, the AECOM Agreements and
      the
      Davies Agreement are in full force and effect in accordance with their
      respective terms.

    

    (e) LILLY
      represents and warrants that: (i) there is no pending litigation which alleges
      that any of its activities relating to the LILLY Existing IP have violated
      any
      of the intellectual property rights of any third person (nor has it received
      any
      written communication threatening such litigation); (ii) to the best of its
      knowledge, no litigation has been otherwise threatened which alleges that any
      of
      its activities relating to the LILLY Existing IP have violated any of the
      intellectual property rights of any third person; and (iii) it owns all right,
      title and interest in and to the LILLY Existing IP free and clear of all
      encumbrances, security interests, options and licenses which would conflict
      with
      the licenses granted under this Agreement. 

    

    13.
      Indemnification:

     

    (a)
      Each
      of
      LILLY and APNS (in
      such
      capacity, the
      “Indemnitor”) will
      defend, indemnify, and hold harmless the other party, its affiliates, and the
      respective directors, officers, shareholders, employees, and agents of the
      other
      party and its affiliates, and in the case of LILLY or APNS as the Indemnitor,
      AECOM (in
      such
      capacity, the
      “Indemnitees”),
      from
      and against any and all liabilities, damages, losses, penalties, fines, costs,
      interest, and expenses, including, without limitation, reasonable attorneys’
fees, (“Damages”)
      arising
      from or occurring as a result of a third person’s claim, action, suit, judgment,
      or settlement against an Indemnitee that is due to or based upon: 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      [***]
        THE CONFIDENTIAL PORTION OF THIS AGREEMENT HAS BEEN OMITTED AND FILED SEPARATELY
        WITH THE COMMISSION PURSUANT TO A REQUEST FOR
        CONFIDENTIALITY.

    (i)  any
      breach by the Indemnitor of an obligation, agreement, covenant, representation,
      or warranty of the Indemnitor under this Agreement; or

    

    (ii) any
      negligent or more culpable act or omission of the Indemnitor or an Indemnitor’s
      affiliate, or contractor or their respective directors, officers, shareholders,
      employees, and agents related to this Agreement ((i)
      and (ii) each, a “Third Party Claim”);

    

    provided,
      however,
      that the
      Indemnitor will not be obligated to indemnify or hold harmless the Indemnitees
      from Damages from a Third Party Claim to the extent that such Damages are
      finally determined to have resulted from the negligent (or more culpable) act
      or
      omission of an Indemnitee or any breach by an Indemnitee of an obligation,
      agreement, covenant, representation, or warranty of an Indemnitee under this
      Agreement. 

     

    (b)
      LILLY
      will defend, indemnify and hold harmless APNS, AECOM, and the other Indemnitees
      from and against any and all Damages arising from or occurring as a result
      of
      the research, development, manufacturing, marketing and/or sale of Targets,
      Compounds, Products, biomarkers and/or diagnostics by, on behalf of or under
      authority of, LILLY (but not including any activities of APNS or its
      sublicensees).

    

    (c)
      APNS
      will defend, indemnify and hold harmless LILLY, AECOM, and the other Indemnitees
      from and against any and all Damages arising from or occurring as a result
      of
      the research, development, manufacturing, marketing and/or sale of biomarkers
      or
      diagnostics by, on behalf of or under authority of, APNS (but not including
      any
      activities of LILLY or its sublicensees).

    

    (d)
      The
      Indemnitor will defend and control negotiation of settlement of any Third Party
      Claim with counsel reasonably acceptable to the Indemnitee, and the Indemnitee
      may participate in the defense with counsel of its choosing, such separate
      counsel to be at its sole expense. Any settlement by which the Indemnitee would
      incur any obligation or liability, whether for the payment of money, the taking
      of any action, the refraining from any action, or otherwise, unless the
      Indemnitor is so obliged or liable by this Agreement, will require the advance
      written consent of the Indemnitee, which consent may be withheld in the sole
      discretion of the Indemnitee without relieving the Indemnitor of its
      indemnification obligations hereunder.

     

    14.
      DISCLAIMERS:

     

    (a)
      EXCEPT AS EXPRESSLY PROVIDED HEREIN, NEITHER PARTY MAKES ANY REPRESENTATIONS
      OR
      WARRANTIES OF ANY KIND, WHETHER EXPRESS OR IMPLIED, AND EXPRESSLY DISCLAIMS
      ANY
      AND ALL WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING ALL WARRANTIES OF
      MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE AND NONINFRINGEMENT.
      IN
      ADDITION AND WITHOUT LIMITATION, EXCEPT AS EXPRESSLY PROVIDED HEREIN, ALL
      MATERIALS, CONFIDENTIAL INFORMATION AND IP ARISING FROM THE
      COLLABORATION OR OTHERWISE FROM THIS AGREEMENT IS PROVIDED ON AN “AS IS” BASIS
      WITH NO REPRESENTATION OR WARRANTIES OF ANY KIND. LILLY ACKNOWLEDGES AND AGREES
      THAT ALL RIGHTS GRANTED BY APNS TO LILLY UNDER THIS AGREEMENT ARE SUBJECT TO
      THE
      TERMS AND CONDITIONS OF THE AECOM AGREEMENTS, AND THE RIGHTS OF AECOM, NIH
      AND
      THE FEDERAL GOVERNMENT UNDER THE AECOM AGREEMENTS.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      [***]
        THE CONFIDENTIAL PORTION OF THIS AGREEMENT HAS BEEN OMITTED AND FILED SEPARATELY
        WITH THE COMMISSION PURSUANT TO A REQUEST FOR
        CONFIDENTIALITY.

    

     

    (b)
      UNDER
      NO CIRCUMSTANCES WILL EITHER PARTY BE ENTITLED TO RECOVER FROM THE OTHER PARTY
      ANY INCIDENTAL, CONSEQUENTIAL, INDIRECT, SPECIAL, EXEMPLARY OR PUNITIVE DAMAGES
      (INCLUDING DAMAGES FOR LOSS OF BUSINESS, LOSS OF USE AND THE LIKE), WHETHER
      BASED ON CONTRACT, TORT (INCLUDING NEGLIGENCE), OR ANY OTHER CAUSE OF ACTION
      RELATING TO THE COLLABORATION OR OTHERWISE RELATING TO THIS AGREEMENT, EVEN
      IF
      THE OTHER PARTY HAS BEEN INFORMED OR SHOULD HAVE KNOWN OF THE POSSIBILITY OF
      SUCH DAMAGES. 

     

    15.
      Publications.
      [***]
      shall be entitled to issue scientific publications with respect to the Products
      or their testing, in accordance with [***] and [***] shall be in control of
      any
      publications or scientific presentations regarding Products or their testing
      and
      [***] shall not publish or present regarding Products or their testing without
      [***]. Authorship of any scientific publications that emanate from [***] shall
      be determined in accordance with standard academic practice, but will have
      at
      least [***]. [***] shall provide to [***] a copy of any proposed article or
      publication that contains significant new information prior to submitting the
      same for publication, if practicable, and, in any case, [***] shall use its
      best
      efforts to provide such copy to [***] at least thirty (30) days in advance
      of
      the publication date. For clarity, however, [***] intends that all proposed
      articles and publications will be timely provided to [***]. 

    

        16.
      Press
      Releases and Other Public Statements. If
      a
      party desires to issue a press release or other public statement concerning
      the
      execution of, or the parties’ activities under this Agreement, it must first
      obtain the other party’s written approval of such issuance and, if approved for
      issuance, the content of such proposed release, except where such press release
      or other public statement is required to be issued by applicable law or
      regulation or stock exchange requirement. For clarity, even where such press
      release or public statement is required by law or regulation, the issuing party
      will use its reasonable best efforts to provide to the other party an advance
      copy for review and comment. In all other respects, except as required by
      applicable laws, neither party may use any trademarks, logos, or symbols
      associated with the other party without the prior written permission of such
      other party. All matters that require LILLY’s review or approval under this
      Section must be delivered to LILLY’s Corporate Communications Department, [***]
      for such review and approval. All matters that require APNS’ review and approval
      under this Section must be delivered to APNS’
      offices, 50 Lakeview Parkway, Suite 111, Vernon Hills IL 60061, Attn: Chief
      Financial Officer for
      such
      review and approval.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      [***]
        THE CONFIDENTIAL PORTION OF THIS AGREEMENT HAS BEEN OMITTED AND FILED SEPARATELY
        WITH THE COMMISSION PURSUANT TO A REQUEST FOR
        CONFIDENTIALITY.

    

    
 

    17.
      Termination.

    

    (a) Termination
      for Default. 

     

    (i)  An
      “Event
      of Default”
      by
      either party shall have occurred upon: 

     

    (1)  the
      occurrence of a material breach of this Agreement if such party fails to remedy
      such breach within [***] days after written notice thereof by the non-breaching
      party (or, if remediation of such breach in period is not practicable, if such
      party fails to commence and diligently pursue such remediation during such
      period); or 

     

    (2)  the
      commencement of any proceeding in or for bankruptcy, insolvency, liquidation,
      dissolution or winding up by or against such party that is not dismissed or
      otherwise disposed of within [***] days thereafter; or

     

    (3)  solely
      with respect to APNS, AECOM terminates the AECOM Agreement and/or [***] ceases
      to perform under the Research Plan during the Collaboration as contemplated
      by
      this Agreement, if such termination and/or cessation of performance results
      in a
      significant impairment to the goals of the Collaboration as determined by the
      Collaboration Management Team.

     

    (ii) Upon
      the
      occurrence of an Event of Default by the other party, the non-breaching party
      shall have the right to terminate either (A) the Collaboration or (B) this
      Agreement in its entirety, which such termination shall be effective immediately
      upon providing written notice of termination. Termination of the Collaboration
      shall mean the termination of the Collaboration Term, and termination of this
      Agreement in its entirety shall mean the termination of the Agreement
      Term.

    

    (b) [***].

     

    [***].

     

    (c) Effect
      of
      Termination or Expiration.

     

    (i) Consequences
      of APNS’ Termination due to LILLY’s Breach or [***]. In the event of termination
      of the Collaboration or of this Agreement by APNS pursuant to this Section
      17
      following the occurrence of an Event of Default by LILLY, or [***] pursuant
      to
      this Section 17:

     

    (1)  all
      rights and licenses granted to LILLY under this Agreement shall terminate [***]
      (subject to the payment obligations of LILLY to APNS referenced in Section
      17(c)(i)(3) below) (and in the event of APNS’ termination of the Collaboration
      or this Agreement following the occurrence of an Event of Default by LILLY,
      [***]; 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      [***]
        THE CONFIDENTIAL PORTION OF THIS AGREEMENT HAS BEEN OMITTED AND FILED SEPARATELY
        WITH THE COMMISSION PURSUANT TO A REQUEST FOR
        CONFIDENTIALITY.

    

    (2)  LILLY
      shall transfer to APNS or, upon APNS’ written instruction, destroy all
      information, Materials or other Confidential Information that was provided
      by
      APNS, and APNS also shall transfer to LILLY or, upon LILLY’s written
      instruction, destroy all information, Materials or other Confidential
      Information that was provided by LILLY;

     

    (3)  LILLY
      shall continue to pay the fees, milestone payments and royalties which may
      become due under this Agreement whether prior to or subsequent to the effective
      date of termination (including those set forth in Sections 9(e) and
      11);

     

    (4)  all
      rights and obligations set forth in Sections 7, 8, 9(d), 13, 15, 16 and 19
      shall
      continue in accordance with their terms; and

                    (5)  except
      as
      specifically provided under this Section 17, all obligations of LILLY and APNS
      that become due after the date of termination of this Agreement shall be
      extinguished.

     

    (ii) Consequences
      of LILLY’s Termination due to APNS’ Breach. In the event of termination of the
      Collaboration or of this Agreement by LILLY pursuant to this Section 17
      following the occurrence of an Event of Default by APNS:

     

    
      	(1)  	
              [***];

            

    

     

    
      	(2)  	
              Except
                as specifically provided under this Section 17, all obligations of
                APNS
                that become due after the date of termination of this Agreement shall
                be
                extinguished; 

            

    

     

    (3) APNS
      shall promptly return to LILLY or, upon LILLY's written instruction, promptly
      destroy all LILLY Information supplied by LILLY to APNS pursuant to, or in
      connection with, this Agreement or any transaction contemplated
      herein,;

     

    (4) LILLY
      shall continue to pay fifty percent (50%) of the fees, milestone payments and
      royalties which may become due under this Agreement subsequent to the effective
      date of termination (including those set forth in Sections 9(e) and
      11);

     

    (5)LILLY
      shall remain responsible for all fees, milestone payments and royalties which
      may have become due under this Agreement prior to the effective date of
      termination; and

     

    (6)all
      rights and obligations set forth in Sections 7, 8, 9(d), 13, 15, 16 and 19
      shall
      continue in accordance with their terms.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      [***]
        THE CONFIDENTIAL PORTION OF THIS AGREEMENT HAS BEEN OMITTED AND FILED SEPARATELY
        WITH THE COMMISSION PURSUANT TO A REQUEST FOR
        CONFIDENTIALITY.

    

     

    18.
      BANKRUPTCY PROVISION

    

    The
      parties intend that LILLY shall be protected in the continued enjoyment of
      its
      rights as a licensee under this Agreement to the maximum extent feasible.
      Accordingly, the parties agree that this Agreement shall constitute an
“executory contract” under 11 U.S.C. §§ 101 et seq. (“Bankruptcy
      Code”),
      and
      that LILLY shall be entitled to the fullest protection conferred upon licensees
      under Section 365(n) of the Bankruptcy Code. The parties specifically
      acknowledge and agree that rejection of this Agreement shall not impair the
      rights of LILLY under this Agreement. The APNS Materials shall be deemed to
      be
      "intellectual property" as that term is defined in Section 101(35A) of the
      Bankruptcy Code. The licenses granted hereunder shall be deemed to be rights
      to
      intellectual property that existed immediately before the date the Chapter
      11
      Case commenced. All materials required to be delivered by APNS to LILLY under
      this Agreement, and all materials relating to the APNS Materials, shall be
      deemed to be "embodiments" of such intellectual property for purposes of Section
      365(n) of the Bankruptcy Code. All written agreements entered into in connection
      with the Parties' performance hereunder from time to time shall be considered
      agreements "supplementary" to this Agreement for purposes of Section 365(n)
      of
      the Bankruptcy Code.

    

    19.
      General:

     

        (a)
      This
      Agreement will be governed by, and construed and enforced in accordance with,
      the substantive laws of Indiana, without regard to its principles of conflicts
      of laws. Any disputes arising under this Agreement will be resolved through
      arbitration. The arbitration will be held under the auspices of Judicial
      Arbitration & Mediation Services, Inc. (“J•A•M•S”). The arbitration shall be
      in accordance with the J•A•M•S then-current commercial arbitration rules. The
      arbitrator shall be either a retired judge, or an attorney licensed to practice
      law in the state in which the arbitration is convened, selected by mutual
      agreement of APNS and LILLY. Either party may bring an action in any court
      of
      competent jurisdiction to compel arbitration under this Agreement and to enforce
      an arbitration award. A party opposing enforcement of an award may not do so
      in
      an enforcement proceeding, but must bring a separate action in any court of
      competent jurisdiction to set aside the award, where the standard of review
      will
      be the same as that applied by an appellate court reviewing a decision of a
      trial court sitting without a jury. 

     

    (b) If
      any
      provision of this Agreement is found to be invalid or unenforceable, this
      Agreement will remain in full force and effect and will be reformed to be valid
      and enforceable while reflecting the intent of the parties to the greatest
      extent permitted by law.

     

    (c)
      This
      Agreement constitutes the entire agreement between the parties relating to
      the
      subject matter hereof and supersedes all previous agreements, practices or
      courses of dealings between the parties, whether written or oral, relating
      to
      the subject matter hereof; provided, however, that the confidentiality
      agreements between APNS and LILLY executed prior to the date hereof shall
      continue in full force and effect in accordance with their respective terms
      (except that the obligations of confidentiality and non-use set forth therein
      shall continue for the period set forth in Section 7(j) of this
      Agreement).

     

    (d) The
      parties may not assign this Agreement, or any rights or obligations hereunder,
      without the prior written consent of the other party, except either party may
      assign this entire Agreement in connection with the sale of all or substantially
      all of its business and assets relating to this Agreement, whether by sale
      of
      assets, sale of stock, merger or otherwise. In addition, either party may assign
      any or all of its rights under this Agreement to any third party financing
      source in connection with any debt financing which may be entered into by such
      party. This Agreement will inure to the benefit of, and be binding upon, the
      legal representatives, and permitted successors and assigns of APNS and
      LILLY.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      [***]
        THE CONFIDENTIAL PORTION OF THIS AGREEMENT HAS BEEN OMITTED AND FILED SEPARATELY
        WITH THE COMMISSION PURSUANT TO A REQUEST FOR
        CONFIDENTIALITY.

    

     

    (e)
      All
      notices, demands, requests, approvals, consents or other communications to
      be
      given or delivered under this Agreement will be in writing and will be deemed
      to
      have been given: (i) when
      delivered in person or by courier or confirmed facsimile; or (ii) upon
      confirmation of receipt when sent by certified mail, return receipt requested,
      to the noticed party at the address set forth above, or such other address
      as
      either party may specify by written notice (with, in all cases, copies provided
      to Legal Counsel of the noticed party).

     

    (f)  The
      parties agree to work together to identify and support hardware, software,
      and
      services appropriate for the sharing of information. Such sharing will be done
      using materials and methods compatible with LILLY’s and APNS’ existing IT
      standards and platform to the extent reasonably practicable. Any costs incurred
      by a party associated with this hardware, software and services will be borne
      by
      it. 

    

    (g)  Each
      party acknowledges and agrees that in the event of any breach of the provisions
      of Section 5, Section 7, Section 8 or Section 9 of this Agreement by it, and
      without prejudice to any rights and remedies otherwise available to the
      non-breaching party, at law or in equity, the non-breach party shall be entitled
      (i) to equitable relief by way of injunction and (ii) to compel
      specific performance without the need of proof of actual damages. Each party
      further agrees to waive, and to cause its representatives to waive, any
      requirement for the securing or posting of any bond in connection with such
      remedies. No failure or delay by the non-breaching party in exercising any
      right, power or privilege hereunder shall operate as a waiver thereof, nor
      shall
      any single or partial exercise thereof preclude any other or further exercise
      hereunder.

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF,
      the
      parties have signed this Agreement under seal as of the date first written
      above.

     

    Applied
      NeuroSolutions, Inc.   Eli
      Lilly
      and Company

    

    By:      By:     

    

    Name:     
Name:   ___________

    

    Title:      Title:_________________________

     

     

    
      
        
           

           

          

           

          

           

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
           

           

        

      

    

    [***]
      THE CONFIDENTIAL PORTION OF THIS AGREEMENT HAS BEEN OMITTED AND FILED SEPARATELY
      WITH THE COMMISSION PURSUANT TO A REQUEST FOR
      CONFIDENTIALITY.

    

    

    Appendix
      A: 

    Research
      Plan 

    

    Research
      Plan

    Applied
      NeuroSolutions and Lilly [***]

    
 

    Overall
      Collaboration Objective

    

    This
      research Collaboration seeks to merge elements of the Alzheimer’s disease (AD)
      and drug discovery expertise of Lilly’s [***] (NDDHT) together with its [***]
      partners with the AD expertise of [***] with a view to placing the Collaboration
      at the forefront of finding therapeutics that target [***].

    

    Stage
      1 [***]

    

    Core
      Activities

    

    [***]

    

    Additional
      Activities

    

    [***]

    

    Stage
      1 Success Criteria:

    

    [***]

    

    Stage
      2 [***]

    

    

    Activities

    

    [***]

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    [***]

    

    

    
      
         

         

         

         

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      [***]
        THE CONFIDENTIAL PORTION OF THIS AGREEMENT HAS BEEN OMITTED AND FILED SEPARATELY
        WITH THE COMMISSION PURSUANT TO A REQUEST FOR
        CONFIDENTIALITY.

    

    
 

    Appendix
      B: Stock Purchase Agreement

    

     

    SECURITIES
      PURCHASE AGREEMENT

     

    THIS
      SECURITIES PURCHASE AGREEMENT (this “Agreement”)
      is
      entered into as of November 27, 2006 (the “Agreement
      Execution Date”)
      by and
      between Applied NeuroSolutions, Inc., a Delaware corporation (the “Company”),
      and
      Eli Lilly and Company, an Indiana corporation (the “Investor”).

     

    WITNESSETH:

     

    A. WHEREAS,
      the Company and the Investor have entered into that certain Collaboration
      Agreement dated as of November 27, 2006 (the “Collaboration
      Agreement”).

     

    B. WHEREAS,
      pursuant to the terms of the Collaboration Agreement, the Company and Investor
      agreed to enter into this Agreement, pursuant to which the Company agrees to
      sell to the Investor, and the Investor agrees to purchase from the Company,
      the
      Securities.

     

    NOW,
      THEREFORE, in consideration of the mutual promises set forth herein, and other
      good and valuable consideration, the receipt and sufficiency of which are hereby
      acknowledged, the parties hereto agree as follows:

     

    1. Definitions.
      Unless
      the context otherwise requires, the terms defined in this Section 1 shall
      have the meanings herein specified for all purposes of this Agreement,
      applicable to both the singular and plural forms of any of the terms herein
      defined. All accounting terms defined in this Section 1 and those
      accounting terms used in this Agreement not defined in this Section 1
      shall, except as otherwise provided for herein, be construed in accordance
      with
      those generally accepted accounting principles that the Company is required
      to
      employ by the terms of this Agreement. If and so long as the Company has any
      Subsidiary, unless otherwise noted herein, the accounting terms defined in
      this
      Section 1 and those accounting terms appearing in this Agreement but not
      defined in this Section 1 shall be determined on a consolidated basis for
      the Company and each of its Subsidiaries, and the financial statements and
      other
      financial information to be furnished by the Company pursuant to this Agreement
      shall be consolidated.

     

    “2005
      Annual Report”
shall
      mean the Company’s Report on Form 10-KSB for the fiscal year ended
      December 31, 2005.

     

    “Action”
shall
      mean any action, suit, arbitration or other legal, administrative or other
      proceeding by or before any court, arbitrator or Governmental
      Entity.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “Agreement”
shall
      mean this Securities Purchase Agreement.

     

    “Balance
      Sheet”
shall
      have the meaning assigned to it in Section 5.8 hereof.

     

    “Balance
      Sheet Date”
shall
      have the meaning assigned to it in Section 5.8 hereof.

     

    “Board”
shall
      mean the Board of Directors of the Company.

     

    “Closing”
and
      “Closing
      Date”
shall
      have the meanings assigned to such terms in
      Section 3(b) hereof.

     

    “Code”
shall
      mean the Internal Revenue Code of 1986, as amended.

     

    “Commission”
shall
      mean the Securities and Exchange Commission.

     

    “Common
      Stock”
shall
      mean the Company’s common stock, par value $0.0025 per share.

     

    “Delaware
      Corporate Law”
shall
      mean the Delaware General Corporation Law, as amended.

     

    “Effectiveness
      Deadline Date”
shall
      have the meaning set forth in Section 7.1(a) hereof.

     

    “Equity
      Security”
shall
      mean the Common Stock, or any security convertible into the Common Stock, or
      any
      security carrying any option, warrant or other right to subscribe to or purchase
      the Common Stock, or any such option, warrant or other right.

     

    “Exchange
      Act”
shall
      mean the Securities Exchange Act of 1934, as amended, and the rules and
      regulations promulgated thereunder.

     

    “Form
      10-QSB”
shall
      mean the Company’s Report on Form 10-QSB for the quarterly period ended
      September 30, 2006.

     

    “Governmental
      Entity”
shall
      mean any federal, state, local or foreign governmental bureau, commission,
      board, agency or instrumentality.

     

    “Holder”
of
      any
      security shall mean the record or beneficial owner of such security.

     

    “Holders
      of a Majority of the Restricted Stock”
shall
      mean, on a given date, the Person or Persons who are the Holders of greater
      than
      50% of the Restricted Stock.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      [***]
        THE CONFIDENTIAL PORTION OF THIS AGREEMENT HAS BEEN OMITTED AND FILED SEPARATELY
        WITH THE COMMISSION PURSUANT TO A REQUEST FOR
        CONFIDENTIALITY.

    

     

    “Investor”
shall
      have the meaning assigned to it in the introductory paragraph of this
      Agreement.

     

    “Material
      Adverse Effect”
shall
      mean a material and adverse effect on the business, assets, property or
      financial condition of the Company and its Subsidiaries taken as a whole, other
      than with respect to any matters which, directly or indirectly, relate to or
      result from (i) the pendency of an announcement of the transactions
      contemplated by this Agreement or the Collaboration Agreement,
      (ii) economic, legislative, regulatory, political or other conditions
      affecting the Company or the industries in which the Company conducts business
      or (iii) general economic or capital market conditions.

     

    “Person”
shall
      mean any natural person, corporation, trust, association, company, partnership,
      limited liability company, joint venture and other entity and any Governmental
      Entity.

     

    “Required
      Payment”
shall
      mean the number of Securities multiplied by the Share Purchase Price.

     

    “Restricted
      Stock”
shall
      mean the Securities, provided,
      however,
      that
      shares of Common Stock shall only be treated as Restricted Stock if and so
      long
      as they have not been (i) sold to or through a broker or dealer or underwriter
      in a public distribution or a public securities transaction, or (ii) sold in
      a
      transaction exempt from the registration and prospectus delivery requirements
      of
      the Securities Act under Section 4(1) thereof so that all transfer restrictions
      and restrictive legends with respect to such Common Stock are removed upon
      the
      consummation of such sale.

     

    “Rule
      144”
shall
      mean Rule 144 of the Commission under the Securities Act.

     

    “Securities”
shall
      have the meaning assigned to it in Section 2 hereof.

     

    “Securities
      Act”
shall
      mean the Securities Act of 1933, as amended, and the rules and regulations
      promulgated thereunder.

     

    “Share
      Purchase Price”
shall
      mean the product of [***].

     

    “Subsidiary”
shall
      mean any Person, at least 50% of the outstanding voting stock of which is at
      the
      time owned or controlled directly or indirectly by the Company or by one or
      more
      of such subsidiary entities or both, where “voting stock” means any shares of
      stock having general voting power in electing the board of
      directors.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “Suspension
      Period”
shall
      have the meaning assigned to it in Section 7.1(b) hereof.

     

    2.Authorization
      of Securities.
      The
Company
      has authorized the issuance and sale of up to the number of shares of its Common
      Stock equal to the amount derived by dividing $500,000 by the Share Purchase
      Price (the “Securities”).
      

     

    3.Sale
      and Purchase of the Securities.

     

    (a) Upon
      the
      terms and subject to the conditions herein contained, the Company agrees to
      sell
      to Investor, and Investor agrees to purchase from the Company, at the Closing
      on
      the Closing Date, the Securities, and Investor shall pay to the Company the
      Required Payment.

     

    (b) The
      closing of the sale and purchase by Investor of the Securities (the
“Closing”)
      shall
      occur at the offices of Paul, Hastings, Janofsky & Walker LLP, 515 South
      Flower Street, Los Angeles, California, at 10 A.M., California time, on
      December 7, 2006 or at such different time or day as the Investor and the
      Company shall agree (the “Closing
      Date”).
      At
      the Closing (or within one week thereafter to allow for processing by the
      Company’s transfer agent), the Company will deliver to Investor instruments or
      certificates evidencing the Securities being purchased by it, each of which
      shall be registered in such Investor’s name, against delivery to the Company of
      payment by cashier’s check or wire transfer in an amount equal to the Required
      Payment.

     

    4.Register
      of Securities; Restrictions on Transfer of Securities; Removal of Restrictions
      on Transfer of Securities.

     

    4.1  Register
      of Securities.
      The
      Company or its duly appointed agent shall maintain a separate register for
      the
      Common Stock in which it shall register the issue and sale of all of the
      Securities. All transfers of the Securities shall be recorded on the register
      maintained by the Company or its agent, and the Company shall be entitled to
      regard the registered holder of the Securities as the actual holder of the
      Securities so registered until the Company or its agent is required to record
      a
      transfer of such Securities on its register. Subject to Section 4.2(c) hereof,
      the Company or its agent shall be required to record any such transfer when
      it
      receives the Security to be transferred duly and properly endorsed by the
      registered holder thereof or by its attorney duly authorized in
      writing.

     

    4.2     Restrictions
      on Transfer

     

    (a) Investor
      understands and agrees that the Securities it will be acquiring have not been
      registered under the Securities Act, and that accordingly they will not be
      fully
      transferable except as permitted under various exemptions contained in the
      Securities Act, or upon satisfaction of the registration and prospectus delivery
      requirements of the Securities Act. Investor acknowledges that it must bear
      the
      economic risk of its investment in the Securities for an indefinite period
      of
      time since they have not been registered under the Securities Act and therefore
      cannot be sold unless they are subsequently registered or an exemption from
      registration is available.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (b) Investor
      hereby represents and warrants to the Company that:

     

    (i) Investor
      is acquiring the Securities it has agreed to purchase for investment purposes
      only, for its own account, and not as nominee or agent for any other Person,
      and
      not with the view to, or for resale in connection with, any distribution thereof
      within the meaning of the Securities Act.

     

    (ii) Investor
      knows of no public solicitation or advertisement of an offer in connection
      with
      the Securities.

     

    (iii) Investor
      has carefully reviewed this Agreement. Investor has had, during the course
      of
      the transaction and prior to its purchase of the Securities, the opportunity
      to
      ask questions of and receive answers from the Company concerning the terms
      and
      conditions of the offering and to obtain additional information (to the extent
      the Company possesses such information or could acquire it without unreasonable
      effort or expense) necessary to verify the accuracy of any information furnished
      to it or to which it had access. Investor has received all information that
      it
      has requested regarding the Company and believes that such information is
      sufficient to make an informed decision with respect to the purchase of the
      Securities. Without limiting the generality of the foregoing, Investor has
      received a copy of (A) the 2005 Annual Report, (B) the Form 10-QSB, and (C)
      the
“Risk Factors” attached as Annex
      A
      hereto,
      currently contemplated to be included in the registration statement referred
      to
      in Section 7.1(a) hereof.

     

    (iv) Investor
      is able to bear the economic risk of its investment in the Securities and has
      such knowledge and experience in financial and business matters that it is
      capable of evaluating the merits and risks of, and protecting its interests
      with
      respect to, its investment in the Securities. Investor is aware of the risk
      involved in its investment in the Securities and has determined that such
      investment is suitable for it in light of its financial circumstances and
      available investment opportunities.

     

    (v) This
      Agreement, when executed and delivered by Investor, constitutes the legal,
      valid
      and binding obligations of Investor and is enforceable against Investor in
      accordance with its terms.

     

    (vi) Investor
      is an “accredited investor” as that term is defined in Rule 501 of Regulation D
      promulgated under the Securities Act.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (vii) Investor’s
      jurisdiction of incorporation and principal place of business or its residency
      as set forth on the signature page hereof by Investor are accurate.

     

    (viii) The
      purchase by Investor of the Securities hereunder does not violate or conflict
      with any law or regulation applicable to Investor.

     

    (ix) No
      Person
      engaged by Investor has, or will have, any right or claim against the Company
      for any commission, fee or other compensation as a finder or broker, or in
      any
      similar capacity.

     

    (c) Investor
      hereby further agrees with the Company as follows:

     

    (i) Subject
      to Section 4.3 hereof, the instruments or certificates evidencing the Securities
      it has agreed to purchase, and each instrument or certificate issued in transfer
      thereof, will bear the following legend:

     

    “THE
      SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES
      ONLY AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF AND, EXCEPT AS STATED
      IN AN
      AGREEMENT BETWEEN THE HOLDER OF THIS CERTIFICATE, OR ITS PREDECESSOR IN
      INTEREST, AND THE ISSUER CORPORATION, SUCH SECURITIES MAY NOT BE SOLD OR
      TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
      ACT
      COVERING SUCH SECURITIES OR THE ISSUER CORPORATION RECEIVES AN OPINION, IN
      FORM
      AND CONTENT REASONABLY SATISFACTORY TO THE ISSUER CORPORATION, OF COUNSEL
      REASONABLY ACCEPTABLE TO THE ISSUER CORPORATION (WHICH MAY BE COUNSEL FOR THE
      ISSUER CORPORATION) STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
      REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.”

    

    (ii) The
      instruments or certificates representing such Securities, and each instrument
      or
      certificate issued in transfer thereof, will also bear any legend required
      under
      any applicable state securities law.

     

    (iii) Prior
      to
      any proposed sale, assignment, transfer or pledge of any Securities by Investor,
      unless there is in effect a registration statement under the Securities Act
      covering the proposed transfer, the Investor shall give written notice to the
      Company of Investor’s intention to effect such transfer, sale, assignment or
      pledge. Each such notice shall describe the manner and circumstances of the
      proposed transfer, sale, assignment or pledge in sufficient detail and shall
      be
      accompanied at such holder’s expense by either (i) an unqualified written
      opinion of legal counsel who shall, and whose legal opinion shall, be reasonably
      satisfactory to the Company addressed to the Company, to the effect that the
      proposed transfer of the Securities may be effected without registration under
      the Securities Act, or (ii) a “no action” letter from the Commission to the
      effect that the transfer of such securities without registration will not result
      in a recommendation by the staff of the Commission that action be taken with
      respect thereto, whereupon the holder of such Securities shall be entitled
      to
      transfer such Securities in accordance with the terms of the notice delivered
      by
      the holder to the Company. The Company will not require such a legal opinion
      or
“no action” letter in any transaction in compliance with Rule 144, unless
      otherwise required by the Company’s independent transfer agent.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (iv) Investor
      consents to the Company’s making a notation on its records or giving
      instructions to any transfer agent of the Common Stock in order to implement
      the
      restrictions on transfer of the Securities mentioned in this subsection
      (c).

     

    (d) Investor
      further represents and warrants to the Company that Investor has been duly
      authorized to, and has, and as of the Closing, will have, full power and
      authority (including corporate, if applicable) to, execute and deliver this
      Agreement on behalf of Investor, and to make the representations and warranties
      to the Company in this Section 4 on behalf of Investor, and to perform the
      obligations of Investor under this Agreement.

     

            4.3     Removal
      of Transfer Restrictions.
      Any
      legend endorsed on a certificate evidencing a Security pursuant to Section
      4.2(c)(i) hereof and the stop transfer instructions and record notations with
      respect to such Security shall be removed and the Company shall issue a
      certificate without such legend to the holder of such Security (a) upon the
      sale
      thereof if such Security and such sale are registered under the Securities
      Act,
      (b) if such holder provides the Company with an opinion, in form and content
      reasonably satisfactory to the Company, of counsel (which may be counsel for
      the
      Company) reasonably acceptable to the Company to the effect that a public sale
      or transfer of such Security may be made without registration under the
      Securities Act or (c) if such Security may be sold under subsection (k) of
      Rule
      144.

     

    5. Representations
      and Warranties by the Company.
      In
      order to induce Investor to enter into this Agreement and to purchase the
      Securities, the Company hereby represents and warrants to Investor that, except
      as set forth on Annex
      B
      hereto
      and/or in any and all reports, schedules, forms, statements and other documents
      filed with the Commission by the Company since September 30, 2006:

     

            5.1     Organization,
      Standing, etc.
      The
      Company is a corporation duly organized, validly existing and in good standing
      under the laws of the State of Delaware, and has all requisite corporate power
      and authority to carry on its business as presently conducted and as proposed
      to
      be conducted, to own and hold its properties and assets, to enter into this
      Agreement, to issue the Securities and to carry out the provisions
      hereof.

     

            5.2     Qualification.
      The
      Company is duly qualified as a foreign corporation and in good standing in
      the
      State of Illinois. The Company is not qualified to do business as a foreign
      corporation in any other jurisdiction and such qualification is not required
      as
      of the date hereof, except where the failure to be so qualified would not have
      a
      Material Adverse Effect.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

            5.3      Capital
      Stock.

     

    (a) As
      of the
      Closing Date, the authorized capital stock of the Company will consist of
      (i) 5,000,000 shares of preferred stock, par value $0.0025 per share, and
      (ii) 200,000,000 shares of Common Stock, par value $0.0025 per share; and the
      Company currently has no authority to issue any other capital stock. As of
      the
      Closing, before giving effect to the transactions contemplated by this
      Agreement, 95,676,499 shares of Common Stock are issued and outstanding, and
      all
      such outstanding shares of Common Stock have been duly authorized and validly
      issued and are fully paid and nonassessable, and no shares of Preferred Stock
      are issued and outstanding.

     

    (b) Except
      as
      contemplated by this Agreement or as expressly provided in Annex
      B
      to this
      Agreement, the Company has no outstanding subscription, option, warrant, right
      of first refusal, preemptive right, call, contract, demand, commitment,
      convertible security or other instrument, agreement or arrangement of any
      character or nature whatever under which the Company is or may be obligated
      to
      issue Common Stock, preferred stock or other Equity Security of any
      kind.

     

            5.4     Corporate
      Acts and Proceedings.
      The
      Company has, and as of the Closing, will have, full corporate power and
      authority to execute and deliver this Agreement and to perform its obligations
      hereunder and the transactions contemplated hereby. All corporate acts and
      proceedings required for the authorization, execution and delivery of this
      Agreement and the offer, issuance and delivery of the Securities and the
      performance of this Agreement have been lawfully and validly taken or will
      have
      been so taken prior to the Closing.

     

            5.5     Compliance
      with Other Instruments.
      The
      execution, delivery and performance by the Company of this Agreement (a) will
      not require from the Board or stockholders of the Company any consent or
      approval that has not been validly and lawfully obtained, (b) will not require
      the Company to obtain or effect any authorization, consent, approval, license,
      exemption of or filing or registration with any Person, except such as shall
      have been lawfully and validly obtained prior to the Initial Closing and such
      as
      may subsequently be required pursuant to Section 7 hereof, (c) will not cause
      the Company to violate or contravene, except where such violation or
      contravention would not have a Material Adverse Effect, (i) any provision of
      law, (ii) any rule or regulation of any Governmental Entity, (iii) any order,
      writ, judgment, injunction, decree, determination or award binding upon the
      Company, or (iv) any provision of the Certificate of Incorporation, as amended,
      or Bylaws of the Company, and (d) will not cause the Company to violate or
      be in
      conflict with, result in a breach by the Company of or constitute (with or
      without notice or lapse of time or both) a default by the Company under, any
      material agreement, lease or instrument, commitment or arrangement to which
      the
      Company is a party or by which the Company or any of its properties, assets
      or
      rights are bound or affected, except where such violation, conflict, breach
      or
      default would not have a Material Adverse Effect.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

            5.6     Binding
      Obligations

     

    (a) This
      Agreement constitutes the legal, valid and binding obligations of the Company,
      enforceable against the Company in accordance with its terms, except as such
      enforcement is limited by bankruptcy, insolvency and other similar laws
      affecting the enforcement of creditors’ rights generally, and by general
      equitable principles.

     

    (b) The
      Securities are duly authorized and, when issued in accordance with the terms
      of
      this Agreement, will be free and clear of all liens and restrictions, other
      than
      liens that may have been created or suffered by the Investor and restrictions
      imposed by the Securities Act, state securities laws or this
      Agreement.

     

            5.7     Securities
      Laws.
      Subject
      to the accuracy of the representations and warranties contained in Section
      4.2,
      the offer, issue and sale of the Securities will be exempt from the registration
      and prospectus delivery requirements of the Securities Act.

     

            5.8    Financial
      Statements.
      Included in the 2005 Annual Report are the Company’s audited balance sheet (the
“Balance
      Sheet”)
      as of
      December 31, 2005 (the ”Balance
      Sheet Date”)
      and
      2004, and the audited statement of operations, cash flow and shareholders’
equity for periods then ended, together with the related opinion of Virchow,
      Krause & Company, LLP, independent certified public accountants. The
      foregoing financial statements (i) are in accordance with the books and records
      of the Company, (ii) present fairly the financial condition of the Company
      at
      the Balance Sheet Date and the results of operations and changes in financial
      position of the Company for the periods therein specified, and (iii) have been
      prepared in accordance with generally accepted accounting principles applied
      on
      a basis consistent with prior accounting periods, except that the unaudited
      financial statements are subject to year-end audit adjustments and do not
      contain footnotes or statements of shareholders’ equity and cash
      flow.

     

            5.9     Litigation.
      There
      is no Action pending and, to the knowledge of the Company, there is no material
      Action threatened against the Company or its properties, assets or business.
      To
      the Company’s knowledge, the Company is not in default with respect to any
      order, writ, judgment, injunction, decree, determination or award of any court
      or of any Governmental Entity.

     

            5.10     Brokers
      or Finders.
      The
      Company has not incurred, and will not incur, directly or indirectly, as a
      result of any action taken by the Company, any liability for brokerage or
      finders’ fees or agents’ commissions or any similar charges in connection with
      this Agreement.

     

    6. Conditions
      of Parties’ Obligations.

     

            6.1     Conditions
      of Investor’s Obligations at the Closing.
      The
      obligation of Investor to purchase and pay for the Securities which it has
      agreed to purchase on the Closing Date is subject to the fulfillment prior
      to or on the Closing Date of the following conditions, any of which may be
      waived in whole or in part by Investor.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      [***]
        THE CONFIDENTIAL PORTION OF THIS AGREEMENT HAS BEEN OMITTED AND FILED SEPARATELY
        WITH THE COMMISSION PURSUANT TO A REQUEST FOR
        CONFIDENTIALITY.

    

     

                    (a) No
      Errors, etc.
      The
      representations and warranties of the Company under this Agreement shall be
      deemed to have been made again on the Closing Date and shall then be true and
      correct in all material respects.

     

    (b) Compliance
      with Agreement.
      The
      Company shall have performed and complied with, in all material respects, all
      agreements and conditions required by this Agreement to be performed or complied
      with by it on or before the Closing Date.

     

    (c) Certificate
      of the Company.
      The
      Company shall have delivered to Investor a certificate of the Company dated
      the
      Closing Date, executed by its President, certifying the satisfaction of the
      conditions specified in subsections (a), (b), and (d) of this Section
      6.1.

     

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

     

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

     

            6.2     Conditions
      of Company’s Obligations.
      The
      Company’s obligation to issue and sell the Securities to the Investor on the
      Closing Date is subject to the fulfillment prior to or at such date of (i)
      the
      conditions precedent specified in paragraphs (d) and (e) of Section 6.1 hereof,
      (ii) the representations and warranties of the Investor under this Agreement
      being deemed to have been made again on the Closing Date and shall then be
      true
      and correct in all material respects.

     

    7. Registration
      of Restricted Stock.

     

            7.1     Required
      Registration.

     

    (a) [***],
      the Company shall use its commercially reasonable efforts to prepare and file
      a
      registration statement under the Securities Act, on a Form S-1 or other
      appropriate form selected by the Company (the “Lilly
      Registration Statement”),
      covering the Securities and shall use its commercially reasonable efforts to
      cause such registration statement to become effective [***] (the “Effectiveness
      Deadline Date”)
      and
to
      remain
      effective until the earlier to occur of the date (i) the Restricted Stock
      covered thereby have been sold, or (ii) by which all Restricted Stock covered
      thereby may be sold under Rule 144, without volume limitations.
      [***]

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      [***]
        THE CONFIDENTIAL PORTION OF THIS AGREEMENT HAS BEEN OMITTED AND FILED SEPARATELY
        WITH THE COMMISSION PURSUANT TO A REQUEST FOR
        CONFIDENTIALITY.

    

     

                (b) Following
      the effectiveness of a registration statement filed pursuant to this section,
      the Company may, at any time, suspend the effectiveness of such registration
      for
      up to [***] days, as appropriate (a “Suspension
      Period”),
      by
      giving notice to the Holders of shares of Restricted Stock, if the Company
      shall
      have determined that the Company may be required to disclose any material
      corporate development which disclosure may have a Material Adverse Effect.
      The
      Holders of shares of Restricted Stock acknowledge that the Company is required
      to file a post-effective amendment to its registration statements on Form S-1,
      or other appropriate form selected by the Company, upon the filing of each
      of
      its quarterly and annual reports with the Commission and therefore a Suspension
      Period will occur between the Company’s filing of its quarterly or annual report
      and the filing of the post-effective amendment to the registration statement
      on
      Form S-1. Notwithstanding the foregoing, no more than [***] may occur in
      immediate succession. The Company shall use its reasonable efforts to limit
      the
      duration and number of any Suspension Periods. The Holders of shares of
      Restricted Stock agree that, upon receipt of any notice from the Company of
      a
      Suspension Period, the Holders of shares of Restricted Stock shall forthwith
      discontinue disposition of shares of Restricted Stock covered by such
      registration statement or prospectus until the Holders of shares of Restricted
      Stock (i) are advised in writing by the Company that the use of the applicable
      prospectus may be resumed, (ii) have received copies of a supplemental or
      amended prospectus, if applicable, and (iii) have received copies of any
      additional or supplemental filings which are incorporated or deemed to be
      incorporated by reference into such prospectus.

     

            7.2     Registration
      Procedures.
      When
      the Company effects the registration of the Securities under the Securities
      Act
      pursuant to Section 7.1(a) hereof, the Company will, at its expense, as
      expeditiously as possible:

     

    (a) In
      accordance with the Securities Act and the rules and regulations of the
      Commission, prepare and file with the Commission a registration statement with
      respect to such securities and use its commercially reasonable efforts to cause
      such registration statement to become and remain effective for the period
      described herein, and prepare and file with the Commission such amendments
      to
      such registration statement and supplements to the prospectus contained therein
      as may be necessary to keep such registration statement effective for such
      period and such registration statement and prospectus accurate and complete
      for
      such period;

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (b) Furnish
      to the Holders of securities participating in such registration such reasonable
      number of copies of the registration statement, preliminary prospectus, final
      prospectus and such other documents as such Holders may reasonably request
      in
      order to facilitate the public offering of such securities;

     

    (c) Use
      its
      commercially reasonable efforts to register or qualify the securities covered
      by
      such registration statement under such state securities or blue sky laws of
      such
      jurisdictions as such participating Holders may reasonably request within twenty
      (20) days following the original filing of such registration statement, except
      that the Company shall not for any purpose be required to execute a general
      consent to service of process or to qualify to do business as a foreign
      corporation in any jurisdiction where it is not so qualified;

     

    (d) Notify
      the Holders participating in such registration, promptly after it shall receive
      notice thereof, of the date and time when such registration statement and each
      post-effective amendment thereto has become effective or a supplement to any
      prospectus forming a part of such registration statement has been
      filed;

     

    (e) Notify
      such Holders promptly of any request by the Commission for the amending or
      supplementing of such registration statement or prospectus or for additional
      information;

     

    (f) Prepare
      and file with the Commission, promptly upon the request of any such Holders,
      any
      amendments or supplements to such registration statement or prospectus which,
      in
      the opinion of counsel for such Holders, is required under the Securities Act
      or
      the rules and regulations thereunder in connection with the distribution of
      the
      Restricted Stock by such Holders;

     

    (g) Prepare
      and promptly file with the Commission, and promptly notify such Holders of
      the
      filing of, such amendments or supplements to such registration statement or
      prospectus as may be necessary to correct any statements or omissions if, at
      the
      time when a prospectus relating to such securities is required to be delivered
      under the Securities Act, any event has occurred as the result of which any
      such
      prospectus or any other prospectus as then in effect would include an 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 not
      misleading;

     

    (h) In
      case
      any of such Holders is required to deliver a prospectus at a time when the
      prospectus then in circulation is not in compliance with the Securities Act
      or
      the rules and regulations of the Commission, prepare promptly upon request
      such
      amendments or supplements to such registration statement and such prospectus
      as
      may be necessary in order for such prospectus to comply with the requirements
      of
      the Securities Act and such rules and regulations; and

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (i) Advise
      such Holders, promptly after it shall receive notice or obtain knowledge
      thereof, of the issuance of any stop order by the Commission suspending the
      effectiveness of such registration statement or the initiation or threatening
      of
      any proceeding for that purpose and promptly use its best efforts to prevent
      the
      issuance of any stop order or to obtain its withdrawal if such stop order should
      be issued.

     

            7.3     Expenses.
      With
      respect to any registration effected pursuant to Section 7.1 hereof, all fees,
      costs and expenses of and incidental to such registration and the public
      offering in connection therewith shall be borne by the Company; provided,
      however,
      that
      the Holders of shares of Restricted Stock shall bear their own legal fees,
      if
      any, and their pro rata share of any underwriting discounts or
      commissions.

     

            7.4     Indemnification.

     

    (a) The
      Company will indemnify and hold harmless each Holder of shares of Restricted
      Stock which are included in a registration statement pursuant to the provisions
      of Section 7 hereof and any underwriter (as defined in the Securities Act)
      for
      such Holder, and any person who controls such Holder or such underwriter within
      the meaning of the Securities Act, and any officer, director, employee, agent,
      partner or affiliate of such Holder, from and against, and will reimburse such
      Holder and each such underwriter, controlling person, officer, director,
      employee, agent, partner and affiliate with respect to, any and all claims,
      actions, demands, losses, damages, liabilities, costs and expenses to which
      such
      Holder or any such underwriter or controlling person or any such officer,
      director, employee, agent, partner or affiliate may become subject under the
      Securities Act or otherwise, insofar as such claims, actions, demands, losses,
      damages, liabilities, costs or expenses arise out of or are based upon any
      untrue statement or alleged untrue statement of any material fact contained
      in
      such registration statement, any prospectus contained therein 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 therein not misleading; provided,
      however,
      that
      the Company will not be liable in any such case to the extent that any such
      claim, action, demand, loss, damage, liability, cost or expense is caused by
      an
      untrue statement or alleged untrue statement or omission or alleged omission
      so
      made in conformity with information furnished by such Holder, such underwriter
      or such controlling person or such officer, director, employee, agent, partner
      or affiliate in writing specifically for use in the preparation
      thereof.

     

    (b) Each
      Holder of shares of the Restricted Stock which are included in a registration
      pursuant to the provisions of Section 7 hereof will indemnify and hold harmless
      the Company, and any Person who controls the Company within the meaning of
      the
      Securities Act, from and against, and will reimburse the Company and such
      controlling Persons with respect to, any and all losses, damages, liabilities,
      costs or expenses to which the Company or such controlling Person may become
      subject under the Securities Act or otherwise, insofar as such losses, damages,
      liabilities, costs or expenses are caused by any untrue or alleged untrue
      statement of any material fact contained in such registration statement, any
      prospectus contained therein or any amendment or supplement thereto, or are
      caused by the omission or the alleged omission to state therein a material
      fact
      required to be stated therein or necessary to make the statements therein,
      in
      light of the circumstances in which they were made, not misleading, 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 so made in reliance upon
      and in conformity with written information furnished by such Holder specifically
      for use in the preparation thereof. Notwithstanding the foregoing, the liability
      of any Holder of shares of Restricted Stock pursuant to this subsection (b)
      shall be limited to an amount equal to the per share sale price (less any
      underwriting discount and commissions) multiplied by the number of shares of
      Restricted Stock sold by such Holder pursuant to the registration statement
      which gives rise to such obligation to indemnify (less the aggregate amount
      of
      any damages which such Holder has otherwise been required to pay in respect
      of
      such losses, damages, liabilities, costs or expenses or any substantially
      similar losses, damages, liabilities, costs or expenses arising from the sale
      of
      such Restricted Stock).

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (c) Promptly
      after receipt by a party indemnified pursuant to the provisions of paragraph
      (a)
      or (b) of this Section 7.4 of notice of the commencement of any action involving
      the subject matter of the foregoing indemnity provisions, such indemnified
      party
      will, if a claim thereof is to be made against the indemnifying party pursuant
      to the provisions of paragraph (a) or (b), notify the indemnifying party of
      the
      commencement thereof; but the omission so to notify the indemnifying party
      will
      not relieve it from any liability which it may have to an indemnified party
      otherwise than under this Section 7.4 and shall not relieve the indemnifying
      party from liability under this Section 7.4 unless such indemnifying party
      is
      prejudiced by such omission. In case such action is brought against any
      indemnified party and it notifies the indemnifying party of the commencement
      thereof, the indemnifying party shall have the right to participate in, and,
      to
      the extent that it may wish, jointly with any other indemnifying party similarly
      notified, to assume the defense thereof, with counsel reasonably satisfactory
      to
      such indemnified party, and after notice from the indemnifying party to such
      indemnified party of its election so to assume the defense thereof, the
      indemnifying party will not be liable to such indemnified party pursuant to
      the
      provisions of such paragraph (a) or (b) for any legal or other expense
      subsequently incurred by such indemnified party in connection with the defense
      thereof other than reasonable costs of investigation. No indemnifying party
      shall be liable to an indemnified party for any settlement of any action or
      claim without the consent of the indemnifying party. No indemnifying party
      will
      consent to entry of any judgment or enter into any settlement which does not
      include as an unconditional term thereof the giving by the claimant or plaintiff
      to such indemnified party of a release from all liability in respect to such
      claim or litigation.

     

    (d) If
      the
      indemnification provided for in subsection (a) or (b) of this Section 7.4 is
      held by a court of competent jurisdiction to be unavailable to a party to be
      indemnified with respect to any claims, actions, demands, losses, damages,
      liabilities, costs or expenses referred to therein, then each indemnifying
      party
      under any such subsection, in lieu of indemnifying such indemnified party
      thereunder, hereby agrees to contribute to the amount paid or payable by such
      indemnified party as a result of such claims, actions, demands, losses, damages,
      liabilities, costs or expenses in such proportion as is appropriate to reflect
      the relative fault of the indemnifying party on the one hand and of the
      indemnified party on the other in connection with the statements or omissions
      which resulted in such claims, actions, demands, losses, damages, liabilities,
      costs or expenses, as well as any other relevant equitable considerations.
      The
      relative fault of the indemnifying party and of the indemnified party shall
      be
      determined by reference to, among other things, whether the untrue or alleged
      untrue statement of a material fact or the omission or alleged omission to
      state
      a material fact relates to information supplied by the indemnifying party or
      by
      the indemnified party and the parties’ relative intent, knowledge, access to
      information and opportunity to correct or prevent such statement or omission.
      Notwithstanding the foregoing, the amount any Holder of shares of Restricted
      Stock shall be obligated to contribute pursuant to this subsection (d) shall
      be
      limited to an amount equal to the per share sale price (less any underwriting
      discount and commissions) multiplied by the number of shares of Restricted
      Stock
      sold by such Holder pursuant to the registration statement which gives rise
      to
      such obligation to contribute (less the aggregate amount of any damages which
      such Holder has otherwise been required to pay in respect of such claim, action,
      demand, loss, damage, liability, cost or expense or any substantially similar
      claim, action, demand, loss, damage, liability, cost or expense arising from
      the
      sale of such Restricted Stock). No person guilty of fraudulent misrepresentation
      (within the meaning of Section 11(f) of the Securities Act) shall be entitled
      to
      contribution hereunder from any person who was not guilty of such fraudulent
      misrepresentation.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

                         

    [***]
      THE CONFIDENTIAL PORTION OF THIS AGREEMENT HAS BEEN OMITTED AND FILED SEPARATELY
      WITH THE COMMISSION PURSUANT TO A REQUEST FOR
      CONFIDENTIALITY.

                      

                    7.5     Reporting
      Requirements Under the Exchange Act.
      The
      Company shall timely file such information, documents and reports as the
      Commission may require or prescribe under Section 13 of the Exchange Act. The
      Company acknowledges and agrees that the purpose of the requirements contained
      in this Section 7.5 is to enable the Holders of shares of Restricted Stock
      to
      comply with the current public information requirement contained in paragraph
      (c) of Rule 144 should any such Holder ever wish to dispose of any of the
      Restricted Stock without registration under the Securities Act in reliance
      upon
      Rule 144 (or any other similar exemptive provision).

     

            7.6     Stockholder
      Information.
      The
      Company may require each Holder of shares of Restricted Stock to furnish the
      Company such information with respect to such Holder and the distribution of
      its
      Restricted Stock as the Company may from time to time reasonably request in
      writing as shall be required by law or by the Commission in connection
      therewith.

     

    8. Lock-Up
      of Securities.
      Investor agrees for a period of [***] that it will not (a) directly or
      indirectly, offer, sell, agree to offer or sell, solicit offers to purchase,
      grant any call option or purchase any put option with respect to, pledge, borrow
      or otherwise dispose of the Securities, and (b) will not establish or increase
      any “put equivalent position” or liquidate or decrease any “call equivalent
      position” with respect to the Securities (in each case within the meaning of
      Section 16 of the Exchange Act), or otherwise enter into any swap, derivative
      or
      other transaction or arrangement that transfers to another, in whole or in
      part,
      any economic consequence of ownership of the Securities, whether or not such
      transaction is to be settled by delivery of the Securities, other securities,
      cash or other consideration. Notwithstanding the foregoing, this Section 8
      shall
      not restrict the sale or other disposition of Common Stock that is acquired
      by
      the Investor in the open market prior to the Closing Date, provided
      that any
      such sale or other disposition fully complies with, and is not required to
      be,
      and will not be, disclosed or reported under, applicable law (including but
      not
      limited to Section 16 under the Exchange Act).

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    9. Termination.

     

            9.1     Grounds
      for Termination.
      This
      Agreement may be terminated at any time prior to the Closing:

     

    (a) by
      mutual
      written agreement of the Company and the Investor;

     

    (b) by
      the
      Company if the Closing shall not have been consummated on or before the Closing
      Date. 

     

            9.2     Effect
      of Termination.
      In the
      event of termination of this Agreement as permitted by Section 9.1, written
      notice thereof shall as promptly as practicable be given to the other party
      to
      this Agreement and this Agreement shall terminate and the transactions
      contemplated hereby shall be abandoned, without further action by any of the
      parties hereto. If this Agreement is terminated as provided herein, this
      Agreement shall forthwith become void and have no effect, except that
      (a) no party shall be relieved from any liabilities or damages arising out
      of a willful breach of any provision of this Agreement, and (b) the obligations
      of the parties set forth in the Collaboration Agreement shall remain in
      effect.

     

    10. Miscellaneous.

     

            10.1     Waivers
      and Amendments.

     

    (a) With
      the
      written consent of the Holders of a Majority of the Restricted Stock then
      outstanding, the obligations of the Company and the rights of the Holders of
      the
      Securities under this Agreement may be waived (either generally or in a
      particular instance, either retroactively or prospectively and either for a
      specified period of time or indefinitely), and with the same consent the
      Company, when authorized by resolution of its Board, may enter into a
      supplementary agreement for the purpose of changing in any manner or eliminating
      any of the provisions of this Agreement or of any supplemental agreement or
      modifying in any manner the rights hereunder of the Holders of the Securities
      and the Company; provided,
      however,
      that no
      such waiver or supplemental agreement shall reduce the aforesaid proportion
      of
      Restricted Stock, the Holders of which are required to consent to any waiver
      or
      supplemental agreement, without the consent of the Holders of all of the
      Restricted Stock; and provided further that the obligation of the Company to
      register the Restricted Stock, as set forth in Section 7.1 hereof, may not
      be
      waived or amended without the written consent of all the Holders of the shares
      of Restricted Stock then outstanding; provided,
      further,
      that
      the Company may, in its sole discretion, amend Annex
      A-2
      from
      time to time on or prior to the Last Potential Closing Date as provided pursuant
      to Section 3(e) hereof.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (b) Upon
      the
      effectuation of each such waiver, consent or agreement of amendment or
      modification, the Company shall promptly give written notice thereof to the
      Holders of the shares of Restricted Stock who have not previously consented
      thereto in writing.

     

            10.2     Effect
      of Waiver or Amendment.
      Investor acknowledges that by operation of Section 8.1 hereof the Holders of
      a
      Majority of the Restricted Stock then outstanding will, subject to the
      limitations contained in such Section 8.1, have the right and power to diminish
      or eliminate certain rights of such Investor under this Agreement.

     

            10.3     Rights
      of Holders Inter Se.
      Each
      Holder of Securities shall have the absolute right to exercise or refrain from
      exercising any right or rights which such Holder may have by reason of this
      Agreement or any Security, including, without limitation, the right to consent
      to the waiver of any obligation of the Company under this Agreement and to
      enter
      into an agreement with the Company for the purpose of modifying this Agreement
      or any agreement effecting any such modification, and such Holder shall not
      incur any liability to any other Holder or Holders of Securities with respect
      to
      exercising or refraining from exercising any such right or rights.

     

            10.4     Exculpation
      Among Investors and Holders.
      Investor acknowledges that it is not relying upon any other Person, or any
      officer, director, employee, agent, partner or affiliate of any such Person,
      in
      making its investment or decision to invest in the Company or in monitoring
      such
      investment. Investor agrees that no Person nor any controlling person, officer,
      director, stockholder, partner, agent or employee of any Person shall be liable
      for any action heretofore or hereafter taken or omitted to be taken by any
      of
      them relating to or in connection with the Company or the Securities, or
      both.

     

            10.5     Brokers
      or Finders.
      Investor
      represents and warrants to the Company and that, as a result of Investor’s
      actions, except as set forth under Section 5.11 of Annex
      B,
      no
      Person has, or as a result of the transaction as contemplated herein will have,
      any right or valid claim against the Company for any commission, fee or other
      compensation as a finder or broker, or in a similar capacity.

     

            10.6     Notices.
      All
      notices, requests, consents and other communications required or permitted
      hereunder shall be in writing and shall be given personally, by certified mail
      (return receipt requested, postage prepaid), by air courier (with signed
      acknowledgment of receipt) or by facsimile transmission (with confirmation
      of
      transmission):

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (a) If
      to any
      Holder of any of the Securities, addressed to such Holder at its address (or
      to
      its telecopier number) shown on his or its signature page hereto, or at such
      other address (or telecopier number) as such Holder may specify by written
      notice to the Company, or

     

    (b) If
      to the
      Company, addressed to it at Applied NeuroSolutions, Inc., 50 Lakeview Parkway,
      Suite 111, Vernon Hills, IL 60031 Attention: David Ellison, CFO (or, if by
      telecopier, to (847) 573-8030) or at such other address (or telecopier number)
      as the Company may specify by written notice to the Investors, and

     

    each
      such
      notice, request, consent and other communication shall for all purposes of
      the
      Agreement be treated as being effective or having been given upon
      receipt.

     

            10.7     Entire
      Agreement.
      This
      Agreement (including the schedules, annexes and exhibits to this Agreement)
      constitute the entire agreement among the parties with respect to the subject
      matter hereof and supercede all prior and contemporaneous agreements,
      negotiations, discussions, arrangements or understandings with respect
      thereto.

     

            10.8     Severability.
      Should
      any one or more of the provisions of this Agreement or of any agreement entered
      into pursuant to this Agreement be determined to be illegal or unenforceable,
      all other provisions of this Agreement and of each other agreement entered
      into
      pursuant to this Agreement, shall be given effect separately from the provision
      or provisions determined to be illegal or unenforceable and shall not be
      affected thereby.

     

            10.9     Parties
      in Interest.
      All the
      terms and provisions of this Agreement shall be binding upon and inure to the
      benefit of the respective successors of the parties hereto. This Agreement
      shall
      not run to the benefit of or be enforceable by any Person other than a party
      to
      this Agreement and its successors and permitted assigns.

     

            10.10     Headings.
      The
      headings of the Sections and paragraphs of this Agreement have been inserted
      for
      convenience of reference only and do not constitute a part of this
      Agreement.

     

            10.11     Choice
      of Law.
      Except
      where the issue for determination is one of corporate law, in which case the
      Delaware General Corporation Law shall govern, it is the intention of the
      parties that the internal substantive laws, and not the laws of conflicts,
      of
      Illinois should govern the enforceability and validity of this Agreement, the
      construction of its terms and the interpretation of the rights and duties of
      the
      parties.

     

            10.12     Expenses.
      Each
      party to this Agreement shall bear its own costs and expenses incurred with
      the
      negotiation and execution of this Agreement and the performance of the
      transactions contemplated hereby.

     

            10.13     Counterparts.
      This
      Agreement may be executed in any number of counterparts (including by facsimile)
      and by different parties hereto in separate counterparts, with the same effect
      as if all parties had signed the same document. All such counterparts shall
      be
      deemed an original, shall be construed together and shall constitute one and
      the
      same instrument.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

            10.14     Publicity.
      No
      party hereto shall originate any press release or other public announcement,
      written or oral, relating to this Agreement, or to performance hereunder or
      the
      existence of any arrangement among the parties hereto without the prior approval
      of the other parties hereto which may be the subject of such press release
      or
      announcement, except to the extent that such press release or announcement
      is
      reasonably concluded by a party to be required by applicable law or stock
      exchange rule, including but not limited to, any press release, announcement
      or
      other disclosure required to be made by the Company pursuant to the Securities
      Act or the Exchange Act. The Investors acknowledge that the Company will be
      required to file a copy of this Agreement, and the other agreements and
      instruments contemplated hereby, with the Commission and to describe these
      transactions in its public filings, including in the registration statement
      contemplated by Section 7.1 (which registration statement shall also include
      the
      name of each Investor). Subject to the foregoing, the Company will not use
      the
      name of any Investor in a public announcement without such Investor’s prior
      consent.

     

    

     

    

     

     

    [Signature
      pages follow]

     

    

     

    
      
        
           

           

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
          

           

        

      

    

    IN
      WITNESS WHEREOF, the undersigned has caused this Agreement to be duly executed
      as of the date first above written.

     

    APPLIED
      NEUROSOLUTIONS, INC.

     

    By:

     

    Name:_______________________________

     

    Its:________________________________

     

    

     

    

     

    

    
      
        
          [Company
            Signature Page to Securities Purchase Agreement]

           

           

           

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
          

           

        

      

    

    The
      foregoing Agreement is

    hereby
      accepted as of the

    date
      first above written.

    

    ELI
      LILLY
      AND COMPANY

     

    By:
       

     

     

    

     

     

    Its:
      

     

    Social
      Security or Taxpayer ID No.:_________________

     

     

    Address
      for Notices:

     

     

     

     

    Telecopier
      No.:

     

     

    Exact
      Name of Investor to appear on Share Certificate:

     

    

    

    

     

    
      
        
          [Investor
            Signature Page to Securities Purchase Agreement]

           

           

           

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
          

           

        

      

    

    ANNEX
      A

     

    RISK
      FACTORS

     

    Investing
      in us entails substantial risks. Factors that could cause or contribute to
      differences in our actual results include those discussed in the following
      section. You should consider carefully the following risk factors, together
      with
      all of the other information included in this Agreement. Each of these risk
      factors could adversely affect our business, operating results and financial
      condition, as well as adversely affect the value of our common stock.

    

    We
      need to raise capital in 2006 in order to continue
      operations.

    

    As
      of
      September 30, 2006, we had only $387,000 of cash on hand. Since we do not expect
      to generate significant revenues from operations in 2006, we will be required
      to
      raise additional capital in financing transactions in order to satisfy our
      expected cash expenditures. We expect to raise such additional capital by
      selling shares of our capital stock, borrowing money, entering into corporate
      partnerships or receiving funds from the exercise of outstanding warrants and/or
      stock options. However, such additional capital may not be available to us
      at
      acceptable terms or at all. Further, if we sell additional shares of our capital
      stock, your ownership position in our Company will be subject to dilution.
      In
      the event that we are unable to obtain additional capital, we may be forced
      to
      reduce our operating expenditures or to cease operations
      altogether.

    

    We
      have
      had net losses for each of the years ended December 31, 2005 and 2004 and for
      the nine months ended September 30, 2006, and we have an accumulated deficit
      of
      $41.2 million as of December 31, 2005. Since the financial statements for each
      of these periods were prepared assuming that we would continue as a going
      concern, in the view of our independent auditors, these conditions raise
      substantial doubt about our ability to continue as a going concern. Furthermore,
      since we do not expect to generate any significant revenues for the foreseeable
      future, our ability to continue as a going concern depends, in large part,
      on
      our ability to raise additional capital through equity or debt financing
      transactions. If we are unable to raise additional capital, we may be forced
      to
      discontinue our business.

     

    We
      are a development stage company without any products currently in clinical
      trials

    

    We
      are a
      development stage company. Our development of a diagnostic product which detects
      Alzheimer’s disease utilizing cerebrospinal fluid (CSF) has completed the
      pre-clinical stage. Our other potential products and technologies are early
      in
      the research and development phase, and product revenues may not be realized
      from the sale of any such products for at least the next several years, if
      at
      all. Many of our proposed products will require significant additional research
      and development efforts prior to any commercial use, including extensive
      preclinical and clinical testing as well as lengthy regulatory approval. There
      can be no assurances that our research and development efforts will be
      successful, that our potential products will prove to be safe and effective
      in
      clinical trials or that we will develop any commercially successful products.
      We
      currently have no approved products on the market and have not received any
      commercial revenues from the sale or license of any products. 

    

    We
      have a history of operating losses and expect to sustain losses in the
      future

    

    We
      have
      experienced significant operating losses since our inception. As of December
      31,
      2005, we had an accumulated deficit of approximately $41.2 million and as of
      September 30, 2006 we had an accumulated deficit of approximately $44.2 million.
      We expect to incur operating losses over the next several years as our research
      and development efforts and pre-clinical and clinical testing activities
      continue. Our ability to achieve profitability depends in part upon our ability,
      alone or with or through others, to raise additional capital to execute our
      business plan, to successfully commercialize our approved products, to complete
      development of our other proposed products, to obtain required regulatory
      approvals and to manufacture and market our products.

    

    We
      need to raise additional capital by December 2006, however, we may not be able
      to raise such financing or we may only be able to raise capital on unfavorable
      terms

    

    Our
      operations to date have consumed substantial amounts of cash. Our development
      of
      our technologies and potential products will require substantial funds to
      conduct the costly and time-consuming activities necessary to research, develop
      and optimize our technologies, and ultimately, to establish manufacturing and
      marketing capabilities. Our future capital requirements will depend on many
      factors, including:

    

    
      	·  	
              continued
                scientific progress in the research and development of our
                technologies;

            

    

    
      	·  	
              our
                ability to establish and maintain collaborative arrangements with
                others
                for product development;

            

    

    
      	·  	
              progress
                with pre-clinical and clinical
                trials;

            

    

    
      	·  	
              the
                time and costs involved in obtaining regulatory
                approvals;

            

    

    
      	·  	
              the
                costs involved in preparing, filing, prosecuting, maintaining and
                enforcing patent claims;

            

    

    
      	·  	
              competing
                technological and market
                developments;

            

    

    
      	·  	
              changes
                in our existing research relationships;
                and

            

    

    
      	·  	
              effective
                product commercialization activities and
                arrangements.

            

    

    

     

    We
      anticipate our cash balances as of September 30, 2006 will be adequate to fund
      operations into December 2006. We will
      need
      to secure additional funding prior to depleting our cash balances, to cover
      operations, and to continue development of our therapeutic program and our
      CSF-based and serum diagnostic programs. Accordingly, we
      are in
      the process of seeking additional funding through private and/or public
      financing, the exercise of some of the approximately 49.5 million outstanding
      warrants and 20.9 million outstanding stock options or through collaborative
      or
      other arrangements with corporate partners. However, there is no assurance
      that
      additional funding will be available in a timely manner for us to finance our
      operations on acceptable terms, or at all.  

    

    The
      Company’s management and Board of Directors are currently evaluating options to
      maximize the value of our therapeutic and diagnostic technology, including
      evaluating partnerships and out-licensing opportunities.   

    

    We
      are
      currently evaluating all areas of our operations to eliminate, reduce and/or
      defer costs to allow our current cash balances to last longer. If
      additional funding is not obtained, we will not be able to fund our diagnostic
      programs, and we will have to minimize or eliminate our therapeutic program,
      and
      possibly discontinue all our product development and/or operations. The failure
      to secure additional funding would have a material adverse effect on our
      operations and our prospects.

    

    We
      face extensive governmental regulation and any failure to comply could prevent
      or delay product approval or cause the disallowance of our products after
      approval

    

    The
      U.S.
      Food and Drug Administration, and comparable agencies in foreign countries,
      impose many requirements on the introduction of new drugs and biologics through
      lengthy and detailed clinical testing procedures, and other costly and time
      consuming compliance procedures relating to manufacture, distribution,
      advertising, pricing and marketing of pharmaceutical products. These
      requirements make it difficult to estimate when any of our products in
      development will be available commercially, if at all.

    

    Diagnostic
      products have a different path to marketing clearance than that for
      pharmaceutical products. Diagnostic regulatory studies generally proceed in
      two
      steps, a proof of principle clinical study and a validation study. Given the
      rapidly changing regulatory environment, it is uncertain whether we will be
      able
      to market our diagnostic kits for Alzheimer’s disease under these regulatory
      categories, or obtain final FDA approval for a kit for specific claims. Clinical
      trials for diagnostic products, including the FDA submission and approval
      process, generally take two to three years to complete. 

    

    Even
      if
      we successfully enroll patients in clinical trials for our diagnostic or
      therapeutic products, setbacks are a common occurrence in clinical trials.
      These
      set backs often include:

    

    
      	·  	
              Failure
                to comply with the regulations applicable to such testing may delay,
                suspend or cancel our clinical trials,

            

    

    
      	·  	
              The
                FDA might not accept the test
                results,

            

    

    
      	·  	
              The
                FDA, or any comparable regulatory agency in another country, may
                suspend
                clinical trials at any time if it concludes that the trials expose
                subjects participating in such trials to unacceptable health
                risks,

            

    

    
      	·  	
              Human
                clinical testing may not show any current or future product candidate
                to
                be safe and effective to the satisfaction of the FDA or comparable
                regulatory agencies, and

            

    

    
      	·  	
              The
                data derived from clinical trials may be unsuitable for submission
                to the
                FDA or other regulatory agencies.

            

    

    

    We
      cannot
      predict with certainty when we might submit any of our proposed products
      currently under development for regulatory review. Once we submit a proposed
      product for review, the FDA or other regulatory agencies may not issue their
      approvals on a timely basis, if at all. If we are delayed or fail to obtain
      such
      approvals, our business may be adversely affected. If we fail to comply with
      regulatory requirements, either prior to approval or in marketing our products
      after approval, we could be subject to regulatory or judicial enforcement
      actions. These actions could result in:

    

    
      	·  	
              product
                recalls or seizures;

            

    

    
      	·  	
              fines
                and penalties;

            

    

    
      	·  	
              injunctions;

            

    

    
      	·  	
              criminal
                prosecution;

            

    

    
      	·  	
              refusals
                to approve new products and withdrawal of existing approvals;
                and

            

    

    
      	·  	
              enhanced
                exposure to product liabilities. 

            

    

    

    Our
      technologies are subject to licenses and termination of the licenses would
      seriously harm our business

    

    We
      have
      exclusive licenses with Albert Einstein College of Medicine ("AECOM") covering
      virtually all of our Alzheimer's disease technology, including all our AD
      related diagnostic and therapeutic products currently in development. We depend
      on these licensing arrangements to maintain rights to our products under
      development. These agreements require us to make payments and satisfy
      performance obligations in order to maintain our rights. The agreements also
      generally require us to pay royalties on the sale of products developed from
      the
      licensed technologies, fees on revenues from sublicensees, where applicable,
      and
      the costs of filing and prosecuting patent applications. The agreements require
      that we commit certain sums annually for research and development of the
      licensed products. We are currently in compliance with our license agreements,
      however, we will
      need
      to raise additional capital in order to meet our obligations to AECOM. If we
      fail to raise sufficient funds, and consequently
      default
      on our obligations to AECOM, our licenses could terminate, and we could lose
      the
      rights to our proprietary technologies. Such a loss would have a material
      adverse effect on our operations and prospects.

    

    The
      demand for diagnostic products for Alzheimer’s disease may be limited because
      there is currently no cure or effective therapeutic products to treat the
      disease

    

    Since
      there is currently no cure or therapy that can stop the progression of
      Alzheimer’s disease, the market acceptance and financial success of a diagnostic
      technology capable of detecting Alzheimer’s disease may be limited. As a result,
      even if we successfully develop a safe and effective diagnostic technology
      for
      identifying this disease, its commercial value might be limited.

    

    The
      value of our research could diminish if we cannot protect, enforce and maintain
      our intellectual property rights adequately 

    

    The
      pharmaceutical industry places considerable importance on obtaining patent
      and
      trade secret protection for new technologies, products and processes, and where
      possible, we actively pursue both domestic and foreign patent protection for
      our
      proprietary products and technologies. Our success will depend in part on our
      ability to obtain and maintain patent protection for our technologies and to
      preserve our trade secrets. When patent protection is available, it is our
      policy to file patent applications in the United States and selected foreign
      jurisdictions. We currently hold and maintain 12 issued United States patents
      and various related foreign patents. One of the issued United States patents
      is
      for our Alzheimer's diagnostic technology, eight of the issued United States
      patents are for our Alzheimer's therapeutic technology and three of the issued
      United States patents are for our blood oxygenation technology. One of the
      issued AD patents is assigned to AECOM and is licensed to the Company, eight
      of
      the issued AD patents are assigned to the Company, and the three blood
      oxygenation patents are assigned to the Company. We currently have eight patent
      applications filed, four have Alzheimer's diagnostic applications, three have
      Alzheimer's therapeutic applications, and one has both Alzheimer's diagnostic
      and therapeutic applications. The patents are both owned by us and subject
      to
      our license agreements with AECOM. The issued United States Alzheimer's
      technology patents expire between 2014 and 2019. No assurance can be given
      that
      our issued patents will provide competitive advantages for our technologies
      or
      will not be challenged or circumvented by competitors. With respect to already
      issued patents, there can be no assurance that any patents issued to us will
      not
      be challenged, invalidated, circumvented or that the patents will provide us
      proprietary protection or a commercial advantage. We also rely on trade secrets
      and proprietary know-how which we seek to protect, in part, through
      confidentiality agreements with employees, consultants, collaborative partners
      and others. There can be no assurance that these agreements will not be
      breached. 

    

    The
      ability to develop our technologies and to commercialize products will depend
      on
      avoiding patents of others. While we are aware of patents issued to competitors,
      we are not aware of any claim of patent infringement against us, except as
      described in the following two paragraphs. Any such future claims concerning
      us
      infringing patents and proprietary technologies could have a material adverse
      effect on our business. In addition, litigation may also be necessary to enforce
      any of our patents or to determine the scope and validity of third-party
      proprietary rights. There can be no assurance that our patents would be held
      valid by a court of competent jurisdiction.
      We may
      have to file suit to protect our patents or to defend use of our patents against
      infringement claims brought by others. Because we have limited cash resources,
      we may not be able to afford to pursue or defend against litigation in order
      to
      protect our patent rights.

    

    In
      March
      2004 we were notified by email from Innogenetics, a Belgian biopharmaceutical
      company involved in specialty diagnostics and therapeutic vaccines that it
      believes the CSF diagnostic test we have been developing uses a monoclonal
      antibody that is encompassed by the claims of two U.S. patents it owns. In
      that
      email, Innogenetics also referred to another U.S. patent which was recently
      granted to Innogenetics and which is directed to a method for the differential
      diagnosis of Alzheimer’s disease from other neurological diseases. Innogenetics
      believes this latter patent also claims the CSF diagnostic test we are
      developing. Innogenetics also informed us that it could be amenable to entering
      into a licensing arrangement or other business deal with APNS regarding its
      patents.

    

    We
      have
      reviewed the two monoclonal antibody patents with our patent counsel on several
      occasions prior to receipt of the email from Innogenetics and subsequent to
      the
      receipt of the email. Based on these reviews, we believe that our CSF diagnostic
      test does not infringe the claims of these two Innogenetics patents. Similarly,
      we do not believe our activities have infringed or will infringe the rights
      of
      Innogenetics under this third patent, and we would seek either to negotiate
      a
      suitable arrangement with them or vigorously contest any claim of infringement.
      If we were unable to reach a mutually agreeable arrangement with Innogenetics,
      we may be forced to litigate the issue. Expenses involved with litigation may
      be
      significant, regardless of the ultimate outcome of any litigation. An adverse
      decision could prevent us from marketing a future diagnostic product and could
      have a material adverse impact on our Company. We have had discussions with
      Innogenetics concerning some form of a potential business
      relationship.

    

    We
      also
      rely on trade secrets and unpatentable know-how that we seek to protect, in
      part, by confidentiality agreements with our employees, consultants, suppliers
      and licensees. These agreements may be breached, and we might not have adequate
      remedies for any breach. If this were to occur, our business and competitive
      position would suffer. None of our employees, scientific advisors or
      collaborators has any rights to publish scientific data and information
      generated in the development or commercialization of our products without our
      approval. Under the license agreements with us, AECOM has a right to publish
      scientific results relating to the diagnosis of AD and precursor or related
      conditions in scientific journals, provided, that AECOM must give us
      pre-submission review of any such manuscript to determine if it contains any
      of
      our confidential information or patentable materials. 

    

    We
      face large competitors and our limited financial and research resources may
      limit our ability to develop and market new products

    

    The
      biotechnology and pharmaceutical markets generally involve rapidly changing
      technologies and evolving industry standards. Many
      companies, both public and private, are developing products to diagnose and
      to
      treat Alzheimer’s disease. Most of these companies have substantially greater
      financial, research and development, manufacturing and marketing experience
      and
      resources than we do. As a result, our competitors may more rapidly develop
      effective diagnostic products as well as therapeutic products that are more
      effective or less costly than any product that we may develop.

    

    We
      also
      face competition from colleges, universities, governmental agencies and other
      public and private research institutions. These competitors are becoming more
      active in seeking patent protection and licensing arrangements to collect
      royalties for use of technology that they have developed. Some of these
      technologies may compete directly with the technologies being developed by
      us.
      Also, these institutions may also compete with us in recruiting highly qualified
      scientific personnel.

    

    We
      lack manufacturing capability and we must rely on third party manufacturers
      to
      produce our products, giving us limited control over the quality of our products
      and the volume of products produced

    

    While
      we
      have internally manufactured the reagents and materials necessary to conduct
      our
      preclinical activities related to our diagnostic product, we do not currently
      have any large scale manufacturing capability, expertise or personnel and expect
      to rely on outside manufacturers to produce material that will meet applicable
      standards for validation clinical testing of our products and for larger scale
      production if marketing approval is obtained. 

    

    While
      we
      are in discussions with a contract manufacturer, we do not have any
      manufacturing agreements. We cannot assure that any outside manufacturer we
      select will perform suitably or will remain in the contract manufacturing
      business, in which instances we would need to find a replacement manufacturer
      or
      develop our own manufacturing capabilities. If we are unable to do so, our
      ability to obtain regulatory approval for our products could be delayed or
      impaired. Our ability to market our products could also be affected by the
      failure of our third party manufacturers or suppliers to comply with the good
      manufacturing practices required by the FDA and foreign regulatory authorities.
      

    

    We
      lack marketing and sales staff to sell our products and we must rely on third
      parties, such as large pharmaceutical companies, to sell and market our
      products, the cost of which may make our products less profitable for
      us

    

    We
      do not
      have marketing and sales experience or personnel. As we currently do not intend
      to develop a marketing and sales force, we will depend on arrangements with
      corporate partners or other entities for the marketing and sale of our proposed
      products. We do not currently have any agreements with corporate partners or
      other entities to provide sales and marketing services. We may not succeed
      in
      entering into any satisfactory third-party arrangements for the marketing and
      sale of our proposed products, or we may not be able to obtain the resources
      to
      develop our own marketing and sales capabilities. The failure to develop those
      capabilities, either externally or internally, will adversely affect future
      sales of our proposed products.

    

    We
      are dependent on our key employees and consultants, who may not readily be
      replaced

    

    We
      are
      highly dependent upon the principal members of our management team, especially
      Ellen R. Hoffing, President and Chief Executive Officer, and Peter Davies,
      Ph.D., our founding scientist, as well as our other officers and directors.
      Ms.
      Hoffing’s employment began on September 12, 2006. Our consulting agreements with
      Dr. Davies were renewed until November 2008, and we have employment agreements
      with John DeBernardis, Ph.D., Senior Advisor to Ms. Hoffing, Daniel Kerkman,
      Ph.D., Vice President of R & D, and David Ellison, Chief Financial Officer
      and Corporate Secretary, through October 31, 2007. We do not currently maintain
      key-man life insurance and the loss of any of these persons' services, and
      the
      resulting difficulty in finding sufficiently qualified replacements, would
      adversely affect our ability to develop and market our products and obtain
      necessary regulatory approvals.

    

    Our
      success also will depend in part on the continued service of other key
      scientific and management personnel, and our ability to identify, hire and
      retain additional staff. We face intense competition for qualified employees
      and
      consultants. Large pharmaceutical companies and our competitors which have
      greater resources and experience than we have can, and do, offer superior
      compensation packages to attract and retain skilled personnel. As a result,
      we
      may have difficulty retaining such employees and consultants because we cannot
      match the packages offered by such competitors and large pharmaceutical
      companies, and we may have difficulty attracting suitable replacements.

    

    We
      expect
      that our potential expansion into areas and activities requiring additional
      expertise, such as clinical trials, governmental approvals, contract and
      internal manufacturing and sales and marketing, will place additional
      requirements on our management. We expect these demands will require an increase
      in management and scientific personnel and the development of additional
      expertise by existing management personnel. The failure to attract and retain
      such personnel or to develop such expertise could materially adversely affect
      prospects for our success.

    

    

    We
      use hazardous materials in our research and that may subject us to liabilities
      in excess of our resources 

    

    Our
      research and development involves the controlled use of hazardous materials
      such
      as acids, caustic agents, flammable solvents and carcinogens. Although we
      believe that our safety procedures for handling and disposing of hazardous
      materials comply in all material respects with the standards prescribed by
      government regulations, the risk of accidental contamination or injury from
      these materials cannot be completely eliminated. In the event of an accident,
      we
      could be held liable for any damages that result. Although we have insurance
      coverage for third-party liabilities of this nature, such liability beyond
      this
      insurance coverage could exceed our resources. Our insurance for hazardous
      materials liabilities has a deductible of $5,000 and a cap on coverage for
      damages of $250,000. There can be no assurance that current or future
      environmental or transportation laws, rules, regulations or policies will not
      have a material adverse effect on us.

    

    Potential
      product liability claims against us could result in reduced demand for our
      products or extensive damages in excess of insurance
      coverage

    

    The
      use
      of our products in clinical trials or from commercial sales will expose us
      to
      potential liability claims if such use, or even their misuse, results in injury,
      disease or adverse effects. We intend to obtain product liability insurance
      coverage before we initiate clinical trials for our therapeutic products. This
      insurance is expensive and insurance companies may not issue this type of
      insurance when needed. Any product liability claim resulting from the use of
      our
      diagnostic test in our clinical study, even one that was not in excess of our
      insurance coverage or one that is meritless, could adversely affect our ability
      to complete our clinical trials or obtain FDA approval of our product, which
      could have a material adverse effect on our business. 

    

    The
      healthcare reimbursement environment is uncertain and our customers may not
      get
      significant insurance reimbursement for our products, which could have a
      materially adverse affect on our sales and our ability to sell our
      products

    

    Recent
      efforts by governmental and third-party payors, including private insurance
      plans, to contain or reduce the costs of health care could affect the levels
      of
      revenues and profitability of pharmaceutical and biotechnology products and
      companies. For example, in some foreign markets, pricing or profitability of
      prescription pharmaceuticals is subject to government control. In the United
      States, there have been a number of federal and state proposals to implement
      similar government control. Pricing constraints on our potential products could
      negatively impact revenues and profitability.

    

    In
      the
      United States and elsewhere, successful commercialization of our products will
      depend in part on the availability of reimbursement to the consumer using our
      products from third-party health care payors. Insufficient reimbursement levels
      could affect our ability to realize an appropriate return on our investment
      in
      product development. Third-party health care payors are increasingly challenging
      the price and examining the cost-effectiveness of medical products and services.
      If we succeed in bringing one or more products to market, and the government
      or
      third-party payors fail to provide adequate coverage or reimbursement rates
      for
      those products, it could reduce our product revenues and
      profitability.

    

    We
      must rely on third party relationships to develop, produce and market our
      product without which we will fail

    

    We
      do not
      possess all the resources necessary to complete the development, clinical
      testing, manufacturing, marketing and commercialization of our diagnostic and
      therapeutic products and we will need to obtain such resources from third
      parties. In order to obtain such resources, we will need to enter into
      collaborations with corporate partners, licensors, licensees and possibly
      relationships with third parties from whom we will outsource these resources.
      Our success may depend on obtaining such relationships. This business strategy
      is to utilize the expertise and resources of third parties in a number of areas
      including: 

    

    
      	·  	
              performing
                various activities associated with pre-clinical studies and clinical
                trials 

            

    

    
      	·  	
              preparing
                submissions seeking regulatory approvals
                

            

    

    
      	·  	
              manufacture
                of kits and solutions 

            

    

    
      	·  	
              sales
                and marketing of our
                products

            

    

    

    This
      strategy of reliance on third party relationships creates risks to us by placing
      critical aspects of our business in the hands of third parties, who we may
      not
      be able to control as effectively as our own personnel. We
      cannot
      be sure that any present or future collaborative agreements will be successful.
      If
      these
      third parties do not perform in a timely and satisfactory manner, we may incur
      additional costs and lose time in our development and clinical programs as
      well
      as commercializing our products. To
      the
      extent we choose not to, or are not able to, establish such arrangements, we
      could experience increased capital requirements. 

    

    We
      do not
      have the ability to conduct all facets of our clinical trials independently.
      We
      intend to rely on clinical investigators and third-party clinical research
      organizations to perform a significant portion of these functions. There can
      be
      problems with using third party clinical research organizations such
      as:

    

    
      	·  	
              we
                are not able to locate acceptable contractors to run this portion
                of our
                clinical trials

            

    

    
      	·  	
              we
                can not enter into favorable agreements with
                them

            

    

    
      	·  	
              third
                parties may not successfully carry out their contractual
                duties

            

    

    
      	·  	
              third
                parties may not meet expected deadlines
                

            

    

    

    If
      any of
      these problems occur, we will be unable to obtain required approvals and will
      be
      unable to commercialize our products on a timely basis, if at all.

    

    We
      must enroll a sufficient number of participants in our clinical trials and
      generate clinical data that shows our products are safe and effective in order
      to obtain regulatory approval which is necessary to market our
      products

    

    In
      order
      to sell our products, we must receive regulatory approval to market our
      products. Before obtaining regulatory approvals for the commercial sale of
      any
      of our products under development, we must demonstrate through pre-clinical
      studies and clinical trials that the product is safe and effective for use
      in
      each target indication. If our products fail in clinical trials, this may have
      a
      significant negative impact on our company.

    

    In
      addition, the results from pre-clinical testing and early clinical trials may
      not be predictive of results obtained in later clinical trials. There can be
      no
      assurance that our clinical trials will demonstrate sufficient safety and
      effectiveness to obtain regulatory approvals. The completion rate of our
      clinical trials is dependent on, among other factors, the patient enrollment
      rate. Patient enrollment is a function of many factors including:

    

    
      	·  	
              patient
                population size

            

    

    
      	·  	
              the
                nature of the protocol to be used in the
                trial

            

    

    
      	·  	
              patient
                proximity to clinical
                sites

            

    

    
      	·  	
              eligibility
                criteria for the study

            

    

    

    We
      believe our planned procedures for enrolling patients are appropriate. However,
      delays in patient enrollment would increase costs and delay ultimate sales,
      if
      any, of our products. 

    

    We
      may experience delays, limitations and other problems in obtaining regulatory
      approval for our products

    

    The
      regulatory process takes many years and requires the expenditure of substantial
      resources. Data obtained from pre-clinical and clinical activities are subject
      to varying interpretations that could delay, limit or prevent regulatory agency
      approval. We may also encounter delays or rejections based on changes in
      regulatory agency policies during the period in which we develop our products
      and/or the period required for review of any application for regulatory agency
      approval of a particular product. Delays in obtaining regulatory agency
      approvals will make the projects more costly and adversely affect our
      business.

    

    We
      have
      filed with the FDA a Pre-Investigational Device Exemption (“Pre-IDE”)
      application with respect to our CSF-based diagnostic test and we had our Pre-IDE
      meeting with the FDA. It is uncertain when we will file a Pre-IDE for our
      serum-based diagnostic test. We have not filed any Investigation New Drug
      (“IND”) with respect to our AD therapeutic in discovery, and the timing of such
      filing in the future is uncertain.

    

    If
      the
      FDA grants approval for a drug or device, such approval may limit the indicated
      uses for which we may market the drug or device and this could limit the
      potential market for such drug or device. Furthermore, if we obtain approval
      for
      any of our products, the marketing and manufacture of such products remain
      subject to extensive regulatory requirements. Even if the FDA grants approval,
      such approval would be subject to continual review, and later discovery of
      unknown problems could restrict the products future use or cause their
      withdrawal from the market. Failure to comply with regulatory requirements
      could, among other things, result in:

    

    
      	·  	
              fines
                

            

    

    
      	·  	
              suspension
                of regulatory approvals 

            

    

    
      	·  	
              operating
                restrictions and criminal prosecution.

            

    

    

    In
      order
      to market our products outside of the United States, we must comply with
      numerous and varying regulatory requirements of other countries regarding safety
      and quality. The approval procedures vary among countries and can involve
      additional product testing and administrative review periods. The time required
      to obtain approval in other countries might differ from that required to obtain
      FDA approval. The regulatory approval process in other countries includes all
      of
      the risks associated with obtaining FDA approval detailed above. Approval by
      the
      FDA does not ensure approval by the regulatory authorities of other
      countries.

    

    In
      addition, many countries require regulatory agency approval of pricing and
      may
      also require approval for the marketing in such countries of any drugs or
      devices we develop. We cannot be certain that we will obtain any regulatory
      approvals in other countries and the failure to obtain such approvals may
      materially adversely affect our business.

    

    Our
      stock price may fluctuate significantly due to reasons unrelated to our
      operations, our products or our financial results, and because
      we must raise additional funds by December 2006, our stock price may decrease
      if
      we have to issue a large number of shares of common stock to raise
      funds

    

    Stock
      prices for many technology companies fluctuate widely for reasons which may
      be
      unrelated to operating performance or new product or service announcements.
      Broad market fluctuations, earnings and other announcements of other companies,
      general economic conditions or other matters unrelated to us or our operations
      and outside our control also could affect the market price of the Common Stock.
      During the 2004 and 2005 fiscal years and the nine-month period ended September
      30, 2006, the highest price of our stock was $0.59 and the lowest price of
      our
      stock during the same period was $0.14. We
      have
      sufficient cash to last through December 2006, and will need to raise additional
      funds prior to January 2007. In order to raise additional funds, we may have
      to
      sell a significant number of shares of our common stock and/or warrants
      exercisable to purchase shares of our common stock. While the inflow of
      additional funds may cause our stock price to increase, the prospect of issuing,
      or actual issuance of, a substantial number of additional shares of common
      stock
      may cause our stock price to decrease. 

    

    Our
      share price may decline due to a large number of shares of our common stock
      eligible for sale in the public markets

    

    As
      of
      September 30, 2006, we had outstanding 95,185,184 shares of Common Stock,
      without giving effect to shares of Common Stock issuable upon exercise of (i)
      warrants issued in our February 2004 offering exercisable for 42,004,795 shares
      of our common stock (at an exercise price of $0.30 per share), (ii) the
      Placement Agent's warrants exercisable for 3,170,000 shares of our common stock
      (at an exercise price of $0.30 per share), (iii) 10,868,696 options granted
      under the Company’s stock option plan, (iv) 4,318,788 other warrants previously
      issued (including the 922,500 warrants with an exercise price of $.0025 issued
      to the investors who purchased the 12% senior unsecured notes from us in July
      2006) and (v) 10,000,000 options granted outside of the Company’s stock option
      plan. Of such outstanding shares of Common Stock, all are freely tradable,
      except for any shares held by our "affiliates" within the meaning of the
      Securities Act (officers, directors and 10% security holders), which shares
      will
      be subject to the resale limitations of Rule 144 promulgated under the
      Securities Act.

    

    We
      have not paid any dividends and do not anticipate paying dividends in the
      foreseeable future 

    

    A
      predecessor of Applied NeuroSolutions liquidated most of its assets and paid
      a
      dividend to its shareholders in August 2001. We have not paid cash dividends
      on
      our common stock, and we do not anticipate paying cash dividends on our common
      stock in the foreseeable future. Investors who require dividend income should
      not rely on an investment in our common stock to provide such dividend income.
      Potential income to investors in our common stock would only come from any
      rise
      in the market price of our common stock, which is uncertain and
      unpredictable.

    

    A
      limited market for our common stock and "Penny Stock" rules may make buying
      or
      selling our common stock difficult

    

    Our
      common stock presently trades in the over-the-counter market on the OTC Bulletin
      Board. As a result, an investor may find it difficult to dispose of, or to
      obtain accurate quotations as to the price of, our securities. In addition,
      our
      common stock is subject to the penny stock rules that impose additional sales
      practice requirements on broker-dealers who sell such securities to persons
      other than established customers and accredited investors. The SEC regulations
      generally define a penny stock to be an equity that has a market price of less
      than $5.00 per share, subject to certain exceptions. Unless an exception is
      available, those regulations require the delivery, prior to any transaction
      involving a penny stock, of a disclosure schedule explaining the penny stock
      market and the risks associated therewith and impose various sales practice
      requirements on broker-dealers who sell penny stocks to persons other than
      established customers and accredited investors (generally institutions). In
      addition, the broker-dealer must provide the customer with current bid and
      offer
      quotations for the penny stock, the compensation of the broker-dealer and its
      salesperson in the transaction and monthly account statements showing the market
      value of each penny stock held in the customer's account. Moreover,
      broker-dealers who recommend such securities to persons other than established
      customers and accredited investors must make a special written suitability
      determination for the purchaser and receive the purchaser's written agreement
      to
      transactions prior to sale. Regulations on penny stocks could limit the ability
      of broker-dealers to sell our common stock and thus the ability of purchasers
      of
      our common stock to sell their shares in the secondary market.

    

    Our
      internal controls may not be adequate

    

    Although
      we have performed an internal review of our controls and procedures and deemed
      them to be effective, Section 404 of the Sarbanes Oxley Act of 2002 (“Section
      404”) requires significant additional procedures and review processes. Section
      404 requires that we evaluate and report on our system of internal controls
      beginning with our Annual Report on Form 10-KSB for the year ending December
      31,
      2007. In addition, our independent auditors must report on management’s
      evaluation of those controls. The additional costs associated with this process
      may be significant. Our internal controls under Section 404 may not be adequate.
      We are beginning the process of documenting and testing our system of internal
      controls to provide the basis for our report. However, at this time, due to
      ongoing evaluation and testing, no assurance can be given that there may not
      be
      significant deficiencies or material weaknesses that would be required to be
      reported.

    

     

    

     

    
      
         

         

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    ANNEX
      B

     

    

     

    SCHEDULE
      OF EXCEPTIONS

     

    AND

     

    DISCLOSURE
      SCHEDULE

     

    Section
      5.3(b)

    

    As
      of
      September 30, 2006, stock options to purchase 20,868,696 shares of the Company’s
      Common Stock were outstanding.

    

    As
      of
      September 30, 2006, warrants to purchase 49,493,583 shares of the Company’s
      Common Stock were outstanding. 

    

    As
      of
      September 30, 2006, the Company has granted 400,000 shares of restricted Common
      Stock.

    

    

     

    
      
        
           

           

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
          

           

        

      

    

    

     

    

     

    

     

    

     

    Applied
      NeuroSolutions, Inc.

     

    

     

    

     

    

     

    

     

    

     

     

    SECURITIES
      PURCHASE AGREEMENT

     

    

     

    

     

    

     

    

     

    

     

    _____________________,
      20__

     

    

     

    

     

    

     

    

    

    

    

    
      
        
           

           

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
          

           

        

      

    

    1.DEFINITIONS                                                                 
1

     

    2.AUTHORIZATION
      OF SECURITIES                                                    4

     

    3.SALE
      AND
      PURCHASE OF THE SECURITIES                                                4

     

    4.REGISTER
      OF SECURITIES; RESTRICTIONS ON TRANSFER OF SECURITIES; REMOVAL OF RESTRICTIONS
      ON TRANSFER OF SECURITIES                                                            4

     

    4.1Register
      of Securities                                                        4

     

    4.2Restrictions
      on Transfer                                                      5

     

    4.3Removal
      of Transfer Restrictions                                                7

     

    5.REPRESENTATIONS
      AND WARRANTIES BY THE COMPANY                                    8

     

    5.1Organization,
      Standing, etc                                                    8

     

    5.2Qualification                                                             8

     

    5.3Capital
      Stock                                                            8

     

    5.4Corporate
      Acts and Proceedings                                                8

     

    5.5Compliance
      with Other Instruments                                                9

     

    5.6Binding
      Obligations                                                        9

     

    5.7Securities
      Laws                                                            9

     

    5.8Financial
      Statements                                                          
      9    

     

    5.9Litigation                                                              10

     

    5.10Brokers
      or Finders                                                         
      10

     

    6.CONDITIONS
      OF PARTIES’ OBLIGATIONS                                               10

     

    6.1Conditions
      of Investor’s Obligations at the Closing                                         
      10

     

    6.2Conditions
      of Company’s Obligations                                                 
      11

     

    7.REGISTRATION
      OF RESTRICTED STOCK                                                  
      11

     

    7.1Required
      Registration                                                        11

     

    7.2Registration
      Procedures                                                           
      12

     

    7.3Expenses                                                               13

     

    7.4Indemnification                                                            13

     

    7.5Reporting
      Requirements Under the Exchange Act                                        16

     

    7.6Stockholder
      Information                                                            
      16

     

    8.LOCK-UP
      OF SECURITIES                                                           16

     

    9.TERMINATION                                                                  16

     

    9.1Grounds
      for Termination                                                             
      16

     

    9.2Effect
      of
      Termination                                                            
      17

     

    10.MISCELLANEOUS                                                                17

     

    10.1Waivers
      and Amendments                                                        
      17

     

    10.2Effect
      of
      Waiver or Amendment                                                       
      17

     

    10.3Rights
      of
      Holders Inter Se                                                          18

     

    10.4Exculpation
      Among Investors and Holders                                            18

     

    10.5Brokers
      or Finders                                                              
      18

     

    10.6Notices                                                                 18

     

    10.7Entire
      Agreement                                                               
      19

     

    10.8Severability                                                                 
      19

     

    10.9Parties
      in Interest                                                               
      19

     

    10.10Headings                                                              19

     

    10.11Choice
      of
      Law                                                            19

     

    10.12Expenses                                                              19

     

    10.13Counterparts                                                            19

     

    10.14Publicity                                                                19

     

    

    ANNEXES

    A - Risk
      Factors

    B - Schedule
      of Exceptions and Disclosure Schedule

    
      
         

         

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      [***]
        THE CONFIDENTIAL PORTION OF THIS AGREEMENT HAS BEEN OMITTED AND FILED SEPARATELY
        WITH THE COMMISSION PURSUANT TO A REQUEST FOR
        CONFIDENTIALITY.

    

    

    

    Appendix
      C: [***] 

    Patent
      and Patent Applications

     

    

    
      	
              Title

            	
              Patent
                Number

            	
              Serial
                Number

            	
              Filing
                Date

            	
              Country

            	
              Priority
                Date

            
	
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              [***]

            	
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              [***]

            	
              [***]

            	
              [***]DeBernardis Amendment to Employment Agreement

    EXHIBIT
      10.23

    

    AGREEMENT

    

    THIS
      AGREEMENT (the “Agreement”) is entered into as of the 14th
      day of
      July, 2006, by and between John
      F. DeBernardis
      (“Employee”), and APPLIED NEUROSOLUTIONS, INC. ("APNS"), a Delaware corporation
      having its principal place of business in Vernon Hills, Illinois (the “Company”)
      (collectively the “Parties”). The Parties have previously entered into an
      Employment Agreement (“Employment Agreement”) (Attachment A) dated November 1,
      2004. In consideration of the mutual covenants and conditions set forth herein,
      the parties hereby agree as follows:

    

    1. Resignation
      from Current Position.
      The
      Parties agree that Employee will resign as President and Chief Executive Officer
      at such time as a new Chief Executive Officer is hired by the
      Company.

    

    2. Compensation
      and Benefits.
      Compensation and benefits, as described in Section 3 (Compensation) and Section
      4 (Benefits) of the Employment Agreement will remain in place through the
      original term of the Employment Agreement, October 31, 2007, except if Employee
      terminates his employment without cause. Section 6(d) of the Employment
      Agreement is in effect should Employee terminate his employment without
      cause.

    

    3. Stock,
      Warrants and Options.
      Section
      6(g) of Employment Agreement will remain in place. In addition, should Employee
      be terminated prior to October 31, 2007, or upon termination of employment
      after
      October 31, 2007, all incentive stock options will be converted to non-incentive
      stock options, with all other terms remaining the same.

    

    4. Other
      Surviving Sections of Employment Agreement.
      The
      following Sections of the Employment Agreement are unchanged, and remain in
      effect, as a result of this Agreement:

    

    Section
      2- Term

    Section
      5
      - Warranties and Indemnification

    Section
      6
      (f) - Termination Upon Death or Disability of Employee

    Section
      7
      through Section 20

    

    

    AGREED:

    

    /s/
      John F.
      DeBernardis                                
    

    John
      F.
      DeBernardis

    

    

    /s/
      David
      Ellison                          
          

    David
      Ellison, Chief Financial Officer

    Applied
      NeuroSolutions, Inc.

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