Document:

EXECUTIVE CHAIRMAN AGREEMENT

 

This EXECUTIVE CHAIRMAN AGREEMENT (the “Agreement”) is made effective as of December 28, 2011 (the “Effective Date”), by and among NeuMedia, Inc., a Delaware corporation (the “Company”) and Robert Ellin (the “Chairman”).  In consideration of the mutual covenants contained in this Agreement, the Company and the Chairman agree as follows:

 

1.           Services.  The Company agrees to engage the Chairman to serve as the Company’s Executive Chairman and to provide the services described in Section 2 and the Chairman agrees to serve in such capacity and to provide such services to the Company on the terms and conditions set forth in this Agreement.

 

2.           Scope of Services; Not an Employee.  The Chairman shall serve as the Executive Chairman of the Company. The Chairman shall perform such duties as are usual and customary for such position and such other duties as the Board of Directors of the Company (the “Board of Directors”) shall reasonably assign to him from time to time. The Chairman shall use his prudent business judgment and shall devote such time on a first-priority basis consistent with his other substantial commitments as is reasonably necessary to fulfill his duties hereunder.  The Chairman’s duties shall include high-level leadership-based (a) assistance in identifying potential investors in the Company, (b) assistance with debt and equity financing arrangements, (c) guidance related to the Company’s public company status and efforts to transition to a major stock exchange, (d) advice concerning restructuring, merger and acquisition and other related activities, (e) assistance with stockholder relations, (f) advice regarding the introduction of new products and services, (g) assistance with respect to new technologies, (h) assistance with respect to the competitive environment, (i) assistance with identification of additional and replacement directors, the creation of an advisory board, and the building of the Company’s management team, and (j) otherwise advising with respect to business development opportunities and the Company’s industry. The Chairman shall work in conjunction with the Company’s Chief Executive Officers and other senior executive officers or as otherwise directed by the Board of Directors. The Chairman shall not be an employee of the Company, but shall serve in the capacity of an independent contractor.

 

3.           Term.  Subject to the provisions of Section 7, the term of this Agreement shall be one (1) year from the Effective Date, unless extended by mutual written agreement of the parties (the “Term”).

 

4.           Compensation.  The compensation payable to the Chairman under this Agreement shall be as follows:

  

  

  

(a)           Annual Fees.  For all services rendered by the Chairman under this Agreement, the Company shall pay the Chairman an aggregate fee (the “Fee”) of four hundred fifty thousand dollars ($450,000) per annum.  The Fee shall be payable commencing on the Effective Date in periodic installments in accordance with the Company’s usual practice for its employees, but in no event less than twice monthly over the year in which the applicable portion of the Fee is earned.  Notwithstanding the foregoing, the Chairman agrees that fifty percent (50%) of his monthly Fee payment (i.e., eighteen thousand seven hundred fifty dollars ($18,750) per calendar month) shall be deferred and subject to forfeiture (the “Deferred Fee Portion”) until the Company has consummated one or more debt or equity financings during the period consisting of the Term and the twelve (12) months immediately following the Term (the “Measurement Period”) in which the Company realizes at least five million dollars ($5,000,000) of gross proceeds, and, provided further, that upon completion of such debt or equity financings during the Measurement Period, the Chairman shall be paid a single lump sum (in addition to his Fee payment for the month in which such financing is consummated) equal to the previously accrued deferred Fees.  The Deferred Fee Portion shall be an accrued liability of the Company until the earlier to occur of the consummation of the financing(s) or the expiration of the Measurement Period, but shall be subject to forfeiture in the event this Agreement is terminated prior to the expiration of the Term in accordance with Section 7.

 

(b)           Annual Bonus. The Chairman shall be entitled to be paid an annual incentive bonus in cash in an amount of up to one hundred percent (100%) of the Chairman’s Fee based upon satisfaction of performance-related milestones. The performance-related milestones shall be mutually determined by the Board of Directors and the Chairman within sixty (60) days of the Effective Date.  If the Board of Directors and the Chairman fail to determine such performance-related milestones within such period, either party is authorized to request binding mediation with Andrew Schleimer appointed to serve as mediator to determine such performance-related milestones consistent with the Chairman’s duties hereunder.  Any bonus payable under this subsection (b) shall vest upon the achievement of the performance criteria and shall be paid on or within thirty (30) days of such vesting date.

 

(c)           Reimbursement of Business Expenses.  The Company shall reimburse the Chairman for all reasonable expenses incurred by the Chairman in performing services during the Term, in accordance with the Company’s policies and procedures for its senior executives, as in effect from time to time, including but not limited to, business class air travel (or, if unavailable, first class), meals and entertainment, fuel costs for transportation, wireless mobile communications, and personal computer equipment.

  

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(d)           Restricted Stock Grant.  On the Effective Date, the Company shall grant the Chairman three million four hundred thousand (3,400,000) shares of restricted common stock of the Company, subject to the terms and conditions specified in the attached Restricted Stock Agreement, which shall vest as follows: (i) one third (1/3) shall vest immediately upon the completion of one or more debt or equity financings during the Measurement Period in favor of the Company of gross proceeds of at least five million dollars ($5,000,000); (ii) one third (1/3) shall vest immediately if on any date during the Measurement Period the Company’s total enterprise value (computed by multiplying the number of outstanding shares of Common Stock on a fully diluted (taking into account only those stock options that are in-the-money on such date), as-converted basis by the average daily trading price for Common Stock for the thirty (30) trading day period immediately preceding the date of determination) equals or exceeds one hundred million dollars ($100,000,000); and (iii) one third (1/3) shall vest immediately if on any date during the Measurement Period the Company’s total enterprise value (calculated as set forth in clause (ii) above) equals or exceeds two hundred million dollars ($200,000,000); provided, however, that all unvested shares of restricted common stock shall vest immediately upon the sale of all or substantially all of the assets of the Company, upon the merger or reorganization of the Company following which the equityholders of the Company immediately prior to the consummation of such merger or reorganization collectively own less than fifty percent (50%) of the voting power of the resulting entity, upon the sale of equity securities of the Company representing fifty percent (50%) or more of the voting power of the Company or fifty percent (50%) or more of the economic interest in the Company in a single transaction or in a series of related transactions, or at such time, if any, during the Term at which (A) the composition of a majority of the members of the Board is different from the composition of the Board on the Effective Date and (B) the Chairman has reasonably objected in writing to such number of new or replacement members joining the Board after the Effective Date such that he has reasonably objected to a majority of the members of the Board (a “Change of Control”).  All shares shall be subject to a one (1) year lock-up following the vesting of such shares.  Subject to the approval of the Company’s Board of Directors, in its sole and exclusive discretion, the Company may extend a non-interest bearing loan to the Chairman equal to the Chairman’s grossed up aggregate federal and state income tax liability attributable to the issued shares and bonus subject to, among other things: (i) a determination of the amount of the tax due; (ii) approval of the terms of such loan; and (iii) the Company’s financial condition. For the avoidance of doubt, if the vesting conditions set forth in this Section 4(d) or a Change of Control do not occur prior to the end of the Measurement Period, all unvested shares shall be forfeited and immediately cancelled without further action on the part of the Chairman or the Company.

 

(e)           Additional Performance Bonuses.  The Chairman shall be entitled to payment of (i) a performance bonus equal to one million five hundred thousand dollars ($1,500,000) in cash or registered and freely tradable stock of the Company, at the Chairman’s choice, if, on any date during the Measurement Period the Company’s total enterprise value (computed by multiplying the number of outstanding shares of the Company’s common stock on a fully diluted (taking into account only those stock options that are in-the-money on such date), as-converted basis by the average daily trading price for the Company’s common stock for the thirty (30) trading day period immediately preceding the date of determination) equals or exceeds one hundred fifty million dollars ($150,000,000); and (ii) a performance bonus equal to three million three hundred thousand dollars ($3,300,000) in cash or registered and freely tradable stock of the Company, at the Chairman’s choice, if, on any date during the Measurement Period, the Company’s total enterprise value (calculated as set forth in clause (i) above) equals or exceeds one billion dollars ($1,000,000,000). Any bonus payable under this subsection (e) shall vest upon the achievement of the specified criteria and shall be paid on or within thirty (30) days of such vesting date.

 

(f)           Exclusivity of Compensation.  The Chairman shall not be entitled to any payments or benefits other than those provided under this Agreement.

 

5.           Personal Assistant.  The Company shall reimburse the Chairman for the salary of an individual employed by the Chairman as a personal assistant for the Chairman for the Term; provided that such individual’s annualized salary shall not exceed eighty thousand dollars ($80,000). The Company shall not be responsible for the payment of any bonus, benefits or other compensation or payments. The Company shall reimburse the Chairman for the salary payments set forth in this Section 5 within five (5) business days of the Company’s receipt of an invoice for the same.

  

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6.           Key Man Insurance. If the Company, in its sole and absolute discretion and at its sole cost and expense, determines to purchase a “key man” life and/or disablity insurance policy with the respect to the Chairman, the Chairman shall reasonably cooperate with the Company’s efforts to obtain such insurance policy, including, without limitation, by submitting to customary medical tests and providing customary personal and medical information. The Chairman shall not be entitled to any benefits under any such insurance policy.

 

7.           Termination.  Notwithstanding the provisions of Section 3, the Chairman’s engagement under this Agreement shall terminate under the following circumstances set forth in this Section 7. For purposes of this Agreement, the date of the Chairman’s termination (the “Termination Date”) shall mean the date of the Chairman’s “separation from service” as such term is defined under Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”).

 

(a)          Termination by the Company for Cause.  The Chairman’s engagement under this Agreement may be terminated for Cause without further liability on the part of the Company effective immediately upon a vote of the Board of Directors in which not less than two-thirds (2/3) of its members vote to terminate and written notice to the Chairman.  Only the following shall constitute “Cause” for such termination:

 

(i)           any act committed by the Chairman against the Company or any of its affiliates which involves fraud, willful misconduct, gross negligence; or

 

(ii)           the commission by the Chairman of, or indictment for (A) a felony or (B) any misdemeanor involving moral turpitude, deceit, dishonesty or fraud.

 

(b)          Termination by the Company Without Cause.  Subject to the payment of Termination Benefits pursuant to Section 8(b), the Chairman’s engagement under this Agreement may be terminated by the Company without Cause upon not less than fifteen (15) days’ prior written notice to the Chairman.  Termination by the Company within twelve (12) months of a Change of Control in the absence of Cause shall be conclusively deemed a Termination by the Company without Cause.

 

(c)           Death.  The Chairman’s engagement with the Company shall terminate automatically upon his death.

 

(d)           Disability.  If the Chairman shall become Disabled so as to be unable to perform the essential functions of the Chairman’s then existing services under this Agreement with or without reasonable accommodation, the Board of Directors may terminate this Agreement upon written notice to the Chairman.  For purposes hereof, the term “Disabled” or “Disability” shall mean a written determination that the Chairman, as certified by at least two (2) duly licensed and qualified physicians, one (1) approved by the Board of Directors of the Company and one (1) physician approved by the Chairman (the “Examining Physicians”), or, in the event of the Chairman’s total physical or mental disability, the Chairman’s legal representative, that the Chairman suffers from a physical or mental impairment that renders the Chairman unable to perform the Chairman’s services under this Agreement and that such impairment can reasonably be expected to continue for a period of six (6) consecutive months or for shorter periods aggregating one hundred and eighty (180) days in any twelve (12) month period; provided, that the Chairman’s primary care physician may not serve as one of the Examining Physicians without the consent of the Company and the Chairman (or the Chairman’s legal representation).  The Chairman shall cooperate with any reasonable request of a physician to submit to a physical examination for purposes of such certification.  Nothing in this Section 7(d) shall be construed to waive the Chairman’s rights, if any, under existing law including, without limitation, the Family and Medical Leave Act of 1993, 29 U.S.C. §2601 et seq. and the Americans with Disabilities Act, 42 U.S.C. §12101 et seq.

  

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8.           Compensation Upon Termination.

 

(a)           Termination Generally.  If the Chairman’s engagement by the Company is terminated for any reason during or upon expiration of the Term, the Company shall pay or provide to the Chairman (or to his authorized representative or estate) (i) any earned but unpaid portion of the Fee payable on the Termination Date, (ii) accrued bonuses earned but not yet paid, payable at the same time such amounts would otherwise have been paid to the Chairman, and (iii) any unpaid expense reimbursements, payable in accordance with the Company’s reimbursement policies (collectively, the “Accrued Compensation”).

 

(b)           Termination by the Company Without Cause.  In the event of termination of the Chairman’s engagement by the Company pursuant to Section 7(b) above prior to the expiration of the Term, and subject to the Chairman’s execution and delivery of a release of any and all legal claims in a form satisfactory to the Company within forty-five (45) days of the Termination Date (the “Release Period”), the Company shall provide to the Chairman, in addition to the Accrued Compensation, the following termination benefits (“Termination Benefits”) effective as of the final day of the Release Period: continuation of the Chairman’s Fee at the rate and in accordance with the Company’s payroll practices then in effect pursuant to Section 4(a).

 

The Termination Benefits set forth in subsection 8(b) above shall continue effective for the remainder of the Term (the “Termination Benefits Period”).

 

The Company acknowledges and agrees that under certain circumstances involving the termination of the Chairman’s engagement and/or a Change of Control transaction involving the Company, the Chairman shall be entitled to accelerated vesting on his shares of capital stock of the Company, all to the extent provided in Section 2(a) of that certain Restricted Stock Agreement, dated as of the date hereof, by and between the Company and the Chairman.

 

Any Section 409A payments which are subject to execution of a waiver and release which may be executed and/or revoked in a calendar year following the calendar year in which the payment event (such as termination of engagement) occurs shall commence payment only in the calendar year in which the release revocation period ends as necessary to comply with Section 409A.

 

(c)           Termination by Reason of Death, Disability or Expiration of Term.  If the Chairman’s engagement is terminated on account of the Chairman’s death pursuant to Section 7(c), Disability pursuant to Section 7(d), or the failure of the parties to extend the Term, the Company shall have no further obligation to the Chairman other than the payment of his Accrued Compensation and any amounts payable pursuant to Section 8(e).

  

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(d)           Termination by Reason of Cause or Chairman’s Voluntary Termination.  If the Chairman’s engagement is terminated for Cause or the Chairman voluntarily terminates this Agreement prior to the expiration of the Term, the Company shall have no further obligation to the Chairman other than payment of his Accrued Compensation.

 

(e)           Payments For Compensation Earned After the Term. In the event that, following the termination of the Chairman’s engagement for any reason other than for Cause, there occurs an event after such termination but during the Measurement Period, that otherwise would entitled the Chairman to receive compensation, the Company shall, within ten (10) business days following the occurrence of such event, pay to the Chairman the applicable amount and form of compensation, as set forth elsewhere in this Agreement, including but not limited to, the Deferred Fee Portion payable under Section 4(a), the annual bonus payable under Section 4(b), the vesting of Restricted Shares under Section 4(d), and the additional performance bonuses under Section 4(e).

 

9.           Confidential Information, Nonsolicitation and Cooperation.

 

(a)           Confidential Information.  As used in this Agreement, “Confidential Information” means proprietary information of the Company which is of value to the Company in the course of conducting its business and the disclosure of which could result in a competitive or other disadvantage to the Company.  Confidential Information includes, without limitation, financial information, reports, and forecasts; inventions, improvements and other intellectual property; trade secrets; know-how; designs, processes or formulae; software; market or sales information or plans; customer lists; and business plans, prospects and opportunities (such as possible acquisitions or dispositions of businesses or facilities) which have been discussed or considered by the management of the Company.  Confidential Information includes information developed by the Chairman in the course of the Chairman’s engagement by the Company, as well as other information to which the Chairman may have access in connection with the Chairman’s provision of services.  Confidential Information also includes the confidential information of others with which the Company has a business relationship.  Notwithstanding the foregoing, Confidential Information does not include (i) information in the public domain, unless due to breach of the Chairman’s duties under Section 9(b), or (ii) information obtained in good faith by the Chairman from a third party who was lawfully in possession of such information and not subject to an obligation of confidentiality owed to the Company.

 

(b)           Duty of Confidentiality.  The Chairman understands and agrees that the Chairman’s engagement creates a relationship of confidence and trust between the Chairman and the Company with respect to all Confidential Information.  At all times, both during the Chairman’s engagement by the Company and after termination, the Chairman will keep in confidence and trust all such Confidential Information, and will not use or disclose any such Confidential Information without the written consent of the Company, except (i) as may be necessary in the ordinary course of performing the Chairman’s services to the Company or (ii) as may be required in response to a valid order by a court or other governmental body or as otherwise required by law (provided that if the Chairman is so required to disclose the Confidential Information, the Chairman shall (i) immediately notify the Company of such required disclosure sufficiently in advance of the intended disclosure to permit the Company to seek a protective order or take other appropriate action, (ii) cooperate in any effort by the Company to obtain a protective order or other reasonable assurance that confidential treatment will be afforded the Confidential Information).

  

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(c)           Documents, Records, etc.  All documents, records, data, apparatus, equipment and other physical property, whether or not pertaining to Confidential Information, which are furnished to the Chairman by the Company or are produced by the Chairman in connection with the Chairman’s engagement will be and remain the sole property of the Company.  The Chairman will return to the Company all such materials and property as and when requested by the Company.  In any event, the Chairman will return all such materials and property immediately upon termination of the Chairman’s engagement for any reason.  The Chairman will not retain with the Chairman any such material or property or any copies thereof after such termination.

 

(d)           Nonsolicitation.  During the Term and for one (1) year thereafter, the Chairman (i) will refrain from directly or indirectly employing, attempting to employ, recruiting or otherwise soliciting, inducing or influencing any person to leave employment with the Company (other than subordinate employees whose employment was terminated in the course of the Chairman’s engagement with the Company); and (ii) will refrain from soliciting or encouraging any customer or supplier to terminate or otherwise modify adversely its business relationship with the Company.  The Chairman understands that the restrictions set forth in this Section 9(d) are intended to protect the Company’s interest in its Confidential Information and established employee, customer and supplier relationships and goodwill, and agrees that such restrictions are reasonable and appropriate for this purpose.

 

(e)           Third-Party Agreements and Rights.  The Chairman hereby confirms that the Chairman is not bound by the terms of any agreement with any previous employer or other party which restricts in any way the Chairman’s use or disclosure of information or the Chairman’s engagement in any business.  The Chairman represents to the Company that the Chairman’s execution of this Agreement, the Chairman’s engagement with the Company and the performance of the Chairman’s proposed services for the Company will not violate any obligations the Chairman may have to any such previous employer or other party.  In the Chairman’s work for the Company, the Chairman will not disclose or make use of any information in violation of any agreements with or rights of any such previous employer or other party, and the Chairman will not bring to the premises of the Company any copies or other tangible embodiments of non-public information belonging to or obtained from any such previous employment or other party.

  

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(f)           Litigation and Regulatory Cooperation.  During and after the Chairman’s engagement with the Company, the Chairman shall cooperate reasonably with requests from the Company, or the Company’s legal counsel, in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Company which relate to events or occurrences that transpired while the Chairman was engaged by the Company.  The Chairman’s cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of the Company at mutually convenient times.  During and after the Chairman’s engagement, the Chairman also shall cooperate fully with the Company in connection with any investigation or review of any federal, state or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while the Chairman was engaged by the Company.  The Company shall reimburse the Chairman for any reasonable out-of-pocket expenses incurred in connection with the Chairman’s performance of obligations pursuant to this Section 9(f), and if the Chairman spends more than ten (10) hours in any calendar month in performance of these obligations, the Company shall pay the Chairman $500 per hour for each part of an hour over ten (10) hours in such calendar month.

 

(g)           Injunction.  The Chairman agrees that it would be difficult to measure any damages caused to the Company which might result from any breach by the Chairman of the promises set forth in this Section 9, and that in any event money damages may be an inadequate remedy for any such breach.  Accordingly, subject to Section 10 of this Agreement, the Chairman agrees that if the Chairman breaches, or proposes to breach, any portion of this Agreement, the Company shall be entitled, in addition to all other remedies that it may have, to an injunction or other appropriate equitable relief to restrain any such breach without showing or proving any actual damage to the Company and without the need to post a bond or other security.

 

10.         Arbitration of Disputes.  In the event of any dispute or controversy arising out of, or relating to, this Agreement, the parties hereto agree to submit such dispute or controversy to binding arbitration pursuant to either the JAMS Streamlined (for claims under $250,000.00) or the JAMS Comprehensive (for claims over $250,000.00) Arbitration Rules and Procedures, except as modified herein, including the Optional Appeal Procedure.  A sole neutral arbitrator shall be selected from the list (the “List”) of arbitrators supplied by J.A.M.S. (“JAMS”) Los Angeles County, California office, or any successor entity, or if it no longer exists, from a List supplied by the ADR Services, Inc., in Los Angeles, California (“ADR”) following written request by any party hereto.  If the parties hereto after notification of the other party(-ies) to such dispute cannot agree upon an arbitrator within thirty (30) days following receipt of the List by all parties to such arbitration, then either party may request, in writing, that JAMS or ADR, as appropriate, appoint an arbitrator within ten (10) days following receipt of such request (the “Arbitrator”).  The arbitration shall take place in Los Angeles County, California, at a place and time mutually agreeable to the parties or if no such agreement is reached within ten (10) days following notice from the Arbitrator, at a place and time determined by the Arbitrator.  Such arbitration shall be conducted in accordance with the Streamlined Arbitration Rules and Procedures of JAMS then in effect, and Section 1280 et seq. of the California Code of Civil Procedure, or if applicable, the Commercial Arbitration Rules of ADR then in effect.  The preceding choice of venue is intended by the parties to be mandatory and not permissive in nature, thereby precluding the possibility of litigation between the parties with respect to or arising out of this Agreement in any jurisdiction other than that specified in this Section.  Each party hereby waives any right it may have to assert the doctrine of forum non conveniens or similar doctrine or to object to venue with respect to any proceeding brought in accordance with this Section, and stipulates that the Arbitrator shall have in personam jurisdiction and venue over each of them for the purpose of litigating any dispute, controversy, or proceeding arising out of or related to this Agreement.  Each party hereby authorizes and accepts service of process sufficient for personal jurisdiction in any action against it as contemplated by this Section by registered or certified mail, return receipt requested, postage prepaid, to its address for the giving of notices as set forth in this Agreement.  The decision of the Arbitrator shall be final and binding on all the parties to the arbitration, shall be non-appealable and may be enforced by a court of competent jurisdiction.  The prevailing party shall be entitled to recover from the non-prevailing party reasonable attorney’s fees, as well as its costs and expenses.  The Arbitrator may grant any remedy appropriate including, without limitation, injunctive relief or specific performance.  Notwithstanding any of the foregoing, the Company may seek a temporary restraining order or a preliminary injunction as contemplated in Section 9(g) herein.

  

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11.           Integration.  This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements between the parties with respect to any related subject matter.

 

12.           Assignment; Successors and Assigns, etc.  Neither the Company nor the Chairman may make any assignment of this Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other party; but the Company may assign its rights under this Agreement without the consent of the Chairman, in the event that the Company shall effect a reorganization, consolidate with or merge into any other corporation, partnership, organization or other entity, or transfer all or substantially all of its properties or assets to any other corporation, partnership, organization or other entity, in which event the Company will obtain a written confirmation of the assumption of the Company’s obligation hereunder for the benefit of the Chairman.  This Agreement shall inure to the benefit of and be binding upon the Company and the Chairman, their respective successors, executors, administrators, heirs and permitted assigns.

 

13.           Enforceability. If any portion or provision of this Agreement (including, without limitation, any portion or provision of any section of this Agreement) shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

 

14.           Waiver.  No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party.  The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver by any party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach.

 

15.           Notices.  Any notices, requests, demands and other communications provided for by this Agreement shall be sufficient if in writing and delivered in person or sent by a nationally recognized overnight courier service or by registered or certified mail, postage prepaid, return receipt requested, to the Chairman at the Chairman’s last residential address the Chairman has filed in writing with the Company or, in the case of the Company, at its main offices, attention of the Chairman of the Board, and shall be effective on the date of delivery in person or by courier or three (3) days after the date mailed.

  

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16.           Third Party Beneficiary; Amendment.  The Chairman and the Company acknowledge and agree that no third party shall have any rights or benefits under this Agreement.  This Agreement may be amended or modified only by a written instrument signed by the Chairman and the Company.

 

17.           Governing Law.  This contract has been entered into in the State of California and shall be construed under and be governed in all respects by the laws of the State of California, without giving effect to the conflict of laws principles of such state; provided that Section 20 shall be governed by the laws of the State of Delaware.

 

18.           Counterparts.  This Agreement may be executed in any number of original, facsimile or other electronic counterparts, each of which when so executed and delivered shall be taken to be an original; but such counterparts shall together constitute one and the same document.

 

19.           No Prior Agreements.  The Chairman hereby represents and warrants to the Company and that the execution of this Agreement by the Chairman, the Chairman’s engagement by the Company, and the performance of the Chairman’s services hereunder will not violate or constitute a breach of any agreement, including any non-competition agreement, invention or confidentiality agreement, with a former employer, client or any other person or entity.  Further, the Chairman agrees to indemnify the Company for any loss, including, but not limited to, reasonable attorneys’ fees and expenses, that the Company may incur based upon or arising out of the Chairman’s breach of this Section.

 

20.           Indemnification.  The Company shall indemnify the Chairman against and hold the Chairman harmless from any costs, liabilities, losses and exposures for the Chairman’s services as the Executive Chairman of the Company (or any successor in interest thereof), whether before or after the Effective Date, to the maximum extent permitted under the Delaware General Corporate Law.  If the Chairman is made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by the Company against the Chairman), by reason of the fact that the Chairman is or was performing services to the Company under this Agreement or while acting as an executive officer of the Company, the Company shall indemnify the Chairman against all expenses (including reasonable attorneys’ fees), judgments, fines and amounts paid in settlement, as actually and reasonably incurred by the Chairman in connection therewith, to the maximum extent permitted under the Delaware General Corporation Law.  If the Chairman is made a party to any third-party action, complaint, suit or proceeding, the Chairman shall give prompt notice thereof to the Company, and the Company shall have the right to assume and control the defense of such action, complaint, suit or proceeding; provided that if legal counsel selected by the Company shall have a conflict of interest that prevents such counsel from representing the Chairman, the Chairman may engage separate counsel and the Company shall reimburse all reasonable attorneys’ fees and reasonable expenses of such separate counsel.  Notwithstanding the foregoing, the Company shall not have, and the Chairman acknowledges and agrees that the Company does not have, any obligation to indemnify the Chairman under this Section or under its certificate of incorporation or bylaws, with respect to (a) any breach of representation, warranty or covenant committed by the Chairman under this Agreement, or (b) any action or inaction by the Chairman where the Chairman failed to act in good faith and in a manner the Chairman reasonably believed to be in, or not opposed to, the best interests of the Company, or with respect to any criminal action or proceeding, the Chairman had reasonable cause to believe that his conduct was unlawful.

  

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21.           Section 409A Compliance.  Unless otherwise expressly provided, any payment of compensation by the Company to the Chairman, whether pursuant to this Agreement or otherwise, shall be made no later than the fifteenth (15th) day of the third (3rd) month (i.e., 21⁄2 months) after the later of the end of the calendar year or the Company’s fiscal year in which the Chairman’s right to such payment vests (i.e., is not subject to a “substantial risk of forfeiture” for purposes of Section 409A).  Each payment and each installment of any bonus or severance payments provided for under this Agreement shall be treated as a separate payment for purposes of application of Section 409A. To the extent any amounts payable by the Company to the Chairman constitute “nonqualified deferred compensation” (within the meaning of Section 409A) such payments are intended to comply with the requirements of Section 409A, and shall be interpreted in accordance therewith. Neither party individually or in combination may accelerate, offset or assign any such deferred payment, except in compliance with Section 409A. No amount shall be paid prior to the earliest date on which it is permitted to be paid under Section 409A and the Chairman shall have no discretion with respect to the timing of payments except as permitted under Section 409A. In the event that the Chairman is determined to be a “key employee” (as defined and determined under Section 409A) of the Company at a time when its stock is deemed to be publicly traded on an established securities market, payments determined to be “nonqualified deferred compensation” payable upon separation from service shall be made no earlier than (a) the first (1st) day of the seventh (7th) complete calendar month following such termination of employment, or (b) the Chairman’s death, consistent with the provisions of Section 409A.  Any payment delayed by reason of the prior sentence shall be paid out in a single lump sum at the end of such required delay period in order to catch up to the original payment schedule.  All expense reimbursement or in-kind benefits subject to Section 409A provided under this Agreement or, unless otherwise specified in writing, under any Company program or policy, shall be subject to the following rules: (i) the amount of expenses eligible for reimbursement or in-kind benefits provided during one calendar year may not affect the benefits provided during any other year; (ii) reimbursements shall be paid no later than the end of the calendar year following the year in which the Chairman incurs such expenses, and the Chairman shall take all actions necessary to claim all such reimbursements on a timely basis to permit the Company to make all such reimbursement payments prior to the end of said period, and (iii) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit.  The Chairman shall be responsible for the payment of all taxes applicable to payments or benefits received from the Company.  It is the intent of the Company that the provisions of this Agreement and all other plans and programs sponsored by the Company be interpreted to comply in all respects with Section 409A; however, the Company shall have no liability to the Chairman, or any successor or beneficiary thereof, in the event taxes, penalties or excise taxes may ultimately be determined to be applicable to any payment or benefit received by the Chairman or any successor or beneficiary thereof.

 

22.           Director’s and Officers’ Insurance.  The Company shall use commercially reasonable efforts to maintain during the Term directors’ and officers’ insurance from a reputable insurance company with such coverage amounts and policy terms as is customary for public companies with market valuations similar to the Company, as determined by the Company in its sole discretion.

  

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23.           No Relationship. This Agreement does not make the Chairman the partner, joint-venturer, employee, agent or legal representative of the Company for any purpose whatsoever. The Chairman is not granted any right or authority to assume or to create any obligation or responsibility, express or implied, on behalf of or in the name of the Company. In fulfilling his obligations pursuant to this Agreement, the Chairman will be acting as an independent contractor. In furtherance of the foregoing, the parties expressly acknowledge that (a) the Chairman shall establish his own working hours and appointment schedule, (b) the sole source of the Chairman’s compensation from the Company shall be the compensation as provided herein, and the Chairman shall not be entitled to sick or vacation days or any other benefits, (c) the Chairman shall be entitled to engage in other businesses, (d) no state or federal unemployment insurance or disability insurance shall be paid by the Company on account of the Chairman and no state or federal tax shall be withheld from the payments to the Chairman hereunder and (e) except as expressly provided herein, the Chairman shall be required to pay his own expenses, including, without limitation, insurance premiums, healthcare expenses, social security payroll taxes and other employment taxes.

 

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IN WITNESS WHEREOF, this Agreement has been executed by the Company and by the Chairman as of the Effective Date.

	  	
COMPANY

	 	 
	  	NeuMedia, Inc., a Delaware corp.
	  	  	  
	  	
By: 

	
/s/ David Mandell

	  	  	
Name: David Mandell

	  	  	
Title:   Corporate Secretary

	  	  	  
	  	
CHAIRMAN

	  	  	  
	  	
Name: 

	
/s/ Robert Ellin

	  	  	
Robert Ellin

Executive Chairman Agreement

  

  

  

Exhibit A

Form of Restricted Stock Agreement

Exhibit AUnassociated Document

Exhibit 4.1

 

Bionovo, Inc.

 

Warrant To Purchase Common Stock

 

	
Warrant No.: 1

	
Issuance Date:  December 30, 2011

	  	  
	
Number of Warrant Shares:  7,608,696

	
Initial Exercise Price:  $0.23

	  	  
	
(subject to adjustment as set forth herein)

	
(subject to adjustment as set forth herein)

 

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

 

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

 

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

 

  

  

  

 

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

 

EXERCISE OF WARRANT; ADJUSTMENT TO EXERCISE

PRICE AND NUMBER OF SHARES

 

1.1          Mechanics of Exercise.

 

(a)                      Subject to the terms and conditions hereof, this Warrant shall be automatically exercised by the Holder on each Tranche Notice Date, in whole or in part. Within one (1) Trading Day following such Tranche Notice Date and automatic exercise, Holder shall (i) deliver, for record keeping purposes, a written notice to the Company, in the form attached hereto as Appendix 1 (the “Exercise Notice”)(it being understood and agreed that the delivery of an Exercise Notice shall not be a condition to the automatic exercise of this Warrant), and (ii) pay to the Company an amount equal to the applicable Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (the “Aggregate Exercise Price”), which payment shall be made, at the option of the Holder, in cash or by wire transfer of immediately available funds, by the issuance and delivery of a recourse promissory note substantially in the form attached as Exhibit G to the Purchase Agreement (each, a “Recourse Note”), or, if applicable and permitted by Section 1.4, by cashless exercise pursuant to Section 1.4. The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder.  Execution and delivery of the Exercise Notice with respect to less than all of the Warrant Shares shall have the same effect as cancellation of the original Warrant certificate and issuance of a new Warrant certificate evidencing the right to purchase the remaining number of Warrant Shares.

 

  

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

 

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

 

1.2          Exercise Price.  For purposes of this Warrant, “Exercise Price” means, subject to adjustment as provided herein: (i) until the first Tranche Notice Date, the price per Warrant Share as set forth on the face of this Warrant, and (ii) on and after the first Tranche Notice Date and each subsequent Tranche Notice Date, an amount per Warrant Share equal to the Closing Bid Price of a share of Common Stock on the most recently completed Trading Day prior to the time that the Tranche Notice was deemed delivered for the applicable Tranche Notice Date.

 

  

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

 

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

 

  

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1.4          Cashless Exercise. Notwithstanding anything contained herein to the contrary (other than Section 1.6 below), if at the time of exercise hereof a registration statement is not effective (or the prospectus contained therein is not available for use) for the issuance by the Company to the Holder of all of the Warrant Shares or for the resale by the Holder of all of the Warrant Shares, then the Holder may, in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the “Net Number” of shares of Common Stock determined according to the following formula (a “Cashless Exercise”):

 

Net Number = (B-C) x A

 

B

 

For purposes of the foregoing formula:

 

 A = the total number of shares with respect to which this Warrant is then being exercised.

 

 B = the average of the Closing Bid Prices of the shares of Common Stock (as reported by Bloomberg) for the five (5) consecutive Trading Days ending on the date immediately preceding the date of the Exercise Notice.

 

 C = the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.

 

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

 

  

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1.5          Exercise Limitations.

 

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

 

(b)           In addition to the restrictions set forth in Section 1.6(a) above and notwithstanding any provisions of the Purchase Agreement to the contrary, at no time may the Company deliver a Tranche Notice if the number of Common Shares to be issued upon the automatic exercise of this Warrant and the automatic exercise of the Additional Investment Right pursuant to the Purchase Agreement (together with all other shares of Common Stock issued pursuant to previous Tranche Notices) would exceed the lesser of (x) the aggregate number of shares of Common Stock which the Company may issue without breaching the Company’s obligations under the rules or regulations of the applicable Trading Market, except that such limitation shall not apply in the event that the Company (A) obtains the approval of its stockholders as required by the applicable rules of the applicable Trading Market for issuances of Common Shares in excess of such amount or (B) obtains a written opinion from outside counsel to the Company that such approval is not required, which opinion shall be satisfactory to the Holder in its sole discretion and (y) the maximum number of shares of Common Stock that the Company may issue pursuant to this Warrant, the Purchase Agreement and the transactions contemplated thereby without exceeding the limitations set forth in General Instruction I.B.6. of Form S-3 and the interpretations of the SEC’s staff set forth in response to question 139.21 of the Compliance and Disclosure Interpretations of Securities Act Sections of the Division of Corporation Finance of the Commission dated March 4, 2011 (the “Registration Statement Eligibility Cap”) (it being hereby acknowledged and agreed that the Registration Statement Eligibility Cap shall be applicable for all purposes of this Warrant and the transactions contemplated hereby at all times during the term of this Warrant). For the avoidance of doubt, the Company may, but shall be under no obligation to, request its stockholders to approve the transactions contemplated by this Agreement; provided, that if stockholder approval is not obtained in accordance with this Section 1.5(b), the Exchange Cap shall be applicable for all purposes of this Agreement and the transactions contemplated hereby at all times during the term of this Agreement.

 

  

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

 

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

 

1.8          Insufficient Authorized Shares.   If at any time while this Warrant (or any portion thereof) remains outstanding the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon exercise of this Warrant at least a number of shares of Common Stock equal to One Hundred Percent (100%) of the number of shares of Common Stock as shall from time to time be necessary to effect the exercise in full of any unexercised portion of this Warrant (the “Required Reserve Amount”) (an “Authorized Share Failure”), then the Company shall immediately take all action necessary to increase the Company’s authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for the unexercised portion of the Warrant then outstanding.  Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than ninety (90) days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its stockholders for the approval of an increase in the number of authorized shares of Common Stock.  In connection with such meeting, the Company shall provide each stockholder with a proxy statement and shall use its best efforts to solicit its stockholders’ approval of such increase in authorized shares of Common Stock and to cause its board of directors to recommend to the stockholders that they approve such proposal.

 

  

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ARTICLE 2

 

ADJUSTMENT UPON SUBDIVISION OR COMBINATION OF COMMON STOCK

 

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

 

ARTICLE 3

 

FUNDAMENTAL TRANSACTIONS

 

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

 

  

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3.2           Fundamental Transactions. The Company shall not enter into or be party to a Fundamental Transaction unless the Successor Entity assumes in writing all of the obligations set forth in this Section 3 pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder prior to such Fundamental Transaction.

 

ARTICLE 4

 

NONCIRCUMVENTION

 

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

 

ARTICLE 5

 

WARRANT HOLDER NOT DEEMED A STOCKHOLDER

 

Except as otherwise specifically provided herein, the Holder, solely in such Person’s capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in such Person’s capacity as the Holder of this Warrant, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which such Person is then entitled to receive upon the due exercise of this Warrant.  In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company.  Notwithstanding this ARTICLE 5, the Company shall provide the Holder with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders.

 

  

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ARTICLE 6

 

REISSUANCE OF WARRANTS

 

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

 

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

 

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

 

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

 

ARTICLE 7

 

NOTICES

 

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

 

  

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ARTICLE 8

 

AMENDMENT AND WAIVER; TERMINATION

 

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

 

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

 

ARTICLE 9

 

GOVERNING LAW

 

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

 

ARTICLE 10

 

CONSTRUCTION; HEADINGS

 

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

 

  

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ARTICLE 11

 

DISPUTE RESOLUTION

 

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

 

ARTICLE 12

 

REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF

 

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

 

ARTICLE 13

 

DEFINITIONS

 

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

 

13.1           “Bloomberg” means Bloomberg, L.P.

 

  

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

 

13.3           “Common Stock” means the common stock, par value $0.0001 per share, of the Company, and any replacement or substitute thereof, or any share capital into which such Common Stock shall have been changed or any share capital resulting from a reclassification of such Common Stock.

 

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

 

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

 

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

 

  

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

 

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

 

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

 

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

 

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

 

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

 

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

 

  

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

 

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

 

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

 

[Signature Page Follows]

 

  

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

 

	  	
BIONOVO, INC.

	  	  
	  	
By:

	
/s/ Isaac Cohen

	  	  	  
	  	  	
Name: Isaac Cohen

	  	  	
Title: Chief Executive Officer

 

[Signature Page – Warrant]

 

  

  

  

 

APPENDIX 1

 

EXERCISE NOTICE

 

BIONOVO, INC.

 

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

 

	
  

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

 

 

	
  

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

 

 

	
  

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

 

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

	
Name and Contact for Broker:

	  
	  	  
	
Broker no:

	  
	
Account no:

	  
	
Account holder:

	  

SOCIUS CG II, LTD.

	
By:

	
 

	 
	  	
Name: Terren Peizer

	 
	  	
Title:   Managing Director

	 

 

  

  

  

 

ACKNOWLEDGMENT

 

The Company hereby acknowledges the foregoing Exercise Notice and hereby directs Computershare to issue the above indicated number of shares of Common Stock as specified above, in accordance with the Transfer Agent Instructions dated December 30, 2011 from the Company, and acknowledged and agreed to by the transfer agent.

 

	  	
BIONOVO, INC.

	 	 
	  	
By:

	
 

	  	  	
Name:

	  	  	
Title:

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