EXHIBIT 10.3

 

CONVERSION AGREEMENT

 

This CONVERSION AGREEMENT (this “Agreement”), is entered into as of October 29,
2013, by and among ARNO THERAPEUTICS, INC., a Delaware corporation (the
“Company”), and the undersigned holders (each, a “Holder,” and collectively, the
“Holders”) of the Company’s 8% Senior Convertible Debentures due 2015.

 

WHEREAS, the Company and the Holders are parties to that certain Securities
Purchase Agreement dated November 26, 2012, as previously amended on December
13, 2012, and March 25, 2013 (the “Purchase Agreement”);

 

WHEREAS, pursuant to the Purchase Agreement, the Company issued and sold to the
Holders the Debentures (as defined in the Purchase Agreement) in the aggregate
principal amount of $14,857,200, of which $14,824,905.90 in principal remains
outstanding under the Debentures in the respective amounts set forth next to
each Holder’s name on Schedule A attached hereto (the “Principal Amount”);

 

WHEREAS, in addition to the Debentures, the Company also issued and sold to the
Holders those certain Series B Warrants (as defined in the Purchase Agreement)
entitling the Holders to purchase an aggregate of 49,524,003 shares of the
Company’s common stock, par value $0.0001 per share (the “Common Stock”), on or
prior to the 18-month anniversary of such warrants;

 

WHEREAS, concurrently with this Agreement, the Company is entering into a
Securities Purchase Agreement (the “2013 Purchase Agreement”) pursuant to which
the Company will sell to certain investors and certain investors will purchase
from the Company shares of Common Stock and additional warrants to purchase
Common Stock for an aggregate purchase price of at least $15 million (the “New
Investment”), on the terms set forth in the 2013 Purchase Agreement;

 

WHEREAS, it is a condition to the investors’ obligation to make the New
Investment that the Principal Amount and all accrued and unpaid interest owing
under the Debentures be converted into shares of Common Stock; and

 

WHEREAS, as an inducement for the Holders to convert the Principal Amount and
all accrued and unpaid interest into shares of Common Stock, the Company desires
to (i) provide each Holder with one additional year of accrued interest on such
Holder’s respective Principal Amount, the amounts of which are identified next
to each Holder’s name on Annex A (the “Additional Interest”) (the Principal
Amount, the accrued and unpaid interest thereon and Additional Interest are
collectively referred to in this Agreement as the “Outstanding Debt”), and (ii)
extend the termination date of the Series B Warrants (as defined in the Purchase
Agreement) held by each Holder to October 31, 2014; and

 

WHEREAS, the Company and the Holders believe it is in their mutual best interest
to effect the conversion of the Debentures and the extension of the term of the
Series B Warrants on the terms and subject to the conditions set forth in this
Agreement.

 

 

 

 

NOW, THEREFORE, in consideration of the covenants and agreements set forth
herein, and for other good and valuable consideration, the sufficiency of which
are hereby acknowledged and intending to be legally bound hereby the parties
agree as follows:

 

1.           Conversion; Warrant Amendment.

 

(a)          Conversion of Debentures. On the Closing Date (as defined in
Section 2 below), the entire amount of each Holder’s respective Outstanding Debt
shall automatically convert into a number of shares of Common Stock determined
by dividing such Holder’s amount of Outstanding Debt by $2.40 (after giving
effect to the 1-for-8 reverse split of the Common Stock to be effected as of
October 29, 2013) (the “Conversion Shares”), as listed on Annex A attached
hereto; provided, however, that the Company shall pay cash in lieu of any
fractional Conversion Shares that would otherwise be issuable upon such
conversion. Upon such conversion, the Outstanding Debt and all other obligations
of the Company under the Debentures shall be deemed satisfied and discharged in
full, and all of the Holders’ rights under the Debentures shall be terminated in
their entirety.

 

(b)          Amendment of Series B Warrants. Effective upon the Closing, and
without further action by the Company or any Holder, the Termination Date (as
such term is defined in the Series B Warrants) shall be extended until October
31, 2014.

 

2.           Closing. Subject to the satisfaction or waiver of the conditions
set forth in Section 6 hereof, the conversion of the Debentures and the
amendment of the Series B Warrant, as described in Section 1 of this Agreement,
shall be effected (the “Closing”) at the offices of Fredrikson & Byron, P.A.,
200 South Sixth Street, Suite 4000, Minneapolis, Minnesota 55402, or such other
place to be specified by the Company and the Holders, on the date of, and
simultaneously with, the closing of the New Investment (the “Closing Date”). At
the Closing:

 

(a)          The Company shall deliver to each Holder and to the transfer agent
and registrar for the Common Stock irrevocable instructions to issue the
Conversion Shares in the form attached hereto as Annex B (the “Instruction
Letter”); and

 

(b)          Each Holder shall surrender to the Company for cancellation its
original Debenture(s).

 

3.           Liens; Security Interest. The parties acknowledge that the
Outstanding Debt is not secured by any security interest in or other lien or
encumbrance on any assets of the Company. To the extent that any security
interest, lien, or other encumbrance is deemed to have arisen as a result of the
Outstanding Debt, the parties agree that upon conversion of the Outstanding Debt
that any such security interest, lien, or other encumbrance will automatically
terminate and all rights will revert to the Company. The Holders hereby
authorize the Company to file any documents or instruments requested by the
Company in order to terminate any security interest, lien, or other encumbrance
arising out of the Outstanding Debt and the Holders will execute and deliver to
the Company such documents or instruments as the Company reasonably requests to
evidence such termination.

 

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4.           Representations and Warranties of the Company. The Company hereby
represents and warrants to the Holders as follows:

 

(a)          Due Authorization. The Company has all requisite power and
authority to execute, deliver and perform its obligations under this Agreement.
This Agreement has been duly authorized and validly executed and delivered by
the Company and, assuming the due authorization, execution and delivery by the
Holders, constitutes the legal, valid and binding agreement of the Company
enforceable against the Company in accordance with its terms, except as rights
to indemnity and contribution may be limited by state or federal securities laws
or the public policy underlying such laws, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors’ and contracting parties’ rights generally and
except as enforceability may be subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).

 

(b)          Issuance of Conversion Shares. The Conversion Shares are duly
authorized and, when issued and paid for in accordance with this Agreement, will
be duly and validly issued, fully paid and non-assessable, free and clear of all
liens and shall not be subject to preemptive or similar rights of stockholders
other than those which have been exercised or waived prior to the Closing Date.
Assuming the accuracy of the representations and warranties of the Holders in
this Agreement, the Conversion Shares will be issued in compliance with all
applicable federal and state securities laws.

 

(c)          Non-Contravention. The execution and delivery of this Agreement,
the issuance and sale of the Conversion Shares by the Company under this
Agreement and the consummation of the transactions contemplated hereby will not
(A) conflict with or constitute a violation of, or default (with the passage of
time or otherwise) under (i) any bond, debenture, note or other evidence of
indebtedness, or any material lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other agreement or instrument to which
the Company is a party or by which the Company or any of its property is bound,
where such conflict, violation or default is likely to result in a Material
Adverse Effect, (ii) the charter, by-laws or other organizational documents of
the Company, or (iii) any law, administrative regulation, ordinance or order of
any court or governmental agency, arbitration panel or authority binding upon
the Company or any of its property, where such conflict, violation or default is
likely to result in a Material Adverse Effect, or (B) result in the creation or
imposition of any lien upon any of the material properties or assets of the
Company or an acceleration of indebtedness pursuant to any obligation, agreement
or condition contained in any bond, debenture, note or any other evidence of
indebtedness or any indenture, mortgage, deed of trust or any other agreement or
instrument to which the Company is a party or by which the Company is bound or
to which any of the property or assets of the Company is subject. No consent,
approval, authorization or other order of, or registration, qualification or
filing with, any regulatory body, administrative agency, or other governmental
body in the United States is required for the execution, delivery and
performance of this Agreement, the valid issuance and sale of the Conversion
Shares, other than such as have been made or obtained. “Material Adverse Effect”
shall mean any of (a) a material and adverse effect on the legality, validity or
enforceability of this Agreement and any other documents or agreements executed
in connection with the transactions contemplated hereunder, (b) a material and
adverse effect on the results of operations, assets, business or financial
condition of the Company, or (c) any adverse impairment to the Company’s ability
to perform in any material respect on a timely basis its obligations under this
Agreement.

 

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5.           Representations and Warranties of the Holders. Each of the Holders,
severally and not jointly, hereby represents and warrants to the Company as
follows:

 

(a)          Organization; Authority. If not a natural person, the Holder is an
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization with full right, corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by this Agreement and otherwise to carry out its obligations
hereunder. The execution and delivery of this Agreement and performance by the
Holder of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate or similar action on the part of the
Holder. This Agreement has been duly executed by the Holder, and when delivered
by the Holder in accordance with the terms hereof, will constitute the valid and
legally binding obligation of the Holder, enforceable against it in accordance
with its terms, except as rights to indemnity and contribution may be limited by
state or federal securities laws or the public policy underlying such laws,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors’ and contracting
parties’ rights generally and except as enforceability may be subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).

 

(b)          Own Account. The Holder understands that the Conversion Shares are
“restricted securities” and have not been registered under the Securities Act or
any applicable state securities law. The Holder represents that it is converting
the Outstanding Debt into Conversion Shares as principal for its own account and
not with a view to or for distributing or reselling such Conversion Shares or
any part thereof in violation of the Securities Act or any applicable state
securities law, has no present intention of distributing any of such Conversion
Shares in violation of the Securities Act or any applicable state securities law
and has no direct or indirect arrangement or understandings with any other
persons to distribute or regarding the distribution of such Conversion Shares
(this representation and warranty not limiting the Holder’s right to sell the
Conversion Shares pursuant to any registration statement or otherwise in
compliance with applicable federal and state securities laws) in violation of
the Securities Act or any applicable state securities law. The Holder is
acquiring the Conversion Shares hereunder in the ordinary course of its
business.

 

(c)          Investor Status. The Holder is either: (i) an “accredited investor”
as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the
Securities Act or (ii) a “qualified institutional buyer” as defined in Rule
144A(a) under the Securities Act. The Holder is not required to be registered as
a broker-dealer under Section 15 of the Exchange Act.

 

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

 

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6.           Conditions to the Holders’ Conversion Obligation. The obligation of
the Holders hereunder to consummate the Conversion at the Closing is subject to
the satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Holders’ sole benefit and
may be waived by the Holders at any time in their sole discretion by providing
the Company with prior written notice thereof:

 

(a)          Issuance of Securities. The Company shall have delivered to the
Holders the Instruction Letter.

 

(b)          2013 Purchase Agreement. The Company shall have delivered, or cause
to be delivered, to the Holders a certificate executed by its Chief Executive
Officer that the 2013 Purchase Agreement has been duly executed and delivered by
all parties thereto and that the New Investment has been consummated.

 

(c)          Representations and Warranties. The representations and warranties
of the Company set forth in Section 4 of this Agreement shall be true and
correct in all material respects (except for those representations and
warranties that are qualified by materiality or Material Adverse Effect, which
shall be true and correct in all respects) as of the date when made and as of
the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date.

 

(d)          Performance. The Company 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 it at
or prior to the Closing.

 

7.           Transfer Restrictions.

 

(a)          Compliance with Laws. Notwithstanding any other provision of this
Agreement, the Holders covenant that the Conversion Shares may be disposed of
only pursuant to an effective registration statement under, and in compliance
with the requirements of, the Securities Act of 1933, as amended (the
“Securities Act”), or pursuant to an available exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act,
and in compliance with any applicable state, federal or foreign securities laws.
In connection with any transfer of the Conversion Shares other than (i) pursuant
to an effective registration statement, (ii) to the Company, or (iii) pursuant
to Rule 144 (provided that the Holders provide the Company with reasonable
assurances (in the form of seller and broker representation letters) that the
Conversion Shares may be sold pursuant to such rule), the Company may require
the transferor thereof to provide to the Company, at the transferor’s expense,
an opinion of counsel selected by the transferor and reasonably acceptable to
the Company, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not require
registration of such transferred Conversion Shares under the Securities Act.

 

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(b)          Legends. Certificates evidencing the Conversion Shares shall bear
any legend as required by the “blue sky” laws of any state and a restrictive
legend in substantially the following form, until such time as they are not
required under applicable law:

 

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OR (B) AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS AS EVIDENCED
BY A LEGAL OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS
TRANSFER AGENT OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NO
REPRESENTATION IS MADE BY THE ISSUER AS TO THE AVAILABILITY OF THE EXEMPTION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT FOR RESALES OF THESE SECURITIES.

 

8.           Notices. All notices, requests, consents and other communications
hereunder shall be in writing and delivered personally, by facsimile, pdf or
sent by a nationally recognized overnight courier service. Any notices,
requests, consents and other communications or deliveries hereunder shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile or by email transmission
prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day
after the date of transmission, if such notice or communication is delivered via
facsimile on a day that is not a Trading Day or later than 5:30 p.m. (New York
City time) on any Trading Day, (iii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via email
transmission on a day that is not a Trading Day or later than 5:30 p.m. (New
York City time) on any Trading Day, (iv) the second Trading Day following the
date of mailing, if sent by U.S. nationally recognized overnight courier service
or (v) upon actual receipt by the party to whom such notice is required to be
given. Notices, requests, consents and other communications hereunder shall be
addressed to the party and delivered to the respective addresses contained in
the Purchase Agreement. For purposes of this Agreement, “Trading Day” shall mean
a day on which the principal Trading Market is open for trading and “Trading
Market” shall mean any of the following markets or exchanges on which the Common
Stock is listed or quoted for trading on the date in question: the NYSE MKT, the
Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select
Market, the New York Stock Exchange, the OTC Markets, Inc. or the OTC Bulletin
Board (or any successors to any of the foregoing).

 

9.           Legal Fees and Expenses. The parties shall pay their own fees and
expenses in connection with this Agreement and the transactions contemplated
hereby.

 

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10.         Amendments. No provision of this Agreement may be waived, modified,
supplemented or amended except in a written instrument signed, in the case of an
amendment, by the Company and the Holders holding at least two-thirds of the
total Outstanding Debt as of the date of this Agreement or, in the case of a
waiver, by the party against whom enforcement of any such waived provision is
sought. No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any subsequent default or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such
right.

 

11.         Further Assurances. Each of the parties hereto shall use its
reasonable best efforts to do all things necessary and advisable to make
effective the transaction contemplated hereby and shall cooperate and take such
action as may be reasonably requested by the other party in order in carry out
fully the provisions and purposes of this Agreement and the transactions
contemplated thereby.

 

12.         Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to each other party, it being understood that the
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission or by e-mail delivery of a “.pdf” format
data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile or “.pdf” signature page were an original
thereof.

 

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

 

[Signature page follows]

 

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IN WITNESS WHEREOF, the Company and the Holders have executed this Conversion
Agreement to be duly executed by their respective authorized signatures as of
the date first indicated above.

 

ARNO THERAPEUTICS, INC.             By: /s/ Glenn. R. Mattes     Name:  Glenn R.
Mattes     Title:    President & Chief Executive Officer         Address for
Notice:     Arno Therapeutics, Inc.     200 Route 31 North, Suite 104    
Flemington, NJ 08822     Attn: Chief Executive Officer     Fax: (973) 267-0101  
      With a copy to (which shall not constitute notice):     Fredrikson & Byron
P.A.     200 South 6th Street, Suite 4000     Minneapolis, MN  55402     Attn:
Christopher J. Melsha, Esq.     Fax: (612) 492-7077  

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR HOLDER FOLLOWS]

 

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[HOLDER SIGNATURE PAGES TO

ARNO THERAPEUTICS, INC. CONVERSION AGREEMENT]

 

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

 

Name of Holder: ________________________________________________________

 

Signature of Authorized Signatory of Holder: __________________________________

 

Name of Authorized Signatory:
____________________________________________________

 

Title of Authorized Signatory:
_____________________________________________________

 

Email Address of Authorized Signatory:
_____________________________________________

 

Facsimile Number of Authorized Signatory:
__________________________________________

 

Address for Notice to Holder:

 

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

 

Conversion Amount (Outstanding Debt): _____________

 

Number of Shares to be acquired: _________________

 

EIN Number: _______________________

 

[SIGNATURE PAGES CONTINUE]

 

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