SECURITIES PURCHASE

AGREEMENT

Dated as of June 5, 2008

by and among

GENTA INCORPORATED

and

THE PURCHASERS LISTED ON EXHIBIT A

 

 

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SECURITIES PURCHASE AGREEMENT

This SECURITIES PURCHASE AGREEMENT dated as of June 5, 2008 (this “Agreement”)
by and among Genta Incorporated, a Delaware corporation (the “Company”), and
each of the purchasers of the senior secured convertible promissory notes of the
Company whose names are set forth on Exhibit A attached hereto (each a
“Purchaser” and collectively, the “Purchasers”).

The parties hereto agree as follows:

ARTICLE 1

 

PURCHASE AND SALE OF NOTES

1.1 Purchase and Sale of Notes. Upon the following terms and conditions, the
Company shall issue and sell to the Purchasers, and the Purchasers shall
purchase from the Company, 15% senior secured convertible promissory notes in
the aggregate principal amount of up to $40,000,000, convertible into shares of
the Company’s common stock, par value $0.001 per share (the “Common Stock”), in
substantially the form attached hereto as Exhibit B (the “Notes”). The Company
and the Purchasers are executing and delivering this Agreement in accordance
with and in reliance upon the exemption from securities registration afforded by
Section 4(2) of the U.S. Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder (the “Securities Act”), including Regulation
D (“Regulation D”), and/or upon such other exemption from the registration
requirements of the Securities Act as may be available with respect to any or
all of the investments to be made hereunder.

1.2 Purchase Price and Closings. Subject to the terms and conditions hereof, the
Company agrees to issue and sell to the Purchasers and, in consideration of and
in express reliance upon the representations, warranties, covenants, terms and
conditions of this Agreement, the Purchasers, severally but not jointly, agree
to purchase the Notes for an aggregate purchase price of up to $40,000,000 (the
“Purchase Price”). At each Closing (as defined below), each Purchaser shall
deliver the applicable portion of the Purchase Price by wire transfer of
immediately available funds to the Company.

(a) The first closing under this Agreement (the “First Closing”) shall take
place on or before June 6, 2008 (the “First Closing Date”). The First Closing
shall take place at the offices of Tang Capital Partners L.P. (the “Lead
Purchaser”), 4401 Eastgate Mall, First Floor, San Diego, CA 92121 at 10:00 a.m.
Pacific Standard Time; provided, that all of the conditions set forth in Article
IV hereof and applicable to the First Closing shall have been fulfilled or
waived in accordance herewith. Subject to the terms and conditions of this
Agreement, at the First Closing the Purchasers shall purchase and the Company
shall issue and deliver or cause to be delivered to each Purchaser Notes for the
principal amount set forth opposite the name of such Purchaser on Exhibit A
hereto.

(b) At any time and from time to time on or prior to the first anniversary of
the First Closing, each of the Purchasers shall have the option (the “Purchase
Option”), in each such Purchaser’s sole discretion, to purchase additional Notes
in the aggregate amount up to the amount set forth opposite such Purchaser’s
name on Exhibit A hereto in one or more closings (each an “Additional Closing”,
and along with the First Closing, each a “Closing”). The issuance of such
additional Notes at any Additional Closing, shall be made on the terms and
conditions set forth in this Agreement, and the representations and warranties
of the Company set forth in Article 3 and the representations and warranties of
the Purchasers in Article 4 hereof shall speak as of such Additional Closing.
Any Notes issued pursuant to this Section 1.2(b) shall be deemed to be “Notes”
for all purposes under this Agreement.

1.3 Conversion Shares. The Company has authorized and has reserved and covenants
to continue to reserve, free of preemptive rights and other similar contractual
rights of stockholders a total of 4,000,000,000 shares of Common Stock to effect
the conversion of the Notes and any interest accrued and outstanding thereon.
Within 75 days of the First Closing Date, the Company shall amend its
Certificate (as defined below) to increase the number of authorized shares of
Common Stock (the date of the effectiveness of such amendment, the “Amendment
Date”); provided that the foregoing deadline shall be 120 days if the SEC (as
defined below) reviews the Company’s proxy statement related to the approval of
the amendment. On and after the Amendment Date, the Company shall reserve (and
hereby covenants to continue to reserve), free of preemptive rights and other
similar contractual rights, a

 

 

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number of its authorized but unissued shares of Common Stock equal to 125% of
the aggregate number of shares of Common Stock issuable upon conversion of or
otherwise in respect of the Notes. Any shares of Common Stock issuable upon
conversion or otherwise in respect of the Notes are herein referred to as the
“Conversion Shares”. The Notes and the Conversion Shares are sometimes
collectively referred to herein as the “Securities”.

ARTICLE 2

 

REPRESENTATIONS AND WARRANTIES

2.1  Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchasers, as of the date hereof and as of the
First Closing Date and the date of any Additional Closing (each a “Closing
Date”) (except as set forth in the Public Filings (as defined below) or on the
Schedule of Exceptions attached hereto with each numbered Schedule corresponding
to the section number herein), as follows:

(a) Organization, Good Standing and Power. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has the requisite corporate power to own, lease and operate its
properties and assets and to conduct its business as it is now being conducted.
The Company does not have any direct or indirect Subsidiaries (as defined in
Section 2.1(g)) or own securities of any kind in any other entity except as set
forth on Schedule 2.1(g) hereto. The Company and each such Subsidiary (as
defined in Section 2.1(g)) is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary except for any jurisdiction(s) (alone or in the aggregate) in which
the failure to be so qualified will not have a Material Adverse Effect. For the
purposes of this Agreement, “Material Adverse Effect” means any material adverse
effect on the business, operations, properties, prospects, or financial
condition of the Company and its Subsidiaries and/or any condition,
circumstance, or situation that would prohibit or otherwise materially interfere
with the ability of the Company to perform any of its obligations under this
Agreement or any of the Transaction Documents in any material respect.

(b) Authorization; Enforcement. Each of the Company and its Subsidiaries (as
applicable) has the requisite corporate power and authority to enter into and
perform this Agreement, the Notes, the General Security Agreement by and among
the Company and its Subsidiaries, on the one hand, and the Agent (as defined in
the Security Agreement), on the other hand, dated as of the date hereof,
substantially in the form of Exhibit C attached hereto (the “Security
Agreement”), the Intellectual Property Security Agreement by and among the
Company and its Subsidiaries, on the one hand, and the Agent (as defined in the
Security Agreement), on the other hand, dated as of the date hereof,
substantially in the form of Exhibit D attached hereto (the “IP Security
Agreement”), the Officer’s Certificate to be delivered by the Company, dated as
of the Closing Date, substantially in the form of Exhibit E attached hereto (the
“Officer’s Certificate”) and the Irrevocable Transfer Agent Instructions (as
defined in Section 3.16 hereof) (collectively, the “Transaction Documents”) and
to issue and sell the Securities in accordance with the terms hereof. The
execution, delivery and performance of the Transaction Documents by the Company
and each Subsidiary of the Company party thereto and the consummation by it of
the transactions contemplated thereby have been duly and validly authorized by
all necessary corporate action, and, except as set forth on Schedule 2.1(b), no
further consent or authorization of the Company, any Subsidiary or their
respective Boards of Directors or stockholders is required. When executed and
delivered by the Company and each Subsidiary of the Company party thereto, each
of the Transaction Documents shall constitute a valid and binding obligation of
the Company and each Subsidiary, as applicable, enforceable against the Company
and each Subsidiary, as applicable, in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, reorganization,
moratorium, liquidation, conservatorship, receivership or similar laws relating
to, or affecting generally the enforcement of, creditor’s rights and remedies or
by other equitable principles of general application.

(c) Capitalization. The authorized capital stock and the issued and outstanding
shares of capital stock of the Company as of the Closing Date is set forth on
Schedule 2.1(c) hereto. All of the outstanding shares of the Common Stock and
any other outstanding security of the Company have been duly and validly
authorized. Except as set forth in this Agreement, the Public Filings (as
defined in Section 2.1(f)) or as set forth on Schedule 2.1(c) hereto, no shares
of Common Stock or any other security of the Company are entitled to preemptive
rights or registration rights and there are no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital

 

 

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stock of the Company. Furthermore, except as set forth in this Agreement and as
set forth on Schedule 2.1(c) hereto, there are no equity plans, contracts,
commitments, understandings, or arrangements by which the Company is or may
become bound to issue additional shares of the capital stock of the Company or
options, securities or rights convertible into shares of capital stock of the
Company. Except for customary transfer restrictions contained in agreements
entered into by the Company in order to sell restricted securities or as
provided on Schedule 2.1(c) hereto, the Company is not a party to or bound by
any agreement or understanding granting registration or anti-dilution rights to
any person with respect to any of its equity or debt securities. Except as set
forth on Schedule 2.1(c), the Company is not a party to, and it has no knowledge
of, any agreement or understanding restricting the voting or transfer of any
shares of the capital stock of the Company. The Company has not made any
representations regarding equity incentives to any officer, employee, director
or consultant that are not disclosed in the Public Filings.

(d) Issuance of Securities. The amendment of the Certificate to increase the
authorized shares of Common Stock in connection with this Agreement requires the
approval of a majority of the outstanding shares of Common Stock. The Notes to
be issued at each Closing have been duly authorized by all necessary corporate
action and, when paid for or issued in accordance with the terms hereof, the
Notes shall be validly issued and outstanding, free and clear of all liens,
encumbrances and rights of refusal of any kind. When the Conversion Shares are
issued in accordance with the terms of this Agreement and as set forth in the
Notes, such shares will be duly authorized by all necessary corporate action and
validly issued and outstanding, fully paid and nonassessable, free and clear of
all liens, encumbrances and rights of refusal of any kind and the holders shall
be entitled to all rights accorded to a holder of Common Stock.

(e) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and its Subsidiaries (as applicable), the performance
by the Company of its obligations under the Notes and the consummation by the
Company and its Subsidiaries of the transactions contemplated hereby and
thereby, and the issuance of the Securities as contemplated hereby, do not and
will not (i) violate or conflict with any provision of the Company’s Certificate
of Incorporation (the “Certificate”) or Bylaws (the “Bylaws”), each as amended
to date, or any Subsidiary’s comparable charter documents, subject to the filing
of an amendment to the Certificate to increase the authorized shares, (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
mortgage, deed of trust, indenture, note, bond, license, lease agreement,
instrument or obligation to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries’ respective properties
or assets are bound, (iii) result in a violation of any federal, state, local or
foreign statute, rule, regulation, order, judgment or decree (including federal
and state securities laws and regulations) applicable to the Company or any of
its Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries are bound or affected, or (iv) create or impose a lien, mortgage,
security interest, charge or encumbrance of any nature on any property or asset
of the Company or its Subsidiaries under any agreement or any commitment to
which the Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries is bound or by which any of their respective
properties or assets are bound, except, in the case of clause (ii), for such
conflicts, defaults, terminations, amendments, acceleration, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect. Neither the Company nor any of its Subsidiaries is required
under federal, state, foreign or local law, rule or regulation to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under the Transaction Documents or issue and sell the
Securities in accordance with the terms hereof (other than the filing of a Form
D pursuant to Regulation D and counterpart filings under applicable state
securities laws, rules or regulations). The business of the Company and its
Subsidiaries is not being conducted in violation of any laws, ordinances or
regulations of any governmental entity.

(f) Commission Documents, Financial Statements. The Common Stock of the Company
is registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), and the Company has timely filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the Securities Exchange Commission (“SEC”) pursuant to the reporting
requirements of the Exchange Act (all of the foregoing including filings
incorporated by reference therein being referred to herein as the “Commission
Documents”). At the times of their respective filings, the Form 10-Q for the
fiscal quarter ended March 31, 2008 (the “Form 10-Q”) and the Form 10-K for the
fiscal year ended December 31, 2007 (the “Form 10-K”, and together with the Form
10-Q and any other report, schedule, form, statement or other document filed by
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Company with the SEC pursuant to the reporting requirements of the Exchange Act
subsequent to the filing of the Form 10-K and prior to the date of this
Agreement, the “Public Filings”) complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such documents, and the Form 10-Q and Form 10-K did
not 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 light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements of the
Company included in the Commission Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC or other applicable rules and regulations with respect
thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles (“GAAP”) applied on a consistent basis
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements), and fairly present in all material respects
the financial position of the Company and its Subsidiaries as of 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 year-end audit
adjustments).

(g) Subsidiaries. Schedule 2.1(g) hereto sets forth each Subsidiary of the
Company, showing the jurisdiction of its incorporation or organization and
showing the percentage of each person’s ownership of the outstanding stock or
other interests of such Subsidiary. For the purposes of this Agreement,
“Subsidiary” shall mean any corporation or other entity of which at least a
majority of the securities or other ownership interest having ordinary voting
power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other Subsidiaries. All of the
outstanding shares of capital stock of each Subsidiary have been duly authorized
and validly issued, and are fully paid and nonassessable. Except as set forth on
Schedule 2.1(g) hereto, there are no outstanding preemptive, conversion or other
rights, options, warrants or agreements granted or issued by or binding upon any
Subsidiary for the purchase or acquisition of any shares of capital stock of any
Subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock. Neither
the Company nor any Subsidiary is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of the
capital stock of any Subsidiary or any convertible securities, rights, warrants
or options of the type described in the preceding sentence except as set forth
on Schedule 2.1(g) hereto. Neither the Company nor any Subsidiary is party to,
nor has any knowledge of, any agreement restricting the voting or transfer of
any shares of the capital stock of any Subsidiary. None of the Subsidiaries owns
any assets or conduct any operations.

(h) No Material Adverse Change. Since December 31, 2007, the Company has not
experienced or suffered any Material Adverse Effect, except as disclosed on
Schedule 2.1(h) hereto.

(i) No Undisclosed Liabilities. Except as disclosed on Schedule 2.1(i) hereto,
neither the Company nor any of its Subsidiaries has incurred any liabilities,
obligations, claims or losses (whether liquidated or unliquidated, secured or
unsecured, absolute, accrued, contingent or otherwise) other than those incurred
in the ordinary course of the Company’s or its Subsidiaries’ respective
businesses or which, individually or in the aggregate, are not reasonably likely
to have a Material Adverse Effect.

(j) No Undisclosed Events or Circumstances. Since December 31, 2007, except as
disclosed on Schedule 2.1(j) hereto, no event or circumstance has occurred or
exists with respect to the Company or its Subsidiaries or their respective
businesses, properties, prospects, operations or financial condition, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed.

(k) Indebtedness. Schedule 2.1(k) hereto sets forth as of the applicable Closing
Date all outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments. For the
purposes of this Agreement, “Indebtedness” shall include, without limitation,
(a) any liabilities for borrowed money or other amounts owed, (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 $10,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any Subsidiary is
in default with respect to any Indebtedness.

 

 

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(l) Title to Assets. Each of the Company and the Subsidiaries has good and valid
title to all of its real and personal property reflected in the Public Filings,
free and clear of any mortgages, pledges, charges, liens, security interests or
other encumbrances, except for those indicated on Schedule 2.1(l) hereto or such
that, individually or in the aggregate, do not cause a Material Adverse Effect.
Any leases of the Company and each of its Subsidiaries are valid and subsisting
and in full force and effect.

(m) Actions Pending. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or other proceeding pending
or, to the knowledge of the Company, threatened against the Company or any
Subsidiary which questions the validity of this Agreement or any of the other
Transaction Documents or any of the transactions contemplated hereby or thereby
or any action taken or to be taken pursuant hereto or thereto. Except as set
forth in the Public Filings or on Schedule 2.1(m) hereto, there is no action,
suit, claim, investigation, arbitration, alternate dispute resolution proceeding
or other proceeding pending or, to the knowledge of the Company, threatened
against or involving the Company, any Subsidiary or any of their respective
properties or assets, which individually or in the aggregate, would reasonably
be expected, if adversely determined, to have a Material Adverse Effect. There
are no outstanding orders, judgments, injunctions, awards or decrees of any
court, arbitrator or governmental or regulatory body against the Company or any
Subsidiary or any officers or directors of the Company or Subsidiary in their
capacities as such, which individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect.

(n) Compliance with Law. The Company and its Subsidiaries have been and are
presently conducting their respective businesses in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except such that, individually or in the aggregate, the
noncompliance therewith could not reasonably be expected to have a Material
Adverse Effect. The Company and each of its Subsidiaries have all franchises,
permits, licenses, consents and other governmental or regulatory authorizations
and approvals necessary for the conduct of its business as now being conducted
by it unless the failure to possess such franchises, permits, licenses, consents
and other governmental or regulatory authorizations and approvals, individually
or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect.

(o) Taxes. The Company and each of the Subsidiaries has accurately prepared and
filed all federal, state and other tax returns required by law to be filed by
it, has paid or made provisions for the payment of all taxes shown to be due and
all additional assessments, and adequate provisions have been and are reflected
in the financial statements of the Company and the Subsidiaries for all current
taxes and other charges to which the Company or any Subsidiary is subject and
which are not currently due and payable. Except as disclosed on Schedule 2.1(o)
hereto or in the Public Filings, to the best of the Company’s knowledge, none of
the federal income tax returns of the Company or any Subsidiary have been
audited by the Internal Revenue Service. Except as disclosed on Schedule 2.1(o)
hereto or in the Public Filings, the Company has no knowledge of any additional
assessments, adjustments or contingent tax liability (whether federal or state)
of any nature whatsoever, whether pending or threatened against the Company or
any Subsidiary for any period, nor of any basis for any such assessment,
adjustment or contingency.

(p) Certain Fees. Except as set forth on Schedule 2.1(p) hereto, the Company has
not employed any broker or finder or incurred any liability for any brokerage or
investment banking fees, commissions, finders’ structuring fees, financial
advisory fees or other similar fees in connection with the Transaction
Documents.

(q) Disclosure. Except for the information concerning the transactions
contemplated by this Agreement, the Company confirms that neither it nor any
other person acting on its behalf has provided any of the Purchasers or their
agents or counsel with any information that constitutes or might constitute
material, nonpublic information. To the best of the Company’s knowledge, neither
this Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchasers by or on behalf of the Company or any
Subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made herein or therein, in the light
of the circumstances under which they were made herein or therein, not
misleading.

 

 

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(r) Operation of Business. Except as set forth on Schedule 2.1(r) hereto, the
Company and each of the Subsidiaries owns or possesses the rights to all
patents, trademarks, domain names (whether or not registered) and any patentable
improvements or copyrightable derivative works thereof, websites and
intellectual property rights relating thereto, service marks, trade names,
copyrights, licenses and authorizations which are necessary for the conduct of
its business as now conducted without any conflict with the rights of others.

(s) Environmental Compliance. The Company and each of its Subsidiaries have
obtained all material approvals, authorization, certificates, consents,
licenses, orders and permits or other similar authorizations of all governmental
authorities, or from any other person, that are required under any Environmental
Laws. “Environmental Laws” shall mean all applicable laws relating to the
protection of the environment including, without limitation, all requirements
pertaining to reporting, licensing, permitting, controlling, investigating or
remediating emissions, discharges, releases or threatened releases of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
materials or wastes, whether solid, liquid or gaseous in nature, into the air,
surface water, groundwater or land, or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
hazardous substances, chemical substances, pollutants, contaminants or toxic
substances, material or wastes, whether solid, liquid or gaseous in nature. The
Company has all necessary governmental approvals required under all
Environmental Laws as necessary for the Company’s business or the business of
any of its subsidiaries. To the best of the Company’s knowledge, the Company and
each of its subsidiaries are also in compliance with all other limitations,
restrictions, conditions, standards, requirements, schedules and timetables
required or imposed under all Environmental Laws. Except for such instances as
would not individually or in the aggregate have a Material Adverse Effect, there
are no past or present events, conditions, circumstances, incidents, actions or
omissions relating to or in any way affecting the Company or its Subsidiaries
that violate or may violate any Environmental Law after each Closing Date or
that may give rise to any environmental liability, or otherwise form the basis
of any claim, action, demand, suit, proceeding, hearing, study or investigation
(i) under any Environmental Law, or (ii) based on or related to the manufacture,
processing, distribution, use, treatment, storage (including without limitation
underground storage tanks), disposal, transport or handling, or the emission,
discharge, release or threatened release of any hazardous substance.

(t) Books and Records; Internal Accounting Controls. The records and documents
of the Company and its Subsidiaries accurately reflect in all material respects
the information relating to the business of the Company and the Subsidiaries,
the location and collection of their assets, and the nature of all transactions
giving rise to the obligations or accounts receivable of the Company or any
Subsidiary. The Company is in material compliance with all provisions of the
Sarbanes-Oxley Act of 2002 which are applicable to it as of the applicable
Closing Date. The Company and its 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 15d-15(e)) for the Company and designed such
disclosure controls and procedures to ensure that information required to be
disclosed by the Company in the reports it files or submits under the Exchange
Act is recorded, processed, summarized and reported, within the time periods
specified in the SEC’s rules and forms. The Company’s certifying officers have
evaluated the effectiveness of the Company’s disclosure controls and procedures
as of the end of the period covered by the Company’s 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 changes in the
Company’s internal control over financial reporting (as such term is defined in
the Exchange Act) that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial reporting.

(u) Material Agreements. Except as disclosed in the Public Filings or as set
forth on Schedule 2.1(u) hereto, or as would not be reasonably likely to have a
Material Adverse Effect, (i) the Company and each of its Subsidiaries have
performed all obligations required to be performed by them to date under any
written or oral contract, instrument, agreement, commitment, obligation, plan or
arrangement, filed or required to be filed with the SEC (the “Material
Agreements”), (ii) neither the Company nor any of its Subsidiaries has received
any notice of default under any Material Agreement and, (iii) to the best of the
Company’s knowledge, neither the Company nor any of its Subsidiaries is in
default under any Material Agreement now in effect.

 

 

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(v) Transactions with Affiliates. Except as set forth on Schedule 2.1(v) hereto
or in the Public Filings and otherwise contemplated by this Agreement, there are
no loans, leases, agreements, contracts, royalty agreements, management
contracts or arrangements or other continuing transactions between (a) the
Company, any Subsidiary or any of their respective customers or suppliers on the
one hand, and (b) on the other hand, any officer, employee, consultant or
director of the Company, or any of its Subsidiaries, or any person owning at
least 5% of the outstanding capital stock of the Company or any Subsidiary or
any member of the immediate family of such officer, employee, consultant,
director or stockholder or any corporation or other entity controlled by such
officer, employee, consultant, director or stockholder, or a member of the
immediate family of such officer, employee, consultant, director or stockholder
which, in each case, is required to be disclosed in the Commission Documents or
in the Company’s most recently filed definitive proxy statement on Schedule 14A,
that is not so disclosed in the Commission Documents or in such proxy statement.

(w) Securities Act of 1933. The Company has complied and will comply with all
applicable federal and state securities laws in connection with the offer,
issuance and sale of the Securities hereunder. Neither the Company nor anyone
acting on its behalf, directly or indirectly, has or will sell, offer to sell or
solicit offers to buy any of the Securities or similar securities to, or solicit
offers with respect thereto from, or enter into any negotiations relating
thereto with, any person, or has taken or will take any action so as to bring
the issuance and sale of any of the Securities under the registration provisions
of the Securities Act and applicable state securities laws, and neither the
Company nor any of its affiliates, nor any person acting on its or their behalf,
has engaged in any form of general solicitation or general advertising (within
the meaning of Regulation D under the Securities Act) in connection with the
offer or sale of any of the Securities.

(x) Employees. Neither the Company nor any Subsidiary has any collective
bargaining arrangements or agreements covering any of its employees, except as
set forth on Schedule 2.1(x) hereto. Except as set forth on Schedule 2.1(x)
hereto or in the Public Filings, neither the Company nor any Subsidiary has any
employment contract, agreement regarding proprietary information,
non-competition agreement, non-solicitation agreement, confidentiality
agreement, or any other similar contract or restrictive covenant, relating to
the right of any officer, employee or consultant to be employed or engaged by
the Company or such Subsidiary required to be disclosed in the Commission
Documents that is not so disclosed. No officer, consultant or key employee of
the Company or any Subsidiary whose termination, either individually or in the
aggregate, would be reasonably likely to have a Material Adverse Effect, has
terminated or, to the knowledge of the Company, has any present intention of
terminating his or her employment or engagement with the Company or any
Subsidiary.

(y) Absence of Certain Developments. Except as set forth in the Public Filings
or provided on Schedule 2.1(y) hereto or as otherwise contemplated by this
Agreement, since December 31, 2007, neither the Company nor any Subsidiary has:

(i) issued any stock, bonds or other corporate securities or any right, options
or warrants with respect thereto;

(ii) borrowed any amount in excess of $10,000 or incurred or become subject to
any other liabilities in excess of $10,000 (absolute or contingent) except
current liabilities incurred in the ordinary course of business which are
comparable in nature and amount to the current liabilities incurred in the
ordinary course of business during the comparable portion of its prior fiscal
year, as adjusted to reflect the current nature and volume of the business of
the Company and its Subsidiaries;

(iii) discharged or satisfied any lien or encumbrance in excess of $10,000 or
paid any obligation or liability (absolute or contingent) in excess of $10,000,
other than current liabilities paid in the ordinary course of business;

(iv) declared or made any payment or distribution of cash or other property to
stockholders with respect to its stock, or purchased or redeemed, or made any
agreements so to purchase or redeem, any shares of its capital stock, in each
case in excess of $5,000 individually or $10,000 in the aggregate;

 

 

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(v) sold, assigned or transferred any other tangible assets, or canceled any
debts or claims, in each case in excess of $10,000, except in the ordinary
course of business;

(vi) sold, assigned or transferred any patent rights, trademarks, trade names,
copyrights, trade secrets or other intangible assets or intellectual property
rights in excess of $10,000, or disclosed any proprietary confidential
information to any person except to customers in the ordinary course of business
or to the Purchasers or their representatives;

(vii) suffered any material losses or waived any rights of material value,
whether or not in the ordinary course of business, or suffered the loss of any
material amount of prospective business;

(viii) made any changes in employee compensation except in the ordinary course
of business and consistent with past practices;

(ix) made capital expenditures or commitments therefor that aggregate in excess
of $10,000;

(x) entered into any material transaction, whether or not in the ordinary course
of business;

(xi) made charitable contributions or pledges in excess of $5,000;

(xii) suffered any material damage, destruction or casualty loss, whether or not
covered by insurance;

(xiii) experienced any material problems with labor or management in connection
with the terms and conditions of their employment; or

(xiv) entered into an agreement, written or otherwise, to take any of the
foregoing actions.

(z) Investment Company Act Status. The Company is not, and as a result of and
immediately upon each Closing will not be, an “investment company” or a company
“controlled” by an “investment company,” within the meaning of the Investment
Company Act of 1940, as amended.

(aa) Independent Nature of Purchasers. The Company acknowledges that the
obligations of each Purchaser under the Transaction Documents are several and
not joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under the Transaction Documents. The Company acknowledges that the
decision of each Purchaser to purchase Securities pursuant to this Agreement has
been made by such Purchaser independently of any other purchase and
independently of any information, materials, statements or opinions as to the
business, affairs, operations, assets, properties, liabilities, results of
operations, condition (financial or otherwise) or prospects of the Company or of
its Subsidiaries which may have made or given by any other Purchaser or by any
agent or employee of any other Purchaser, and no Purchaser or any of its agents
or employees shall have any liability to any Purchaser (or any other person)
relating to or arising from any such information, materials, statements or
opinions. The Company acknowledges that nothing contained herein, or in any
Transaction Document, and no action taken by any Purchaser pursuant hereto or
thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. The Company acknowledges that for reasons of
administrative convenience only, the Transaction Documents have been prepared by
counsel for one of the Purchasers and such counsel does not represent all of the
Purchasers but only such Purchaser and the other Purchasers have retained their
own individual counsel with respect to the transactions contemplated hereby. The
Company acknowledges that it has elected to provide all Purchasers with the same
terms and Transaction Documents for the convenience of the Company and not
because it was required or requested to do so by the Purchasers. The Company
acknowledges that such procedure with respect to the Transaction Documents in

 

 

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no way creates a presumption that the Purchasers are in any way acting in
concert or as a group with respect to the Transaction Documents or the
transactions contemplated hereby or thereby. The Company acknowledges that each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation, the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose.

(bb) 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 the Securities pursuant to
this Agreement to be integrated with prior offerings by the Company for purposes
of the Securities Act which would prevent the Company from selling the
Securities pursuant to Regulation D and Rule 506 thereof under the Securities
Act, or any applicable exchange-related stockholder approval provisions, nor
will the Company or any of its affiliates or subsidiaries take any action or
steps that would cause the offering of the Securities to be integrated with
other offerings if to do so would prevent the Company from selling Securities
pursuant to Regulation D and Rule 506 thereof under the Securities Act or
otherwise prevent a completed offering of Securities hereunder. The Company does
not have any registration statement pending before the SEC or currently under
the SEC’s review and except as set forth on Schedule 2.1(bb) hereto, since
December 31, 2007, the Company has not offered or sold any of its equity
securities or debt securities convertible into shares of Common Stock.

(cc) Dilutive Effect. The Company understands and acknowledges that its
obligation to issue Conversion Shares upon conversion of the Notes in accordance
with this Agreement and the Notes is absolute and unconditional regardless of
the dilutive effect that such issuance may have on the ownership interest of
other stockholders of the Company.

(dd) DTC Status. Except as set forth on Schedule 2.1(dd) hereto, the Company’s
transfer agent is a participant in and the Common Stock is eligible for transfer
pursuant to the Depository Trust Company Automated Securities Transfer Program.
The name, address, telephone number, fax number, contact person and email of the
Company transfer agent is set forth on Schedule 2.1(dd) hereto.

(ee) Governmental Approvals. Except for the filing of any notice prior or
subsequent to the applicable Closing that may be required under applicable state
and/or federal securities laws (which if required, shall be filed on a timely
basis) and the declaration of the effectiveness of any registration statements
filed by the Company pursuant to the Transaction Documents, no authorization,
consent, approval, license, exemption of, filing or registration with any court
or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary for, or in
connection with, the execution or delivery of the Conversion Shares, or for the
performance by the Company of its obligations under the Transaction Documents.

(ff) Insurance. The Company and each of its Subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in such
amounts as management of the Company believes to be prudent and customary in the
businesses in which the Company and its Subsidiaries are engaged. Neither the
Company nor any such Subsidiary has been refused any insurance coverage sought
or applied for and neither the Company nor any such Subsidiary has any 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 at a cost that would not have a
Material Adverse Effect.

2.2 Representations and Warranties of the Purchasers. Each of the Purchasers
hereby represents and warrants to the Company with respect solely to itself and
not with respect to any other Purchaser as follows as of the date hereof and as
of each Closing Date:

(a) Organization and Standing of the Purchasers. If the Purchaser is an entity,
such Purchaser is a corporation, limited liability company or partnership duly
incorporated or organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization.

(b) Authorization and Power. Each Purchaser has the requisite power and
authority to enter into and perform the Transaction Documents and to purchase
the Securities being sold to it hereunder. The execution, delivery and
performance of the Transaction Documents by each Purchaser and the consummation
by it

 

 

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of the transactions contemplated hereby have been duly authorized by all
necessary corporate or partnership action, and no further consent or
authorization of such Purchaser or its Board of Directors, stockholders, or
partners, as the case may be, is required. When executed and delivered by the
Purchasers, the other Transaction Documents shall constitute valid and binding
obligations of each Purchaser enforceable against such Purchaser in accordance
with their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor’s rights and remedies or by other
equitable principles of general application.

(c) Acquisition for Investment. Each Purchaser is purchasing the Securities
solely for its own account and not with a view to or for sale in connection with
distribution. Each Purchaser does not have a present intention to sell any of
the Securities, nor a present arrangement (whether or not legally binding) or
intention to effect any distribution of any of the Securities to or through any
person or entity; provided, however, that by making the representations herein,
such Purchaser does not agree to hold the Securities for any minimum or other
specific term and reserves the right to dispose of the Securities at any time in
accordance with federal and state securities laws applicable to such
disposition. Each Purchaser acknowledges that it (i) has such knowledge and
experience in financial and business matters such that Purchaser is capable of
evaluating the merits and risks of Purchaser’s investment in the Company, (ii)
is able to bear the financial risks associated with an investment in the
Securities and (iii) has been given full access to such records of the Company
and the Subsidiaries and to the officers of the Company and the Subsidiaries as
it has deemed necessary or appropriate to conduct its due diligence
investigation.

(d) Rule 144. Each Purchaser understands that the Securities must be held
indefinitely unless such Securities are registered under the Securities Act or
an exemption from registration is available. Each Purchaser acknowledges that
such person is familiar with Rule 144 of the rules and regulations of the SEC,
as amended, promulgated pursuant to the Securities Act (“Rule 144”), and that
such Purchaser has been advised that Rule 144 permits resales only under certain
circumstances. Each Purchaser understands that to the extent that Rule 144 is
not available, such Purchaser will be unable to sell any Securities without
either registration under the Securities Act or the existence of another
exemption from such registration requirement.

(e) General. Each Purchaser understands that the Securities are being offered
and sold in reliance on a transactional exemption from the registration
requirements of federal and state securities laws and the Company is relying
upon the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth herein in order
to determine the applicability of such exemptions and the suitability of such
Purchaser to acquire the Securities. Each Purchaser understands that no United
States federal or state agency or any government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
Commencing on the date that the Purchasers were initially contacted regarding an
investment in the Securities, none of the Purchasers has engaged in any short
sale of the Common Stock and will not engage in any short sale of the Common
Stock prior to public announcement of the transactions contemplated by this
Agreement pursuant to Section 3.10.

(f) No General Solicitation. Each Purchaser acknowledges that the Securities
were not offered to such Purchaser by means of any form of general or public
solicitation or general advertising, or publicly disseminated advertisements or
sales literature, including (i) any advertisement, article, notice or other
communication published in any newspaper, magazine, or similar media, or
broadcast over television or radio, or (ii) any seminar or meeting to which such
Purchaser was invited by any of the foregoing means of communications. Each
Purchaser, in making the decision to purchase the Securities, has relied upon
independent investigation made by it and has not relied on any information or
representations made by third parties.

(g) Accredited Investor. Each Purchaser is an “accredited investor” (as defined
in Rule 501 of Regulation D), and such Purchaser has such experience in business
and financial matters that it is capable of evaluating the merits and risks of
an investment in the Securities. Such Purchaser is not required to be registered
as a broker-dealer under Section 15 of the Exchange Act and such Purchaser is
not a broker-dealer. Each Purchaser acknowledges that an investment in the
Securities is speculative and involves a high degree of risk.

(h) Certain Fees. The Purchasers have not employed any broker or finder or
incurred any liability for any brokerage or investment banking fees,
commissions, finders’ structuring fees, financial advisory fees or other similar
fees in connection with the Transaction Documents.

 

 

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(i) Independent Investment. No Purchaser has agreed to act with any other
Purchaser for the purpose of acquiring, holding, voting or disposing of the
Securities purchased hereunder for purposes of Section 13(d) under the Exchange
Act, and each Purchaser is acting independently with respect to its investment
in the Securities.

ARTICLE 3

COVENANTS

Unless otherwise specified in this Article, for so long as any Notes have not
been paid in full or converted in full, the Company covenants with each
Purchaser as follows, which covenants are for the benefit of each Purchaser and
their respective permitted assignees.

3.1 Securities Compliance. The Company shall notify the SEC in accordance with
its rules and regulations, of the transactions contemplated by any of the
Transaction Documents and shall take all other necessary action and proceedings
as may be required and permitted by applicable law, rule and regulation, for the
legal and valid issuance of the Securities to the Purchasers, or their
respective subsequent holders.

3.2 Registration and Listing. The Company shall cause its Common Stock to
continue to be registered under Sections 12(b) or 12(g) of the Exchange Act, to
comply in all respects with its reporting and filing obligations under the
Exchange Act, to comply with all requirements related to any registration
statement filed pursuant to this Agreement, and to not take any action or file
any document (whether or not permitted by the Securities Act or the rules
promulgated thereunder) to terminate or suspend such registration or to
terminate or suspend its reporting and filing obligations under the Exchange Act
or Securities Act. The Company will take all action necessary to continue the
listing or trading of its Common Stock on the Over the Counter Bulletin Board
(the “Principal Market”). The Company further covenants that it will take such
further action as the Purchasers may reasonably request from time to time to
enable the Purchasers to sell the Securities without registration under the
Securities Act pursuant to the exemption provided by Rule 144 promulgated under
the Securities Act. Upon the request of the Purchasers, the Company shall
deliver to the Purchasers a written certification of a duly authorized officer
as to whether it has complied with such requirements.

3.3 Inspection Rights. Provided the same would not be in violation of Regulation
FD, the Company shall permit, during normal business hours and upon reasonable
request and reasonable notice, each Purchaser or any employees, agents or
representatives thereof, so long as such Purchaser shall be obligated hereunder
to purchase the Notes or shall beneficially own any Conversion Shares, for
purposes reasonably related to such Purchaser’s interests as a stockholder, to
examine the publicly available, non-confidential records and books of account
of, and visit and inspect the properties, assets, operations and business of the
Company and any Subsidiary, and to discuss the publicly available,
non-confidential affairs, finances and accounts of the Company and any
Subsidiary with any of its officers, consultants, directors, and key employees.

3.4 Compliance with Laws. The Company shall comply, and cause each Subsidiary to
comply, with all applicable laws, rules, regulations and orders, noncompliance
with which would be reasonably likely to have a Material Adverse Effect.

3.5 Keeping of Records and Books of Account. The Company shall keep and cause
each Subsidiary to keep adequate records and books of account, in which complete
entries will be made in accordance with GAAP consistently applied, reflecting
all financial transactions of the Company and its Subsidiaries, and in which,
for each fiscal year, all proper reserves for depreciation, depletion,
obsolescence, amortization, taxes, bad debts and other purposes in connection
with its business shall be made.

3.6 Reporting Requirements. If the Company ceases to file its periodic reports
with the SEC, or if the SEC ceases making these periodic reports available via
the Internet without charge, then the Company shall furnish the following to
each Purchaser so long as such Purchaser shall be obligated hereunder to
purchase the Securities or shall beneficially own Notes:

 

 

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(a) Quarterly Reports filed with the SEC on Form 10-Q as soon as practical after
the document is filed with the SEC, and in any event within five days after the
document is filed with the SEC;

(b) Annual Reports filed with the SEC on Form 10-K as soon as practical after
the document is filed with the SEC, and in any event within five days after the
document is filed with the SEC; and

(c) Copies of all notices, information and proxy statements in connection with
any meetings, that are, in each case, provided to holders of shares of Common
Stock, contemporaneously with the delivery of such notices or information to
such holders of Common Stock.

3.7 Other Agreements. The Company shall not enter into any agreement in which
the terms of such agreement would restrict or impair the right or ability to
perform of the Company or any Subsidiary under any Transaction Document.

3.8 Use of Proceeds. The proceeds from the sale of the Securities hereunder
shall be used by the Company for general corporate purposes. In no event shall
the proceeds be used to redeem any Common Stock or securities convertible,
exercisable or exchangeable into Common Stock or to settle any outstanding
litigation.

3.9 Reporting Status. So long as a Purchaser beneficially owns any of the
Securities, the Company shall timely file all reports required to be filed with
the SEC pursuant to the Exchange Act, and the Company shall not terminate its
status as an issuer required to file reports under the Exchange Act even if the
Exchange Act or the rules and regulations thereunder would permit such
termination.

3.10 Disclosure of Transaction. The Company shall issue a press release
describing the material terms of the transactions contemplated hereby (the
“Press Release”) on the date of execution of this Agreement but in no event
later than one hour after the execution of this Agreement; provided, however,
that if the execution of this Agreement occurs after 4:00 P.M. Eastern Time on
any Trading Day, the Company shall issue the Press Release no later than 9:00
A.M. Eastern Time on the first Trading Day following such date of execution. The
Company shall also file with the SEC a Current Report on Form 8-K (the “Form
8-K”) describing the material terms of the transactions contemplated hereby (and
attaching as exhibits thereto this Agreement, the form of Note, the Security
Agreement and the Press Release) as soon as practicable following the First
Closing Date but in no event more than one Trading Day following the First
Closing Date, which Press Release and Form 8-K shall be subject to prior review
and comment by the Purchasers. “Trading Day” means any day during which the
principal exchange on which the Common Stock is traded shall be open for
trading.

3.11 Disclosure of Material Information. The Company covenants and agrees that
neither it nor any other person acting on its behalf has provided or will
provide any Purchaser or its agents or counsel with any information that the
Company believes constitutes material non-public information, unless prior
thereto such Purchaser shall have executed a written agreement regarding the
confidentiality and use of such information. The Company understands and
confirms that each Purchaser shall be relying on the foregoing representations
in effecting transactions in securities of the Company. In the event of a breach
of the foregoing covenant by the Company, or any of its Subsidiaries, or any of
its or their respective officers, directors, employees and agents, in addition
to any other remedy provided herein or in the Transaction Documents, the Company
shall publicly disclose any material, non-public information in a Form 8-K
within three business days of the date that it discloses such information to any
Purchaser. In the event that the Company discloses any material, non-public
information to a Purchaser and fails to publicly file a Form 8-K in accordance
with the above, a Purchaser shall have the right to make a public disclosure, in
the form of a press release, public advertisement or otherwise, of such
material, nonpublic information without the prior approval by the Company, its
Subsidiaries, or any of its or their respective officers, directors, employees
or agents. No Purchaser shall have any liability to the Company, its
Subsidiaries, or any of its or their respective officers, directors, employees,
stockholders or agents, for any such disclosure.

3.12 Pledge of Securities. The Company acknowledges that the Securities may be
pledged by a Purchaser in connection with a bona fide margin agreement or other
loan or financing arrangement that is secured by the Securities. The pledge of
Securities shall not be deemed to be a transfer, sale or assignment of the
Securities hereunder, and no Purchaser effecting a pledge of the Securities
shall be required to provide the Company with any notice thereof or otherwise
make any delivery to the Company pursuant to this Agreement or any other
Transaction

 

 

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Document; provided that a Purchaser and its pledgee shall be required to comply
with the provisions of Article V hereof in order to effect a sale, transfer or
assignment of Securities to such pledgee. At the Purchasers’ expense, the
Company hereby agrees to execute and deliver such documentation as a pledgee of
the Securities may reasonably request in connection with a pledge of the
Securities to such pledgee by a Purchaser.

3.13 Amendments. The Company shall not amend or waive any provision of the
Certificate or Bylaws of the Company in any way that would adversely affect
exercise rights, voting rights, conversion rights, prepayment rights or
redemption rights of the holder of the Notes.

3.14 Acquisition of Assets. In the event the Company or any Subsidiary acquires
any assets or other properties, such assets or properties shall constitute a
part of the Collateral (as defined in the Security Agreement) and the Company
shall take all action necessary to perfect the Purchasers’ security interest in
such assets or properties pursuant to the Security Agreement.

3.15 Subsequent Financings.

(a) Until the later of two years following the First Closing Date or one year
following the conversion or repayment of all of the Notes, the Company covenants
and agrees to promptly notify (in no event later than five days after making or
receiving an applicable offer) in writing (a “Rights Notice”) the Purchasers of
the terms and conditions of any proposed offer or sale to, or exchange with (or
other type of distribution to) any third party (a “Subsequent Financing”), of
Common Stock or any securities convertible, exercisable or exchangeable into
Common Stock, including convertible debt securities, or any debt instrument. The
Rights Notice shall describe, in reasonable detail, the proposed Subsequent
Financing, the names and investment amounts of all investors participating in
the Subsequent Financing, the proposed closing date of the Subsequent Financing,
which shall be within 20 calendar days from the date of the Rights Notice, and
all of the terms and conditions thereof and proposed definitive documentation to
be entered into in connection therewith. The Rights Notice shall provide each
Purchaser an option (the “Rights Option”) during the 10 Trading Days following
delivery of the Rights Notice (the “Option Period”) to inform the Company
whether such Purchaser will purchase securities in such Subsequent Financing
equal to up to its pro rata portion of the securities being offered in such
Subsequent Financing on the same terms and conditions as contemplated by such
Subsequent Financing. If any Purchaser elects not to participate in such
Subsequent Financing, the other Purchasers may participate on a pro-rata basis
so long as such participation in the aggregate does not exceed the total
Purchase Price hereunder. For purposes of this Section, all references to “pro
rata” means, for any Purchaser electing to participate in such Subsequent
Financing, the percentage obtained by dividing (x) the principal amount of the
Notes purchased by such Purchaser at the First Closing by (y) the total
principal amount of all of the Notes purchased by all of the participating
Purchasers at the First Closing. Delivery of any Rights Notice constitutes a
representation and warranty by the Company that there are no other material
terms and conditions, arrangements, agreements or otherwise except for those
disclosed in the Rights Notice, to provide additional compensation to any party
participating in any proposed Subsequent Financing, including, but not limited
to, additional compensation based on changes in the Purchase Price or any type
of reset or adjustment of a purchase or conversion price or to issue additional
securities at any time after the closing date of a Subsequent Financing. If the
Company does not receive notice of exercise of the Rights Option from the
Purchasers within the Option Period, the Company shall have the right to close
the Subsequent Financing on the scheduled closing date with a third party;
provided that all of the material terms and conditions of the closing are
substantially the same as those provided to the Purchasers in the Rights Notice.
If the closing of the proposed Subsequent Financing does not occur on that date,
any closing of the contemplated Subsequent Financing or any other Subsequent
Financing shall be subject to all of the provisions of this Section 3.15(a),
including, without limitation, the delivery of a new Rights Notice. The
provisions of this Section 3.15(a) shall not apply to issuances of securities in
a Permitted Financing.

(b) For purposes of this Agreement, a Permitted Financing (as defined
hereinafter) shall not be considered a Subsequent Financing. A “Permitted
Financing” shall mean (1) issuances of shares of Common Stock or options to
employees, officers, directors or consultants of the Company pursuant to any
stock or option plan duly adopted by a majority of the non-employee members of
the Board of Directors of the Company or a majority of the members of a
committee of non-employee directors established for such purpose, duly approved
by the Company’s stockholders and described in the Public Filings, including up
to 8,400,000 shares reserved for issuance under the 2007 Stock Incentive Plan;
(2) issuances of securities upon the exercise or exchange of or conversion of
any securities exercisable or exchangeable for or convertible into shares of
Common Stock issued and

 

 

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outstanding on the date of this Agreement and described in the Public Filings,
provided that such securities have not been amended since the date of this
Agreement to increase the number of such securities or to decrease the exercise,
exchange or conversion price of any such securities (including the Notes issued
to the Purchasers pursuant to this Agreement); and (3) securities issued in any
transaction that is approved in writing by the holders of more than two-thirds
of the principal amount of the Notes.

(c) So long as the Notes are outstanding, if the Company enters into any
Subsequent Financing on terms more favorable than the terms governing the Notes,
then each Purchaser in its sole discretion may exchange its Note, valued at
their stated value, together with accrued but unpaid interest (which interest
payments shall be payable, at the sole option of such Purchaser, in cash or in
the form of the new securities to be issued in the Subsequent Financing), for
the securities issued or to be issued in the Subsequent Financing. The Company
covenants and agrees to promptly notify in writing the Purchasers of the terms
and conditions of any such proposed Subsequent Financing.

3.16 Number of Directors. For so long as the Notes remain outstanding, the
Company covenants and agrees to maintain the number of directors comprising the
Board of Directors of the Company at no more than five.

3.17 Variable Rate Securities. For so long as any Notes have not been paid in
full or converted in full, notwithstanding whether or not an issuance of
securities is an Permitted Financing, the Company shall not issue or sell, or
agree to issue or sell Variable Equity Securities (as defined below) (the
“Variable Equity Securities Lock-Up”), without obtaining the prior written
approval of Purchasers then holding 66 2/3% of the then outstanding principal
amount of the Notes. For purposes hereof, the following shall be collectively
referred to herein as, the “Variable Equity Securities”: (A) any debt or equity
securities which are convertible into, exercisable or exchangeable for, or carry
the right to receive additional shares of Common Stock either (1) at any
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for Common Stock at any time
after the initial issuance of such debt or equity security, or (2) with a fixed
conversion, exercise or exchange price that is subject to being reset at some
future date at any time after the initial issuance of such debt or equity
security due to a change in the market price of the Company’s Common Stock since
date of initial issuance, or (B) any amortizing convertible security which
amortizes prior to its maturity date, where the Company is required to or has
the option to (or the investor in such transaction has the option to require the
Company to) make such amortization payments in shares of Common Stock (whether
or not such payments in stock are subject to certain equity conditions), or (C)
any transaction involving a written agreement between the Company and an
investor or underwriter whereby the Company has the right to “put” its
securities to the investor or underwriter over an agreed period of time and at
an agreed price or price formula. For purposes of the above, the “Market Price”
shall mean the volume weighted average price, as reported by Bloomberg, for the
Company’s common stock for the 5 trading day period immediately preceding the
date in question. It is expressly agreed and understood that the Variable Equity
Securities Lock-Up shall apply in respect of a Permitted Financing and that no
issuance of Variable Equity Securities shall be a Permitted Financing.

3.18 Maintenance of Insurance. The Company shall maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible and reputable insurance
companies or associations (including, without limitation, comprehensive general
liability, hazard, rent and business interruption insurance) with respect to its
properties (including all real properties leased or owned by it) and business,
in such amounts and covering such risks as is required by any governmental
authority having jurisdiction with respect thereto or as is carried generally in
accordance with sound business practice by companies in similar businesses
similarly situated.

3.19 Subsidiaries. For so long as the Notes remain outstanding, the Company
covenants and agrees not to transfer any assets to any Subsidiary or to
otherwise cause any Subsidiary to acquire any assets or commence operations.

ARTICLE 4

CONDITIONS

4.1 Conditions Precedent to the Obligation of the Company to Close and to Sell
the Securities. The obligation hereunder of the Company to close and issue and
sell the Securities to the Purchasers at each Closing is subject to the
satisfaction or waiver, at or before the Closing of the conditions set forth
below. These conditions are for the Company’s sole benefit and may be waived by
the Company at any time in its sole discretion.

 

 

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(a) Accuracy of the Purchasers’ Representations and Warranties. The
representations and warranties of each Purchaser shall be true and correct in
all material respects as of the date when made and as of the applicable Closing
Date as though made at that time, except for representations and warranties that
are expressly made as of a particular date, which shall be true and correct in
all material respects as of such date.

(b) Performance by the Purchasers. Each Purchaser shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Purchasers at or prior to the applicable Closing Date.

(c) No Injunction. No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.

(d) Delivery of Purchase Price. The Purchase Price for the Securities shall have
been delivered to the Company on the applicable Closing Date.

(e) Delivery of Transaction Documents. The Transaction Documents shall have been
duly executed and delivered by the Purchasers to the Company.

4.2 Conditions Precedent to the Obligation of the Purchasers to Close and to
Purchase the Securities. The obligation hereunder of the Purchasers to purchase
the Securities and consummate the transactions contemplated by this Agreement is
subject to the satisfaction or waiver, at or before the applicable Closing, of
each of the conditions set forth below. These conditions are for the Purchasers’
sole benefit and may be waived by the Purchasers at any time in their sole
discretion.

(a) Accuracy of the Company’s Representations and Warranties. Each of the
representations and warranties of the Company and its Subsidiaries in this
Agreement and the other Transaction Documents shall be true and correct in all
material respects as of applicable Closing Date, except for representations and
warranties that speak as of a particular date, which shall be true and correct
in all material respects as of such date.

(b) Performance by the Company and Subsidiaries. Each of the Company and its
Subsidiaries shall have performed, satisfied and complied in all material
respects with all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company and its
Subsidiaries at or prior to each applicable Closing Date.

(c) No Suspension, Etc. The shares of Common Stock (I) shall be designated for
quotation or listed on the Principal Market and (II) shall not have been
suspended, as of each Closing Date, by the SEC or the Principal Market from
trading on the Principal Market nor shall suspension by the SEC or the Principal
Market have been threatened, as of each Closing Date, either (A) in writing by
the SEC or the Principal Market or (B) by falling below the minimum listing
maintenance requirements of the Principal Market.

(d) No Injunction. No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.

(e) No Proceedings or Litigation. No action, suit or proceeding before any
arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Company or any Subsidiary, or any of the officers, directors or affiliates
of the Company or any Subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.

 

 

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(f) Opinion of Counsel. The Purchasers shall have received an opinion of counsel
to the Company, dated the date of the Closing, substantially in the form of
Exhibit F hereto, with such exceptions and limitations as shall be reasonably
acceptable to counsel to the Purchasers.

(g) Notes. At or prior to each Closing, the Company shall have delivered to the
Purchasers the Notes (in such denominations as each Purchaser may request).

(h) Secretary’s Certificate. The Company and each Subsidiary of the Company
shall have delivered to the Purchasers a secretary’s certificate, dated as of
each Closing Date, as to (i) the resolutions adopted by its Board of Directors
approving the transactions contemplated hereby, (ii) its certificate of
incorporation, (iii) its bylaws, each as in effect at the Closing Date, and (iv)
the authority and incumbency of the officers executing the Transaction Documents
and any other documents required to be executed or delivered in connection
therewith.

(i) Officer’s Certificate. On each Closing Date, the Company and each Subsidiary
shall have delivered to the Purchasers a certificate signed by an executive
officer on behalf of the Company and each Subsidiary, dated as of such Closing
Date, confirming the accuracy of the Company’s and each Subsidiary’s
representations, warranties and covenants as of such Closing Date and confirming
the compliance by the Company with the conditions precedent set forth in
paragraphs (a)-(e) and (k) of this Section 4.2 as of such Closing Date (provided
that, with respect to the matters in paragraphs (d) and (e) of this Section 4.2,
such confirmation shall be based on the knowledge of the executive officer after
due inquiry).

(j) Material Adverse Effect. No Material Adverse Effect shall have occurred.

(k) Security Agreement; IP Security Agreement. At the First Closing, the Company
and each of its Subsidiaries shall have executed and delivered the Security
Agreement and the IP Security Agreement to the Agent.

(l) UCC Financing Statements. The Company and each of its Subsidiaries shall
have authorized the filing of all UCC financing statements in form and substance
satisfactory to the Purchasers at the appropriate offices to create a valid and
perfected security interest in the Collateral (as defined in the Security
Agreement), which filings are to be made promptly following the First Closing.
Without limiting the foregoing, the Company and each of its Subsidiaries shall
have taken such other actions as reasonably requested by the Agent to create a
valid and perfected security interest in the Collateral, including delivery of
original stock certificates and stock powers and execution and delivery of
account control agreements, which actions shall be taken promptly following the
First Closing.

(m) Change in Purchasers. There shall have been no changes to Exhibit A (List of
Purchasers) since the execution of this Agreement.

ARTICLE 5

CERTIFICATE LEGEND

5.1 Legend. Except as set forth herein, each certificate representing the
Securities shall be stamped or otherwise imprinted with a legend substantially
in the following form (in addition to any legend required by applicable state
securities or “blue sky” laws):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE “SECURITIES”) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”)
OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE
STATE SECURITIES LAWS OR THE REGISTRATION OF SUCH SECURITIES UNDER THE
SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS
NOT REQUIRED.

 

 

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The Company agrees to issue or reissue certificates representing any of the
Conversion Shares without the legend set forth above when required to do so
pursuant to the terms of the Notes or if (x) the holder thereof shall provide
the Company with reasonable assurances that the Conversion Shares can be sold
pursuant to Rule 144 without any restriction as to the number of securities
acquired as of a particular date that can then be immediately sold (which
assurances shall not require an opinion of counsel) or (y) the holder is selling
such Conversion Shares in compliance with the provisions of Rule 144.

ARTICLE 6

INDEMNIFICATION

6.1 General Indemnity. The Company agrees to indemnify and hold harmless the
Purchasers (and their respective directors, officers, affiliates, members,
managers, employees, agents, successors and assigns) from and against any and
all losses, liabilities, deficiencies, costs, damages and expenses (including,
without limitation, reasonable attorneys’ fees, charges and disbursements)
incurred by the Purchasers as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein.

6.2 Indemnification Procedure. Any party entitled to indemnification under this
Article 6 (an “indemnified party”) will give written notice to the indemnifying
party of any matter giving rise to a claim for indemnification; provided, that
the failure of any party entitled to indemnification hereunder to give notice as
provided herein shall not relieve the indemnifying party of its obligations
under this Article 6 except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice. In case any such action,
proceeding or claim is brought against an indemnified party in respect of which
indemnification is sought hereunder, the indemnifying party shall be entitled to
participate in and, unless in the reasonable judgment of the indemnifying party
a conflict of interest between it and the indemnified party exists with respect
to such action, proceeding or claim (in which case the indemnifying party shall
be responsible for the reasonable fees and expenses of one separate counsel for
the indemnified parties), to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party. In the event that the indemnifying party
advises an indemnified party that it will contest such a claim for
indemnification hereunder, or fails, within 30 days of receipt of any
indemnification notice to notify, in writing, such person of its election to
defend, settle or compromise, at its sole cost and expense, any action,
proceeding or claim (or discontinues its defense at any time after it commences
such defense), then the indemnified party may, at its option, defend, settle or
otherwise compromise or pay such action or claim. In any event, unless and until
the indemnifying party elects in writing to assume and does so assume the
defense of any such claim, proceeding or action, the indemnified party’s costs
and expenses arising out of the defense, settlement or compromise of any such
action, claim or proceeding shall be losses subject to indemnification
hereunder. The indemnified party shall cooperate fully with the indemnifying
party in connection with any negotiation or defense of any such action or claim
by the indemnifying party and shall furnish to the indemnifying party all
information reasonably available to the indemnified party which relates to such
action or claim. The indemnifying party shall keep the indemnified party fully
apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. If the indemnifying party elects to defend
any such action or claim, then the indemnified party shall be entitled to
participate in such defense with counsel of its choice at its sole cost and
expense. The indemnifying party shall not be liable for any settlement of any
action, claim or proceeding effected without its prior written consent.
Notwithstanding anything in this Article 6 to the contrary, the indemnifying
party shall not, without the indemnified party’s prior written consent, settle
or compromise any claim or consent to entry of any judgment in respect thereof
which imposes any future obligation on the indemnified party or which does not
include, as an unconditional term thereof, the giving by the claimant or the
plaintiff to the indemnified party of a release from all liability in respect of
such claim. The indemnification obligations to defend the indemnified party
required by this Article 6 shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, so long as the
indemnified party shall refund such moneys if it is ultimately determined by a
court of competent jurisdiction that such party was not entitled to
indemnification. The indemnity agreements contained herein shall be in addition
to (a) any cause of action or similar rights of the indemnified party against
the indemnifying party or others, and (b) any liabilities the indemnifying party
may be subject to pursuant to the law.

 

 

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ARTICLE 7

MISCELLANEOUS

7.1 Purchasers’ Agent.

(a) Appointment. The Purchasers hereby appoint Tang Capital Partners, L.P., as
the “Agent” for the Purchasers under the Security Agreement, the IP Security
Agreement. Notwithstanding anything to the contrary herein, the Agent may be
removed or replaced with the written consent of the Requisite Purchasers (as
defined in the Security Agreement).

(b) Powers and Duties of Agent, Indemnity by Purchasers.

(i) Each Purchaser hereby irrevocably authorizes the Agent to take all actions,
to make all decisions and to exercise all powers and remedies on its behalf
under the provisions of the Security Agreement and the IP Security Agreement,
including without limitation all such actions, decisions and powers as are
reasonably incidental thereto. The Agent may execute any of its duties
thereunder by or through agents, designees or employees.

(ii) Neither the Agent nor any of its partners, directors, members, officers,
agents, designees or employees (collectively, “Indemnified Persons”) shall be
liable or responsible, unless such liability shall be caused by the willful
misconduct, bad faith or gross negligence of such Indemnified Persons, to any
Purchaser for any action taken or omitted to be taken by Agent or any other such
Indemnified Persons under the Security Agreement, or the IP Security Agreement,
or under any related agreement, instrument or document, nor shall any
Indemnified Person be liable or responsible to the Purchasers for (i) the
validity, effectiveness, sufficiency, enforceability or enforcement of the
Notes, the Security Agreement or the IP Security Agreement, or any instrument or
document delivered thereunder or relating thereto; (ii) the title of the Company
or any of its Subsidiaries to any of the Collateral or the freedom of any of the
Collateral from any prior or other liens or security interests; (iii) the
determination, verification or enforcement of the Company’s or any of its
Subsidiaries’ compliance with any of the terms and conditions of the Security
Agreement or the IP Security Agreement; (iv) the failure by the Company or any
of its Subsidiaries to deliver any instrument, agreement, financing statement or
other document required to be delivered pursuant to the terms thereof; or
(v) the receipt, disbursement, waiver, extension or other handling of payments
or proceeds made or received with respect to the Collateral, the servicing of
the Collateral or the enforcement or the collection of any amounts owing with
respect to the Collateral.

(iii) Each of the Purchasers agrees to pay to the Agent, promptly on demand, its
ratable share of all third-party fees, taxes and expenses incurred in connection
with the operation and enforcement of the Security Agreement or the IP Security
Agreement, the Notes or any related agreement or document to the extent that the
Agent is not reimbursed for such fees, taxes and expenses by or on behalf of the
Company; provided that, the Agent shall not incur any such fees, taxes or
expenses in excess of $200,000 without the prior written consent of the
Requisite Purchasers. Each of the Purchasers hereby agrees to hold the
Indemnified Persons harmless, and to indemnify the Indemnified Persons from and
against any and all loss, damage, taxes, expense or liability which may be
incurred by such Indemnified Persons under the Security Agreement or the IP
Security Agreement and the transactions contemplated hereby and any related
agreement or other instrument or document, as the case may be, unless such
liability shall be caused by the willful misconduct, bad faith or gross
negligence of such Indemnified Persons. The undertakings in this Section shall
survive the payment of all Liabilities (as defined in the Security Agreement)
and the resignation or replacement of Agent.

(c) No Reliance. Each Purchaser represents to the Agent that it has made its own
appraisal of and investigation into the business, prospects, operations,
property, financial and other condition and credit worthiness of the Company and
its Subsidiaries, and made its own decision to enter into this Agreement and to
purchase Notes from the Company independently based on such documents and
information as it has deemed appropriate and without reliance upon the Agent or
any of its partners, directors, members, officers, agents, designees or
employees. Each Purchaser agrees that the Agent shall not have any duty or
responsibility to provide any Purchaser with any credit or other information
concerning the business, prospects, operations, property, financial and other
condition or credit worthiness of the Company or any of its Subsidiaries.

 

 

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7.2 Fees and Expenses. Each party shall pay the fees and expenses of its
advisors, 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 this Agreement; provided, however, that
the Company shall pay all actual attorneys’ fees and expenses (including
disbursements and out-of-pocket expenses) incurred by the Lead Purchaser in
connection with (i) the preparation, negotiation, execution and delivery of the
Transaction Documents and the transactions contemplated thereunder, which
payment shall be made at the First Closing or if the Company elects to enter
into a alternative transaction before the First Closing, at the time of such
election by the Company, and shall not exceed $50,000 (which payment may be
withheld from the amount delivered to the Company by the Lead Purchaser at the
First Closing), and (ii) any amendments, modifications or waivers of this
Agreement or any of the other Transaction Documents. In addition, the Company
shall pay all reasonable fees and expenses incurred by the Purchasers in
connection with the enforcement of this Agreement or any of the other
Transaction Documents, including, without limitation, all reasonable attorneys’
fees and expenses; provided, however, that in the event that the enforcement of
this Agreement is contested and it is finally judicially determined that the
Purchasers were not entitled to the enforcement of the Agreement sought, then
the Purchasers seeking enforcement shall reimburse the Company for all fees and
expenses paid pursuant to this sentence.

7.3 Specific Performance; Consent to Jurisdiction; Venue.

(a) The Company and the Purchasers acknowledge and agree that irreparable damage
would occur in the event that any of the provisions of this Agreement or the
other Transaction Documents were not performed in accordance with their specific
terms or were otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent or cure breaches of
the provisions of this Agreement or the other Transaction Documents and to
enforce specifically the terms and provisions hereof or thereof, this being in
addition to any other remedy to which any of them may be entitled by law or
equity.

(b) The parties agree that venue for any dispute arising under this Agreement
will lie exclusively in the state or federal courts located in New York County,
New York, and the parties irrevocably waive any right to raise forum non
conveniens or any other argument that New York is not the proper venue. The
parties irrevocably consent to personal jurisdiction in the state and federal
courts of the state of New York. The Company and each Purchaser consent to
process being served in any such suit, action or proceeding by mailing a copy
thereof 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 in this Section 7.3 shall affect
or limit any right to serve process in any other manner permitted by law. The
Company and the Purchasers hereby agree that the prevailing party in any suit,
action or proceeding arising out of or relating to the Securities, this
Agreement or the other Transaction Documents, shall be entitled to reimbursement
for reasonable legal fees from the non-prevailing party. The parties hereby
waive all rights to a trial by jury.

7.4 Entire Agreement; Amendment. This Agreement and the Transaction Documents
contain the entire understanding and agreement of the parties with respect to
the matters covered hereby and, except as specifically set forth herein or in
the other Transaction Documents, neither the Company nor any Purchaser make any
representation, warranty, covenant or undertaking with respect to such matters,
and they supersede all prior understandings and agreements with respect to said
subject matter, all of which are merged herein. No provision of this Agreement
may be waived or amended other than by a written instrument signed by the
Company and the Purchasers holding at least two thirds of the principal amount
of the Notes then held by the Purchasers and only so long as no single Holder is
adversely affected as compared to all Other Holders. Any amendment or waiver
effected in accordance with this Section 7.4 shall be binding upon each
Purchaser (and their permitted assigns) and the Company.

 

 

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7.5 Notices. Any notice, demand, request, waiver or other communication required
or permitted to be given hereunder shall be in writing and shall be effective
(a) upon hand delivery by telecopy or facsimile at the address or number
designated below (if delivered on a business day during normal business hours
where such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal business hours
where such notice is to be received) or (b) on the second business day following
the date of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be:

 

If to the Company or its Subsidiaries:

 

Genta Incorporated

200 Connell Drive

Berkeley Heights, NJ 07922

 

 

Attention: Raymond P. Warrell,Jr., M.D.

 

 

Telephone No.: (908) 286-9800

 

 

Telecopy No.: (908) 286-3966

with copies to:

 

Morgan, Lewis & Bockius LLP

502 Carnegie Center

Princeton, NJ 08540

 

 

Attention: Emilio Ragosa

 

 

Telephone No.: (609) 919-6633

 

 

Telecopy No.: (609) 919-6701

If to any Purchaser:

 

At the address of such Purchaser set forth on Exhibit A to this Agreement, with
copies to Purchaser’s counsel as set forth on Exhibit A or as specified in
writing by such Purchaser, with a copy to:

 With a copy to:

 

Cooley Godward Kronish LLP

 

 

4401 Eastgate Mall

 

 

San Diego, CA 92121

 

 

Attention: Ethan Christensen

 

 

Telephone No.: (858) 550-6076

 

 

Telecopy No.: (858) 550-6420

 

 

Any party hereto may from time to time change its address for notices by giving
written notice of such changed address to the other party hereto.

7.6 Waivers. No waiver by either party 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 other provision, condition or
requirement hereof, nor shall any delay or omission of any party to exercise any
right hereunder in any manner impair the exercise of any such right accruing to
it thereafter. No consideration shall be offered or paid to any Purchaser to
amend or consent to a waiver or modification of any provision of any of the
Transaction Documents unless the same consideration is also offered to all of
the parties to the Transaction Documents. This provision constitutes a separate
right granted to each Purchaser by the Company and shall not in any way be
construed as the Purchasers acting in concert or as a group with respect to the
purchase, disposition or voting of Securities or otherwise.

7.7 Headings. The article, section and subsection headings in this Agreement are
for convenience only and shall not constitute a part of this Agreement for any
other purpose and shall not be deemed to limit or affect any of the provisions
hereof.

7.8 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and assigns. After the
expiration or the option to purchase additional Notes set forth in Section
1.2(b), the assignment by a party to this Agreement of any rights hereunder
shall not affect the obligations of such party under this Agreement. The
Purchasers may assign the Securities and its rights under this Agreement and the
other Transaction Documents and any other rights hereto and thereto without the
consent of the Company.

 

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7.9 No Third Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective permitted successors and assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
person.

7.10 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without giving
effect to any of the conflicts of law principles which would result in the
application of the substantive law of another jurisdiction. This Agreement shall
not be interpreted or construed with any presumption against the party causing
this Agreement to be drafted.

7.11 Survival. The representations and warranties of the Company and the
Purchasers shall survive the execution and delivery hereof and the First Closing
until the third anniversary of the First Closing Date, except the agreements and
covenants set forth in Articles 1, 3, 5, 6 and 7 of this Agreement shall survive
the execution and delivery hereof and each Closing hereunder.

7.12 Counterparts. This Agreement may be executed in any number of counterparts,
all of which taken together shall constitute one and the same instrument and
shall become effective when counterparts have been signed by each party and
delivered to the other parties hereto, it being understood that all parties need
not sign the same counterpart.

7.13 Publicity. The Company agrees that it will not disclose, and will not
include in any public announcement, the names of the Purchasers without the
consent of the Purchasers, which consent shall not be unreasonably withheld or
delayed, or unless and until such disclosure is required by law, rule or
applicable regulation, and then only to the extent of such requirement.
Notwithstanding the foregoing, the Purchasers consent to being identified in any
filings the Company makes with the SEC to the extent required by law or the
rules and regulations of the SEC.

7.14 Severability. The provisions of this Agreement are severable and, in the
event that any court of competent jurisdiction shall determine that any one or
more of the provisions or part of the provisions contained in this Agreement
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Agreement and this Agreement
shall be reformed and construed as if such invalid or illegal or unenforceable
provision, or part of such provision, had never been contained herein, so that
such provisions would be valid, legal and enforceable to the maximum extent
possible.

7.15 Further Assurances. From and after the date of this Agreement, upon the
request of the Purchasers or the Company, the Company and each Purchaser 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 and the other Transaction
Documents

7.16 Representation of Lead Purchaser. It is acknowledged by each Purchaser that
the Lead Purchaser has retained Cooley Godward Kronish LLP to act as its counsel
in connection with the transactions contemplated by the Transaction Documents
and that Cooley Godward Kornish LLP has not acted as counsel for any Purchaser,
other than the Lead Purchaser, in connection with the transactions contemplated
by the Transaction Documents and that none of such Purchasers has the status of
a client for conflict of interest or any other purposes as a result thereof.

7.17 Sharing of Payments. Each Purchaser severally agrees that if it receives
(i) payment of principal on the Maturity Date (as defined in the Notes), (ii)
payment of interest on an Interest Payment Date (as defined in the Notes), or
(iii) payment of the Prepayment Price or Mandatory Prepayment Price (as defined
in the Notes) in an amount that is ratably more than any other Purchaser (based
on the principal amount of the Notes held by such Purchaser relative to the
principal amount of the Notes outstanding), then: (a) the Purchaser receiving
such payment shall purchase, and shall be deemed to have simultaneously
purchased, from the other Purchasers a participation in the Notes held by the
other Purchasers (in the case of (i) and (ii) above) or the Notes held by the
other Purchasers being prepaid at such time (in the case of (iii) above) and
shall pay to the other Purchasers a purchase price in an amount so that the
share of the Notes held by each Purchaser after the receipt of such payment
shall be in the same proportion that existed prior to the receipt of such
payment; and (b) such other adjustments and purchases of participations shall be
made from time to time as shall be equitable to ensure that all Purchasers share
any such

 

 

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payment ratably as aforesaid; provided that, if all or any portion of a
disproportionate payment obtained as a result of such payment is thereafter
recovered from the purchasing Purchaser by the Company or any Person claiming
through or succeeding to the rights of Company, the purchase of a participation
shall be rescinded and the purchase price thereof shall be restored to the
extent of the recovery, but without interest. Each Purchaser that purchases a
participation pursuant to this Section shall from and after the purchase have
the right to give all notices, requests, demands, directions and other
communications under this Agreement and the other Transaction Documents with
respect to the portion of the Notes purchased to the same extent as though the
purchasing Purchaser were the original owner of the Notes purchased. The Company
expressly consents to the foregoing arrangements and agrees that any Purchaser
holding a participation in a Note so purchased may exercise any and all rights
with respect to the participation as fully as if such Purchaser were the
original owner of the Note purchased.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 

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

 

 

 

 

GENTA INCORPORATED

 

 

 

 

By: 

/s/ Raymond P. Warrell, Jr., M.D.

 

 

 

 

Name: 

Raymond P. Warrell, Jr., M.D.

 

 

 

 

Title: 

Chairman and Chief Executive Officer

[SIGNATURE PAGES CONTINUE]

 

 

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[PURCHASER SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]

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

Name of Purchaser: ________________________________________________________

Signature of Authorized Signatory of Purchaser:
__________________________________

Name of Authorized Signatory:
____________________________________________________

Title of Authorized Signatory:
_____________________________________________________

Email Address of Purchaser:________________________________________________

Fax Number of Purchaser: ________________________________________________

Address for Notice of Purchaser:

Address for Delivery of Securities for Purchaser (if not same as address for
notice):

Subscription Amount: $_________________

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

[SIGNATURE PAGES CONTINUE]

 

 

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EXHIBIT A

LIST OF PURCHASERS

 

 

Names and Addresses of Purchasers

 

Investment Amount

 

Arcus Ventures Fund

 

$

750,000.00

 

Baker Biotech Fund I, L.P.

 

$

168,000.00

 

Baker Biotech Fund I, L.P.

 

$

205,000.00

 

14159, L.P.

 

$

51,000.00

 

Baker Brothers Life Sciences, L.P.

 

$

1,576,000.00

 

Boxer Capital LLC

 

$

1,750,000.00

 

Bristol Investment Fund, Ltd.

 

$

200,000.00

 

Carl Berg

 

$

250,000.00

 

Cat Trail Private Equity Fund LLC

 

$

1,500,000.00

 

Cranshire Capital LP

 

$

250,000.00

 

Enable Growth Partners LP

 

$

1,000,000.00

 

Eric Bannasch

 

$

250,000.00

 

Firebird Global Master Fund II, Ltd

 

$

500,000.00

 

Highbridge International LLC

 

$

2,000,000.00

 

Iroquois Master Fund Ltd.

 

$

250,000.00

 

Loretta Itri

 

$

300,000.00

 

Perceptive Life Sciences Master Fund LTD

 

$

500,000.00

 

RA Capital Biotech Fund II, LP

 

$

30,000.00

 

RA Capital Biotech Fund, LP

 

$

2,470,000.00

 

Radcliffe SPC, Ltd

 

$

1,000,000.00

 

Raymond P. Warrell, Jr.

 

$

1,750,000.00

 

Raymond P. Warrell, Jr.

 

$

200,000.00

 

Rockmore Investment Master Fund Ltd.

 

$

100,000.00

 

Rodman & Renshaw LLC

 

$

100,000.00

 

RRC Biofund

 

$

100,000.00

 

Trustees of the Tang Family Trust

 

$

50,000.00

 

Noa Young Tang

 

$

5,000.00

 

Tang Capital Partners, LP

 

$

2,695,000.00

 

 

 

$

20,000,000.00

 

 

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EXHIBIT B

FORM OF SENIOR SECURED CONVERTIBLE PROMISSORY NOTE

 

 

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EXHIBIT C

FORM OF SECURITY AGREEMENT

 

 

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EXHIBIT D

FORM OF IP SECURITY AGREEMENT

 

 

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EXHIBIT E

FORM OF OFFICER’S CERTIFICATE

 

 

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EXHIBIT F

OPINION OF COUNSEL TO COMPANY

 

 

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