Exhibit 10.1

Execution Version

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (“Agreement”) is entered into and effective
as of December 22, 2011 (“Effective Date”), by and among Marina Biotech, Inc., a
Delaware corporation (“Company”), and Socius CG II, Ltd., a Bermuda exempted
company (including its designees, successors and assigns, “Investor”).

RECITALS

A. The Company’s board of directors has authorized the creation of the Preferred
Shares (as defined below) which consist of a new series of preferred stock of
the Company designated as Series B Preferred Stock, par value $0.01 per share,
the terms of which are set forth in the Certificate of Designations (as defined
below).

B. Subject to the terms and conditions set forth in this Agreement, the Company
desires to issue and sell to the Investor, and the Investor desires to purchase
from the Company, (i) the Preferred Shares (as defined below), (ii) the
Additional Investment Right (as defined below), (iii) the Additional Investment
Shares (as defined below), (iii) the Warrant (as defined below), and (iv) the
Warrant Shares (as defined below), in each case as more fully described in this
Agreement.

C. The offer and sale of the Securities (as defined below) provided for herein
are being made without registration under the Act (as defined below), in
reliance upon the provisions of Section 4(2) of the Act, Rule 506 of Regulation
D promulgated under the Act, and such other exemptions from the registration
requirements of the Act as may be available with respect to any or all of the
purchases/exchanges of Securities to be made hereunder.

AGREEMENT

NOW THEREFORE, in consideration of the premises, the mutual provisions of this
Agreement, and other good and valuable consideration the receipt and adequacy of
which are hereby acknowledged, Company and Investor agree as follows:

ARTICLE 1

DEFINITIONS

In addition to the terms defined elsewhere in this Agreement: (a) capitalized
terms that are not otherwise defined herein have the meanings given to such
terms in the Certificate of Designations, and (b) the following terms have the
meanings indicated in this Article 1:

“Act” means the Securities Act of 1933, as amended.

“Action” has the meaning set forth in Section 4.1(j).

“Additional Investment Right” has the meaning set forth in Section 2.3(c)(ii).

“Additional Investment Shares” has the meaning set forth in Section 2.3(c)(ii).

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“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with a
Person, as such terms are used in and construed under Rule 144 under the Act.
With respect to Investor, without limitation, any Person owning, owned by, or
under common ownership with Investor, and any investment fund or managed account
that is managed on a discretionary basis by the same investment manager as
Investor will be deemed to be an Affiliate of Investor.

“Agreement” shall have the meaning ascribed to such term in the preamble to this
Agreement.

“Automatic Termination” has the meaning set forth in Section 3.1.

“Bloomberg” means Bloomberg, L.P.

“Book Value” means the dollar value of stockholders equity in the Company per
GAAP, excluding the value of Preferred Stock, divided by the number of shares of
Common Stock outstanding.

“Certificate of Designations” means the certificate to be filed with the
Secretary of State of the State of Delaware, in the form attached hereto as
Exhibit B.

“Closing” has the meaning set forth in Section 2.2(a).

“Closing Bid Price” and “Closing Sale Price” means, for any security as of any
date, (a) the last closing bid price and last closing trade price, respectively,
for such security on the Trading Market, as reported by Bloomberg, or, (b) if
the Trading Market begins to operate on an extended hours basis and does not
designate the closing bid price or the closing trade price, as the case may be,
then the last bid price or last trade price, respectively, of such security
prior to 4:00 p.m., New York City time, as reported by Bloomberg, or, (c) if the
Trading Market is not the principal securities exchange or trading market for
such security, the last closing bid price or last trade price, respectively, of
such security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or (d) if the foregoing
(a), (b) or (c) do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, (e) if no closing
bid price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
all of the market makers for such security as reported in the “pink sheets” by
OTC Markets Group Inc. (formerly Pink Sheets LLC). If the Closing Bid Price or
the Closing Sale Price cannot be calculated for a security on a particular date
on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price,
as the case may be, of such security on such date shall be the fair market value
as mutually determined by the Company and Investor. If the Company and Investor
are unable to agree upon the fair market value of such security, then such
dispute shall be resolved pursuant to Section 6.7. All such value determinations
are to be appropriately adjusted for any stock dividend, stock split, stock
combination or other similar transaction during the applicable calculation
period.

“Common Shares” includes the Warrant Shares, the Additional Investment Shares,
and any Placement Agent Fee Shares.

 

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“Common Stock” means the common stock, par value $0.006 per share, of the
Company, and any replacement or substitute thereof, or any share capital into
which such Common Stock shall have been changed or any share capital resulting
from a reclassification of such Common Stock.

“Company” shall have the meaning ascribed to such term in the preamble to this
Agreement.

“Company Parties” and “Company Party” have the meanings set forth in
Section 5.8(b).

“Company Termination” has the meaning set forth in Section 3.2.

“Conditions to Closing” has the meaning set forth in Section 2.2(b).

“Disclosure Schedules” means the disclosure schedules of the Company delivered
concurrently herewith and attached hereto. The Disclosure Schedules shall
contain no material, non-public information.

“DTC” means The Depository Trust Company, or any successor performing
substantially the same function for the Company.

“DWAC Shares” means all Common Shares or other shares of Common Stock issued or
issuable to Investor or any Affiliate, successor or assign of Investor pursuant
to any of the Transaction Documents, including without limitation any Warrant
Shares, Additional Investment Shares, and Placement Agent Fee Shares, all of
which shall be (a) issued in electronic form, (b) freely tradable by Investor
and legend free and without restriction on resale, and (c) timely credited by
Company to the specified Deposit/Withdrawal at Custodian (DWAC) account with DTC
under its Fast Automated Securities Transfer (FAST) Program or any similar
program hereafter adopted by DTC performing substantially the same function, in
accordance with irrevocable instructions issued to and countersigned by the
Transfer Agent, in the form attached hereto as Exhibit C or in such other form
agreed upon by the parties.

“Effective Date” has the meaning set forth in the preamble to this Agreement.

“Evaluation Date” has the meaning set forth in Section 4.1(r).

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Exchange Cap” has the meaning set forth in Section 2.3(c)(iii)(C).

“Exercise Notice” shall have the meaning set forth in the Warrant attached
hereto as Exhibit A-1.

“Fundamental Transaction” means that (i) the Company or any of its Subsidiaries
shall, directly or indirectly, in one or more related transactions,
(1) consolidate or merge with or into any other Person where there is a change
of control and the Company is not the surviving corporation, or (2) sell, lease,
license, assign, transfer, convey or otherwise dispose of all or substantially
all of its respective properties or assets to any other Person, or (3) allow any
other Person to make a

 

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purchase, tender or exchange offer that is accepted by the holders of more than
fifty percent (50%) of the outstanding shares of Voting Stock of the Company
(not including any shares of Voting Stock of the Company held by the Person or
Persons making or party to, or associated or affiliated with the Persons making
or party to, such purchase, tender or exchange offer), or (4) consummate a stock
or share purchase agreement or other business combination (including, without
limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with any other Person whereby such other Person acquires more than
fifty percent (50%) of the outstanding shares of Voting Stock of the Company
(not including any shares of Voting Stock of the Company held by the other
Person or other Persons making or party to, or associated or affiliated with the
other Persons making or party to, such stock or share purchase agreement or
other business combination), or (5) reorganize, recapitalize or reclassify the
Common Stock, (ii) any “person” or “group” (as these terms are used for purposes
of Sections 13(d) and 14(d) of the Exchange Act and the rules and regulations
promulgated thereunder) is or shall become the “beneficial owner” (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of fifty percent
(50%) of the aggregate ordinary voting power represented by issued and
outstanding Voting Stock of the Company, or (iii) any other event which
constitutes a Deemed Liquidation Event under the Certificate of Designations.

“GAAP” means United States generally accepted accounting principles applied on a
consistent basis during the periods involved.

“Indebtedness” means (a) any liabilities for borrowed money or amounts owed in
excess of $100,000 (other than trade accounts payable incurred in the ordinary
course of business), (b) all guaranties, endorsements and other contingent
obligations in respect of Indebtedness of others, whether or not the same are or
should be reflected in the Company’s balance sheet (or the notes thereto),
except guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business; and
(c) the present value of any lease payments in excess of $100,000 due under
leases required to be capitalized in accordance with GAAP.

“Intellectual Property Rights” has the meaning set forth in Section 4.1(o).

“Investment Right Exercise Notice” means a notice issued by Investor to the
Company under this Agreement, in substantially the form attached hereto as
Exhibit A-2, to purchase Additional Investment Shares.

“Investor” shall have the meaning ascribed to such term in the preamble to this
Agreement.

“Investor Ownership Limit” has the meaning set forth in Section 2.3(c)(iii)(B).

“Investor Parties” and “Investor Party” have the meanings set forth in
Section 5.8.

“Liens” means a lien, charge, security interest, encumbrance, right of first
refusal, preemptive right or other restriction (excluding restrictions on
transfer of securities under applicable U.S. federal or state securities or
“blue sky” laws).

“Lock-Up Agreements” means an agreement in the form attached as Exhibit D,
executed by the Company and each of the Company’s executive officers and
directors, precluding each such Person from participating in any sale of the
Common Stock from the Tranche Notice Date through the Tranche Closing Date.

 

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“Losses” has the meaning set forth in Section 5.8.

“Material Adverse Effect” means any effect, change, occurrence, development,
condition or event that has had or would reasonably be expected to have a
material adverse effect on (i) the ability of the Company to consummate the
transactions contemplated hereby or (ii) the results of operations, assets,
business or financial condition of the Company and its Subsidiaries, taken as a
whole, or (iii) the Company’s ability to perform in any material respect on a
timely basis its obligations under any Transaction Document other than, in the
case of each of the foregoing: (a) the effects of changes that are generally
applicable to the industries and markets in which the Company and its
Subsidiaries operate, (b) any change in general economic or political
conditions, or in the financial, banking or securities markets in the United
States, (c) changes in the trading volume or market price of Common Stock,
(d) effects arising from any changes in the law or GAAP, and (e) failure of the
Company or its Subsidiaries to meet any financial projections or forecasts.

“Material Agreement” means any loan agreement, financing agreement, equity
investment agreement or securities instrument to which the Company is a party,
any agreement or instrument to which the Company and Investor or any Affiliate
of Investor is a party, and any other material agreement listed, or required to
be listed, as a material agreement on any of the Company’s reports filed or
required to be filed with the SEC, including without limitation Forms 10-K, 10-Q
or 8-K.

“Material Permits” has the meaning set forth in Section 4.1(m).

“Maximum Placement” means $5,000,000.00.

“Maximum Tranche Amount” means, subject to any other applicable limitations set
forth in this Agreement, the Maximum Placement less the amount of any previously
noticed and funded Tranches.

“Officer’s Closing Certificate” means a certificate in customary form reasonably
acceptable to the Investor, executed by an authorized officer of the Company.

“Opinion” means an opinion from the Company’s independent legal counsel in the
form attached as Exhibit E, to be delivered in connection with the Closing.

“Person” means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.

“Placement Agent” means Montecito Advisors, Inc.

“Placement Agent Fee” means a non-refundable fee payable by the Company to the
Placement Agent on the earlier of (a) the first Tranche Closing Date, or (b) the
six-month anniversary of the Effective Date, which fee, at the option of the
Company, shall either be (i) an amount in cash equal to 5.9% of the Maximum
Placement, or $295,000, delivered by wire transfer

 

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of immediately available funds to an account designated by the Placement Agent
(provided, however, that if the Placement Agent Fee is paid on the first Tranche
Closing Date, such payment may be made by offsetting the first Tranche Amount),
or (ii) a number of shares of Common Stock, which shall be freely tradable by
the Placement Agent and legend free, determined by the VWAP of the Common Stock
for the five (5) Trading Day-period immediately preceding the date on which the
Placement Agent Fee is paid. For the avoidance of doubt, as of the Effective
Date, the Placement Agent Fee shall be fully payable in accordance with the
foregoing, whether or not the Closing or any Tranche Closings shall occur
hereunder and irrespective of any termination of this Agreement.

“Placement Agent Fee Shares” means freely tradable and legend free shares of
Common Stock issued in payment of the Placement Agent Fee.

“Preferred Shares” means shares of Series B Preferred Stock of the Company
provided for in the Certificate of Designations, to be issued to Investor
pursuant to this Agreement.

“Prospectus” includes each prospectus and prospectus supplement (within the
meaning of the Act) related to the resale of the Common Shares, including
without limitation any prospectus or prospectus supplement with respect to the
Registration Statement.

“Registration Statement” means a valid, current and effective registration
statement registering for resale the Common Shares, and except where the context
otherwise requires, means the registration statement, as amended, including
(i) all documents filed as a part thereof, and (ii) any information contained in
a prospectus filed with the SEC in connection with such registration statement,
to the extent such information is deemed under the Act to be part of the
registration statement.

“Regulation D” means Regulation D promulgated under the Act.

“Required Approval” means any approval of the Trading Market and/or the
Company’s stockholders required to be obtained by the Company prior to issuing
the Securities pursuant to any applicable rules of the Trading Market.

“Required Tranche Deliveries” has the meaning set forth in Section 2.3(e).

“Rule 144” means Rule 144 promulgated by the SEC pursuant to the Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC having substantially the same effect.

“SEC” means the United States Securities and Exchange Commission.

“SEC Reports” means all reports required to be filed by the Company under the
Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof,
for the two years immediately preceding the Effective Date (or such shorter
period as the Company was required by law to file such material).

“Securities” includes the Warrant, Additional Investment Right, Common Shares
and Preferred Shares issuable pursuant to this Agreement.

 

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“SNR Denton” means SNR Denton US LLP, counsel to Investor.

“Subsidiary” means any Person the Company owns or controls, or in which the
Company, directly or indirectly, owns a majority of the capital stock or similar
interest that would be disclosable pursuant to Regulation S-K, Item 601(b)(21).

“Termination Date” means the earlier of (i) the date that is two years after the
Effective Date, or (ii) the Tranche Closing Date on which the sum of the
aggregate Tranche Purchase Price for all Tranche Shares equals the Maximum
Placement.

“Termination Notice” has the meaning as set forth in Section 3.2.

“Trading Day” means any day on which the Common Stock is traded on the Trading
Market; provided that “Trading Day” shall not include any day on which the
Common Stock is scheduled to trade on such exchange or market for less than 4.5
hours or any day that the Common Stock is suspended from trading during the
final hour of trading on the Trading Market (or if the Trading Market does not
designate in advance the closing time of trading on the Trading Market, then
during the hour ending at 4:00:00 p.m., New York City time) unless such day is
otherwise designated as a Trading Day in writing by the Investor.

“Trading Market” means the OTC Bulletin Board, the NASDAQ Capital Market, the
NASDAQ Global Market, the NASDAQ Global Select Market, the NYSE Amex, the New
York Stock Exchange, the OTCQX or the OTCQB, whichever is at the time the
principal trading exchange or market for the Common Stock, but does not include
the Pink Sheets inter dealer electronic quotation and trading system.

“Tranche” has the meaning set forth in Section 2.3(a).

“Tranche Amount” means the amount of any individual purchase of a tranche of
Preferred Shares, as specified by the Company, and shall not exceed the Maximum
Tranche Amount.

“Tranche Closing” has the meaning set forth in Section 2.3(f).

“Tranche Closing Date” has the meaning set forth in Section 2.3(f).

“Tranche Limit” has the meaning set forth in Section 2.3(c)(iii)(C).

“Tranche Notice” has the meaning set forth in Section 2.3(b).

“Tranche Notice Date” has the meaning set forth in Section 2.3(b).

“Tranche Purchase Price” has the meaning set forth in Section 2.3(b), and shall
be specified in writing by the Company.

“Tranche Share Price” means $10,000.00 per Preferred Share. The Company may not
issue fractional Preferred Shares.

 

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“Tranche Shares” means the Preferred Shares that are purchased by Investor
pursuant to a Tranche. For the Maximum Placement, the aggregate number of
Preferred Shares (not including any Preferred Shares that may be issued as
dividend payments) to be issued by the Company to the Investor shall be 500
shares.

“Transaction Documents” means this Agreement, the other agreements and documents
referenced herein, and the exhibits, appendices, and schedules hereto and
thereto.

“Transfer Agent” means American Stock Transfer & Trust Company, LLC, or any
successor transfer agent for the Common Stock.

“Voting Stock” of a Person means capital stock of such Person of the class or
classes pursuant to which the holders thereof have the general voting power to
elect, or the general power to appoint, at least a majority of the board of
directors, managers or trustees of such Person (irrespective of whether or not
at the time capital stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency).

“VWAP” means, for any security as of any date, the dollar volume-weighted
average price for such security on the Trading Market on which the Common Stock
is then listed or quoted for trading during the period beginning at 9:30:01
a.m., New York City time, and ending at 4:00:00 p.m., New York City time, as
reported by Bloomberg through its “Volume at Price” function or, if the
foregoing does not apply, the dollar volume-weighted average price of such
security in the over-the-counter market on the electronic bulletin board for
such security during the period beginning at 9:30:01 a.m., New York City time,
and ending at 4:00:00 p.m., New York City time, as reported by Bloomberg, or, if
no dollar volume-weighted average price is reported for such security by
Bloomberg for such hours, the average of the three (3) highest closing bid
prices and the three (3) lowest closing ask prices of all of the market makers
for such security as reported in the “pink sheets” by OTC Markets Group Inc.
(formerly Pink Sheets LLC). If VWAP cannot be calculated for such security on
such date on any of the foregoing bases, the VWAP of such security on such date
shall be the fair market value as mutually determined by the Company and
Investor. If the Company and Investor are unable to agree upon the fair market
value of such security, then such dispute shall be resolved pursuant to
Section 6.7. All such determinations to be appropriately adjusted for any stock
dividend, stock split, stock combination or other similar transaction during the
applicable calculation period.

“Warrant” means the warrant issuable under this Agreement, in the form attached
hereto as Exhibit A-1, to initially purchase the number of shares of Common
Stock set forth on the face thereof, at an initial exercise price per share
equal to the greater of the Closing Bid Price of a share of Common Stock, or the
Book Value of a share of Common Stock, on the most recently completed Trading
Day prior to the Effective Date, subject to adjustment as provided therein. The
term “Warrant” as used in this Agreement shall also include any warrants to
purchase shares of Common Stock issued in exchange, transfer or replacement of
the Warrant.

“Warrant Premium” means an amount equal to $0.125 multiplied by the number of
shares of Common Stock for which the Warrant is initially exercisable.

“Warrant Shares” means the shares of Common Stock issuable upon exercise of the
Warrant.

 

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ARTICLE 2

PURCHASE AND SALE

2.1 Agreement to Purchase. Subject to the terms and conditions herein and the
satisfaction of the conditions to Closing set forth in this ARTICLE 2:

(a) Investor hereby agrees to purchase such amounts of Tranche Shares as the
Company may, in its sole and absolute discretion, from time to time elect to
issue and sell to Investor according to one or more Tranches pursuant to
Section 2.3 below; and

(b) The Company agrees to issue the Preferred Shares, Additional Investment
Right, Warrant and Common Shares to Investor in accordance with the terms of
this Agreement; provided, however, that for clarification purposes and
notwithstanding the foregoing, as of the Effective Date, the Placement Agent Fee
shall be fully payable in accordance with the foregoing, whether or not the
Closing or any Tranche Closings shall occur hereunder and irrespective of any
termination of this Agreement.

2.2 Closing.

(a) Closing. The closing of this Agreement (the “Closing”) shall be deemed to
occur when this Agreement has been duly executed by both Investor and the
Company, and the other Conditions to Closing set forth in Section 2.2(b) have
been met.

(b) Conditions to Closing. As a condition precedent to the Closing, all of the
following (the “Conditions to Closing”) shall have been satisfied within five
(5) Trading Days after the Effective Date:

(i) the following documents shall have been delivered to Investor: (A) this
Agreement, executed by the Company; (B) a Secretary’s Certificate as to (w) the
resolutions of the Company’s board of directors authorizing this Agreement and
the Transaction Documents, and the transactions contemplated hereby and thereby,
(x) a copy of the Company’s current Certificate of Incorporation, (y) a copy of
the Company’s current Bylaws and (z) the incumbency of the persons executing the
Transaction Documents; (C) a certified copy of the Certificate of Incorporation
as certified by the Secretary of State (or comparable office) of the Company’s
jurisdiction of formation within five (5) days of the Effective Date; (D) a
certificate evidencing the formation and good standing of the Company in such
entity’s jurisdiction of formation issued by the Secretary of State (or
comparable office) of such jurisdiction of formation as of a date within five
(5) days of the Effective Date; (E) a certificate evidencing the Company’s
qualification as a foreign corporation and good standing issued by the Secretary
of State (or comparable office) of each jurisdiction in which the Company
conducts business and is required to so qualify, as of a date within five
(5) days of the Effective Date; (F) a copy of the Certificate of Designations
filed with the Secretary of State (or comparable office) of the Company’s
jurisdiction of formation; (G) the Opinion; (H) a copy of the press release
announcing the transactions contemplated by this Agreement and Current Report on
Form 8-K of the Company describing the transactions contemplated by, and
attaching a complete copy of, the Transaction Documents; (I) the Irrevocable
Transfer Agent Instructions (which instructions shall be delivered to the
Transfer Agent in accordance with Section 5.1(b)); (J) a letter from the
Transfer Agent certifying the

 

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number of shares of Common Stock outstanding as of the Effective Date; and
(K) such other documents, instruments or certificates relating to the
transactions contemplated by this Agreement as Investor or its counsel may
reasonably request.

(ii) other than for losses incurred in the ordinary course of business, there
shall have been no Material Adverse Effect since the date of the last SEC Report
filed by the Company;

(iii) the representations and warranties of the Company in this Agreement shall
be true and correct in all material respects and the Company shall have
delivered an Officer’s Closing Certificate to such effect to Investor, signed by
an officer of the Company;

(iv) the Company shall have obtained all governmental, regulatory or third party
consents and approvals, if any, necessary for the sale of the Securities,
including without limitation, the Required Approval, if necessary;

(v) the representations and warranties of Investor in this Agreement shall be
true and correct in all material respects;

(vi) the Common Stock, and all Common Shares issuable upon consummation of the
transactions contemplated hereby, shall be listed for trading or quoted on a
Trading Market, the Company is in compliance with all requirements in order to
maintain listing or quotation on a Trading Market (including reporting
requirements under the Exchange Act, if applicable), and to the Company’s
knowledge there is no notice of any suspension or delisting with respect to the
trading or quotation of the shares of Common Stock on the then applicable
Trading Market, other than the bid price deficiency disclosed in recent 8-K
reports filed by the Company;

(vii) none of the Company or any of its Subsidiaries is, or will be as a result
of the Closing, in breach or default of any of the Transaction Documents or any
Material Agreement;

(viii) no statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or adopted by any court
or governmental authority of competent jurisdiction that prohibits the
consummation of any of the transactions contemplated by the Transaction
Documents, and no actions, suits or proceedings shall be in progress or pending
by any Person that seeks to enjoin, prohibit or otherwise adversely affect any
of the transactions contemplated by the Transaction Documents;

(ix) the Company has a sufficient number of duly authorized shares of Common
Stock reserved for issuance in such amount as may be required to fulfill its
obligations pursuant to the Transaction Documents and any outstanding agreements
with Investor and any Affiliate of Investor, including without limitation all
Placement Agent Fee Shares and all Warrant Shares issuable upon exercise of the
Warrant;

(x) the Company shall have paid all reasonable fees and expenses of SNR Denton
in accordance with the provisions of Section 6.1, by wire transfer of
immediately available funds to an account designated by SNR Denton, within one
(1) business day after the Effective Date; and

 

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(xi) the Lock-Up Agreements shall have been executed and delivered.

(c) Delivery of the Warrant. On the Closing Date: (i) the Company shall deliver
the Warrant duly executed on behalf of the Company and registered in the name of
Investor or its designee and (ii) Investor shall pay the Warrant Premium to the
Company. Investor shall pay the Warrant Premium, at its option, either in cash
or through the issuance of a recourse note to the Company in the form attached
as Exhibit G to this Agreement. For the avoidance of doubt, the parties agree
and acknowledge that the Warrant (and any Warrant Shares issued or issuable upon
exercise of the Warrant) shall be irrevocably issued as of such delivery (or, in
the case of the Warrant Shares, at the time specified in the Warrant), whether
or not any Tranche Closings shall occur hereunder, subject, with respect to the
Warrant, to any termination of the Warrant that may occur pursuant to Article 8
of the Warrant as a result of the termination of this Agreement.

(d) Investor’s Obligation to Purchase. Subject to the prior satisfaction of all
conditions set forth in this Agreement, following Investor’s receipt of a
validly delivered Tranche Notice, Investor shall be required to purchase from
the Company a number of Tranche Shares equal to the permitted Tranche Share
Amount, in the manner described below.

2.3 Tranches to Investor.

(a) Procedure to Elect a Tranche. Subject to the Maximum Tranche Amount, the
Maximum Placement and the other conditions and limitations set forth in this
Agreement, at any time following the time the Registration Statement is declared
effective, the Company may, in its sole and absolute discretion, elect to
exercise one or more individual purchases by Investor of Preferred Shares (each
a “Tranche”) according to the following procedure, provided that each subsequent
Tranche Notice Date (defined below) after the first Tranche Notice Date shall be
no sooner than five (5) Trading Days after the Tranche Closing for the prior
Tranche has occurred or such Tranche Closing has been cancelled pursuant to the
terms hereof.

(b) Delivery of Tranche Notice. The Company shall deliver an irrevocable written
notice (the “Tranche Notice”) the form of which is attached hereto as Exhibit F
(the date such Tranche Notice is delivered or deemed delivered, as applicable,
as set forth below being the “Tranche Notice Date”), to Investor stating that
the Company shall exercise a Tranche and stating the number of Preferred Shares
which the Company will sell to Investor at the Tranche Share Price, and the
aggregate purchase price for such Tranche (the “Tranche Purchase Price”). A
Tranche Notice may be delivered by the Company to Investor before 9:30 a.m., New
York City time, on any Trading Day via facsimile or electronic mail, with
confirming copy by overnight carrier, in each case, to the address set forth on
the page immediately following the signature pages to this Agreement. A Tranche
Notice delivered after such time on a Trading Day or delivered on a non-Trading
Day shall be deemed delivered on the following Trading Day. Except with respect
to the delivery of a Tranche Notice on the first Tranche Notice Date, the
Company may not give a Tranche Notice until five (5) Trading Days after the
Tranche Closing for the prior Tranche has occurred or such Tranche Closing has
been cancelled pursuant to the terms hereof.

 

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(c) Automatic Exercise of Warrant and Additional Investment Right.

(i) Warrant. On each Tranche Notice Date, that portion of the Warrant equal to
35% of the Tranche Amount shall vest and become exercisable, and shall be
automatically exercised, at the price per share set forth in the Warrant, all as
more fully set forth in the Warrant. Investor shall document the automatic
exercise of such portion of the Warrant by delivering an Exercise Notice to the
Company and shall make payment for the shares issuable upon such exercise in
cash, or through the issuance of a recourse note in the form attached as Exhibit
G to this Agreement, in each case, as set forth in the Warrant. An Exercise
Notice in respect of an automatic exercise of the Warrant, and the payment of
the exercise price in respect thereof, shall be delivered on or before 4:00
p.m., New York City time, on the Trading Day immediately following the date on
which the Tranche Notice is deemed to have been delivered.

(ii) Additional Investment Shares. On each Tranche Notice Date, Investor shall
become obligated, pursuant to a right automatically vesting and automatically
exercised on such Tranche Notice Date (each, an “Additional Investment Right”),
to purchase that number of shares of Common Stock (“Additional Investment
Shares”) equal in dollar amount to 100% of the Tranche Amount set forth in the
Tranche Notice at the price per share as determined by the immediately following
sentence. The exercise price per share of the Additional Investment Right shall
be an amount per share equal to the Closing Bid Price of a share of Common Stock
on the most recently completed Trading Day prior to the time that the Tranche
Notice was delivered or deemed delivered for the applicable Tranche Notice Date.
Investor shall document the automatic exercise of the Additional Investment
Right by delivering an Investment Right Exercise Notice to the Company and shall
pay for the Additional Investment Shares in cash, or through the issuance of a
recourse note in the form attached as Exhibit G to this Agreement. An Investment
Right Exercise Notice, and the payment of the exercise price in respect thereof,
shall be delivered on or before 4:00 p.m., New York City time, on the Trading
Day immediately following the date on which the Tranche Notice is deemed to have
been delivered.

(d) Tranche Notice Restrictions. In no event shall the Company be permitted to
deliver a Tranche Notice (and any such Tranche Notice shall be void ab initio),
and in no event shall any Tranche be consummated:

(i) If at any time from the applicable Tranche Notice Date through the related
Tranche Closing Date (in both cases inclusive), a current, valid and effective
Registration Statement and Prospectus is not properly available for use to
permit the lawful public resale by the Investor of all Common Shares underlying
the Warrant (including the portion of the Warrant vesting on the applicable
Tranche Notice Date) and underlying the Additional Investment Right with respect
to the applicable Tranche Notice Date then held by the Investor or any of its
Affiliates, and, if applicable, the resale by the Placement Agent of all
Placement Agent Fee Shares, or any such Common Shares would not be immediately
freely tradable by Investor or any of its Affiliates or, if applicable, by the
Placement Agent.

(ii) If the number of Warrant Shares and/or Additional Investment Shares to be
received pursuant to the automatic exercise of the Warrant and the automatic
exercise of the Additional Investment Right, in each case, triggered by such
Tranche Notice, aggregated with all other shares of Common Stock and other
voting securities then owned or deemed

 

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beneficially owned by Investor and its Affiliates, would result in Investor
and/or its Affiliates owning or being deemed the beneficial owner of more than
9.99% of all of such Common Stock, with such ownership percentage determined in
accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder (the “Investor Ownership Limit”).

(iii) If the number of Common Shares to be issued upon the automatic exercise of
the Warrant and the automatic exercise of the Additional Investment Right, in
each case, triggered by such Tranche Notice (together with the Placement Agent
Fee Shares (if any) and all Common Shares issued pursuant to previous Tranche
Notices) would exceed the aggregate number of Common Shares which the Company
may issue without breaching the Company’s obligations under the rules or
regulations of the applicable Trading Market (the number of shares which may be
issued without violating such rules and regulations, the “Exchange Cap”), except
that such limitation shall not apply in the event that the Company obtains the
approval of its stockholders as required by the applicable rules of the
applicable Trading Market for issuances of Common Shares in excess of such
amount.

(iv) Unless the Closing Bid Price of the Common Stock on the most recently
completed Trading Day prior to the time that the Tranche Notice was delivered or
deemed delivered equals or exceeds the greater of (1) the Book Value of the
Common, and (2) the Closing Bid Price of the Common Stock, in each case, on the
most recently completed Trading Day prior to the Effective Date.

(e) Issuance of Warrant Shares and Additional Investment Shares. No later than
the Trading Day immediately following the date on which the Company is deemed to
have received each of the Exercise Notice or the Investment Right Exercise
Notice, as the case may be, and the aggregate exercise price in respect thereof
(such date of receipt being the “Exercise Delivery Date”), the Company shall
transmit by facsimile an acknowledgment of confirmation of receipt thereof to
Investor and an electronic copy of its share issuance instructions to Investor
and the Transfer Agent (which such electronic transmissions to comply with the
notice provisions of Section 6.2 of this Agreement), and shall instruct,
authorize and cause the Transfer Agent to immediately credit such aggregate
number of freely tradable Common Shares to which Investor is entitled pursuant
to such exercise to Investor’s or its designee’s balance account with The
Depository Trust Company (DTC) through the Fast Automated Securities Transfer
(FAST) Program through its Deposit/Withdrawal at Custodian (DWAC) system, with
such credit to occur no later than 12:00 p.m. New York City time on the third
Trading Day following the Exercise Delivery Date, time being of the essence, all
of such shares of Common Stock which shall be immediately freely tradable by
Investor and without restrictive legend.

(f) Security Agreement. If the Investor elects to pay for the exercise of any
portion of the Warrant or the Additional Investment Right, or to pay the Warrant
Premium, with a recourse note in the form attached hereto as Exhibit G, the
Investor and the Company shall execute and deliver to each other a security
agreement in the form attached hereto as Exhibit H simultaneously with the
delivery of the first recourse note in connection with such exercise (with
respect to the Warrant and the Additional Investment Right) or payment (with
respect to the Warrant Premium).

 

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(g) Conditions Precedent to a Tranche Notice. The right of the Company to
deliver a Tranche Notice and the obligation of the Investor to acquire and pay
for the Preferred Shares with respect to such Tranche Notice are subject to the
satisfaction, on each of the applicable Tranche Notice Date and the applicable
Tranche Closing Date, of each of the conditions set forth below:

(i) the Common Stock (including without limitation, all Common Shares issued or
issuable hereunder) shall be listed for trading or quoted on a Trading Market,
the Company is in compliance with all requirements in order to maintain listing
or quotation on a Trading Market (including reporting requirements under the
Exchange Act, if applicable), and to the Company’s knowledge there is no notice
of any suspension or delisting with respect to the trading or quotation of the
shares of Common Stock on the then applicable Trading Market, other than the bid
price deficiency disclosed in recent 8-K reports filed by the Company;

(ii) the representations and warranties of the Company set forth in this
Agreement shall be true and correct in all material respects as if made on each
of the Tranche Notice Date and Tranche Closing Date, except for representations
and warranties that are expressly made as of a particular date in which case,
such representations and warranties shall be true and correct as of such
particular date (provided, however, that, in respect of any representation and
warranty that is required to be so true and correct as of the Tranche Notice
Date and Tranche Closing Date which specifically refers to the Disclosure
Schedules, any information disclosed by the Company in a filing with the SEC
after the Effective Date but prior to the date of the Tranche Notice or Tranche
Closing (as applicable) shall be deemed to update the Disclosure Schedules
automatically and without any further action on the part of the Company), the
Company shall have performed, satisfied and complied in all material respects
with all covenants and agreements required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the Tranche Notice Date
and Tranche Closing Date, and the Company shall deliver an Officer’s Closing
Certificate to such effect to Investor, signed by an officer of the Company;

(iii) other than losses incurred in the ordinary course of business, there shall
have been no Material Adverse Effect since the Closing or the prior Tranche
Notice, if any;

(iv) all Common Shares shall have been timely delivered pursuant to (i) any
Exercise Notice delivered to the Company under the terms of the Warrant and
(ii) any Investment Right Exercise Notice delivered to the Company under the
terms of this Agreement, in each case, prior to the applicable Tranche Notice
Date and Tranche Closing Date;

(v) all Preferred Shares shall have been timely delivered pursuant to any
previously delivered Tranche Notice prior to the applicable Tranche Notice Date;

(vi) all previously-issued Common Shares are DWAC Shares in electronic form and
are then freely tradable by Investor and without restrictive legend;

(vii) there is not then in effect any law, rule or regulation prohibiting or
restricting the transactions contemplated in this Agreement or any of the other
Transaction Documents, or requiring any consent or approval which shall not have
been obtained, nor is there any pending or threatened proceeding or
investigation which may have the effect of prohibiting or

 

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adversely affecting any of the transactions contemplated by this Agreement or
any other Transaction Document; no statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
adopted by any court or governmental authority of competent jurisdiction that
prohibits the transactions contemplated by this Agreement or any other
Transaction Document; and no actions, suits or proceedings shall be in progress,
pending or, to the Company’s knowledge, threatened, by any person (other than
Investor or any Affiliate of Investor) that seek to enjoin or prohibit the
transactions contemplated by this Agreement or any other Transaction Document;

(viii) the Company shall have obtained all governmental, regulatory or third
party consents and approvals and shall have made all required filings, in each
case, if any, necessary for the sale and resale of the Securities, including
without limitation, the Required Approval, if necessary;

(ix) a current, valid and effective Registration Statement and Prospectus shall
be properly available for use, at all times from the applicable Tranche Notice
Date through the related Tranche Closing Date (in both cases inclusive), to
permit the lawful public resale by the Investor of all Common Shares underlying
the Warrant (including the portion of the Warrant vesting on the applicable
Tranche Notice Date) and underlying the Additional Investment Right with respect
to the applicable Tranche Notice Date then held by the Investor or any of its
Affiliates and, if applicable, all Placement Agent Fee Shares then held by the
Placement Agent;

(x) to the extent required under the Act, the Company will, within the time
period required by Rule 424 under the Act, file a prospectus supplement with
respect to the giving of a Tranche Notice and the issuance and resale of Common
Shares in connection therewith;

(xi) the Company has a sufficient number of duly authorized shares of Common
Stock reserved for issuance as may be required to fulfill its obligations
pursuant to the Transaction Documents and any other outstanding agreements
between the Company and Investor and any Affiliate of Investor, including
without limitation all Placement Agent Fee Shares, Warrant Shares issuable upon
exercise of the Warrant issued in connection with such Tranche and any previous
Tranche, and all Additional Investment Shares issuable upon exercise of any
Investment Right Exercise Notice delivered in connection with such Tranche and
any previous Tranche;

(xii) the Company has provided notice of its delivery of the Tranche Notice to
all signatories of a Lock-Up Agreement as required under the Lock-Up Agreement;

(xiii) the aggregate number of Common Shares issuable to Investor, aggregated
with all other shares of Common Stock deemed beneficially owned by Investor and
its Affiliates would not cause Investor to exceed the Investor Ownership Limit;

(xiv) except in connection with the first Tranche Notice (unless such first
Tranche Notice is after the six-month anniversary of the Effective Date), the
Placement Agent shall have previously received the Placement Agent Fee;

 

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(xv) the Certificate of Designations shall have been duly filed with, and
accepted by, the Secretary of State of the State of Delaware and shall be in
full force and effect;

(xvi) all deliverables specified in Section 2.3(e) of this Agreement which are
required to be delivered at or prior to the Tranche Notice Date shall have been
delivered;

(xvii) following any applicable notice and opportunity to cure, the Company is
not, and will not be as a result of the applicable Tranche, in default of this
Agreement, any other agreement between the Company and Investor or any Affiliate
of Investor, or any other Material Agreement, and the Company shall deliver to
Investor an Officer’s Closing Certificate, signed by an authorized officer of
the Company, certifying as to the foregoing;

(xviii) the Opinion, dated as of the Tranche Notice Date, shall be delivered to
Investor;

(xix) the Warrant shall have been delivered to Investor; and

(xx) Investor shall have received appropriate and customary assurances from the
Company’s independent legal counsel with respect to compliance with applicable
state securities and “blue sky” laws in connection with the offering, sale and
resale of the Securities in connection with such Tranche Notice.

(h) Deliveries at Tranche Closing. The closing of any Tranche and the parties’
obligations hereunder shall additionally be conditioned upon the delivery of
each of the following (the “Required Tranche Deliveries”), except as otherwise
indicated, on or before the applicable Tranche Closing Date:

(i) a number of Preferred Shares equal to the Tranche Purchase Price divided by
the Tranche Share Price shall have been delivered to Investor or an account
specified by Investor for the Tranche Shares;

(ii) the Tranche Purchase Price shall have been paid by the Investor to the
Company by wire transfer of immediately available funds to an account designated
by the Company prior to the applicable Tranche Closing Date;

(iii) the Placement Agent shall have received the Placement Agent Fee, if any,
that is payable as set forth in the definition of Placement Agent Fee set forth
in Article I hereof;

(iv) the following executed documents shall have been delivered to Investor: the
Opinion and the Officer’s Closing Certificate, in each case, dated and delivered
as of the Tranche Notice Date and the Tranche Closing Date; provided, however,
that the Opinion delivered on the Tranche Closing Date shall only be required to
cover such matters from the Opinion as are applicable to such Tranche Closing as
the Investor may reasonably request;

(v) a “Use of Proceeds” certificate, signed by an officer of the Company, and
setting forth how the Tranche Purchase Price will be applied by the Company,
shall have been delivered to Investor;

 

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(vi) all Warrant Shares and Additional Investment Shares shall have been timely
delivered to Investor in accordance with any exercise notice properly delivered
to Company on or before the applicable Tranche Closing Date;

(vii) all documents, instruments and other writings required to be delivered by
the parties on or before the Tranche Closing Date pursuant to any provision of
this Agreement in order to implement and effect the transactions contemplated
herein;

(viii) payment of a non-refundable administrative fee to SNR Denton, by offset
against the Tranche Amount, or by wire transfer of immediately available funds,
in the amount set forth in Section 6.1 hereof;

(ix) on each Tranche Closing Date (other than the first Tranche Closing Date), a
“bring-down” certificate relating to the good standing of the Company; and

(x) an opinion from Company’s independent legal counsel, which shall only be
required to cover such matters from the Opinion as are applicable to such
Tranche Closing as the Investor may reasonably request.

(i) Mechanics of Tranche Closing. Each of the Company and Investor shall deliver
all Required Tranche Deliveries required to be delivered by either of them
pursuant to Sections 2.3(d) and 2.3(e) of this Agreement, as applicable on or
prior to each Tranche Closing Date. Subject to such delivery and the
satisfaction (or where legally permissible, the waiver) of the conditions set
forth in Section 2.3(d) as of such date, the closing (a “Tranche Closing”) of
the purchase by Investor of Preferred Shares shall occur by 5:00 p.m., New York
City time, on the date which is ten (10) Trading Days following the Tranche
Notice Date (each a “Tranche Closing Date”) at the offices of Investor or its
counsel; provided, however, that if any Warrant Shares or Additional Investment
Shares, with respect to any portion of the Warrant or Additional Investment
Right exercised before the Tranche Closing Date have not been timely delivered
in accordance with the Transaction Documents, then the Tranche Closing and
Tranche Closing Date shall be extended one (1) Trading Day for each Trading Day
that such delivery is not made; and provided, further, that if any Warrant
Shares or Additional Investment Shares are not DWAC Shares upon delivery, then
the Tranche Closing Date shall be extended one (1) Trading Day for each Trading
Day that such shares are not DWAC Shares. On or before each Tranche Closing
Date, Investor shall pay to the Company the Tranche Purchase Price to be paid
for such Tranche Shares by wire transfer of immediately available funds to an
account designated by the Company prior to the applicable Tranche Closing Date.

(j) Limitation on Obligations to Purchase and Sell. Notwithstanding anything
herein to the contrary, in the event the Closing Bid Price of the Common Stock
during any one or more of the nine (9) Trading Days on or immediately following
the Tranche Notice Date falls below 75.0% of the Closing Bid Price of the Common
Stock on the Trading Day immediately prior to the Tranche Notice Date, the
Company shall not issue any Tranche Shares on the Tranche Closing Date, Investor
shall not purchase any of the Tranche Shares, and the Tranche shall
automatically be cancelled; provided, however, that upon such cancellation, the
Investor shall redeem any outstanding recourse note tendered by Investor in lieu
of cash payment for Additional Investment Shares or Warrant Shares issued in
connection with the applicable Tranche Notice for

 

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the principal amount of the recourse note plus accrued interest in exchange for,
at the option of Investor, (i) cash or (ii) (a) a cash payment equal to 92% of
any gross proceeds received by Investor upon the sale of such Additional
Investment Shares or Warrant Shares issued to Investor in connection with such
Tranche Notice and (b) the return to the Company of any unsold Additional
Investment Shares or Warrant Shares issued to Investor in connection with such
Tranche Notice.

2.4 Maximum Placement. Investor shall not be obligated to purchase any
additional Tranche Shares once the aggregate Tranche Purchase Price paid by
Investor equals the Maximum Placement.

2.5 Share Sufficiency. The Company shall have a sufficient number of duly
authorized shares of Common Stock for issuance in such amount as may be required
to fulfill its obligations pursuant to the Transaction Documents and any
outstanding agreements with Investor and any Affiliate of Investor, including,
without limitation, all Common Shares issuable pursuant to the Warrant and this
Agreement.

ARTICLE 3

TERMINATION

3.1 Automatic Termination. This Agreement shall terminate automatically (each,
an “Automatic Termination”) upon the occurrence of any of the following:

(a) if, at any time after the Effective Date, either the Company or the
Investor, or any director or executive officer of the Company or the Investor,
has engaged in a transaction or conduct related to the Company or the Investor,
as applicable, that has resulted in (i) a SEC enforcement action, or (ii) a
civil judgment or criminal conviction for fraud or misrepresentation, or for any
other offense that, if prosecuted criminally, would constitute a felony under
applicable law;

(b) if the Company or the Common Stock or any Common Shares shall cease or fail
to be listed for trading or quoted on a Trading Market (a “Trading Market
Event”) if such Trading Market event continues for five consecutive days or
more;

(c) if at any time the Company has filed for and/or is subject to any
bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings for relief under any bankruptcy law or any law for the relief of
debtors instituted by or against the Company or any subsidiary of the Company;

(d) upon the occurrence of a Fundamental Transaction;

(e) so long as any Preferred Shares are outstanding, the Company (i) creates or
publicly announces its intention to create a class of stock senior to the Series
B Preferred Stock with respect to dividend or liquidation rights or
(ii) substantially alters or publicly announces its intention to substantially
alter the capital structure of the Company in a manner that materially adversely
effects the rights or preferences of the Series B Preferred Stock, in each case
without the prior approval of the holders or a majority of the Preferred Shares
then outstanding; and

 

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(f) on the Termination Date.

3.2 Company Termination. The Company may at any time in its sole discretion
terminate (a “Company Termination”) this Agreement by providing 30 days’ advance
written notice (“Termination Notice”) to Investor; provided the Company shall
not have the right to terminate this Agreement if the Company is in breach or
default of this Agreement.

3.3 Other Termination. The Investor may terminate this Agreement by providing
three days’ advance written notice to the Company, if the Company is in breach
or default of any Material Agreement which has or would reasonably be expected
to have a Material Adverse Effect, and such breach or default is not cured
within 20 Trading Days after notice of such breach or default is delivered to
the Company. The Company or the Investor may terminate this Agreement by
providing three days’ advance written notice to the other, if the other party is
in material breach or default of this Agreement or any Transaction Document or
such party has committed any material anticipatory breach, and such material
breach or default is not cured within 10 Trading Days after notice of such
material breach or default is delivered to the breaching party. This Agreement
may be terminated at any time by the mutual written consent of both the Company
and the Investor, effective as of the date of such mutual written consent unless
otherwise provided in such written consent.

3.4 Effect of Termination. In the event of termination by the Company or the
Investor pursuant to Section 3.2 or 3.3, as applicable, written notice thereof
shall forthwith be given to the other party as provided in Section 6.2 (unless
termination is automatic) and this Agreement shall be terminated without further
action by either party. If this Agreement is terminated as provided in
Section 3.1, 3.2 or 3.3 herein, this Agreement shall thereafter be of no further
force and effect, except as provided in Section 6.8 hereof and in this
Section 3.4. Nothing in this Section 3.4 shall be deemed to release the Company
or the Investor from any liability for any breach or default under this
Agreement or any of the other Transaction Documents occurring prior to such
termination, or to impair the rights of the Company and the Investor to compel
specific performance by the other party of its obligations under this Agreement
arising prior to such termination, or to impair rights of indemnification under
this Agreement or any other Transaction Document. The termination of this
Agreement will have no effect on any Preferred Shares, Warrant Shares or
Additional Investment Shares previously issued or delivered, or on any rights of
any holder thereof. For the avoidance of doubt and notwithstanding anything
contained in this Agreement to the contrary, (a) all cash fees paid to Investor
, and its counsel’s fees, and the Placement Agent Fee, are non-refundable,
(b) all of the Placement Agent Fee Shares, if any, shall be deemed fully earned
as of the Effective Date whether or not the Closing or any Tranche Closings
shall occur hereunder and irrespective of any termination of this Agreement, and
(c) the Warrant (and any Warrant Shares received pursuant to the Warrant) shall
be irrevocably issued as of the date delivered (or, in the case of the Warrant
Shares, at the time specified in the Warrant), whether or not any Tranche
Closings shall occur hereunder, subject, with respect to the Warrant, to any
termination of the Warrant that may occur pursuant to Article 8 of the Warrant
as a result of the termination of this Agreement.

 

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ARTICLE 4

REPRESENTATIONS AND WARRANTIES

4.1 Representations and Warranties of the Company. Except as set forth below as
being qualified by the corresponding section of the Disclosure Schedules (as the
same may be updated or deemed updated pursuant to Section 2.3(d)(ii)), which
shall be deemed a part hereof, or as set forth below as being qualified by the
SEC Reports, which, in each case, shall qualify any representation or warranty
made herein to the extent of such disclosure, the Company hereby represents and
warrants to, and as applicable covenants with, Investor as follows:

(a) Subsidiaries. Except as set forth in Schedule 4.1(a) of the Disclosure
Schedules, the Company does not own, directly or indirectly, any capital stock
or other equity interests in any Subsidiary.

(b) Organization and Qualification. The Company and each of its Subsidiaries is
an entity duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, with the requisite power and authority to own and
use its properties and assets and to carry on its business as currently
conducted. Neither the Company nor any of its Subsidiaries is in violation or
default of any of the provisions of its Certificate of Incorporation or bylaws
as currently in effect, except where such violation or default would not,
individually or in the aggregate, constitute a Material Adverse Effect. The
Company and each of its Subsidiaries is duly qualified to conduct business and
is in good standing as a foreign corporation in each jurisdiction in which the
nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, would not have or reasonably be expected to result
in a Material Adverse Effect, and no proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification, except as would not have or
reasonably be expected to result in a Material Adverse Effect.

(c) Authorization; Enforcement. The Company has the requisite corporate power
and authority to enter into and to consummate the transactions contemplated by
each of the Transaction Documents and otherwise to carry out its obligations
hereunder or thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby or thereby have been duly authorized by all necessary
corporate action on the part of the Company and no further consent or
authorization of the Company or its board of directors or stockholders is
required. Each of the Transaction Documents has been, or upon delivery will be,
duly executed by the Company and, when delivered in accordance with the terms
hereof, will constitute the valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors’ rights and remedies.

(d) No Conflicts. Assuming each of the filings, consents and approvals referred
to in Section 4.1(e) are obtained, given or made on a timely basis, as
applicable, the execution, delivery and performance of the Transaction Documents
by the Company, the issuance and sale of the Securities and the consummation by
the Company of the other transactions contemplated thereby do not and will not
(i) conflict with or violate any provision of the

 

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Company’s Certificate of Incorporation or bylaws as currently in effect, or
(ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, result in the creation of
any Lien upon any of the properties or assets of the Company, or give to others
any rights of termination, amendment, acceleration or cancellation (with or
without notice, lapse of time or both) of, any agreement, credit facility, debt
or other instrument (evidencing a Company debt or otherwise) or other
understanding to which the Company is a party or by which any property or asset
of the Company is bound or affected, or (iii) conflict with or result in a
violation of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which the Company is
subject (including U.S. federal and state securities laws and regulations), or
by which any property or asset of the Company is bound or affected; except in
the case of each of clauses (ii) and (iii), such as would not have or reasonably
be expected to result in a Material Adverse Effect.

(e) Filings, Consents and Approvals. The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other than
(i) the filing of the Certificate of Designations, (ii) such as may be required
under the Act (including, without limitation, the filing of a Form D with the
SEC and the filing with the SEC of any required supplement to the Prospectus
pursuant to Rule 424(b) under the Act) or the Exchange Act (including, without
limitation, the filing of a Current Report on Form 8-K of the Company describing
the transactions contemplated by, and attaching a complete copy of, the
Transaction Documents), (iii) such as may be required under applicable state
securities or “blue sky” laws, (iv) such as may be required under the rules and
regulations of the Trading Market or the Financial Industry Regulatory Authority
(the “FINRA”) and (v) such consents, waivers, authorizations, order, notices,
filings or registrations, the failure of which to obtain, give or make would
not, individually or in the aggregate, result in a Material Adverse Effect;
provided, that, for purposes of the representation made in this Section 4.1(e),
the Company is assuming and relying upon the accuracy of the representations and
warranties of the Investor contained in Sections 4.2(d) through and including
4.2(k), and the full performance of and compliance with the covenants and
agreements of the Investor contained in Section 5.1 of this Agreement.

(f) Issuance of the Securities. The Securities are duly authorized and, when
issued and paid for in accordance with the applicable Transaction Documents, and
subject to, and in reliance on, the representations, warranties, covenants and
agreements made herein by the Investor, will be duly and validly issued, fully
paid and nonassessable, and subject to Section 5.14, free and clear of all
Liens. The Company has reserved from its duly authorized capital stock a number
of shares of Common Stock and Preferred Stock for issuance of the Securities at
least equal to the number of Securities which could be issued pursuant to the
terms of this Agreement based on the then-current anticipated exercise price(s)
of the Warrant.

(g) Capitalization. As of the date hereof, the authorized capital stock of the
Company is as set forth in Schedule 4.1(g) of the Disclosure Schedules. No
Person has any right of first refusal, preemptive right, right of participation,
or any similar right to participate in the transactions contemplated by the
Transaction Documents. Except as set forth in Schedule 4.1(g) of the Disclosure
Schedules, and except as a result of the purchase and sale of the Securities and
stock options issued by the Company to its employees, directors and consultants,
there are no

 

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outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any Person any right
to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock or
securities convertible into or exercisable for shares of Common Stock. Except as
set forth in Schedule 4.1(g) of the Disclosure Schedules, the issuance and sale
of the Securities will not obligate the Company to issue shares of Common Stock
or other securities to any Person (other than Investor) and will not result in a
right of any holder of Company securities to adjust the exercise, conversion,
exchange, or reset price under such securities. All of the outstanding shares of
capital stock of the Company are validly issued, fully paid and nonassessable,
have been issued in compliance with all U.S. federal and state securities laws,
and none of such outstanding shares was issued in violation of any preemptive
rights or similar rights to subscribe for or purchase securities. Except as
disclosed in the SEC Reports, there are no stockholders agreements, voting
agreements or other similar agreements with respect to the Company’s capital
stock to which the Company is a party or, to the knowledge of the Company,
between or among any of the Company’s stockholders.

(h) SEC Reports; Financial Statements. The Company has filed all required SEC
Reports for the two years immediately preceding the Effective Date (or such
shorter period as the Company was required by law to file such material) on a
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Reports prior to the expiration of any such extension. As of
their respective dates, the SEC Reports complied in all material respects with
the requirements of the Act and the Exchange Act and the rules and regulations
of the SEC promulgated thereunder, as applicable, and none of the SEC Reports,
when filed, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company included in the
SEC Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the SEC with respect thereto as in
effect at the time of filing. Such financial statements have been prepared in
accordance with GAAP, except as may be otherwise specified in such financial
statements or the notes thereto and except that unaudited financial statements
may not contain all footnotes required by GAAP, and fairly present in all
material respects the financial position of the Company and its consolidated
subsidiaries as of and for the dates thereof and the results of operations and
cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments.

(i) Material Changes. Since the date of the latest audited financial statements
included within the SEC Reports, except as disclosed in the SEC Reports,
(i) there has been no event, occurrence or development that has had or that
would reasonably be expected to result in a Material Adverse Effect, (ii) the
Company has not incurred any liabilities (contingent or otherwise) other than
(A) trade payables and accrued expenses incurred in the ordinary course of
business consistent with past practice and (B) liabilities not required to be
reflected in the Company’s financial statements pursuant to GAAP or required to
be disclosed in filings made with the SEC, (iii) the Company has not altered its
method of accounting, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock and (v) the Company has not issued any equity securities to any officer,
director or Affiliate, except pursuant to existing Company equity incentive
plans. The Company does not have pending before the SEC any request for
confidential treatment of information.

 

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(j) Litigation. There is no action, suit, inquiry, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its properties before or
by any court, arbitrator, governmental or administrative agency or regulatory
authority (federal, state, county, local or foreign) (collectively, an
“Action”), which (i) adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the Securities, or
(ii) would, if there were an unfavorable decision, have or reasonably be
expected to result in a Material Adverse Effect. Neither the Company, nor to the
knowledge of the Company any director or officer of the Company, is or has been
during the past five years the subject of any Action involving a claim of
violation of or liability under U.S. federal or state securities laws or a claim
of breach of fiduciary duty. During the past five years, there has not been, and
to the knowledge of the Company, there is not pending or contemplated, any
investigation by the SEC involving the Company or any current or former director
or officer of the Company in their capacity as a director or officer of the
Company. During the past five years, the SEC has not issued any stop order or
other order suspending the effectiveness of any registration statement filed by
the Company under the Exchange Act or the Act.

(k) Labor Relations. No material labor dispute exists or, to the knowledge of
the Company, is imminent with respect to any of the employees of the Company,
which would reasonably be expected to result in a Material Adverse Effect.

(l) Compliance. The Company (i) is not in default under or in violation of (and,
to the Company’s knowledge, no event has occurred that has not been waived that,
with notice or lapse of time or both, would result in a default by the Company
under), nor has the Company received written notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or credit
agreement or any other similar agreement or instrument to which it is a party or
by which it or any of its properties is bound (whether or not such default or
violation has been waived), (ii) is in violation of any order of any court,
arbitrator or governmental body applicable to the Company, or (iii) is or has
been in violation of any statute, rule or regulation of any governmental
authority applicable to the Company, including without limitation all foreign,
federal, state and local laws applicable to its business, except in each of the
cases referenced in clauses (i), (ii) and (iii) above as would not have a
Material Adverse Effect.

(m) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits would not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect (“Material
Permits”), and neither the Company nor any Subsidiary has received any written
notice of proceedings relating to the revocation or modification of any Material
Permit.

(n) Title to Assets. The Company and the Subsidiaries have good and marketable
title in fee simple to all real property owned by them that is material to the
business of the Company and the Subsidiaries and good and marketable title in
all personal property owned by them that is material to the business of the
Company and the Subsidiaries, in each case free and

 

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clear of all Liens, except for Liens as do not materially affect the value of
such property and do not materially interfere with the use made and proposed to
be made of such property by the Company and the Subsidiaries and Liens for the
payment of federal, state or other taxes, the payment of which is neither
delinquent nor subject to penalties. Any real property and facilities held under
lease by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases of which the Company and the Subsidiaries are
in compliance.

(o) Patents and Trademarks. The Company has, or has rights to use, all patents,
patent applications, trademarks, trademark applications, service marks, trade
names, copyrights, licenses and other similar rights that are necessary or
material for use in connection with their respective businesses as described in
the SEC Reports and which the failure to so have would have a Material Adverse
Effect (collectively, the “Intellectual Property Rights”). The Company is not
involved in any pending litigation based on any violation or infringement of the
rights of any Person. To the knowledge of the Company, all such Intellectual
Property Rights are enforceable and there is no existing infringement by another
Person of any of the Intellectual Property Rights of the Company.

(p) Insurance. The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company is engaged. The Company has
no reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business without a
significant increase in cost.

(q) Transactions With Affiliates and Employees. Except as set forth in the SEC
Reports, none of the officers or directors of the Company and, to the knowledge
of the Company, none of the employees of the Company is presently a party to any
transaction with the Company or any Subsidiary (other than for services as
employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the
Company, any entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner, in each
case in excess of $120,000 other than (i) for payment of salary or consulting
fees for services rendered, (ii) reimbursement for expenses incurred on behalf
of the Company and (iii) for other employee benefits, including stock option
agreements under any equity incentive plan of the Company.

(r) Sarbanes-Oxley; Internal Accounting Controls. The Company is in material
compliance with all provisions of the Sarbanes-Oxley Act of 2002 that are
applicable to it. The Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management’s general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management’s general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The
Company has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and

 

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15d-15(e)) for the Company and designed such disclosure controls and procedures
to ensure that material information relating to the Company, including its
Subsidiaries, is made known to the certifying officers by others within those
entities, particularly during the period in which the Company’s most recently
filed periodic report under the Exchange Act, as the case may be, is being
prepared. The Company’s certifying officers have evaluated the effectiveness of
the Company’s controls and procedures as of the date prior to the filing date of
the most recently filed periodic report under the Exchange Act (such date, the
“Evaluation Date”). The Company presented in its most recently filed periodic
report under the Exchange Act the conclusions of the certifying officers about
the effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. Since the Evaluation Date, there have
been no significant changes in the Company’s internal controls (as such term is
defined in Item 307(b) of Regulation S-K under the Exchange Act) or, to the
Company’s knowledge, in other factors that could materially affect the Company’s
internal controls.

(s) Certain Fees. Except for the payment of the Placement Agent Fee, no
brokerage or finder’s fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement and no broker, finder, financial advisor,
placement agent or investment banker has been retained in connection with the
transactions contemplated by this Agreement. Except as a result of any
agreements or arrangements made by the Investor or its representatives or
Affiliates, to the Company’s knowledge, Investor shall have no obligation with
respect to any such fees or commissions of a type contemplated in this
Section 4.1(s) that may be due in connection with the transactions contemplated
by this Agreement.

(t) Private Placement; Compliance. Assuming the accuracy of Investor
representations and warranties set forth in Section 4.2, no registration under
the Act is required for the offer and sale of the Securities by the Company to
Investor as contemplated hereby. The issuance and sale of the Securities
hereunder does not contravene the rules and regulations of the Trading Market.

(u) Investment Company. The Company is not, and is not an Affiliate of, and
immediately after receipt of payment for the Securities, will not be or be an
Affiliate of, an “investment company” within the meaning of the Investment
Company Act of 1940, as amended. The Company shall conduct its business in a
manner so that it will not become subject to the Investment Company Act.

(v) Registration Rights. Except as set forth in the SEC Reports, no Person has
any right to cause the Company to effect the registration under the Act of any
securities of the Company that have not been registered.

(w) Listing and Maintenance Requirements. The Common Stock is registered
pursuant to Section 12 of the Exchange Act, and the Company has taken no action
designed to, or which to its knowledge is likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act nor, to
the Company’s knowledge, is the SEC contemplating terminating such registration.
Except as to the bid price deficiency disclosed in the SEC Reports, the Company
has not in the 12 months preceding the Effective Date, received notice from any

 

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Trading Market on which the Common Stock is or has been listed or quoted to the
effect that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market and the Company is in compliance with all
such listing and maintenance requirements.

(x) Application of Takeover Protections. The Company and its Board of Directors
have taken all necessary action, if any, in order to render inapplicable any
control share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar anti takeover provision
under the Company’s Certificate of Incorporation or the laws of its state of
incorporation that is or could become applicable to Investor as a result of
Investor and the Company fulfilling their obligations or exercising their rights
under the Transaction Documents, including without limitation the Company’s
issuance of the Securities and Investor’s ownership of the Securities.

(y) Disclosure. Except with respect to (i) the transactions contemplated by the
Transaction Documents and (ii) the information that will be publicly disclosed
by the Company pursuant to Section 2.2(b)(i)(H) and Section 5.4, the Company
confirms that neither the Company nor any other Person acting on its behalf has
provided Investor or its agents or counsel with any information that constitutes
material, non-public information. The Company understands and confirms that
Investor will rely on the foregoing representations and covenants in effecting
transactions in securities of the Company. All disclosure provided to Investor
regarding the Company, its business and the transactions contemplated hereby,
furnished by or on behalf of the Company with respect to the representations and
warranties made herein are true and correct in all material respects and do not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. Each press release
issued by the Company or any of its Subsidiaries during the twelve (12) months
immediately preceding the Effective Date did not at the time of release (or, if
amended or superseded by a later dated press release issued by the Company or
any of its Subsidiaries prior to the Effective Date or by a later dated SEC
Report filed with or furnished to the SEC by the Company prior to the Effective
Date, at the time of issuance of such later dated press release or filing or
furnishing of such SEC Report, as applicable) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading. There is no adverse
material information regarding the Company that has not been publicly disclosed
prior to the Effective Date.

(z) No Integrated Offering. Neither the Company, nor any of its Affiliates, nor
any Person acting on its or their behalf has, directly or indirectly, made any
offers or sales of any security or solicited any offers to buy any security,
under circumstances that would cause the offering of any of the Securities in
connection herewith to be integrated with prior offerings by the Company for
purposes of the Act or which could violate any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
the applicable Trading Market.

(aa) Financial Condition. The financial condition of the Company is as disclosed
in the SEC Reports and since the most recent of such disclosures there has been
no material adverse change to the financial condition of the Company.

 

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(bb) Tax Status. The Company and each of its Subsidiaries has made or filed all
material federal, state and foreign income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provisions reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim. The Company has not executed a
waiver with respect to the statute of limitations relating to the assessment or
collection of any foreign, federal, state or local tax. None of the Company’s
tax returns is presently being audited by any taxing authority.

(cc) Foreign Corrupt Practices. Neither the Company, nor to the knowledge of the
Company, any agent or other person acting on behalf of the Company, has
(i) directly or indirectly, used any corrupt funds for unlawful contributions,
gifts, entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is in violation of law, or (iv) violated in
any material respect any provision of the Foreign Corrupt Practices Act of 1977,
as amended.

(dd) Acknowledgment Regarding Investor’s Purchase of Securities. The Company
acknowledges and agrees that Investor is acting solely in the capacity of arm’s
length purchaser with respect to this Agreement and the transactions
contemplated hereby. The Company further acknowledges that Investor is not
acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and any statement made by Investor or any of its representatives or
agents in connection with this Agreement and the transactions contemplated
hereby is not advice or a recommendation and is merely incidental to Investor’s
purchase of the Securities. The Company further represents to Investor that the
Company’s decision to enter into this Agreement has been based solely on the
independent evaluation of the Company and its representatives.

(ee) Accountants. The Company’s accountants are set forth in the SEC Reports. To
the Company’s knowledge, such accountants are an independent registered public
accounting firm as required by the Act.

(ff) No Disagreements with Accountants and Lawyers. There are no material
disagreements presently existing, or reasonably anticipated by the Company to
arise, between the accountants and lawyers formerly or presently employed by the
Company.

(gg) Registration Statements and Prospectuses.

 

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(i) Company will use its commercially reasonable best efforts to file within 30
calendar days after the Effective Date (or as soon as possible thereafter),
cause to become effective as soon as practicable thereafter, and remain
effective until the earlier of (A) the first date on which all Common Shares
covered thereby have been resold or (B) in the event that no Tranche Closing
ever occurs, the Termination Date, a Registration Statement covering the public
resale by the Investor of all Common Shares issued pursuant to the Transaction
Documents. Such Registration Statement, on the date it is filed with the SEC and
on the date it becomes effective, and, as amended or supplemented, at the time
of any Tranche Notice Date, Tranche Closing Date, or issuance of any Common
Shares, will comply as to form, in all material respects, with the requirements
of the Act.

(ii) Such Registration Statement, as of its effective date, will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading;
provided that this representation and warranty does not apply to statements in
or omissions from the Registration Statement made in reliance upon and in
conformity with information relating to the Investor furnished to the Company in
writing by or on behalf of the Investor expressly for use therein, which to the
Company’s knowledge are not false or misleading.

(iii) The Prospectus, on the date it is filed with the SEC and as of its date,
and, at the time of any Tranche Notice Date, Tranche Closing Date, or issuance
of any Common Shares, and at all times during which a prospectus is required by
the Act to be delivered in connection with any resale of Common Shares covered
thereby, will comply as to form, in all material respects, with the requirements
of the Act.

(iv) The Prospectus and any amendment or supplement thereto, as of its date,
will not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided that this
representation and warranty does not apply to statements in or omissions from
the Prospectus or any amendment or supplement thereto made in reliance upon and
in conformity with information relating to the Investor furnished to the Company
in writing by or on behalf of the Investor expressly for use therein, which to
the Company’s knowledge are not false or misleading.

(v) The Registration Statement, as of its effective date, will meet the
requirements of subsections (a)(1)(i) and (a)(1)(iii) of Rule 415 under the Act
or any other applicable subsections thereof.

(vi) To the extent required under the Act, the Company will, within the time
period required by Rule 424 under the Act, file a prospectus supplement with
respect to the giving of a Tranche Notice and the issuance and resale of Common
Shares in connection therewith.

(hh) Dilutive Effect. The Company understands and acknowledges that the number
of Warrant Shares will increase in certain circumstances. The Company further
acknowledges that its obligation to issue the Warrant Shares upon exercise of
the Warrant in accordance with the Warrant is absolute and unconditional,
regardless of the dilutive effect that such issuance may have on the ownership
interests of other stockholders of the Company.

 

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(ii) Manipulation of Price. Neither the Company nor any of its Subsidiaries has,
and, to the knowledge of the Company, no Person acting on their behalf has,
directly or indirectly, (i) taken any action designed to cause or to result in
the stabilization or manipulation of the price of any security of the Company or
any of its Subsidiaries to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay
to any Person any compensation for soliciting another to purchase any other
securities of the Company or any of its Subsidiaries.

(jj) U.S. Real Property Holding Corporation. Neither the Company nor any of its
Subsidiaries is, or has ever been, a U.S. real property holding corporation
within the meaning of Section 897 of the Internal Revenue Code of 1986, as
amended, and the Company and each Subsidiary shall so certify upon Investor’s
request. The Company shall use reasonable best efforts not to become, and not
cause any of its Subsidiaries to become, a U.S. real property holding
corporation so long as any of the Securities are held by Investor; provided,
however, that in the event that the Company or any of its Subsidiaries shall
become a U.S. real property holding corporation, the Company shall not deliver a
Tranche Notice to Investor and no Tranche Closings shall occur without the prior
written consent of Investor.

(kk) Securities Law Compliance; Shell Company Status. The Company has complied
and shall comply with all applicable federal and state securities laws in
connection with the offer, issuance and sale of the Securities hereunder (and,
as applicable, the resale of the Common Shares by Investor), including, without
limitation, the applicable requirements of the Act. The Company is not, and has
not been, an issuer identified in subsection (i) of Rule 144.

(ll) No General Solicitation or Advertising. Neither the Company nor, to the
knowledge of the Company, any of its directors or officers (i) has conducted or
will conduct any general solicitation (as that term is used in Rule 502(c) of
Regulation D) or general advertising with respect to the sale of the Securities,
or (ii) made any offers or sales of any security or solicited any offers to buy
any security under any circumstances that would require registration of the
Securities under the Act or made any “directed selling efforts” as defined in
Rule 902 of Regulation S.

(mm) Public Utility Holding Act. None of the Company nor any of its Subsidiaries
is a “holding company,” or an “affiliate” of a “holding company,” as such terms
are defined in the Public Utility Holding Act of 2005.

(nn) Federal Power Act. None of the Company nor any of its Subsidiaries is
subject to regulation as a “public utility” under the Federal Power Act, as
amended.

(oo) Money Laundering. The Company and its Subsidiaries are in compliance with,
and have not previously violated, the USA Patriot Act of 2001 and all other
applicable U.S. and non-U.S. anti-money laundering laws and regulations,
including, without limitation, the laws, regulations and Executive Orders and
sanctions programs administered by the U.S. Office of Foreign Assets Control,
including, without limitation, (i) Executive Order 13224 of September 23, 2001
entitled, “Blocking Property and Prohibiting Transactions With Persons Who
Commit, Threaten to Commit, or Support Terrorism” (66 Fed. Reg. 49079 (2001));
and (ii) any regulations contained in 31 CFR, Subtitle B, Chapter V.

 

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(pp) Officers, Directors and Beneficial Owners. Schedule 4.1(pp) sets forth the
identities of all officers and directors of the Company, along with the number
of shares of Common Stock beneficially owned by each such Person.

4.2 Representations and Warranties of Investor. Investor hereby represents and
warrants to, and as applicable covenants with, the Company as follows:

(a) Organization; Authority. Investor is an entity duly formed, validly existing
and in good standing under the laws of the jurisdiction of its organization,
with the requisite power and authority to own and use its properties and assets
and to carry on its business as currently conducted. Investor has the requisite
company power and authority to enter into and to consummate the transactions
contemplated by this Agreement and otherwise to carry out its obligations
hereunder. The execution and delivery of the Transaction Documents to which
Investor is a party and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by all necessary company action on
the part of Investor and no further consent or authorization of Investor or its
members is required. Each Transaction Document to which Investor is a party has
been (or will be) duly executed by Investor, and when delivered by Investor in
accordance with the terms hereof or thereof, will constitute the valid and
legally binding obligation of Investor, enforceable against Investor in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors’ rights and
remedies.

(b) No Conflicts. The execution, delivery and performance of the Transaction
Documents to which Investor is a party do not and will not conflict with or
violate any provision of Investor’s memorandum of association or by-laws (or
similar organizational documents) as currently in effect.

(c) Investor Status. At the time Investor was offered the Securities, it was,
and it is: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2),
(a)(3), (a)(7) or (a)(8) under the Act or (ii) a “qualified institutional buyer”
as defined in Rule 144A(a) under the Act.

(d) Experience of Investor. Investor, either alone or together with its
representatives, has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Securities, and has so evaluated the merits
and risks of such investment. Investor is able to bear the economic risk of an
investment in the Securities and, at the present time, is able to afford a
complete loss of such investment.

(e) General Solicitation. Investor is not purchasing or acquiring the Securities
as a result of any advertisement, article, notice or other communication
regarding the Securities published in any newspaper, magazine or similar media
or broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.

 

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(f) No Public Sale or Distribution. Investor is acquiring the Securities for its
own account, and not as a nominee or agent, for investment purposes, and not
with a view towards, or for resale in connection with, the public sale or
distribution of any part thereof, all except pursuant to transactions registered
under the Act or exempt from such registration; provided, however, that the
disposition of its property shall at all times be within its control.

(g) Acknowledgement of Private Placement. Investor understands that the offer
and sale of the Securities provided for herein is being made without
registration under the Act, in reliance upon the provisions of Section 4(2) of
the Act, Regulation D promulgated under the Act, and such other exemptions from
the registration requirements of the Act as may be available with respect to any
or all of the purchases of Securities to be made hereunder, and that the Company
is relying in part upon the truth and accuracy of, and such Investor’s
compliance with, the representations, warranties, agreements, covenants,
acknowledgments and understandings of such Investor set forth herein in order to
determine the availability of such exemptions and the eligibility of such
Investor to acquire the Securities.

(h) Transfer or Resale. Investor understands that (i) the Preferred Shares, the
Additional Investment Right and the Warrant have not been and are not being
registered under the Act or any state securities or “blue sky” laws and
(ii) neither the Company nor any other Person is under any obligation to
register the Preferred Shares, the Additional Investment Right or the Warrant
under the Act or any state securities or “blue sky” laws or to comply with the
terms and conditions of any exemption thereunder with respect to the Preferred
Shares, the Additional Investment Right or the Warrant.

(i) Not an Affiliate. The Investor is not an officer, director or Affiliate of
the Company.

(j) No Governmental Review. Investor understands that no United States federal
or state agency or any other government or governmental agency has passed on or
made any recommendation or endorsement of the Securities or the fairness or
suitability of the investment in the Securities nor have such authorities passed
upon or endorsed the merits of the offering of the Securities.

(k) Trading Restrictions; Compliance with Securities Laws. Investor covenants
and agrees that during the period beginning on the Trading Day immediately
preceding the Effective Date and ending on the Trading Day immediately following
the termination of this Agreement, neither the Investor nor any of its
Affiliates nor any entity managed or controlled by the Investor will, directly
or indirectly, enter into or execute or cause or assist any Person to enter into
or execute any “short sale” (as such term is defined in Rule 200 of Regulation
SHO, or any successor regulation, promulgated by the SEC under the Exchange Act)
of the Common Stock or trading derivative securities to the same effect.

The Company acknowledges and agrees that Investor does not make or has not made
any representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 4.2.

 

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ARTICLE 5

OTHER AGREEMENTS OF THE PARTIES

5.1 Certain Transfer Restrictions.

(a) The Securities constitute “restricted securities” as such term is defined in
Rule 144(a)(3) and may only be disposed of in compliance with U.S. federal
securities laws and applicable state securities or “Blue Sky” laws. Without
limiting the generality of the foregoing, except for a transfer to an Affiliate
of Investor or a bona fide pledge of the Securities, the Securities may not be
offered for sale, sold, transferred, assigned, pledged or otherwise distributed
unless (i) such offer, sale, transfer, assignment, pledge or distribution is
subsequently registered under the Act, (ii) Investor shall have delivered to the
Company an opinion of counsel reasonably acceptable to the Company (which may be
SNR Denton), in a form generally acceptable to the Company, to the effect that
such Securities to be offered for sale, sold, transferred, assigned, pledged or
otherwise distributed may be offered for sale, sold, transferred, assigned,
pledged or otherwise distributed pursuant to an exemption from such
registration, or (iii) such Securities can be offered for sale, sold,
transferred, assigned, pledged or otherwise distributed pursuant to Rule 144 or
Rule 144A promulgated under the Act, as applicable. In furtherance of the
foregoing, except as otherwise provided below and elsewhere in this Agreement,
certificates for the Preferred Shares and the Warrant shall bear the following
restrictive legend:

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

The foregoing legend shall be removed if and when no longer required in the
opinion of counsel to Investor or other holder of the Preferred Shares or
Warrant in the form and substance reasonably satisfactory to the Company.
Notwithstanding the foregoing and for the avoidance of doubt, all Common Shares
(including without limitation all Warrant Shares, all Additional Investment
Shares, and all Placement Agent Fee Shares, if any) shall be DWAC Shares that
are freely tradable by Investor, without restrictive or other legend and without
restriction on resale, and the Company shall not take any action or give
instructions to any transfer agent of the Company otherwise.

 

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(b) At the Closing, the Company shall issue irrevocable instructions to the
Transfer Agent in the form attached hereto as Exhibit C (the “Irrevocable
Transfer Agent Instructions”) to issue certificates or credit shares to the
applicable balance accounts at DTC, registered in the name of Investor or its
respective nominee(s), for the Securities in such amounts as specified from time
to time by Investor to the Company upon delivery of the Common Shares or
Preferred Shares (as the case may be). The Company represents, warrants and
covenants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5.1(b) will be given by the Company to
the Transfer Agent with respect to the Securities, and that the Securities shall
otherwise be freely transferable on the books and records of the Company, as
applicable, to the extent contemplated in this Agreement and the other
Transaction Documents. The Company shall take all necessary action to give
effect to the foregoing. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to Investor. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 5.1(b) will be inadequate and agrees, in the event of a
breach or threatened breach by the Company of the provisions of this
Section 5.1(b), that Investor shall be entitled, in addition to all other
available remedies, to an order and/or injunction restraining any breach and
requiring immediate issuance and transfer, without the necessity of showing
economic loss and without any bond or other security being required. Any fees
(with respect to the transfer agent, counsel to the Company or otherwise)
associated with the issuance of such opinion or the removal of any legends on
any of the Securities shall be borne by the Company.

5.2 Furnishing of Information. As long as Investor owns Securities, the Company
covenants to timely file (or obtain extensions in respect thereof and file
within the applicable grace period) all reports required to be filed by the
Company after the Effective Date pursuant to the Exchange Act. Upon the request
of Investor, the Company shall deliver to Investor a written certification of a
duly authorized officer as to whether it has complied with the preceding
sentence. As long as Investor owns Securities, if the Company is not required to
file reports pursuant to such laws, it will prepare and furnish to Investor and
make publicly available in accordance with Rule 144(c) such information as is
required for Investor to sell the Securities under Rule 144 until such time as
Investor may sell all such Securities without restriction under Rule 144. The
Company further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell Securities without registration under the Act
within the limitation of the exemptions provided by Rule 144.

5.3 Integration. The Company shall not sell, offer for sale or solicit offers to
buy or otherwise negotiate in respect of any security (as defined in Section 2
of the Act) that would be integrated with the offer or sale of the Securities in
a manner that would require the registration under the Act of the offer and sale
of the Securities to Investor or in a manner that could violate any applicable
stockholder approval provisions, including, without limitation, under the rules
and regulations of the applicable Trading Market.

5.4 Securities Laws Disclosure; Publicity. The Company shall (i) by 8:30 a.m.,
New York City time, on the Trading Day immediately following the Effective Date,
issue a press release and (ii) by 5:30 p.m., New York City time, on the fourth
(4th) Trading Day immediately following the Effective Date, file a Current
Report on Form 8-K describing the transactions contemplated by, and attaching a
complete copy of, the Transaction Documents. Such press release and Current
Report on Form 8-K shall be reasonably acceptable to Investor. The Company and
Investor shall consult with each other in issuing any additional press releases
with respect to the transactions contemplated hereby, and neither the Company
nor Investor shall issue any such

 

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press release or otherwise make any such public statement without the prior
consent of the Company, with respect to any such press release of Investor, or
without the prior consent of Investor, with respect to any such press release of
the Company, which consent shall not unreasonably be withheld or delayed, except
if such disclosure is required by law, Trading Market regulations or judicial
process, in which case the disclosing party shall promptly provide the other
party with prior notice of such public statement or communication. The Company
shall provide Investor with prior notice of any public disclosure of the name of
Investor or contemplated inclusion of the name of Investor in any filing with
the SEC or any regulatory agency or Trading Market (it being hereby acknowledged
and agreed by Investor that Investor’s name may be disclosed, to the extent
required, in a supplemental listing application with the Trading Market, any
Current Report on Form 8-K of the Company describing the transactions
contemplated by the Transaction Documents, in any Registration Statement and
Prospectus covering any Common Shares, and in other reports of the Company
required to be filed by the Company under the Act and the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof).

5.5 Shareholders Rights Plan. No claim will be made or enforced by the Company
or, to the knowledge of the Company, any other Person that Investor is an
“Acquiring Person” under any shareholders rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that Investor
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and Investor. The Company shall conduct its
business in a manner so that it will not become subject to the Investment
Company Act of 1940, as amended.

5.6 Non-Public Information. The Company covenants and agrees that neither it nor
any Person acting on its behalf will provide Investor or its agents or counsel
with any information that the Company believes constitutes material non-public
information, unless after the Effective Date and prior thereto Investor shall
have executed a written agreement regarding the confidentiality and use of such
information. The Company understands and confirms that Investor shall be relying
on the foregoing covenant in effecting transactions in securities of the
Company. In the event of a breach of the foregoing covenant by the Company or
any Person acting on its behalf (as determined in the reasonable good faith
judgment by Investor), in addition to any other remedy provided herein or in the
other Transaction Documents, the Company shall not deliver a Tranche Notice to
Investor and no Tranche Closings shall occur until such time as the Company
makes a public disclosure, in the form of a press release or Current Report on
Form 8-K, of such information so that such information shall no longer
constitute material non-public information.

5.7 Reserved.

5.8 Indemnification.

(a) Indemnification by Company. Subject to the provisions of this
Section 5.8(a), the Company will indemnify and hold Investor, its Affiliates and
attorneys, and each of their directors, officers, shareholders, partners,
employees, agents, and any Person who controls Investor within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act (collectively, the
“Investor Parties” and each an “Investor Party”), harmless from any and all
losses, liabilities, obligations, claims, contingencies, damages, costs and
expenses, including all judgments, amounts paid in settlements, court costs and
reasonable attorneys’ fees and costs of

 

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investigation (collectively, “Losses”) that any Investor Party may suffer or
incur as a result of or relating to (a) any breach of any of the
representations, warranties, covenants or agreements made by the Company in this
Agreement or in the other Transaction Documents, (b) any action instituted
against any Investor Party, or any of them or their respective Affiliates, by
any stockholder of the Company who is not an Affiliate of an Investor Party,
with respect to any of the transactions contemplated by the Transaction
Documents including Investor’s acquisition of the Securities (unless such action
is based upon a breach of Investor’s representations, warranties or covenants or
agreements under the Transaction Documents or any agreements or understandings
Investor may have with any such stockholder or any violations by Investor of
state or federal securities laws or any conduct by Investor which constitutes
fraud, gross negligence, willful misconduct or malfeasance), (c) any untrue
statement or alleged untrue statement of a material fact contained in a
Registration Statement (or in a Registration Statement as amended by any
post-effective amendment thereof by the Company) or arising out of or based upon
any omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and/or
(d) any untrue statement or alleged untrue statement of a material fact included
in any Prospectus ( or any amendments or supplements to any Prospectus ), or
arising out of or based upon any omission or alleged omission to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided, however,
that (i) the Company shall not be obligated to indemnify any Investor Party for
any Losses finally adjudicated to have been caused-by an untrue statement of a
material fact or an omission to state a material fact made in reliance upon and
conformity with information furnished to the Company in writing by or on behalf
of such Person expressly for use in the Registration Statement or the Prospectus
(or any amendment or supplement thereto) and (ii) the foregoing indemnity shall
not inure to the benefit of any Investor Party from whom the Person asserting
any Losses purchased Securities, if a copy of the Prospectus (as then
supplemented) was not sent or given by or on behalf of such Investor Party to
such Person, if required by law to have been delivered, at or prior to the
written confirmation of the sale of such Securities to such person, and if
delivery of the Prospectus (as then supplemented) would have cured the defect
giving rise to such Losses. The parties intend that any Losses subject to
indemnification under this Section 5.8(a) will be net of insurance proceeds
(which Investor agrees to use commercially reasonable efforts to recover or
cause any Investor Party to recover). Accordingly, the amount which the Company
is required to pay any Investor Party under this Section 5.8(a) will be reduced
by any insurance proceeds actually recovered by or on behalf of any Investor
Party in reduction of the related Losses. In addition, if an Investor Party
receives indemnification from the Company under this Section 5.8(a) in respect
of any Losses and subsequently receives any such insurance proceeds, then
Investor will pay, or will cause such other Investor Party to pay, to the
Company an amount equal to the indemnification payment received under this
Section 5.8(a) less the amount of the indemnification payment that would have
been due if the insurance proceeds had been received, realized or recovered
before such indemnification payment was made. However, no provision herein
regarding insurance proceeds shall delay payment by the Company to any Investor
Party for any indemnified Losses. Notwithstanding anything to the contrary
contained herein, the Company also agrees that neither Investor nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company solely as a result of acquiring the Securities under
this Agreement.

 

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(b) Indemnification by Investor. Subject to the provisions of this
Section 5.8(b), the Investor will indemnify and hold the Company, its Affiliates
and attorneys, and each of their directors, officers, shareholders, partners,
employees, agents, and any Person who controls the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act (collectively, the
“Company Parties” and each a “Company Party”) harmless from all Losses that any
Company Party may suffer or incur as a result of or relating to any breach of
the representations, warranties, covenants, or agreements made by the Investor
in this Agreement or in other Transactional Documents. The parties intend that
any Losses subject to indemnification under this Section 5.8(b) will be net of
insurance proceeds (which the Company agrees to use commercially reasonable
efforts to recover or cause any Company Party to recover). Accordingly, the
amount which the Investor is required to pay any Company Party under this
Section 5.8(b) will be reduced by any insurance proceeds actually recovered by
or on behalf of any Company Party in reduction of the related Losses. In
addition, if a Company Party receives indemnification from the Investor under
this Section 5.8(b) in respect of any Losses and subsequently receives any such
insurance proceeds, then the Company will pay, or will cause such other Company
Party to pay, to the Investor an amount equal to the indemnification payment
received under this Section 5.8(b) less the amount of the indemnification
payment that would have been due if the insurance proceeds had been received,
realized or recovered before such indemnification payment was made. However, no
provision herein regarding insurance proceeds shall delay payment by the
Investor to any Company Party for any indemnified Losses.

(c) Procedure for Indemnification Claims. Promptly after a Person receives
notice of a claim or the commencement of an action for which the Person intends
to seek indemnification under this Section 5.8, the Person will notify the
indemnifying party in writing of the claim or commencement of the action, suit
or proceeding; provided, however, that failure to notify the indemnifying party
will not relieve the indemnifying party from liability under this Section 5.8,
except to the extent it has been materially prejudiced by the failure to give
notice. The indemnifying party will be entitled to participate in the defense of
any claim, action, suit or proceeding as to which indemnification is being
sought. No indemnifying party will be liable to any indemnified party under this
Agreement for any settlement by such indemnified party of any action effected by
such indemnified party without the indemnifying party’s prior written consent,
which shall not be unreasonably withheld or delayed.

5.9 Reservation of Securities. The Company shall maintain a reserve from its
duly authorized shares of Common Stock for issuance pursuant to the Transaction
Documents in such amount as may be required to fulfill its obligations in full
under the Transaction Documents.

5.10 Standstill Enforcement. The Company will use its commercially reasonable
efforts to honor and enforce the provisions of the Lock-Up Agreements with the
Company’s executive officers and directors.

5.11 Issuance of Additional Securities. The Company agrees that for the period
commencing on each Tranche Notice Date and ending on the Tranche Closing Date,
neither the Company nor any of its Subsidiaries shall, without the prior written
consent of the Investor, (i) directly or indirectly, issue, offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of any share of Common Stock or any securities convertible
into or

 

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exercisable or exchangeable for Common Stock or file any registration statement
under the Act (other than a Registration Statement on Form S-8, or any
registration statement that is filed in connection with registration rights that
are outstanding on the Effective Date) with respect to any of the foregoing, or
(ii) enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic consequence
of ownership of the Common Stock, whether any such swap or transaction described
in clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise, provided that nothing in the foregoing
clauses (i) and (ii) shall be construed as limiting the Company’s ability to
negotiate and/or otherwise prepare to consummate a transaction following the
expiration of such restrictions, so long as such transaction is not consummated
or otherwise announced (and an agreement with respect thereto is not executed)
prior to the expiration of such restrictions. The provisions of this
Section 5.11 shall not apply to (A) the Securities to be issued and sold
hereunder or issuable upon conversion or exercise of the Securities,
(B) issuances of shares of Common Stock issuable upon conversion or exchange of
currently outstanding convertible securities, (C) granting options or other
securities under the Company’s incentive compensation plans existing on the date
hereof or issuances of shares of Common Stock issuable in connection with
outstanding awards thereunder as of the date hereof, (D) issuances of shares of
Common Stock issuable pursuant to agreements in effect as of the date hereof or
amendments related thereto, (E) issuances of shares of Common Stock in
connection with strategic acquisitions, or (F) issuances of shares of Common
Stock in satisfaction of trade accounts payable and other outstanding
obligations of the Company, or (G) issuances of shares of Common Stock subject
to shareholder approval; provided, however, that in the case of clause
(B) above, no shares of Common Stock shall be issued as a result of an amendment
to such securities after the date hereof and prior to the expiration of the
restricted period.

5.12 Registration Statement and Prospectus; Availability and Changes. The
Company covenants that it will comply with the matters set forth in
Section 4.1(gg) without giving effect to any exceptions contained in or
contemplated by this Agreement. The Company will make available to Investor upon
request, and thereafter from time to time will furnish Investor, as many copies
of any Prospectus (or of the Prospectus as amended or supplemented if the
Company shall have made any amendments or supplements thereto after the
effective date of the applicable Registration Statement) as Investor may request
for the purposes contemplated by the Act; and in case Investor is required to
deliver a prospectus after the nine-month period referred to in Section 10(a)(3)
of the Act in connection with the sale of the Common Shares, or after the time a
post-effective amendment to the applicable Registration Statement is required
pursuant to Item 512(a) of Regulation S-K under the Act, the Company will
prepare, at its expense, promptly upon request such amendment or amendments to
the Registration Statement and the Prospectus as may be necessary to permit
compliance with the requirements of Section 10(a)(3) of the Act or Item 512(a)
of Regulation S-K under the Act, as the case may be. The Company will advise
Investor promptly of the happening of any event within the time during which a
Prospectus is required to be delivered by Investor under the Act which, in the
good faith judgment of the Company, following consultation with its independent
legal counsel, would require the making of any change in the Prospectus then
being used so that the Prospectus would not include an untrue statement of
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they are made,
not misleading, and to advise Investor promptly if, during such period, in the
good faith judgment of the Company, following consultation with its independent
legal counsel, it shall become necessary to amend or supplement

 

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any Prospectus to cause such Prospectus to comply with the requirements of the
Act, and in each case, during such time, to prepare and furnish, at the
Company’s expense, to Investor promptly such amendments or supplements to such
Prospectus as may be necessary to reflect any such change or to effect such
compliance. The Company shall take such other action as requested by Investor
with respect to compliance with any applicable securities laws (including,
without limitation, “Blue-Sky” laws) in connection with the offer, sale and
resale of the Common Shares or the Securities. Each Prospectus (including all
prospectus supplements) shall be in the form and substance satisfactory to
Investor.

5.13 Required Approval. No transactions contemplated under this Agreement or the
Transaction Documents shall be consummated for an amount that would require
approval by the Company’s stockholders under any approval provisions, rules or
regulations of any Trading Market applicable to the Company, unless and until
such approval is obtained. Company shall use its reasonable best efforts to
obtain any required approval as soon as possible.

5.14 Activity Restrictions. For so long as Investor or any of its Affiliates
holds any Securities, neither Investor nor any Affiliate will: (i) vote any
shares of Common Stock owned or controlled by it, solicit any proxies, or seek
to advise or influence any Person with respect to any voting securities of the
Company; (ii) engage or participate in any actions, plans or proposals which
relate to or would result in (a) acquiring additional securities of the Company,
alone or together with any other Person, which would result in beneficially
owning or controlling, or being deemed to beneficially own or control, more than
9.99% of the total outstanding Common Stock or other voting securities of the
Company, (b) an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving Company or any of its subsidiaries,
(c) a sale or transfer of a material amount of assets of the Company or any of
its subsidiaries, (d) any change in the present board of directors or management
of the Company, including any plans or proposals to change the number or term of
directors or to fill any existing vacancies on the board, (e) any material
change in the present capitalization or dividend policy of the Company, (f) any
other material change in the Company’s business or corporate structure,
including but not limited to, if the Company is a registered closed-end
investment company, any plans or proposals to make any changes in its investment
policy for which a vote is required by Section 13 of the Investment Company Act
of 1940, (g) changes in the Company’s charter, bylaws or instruments
corresponding thereto or other actions which may impede the acquisition of
control of the Company by any Person, (h) causing a class of securities of the
Company to be delisted from a national securities exchange or to cease to be
authorized to be quoted in an inter-dealer quotation system of a registered
national securities association, (i) a class of equity securities of the Company
becoming eligible for termination of registration pursuant to Section 12(g)(4)
of the Act, or (j) any action, intention, plan or arrangement similar to any of
those enumerated above; or (iii) request the Company or its directors, officers,
employees, agents or representatives to amend or waive any provision of this
Section 5.14.

5.15 Investor Information. The Company shall notify Investor in writing of the
information that the Company requires from Investor with respect to the
Registration Statement and/or Prospectus in connection with the transactions
contemplated by this Agreement and Investor shall, as soon as practicable after
being so notified, furnish to the Company such information regarding itself, the
Securities held by it and the intended method of disposition of the Securities
held by it, as shall be reasonably required to effect and/or maintain the
effectiveness of the registration of such Securities.

 

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ARTICLE 6

MISCELLANEOUS

6.1 Fees and Expenses. Except for the reasonable fees and costs of SNR Denton as
counsel to Investor, which shall be paid by Company within one (1) business day
after the Effective Date, and as to which a $20,000.00 non-refundable document
preparation fee previously paid by the Company shall be applied, and the
$5,000.00 non-refundable administrative fee payable to counsel for Investor at
each Tranche Closing, and as may be otherwise provided in this Agreement and any
of the other Transaction Documents, each party shall pay the fees and expenses
of its own advisers, counsel, accountants and other experts, if any, and all
other expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of the Transaction Documents. The Company
acknowledges and agrees that SNR Denton solely represents Investor, and does not
represent the Company or its interests in connection with the Transaction
Documents or the transactions contemplated thereby. The Company shall pay
(i) all Transfer Agent fees and expenses (including related fees and expenses of
any counsel to such persons), (ii) all fees and expenses relating to the
approval of the Common Shares for book-entry transfer through the systems of the
DTC, (iii) the fees and expenses incurred in connection with the registration or
qualification and determination of eligibility for investment of the Securities
under the “blue sky” laws, (iv) stamp taxes and other taxes and duties levied in
connection with the delivery of any Securities to the Investor, (v) all fees and
expenses relating to the listing or quotation of the Common Shares on the
Trading Market and (vi) all fees and expenses of Investor related to (A) any
transfer of securities of the Company and (B) the Registration Statement and
Prospectus. The obligations of the Company under this Section 6.1 shall survive
the termination of this Agreement.

6.2 Notices. Unless a different time of day or method of delivery is set forth
in the Transaction Documents, any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of: (a) the date of
transmission, if such notice or communication is delivered via facsimile or
electronic mail prior to 5:30 p.m., New York City time, on a Trading Day,
(b) the next Trading Day after the date of transmission, if such notice or
communication is delivered later than 5:30 p.m., New York City time, or on a day
that is not a Trading Day, or (c) otherwise upon actual receipt by the party to
whom such notice is required to be given. The addresses for such notices and
communications are those set forth following the signature page hereof, or such
other address as may be designated in writing hereafter, in the same manner, by
such Person.

6.3 Amendments; Waivers. No provision of this Agreement may be waived or amended
except in a written instrument signed, in the case of an amendment, by the
Company and Investor or, in the case of a waiver, by the party against whom
enforcement of any such waiver is sought. No waiver of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right.

 

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

6.5 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of Investor, which consent will not be
unreasonably withheld or delayed. Investor may not assign this Agreement or any
rights or obligations hereunder without the prior written consent of the
Company, which consent shall not be unreasonably withheld or delayed.
Notwithstanding anything to the contrary contained herein, the Investor shall
not transfer any Preferred Shares purchased by it except to an Affiliate of
Investor or except pursuant to any redemption of the Preferred Shares, including
a redemption by offset, exchange, and cancellation with the Company as set forth
in the Certificate of Designations.

6.6 No Third-Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person, except as otherwise expressly set forth in Section 5.8 hereof.

6.7 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law that would
require or permit the application of the laws of any other jurisdiction. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. The parties hereby waive all
rights to a trial by jury. If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its reasonable attorneys’ fees and other costs and expenses reasonably
incurred in connection with the investigation, preparation and prosecution of
such action or proceeding.

 

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6.8 Survival. The representations, warranties, covenants and agreements of the
Company and the Investor contained in this Agreement shall survive the Closing
and the delivery and/or exercise of the Securities, as applicable, until the
termination of this Agreement; provided, however, that (i) the provisions of
Section 3.4 (Effect of Termination), Article 4 (Representations and Warranties),
Section 5.8 (Indemnification), this Article 6 (Miscellaneous) and all fees and
expenses provisions contained in this Agreement (including, without limitation,
provisions relating to the issuance of the Placement Agent Fee Shares and the
payment of the fees and expenses in accordance with Section 6.1) shall remain in
full force and effect indefinitely notwithstanding such termination, and,
(ii) so long as the Investor owns any Securities, the covenants and agreements
of the Company contained in Article 5 (Other Agreements of the Parties) shall
remain in full force and effect notwithstanding such termination.
Notwithstanding anything to the contrary herein, any Securities issued prior to
any such termination shall remain outstanding thereafter and unaffected thereby
and the Company shall comply with all terms and conditions thereof (including,
without limitation, the issuance of the Warrant Shares upon the due exercise of
the Warrant and the issuance of the Additional Investment Shares upon the due
exercise of the Additional Investment Right) shall not be affected by such
termination.

6.9 Execution. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. In the event that any signature is delivered by
facsimile transmission or by an e-mail which contains a portable document format
(.pdf) file of an executed signature page, such signature page shall create a
valid and binding obligation of the party executing (or on whose behalf such
signature is executed) with the same force and effect as if such signature page
were an original thereof.

6.10 Severability. If any provision of this Agreement is held to be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Agreement shall not in any way be affected or
impaired thereby and the parties will attempt to agree upon a valid and
enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

6.11 Replacement of Securities. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.

6.12 Remedies. In addition to being entitled to exercise all rights provided
herein or granted by law, including recovery of damages, each of Investor and
the Company will be entitled to specific performance under the Transaction
Documents. The parties agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations under
the Transaction Documents and hereby agrees to waive in any action for specific
performance of any such obligation the defense that a remedy at law would be
adequate, the necessity of showing economic loss and without any bond or other
security being required. Neither the Company nor Investor shall be liable for
special, indirect, consequential or punitive damages suffered or alleged to be
suffered by the other party or any third party, whether arising from or related
to the Transaction Documents or otherwise.

 

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6.13 Payment Set Aside. To the extent that the Company makes a payment or
payments to Investor pursuant to any Transaction Document or Investor enforces
or exercises its rights thereunder, and such payment or payments or the proceeds
of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.

6.14 Partial Damages. If the Company’s obligations to pay any partial damages or
other amounts owing under the Transaction Documents is a continuing obligation
of the Company, then such obligation shall not terminate until all unpaid
partial damages and other amounts have been paid notwithstanding the fact that
the instrument or security pursuant to which such partial damages or other
amounts are due and payable shall have been canceled.

6.15 Time of the Essence. Time is of the essence with respect to all provisions
of this Agreement that specify a time for performance.

6.16 Construction. The parties agree that each of them and/or their respective
counsel has reviewed and had an opportunity to revise the Transaction Documents
and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto. The
language used in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent, and no rules of strict construction will
be applied against any party. Each and every reference to share prices, shares
of Common Stock and any other numbers in this Agreement that relate to the
Common Stock (excluding percentages) shall be automatically appropriately
adjusted for stock splits, stock combinations and other similar transactions
that occur with respect to the Common Stock after the date of this Agreement.

6.17 Entire Agreement. The Transaction Documents contain the entire agreement
and understanding of the parties, and supersede all prior and contemporaneous
agreements, term sheets, letters, discussions, communications and
understandings, both oral and written, which the parties acknowledge have been
merged into the Transaction Documents. Neither party has relied upon any
agreement, assurance, promise, understanding or representation not expressly set
forth in the Transaction Documents and each party agrees that it may only rely
on the agreements, assurances, promises, understandings and representations set
forth therein; provided, however, Investor shall be entitled to the protections
with respect to, and to rely on statements contained in, the Registration
Statement and Prospectus in accordance with federal and state securities laws.

6.18 Further Assurances. From and after the Effective Date, upon the request of
Investor or the Company, each of the Company and Investor shall execute and
deliver such instruments, documents and other writings as may be reasonably
necessary or desirable to confirm and carry out and to effectuate fully the
intent and purposes of this Agreement.

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized signatories as of the date first
indicated above.

 

    MARINA BIOTECH, INC.     By:   /s/ Philip C. Ranker      

Name:  Philip C. Ranker

     

Title:    Interim Chief Executive Officer

 

    SOCIUS CG II, LTD.     By:   /s/ Terren Peizer      

Name:  Terren Peizer

     

Title:    Managing Director

[Signature Page — Securities Purchase Agreement]

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Addresses for Notice

To Company:

Marina Biotech, Inc.

3830 Monte Villa Parkway

Bothell, Washington 98021

Attn: President & CEO

Fax No.: (425) 908-3650

E-Mail: pranker@marinabio.com

with a copy (which shall not constitute notice) to:

Pryor Cashman LLP

7 Times Square

New York, New York 10036

Attn: Lawrence Remmel, Esq.

Fax No. (212) 798-6365

E-mail: lremmel@pryorcashman.com

To Investor:

Socius CG II, Ltd.

Clarendon House

2 Church Street

Hamilton HM 11 Bermuda

Fax No.: (310) 444-4394

E-mail: michael@sociuscg.com

with a copy (which shall not constitute notice) to:

SNR Denton US LLP

Two World Financial Center

225 Liberty Street

New York, New York 10281

Attn: S. Elizabeth Foster

Fax No. (212) 768-6800

E-mail: elizabeth.foster@snrdenton.com

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Exhibit A-1

Form of Warrant

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NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY
ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
(II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER
SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.

MARINA BIOTECH, INC.

WARRANT TO PURCHASE COMMON STOCK

 

Warrant No.:             

  Issuance Date: December [        ], 2011

Number of Warrant Shares: [                    ]

(subject to adjustment as set forth herein)

 

Initial Exercise Price: $[            ]

(subject to adjustment as set forth herein)

Marina Biotech, Inc., a Delaware corporation (“Company”), hereby certifies that,
for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Socius CG II, Ltd., a Bermuda exempted company, the holder
hereof, or its designees or assigns (“Holder”), is entitled, subject to the
terms set forth below, to purchase from the Company, at the Exercise Price (as
defined below) then in effect, upon automatic exercise of this Warrant to
Purchase Common Stock (including any Warrants to Purchase Common Stock issued in
exchange, transfer or replacement hereof, the “Warrant”), at any time or times
after issuance of the Warrant set forth above (the “Issuance Date”) and until
11:59 p.m. New York City time on the second (2nd) anniversary of the Issuance
Date (subject to extension or earlier termination as set forth herein) (the
“Expiration Time”), that number of duly authorized, validly issued, fully paid
and non-assessable shares of Common Stock set forth above subject to adjustment
as provided herein (the “Warrant Shares”). The number of Warrant Shares set
forth above, subject to adjustment in accordance with the terms of this Warrant,
shall be referred to herein as the “Warrant Share Amount.” In respect of any
Tranche Notice delivered by the Company from time to time, this Warrant shall
automatically be exercised for that number of shares of Common Stock as set
forth below.

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This Warrant is issued pursuant to the Securities Purchase Agreement, dated as
of December 22, 2011, and among the Company and Socius CG II, Ltd. (the
“Purchase Agreement”). Except as otherwise defined herein, capitalized terms in
this Warrant shall have the meanings set forth in this Warrant or, if not
defined in this Warrant, in the Purchase Agreement.

This Warrant shall vest and become automatically exercisable in tranches (each,
a “Warrant Tranche”) upon each delivery of a Tranche Notice under the Purchase
Agreement. Each Tranche Notice will obligate the Holder to exercise a portion of
this Warrant and purchase that number of shares of Common Stock that may be
purchased by payment of an Aggregate Exercise Price equal to Thirty-five Percent
(35%) of the Tranche Purchase Price specified in such Tranche Notice divided by
the Exercise Price; provided, however, that the aggregate number of Warrant
Shares issued upon exercise of this Warrant shall not exceed the Warrant Share
Amount. Attached to this Warrant is a schedule (the “Warrant Tranche Schedule”)
that shall set forth the issuance date, the number of Warrant Shares, and the
Exercise Price for each Warrant Tranche. The Warrant Tranche Schedule shall be
updated by the Company subject to approval by the Holder, with an updated copy
provided to the Holder, promptly following each exercise of this Warrant and any
dispute with respect to the foregoing shall be resolved in accordance with
ARTICLE 11.

In no event shall the Company be permitted to deliver a Tranche Notice if the
number of freely tradable (without restriction) registered shares underlying
this Warrant is insufficient to cover the portion of the Warrant that will vest
and become exercisable in connection with such Tranche Notice.

ARTICLE 1

EXERCISE OF WARRANT; ADJUSTMENT TO EXERCISE

PRICE AND NUMBER OF SHARES.

1.1 Mechanics of Exercise.

(a) Subject to the terms and conditions hereof, this Warrant shall be
automatically exercised by the Holder on each Tranche Notice Date, in whole or
in part. Within one (1) Trading Day following such Tranche Notice Date and
automatic exercise, Holder shall (i) deliver, for record keeping purposes, a
written notice to the Company, in the form attached hereto as Appendix 1 (the
“Exercise Notice”)(it being understood and agreed that the delivery of an
Exercise Notice shall not be a condition to the automatic exercise of this
Warrant), and (ii) pay to the Company an amount equal to the applicable Exercise
Price multiplied by the number of Warrant Shares as to which this Warrant is
being exercised (the “Aggregate Exercise Price”), which payment shall be made,
at the option of the Holder, in cash or by wire transfer of immediately
available funds, or by the issuance and delivery of a recourse promissory note
substantially in the form attached as Exhibit G to the Purchase Agreement (each,
a “Recourse Note”). The Holder shall not be required to deliver the original
Warrant in order to effect an exercise hereunder. Execution and delivery of the
Exercise Notice with respect to less than all of the Warrant Shares shall have
the same effect as cancellation of the original Warrant certificate and issuance
of a new Warrant certificate evidencing the right to purchase the remaining
number of Warrant Shares.

 

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(b) On the Trading Day immediately following the Exercise Delivery Date, the
Company shall transmit by facsimile an acknowledgment of confirmation of receipt
of the Exercise Delivery Documents to the Holder and an electronic copy of its
share issuance instructions to the Holder and the Company’s transfer agent (the
“Transfer Agent”) (which such electronic transmissions shall comply with the
notice provisions of Section 6.2 of the Purchase Agreement), and shall instruct,
authorize and cause the Transfer Agent to credit an aggregate number of freely
tradable Warrant Shares pursuant to such exercise to the Holder’s or its
designee’s balance account with The Depository Trust Company (DTC) through the
Fast Automated Securities Transfer (FAST) Program through its Deposit/Withdrawal
at Custodian (DWAC) system, with such credit to occur no later than 12:00 p.m.
New York City time on the third Trading Day following the Exercise Delivery
Date, time being of the essence; provided, however, that if the Warrant Shares
are not credited as DWAC Shares by 5:00 p.m. New York City time on the Trading
Day following the Exercise Delivery Date, then the Tranche Closing Date
applicable to the Exercise Notice shall be extended by one (1) Trading Day for
each Trading Day that timely credit of DWAC Shares is not made. Upon automatic
exercise of any portion of this Warrant, the Holder shall be deemed for all
corporate purposes to have become the holder of record of the Warrant Shares
with respect to which this Warrant has been exercised, irrespective of the date
such Warrant Shares are credited to the Holder’s DTC account or the date of
delivery of the certificate(s) evidencing the Warrant Shares (as the case may
be).

(c) If this Warrant is submitted in connection with any exercise pursuant to
this Section 1.1 and the number of Warrant Shares represented by this Warrant
submitted for exercise is greater than the number of Warrant Shares being
acquired upon an exercise, then the Company, upon the request of the Holder,
shall as soon as practicable and in no event later than three (3) Trading Days
after any exercise and return of the previously issued Warrant, at its own
expense issue a new Warrant representing the right to purchase the number of
Warrant Shares purchasable immediately prior to such exercise under this
Warrant, less the number of Warrant Shares with respect to which this Warrant is
exercised. No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock to be
issued shall be rounded up to the nearest whole number. The Company shall pay
any and all taxes which may be payable with respect to the issuance and delivery
of Warrant Shares upon exercise of this Warrant.

1.2 Exercise Price. For purposes of this Warrant, “Exercise Price” means,
subject to adjustment as provided herein: (i) until the first Tranche Notice
Date, the price per Warrant Share as set forth on the face of this Warrant, and
(ii) on and after the first Tranche Notice Date and each subsequent Tranche
Notice Date, an amount per Warrant Share equal to the Closing Bid Price of a
share of Common Stock on the most recently completed Trading Day prior to the
time that the Tranche Notice was deemed delivered for the applicable Tranche
Notice Date; provided, however, that the exercise price per Warrant Share must
equal or exceed the greater of (1) the Book Value (as defined in the Securities
Purchase Agreement) of the Common Stock, and (2) the Closing Bid Price of the
Common Stock, in each case, on the most recently completed Trading Day prior to
the Effective Date.

 

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1.3 Number of Shares. At each time of delivery of a Tranche Notice, the number
of Warrant Shares underlying this Warrant shall be adjusted such that after such
adjustment (and taking account of the adjustment to the Exercise Price in
accordance with Section 1.2 above) the aggregate Exercise Price payable
hereunder for the adjusted number of Warrant Shares shall be the same as the
aggregate Exercise Price in effect immediately prior to such adjustments (in
each case, without regard to any limitations on exercise contained herein).
Immediately following such adjustment, the number of Warrant Shares underlying
the applicable Warrant Tranche shall vest and become exercisable and such number
of Warrant Shares in such Warrant Tranche shall be a number of shares equal to
the Tranche Purchase Price set forth in the applicable Tranche Notice multiplied
by 35%, with the resulting product divided by the Exercise Price as adjusted in
accordance with Section 1.2 above to give effect to the applicable Tranche
Notice (in respect of any Warrant Tranche, the “Warrant Tranche Shares”). For
illustrative purposes only, assume that the Warrant is initially exercisable for
3,500,000 Warrant Shares at an initial Exercise Price of $0.50 (for a total
aggregate Exercise Price of $1,750,000). The Company then delivers a Tranche
Notice with a Tranche Purchase Price of $1,000,000 and the Closing Bid Price of
a share of Common Stock on the most recently completed Trading Day prior to the
time that the Tranche Notice was deemed delivered is $0.25. Immediately prior to
the automatic exercise of the Warrant, the Exercise Price will be adjusted to
$0.25 and the Warrant Shares will be increased to 7,000,000 (to maintain the
pre-adjustment aggregate Exercise Price of $1,750,000). The number of Warrant
Shares underlying the Warrant that become vested and automatically exercised
shall be $1,000,000 x 35% = $350,000 divided by $0.25 = 1,400,000 Warrant
Shares. After such automatic exercise, the Warrant will be exercisable for
5,600,000 Warrant Shares at an Exercise Price of $0.25 (with an aggregate
Exercise Price of $1,400,000 ($1,750,000 minus $350,000)). The Company then
delivers a second Tranche Notice with a Tranche Purchase Price of $2,000,000 and
the Closing Bid Price of a share of Common Stock on the most recently completed
Trading Day prior to the time that the Tranche Notice was deemed delivered is
$0.35. Immediately prior to the automatic exercise of the Warrant, the Exercise
Price will be adjusted to $0.35 and the Warrant Shares will be decreased to
4,000,000 (to maintain the pre-adjustment aggregate Exercise Price of
$1,400,000). The number of Warrant Shares underlying the Warrant that become
vested and automatically exercised shall be $2,000,000 x 35% = $700,000 divided
by $0.35 = 2,000,000 Warrant Shares. After such automatic exercise, the Warrant
will be exercisable for 2,000,000 Warrant Shares at an Exercise Price of $0.35
(with an aggregate Exercise Price of $700,000 ($1,400,000 minus $700,000)). For
clarification purposes, both the Exercise Price and number of Warrant Shares
underlying this Warrant and each Warrant Tranche shall each be deemed to be
adjusted in accordance with Section 1.2 above and this Section 1.3 immediately
prior to the determination of the number of Warrant Tranche Shares and the
automatic vesting and exercise of this Warrant in connection therewith.

For clarification purposes, if a portion of the Warrant has been automatically
exercised pursuant to the terms of this Warrant but the related Tranche Closing
fails to occur, the Warrant Share Amount shall be increased by the number of
Warrant Shares that were issued in connection with such automatic exercise.
Notwithstanding anything to the contrary herein, until the Purchase Agreement
has been terminated in accordance with its terms, the number of Warrant Shares
underlying this Warrant shall be adjusted, as necessary, to permit the issuance
of all Warrant Tranche Shares in connection with any Warrant Tranche.

1.4 Reserved.

 

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1.5 Company’s Failure to Timely Deliver Securities. If the Company shall fail
for any reason or for no reason to credit, by 5:00 p.m. New York City time on
the Trading Day following the Exercise Delivery Date, the Holder’s balance
account with DTC for such number of Warrant Shares to which the Holder is
entitled upon the Holder’s automatic exercise of this Warrant (as the case may
be), then, in addition to all other remedies available to the Holder, the
Company shall pay in cash to the Holder on each day that the issuance of such
Warrant Shares is not timely effected an amount equal to 1.5% of the product of
(A) the sum of the number of Warrant Shares not issued to the Holder on a timely
basis and to which the Holder is entitled and (B) the Closing Sale Price of the
shares of Common Stock on the Trading Day immediately preceding the last
possible date which the Company could have issued such Warrant Shares to the
Holder without violating Section 1.1. In addition to the foregoing, if after the
Company’s receipt of the applicable Exercise Delivery Documents the Company
shall fail to timely credit the Holder’s balance account with DTC for the number
of Warrant Shares to which the Holder is entitled upon the Holder’s automatic
exercise hereunder, and the Holder purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by the
Holder of Warrant Shares issuable upon such exercise that the Holder anticipated
receiving from the Company (a “Buy-In”), then the Company shall, within three
(3) Trading Days after the Holder’s request and in the Holder’s discretion,
either (i) pay cash to the Holder in an amount equal to the Holder’s total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased (the “Buy-In Price”), at which point the Company’s
obligation to credit such Holder’s balance account with DTC for the number of
Warrant Shares to which the Holder is entitled upon the Holder’s exercise
hereunder and to issue such Warrant Shares shall terminate, or (ii) promptly
honor its obligation to credit such Holder’s (or its designee’s) balance account
with DTC for the number of Warrant Shares to which the Holder is entitled upon
the Holder’s exercise hereunder and pay cash to the Holder in an amount equal to
the excess (if any) of the Buy-In Price over the product of (A) such number of
shares of Common Stock sold by Holder in satisfaction of its obligations, times
(B) the Closing Bid Price on the date of exercise.

1.6 Exercise Limitations.

(a) Notwithstanding any other provisions herein or in the Purchase Agreement to
the contrary, at no time shall the delivery of a Tranche Notice be effective to
the extent that the number of Warrant Shares to be received pursuant to the
automatic exercise of this Warrant, aggregated with all other shares of Common
Stock and other voting securities then owned or deemed beneficially owned by the
Holder and its Affiliates, would result in the Holder together with its
Affiliates beneficially owning or being deemed the beneficial owner of more than
9.99% of the Common Stock, with such ownership percentage determined in
accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder (the “Maximum Percentage”). The provisions of this
Section 1.6(a) shall be implemented in a manner otherwise than in strict
conformity with the terms of this paragraph to correct this paragraph (or any
portion hereof) which may be defective or inconsistent with the intended Maximum
Percentage beneficial ownership limitation herein contained or to make changes
or supplements necessary or desirable to properly give effect to such Maximum
Percentage limitation. The limitations contained in this paragraph shall apply
to a successor Holder of this Warrant. The holders of Common Stock shall be
third party beneficiaries of this paragraph and the Company may not waive this
paragraph without the consent of holders of a majority of its Common Stock.

 

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(b) In addition to the restrictions set forth in Section 1.6(a) above and
notwithstanding any provisions of the Purchase Agreement to the contrary, at no
time may the Company deliver a Tranche Notice if the number of Common Shares to
be issued upon the automatic exercise of this Warrant (together with all other
shares of Common Stock issued pursuant to previous Tranche Notices) would exceed
the aggregate number of shares of Common Stock which the Company may issue
without breaching the Company’s obligations under the rules or regulations of
the applicable Trading Market, except that such limitation shall not apply in
the event that the Company obtains the approval of its stockholders as required
by the applicable rules of the applicable Trading Market for issuances of Common
Shares in excess of such amount.

1.7 Restrictions. For so long as Holder holds this Warrant or any Warrant
Shares, Holder will not: (i) vote any shares of Common Stock owned or controlled
by it, solicit any proxies, or seek to advise or influence any Person with
respect to any voting securities of the Company; (ii) engage or participate in
any actions, plans or proposals which relate to or would result in (a) acquiring
additional securities of the Company, alone or together with any other Person,
which would result in beneficially owning or controlling, or being deemed to
beneficially own or control, more than 9.99% of the total outstanding Common
Stock or other voting securities of the Company, (b) an extraordinary corporate
transaction, such as a merger, reorganization or liquidation, involving Company
or any of its subsidiaries, (c) a sale or transfer of a material amount of
assets of the Company or any of its subsidiaries, (d) any change in the present
board of directors or management of the Company, including any plans or
proposals to change the number or term of directors or to fill any existing
vacancies on the board, (e) any material change in the present capitalization or
dividend policy of the Company, (f) any other material change in the Company’s
business or corporate structure, including but not limited to, if the Company is
a registered closed-end investment company, any plans or proposals to make any
changes in its investment policy for which a vote is required by Section 13 of
the Investment Company Act of 1940, (g) changes in the Company’s charter, bylaws
or instruments corresponding thereto or other actions which may impede the
acquisition of control of the Company by any Person, (h) causing a class of
securities of the Company to be delisted from a national securities exchange or
to cease to be authorized to be quoted in an inter-dealer quotation system of a
registered national securities association, (i) a class of equity securities of
the Company becoming eligible for termination of registration pursuant to
Section 12(g)(4) of the Act, or (j) any action, intention, plan or arrangement
similar to any of those enumerated above; or (iii) request the Company or its
directors, officers, employees, agents or representatives to amend or waive any
provision of this Section 1.7.

1.8 Disputes. In the case of a dispute as to the determination of the Exercise
Price or the arithmetic calculation of the Warrant Shares, the Company shall
promptly issue to the Holder the number of Warrant Shares that are not disputed
and resolve such dispute in accordance with ARTICLE 11.

1.9 Insufficient Authorized Shares. If at any time while this Warrant (or any
portion thereof) remains outstanding the Company does not have a sufficient
number of authorized and unreserved shares of Common Stock to satisfy its
obligation to reserve for issuance upon exercise of this Warrant at least a
number of shares of Common Stock equal to One Hundred Percent (100%) of the
number of shares of Common Stock as shall from time to time be necessary to
effect the

 

6

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exercise in full of any unexercised portion of this Warrant (the “Required
Reserve Amount”) (an “Authorized Share Failure”), then the Company shall
immediately take all action necessary to increase the Company’s authorized
shares of Common Stock to an amount sufficient to allow the Company to reserve
the Required Reserve Amount for the unexercised portion of the Warrant then
outstanding. Without limiting the generality of the foregoing sentence, as soon
as practicable after the date of the occurrence of an Authorized Share Failure,
but in no event later than ninety (90) days after the occurrence of such
Authorized Share Failure, the Company shall hold a meeting of its stockholders
for the approval of an increase in the number of authorized shares of Common
Stock. In connection with such meeting, the Company shall provide each
stockholder with a proxy statement and shall use its best efforts to solicit its
stockholders’ approval of such increase in authorized shares of Common Stock and
to cause its board of directors to recommend to the stockholders that they
approve such proposal.

ARTICLE 2

ADJUSTMENT UPON SUBDIVISION OR COMBINATION OF COMMON STOCK

If the Company at any time on or after the Issuance Date subdivides (by any
stock split, stock dividend, recapitalization or otherwise) one or more classes
of its outstanding shares of Common Stock into a greater number of shares, the
Exercise Price in effect immediately prior to such subdivision will be
proportionately reduced and the number of Warrant Shares then subject hereto
will be proportionately increased. If the Company at any time on or after the
Issuance Date combines (by combination, reverse stock split or otherwise) one or
more classes of its outstanding shares of Common Stock into a smaller number of
shares, the Exercise Price in effect immediately prior to such combination will
be proportionately increased and the number of Warrant Shares then subject
hereto will be proportionately decreased. Any adjustment under this ARTICLE 2
shall become effective at the close of business on the date the subdivision or
combination becomes effective.

ARTICLE 3

FUNDAMENTAL TRANSACTIONS

3.1 Purchase Rights. In addition to any adjustments pursuant to ARTICLE 2 above,
if at any time the Company grants, issues or sells any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
pro rata to the record holders of any class of shares of Common Stock (the
“Purchase Rights”), then the Holder will be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which the
Holder could have acquired if the Holder had held the number of shares of Common
Stock acquirable upon complete exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
shares of Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights; provided, however, to the extent that the Holder’s right to
participate in any such Purchase Right would result in the Holder exceeding the
Maximum Percentage, then the Holder shall not be entitled to participate in such
Purchase Right to such extent (or beneficial ownership of such shares of Common
Stock as a result of such Purchase Right to such extent) and such Purchase Right
to such extent shall be held in abeyance for the Holder until such time, if
ever, as its right thereto would not result in the Holder exceeding the Maximum
Percentage.

 

7

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3.2 Fundamental Transactions. The Company shall not enter into or be party to a
Fundamental Transaction unless the Successor Entity assumes in writing all of
the obligations set forth in this Section 3 pursuant to written agreements in
form and substance reasonably satisfactory to the Holder and approved by the
Holder prior to such Fundamental Transaction. Immediately prior to the
consummation of a Fundamental Transaction, and notwithstanding anything
contained herein to the contrary, this Warrant and the number of Warrant Shares
underlying this Warrant shall fully vest and the Company, or the Successor
Entity if the Company shall for any reason fail to do so (but without reducing
the Company’s obligations hereunder), shall automatically purchase this Warrant
from the Holder on the date of consummation of such Fundamental Transaction by
paying to the Holder cash in an amount equal to the Black Scholes Value;
provided, however, that this Section 3.2 shall not apply if the Company is the
survivng entity in any Fundamental Transaction.

ARTICLE 4

NONCIRCUMVENTION

The Company hereby covenants and agrees that the Company will not, by amendment
of its Certificate of Incorporation, Bylaws or through any reorganization,
transfer of assets, consolidation, merger, scheme of arrangement, dissolution,
issue or sale of securities, or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, and
will at all times in good faith carry out all the provisions of this Warrant and
take all action as may be required to protect the rights of the Holder. Without
limiting the generality of the foregoing, the Company (i) shall not increase the
par value of any shares of Common Stock receivable upon the exercise of this
Warrant above the Exercise Price then in effect, (ii) shall take all such
actions as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant, and (iii) shall, so long as the Warrant (or any
portion thereof) is outstanding, take all action necessary to reserve and keep
available out of its authorized and unissued shares of Common Stock, solely for
the purpose of effecting the exercise of the Warrant, 100% of the number of
shares of Common Stock as shall from time to time be necessary to effect the
exercise of the unexercised portion of the Warrant then outstanding (without
regard to any limitations on exercise).

ARTICLE 5

WARRANT HOLDER NOT DEEMED A STOCKHOLDER

Except as otherwise specifically provided herein, the Holder, solely in such
Person’s capacity as a holder of this Warrant, shall not be entitled to vote or
receive dividends or be deemed the holder of share capital of the Company for
any purpose, nor shall anything contained in this Warrant be construed to confer
upon the Holder, solely in such Person’s capacity as the Holder of this Warrant,
any of the rights of a stockholder of the Company or any right to vote, give or
withhold consent to any corporate action (whether any reorganization, issue of
stock, reclassification of stock, consolidation, merger, conveyance or
otherwise), receive notice of meetings, receive dividends or subscription
rights, or otherwise, prior to the issuance to the Holder

 

8

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of the Warrant Shares which such Person is then entitled to receive upon the due
exercise of this Warrant. In addition, nothing contained in this Warrant shall
be construed as imposing any liabilities on the Holder to purchase any
securities (upon exercise of this Warrant or otherwise) or as a stockholder of
the Company, whether such liabilities are asserted by the Company or by
creditors of the Company. Notwithstanding this ARTICLE 5, the Company shall
provide the Holder with copies of the same notices and other information given
to the stockholders of the Company generally, contemporaneously with the giving
thereof to the stockholders.

ARTICLE 6

REISSUANCE OF WARRANTS

6.1 Transfer of Warrant. If this Warrant is to be transferred, the Holder shall
surrender this Warrant to the Company, whereupon the Company will forthwith
issue and deliver upon the order of the Holder a new Warrant, registered as the
Holder may request, representing the right to purchase the number of Warrant
Shares being transferred by the Holder and, if less then the total number of
Warrant Shares then underlying this Warrant is being transferred, a new Warrant
to the Holder representing the right to purchase the number of Warrant Shares
not being transferred. Notwithstanding the foregoing, no transfer shall relieve
the Holder of its obligations to exercise this Warrant if the transferee fails
to exercise this Warrant in accordance with its terms.

6.2 Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant, and, in the case of loss, theft or destruction, of
any indemnification undertaking by the Holder to the Company in customary form
and, in the case of mutilation, upon surrender and cancellation of this Warrant,
the Company shall execute and deliver to the Holder a new Warrant representing
the right to purchase the Warrant Shares then underlying this Warrant.

6.3 Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon the
surrender hereof by the Holder at the principal office of the Company, for a new
Warrant or Warrants representing in the aggregate the right to purchase the
number of Warrant Shares then underlying this Warrant, and each such new Warrant
will represent the right to purchase such portion of such Warrant Shares as is
designated by the Holder at the time of such surrender; provided, however, that
no Warrants for fractional shares of Common Stock shall be given.

6.4 Issuance of New Warrants. Whenever the Company is required to issue a new
Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of
like tenor with this Warrant, (ii) shall represent, as indicated on the face of
such new Warrant, the right to purchase the Warrant Shares then underlying this
Warrant (or in the case of a new Warrant being issued pursuant to Section 6.1 or
Section 6.3, the Warrant Shares designated by the Holder which, when added to
the number of shares of Common Stock underlying the other new Warrants issued in
connection with such issuance, does not exceed the number of Warrant Shares then
underlying this Warrant), (iii) shall have an issuance date, as indicated on the
face of such new Warrant which is the same as the Issuance Date, and (iv) shall
have the same rights and conditions as this Warrant.

 

9

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ARTICLE 7

NOTICES

Whenever notice is required to be given under this Warrant, unless otherwise
provided herein, such notice shall be given in accordance with Section 6.2 of
the Purchase Agreement. The Company shall provide the Holder with prompt written
notice of all actions taken pursuant to this Warrant, including in reasonable
detail a description of such action and the reason therefore. Without limiting
the generality of the foregoing, the Company will give written notice to the
Holder (i) as soon as practicable upon any adjustment of the Exercise Price,
setting forth in reasonable detail, and certifying, the calculation of such
adjustment and (ii) at least fifteen (15) days prior to the date on which the
Company closes its books or takes a record (A) with respect to any dividend or
distribution upon the shares of Common Stock, (B) with respect to any grants,
issuances or sales of any Options, Convertible Securities or rights to purchase
stock, warrants, securities or other property to holders of shares of Common
Stock as such or (C) for determining rights to vote with respect to any
Fundamental Transaction, dissolution or liquidation. In each case such
information shall be made known to the public prior to or in conjunction with
such notice being provided to the Holder.

ARTICLE 8

AMENDMENT AND WAIVER; TERMINATION

Except as otherwise provided herein, the provisions of this Warrant may be
amended and the Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only if the Company has
obtained the written consent of the Holder; provided that except as provided
herein, no such action may increase the exercise price of the Warrant or
decrease the number of shares or class of stock obtainable upon exercise of the
Warrant without the written consent of each Holder. No such amendment shall be
effective to the extent that it applies to less than all of the holders of the
Warrants then outstanding.

This Warrant shall terminate at 11:59 p.m. New York City time on the earlier of
(i) the second (2nd) anniversary of the Issuance Date, or (ii) the date that the
Securities Purchase Agreement terminates. Notwithstanding any such termination,
(x) any Warrant Shares obtained by the Holder prior to termination shall remain
outstanding and all rights of the Holder with respect thereto as set forth in
this Warrant shall survive for the period of the applicable statutes of
limitation, and (y) the provisions of Article 1.7 (Restrictions), Article 9
(Governing Law), and Article 13 (Definitions) shall survive any such termination
and shall survive for the period of the applicable statutes of limitation.

ARTICLE 9

GOVERNING LAW

This Warrant shall be governed by and construed and enforced in accordance with,
and all questions concerning the construction, validity, interpretation and
performance of this Warrant shall be governed by, the internal laws of the State
of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York.

 

10

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ARTICLE 10

CONSTRUCTION; HEADINGS

This Warrant shall be deemed to be jointly drafted by the Company and the Holder
and shall not be construed against any person as the drafter hereof. The
headings of this Warrant are for convenience of reference and shall not form
part of, or affect the interpretation of, this Warrant.

ARTICLE 11

DISPUTE RESOLUTION

In the case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall submit the
disputed determinations or arithmetic calculations via facsimile within two
(2) Trading Days of receipt of the Exercise Notice giving rise to such dispute,
as the case may be, to the Holder. If the Holder and the Company are unable to
agree upon such determination or calculation of the Exercise Price or the
Warrant Shares within three (3) Trading Days of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall,
within two (2) Trading Days submit via facsimile (a) the disputed determination
of the Exercise Price or arithmetic calculation to an independent, reputable
investment bank or independent registered public accounting firm selected by
Holder subject to Company’s approval, which may not be unreasonably withheld or
delayed, or (b) the disputed arithmetic calculation of the Warrant Shares to the
Company’s independent registered public accounting firm. The Company shall cause
at its expense the investment bank or the accountant, as the case may be, to
perform the determinations or calculations and notify the Company and the Holder
of the results no later than three (3) Trading Days from the time it receives
the disputed determinations or calculations. Such investment bank’s or
accountant’s determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error.

ARTICLE 12

REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF

The remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant, at law or in equity (including a
decree of specific performance and/or other injunctive relief), and nothing
herein shall limit the right of the Holder to pursue actual damages for any
failure by the Company to comply with the terms of this Warrant. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder and that the remedy at law for any such breach
may be inadequate. The Company therefore agrees that, in the event of any such
breach or threatened breach, the holder of this Warrant shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.

 

11

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ARTICLE 13

DEFINITIONS

For purposes of this Warrant, in addition to the terms defined elsewhere herein,
the following terms shall have the following meanings:

13.1 “Black Scholes Value” means the value of the unexercised portion of this
Warrant remaining on the date of consummation of the applicable Fundamental
Transaction, which value is calculated using the Black Scholes Option Pricing
Model obtained from the “OV” function on Bloomberg utilizing (i) an underlying
price per share equal to the greater of (1) the highest Closing Sale Price of
the Common Stock during the period beginning on the Trading Day immediately
preceding the earliest to occur of (x) the public disclosure of the applicable
Fundamental Transaction, (y) the consummation of the applicable Fundamental
Transaction and (z) the date on which the Holder first became aware of the
applicable Fundamental Transaction and ending on the date of consummation of the
applicable Fundamental Transaction and (2) the sum of the price per share being
offered in cash in the applicable Fundamental Transaction (if any) plus the
value of the non-cash consideration being offered in the applicable Fundamental
Transaction (if any), (ii) a strike price equal to the Exercise Price in effect
as of the date of consummation of the applicable Fundamental Transaction,
(iii) a risk-free interest rate corresponding to the U.S. Treasury rate for a
period equal to the remaining term of this Warrant as of the date of
consummation of the applicable Fundamental Transaction and (iv) an expected
volatility equal to the greater of 100% and the 100 day volatility obtained from
the HVT function on Bloomberg (determined utilizing a 365 day annualization
factor) as of the Trading Day immediately following the earliest to occur of
(x) the public disclosure of the applicable Fundamental Transaction, (y) the
consummation of the applicable Fundamental Transaction and (z) the date on which
the Holder first became aware of the applicable Fundamental Transaction.

13.2 “Bloomberg” means Bloomberg, L.P.

13.3 “Closing Bid Price” and “Closing Sale Price” means, for any security as of
any date, (a) the last closing bid price and last closing trade price,
respectively, for such security on the Trading Market, as reported by Bloomberg,
or, (b) if the Trading Market begins to operate on an extended hours basis and
does not designate the closing bid price or the closing trade price, as the case
may be, then the last bid price or last trade price, respectively, of such
security prior to 4:00 p.m., New York City time, as reported by Bloomberg, or,
(c) if the Trading Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or
(d) if the foregoing (a), (b) or (c) do not apply, the last closing bid price or
last trade price, respectively, of such security in the over-the-counter market
on the electronic bulletin board for such security as reported by Bloomberg, or,
(e) if no closing bid price or last trade price, respectively, is reported for
such security by Bloomberg, the average of the bid prices, or the ask prices,
respectively, of all of the market makers for such security as reported in the
“pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC). If the
Closing Bid Price or the Closing Sale Price cannot be calculated for a security
on a particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to ARTICLE 11. All
such value determinations are to be appropriately adjusted for any stock
dividend, stock split, stock combination or other similar transaction during the
applicable calculation period.

 

12

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13.4 “Common Stock” means the common stock, par value $0.006 per share, of the
Company, and any replacement or substitute thereof, or any share capital into
which such Common Stock shall have been changed or any share capital resulting
from a reclassification of such Common Stock.

13.5 “Convertible Securities” “means any stock or other security (other than
Options) that is at any time and under any circumstances, directly or
indirectly, convertible into, exercisable or exchangeable for, or which
otherwise entitles the holder thereof to acquire, any shares of Common Stock.

13.6 “Exercise Delivery Date” shall mean the Trading Day on which the Company is
deemed to have received each of the Exercise Notice and the Aggregate Exercise
Price in accordance with the terms of the Purchase Agreement, which delivery may
be by .pdf e-mail.

13.7 “Exercise Delivery Documents” in respect of any exercise of this Warrant
shall mean each of the Exercise Notice and the Aggregate Exercise Price in
respect of such exercise.

13.8 “Fundamental Transaction” means that (i) the Company or any of its
Subsidiaries shall, directly or indirectly, in one or more related transactions,
(1) consolidate or merge with or into any other Person where there is a change
of control and the Company is not the surviving corporation, or (2) sell, lease,
license, assign, transfer, convey or otherwise dispose of all or substantially
all of its respective properties or assets to any other Person, or (3) allow any
other Person to make a purchase, tender or exchange offer that is accepted by
the holders of more than fifty percent (50%) of the outstanding shares of Voting
Stock of the Company (not including any shares of Voting Stock of the Company
held by the Person or Persons making or party to, or associated or affiliated
with the Persons making or party to, such purchase, tender or exchange offer),
or (4) consummate a stock or share purchase agreement or other business
combination (including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with any other Person whereby such other
Person acquires more than fifty percent (50%) of the outstanding shares of
Voting Stock of the Company (not including any shares of Voting Stock of the
Company held by the other Person or other Persons making or party to, or
associated or affiliated with the other Persons making or party to, such stock
or share purchase agreement or other business combination), or (5) reorganize,
recapitalize or reclassify the Common Stock, (ii) any “person” or “group” (as
these terms are used for purposes of Sections 13(d) and 14(d) of the Exchange
Act and the rules and regulations promulgated thereunder) is or shall become the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of fifty percent (50%) of the aggregate ordinary voting power
represented by issued and outstanding Voting Stock of the Company or (iii) any
other event which constitutes a Deemed Liquidation Event under the Certificate
of Designations.

13.9 “Options” means any rights, warrants or options to subscribe for or
purchase shares of Common Stock or Convertible Securities.

 

13

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13.10 “Parent Entity” of a Person means an entity that, directly or indirectly,
controls the applicable Person and whose common stock or equivalent equity
security is quoted or listed on a Trading Market, or, if there is more than one
such Person or Parent Entity, the Person or Parent Entity with the largest
public market capitalization as of the date of consummation of the Fundamental
Transaction.

13.11 “Person” means an individual, a limited liability company, a partnership,
a joint venture, a corporation, a trust, an unincorporated organization, any
other entity or a government or any department or agency thereof.

13.13 “Trading Market” means the OTC Bulletin Board, the NASDAQ Capital Market,
the NASDAQ Global Market, the NASDAQ Global Select Market, the NYSE Amex, the
New York Stock Exchange, the OTCQX or the OTCQB, whichever is at the time the
principal trading exchange or market for the Common Stock, but does not include
the Pink Sheets inter dealer electronic quotation and trading system.

13.14 “Subsidiaries” means any Person in which the Company, directly or
indirectly, (I) owns any of the outstanding capital stock or holds any equity or
similar interest of such Person or (II) controls or operates all or any part of
the business, operations or administration of such Person and each of the
foregoing, is individually referred to herein as a “Subsidiary.”

13.15 “Successor Entity” means the Person (or, if so elected by the Holder, the
Parent Entity) formed by, resulting from or surviving any Fundamental
Transaction or the Person (or, if so elected by the Holder, the Parent Entity)
with which such Fundamental Transaction shall have been entered into.

13.16 “Trading Day” means any day on which the Common Stock is traded on the
Trading Market; provided that “Trading Day” shall not include any day on which
the Common Stock is scheduled to trade on such exchange or market for less than
4.5 hours or any day that the Common Stock is suspended from trading during the
final hour of trading on the Trading Market (or if the Trading Market does not
designate in advance the closing time of trading on the Trading Market, then
during the hour ending at 4:00:00 p.m., New York City time) unless such day is
otherwise designated as a Trading Day in writing by the Holder.

13.17 “Tranche Closing” has the meaning set forth in the Purchase Agreement.

13.18 “Voting Stock” of a Person means capital stock of such Person of the class
or classes pursuant to which the holders thereof have the general voting power
to elect, or the general power to appoint, at least a majority of the board of
directors, managers or trustees of such Person (irrespective of whether or not
at the time capital stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency).

[Signature Page Follows]

 

14

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IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common Stock
to be duly executed as of the Issuance Date set out above.

 

MARINA BIOTECH, INC. By:      

Name: Philip C. Ranker

Title:   Interim Chief Financial Officer

[Signature Page – Warrant]

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APPENDIX 1

EXERCISE NOTICE

MARINA BIOTECH, INC.

The undersigned hereby exercises the right to purchase             shares of
Common Stock (“Warrant Shares”) of Marina Biotech, Inc., a Delaware corporation
(“Company”), evidenced by the attached Warrant to Purchase Common Stock
(“Warrant”). Capitalized terms used herein and not otherwise defined shall have
the respective meanings set forth in the Warrant. The Holder intends that
payment of the Exercise Price shall be made as:

            Cash Exercise with respect to             Warrant Shares having an
exercise price of $            per share             

            Cashless Exercise with respect to             Warrant Shares having
an exercise price of $            per share             

            Recourse Note Exercise with respect to             Warrant Shares
having an exercise price of $            per share

Shares are to be issued in electronic form to the Deposit/Withdrawal at
Custodian (DWAC) account with Depository Trust Company (DTC) specified below:

 

Name and Contact for Broker:

    

 

    

 

 

Broker no:     

 

Account no:     

 

Account holder:     

 

SOCIUS CG II, LTD.

 

By:

 

 

  Name: Terren Peizer   Title:   Managing Director

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ACKNOWLEDGMENT

The Company hereby acknowledges the foregoing Exercise Notice and hereby directs
American Stock Transfer & Trust Company, LLC to issue the above indicated number
of shares of Common Stock as specified above, in accordance with the Transfer
Agent Instructions dated December             , 2011 from the Company, and
acknowledged and agreed to by the transfer agent.

 

MARINA BIOTECH, INC. By:  

 

  Name:   Title:

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Exhibit A-2

Form of Investment Right Exercise Notice

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INVESTMENT RIGHT EXERCISE NOTICE

The undersigned, Socius CG II, Ltd., a Bermuda exempted company (the
“Investor”), hereby exercises the right to purchase
                                        shares of common stock, par value $0.006
per share (the “Common Stock”), of Marina Biotech, Inc., a Delaware corporation
(“Company”), pursuant to the Additional Investment Right contained in the
Securities Purchase Agreement, dated as of December 22, 2011, between the
Company and the Investor (the “Purchase Agreement”). Capitalized terms used
herein and not otherwise defined shall have the respective meanings set forth in
the Purchase Agreement.

 

  (1) Payment shall take the form of (check applicable box):

[ ]     lawful money of the United States; or

[ ]     recourse promissory note(s).

 

  (2) Tranche Amount: $                            

 

  (3) Applicable Exercise Price: $                    per share of Common Stock

 

  (4) Number of shares of Common Stock to be Issued:             shares of
Common Stock

 

  (5) DWAC Instructions:

Number of shares of Common Stock for DWAC:                    
                                         
                                         
                                           

Name and Contact for Broker:            
                                         
                                         
                                         
                                              

                                                                   
                                         
                                         
                                         
                                                     

Broker no:                                                           
                                         
                                         
                                                                             

Account no:                                                           
                                         
                                         
                                                                            

Account holder:                                                          
                                         
                                         
                                                                     

SOCIUS CG II, LTD.

By:                                                 

Name:

Title:

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Exhibit B

Form of Certificate of Designations

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MARINA BIOTECH, INC.

CERTIFICATE OF DESIGNATIONS OF PREFERENCES,

RIGHTS AND LIMITATIONS

OF

SERIES B PREFERRED STOCK

The undersigned, Philip C. Ranker, hereby certifies that:

1. He is the Interim Chief Financial Officer and Secretary of Marina Biotech,
Inc., a Delaware corporation (the “Corporation”).

2. The Corporation is authorized to issue 100,000 shares of preferred stock.

3. The following resolutions were duly adopted by the Board of Directors:

WHEREAS, the Articles of Incorporation of the Corporation provides for a class
of its authorized stock known as preferred stock, comprised of 100,000 shares,
$0.01 par value per share (the Preferred Stock”), issuable from time to time in
one or more series;

WHEREAS, the Board of Directors of the Corporation is authorized to fix the
dividend rights, dividend rate, voting rights, conversion rights, rights and
terms of redemption and liquidation preferences of any wholly unissued series of
Preferred Stock and the number of shares constituting any series and the
designation thereof, of any of them; and

WHEREAS, it is the desire of the Board of Directors of the Corporation, pursuant
to its authority as aforesaid, to fix the rights, preferences, restrictions and
other matters relating to a series of Preferred Stock, which shall consist of up
to 1,000 shares of the Preferred Stock which the Corporation has the authority
to issue, as follows:

NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide
for the issuance of a series of Preferred Stock for cash or exchange of other
securities, rights or property and does hereby fix and determine the rights,
preferences, restrictions and other matters relating to such series of Preferred
Stock as follows:

TERMS OF PREFERRED STOCK

1. Designation, Amount and Par Value. The series of Preferred Stock shall be
designated as the Corporation’s Series B Preferred Stock (the “Series B
Preferred Stock”) and the number of shares so designated shall be 1,000 (which
shall not be subject to increase without the consent of all of the holders of
the Series B Preferred Stock (each a “Holder” and collectively, the “Holders”).

 

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Each share of Series B Preferred Stock shall have a $0.01 par value per share.
Shares of Series B Preferred Stock shall only be issued in respect of the
transactions contemplated by the certain Securities Purchase Agreement, dated on
or about December 22, 2011, by and between the Corporation and Socius CG II,
Ltd., and as Dividends (as defined below) thereon.

2. Ranking. The Series B Preferred Stock shall, with respect to dividend rights
and rights upon liquidation, winding-up or dissolution, rank:

a. senior to the Corporation’s common stock, $0.006 par value per share (“Common
Stock”), the Corporation’s Series A Junior Participating Preferred Stock, and
any other class or series of Preferred Stock of the Corporation or a class or
series of Preferred Stock of the Corporation that the Corporation intends to
cause to be listed for trading or quoted on any one of the NASDAQ Capital
Market, the NASDAQ Global Market, the NASDAQ Global Select Market, the NYSE
Amex, the New York Stock Exchange, the OTC Bulletin Board, the OTCQX or the
OTCQB (collectively, together with any warrants, rights, calls or options
exercisable for or convertible into such Preferred Stock, the “Junior Shares”);

b. junior to all existing and future indebtedness of the Corporation and any
class or series of Preferred Stock of the Corporation that the Corporation
intends to cause to be listed for trading or quoted on any one of the NASDAQ
Capital Market, the NASDAQ Global Market, the NASDAQ Global Select Market, the
NYSE Amex, the New York Stock Exchange, the OTC Bulletin Board, the OTCQX or the
OTCQB (collectively, together with any warrants, rights, calls or options
exercisable for or convertible into such Preferred Stock, the “Senior Shares”).

3. Dividends and Other Distributions. Commencing on the date of the issuance of
any share of Series B Preferred Stock (in each case, the “Issuance Date”),
Holders of Series B Preferred Stock shall be entitled to receive dividends on
each outstanding share of Series B Preferred Stock (“Dividends”), which shall
accrue on a cumulative basis in shares of Series B Preferred Stock at a rate
equal to 10.0% per annum from the respective Issuance Date.

a. Any calculation of the amount of such Dividends payable pursuant to the
provisions of this Section 3 shall be made based on a 365-day year and on the
number of days actually elapsed during the applicable period, compounded
annually. Dividends hereunder shall accrue on a daily basis.

b. Accrued Dividends shall be paid upon redemption of the Series B Preferred
Stock in accordance with Sections 5 and 6, and shall be redeemed at such time as
part of such redemption.

c. So long as any shares of Series B Preferred Stock are outstanding, no
dividends or other distributions will be paid, declared or set apart with
respect to any Junior Shares unless all Dividends, including accrued Dividends,
have been first paid.

 

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4. Protective Provision. So long as any shares of Series B Preferred Stock are
outstanding, the Corporation shall not, without the affirmative approval of the
Holders of a majority of the shares of the Series B Preferred Stock then
outstanding, (a) alter or change adversely the powers, preferences or rights
given to the Series B Preferred Stock or alter or amend this Certificate of
Designations, (b) authorize or create any class of stock ranking as to
distribution of assets upon a liquidation senior to or otherwise pari passu with
the Series B Preferred Stock (other than Senior Shares), (c) amend its
certificate or articles of incorporation or other charter documents in breach of
any of the provisions hereof, (d) change the authorized number of shares of
Series B Preferred Stock, (e) liquidate, dissolve or wind-up the business and
affairs of the Corporation or effect any Deemed Liquidation Event (as defined
below), or (f) enter into any agreement with respect to the foregoing.

a. A “Deemed Liquidation Event” shall mean: (i) a merger or consolidation in
which the Corporation is a constituent party or a subsidiary of the Corporation
is a constituent party and the Corporation issues shares of its capital stock
pursuant to such merger or consolidation, except any such merger or
consolidation involving the Corporation or a subsidiary in which the shares of
capital stock of the Corporation outstanding immediately prior to such merger or
consolidation continue to represent, or are converted into or exchanged for
shares of capital stock that represent, immediately following such merger or
consolidation, at least a majority, by voting power, of the capital stock of the
surviving or resulting corporation or if the surviving or resulting corporation
is a wholly owned subsidiary of another corporation immediately following such
merger or consolidation, the parent corporation of such surviving or resulting
corporation; or (ii) the sale, lease, transfer, exclusive license or other
disposition, in a single transaction or series of related transactions, by the
Corporation or any subsidiary of the Corporation of all or substantially all the
assets of the Corporation and its subsidiaries taken as a whole, or the sale or
disposition (whether by merger or otherwise) of one or more subsidiaries of the
Corporation if substantially all of the assets of the Corporation and its
subsidiaries taken as a whole are held by such subsidiary or subsidiaries,
except where such sale, lease, transfer, exclusive license or other disposition
is to a wholly owned subsidiary of the Corporation.

b. The Corporation shall not have the power to effect a Deemed Liquidation Event
referred to in Section 4(a) unless the agreement or plan of merger or
consolidation for such transaction provides that the consideration payable to
the stockholders of the Corporation shall be allocated among the holders of
capital stock of the Corporation in accordance with Section 5.

5. Liquidation.

a. Upon any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, after payment or provision for payment of debts and
other liabilities of the Corporation, before any distribution or payment shall
be made to the holders of any Junior Shares by reason of their ownership
thereof, but after any distribution or payment to be made to the holders of any
Senior Shares and simultaneous with any distribution or payment to be made to
the holders of any pari passu shares, the Holders of Series B Preferred Stock
shall be entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders an amount with respect to each share of Series
B Preferred Stock equal to $10,000.00 (as adjusted for any stock dividends,
combinations, splits or the like with respect to such shares), plus any

 

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accrued or declared but unpaid Dividends thereon (collectively, the “Series B
Liquidation Value”). If, upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, and after any distribution or
payment to be made to the holders of any Senior Shares, the amounts payable with
respect to the shares of Series B Preferred Stock are not paid in full, the
holders of shares of Series B Preferred Stock shall share equally and ratably in
any distribution of assets of the Corporation in proportion to the liquidation
preference and an amount equal to all accumulated and unpaid Dividends, if any,
to which each such holder is entitled.

b. After payment has been made to the Holders of the Series B Preferred Stock of
the full amount of the Series B Liquidation Value, any remaining assets of the
Corporation shall be distributed among the holders of Junior Shares in
accordance with the Corporation’s Articles of Incorporation.

c. If, upon any liquidation, dissolution or winding up of the Corporation, the
assets of the Corporation shall be insufficient to make payment in full to all
Holders, then such assets shall be distributed among the Holders at the time
outstanding, ratably in proportion to the full amounts to which they would
otherwise be respectively entitled.

d. The value of any securities to be delivered to the Holders pursuant to this
Section 5 shall be determined as follows:

(i) If listed on a national securities exchange, the value shall be deemed to be
the average of the closing prices of the securities on such exchange over the
thirty day period ending three days prior to the date of the Deemed Liqudation
Event (the “Deemed Liquidity Date”);

(ii) If actively traded over the counter, the value shall be deemed to be the
average of the closing bid prices over the thirty day period ending three days
prior to the Deemed Liquidity Date; and

(iii) If there is no active public market, the value shall be the fair market
value thereof as determined jointly in good faith by the Holder and the
Corporation’s board of directors.

6. Redemption.

a. Corporation’s Redemption Option. At any time after the initial Issuance Date,
the Corporation shall have the right, at the Corporation’s option, to redeem all
(but not less than all) of the shares of Series B Preferred Stock, at a price
per share of Series B Preferred Stock equal to the Series B Liquidation Value,
which redemption may be effectuated in exchange for all (but not less than all)
secured promissory notes (the “Promissory Notes”) issued by the Holder to the
Corporation as set forth further below.

b. Mandatory Redemption. If the Corporation (a) enters into an agreement to or
otherwise adopts or approves a plan or arrangement with respect to liquidation,
dissolution or winding-up of its business and affairs, or (b) effects any Deemed
Liquidation Event, the Corporation shall redeem the Series B Preferred Stock at
the price set forth in Section 6(a) and in the manner set forth in Section 6(c)
and Section 6(d) below.

 

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c. Mechanics of Redemption. Subject to Section 6(d) below, if the Corporation
elects to redeem or is required to redeem the Holders’ Series B Preferred Stock
then outstanding, it shall deliver written notice thereof via facsimile and
overnight courier (“Notice of Redemption”) to each Holder, which Notice of
Redemption shall indicate (A) the number of shares of Series B Preferred Stock
that the Corporation is electing to redeem or is required to redeem (which shall
not be less than all of the outstanding shares of Series B Preferred Stock),
(B) the redemption price calculated under Section 6(a) above, and (C) the manner
and the place designated for the surrender of the certificate or certificates
representing the shares to be redeemed. The aggregate price of the Preferred
Stock to be redeemed at the redemption price calculated under Section 6(a) above
is referred to herein as the “Corporation Redemption Price”.

d. Payment of Redemption Price. Upon receipt by any Holder of a Notice of
Redemption, such Holder shall promptly submit to the Corporation such Holder’s
Series B Preferred Stock certificates in the manner and at the place designated
in the Notice of Redemption. Upon receipt of such Holder’s Series B Preferred
Stock certificates, the Corporation shall pay the Corporation Redemption Price
at the option of the Company either (i) in cash, or (ii) by offset against and
in cancellation of all amounts due and owing under all outstanding promissory
notes payable from Holder to the Corporation that were issued by Holder in
connection with the exercise of warrants or additional investment rights by such
Holder (the “Promissory Notes”) (it being understood that following such offset
and cancellation, no further amounts are or shall be due or payable with respect
to such shares of Series B Preferred Stock or such Promissory Notes and all of
such shares of Series B Preferred Stock and Promissory Notes shall no longer be
outstanding). For clarification purposes, in the event that the Corporation
elects to pay the Corporation Redemption Price in cash under clause (i) above,
it shall so notify Holder and Holder may thereafter elect to instead effect such
redemption in exchange for Promissory Notes in accordance with clause
(ii) above, in which case clause (ii) above shall apply.

Notwithstanding the foregoing, if, in the event of a mandatory redemption under
Section 6(b) above, the funds of the Corporation legally available for
redemption of shares of Series B Preferred Stock on any redemption date are
insufficient to redeem the total number of shares of Series B Preferred Stock to
be redeemed on such date, those funds that are legally available will be used to
redeem shares from the Holders ratably in proportion to the aggregate
Corporation Redemption Prices that would be payable to each Holder if all shares
required to be redeemed were being redeemed. If any Holder holds more than one
series of Preferred Stock, the same proportion of each series of shares held by
such holder will be redeemed. The shares of Series B Preferred Stock not
redeemed shall remain outstanding and be entitled to all the rights and
preferences provided herein. If any time thereafter additional funds become
legally available for the redemption, such funds will immediately be used to
redeem the balance of the shares which the Corporation has become obliged to
redeem on any redemption date but which it has not redeemed. In the event that
the limitations contained in this paragraph apply with respect to any mandatory
redemption under Section 6(b) above and the Company determines, or is required
by the Holder, to redeem the shares of Series B Preferred Stock in accordance
with clause (ii) of Section 6(d) above, then the percentage of the Series B
Preferred Stock then being redeemed as a result of the

 

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application of the limitations of this paragraph (in relation to all then
outstanding shares Series B Preferred Stock) shall be redeemed in exchange for
and in cancellation of the same percentage of then outstanding Promissory Notes
(in relation to all then outstanding Promissory Notes) and from and after such
redemption, no amounts shall be due and owning as to such shares of Series B
Preferred Stock or such Promissory Notes then redeemed and exchanged and such
shares of Series B Preferred Stock and such Promissory Notes then redeemed and
exchanged shall no longer be outstanding.

7. Transferability.

a. The Series B Preferred Stock constitutes “restricted securities” as such term
is defined in Rule 144(a)(3) under the Act and may only be disposed of in
compliance with U.S. federal securities laws and applicable state securities or
“blue sky” laws. Without limiting the generality of the foregoing, the Series B
Preferred Stock may not be offered for sale, sold, transferred, assigned,
pledged or otherwise distributed unless (A) subsequently registered thereunder,
(B) Holder shall have delivered to the Corporation an opinion of counsel
reasonably acceptable to the Corporation, in a form generally acceptable to the
Corporation, to the effect that such Series B Preferred Stock to be offered for
sale, sold, transferred, assigned, pledged or otherwise distributed may be
offered for sale, sold, transferred, assigned, pledged or otherwise distributed
pursuant to an exemption from such registration, or (C) Holder provides the
Corporation and its legal counsel with assurance reasonably acceptable to the
Corporation that such Series B Preferred Stock can be offered for sale, sold,
transferred, assigned, pledged or otherwise distributed pursuant to Rule 144A
promulgated under the Act;

b. So long as is required by this Section 7, the certificates or other
instruments representing the Series B Preferred Stock shall bear any legends as
required by applicable state securities or “blue sky” laws, in addition to the
following restrictive legend (and that a stop-transfer order shall be placed
against transfer of such certificates):

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

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c. The Corporation shall keep at its principal office, or at the offices of its
Transfer Agent, a register of the Series B Preferred Stock. Upon the surrender
of any certificate representing Series B Preferred Stock at such place, the
Corporation, at the request of the record Holder of such certificate, shall
execute and deliver (at the Corporation’s expense) a new certificate or
certificates in exchange therefor representing in the aggregate the number of
shares represented by the surrendered certificate. Each such new certificate
shall be registered in such name and shall represent such number of shares as is
requested by the Holder of the surrendered certificate and shall be
substantially identical in form to the surrendered certificate.

8. Miscellaneous.

a. Notices. Any and all notices to the Corporation shall be addressed to the
Corporation’s President or Chief Executive Officer at the Corporation’s
principal place of business on file with the Secretary of State of the State of
Delaware. Any and all notices or other communications or deliveries to be
provided by the Corporation to any Holder hereunder shall be in writing and
delivered personally, by facsimile, sent by a nationally recognized overnight
courier service addressed to each Holder at the facsimile telephone number or
address of such Holder appearing on the books of the Corporation, or if no such
facsimile telephone number or address appears, at the principal place of
business of the Holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this section prior to 5:30 p.m. Eastern
time, (ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this section later than 5:30 p.m. but prior to 11:59 p.m. Eastern
time on such date, or (iii) upon actual receipt by the party to whom such notice
is required to be given.

b. Lost or Mutilated Preferred Stock Certificate. Upon receipt of evidence
reasonably satisfactory to the Corporation (an affidavit of the registered
Holder shall be satisfactory) of the ownership and the loss, theft, destruction
or mutilation of any certificate evidencing shares of Series B Preferred Stock,
and in the case of any such loss, theft or destruction upon receipt of indemnity
reasonably satisfactory to the Corporation (provided that if the Holder is a
financial institution or other institutional investor its own agreement shall be
satisfactory) or in the case of any such mutilation upon surrender of such
certificate, the Corporation shall, at its expense, execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
shares of such class represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate.

c. Headings. The headings contained herein are for convenience only, do not
constitute a part of this Certificate of Designations and shall not be deemed to
limit or affect any of the provisions hereof.

 

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RESOLVED, FURTHER, that the chairman, chief executive officer, president, chief
financial officer, or any vice-president, and the secretary or any assistant
secretary, of the Corporation be and they hereby are authorized and directed to
prepare and file a Certificate of Designation of Preferences, Rights and
Limitations of Series B Preferred Stock in accordance with the foregoing
resolution and the provisions of Delaware law.

IN WITNESS WHEREOF, the undersigned have executed and acknowledged this
Certificate this      day of December 2011.

 

By:  

 

  Name:   Title:

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Exhibit C

Form of Transfer Agent Instructions

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TRANSFER AGENT INSTRUCTIONS

MARINA BIOTECH, INC.

December             , 2011

American Stock Transfer & Trust Company, LLC

6201 15th Avenue

Brooklyn, New York 11219

Attention: Paula Caroppoli

Ladies and Gentlemen:

Reference is made to that certain Securities Purchase Agreement, dated as of
December 22, 2011 (the “Purchase Agreement”), by and between Marina Biotech,
Inc., a Delaware corporation (the “Company”), and Socius CG II, Ltd. (the
“Holder”), pursuant to which the Company is issuing to the Holder (i) the
Warrant (as defined in the Purchase Agreement), which is exercisable for shares
of common stock of the Company, $0.006 par value per share (the “Common Stock”)
and (ii) the Additional Investment Right (as defined in the Purchase Agreement),
which is exercisable for shares of Common Stock.

This letter shall serve as our irrevocable authorization and direction to you
(provided that you are the transfer agent of the Company at such time):

(i) to issue shares of Common Stock upon the exercise of the Warrant (the
“Warrant Shares”) to or upon the order of the Holder from time to time upon
delivery to you of an Exercise Notice, in the form attached hereto as Exhibit I.

(ii) to issue shares of Common Stock upon the exercise of the Additional
Investment Right (the “Additional Investment Shares”) to or upon the order of
the Holder from time to time upon delivery to you of an Investment Right
Exercise Notice, in the form attached hereto as Exhibit II.

You acknowledge and agree that so long as you have previously received
(a) written opinion from the Company’s legal counsel that either (i) a
registration statement covering resales of the Warrant Shares or the Additional
Investment Shares has been declared effective by the Securities and Exchange
Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933
Act”), or (ii) that sales of the Warrant Shares or the Additional Investment
Shares may be made in conformity with Rule 144 under the 1933 Act, and (b) if
applicable, a copy of such registration statement, then, on the trading day
immediately following the date of receipt of the notice of exercise, you will
credit such aggregate number of Warrant Shares or Additional Investment Shares
(as the case may be) to which the Holder is entitled to the Holder’s or its
designee’s balance account with The Depository Trust Company (DTC) through its
Deposit Withdrawal At Custodian (DWAC) system provided the Holder causes its
bank or broker to initiate the DWAC transaction, and such Warrant Shares and
Additional Investment Shares should not be subject to any stop-transfer
restriction or legend of any kind and shall otherwise be freely transferable on
the books and records of the Company.

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A form of written opinion from the Company’s outside legal counsel that a
registration statement covering resales of the Warrant Shares and Additional
Investment Shares has been declared effective by the SEC under the 1933 Act is
attached hereto as Exhibit III.

The Company hereby confirms that no instructions other than as contemplated
herein will be given to you by the Company with respect to Warrant Shares and
the Additional Investment Shares. The Company hereby agrees that it shall not
replace you as the Company’s transfer agent, until such time as the Company
provides written notice to you and Holder that a suitable replacement has agreed
to serve as transfer agent and to be bound by the terms and conditions of these
Transfer Agent Instructions.

The Company and you hereby acknowledge and confirm that complying with the terms
of this agreement does not and shall not prohibit you from satisfying any and
all fiduciary responsibilities and duties you may owe to the Company.

The Company and you acknowledge that the Holder is relying on the
representations and covenants made by the Company and you hereunder and are a
material inducement to the Holder to enter into the Purchase Agreement. The
Company and you further acknowledge that without such representations and
covenants made hereunder, the Holder would not enter into the Purchase Agreement
and purchase Securities pursuant thereto.

You may at any time resign as transfer agent hereunder by giving thirty
(30) days prior written notice of resignation to the Company and the Holder.
Prior to the effective date of the resignation as specified in such notice, the
Company will issue to you instructions authorizing delivery of Warrant Shares
and Additional Investment Shares to a substitute transfer agent selected by, and
in the sole discretion of, the Company. If no successor transfer agent is named
by the Company, you may apply to a court of competent jurisdiction in the State
of Delaware for appointment of a successor transfer agent and for an order to
deposit the Warrant Shares and Additional Investment Shares with the clerk of
any such court.

Each party hereto specifically acknowledges and agrees that a breach or
threatened breach of any provision hereof will cause irreparable damage and that
damages at law would be an inadequate remedy if these Irrevocable Transfer Agent
Instructions were not specifically enforced. Therefore, in the event of a breach
or threatened breach by a party hereto, including, without limitation, the
attempted termination of the agency relationship created by this instrument, in
addition to all other rights or remedies, an injunction restraining such breach
and granting specific performance of the provisions of these Irrevocable
Transfer Agent Instructions should issue without any requirement to show any
actual damage or to post any bond or other security.

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Please execute this letter in the space indicated to acknowledge your agreement
to act in accordance with these instructions. Should you have any questions
concerning this matter, please contact the undersigned at (425) 908-3615.

 

Very truly yours,

 

MARINA BIOTECH, INC.

By:

      Name: Philip C. Ranker   Title:   Interim CFO and Secretary

THE FOREGOING INSTRUCTIONS ARE

ACKNOWLEDGED AND AGREED TO

this             day of December 2011

AMERICAN STOCK TRANSFER

& TRUST COMPANY, LLC

 

By:       Name:   Title:

Enclosures

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EXHIBIT I

EXERCISE NOTICE

MARINA BIOTECH, INC.

The undersigned hereby exercises the right to purchase             shares of
Common Stock (“Warrant Shares”) of Marina Biotech, Inc., a Delaware corporation
(“Company”), evidenced by the attached Warrant to Purchase Common Stock
(“Warrant”). Capitalized terms used herein and not otherwise defined shall have
the respective meanings set forth in the Warrant. The Holder intends that
payment of the Exercise Price shall be made as:

 

  Cash Exercise with respect to                          Warrant Shares having
an exercise price of $            per share

 

  Cashless Exercise with respect to                          Warrant Shares
having an exercise price of $             per share

 

  Recourse Note Exercise with respect to                          Warrant Shares
having an exercise price of $             per share

Shares are to be issued in electronic form to the Deposit/Withdrawal at
Custodian (DWAC) account with Depository Trust Company (DTC) specified below:

Name and Contact for Broker:                                          
                                                                

                                                                            
                                         
                                         

Broker no:                                          
                                         
                                                         

Account no:                                          
                                         
                                                     

Account holder:                                          
                                         
                                               

 

 

HOLDER NAME:

                                                               
                                                   

By:                                                          
                                                  

Name:                                                          
                                             

                                                                
                                                  

Title:

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EXHIBIT II

INVESTMENT RIGHT EXERCISE NOTICE

The undersigned, Socius CG II, Ltd., a Bermuda exempted company (the
“Investor”), hereby exercises the right to purchase             shares of common
stock, par value $0.006 per share (the “Common Stock”), of Marina Biotech, Inc.,
a Delaware corporation (“Company”), pursuant to the Additional Investment Right
contained in the Securities Purchase Agreement, dated as of December 22, 2011,
between the Company and the Investor (the “Purchase Agreement”). Capitalized
terms used herein and not otherwise defined shall have the respective meanings
set forth in the Purchase Agreement.

 

  (1) Payment shall take the form of (check applicable box):

 

  [    ] lawful money of the United States; or

 

  [    ] recourse promissory note(s).

 

  (2) Tranche Amount: $

 

  (3) Applicable Exercise Price: $            per share of Common Stock

 

  (4) Number of shares of Common Stock to be Issued: shares of Common Stock

 

  (5) DWAC Instructions:

Number of shares of Common Stock for DWAC:                    
                                         
                                                       

Name  and Contact for Broker:          
                                         
                                         
                                                           

                                                              
                                         
                                         
                                                  

Broker no:                                                           
                                         
                                         
                                                  

Account no:                                                           
                                         
                                         
                                               

Account holder:                                                          
                                         
                                         
                                       

SOCIUS CG II, LTD.

By:                                                               
                     

Name:

Title:

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EXHIBIT III

FORM OF NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT

American Stock Transfer & Trust Company, LLC

6201 15th Avenue

Brooklyn, New York 11219

Attention: Paula Caroppoli

Re:     Marina Biotech, Inc.

Ladies and Gentlemen:

We are counsel to Marina Biotech, Inc., a Delaware corporation (the “Company”),
and have represented the Company in connection with that certain Securities
Purchase Agreement (the “Securities Purchase Agreement”) entered into by and
between the Company and the investor named therein (the “Holder”) pursuant to
which the Company issued to the Holder a warrant (the “Warrant”) and an
additional investment right (the “Additional Investment Right”), in each case,
exercisable for shares of the Company’s common stock, $0.006 par value per share
(the “Common Stock”). Pursuant to the Securities Purchase Agreement, the Company
agreed, among other things, to register the Registrable Securities (as defined
in the Securities Purchase Agreement), including the shares of Common Stock
issuable upon exercise of the Warrant and the Additional Investment Right, under
the Securities Act of 1933, as amended (the “1933 Act”). In connection with the
Company’s obligations under the Securities Purchase Agreement, on             ,
20    , the Company filed a Registration Statement on Form S-1 (File
No. 333-            ) (the “Registration Statement”) with the Securities and
Exchange Commission (the “SEC”) relating to the Registrable Securities which
names the Holder as a selling stockholder thereunder.

In connection with the foregoing, we advise you that a member of the SEC’s staff
has advised us by telephone that the SEC has entered an order declaring the
Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after
telephonic inquiry of a member of the SEC’s staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.

This letter shall serve as our standing opinion to you that the shares of Common
Stock underlying the Warrant and the Additional Investment Right are freely
transferable by the Holder pursuant to the Registration Statement. You need not
require further letters from us to effect any future legend-free issuance or
reissuance of such shares of Common Stock to the Holder as contemplated by the
Company’s Irrevocable Transfer Agent Instructions dated             , 20    .

Very truly yours,

PRYOR CASHMAN LLP

CC: [LIST NAME OF HOLDER]

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Exhibit D

Form of Lock-Up Agreement

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LOCK-UP AGREEMENT

December             , 2011

Marina Biotech, Inc.

3830 Monte Villa Parkway

Bothell, Washington 98021

Attn: Chief Executive Officer

Ladies and Gentlemen:

This Lock-Up Agreement is being delivered to you in connection with the
Securities Purchase Agreement dated December 22, 2011 (“Purchase Agreement”) and
entered into by and between Marina Biotech, Inc., a Delaware corporation (the
“Company”), and Socius CG II, Ltd., a Bermuda exempted company (“Investor”),
with respect to the purchase without registration under the Securities Act of
1933, as amended (the “Act”), in reliance on Section 4(2) of the Act and Rule
506 of Regulation D promulgated thereunder, of shares of the Company’s Series B
Preferred Stock and related Securities. Capitalized terms used herein without
definition shall have the respective meanings ascribed to them in the Purchase
Agreement.

The undersigned, in order to induce the Company to secure the above referenced
financing, hereby irrevocably agrees that, for a period of ten (10) Trading Days
beginning on each date the Company delivers a Tranche Notice to Investor (the
“Tranche Notice Date”) pursuant to the terms of the Purchase Agreement and
ending on the Tranche Closing Date (such period, the “Lock-up Period”), the
undersigned will not (a) sell, offer to sell, contract or agree to sell,
hypothecate, pledge, grant any option to purchase or otherwise dispose of or
agree to dispose of, directly or indirectly, in respect of, or establish or
increase a put equivalent position or liquidate or decrease a call equivalent
position within the meaning of Section 16 of the Securities Exchange Act of
1934, as amended, and the rules and regulations of the SEC promulgated
thereunder (the “Exchange Act”) with respect to, any Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock, or
warrants or other rights to purchase Common Stock or any such securities, or any
securities substantially similar to the Common Stock, (b) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or any such securities, or
warrants or other rights to purchase Common Stock, whether any such transaction
is to be settled by delivery of Common Stock or such other securities, in cash
or otherwise or (c) publicly announce an intention to effect any transaction
specified in clause (a) or (b).

The foregoing sentence shall not apply to (a) bona fide gifts, provided the
recipient thereof agrees in writing to be bound by the terms of this Lock-Up
Agreement, or (b) dispositions to any trust for the direct or indirect benefit
of the undersigned and/or the immediate family of the undersigned, provided that
such trust agrees in writing to be bound by the terms of this Lock-Up
Agreement. Notwithstanding subsection (a) above, the undersigned may make a

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bona fide gift of up to 10,000 shares of Common Stock to a charity or other
non-profit entity and such charity or entity shall not be required to be bound
by the terms of this Lock-Up Agreement. For purposes of this paragraph,
“immediate family” shall mean the undersigned and the spouse, any lineal
descendent, father, mother, brother or sister of the undersigned.

In the event that any Common Stock of the undersigned is subject to any
involuntary transfer, whether by reason of death, bankruptcy or divorce
proceedings or otherwise, the transferee of such Common Stock shall take such
Common Stock subject to this Lock-Up Agreement.

The Company agrees to provide the undersigned with notice that the Company has
delivered a Tranche Notice to Investor prior to, or simultaneous with, its
delivery of the Tranche Notice to Investor. Such notice shall provide the
undersigned with the Tranche Notice Date and clearly indicate the beginning of
the Lock-up Period.

Immediately after the termination of the Purchase Agreement, this Lock-Up
Agreement shall be terminated and the undersigned shall be released from its
obligations hereunder.

 

 

      Sincerely,               Name:      

Acknowledged and Agreed:

MARINA BIOTECH, INC.

By:                                                                      

Name:

Title:

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Exhibit E

Form of Opinion

[Opinion of Pryor Cashman LLP]

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Exhibit F

Form of Tranche Notice

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Dated:                 , 20        

Socius CG II, Ltd.

c/o Socius Capital Group, LLC

11150 Santa Monica Boulevard, Suite 1500

Los Angeles, CA 90025

Re: Tranche Notice

Ladies & Gentlemen:

Pursuant to the Securities Purchase Agreement dated December 22, 2011
(“Agreement”) between Marina Biotech, Inc., a Delaware corporation (“Company”),
and Socius CG II, Ltd. (“Investor”), Company hereby elects to exercise a
Tranche. Capitalized terms not otherwise defined herein shall have the meanings
defined in the Agreement.

At the Tranche Closing, Company will sell to Investor              Preferred
Shares at $10,000.00 per share for a Tranche Amount of $            .

On behalf of Company, the undersigned hereby certifies to Investor as follows:

1. The undersigned is a duly authorized officer of Company;

2. The above Tranche Amount does not exceed the Maximum Tranche Amount; and

3. All of the conditions precedent to the right of the Company to deliver a
Tranche Notice set forth in Section 2.3(g) of the Agreement have been satisfied
and none of the Tranche Notice restrictions set forth in Section 2.3(d) of the
Agreement are currently in existence.

IN WITNESS WHEREOF, the Company has executed and delivered this Tranche Notice
as of the date first written above.

MARINA BIOTECH, INC.

By:                                                              

Name:                                                       

Title:                                                          

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Exhibit G

Form of Secured Promissory Note

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THE SECURITY REPRESENTED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “ACT”), OR THE APPLICABLE STATE SECURITIES LAWS, AND
MAY NOT BE OFFERED OR SOLD IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND SUCH STATE SECURITIES LAWS, OR AN EXEMPTION FROM REGISTRATION
THEREUNDER.

SECURED PROMISSORY NOTE

 

$[            ]    Date: [            ], 20[        ]

FOR VALUE RECEIVED, Socius CG II, Ltd., a Bermuda exempted company (“Maker”),
promises to pay to the order of Marina Biotech, Inc., a Delaware corporation
(the “Company”), at 3830 Monte Villa Parkway, Bothell, Washington 98021, or at
such other place as the Company may from time to time designate in writing, the
principal sum of $[            ], with interest, as follows:

1. Purpose; Defined Terms. This Secured Promissory Note (this “Note”) is a full
recourse secured promissory note being issued and delivered by Maker to the
Company pursuant to the terms of (i) that certain Securities Purchase Agreement,
dated as of December 22, 2011 (as amended, restated, supplemented and otherwise
modified from time to time, the “Purchase Agreement”), by and between Maker and
the Company and (ii) that certain Warrant to Purchase Common Stock issued by the
Company to Maker, dated December [            ], 2011 (as amended, restated,
supplemented and otherwise modified from time to time, the “Warrant”), as good
and valuable consideration and payment in full of: (x) the exercise price of
certain securities of the Company to be issued to Maker in connection with the
Warrant and the Additional Investment Right contained in the Purchase Agreement
or (y) the Warrant Premium. On or prior to the date hereof, Maker has executed
and delivered to the Company a Security Agreement (as amended, restated,
supplemented and otherwise modified from time to time, the “Security Agreement”)
in the form attached to the Purchase Agreement as Exhibit H thereto. Capitalized
terms not otherwise defined herein shall have the meanings ascribed to such
terms in the Purchase Agreement.

2. Interest. The principal balance outstanding hereunder, from time to time,
shall bear interest from and after the date hereof at the rate of two percent
(2.0%) per year. Interest shall be calculated on a simple interest basis and the
number of days elapsed during the period for which interest is being calculated.
Interest shall be payable on the Maturity Date.

 

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3. Payments. If not sooner paid, the entire unpaid principal balance, interest
thereon and any other charges due and payable under this Note shall be due and
payable on the fourth (4th) anniversary of the date of this Note or if sooner
upon an Acceleration Event (as defined below) (“Maturity Date”); provided,
however, that in no event shall this Note or any amount hereunder be due or
payable, nor shall an Acceleration Event (as defined below) or default (as
defined below) be deemed to exist, at any time that (a) the Company is in
default of any of its material obligations under the Purchase Agreement, or any
Warrant or other security of the Issuer issued pursuant to the Purchase
Agreement or the Warrant, or any loan agreement or other material agreement
between the Maker and the Company, or (b) there are any Preferred Shares issued
or outstanding. Maker shall have the right to prepay all or any part of the
principal balance of this Note at any time without penalty or premium, in which
case all payments shall be first applied to interest, then to reduce the
outstanding principal. This Note shall be subject to exchange, offset and
cancellation at the option of the Company or Maker as more fully set forth in
the Certificate of Designations notwithstanding any transfer or assignment of
this Note by the Company or any subsequent holder of this Note. In the event
that the Purchase Agreement is terminated pursuant to Article 3 thereof prior to
the issuance of any Preferred Shares pursuant thereto, then this Note (to the
extent, and only to the extent, that this Note is issued as payment of the
Warrant Premium) shall automatically be cancelled upon such termination and
shall be of no further force or effect.

4. Full Recourse Note. THIS IS A FULL RECOURSE PROMISSORY NOTE. Accordingly,
notwithstanding that Maker’s obligations under this Note are secured by the
Promissory Note Collateral (as defined in the Security Agreement), in the event
of a material default hereunder, the Company shall have full recourse to all the
other assets of Maker. Moreover, the Company shall not be required to proceed
against or exhaust any Promissory Note Collateral, or to pursue any Promissory
Note Collateral in any particular order, before the Company pursues any other
remedies against Maker or against any of Maker’s assets. It is expressly
understood and agreed that upon the occurrence of an Acceleration Event (as
defined below), Maker shall be entitled to satisfy all of the obligations
outstanding hereunder and under any similar note of Maker by surrendering to the
Company for cancellation all Preferred Shares owned by Maker as more fully set
forth in the Certificate of Designation.

5. Default. Subject to the proviso in the first sentence of Section 1 above: any
one or more of the following shall constitute a “default” under this Note: (i) a
default in the payment when due of any amount hereunder, (ii) Maker’s refusal to
perform any material term, provision or covenant under this Note, (iii) the
commencement of any liquidation, receivership, bankruptcy, assignment for the
benefit of creditors or other debtor-relief proceeding by or against Maker,
(iv) any cessation of operations by Maker or Maker admits it is otherwise
generally unable to pay its debts as such debts become due, and (v) subject to
Sections 2 and 3 of the Security Agreement, the Promissory Note Collateral is
transferred by Maker without being replaced by Promissory Note Collateral of
equal or greater fair market value within two (2) business days of the date of
transfer.

6. Default Rights. Subject to the proviso in the first sentence of Section 1
above:

i. Upon the occurrence of a default specified in clauses (i) or (ii) of
Section 5 above, the Company may, at its election, declare the entire balance of
principal and interest under this Note immediately due and payable or, upon the
occurrence of a default specified in clause (iii) of Section 5 above, the entire
balance of principal and interest under this Note shall

 

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automatically become immediately due and payable without any action by the
Company (each, an “Immediate Acceleration Event”). A delay by the Company in
exercising any right of acceleration after a default shall not constitute a
waiver of the default or the right of acceleration or any other right or remedy
for such default. The failure by the Company to exercise any right of
acceleration as a result of a default shall not constitute a waiver of the right
of acceleration or any other right or remedy with respect to any other default,
whenever occurring.

ii. Further, upon the occurrence a default specified in clauses (iv) or (v) of
Section 5 above, following thirty (30) business days notice from the Company to
Maker specifying the default and demanded manner of cure for such default, if
such default has not been cured by the expiration of such thirty (30) business
day period, the Company may, at its election, declare the entire balance of
principal and interest under this Note immediately due and payable (a “Notice
Acceleration Event” and, together with an Immediate Acceleration event, each an
“Acceleration Event”).

iii. Upon the occurrence of an Acceleration Event, the Company shall thereupon
(and only thereupon) and thereafter have any and all of the rights and remedies
to which a secured party is entitled after a default under the Security
Agreement and the applicable Uniform Commercial Code, as then in effect.

iv. The rights, privileges, powers and remedies of the Company shall be
cumulative, and no single or partial exercise of any of them shall preclude the
further or other exercise of any of them. Any waiver, permit, consent or
approval of any kind by the Company of any default hereunder, or any such waiver
of any provisions or conditions hereof, must be in writing and shall be
effective only to the extent set forth in writing. Any proceeds of any
disposition of the Promissory Note Collateral by the Company in accordance with
this Section 6, or any part thereof, may be applied by the Company to the
payment of expenses incurred by the Company in connection with the foregoing,
and the balance of such proceeds shall be applied by the Company toward the
payment of the Obligations (as defined in the Security Agreement).
Notwithstanding anything contained in this Note to the contrary, it is expressly
understood and agreed that neither the Company nor any other holder of this Note
shall have the right to proceed against the Promissory Note Collateral or Maker
in connection with the Promissory Note until the occurrence of an Acceleration
Event.

7. Security. This Note and the obligations hereunder are secured to the extent
and in the manner set forth in the Security Agreement. By delivery of this Note,
Maker hereby certifies to Company its good faith belief that it has complied
with Section 1(a) of the Security Agreement on the date hereof.

8. Additional Terms.

a. No Waiver. The acceptance by the Company of payment of a portion of any
installment when due or an entire installment but after it is due shall neither
cure nor excuse the default caused by the failure of Maker timely to pay the
whole of such installment and shall not constitute a waiver of the Company’s
right to require full payment when due of any future or succeeding installments.

 

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b. No Oral Waivers or Modifications. No provision of this Note may be waived or
modified orally, but only in a writing signed by the Company and Maker.

c. Attorney Fees. The prevailing party in any action by the Company to collect
any amounts due under this Note shall be entitled to recover its reasonable
attorneys fees and costs.

d. Governing Law. This Note has been executed and delivered in, and is to be
construed, enforced, and governed according to the internal laws of, the State
of New York without regard to its principles of conflict of laws that would
require or permit the application of the laws of any other jurisdiction.

e. Severability. Whenever possible, each provision of this Note shall be
interpreted in such manner as to be effective and valid under applicable law.
However, if any provision of this Note shall be held to be prohibited by or
invalid under applicable law, it shall be ineffective only to the extent of such
prohibition or invalidity without invalidating the remainder of that provision
or the other provisions of this Note.

f. Currency. Principal and interest due hereunder shall be payable in lawful
money of the United States of America and shall be payable to the Company at the
address of Maker, or at such other address as may be specified in a written
notice to Maker given by the Company.

g. Weekend; Holidays. If any payment on this Note shall become due on a
Saturday, Sunday or a bank or legal holiday in the United States of America,
such payment shall be made on the next succeeding business day in the United
States of America.

h. Usury. If interest payable under this Note is in excess of the maximum
permitted by law, the interest chargeable hereunder shall be reduced to the
maximum amount permitted by law and any excess over the maximum amount permitted
by law shall be credited to the principal balance of this Note and applied to
the same and not to the payment of interest.

i. Entire Agreement. This Note, the Warrant, the Security Agreement, the
Purchase Agreement and the other Transaction Documents contain the entire
understanding of the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings, oral or written, with
respect to such matters.

IN WITNESS WHEREOF, this Secured Promissory Note has been executed as of the
date first written above.

 

SOCIUS CG II, LTD. By:  

 

  Name: Terren Peizer   Title:   Managing Director

 

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Exhibit H

Form of Security Agreement

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SECURITY AGREEMENT

This SECURITY AGREEMENT, dated as of [            ], 20[ ] (this “Agreement”),
is made by and between Socius CG II, Ltd., a Bermuda exempted company
(“Grantor”), and Marina Biotech, Inc., a Delaware corporation (“Secured Party”).

WHEREAS, pursuant to the terms of that certain Securities Purchase Agreement,
dated as of December 22, 2011, by and between Secured Party and Grantor (as
amended, restated, supplemented and otherwise modified from time to time, the
“Purchase Agreement”), Secured Party has issued to Grantor (i) that certain
Warrant to Purchase Common Stock, dated December [            ], 2011 (as
amended, restated, supplemented and otherwise modified from time to time, the
“Warrant”), which is exercisable for shares of common stock, $0.006 par value
per share, of Secured Party (the “Common Stock”) and (ii) that certain
additional investment right contained in the Purchase Agreement (the “Additional
Investment Right”), which is exercisable for shares of Common Stock;

WHEREAS, to the extent elected by Grantor, in its sole discretion, Secured Party
has agreed to accept one or more full recourse secured promissory notes (as
amended, restated, supplemented and otherwise modified from time to time,
collectively, the “Promissory Notes”) in lieu of cash paid in satisfaction of:
(i) the exercise price of any of the shares of Common Stock issuable upon
exercise of the Warrant (the “Warrant Shares”) and/or the Additional Investment
Right (the “Additional Investment Shares”), and/or (ii) the Warrant Premium;

WHEREAS, in connection with the initial election by Grantor to pay the exercise
price of the Warrant Shares and/or the Additional Investment Shares, and/or to
pay the Warrant Premium, through Grantor’s issuance of a Promissory Note to
Secured Party, Grantor must execute and deliver to Secured Party a security
agreement in substantially the form hereof simultaneously with the issuance of
such Promissory Note; and

WHEREAS, Grantor wishes to grant security interests in favor of Secured Party as
herein provided;

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

1. Grant of Security Interest. Grantor hereby grants to Secured Party, to secure
the payment and performance when due in full of any indebtedness arising
pursuant to the Promissory Notes (the “Obligations”), a security interest in all
of Grantor’s right, title, and interest in and to all of the following (subject
to Section 2 and Section 3 below), now owned or hereafter acquired or arising
(together the “Collateral” and, with respect to the portion of the Collateral
that secures any given Promissory Note, the “Promissory Note Collateral”):

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(a) Publicly traded or otherwise free-trading shares of common stock, or shares
of preferred stock, or bonds, notes and/or debentures (collectively, “Pledged
Securities”) with a fair market value at least equal to the principal amount of,
and accrued interest on, the Promissory Notes then outstanding, based upon the
trading price of such securities on (i) the Pink Sheets, OTCQB, OTC Bulletin
Board, the NASDAQ Capital Market, the NASDAQ Global Market, the NASDAQ Global
Select Market, the NYSE Amex, or the New York Stock Exchange, if applicable or
(ii) otherwise, the fair market value of such Pledged Securities as set forth on
the books and records of Grantor;

(b) all rights of Grantor with respect to or arising out of the Pledged
Securities, including voting rights, and all equity and debt securities and
other property distributed or distributable with respect thereto as a result of
merger, consolidation, dissolution, reorganization, recapitalization, stock
split, stock dividend, reclassification, exchange, redemption, or other change
in capital structure; and

(c) all proceeds, replacements, substitutions, accessions and increases in any
of the Collateral:

provided, that (i) the Promissory Note Collateral shall not include the Warrant,
the Additional Investment Right, the Warrant Shares, or the Additional
Investment Shares issued in exchange for or in connection with the Promissory
Note.

Grantor shall provide to Secured Party, at the written request made from time to
time by the Secured Party, a schedule listing the Pledged Securities and the
custodian thereof, including any changes arising under Section 3 hereof, which
schedule shall be in form and substance reasonably satisfactory to the Secured
Party. Grantor shall maintain such lien as a lien and security interest in the
Pledged Securities, provided that Grantor shall have no obligation to maintain
such lien in such securities to the extent such fair market value is greater
than the principal amount of, and accrued interest on, the Promissory Notes then
outstanding.

Notwithstanding anything to the contrary herein, the fair market value of the
Promissory Note Collateral (as determined in accordance with this Section 1)
shall at all times equal or exceed the amount of the obligations secured
thereby.

2. Margin Regulations. Notwithstanding the foregoing, with respect to any
Pledged Securities that consist of “Margin Stock” (as defined in Regulation U of
the Board of Governors of the Federal Reserve System of the United States
(“Regulation U”)), such portion of the fair market value of such Pledged
Securities included as Collateral hereunder shall not exceed the maximum amount
permitted by applicable law to be pledged as Collateral hereunder, including,
without limitation, under Regulation U.

3. Replacement Securities. It is expressly understood and agreed that Grantor
shall at all times prior to an Acceleration Event (as defined in the Promissory
Notes) have the right to sell, dispose of, replace or substitute any securities
or other assets that constitute Collateral hereunder. So long as any Obligations
remain outstanding, in the event that Grantor sells or disposes of any Pledged
Securities or to the extent any securities or other assets that were Collateral
hereunder cease to be Collateral pursuant to Section 2 above, Grantor shall
within the time period set forth in the Promissory Notes, provide replacement
securities of equal or greater fair market value determined in accordance with
Section 1(a) above.

 

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4. Rights With Respect to Distributions. Until the occurrence of an Acceleration
Event under any given Promissory Note, Grantor shall be entitled to receive any
and all dividends and distributions made with respect to the Pledged Securities
and any other Collateral. However, upon the occurrence of any such Acceleration
Event, Secured Party shall have the sole right (unless otherwise expressly
agreed by Secured Party in writing) to receive and retain dividends and
distributions and apply them to the outstanding balance of the Promissory Note
under which such Acceleration Event has occurred or hold them as Promissory Note
Collateral, at Secured Party’s election.

5. Voting Rights. Until the occurrence of an Acceleration Event under any given
Promissory Note, Grantor shall be entitled to exercise all voting rights
pertaining to the Pledged Securities and any other Promissory Note Collateral.
However, upon the occurrence of any such Acceleration Event, all rights of
Grantor to exercise the voting rights that Grantor would otherwise be entitled
to exercise with respect to the Promissory Note Collateral shall cease and
(unless otherwise agreed by Secured Party) all such rights shall thereupon
become vested in Secured Party, which shall thereupon have the sole right to
exercise such rights.

6. Financing Statement; Further Assurances. Grantor agrees, concurrently with
executing this Agreement, that Secured Party (and to the extent authorized by
Secured Party, its counsel and other representatives) is authorized, at any time
and from time to time, to execute, deliver and file or record UCC-1 financing
statements, amendments and continuations to financing statements, and
instructions relating to the Promissory Note Collateral in favor of Secured
Party, and any similar financing statements in any jurisdiction in which Secured
Party reasonably determines such filing or delivery to be necessary or
advisable. Grantor further agrees to provide Secured Party with written notice
of any change in its name, form of organization, jurisdiction of organization or
location of its chief executive office or principal place of business within
thirty (30) business days of such change. Grantor further agrees that upon the
occurrence of an Acceleration Event under any given Promissory Note, and at any
time and from time to time thereafter until the cause of such Acceleration Event
has been cured, Grantor shall, at the reasonable request of the Secured Party
and at the Grantor’s expense promptly execute and deliver all further
instruments and documents including, without limitation, collateral assignments,
Form UCC-1 financing statements or amendments or continuations thereof, and
consents to the exercise by Secured Party of all of Secured Party’s rights and
remedies hereunder, under any supplement hereto or applicable law with respect
to the Collateral, and do or cause to be done such further acts as may be
reasonably necessary or proper in Secured Party’s opinion to evidence, maintain
and enforce Secured Party’s security interest in the Collateral and to otherwise
effectuate the provisions or purposes of this Agreement or any supplement hereto
including, without limitation, requiring delivery of the Promissory Note
Collateral to Secured Party to hold as secured party.

7. Powers of Secured Party. Grantor agrees that upon the occurrence of an
Acceleration Event under any given Promissory Note, it shall appoint Secured
Party as Grantor’s true and lawful attorney-in-fact to perform any and all of
the following acts, which power shall be coupled with an interest, shall be
irrevocable until the Obligations are paid and performed in full, and may be
exercised from time to time by Secured Party in its discretion to take any
action which

 

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shall be required for Secured Party (i) to exercise voting and consent rights
with respect to Promissory Note Collateral in accordance with this Agreement,
(ii) to receive, endorse and collect all instruments or other forms of payment
made payable to Grantor in respect of the Promissory Note Collateral or any part
thereof and to give full discharge for the same, (iii) to perform or cause the
performance of any obligation of Grantor hereunder in Grantor’s name or
otherwise, (iv) to liquidate any Promissory Note Collateral pledged to Secured
Party hereunder and to apply proceeds thereof to the payment of the Obligations
or to place such proceeds into a cash Promissory Note Collateral account or to
transfer the Promissory Note Collateral into the name of Secured Party, all at
Secured Party’s sole discretion, (v) to enter into any extension, reorganization
or other agreement relating to or affecting the Promissory Note Collateral, and,
in connection therewith, to deposit or surrender control of the Promissory Note
Collateral, (vi) to accept other property in exchange for the Promissory Note
Collateral, (vii) to make any compromise or settlement Secured Party deems
desirable or proper in respect of the Promissory Note Collateral or the
Obligations, and (viii) to execute on Grantor’s behalf and in Grantor’s name any
documents required in order to give Secured Party a continuing first lien upon
the Promissory Note Collateral or any part thereof.

8. No Waiver. The acceptance by Secured Party of payment of a portion of any
installment when due or an entire installment but after it is due shall neither
cure nor excuse the Acceleration Event caused by the failure of Grantor timely
to pay the whole of such installment and shall not constitute a waiver of
Secured Party’s right to require full payment when due of any future or
succeeding installments.

9. Default. Upon the occurrence of an Acceleration Event under any given
Promissory Note, Secured Party shall have the rights set forth in Section 10
below.

10. Default Rights.

(a) Upon the occurrence of an Acceleration Event under any given Promissory
Note, Secured Party shall thereupon and thereafter have any and all of the
rights and remedies to which a secured party is entitled after a default under
the applicable Uniform Commercial Code, as then in effect. It is expressly
understood and agreed that prior to such time, Secured Party shall not take any
action in respect of the Collateral.

(b) In addition to its other rights and remedies, Grantor agrees that, upon the
occurrence of an Acceleration Event under any given Promissory Note, Secured
Party may in its sole discretion do or cause to be done any one or more of the
following (all to the extent reasonable):

(i) proceed to realize upon the Promissory Note Collateral or any portion
thereof as provided by law, and without liability for any diminution in price
which may have occurred, sell the Promissory Note Collateral or any part
thereof, in such manner, whether at any public or private sale, and whether in
one lot as an entirety, or in separate portions, and for such price and other
terms and conditions as is commercially reasonable given the nature of the
Promissory Note Collateral;

 

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(ii) if notice to Grantor is required, give written notice to Grantor at least
ten days before the date of sale of the Promissory Note Collateral or any
portion thereof;

(iii) transfer all or any part of the Promissory Note Collateral into Secured
Party’s name or in the name of its nominee or nominees; or

(iv) vote all or any part of the Promissory Note Collateral (whether or not
transferred into the name of Secured Party) and give all consents, waivers and
ratifications in respect of the Promissory Note Collateral and otherwise act
with respect thereto, as though Secured Party were the outright owner thereof.

(c) Grantor acknowledges that all or part of foreclosure of the Promissory Note
Collateral may be restricted by state or federal securities laws, Secured Party
may be unable to effect a public sale of all or part of the Promissory Note
Collateral, that a public sale is or may be impractical and inappropriate and
that, in the event of such restrictions, Secured Party thus may be compelled to
resort to one or more private sales to a restricted group of purchasers who will
be obliged to agree, among other things, to acquire the Promissory Note
Collateral for their own account, for investment and not with a view to its
distribution or resale. Grantor agrees that if reasonably necessary Secured
Party may resort to one or more sales to a single purchaser or a restricted or
limited group of purchasers. Secured Party shall not be obligated to make any
sale or other disposition, unless the terms thereof shall be satisfactory to it.

(d) If, in the opinion of Secured Party based upon written advice of counsel,
any consent, approval or authorization of any federal, state or other
governmental agency or authority should be necessary to effectuate any sale or
other disposition of any Promissory Note Collateral, Grantor shall execute all
such applications and other instruments as may reasonably be required in
connection with securing any such consent, approval or authorization, and will
otherwise use its commercially reasonable efforts to secure the same.

(e) The rights, privileges, powers and remedies of Secured Party shall be
cumulative, and no single or partial exercise of any of them shall preclude the
further or other exercise of any of them. Any waiver, permit, consent or
approval of any kind by Secured Party of any Acceleration Event, or any such
waiver of any provisions or conditions hereof, must be in writing and shall be
effective only to the extent set forth in writing. Any proceeds of any
disposition of the Promissory Note Collateral by the Secured Party in accordance
with this Section 10, or any part thereof, may be applied by Secured Party to
the payment of expenses incurred by Secured Party in connection with the
foregoing, and the balance of such proceeds shall be applied by Secured Party
toward the payment of the Obligations. Notwithstanding anything contained herein
to the contrary, it is expressly understood and agreed that the Company shall
have no rights to proceed against the Collateral until the occurrence of an
Acceleration Event under any given Promissory Note.

 

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11. Attorney Fees. The prevailing party in any action by Secured Party to
collect any amounts due under this Agreement and/or the Promissory Notes shall
be entitled to recover its reasonable attorneys fees and costs.

12. Entire Agreement, Amendments; Etc. THIS AGREEMENT, TOGETHER WITH THE
PROMISSORY NOTES, THE PURCHASE AGREEMENT, THE WARRANT, AND THE OTHER TRANSACTION
DOCUMENTS (AS DEFINED IN THE PURCHASE AGREEMENT), REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES SOLELY WITH RESPECT TO THE SUBJECT MATTER HEREOF AND THEREOF
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE
PARTIES. No waiver of any provision of this Agreement, and no consent to any
departure by Grantor herefrom, shall in any event be effective unless the same
shall be in writing and signed by Secured Party, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given, provided that any party may give a waiver in writing as to
itself. No amendment of any provision of this Agreement shall be effective
unless the same shall be in writing and signed by both Grantor and Secured
Party.

13. Governing Law; Jurisdiction; Service of Process; Jury Trial. All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than the State of New
York. Each party hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in The City of New York, Borough of Manhattan,
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

14. Addresses for Notices. All notices and other communications provided for
hereunder (a) shall be given in the form and manner set forth in the Warrant and
(b) shall be delivered, (i) in the case of notice to Grantor, by delivery of
such notice to Grantor at its address specified in the Warrant or at such other
address as shall be designated by Grantor in a written notice to Secured Party
in accordance with the provisions thereof, and (ii) in the case of notice to
Secured Party, by delivery of such notice to Secured Party at its address
specified in the Warrant or at such other address as shall be designated by
Secured Party in a written notice to Grantor in accordance with the provisions
thereof.

 

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15. Termination Date. This Agreement shall automatically terminate on the date
the Obligations are paid and performed in full and no Promissory Notes remain
outstanding (the “Termination Date”), it being understood and agreed that the
Obligations shall be deemed to be paid and performed in full upon a redemption
of the Series B Preferred Stock by the Secured Party as contemplated by clause
(ii) of Section 6(d) of the Certificate of Designations of Preferences, Rights
and Limitations of the Series B Preferred Stock. Secured Party agrees that from
and after the Termination Date, Secured Party will, from time to time, at the
expense and at the request of Grantor, promptly following any such request of
Grantor: (i) deliver to Grantor such termination statements, releases,
assignments or other agreements or instruments, in form and substance reasonably
satisfactory to Grantor, as Grantor may reasonably request to evidence the
termination of this Agreement, the payment or other satisfaction in full of all
the Obligations and to evidence, effect or confirm the release and termination
of any and all security interests and other liens created hereunder or pursuant
to the Promissory Notes or otherwise securing the Obligations, and (ii) deliver
any Collateral held by Secured Party to Grantor or, as applicable, instruct the
relevant custodian to deliver such Collateral to Grantor. Except as provided in
Sections 12 through 16, which shall survive the Termination Date, from and after
the Termination Date, this Agreement shall be of no further force and effect as
to any matters thereafter.

16. Miscellaneous.

(a) This Agreement may be executed in two or more identical counterparts, all of
which shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each party and delivered to the other
party. In the event that any signature is delivered by facsimile transmission or
by an e-mail which contains a portable document format (.pdf) file of an
executed signature page, such signature page shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such signature page were an
original thereof. Any party delivering an executed counterpart of this Agreement
by facsimile or other electronic method of transmission also shall deliver an
original executed counterpart of this Agreement but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability, and
binding effect of this Agreement.

(b) Any provision of this Agreement which is prohibited or unenforceable shall
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof in that jurisdiction or affecting
the validity or enforceability of such provision in any other jurisdiction.

(c) Headings used in this Agreement are for convenience only and shall not be
used in connection with the interpretation of any provision hereof.

(d) The language used in this Agreement will be deemed to be the language chosen
by the parties to express their mutual intent, and no rules of strict
construction will be applied against any party. For clarification purposes, the
Recitals are part of this Agreement.

 

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(e) Unless the context of this Agreement clearly requires otherwise, references
to the plural include the singular, references to the singular include the
plural, the terms “includes” and “including” are not limiting, and the term “or”
has, except where otherwise indicated, the inclusive meaning represented by the
phrase “and/or.” The words “hereof,” “herein,” “hereby,” “hereunder,” and
similar terms in this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement. Section, subsection and clause
references herein are to this Agreement unless otherwise specified. Any
reference in this Agreement to any agreement, instrument, or document shall
include all alterations, amendments, changes, extensions, modifications,
renewals, replacements, substitutions, joinders, and supplements, thereto and
thereof, as applicable (subject to any restrictions on such alterations,
amendments, changes, extensions, modifications, renewals, replacements,
substitutions, joinders, and supplements set forth herein).

(f) This Agreement shall be binding upon and inure to the benefit of the parties
and their successors and permitted assigns. The Secured Party may not assign
this Agreement or any rights or obligations hereunder without the prior written
consent of Grantor, which consent will not be unreasonably withheld or delayed.
Grantor may not assign any or all of its rights under this Agreement.

(g) All dollar amounts referred to in this Agreement are in United States
Dollars (“U.S. Dollars”), and all amounts owing under this Agreement shall be
paid in U.S. Dollars. All amounts denominated in other currencies (if any) shall
be converted into the U.S. Dollar equivalent amount in accordance with the
Exchange Rate on the date of calculation. “Exchange Rate” means, in relation to
any amount of currency to be converted into U.S. Dollars pursuant to this
Agreement, the U.S. Dollar exchange rate as published in the Wall Street Journal
on the relevant date of calculation.

[The remainder of the page is intentionally left blank]

 

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

 

SOCIUS CG II, LTD. By:      

Name: Terren Peizer

Title:   Managing Director

Accepted:

 

MARINA BIOTECH, INC. By:      

Name: Philip C. Ranker

Title:   Interim Chief Financial Officer