Document:

ex4-1.htm

Exhibit 4.1

 

THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS.

 

GENTA INCORPORATED

 

Form of Senior Secured Convertible Promissory Note

due March 30, 2022

	I Note No. _____ 	$___________

Dated: March 30, 2012

 

For value received, GENTA INCORPORATED, a Delaware corporation (the “Maker” or the “Company”), hereby promises to pay to the order of _______________________ (together with its successors and representatives, the “Holder”), in accordance with the terms hereinafter provided, the principal amount of ________________________ ($______________), together with interest thereon.

 

All payments under or pursuant to this Senior Secured Convertible Promissory Note (this “Note”) shall be made in United States Dollars in immediately available funds to the Holder at the address of the Holder first set forth above or at such other place as the Holder may designate from time to time in writing to the Maker or by wire transfer of funds to the Holder’s account, instructions for which are attached hereto as Exhibit A.  The outstanding principal balance of this Note shall be due and payable on March 30, 2022 (the “Maturity Date”) or at such earlier time as provided herein.

 

ARTICLE 1

 

 

1.1           Purchase Agreement. This Note has been executed and delivered pursuant to the Securities Purchase Agreement, dated as of March 28, 2012 (as the same may be amended from time to time, the “Purchase Agreement”), by and among the Maker and the purchasers listed on Exhibit A thereto.  Capitalized terms used and not otherwise defined herein shall have the meanings set forth for such terms in the Purchase Agreement.  This Note is one of the I Notes issued by the Maker pursuant to the Purchase Agreement.  Pursuant to the Purchase Agreement, the Maker is also issuing other I Notes and, upon exercise of the Purchase Options issued pursuant to the Purchase Agreement, additional I Notes (the “Additional Closing Notes”).  Collectively, this Note, the I Notes, the Additional Closing Notes, as well as additional notes issued thereon as payment of interest in kind, are referred to herein as the “Notes”.  The Purchasers of the Notes under the Purchase Agreement other than the Holder are referred to herein as the “Other Holders” and the Other Holders and the Holder are collectively referred to herein as the “Holders”.

 

  

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1.2           Interest. Beginning on the issuance date of this Note (the “Issuance Date”), the outstanding principal balance of this Note shall bear interest, in arrears, accruing from the date of issuance at a rate per annum equal to six percent (6.00%), payable semi-annually on September 30 and March 30 of each year (each, an “Interest Payment Date”), with the first interest payment due September 30, 2012, or earlier upon conversion or redemption of this Note.  Interest shall be paid through the issuance of separate I Notes to the Holder in the principal amount equal to the accrued interest as of the applicable Interest Payment Date or date of such earlier conversion or redemption of this Note.  Interest shall be computed on the basis of a 360-day year of twelve (12) thirty (30) day months and shall accrue commencing on the Issuance Date.  Furthermore, upon the occurrence of an Event of Default (as defined in Section 2.1 hereof), the Maker will pay interest to the Holder in additional I Notes or cash (as determined by the Holder), payable on demand, on the outstanding principal balance of and unpaid interest on the Note from the date of the Event of Default until such Event of Default is cured at the rate of the lesser of twenty percent (20%) and the maximum applicable legal rate per annum.

 

1.3           Payment of Principal.

 

(a)           The principal amount hereof and all accrued and unpaid interest hereon shall be paid in full in cash on the Maturity Date or, if earlier, upon acceleration or redemption of this Note in accordance with the terms herein.

 

(b)           Other than as specifically provided herein, the Company may not prepay any portion of the outstanding principal or accrued and unpaid interest due under this Note.

 

(c)           The Maker shall have the obligation, upon the written notice of the Holders of at least a majority of the combined principal amount of the then outstanding I Notes, including the I Notes that have been issued by way of payment of interest in kind and the I Notes issuable upon exercise of the Purchase Options (for clarity, the underlying I Notes of unexercised Purchase Options will be considered outstanding for purposes of this section), but excluding, in all instances, all Notes issued for consideration other than cash (and additionally excluding all Notes: (i) issued by way of payment of interest in kind upon such Notes issued for consideration other than cash, and (ii) potentially issuable upon exercise of the Purchase Option related to such Notes issued for consideration other than cash), and upon the written notice of the Holder of this Note, to redeem all or any portion of this Note by paying to the Holder, within ten (10) calendar days from the date such notice is sent, in cash, the portion of the then-outstanding principal amount of this Note, plus accrued and unpaid interest through the date of such redemption, as specified in the notice (the “Put Option”).  Any such notices shall be effective only if delivered to the Maker on or after March 30, 2013.  The Company shall provide the Holders written notice within one (1) Trading Day from the date that it receives such notice of the exercise of the Put Option from the Holders of a majority of the combined principal amount of the then outstanding I Notes, including the I Notes that have been issued by way of payment of interest in kind and the I Notes issuable upon exercise of the Purchase Options.

 

  

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1.4           Payment on Non-Trading Days. Whenever any payment to be made shall be due on a Saturday, Sunday or a public holiday under the laws of the State of New York, such payment may be due on the next succeeding Trading Day and such next succeeding day shall be included in the calculation of the amount of accrued interest payable on such date.

 

1.5           Transfer. This Note may be transferred or sold, subject to the provisions of Section 5.8 of this Note, or pledged, hypothecated or otherwise granted as security by the Holder.

 

1.6           Replacement. Upon receipt of a duly executed, notarized and unsecured written statement from the Holder with respect to the loss, theft or destruction of this Note (or any replacement hereof) and a standard indemnity, or, in the case of a mutilation of this Note, upon surrender and cancellation of such Note, the Maker shall issue a new Note, of like tenor and amount, in lieu of such lost, stolen, destroyed or mutilated Note.

 

1.7           Use of Proceeds. The Maker shall use the proceeds of this Note as set forth in the Purchase Agreement.

 

1.8           Senior Status of Note.  The obligations of the Maker under the I Notes shall be pari passu with the 12% Senior Secured Convertible Promissory Notes and the 12% Senior Secured Cash Collateralized Convertible Promissory Notes issued by the Maker pursuant to that certain Securities Purchase Agreement dated as of September 2, 2011 (the “G Notes” and “H Notes”, respectively and together the “2011 Notes”) and senior to the 15% Senior Secured Convertible Promissory Notes issued by the Maker pursuant to that certain Securities Purchase Agreement dated as of June 5, 2008 (the “June 2008 Notes”), the 8% Senior Secured Convertible Promissory Notes issued by the Maker pursuant to that certain Securities Purchase Agreement dated as of April 2, 2009 (the “April 2009 Notes”), the 8% Unsecured Subordinated Convertible Promissory Notes due September 4, 2011, as amended (the “September 2009 Notes”), the 12% Senior Unsecured Convertible Promissory B Notes issued pursuant to that certain Securities Purchase Agreement dated as of March 5, 2010 (the “March 2010 Purchase Agreement” (the “B Notes”)), the 12% Senior Unsecured Convertible Promissory C Notes issued pursuant to the March 2010 Purchase Agreement (the “C Notes”), the 12% Senior Secured Convertible Promissory D Notes issued pursuant to the March 2010 Purchase Agreement (the “D Notes”), the 12% Senior Unsecured Convertible Promissory E Notes issued pursuant to the March 2010 Purchase Agreement (the “E Notes”) and the 12% Senior Unsecured Convertible Promissory F Notes issued pursuant to the March 2010 Purchase Agreement (the “F Notes” and together with the B Notes, C Notes, D Notes and E Notes, the “2010 Notes”) (the June 2008 Notes, April 2009 Notes, September 2009 Notes and 2010 Notes collectively, the “Unsecured Notes”, and the Unsecured Notes and 2011 Notes collectively, the “Prior Notes”), and to all other existing indebtedness and equity of the Company.  Upon any Liquidation Event, the Holders and the holders of the 2011 Notes will be entitled to receive, before any distribution or payment is made upon, or set apart with respect to, any Indebtedness of the Maker or any class of capital stock of the Maker, an amount equal to the principal amount plus all accrued and unpaid interest thereon.  For purposes of this Note, “Liquidation Event” means a liquidation pursuant to a filing of a petition for bankruptcy under applicable law or any other insolvency or debtor’s relief, an assignment for the benefit of creditors, or a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Maker.

 

  

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1.9           Secured Note.  The full amount of this Note is secured by the Collateral identified and described as security therefor in the Security Agreement dated as of March 30, 2012 (the “Security Agreement”) by and between the Maker and Tang Capital Partners, LP, as agent (“Agent”) for the benefit of the Purchasers set forth in the Purchase Agreement.  The Holder irrevocably authorizes the Agent to release its lien upon any of the Collateral that is sold, leased, transferred or otherwise disposed of in connection with a transaction permitted pursuant to Section 4.1(e) hereof; provided, that (i) the Agent shall not be required to execute any document evidencing the release of such lien on terms which, in its reasonable opinion, would expose the Agent to liability or create any obligation or entail any adverse consequence (other than the release of such lien) without recourse or warranty, and (ii) such release shall not in any manner discharge, affect or impair any liens (other than those expressly being released) upon the assets retained by the Maker or any other Grantor (as defined in the Security Agreement), including without limitation the proceeds of such sale, lease, transfer or disposition, all of which shall continue to constitute part of the Collateral.

 

ARTICLE 2

 

2.1           Events of Default. The occurrence of any of the following events shall be an “Event of Default” under this Note:

 

(a)           any default in the payment of (1) the principal amount hereunder or under any other Note when due; or (2) interest on, or liquidated damages in respect of, this Note or any other Note, as and when the same shall become due and payable (whether on the Maturity Date or by acceleration or otherwise); or

 

(b)           the Maker shall fail to observe or perform any other covenant, condition or agreement contained in this Note or any other Note which failure is not cured, if possible to cure, within three (3) Trading Days after receiving notice of such default sent by the Holders of at least a majority of the combined principal amount of the then outstanding I Notes, including the I Notes that have been issued by way of payment of interest in kind and the I Notes issuable upon exercise of the Purchase Options (for clarity, the underlying I Notes of unexercised Purchase Options will be considered outstanding for purposes of this section), but excluding, in all instances, all Notes issued for consideration other than cash (and additionally excluding all Notes: (i) issued by way of payment of interest in kind upon such Notes issued for consideration other than cash, and (ii) potentially issuable upon exercise of the Purchase Option related to such Notes issued for consideration other than cash); or

 

(c)           the failure of the Common Stock to be listed on a Trading Market for a period of twenty (20) consecutive Trading Days; or

 

(d)           the Maker’s notice to the Holder, including by way of public announcement, at any time, of its inability to comply (including for any of the reasons described in Section 3.6(a) hereof) or its intention not to comply with proper requests for conversion of this Note into shares of Common Stock; or

 

(e)           the Maker shall fail to (i) timely deliver the shares of Common Stock as and when required herein; or (ii) make the payment of any fees and/or liquidated damages under this Note, the Purchase Agreement or the other Transaction Documents, which failure is not remedied within three (3) Trading Days after the incurrence thereof; or

 

  

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(f)           default shall be made in the performance or observance of any covenant, condition or agreement contained in the Purchase Agreement or any other Transaction Document that is not covered by any other provisions of this Section 2.1 and such default is not fully cured within three (3) Trading Days after the Maker receives notice from the Holders of at least a majority of the combined principal amount of the then outstanding I Notes, including the I Notes that have been issued by way of payment of interest in kind and the I Notes issuable upon exercise of the Purchase Options (for clarity, the underlying I Notes of unexercised Purchase Options will be considered outstanding for purposes of this section), but excluding, in all instances, all Notes issued for consideration other than cash (and additionally excluding all Notes: (i) issued by way of payment of interest in kind upon such Notes issued for consideration other than cash, and (ii) potentially issuable upon exercise of the Purchase Option related to such Notes issued for consideration other than cash), of the occurrence thereof; or

 

(g)           the Maker shall fail to have a sufficient number of shares of Common Stock authorized, reserved and available for issuance to satisfy the potential conversion in full (disregarding for this purpose any and all limitations of any kind on such conversion) of this Note and each Other Note (including the Notes issuable in payment of interest on all outstanding Notes and the Notes issuable upon exercise of the Purchase Options); or

 

(h)           any representation or warranty made by the Maker or any of its Subsidiaries herein or in the Purchase Agreement, the Notes or any other Transaction Document shall prove to have been false or incorrect or breached in a material respect on the date as of which made; or

 

(i)            the Maker shall, or shall announce an intention to pursue or consummate a Change of Control (as defined below), or a Change of Control shall be consummated, or Maker shall negotiate, propose or enter into any agreement, understanding or arrangement with respect to any Change of Control.  A “Change of Control” shall mean:

 

(i)           the consolidation, merger or other business combination of the Maker with or into another Person (other than (A) pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Maker or (B) a consolidation, merger or other business combination in which holders of the Maker’s voting power immediately prior to the transaction continue after the transaction to hold, directly or indirectly, the voting power of the surviving entity or entities necessary to elect a majority of the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities); or

 

(ii)          the sale, transfer disposition or exclusive license of more than fifty percent (50%) of the Maker’s intellectual property or assets (based on the fair market value as determined in good faith by the Holders) other than inventory in the ordinary course of business in one or a related series of transactions, except for any such transaction described in this clause (ii) that has been approved in writing by the Requisite Purchasers; or

 

  

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(iii)         closing of a purchase, tender or exchange offer made to the holders of more than fifty percent (50%) of the outstanding shares of Common Stock in which more than fifty percent (50%) of the outstanding shares of Common Stock were tendered and accepted; or

 

(j)           the Maker or any of its Subsidiaries shall (A) default in any payment of any amount or amounts of principal of or interest on any Indebtedness (other than the Indebtedness hereunder or under the Notes) after any applicable cure period, the aggregate principal amount of which Indebtedness is in excess of $250,000; or (B) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders or beneficiary or beneficiaries of such Indebtedness to cause with the giving of notice if required, such Indebtedness to become due prior to its stated maturity; or

 

(k)          the Maker or any of its Subsidiaries shall: (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property or assets; (ii) make a general assignment for the benefit of its creditors; (iii) commence a voluntary case under the United States Bankruptcy Code (as now or hereafter in effect) or under the comparable laws of any jurisdiction (foreign or domestic); (iv) file a petition seeking to take advantage of any bankruptcy, insolvency, moratorium, reorganization or other similar law affecting the enforcement of creditors’ rights generally; (v) acquiesce in writing to any petition filed against it in an involuntary case under United States Bankruptcy Code (as now or hereafter in effect) or under the comparable laws of any jurisdiction (foreign or domestic); (vi) issue a notice of bankruptcy or winding down of its operations or issue a press release regarding same; or (vii) take any action under the laws of any jurisdiction (foreign or domestic) analogous to any of the foregoing; or

 

(l)           a proceeding or case shall be commenced in respect of the Maker or any of its Subsidiaries, without its application or consent, in any court of competent jurisdiction, seeking: (i) the liquidation, reorganization, moratorium, dissolution, winding up, or composition or readjustment of its debts; (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of it or of all or any substantial part of its assets in connection with the liquidation or dissolution of the Maker or any of its Subsidiaries; or (iii) similar relief in respect of it under any law providing for the relief of debtors, and such proceeding or case described in clause (i), (ii) or (iii) shall continue undismissed, or unstayed and in effect, for a period of thirty (30) days or any order for relief shall be entered in an involuntary case under United States Bankruptcy Code (as now or hereafter in effect) or under the comparable laws of any jurisdiction (foreign or domestic) against the Maker or any of its Subsidiaries or action under the laws of any jurisdiction (foreign or domestic) analogous to any of the foregoing shall be taken with respect to the Maker or any of its Subsidiaries and shall continue undismissed, or unstayed and in effect for a period of sixty (60) days; or

 

  

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(m)          the failure of the Maker to instruct its transfer agent to remove any legends from shares of Common Stock and issue such unlegended certificates to the Holder within three (3) Trading Days of receipt of the Holder’s request so long as the Holder has provided reasonable assurances to the Maker that such shares of Common Stock can be sold pursuant to Rule 144; or

 

(n)           the occurrence of an Event of Default under any of the Notes or any of the Prior Notes; or

 

(o)           the Maker deregisters its shares of Common Stock and as a result such shares of Common Stock are no longer publicly traded; or

 

(p)           the Maker consummates a “going private” transaction and as a result the Common Stock is no longer registered under Sections 12(b) or 12(g) of the Exchange Act; or

 

(q)           there shall be any SEC or judicial stop trade order or trading suspension stop-order or any restriction in place with the transfer agent for the Common Stock restricting the trading of such Common Stock; or

 

(r)           the occurrence of a Material Adverse Effect in respect of the Maker or any of its Subsidiaries taken as a whole; or

 

(s)           the Maker shall, as payment of interest hereon, issue invalid Notes.

 

2.2           Remedies Upon An Event of Default.  Upon the occurrence of any Event of Default, the Maker shall, as promptly as possible but in any event within one (1) Trading Day of the occurrence of such Event of Default, notify the Holder of the occurrence of such Event of Default, describing the event or factual situation giving rise to the Event of Default and specifying the relevant subsection or subsections of Section 2.1 hereof under which such Event of Default has occurred.  If an Event of Default shall have occurred and shall be continuing, the Agent, at any time prior to the full release of the security interest in the Collateral, and thereafter, the Holder of this Note, after receiving a written notice from the Holders of at least a majority of the combined principal amount of the then outstanding I Notes, including the I Notes that have been issued by way of payment of interest in kind and the I Notes issuable upon exercise of the Purchase Options (for clarity, the underlying I Notes of unexercised Purchase Options will be considered outstanding for purposes of this section), but excluding, in all instances, all Notes issued for consideration other than cash (and additionally excluding all Notes: (i) issued by way of payment of interest in kind upon such Notes issued for consideration other than cash, and (ii) potentially issuable upon exercise of the Purchase Option related to such Notes issued for consideration other than cash), declaring that an Event of Default has occurred and that the Holders may exercise their rights under this Section 2.2, may at any time declare the entire unpaid principal balance of this Note, together with all interest accrued hereon, due and payable, and thereupon, the same shall be accelerated and so due and payable, without presentment, demand, protest, or notice, all of which are hereby expressly unconditionally and irrevocably waived by the Maker; provided, however, that upon the occurrence of an Event of Default described above, the Agent, at any time prior to the full release of the security interest in the Collateral, and thereafter, the Holder, in each case in its sole and absolute discretion, may: (a) demand the redemption of this Note pursuant to Section 3.5(a) hereof; (b) demand that the principal amount of this Note then outstanding and all accrued and unpaid interest thereon shall be converted into shares of Common Stock at the Conversion Price per share on the Trading Day immediately preceding the date the Holder demands conversion pursuant to this clause; or (c) exercise or otherwise enforce any one or more of the Holder’s rights, powers, privileges, remedies and interests under this Note, the Purchase Agreement, the other Transaction Documents or applicable law; provided, further, however, that upon the occurrence of an Event of Default described in clauses (k) or (l), the entire unpaid principal balance of the I Notes, together with all interest accrued hereon, shall automatically become due and payable, and thereupon, the same shall be accelerated and so due and payable, without presentment, demand, protest, or notice, all of which are hereby expressly unconditionally and irrevocably waived by the Maker.  No course of delay on the part of the Agent or Holder shall operate as a waiver thereof or otherwise prejudice the rights of the Agent or Holder.  No remedy conferred hereby shall be exclusive of any other remedy referred to herein or now or hereafter available at law, in equity, by statute or otherwise.  Prior to the full release of the security interest in the Collateral, all payments received by Holder in respect of the Collateral shall be received in trust on behalf of the Agent for the benefit of all Holders of G Notes, H Notes and I Notes, shall be segregated from other funds of Holder, and shall be forthwith paid over to the Agent in the same form as so received (with any necessary endorsement).

 

  

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ARTICLE 3

 

3.1           Conversion.

 

(a)           Voluntary Conversion.  At any time and from time to time on or after the Issuance Date, subject to Section 3.1(c) hereof, this Note shall be convertible (in whole or in part), at the option of the Holder, into such number of fully paid and non-assessable shares of Common Stock as is determined by dividing (x) that portion of the outstanding principal balance and accrued and unpaid interest on the portion of the outstanding principal balance that the Holder elects to convert by (y) the Conversion Price (as defined in Section 3.1(d) hereof) then in effect on the date on which the Holder faxes a notice of conversion (the “Conversion Notice”), duly executed, to the Maker (facsimile number (908) 286-3966, Attn.: Raymond P. Warrell, Jr., M.D.) (the “Voluntary Conversion Date”). The Holder shall deliver this Note to the Maker at the address designated in the Purchase Agreement at such time that this Note is fully converted.  With respect to partial conversions of this Note, the Maker shall keep written records of the amount of this Note converted as of each Conversion Date.

 

(b)           [INTENTIONALLY OMITTED]

 

  

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(c)           Conversion Limitations.  This Note shall only be convertible by the Holder on any day to the extent that such conversion does not exceed the Conversion Cap during the Limitation Period, as described below.  “Limitation Period” shall mean the period of time commencing at the time of the First Closing and ending on the date that is the earlier of:  (i) 30 days prior to the Maturity Date; or (ii) the date the Company enters into any agreement without obtaining written approval by the Holders of more than a majority of the principal amount of the Notes, including the Notes that have been issued by way of payment of interest in kind and the Notes issuable upon exercise of the Purchase Options (for clarity, the underlying I Notes of unexercised Purchase Options will be considered outstanding for purposes of this section), but excluding, in all instances, all Notes issued for consideration other than cash (and additionally excluding all Notes: (i) issued by way of payment of interest in kind upon such Notes issued for consideration other than cash, and (ii) potentially issuable upon exercise of the Purchase Option related to such Notes issued for consideration other than cash), with respect to any capital-raising transaction or offer to sell to, issue to or exchange with (or make any other type of distribution to) any third party or parties: (x) Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, including convertible debt securities; or (y) any instrument representing liabilities for borrowed money.  During the Limitation Period, the Holder hereby agrees that such Holder will not convert this Note on any day of a Monday through Sunday calendar week (each a "Conversion Week") to the extent that, together with all prior conversions under the Outstanding Notes (as defined below except without the 5X Adjustment, 50X Adjustment or Prior/New Note Adjustment) during such Conversion Week, if any, the total principal amount of the Outstanding Notes (except without the 5X Adjustment, 50X Adjustment or Prior/New Note Adjustment) that has been converted during such Conversion Week (rounded to the nearest $0.01) exceeds the product of (a) the outstanding principal amount of the Outstanding Notes, multiplied by (b) the Conversion Cap for such Conversion Week.  In determining the “Conversion Cap” for any Conversion Week, if the quotient of (A) the VWCP (as adjusted to reflect any stock splits, stock dividends or similar recapitalizations occurring on or before the Conversion Date) for the three Trading Days during the previous Monday through Sunday calendar week ending on the last Trading Day prior to the applicable Conversion Week, divided by (B) the applicable Conversion Price of this Note on the first Trading Day of such Conversion Week is:  (1) less than one, then the Conversion Cap shall be 0%; (2) greater than or equal to one and less than two, then the Conversion Cap shall be 0.00850%; (3) greater than or equal to two and less than three, then the Conversion Cap shall be 0.01700%; (4) greater than or equal to three and less than four, then the Conversion Cap shall be 0.03230%; (5) greater than or equal to four and less than five, then the Conversion Cap shall be 0.04760%; (6) greater than or equal to five and less than six, then the Conversion Cap shall be 0.06290%: (7) greater than or equal to six and less than seven, then the Conversion Cap shall be 0.07820%; (8) greater than or equal to seven and less than eight, then the Conversion Cap shall be 0.09350%; (9) greater than or equal to eight and less than nine, then the Conversion Cap shall be 0.10880%; (10) greater than or equal to nine and less than ten, then the Conversion Cap shall be 0.12410%; (11) greater than or equal to ten and less than eleven, then the Conversion Cap shall be 0.13940%; (12) greater than or equal to eleven and less than twelve, then the Conversion Cap shall be 0.17000%; (13) greater than or equal to twelve and less than thirteen, then the Conversion Cap shall be 0.25500%; (14) greater than or equal to thirteen and less than fourteen, then the Conversion Cap shall be 0.34000%; (15) greater than or equal to fourteen and less than fifteen, then the Conversion Cap shall be 0.42500%; (16) greater than or equal to fifteen and less than sixteen, then the Conversion Cap shall be 0.51000%; (17) greater than or equal to sixteen and less than seventeen, then the Conversion Cap shall be 0.59500%; (18) greater than or equal to seventeen and less than eighteen, then the Conversion Cap shall be 0.68000%; (19) greater than or equal to eighteen and less than nineteen, then the Conversion Cap shall be 0.76500%; (20) greater than or equal to nineteen and less than twenty, then the Conversion Cap shall be 0.85000%; or (21) greater than or equal to twenty, then the Conversion Cap shall be 0.93500%.  For purposes of this calculation, “Outstanding Notes” means all of the outstanding principal and interest due under the Company’s Notes and Prior Notes (for clarity, the H Notes that are paid in full pursuant to Section 14(a)(iii) of that certain Amendment Agreement dated March 28, 2012 will not be considered Prior Notes solely for the purpose of this Outstanding Note definition held by the Holder as of the First Closing, provided that:  (i) the outstanding balance (principal and accrued interest) due under the Notes shall, solely for this purpose, equal (A) five times the actual principal and interest amount due under such Notes, including Notes that have been issued by way of payment of interest in kind and (B) five times the amount of principal of Notes issuable to such Holder pursuant to such Holder’s exercise of its Purchase Options (the adjustments in this clause (i) to be referred to as the “5X Adjustment”); (ii) the outstanding balance (principal and accrued interest) due under the 2011 Notes shall, solely for this purpose, equal (I) fifty times the actual principal and interest amount due under such 2011 Notes, including convertible promissory notes that have been issued by way of payment of interest in kind and (II) fifty times the amount of principal of 2011 Notes issuable to such Holder upon exercise of the Senior Secured Cash Collateralized Convertible Promissory H Note Purchase Warrant (the “H Warrant”) and the Senior Secured Convertible Promissory G Note Purchase Warrant (the “G Warrant”) (the adjustments in this clause (ii) to be referred to as the “50X Adjustment”); and (iii) an additional outstanding principal balance (solely for the purpose of the Outstanding Notes definition) will be added to the Outstanding Notes, with such amount equal to the product of: (I) the lesser of: (A) the product of (y) the principal amount of the Notes purchased by the Holder in the First Closing (not including any Notes underlying the Purchase Option), multiplied by (z) 19; (B) the principal amount of Unsecured Notes held by the Holder at the First Closing; and (C) $1,200,000.00; multiplied by (II) 2.75 (the adjustments in this clause (iii) to be referred to as the “Prior/New Note Adjustment”).  By way of example only: (A) if the Holder purchases $1 million principal amount of Notes at the First Closing and holds $5 million principal amount of 2011 Notes, a G Warrant to purchase $1 million principal amount of G Notes and $0.5 million principal amount of Unsecured Notes, then that Holder’s total outstanding principal amount of Outstanding Notes would be equal to $331.875 million (i.e., five times $1 million principal amount of the Notes (to be issued) plus five times the $5 million of principal amount of Notes underlying the Purchase Option (to be issued), plus fifty times $5 million principal amount of 2011 Notes, plus fifty times $1 million principal amount of G Notes underlying the G Warrant, plus $0.5 million principal amount of Unsecured Notes, plus $1.375 million of Unsecured Notes (by way of the Prior/New Note Adjustment) ($0.5 million times 2.75)); and if the VWCP is then ten times the Conversion Price, then the Holder would be permitted to convert in that Conversion Week up to $462,633.75 principal amount of such Holder’s notes (i.e., 0.1394% times $331,875,000); (B) if the Holder purchases $0 principal amount of Notes at the First Closing, holds $5 million principal amount of 2011 Notes and $0.5 million principal amount of Unsecured Notes, then that Holder’s total outstanding principal amount of Outstanding Notes would be equal to $250.5 million (i.e., five times $0 principal amount of the Notes, plus five times $0 principal amount of Notes underlying the Purchase Option, plus fifty times $5 million principal amount of 2011 Notes, plus $0.5 million principal amount of Unsecured Notes, plus $0 for the Prior/New Note Adjustment); and if the VWCP is then ten times the Conversion Price, then the Holder would be permitted to convert in that Conversion Week up to $349,197 of such holders notes (i.e., 0.1394% times $250,500,000); (C) if the Holder purchases $0 principal amount of Notes at the First Closing, holds $0 principal amount of 2011 Notes and $0.5 million principal amount of Unsecured Notes, then that Holder’s total outstanding principal amount of Outstanding Notes would be equal to $0.5 million (i.e., five times $0 principal amount of the Notes, plus five times $0 principal amount of Notes underlying the Purchase Option, plus fifty times $0 principal amount of 2011 Notes, plus $0.5 million principal amount of Unsecured Notes, plus $0 for the Prior/New Note Adjustment); and if the VWCP is then ten times the Conversion Price, then the Holder would be permitted to convert in that Conversion Week up to $697 of such Holder’s notes (i.e., 0.1394% times $500,000); and (D) if the Holder purchases $0.1 million principal amount of Notes at the First Closing, holds $0 principal amount of 2011 Notes and $0.75 million principal amount of Unsecured Notes, then that Holder’s total outstanding principal amount of Outstanding Notes would be equal to $5.8125 million (i.e., five times $0.1 million principal amount of the Notes (to be issued), plus five times $0.5 million principal amount of Notes underlying the Purchase Option (to be issued), plus fifty times $0 principal amount of 2011 Notes, plus $0.75 million principal amount of Unsecured Notes, plus $2.0625 million for the Prior/New Note Adjustment ($0.75 million times 2.75); and if the VWCP is then ten times the Conversion Price, then the Holder would be permitted to convert in that Conversion Week up to $8,102.63 of such Holder’s notes (i.e., 0.1394% times $5,812,500).

  

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(d)           Conversion Price.  “Conversion Price” means the price obtained by dividing $1,000 by 1,000,000, and shall be subject to adjustment as provided below.

 

3.2           Mechanics of Conversion.

 

(a)           Not later than three (3) Trading Days after any Conversion Date (the “Delivery Date”), the Maker or its designated transfer agent, as applicable, shall issue and deliver to the Depository Trust Company (“DTC”) account on the Holder’s behalf via the Deposit Withdrawal Agent Commission System (“DWAC”) as specified in the Conversion Notice, registered in the name of the Holder or its designee, the number of shares of Common Stock to which the Holder is entitled, free from any restrictive legend.  If in the case of any Conversion Notice such shares are not delivered to or as directed by the applicable Holder by the Delivery Date, the Holder shall be entitled by written notice to the Maker at any time on or before its receipt of such shares, to rescind such conversion, in which event the Maker shall immediately return this Note tendered for conversion, whereupon the Maker and the Holder shall each be restored to their respective positions immediately prior to the delivery of such notice of revocation, except that any amounts described in Sections 3.2(b) and (c) hereof shall be payable through the date notice of rescission is given to the Maker.

 

(b)           The Maker understands that a delay in the delivery of the shares of Common Stock upon conversion of this Note beyond the Delivery Date could result in economic loss to the Holder.  If the Maker fails to deliver to the Holder such shares via DWAC by the Delivery Date, the Maker shall pay to such Holder, in cash, an amount per Trading Day for each Trading Day until such shares are delivered via DWAC, together with interest on such amount at a rate of 15% per annum, accruing until such amount and any accrued interest thereon is paid in full, equal to the greater of (A) (i) 1% of the aggregate principal amount of the Notes requested to be converted for each of the first five (5) Trading Days after the Delivery Date and (ii) 2% of the aggregate principal amount of the Notes requested to be converted for each Trading Day thereafter and (B) $2,000 per day (which amount shall be paid as liquidated damages and not as a penalty).  Nothing herein shall limit a Holder’s right to pursue actual damages for the Maker’s failure to deliver certificates representing shares of Common Stock upon conversion within the period specified herein and such Holder shall have the right to pursue all remedies available to it at law or in equity (including, without limitation, a decree of specific performance and/or injunctive relief).  Notwithstanding anything to the contrary contained herein, the Holder shall be entitled to withdraw a Conversion Notice, and upon such withdrawal the Maker shall only be obligated to pay the liquidated damages accrued in accordance with this Section 3.2(b) through the date the Conversion Notice is withdrawn.

 

  

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(c)           In addition to any other rights available to the Holder, if the Maker fails to cause its transfer agent to transmit via DWAC the shares of Common Stock issuable upon conversion of this Note on or before the Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the shares of Common Stock issuable upon conversion of this Note which the Holder anticipated receiving upon such exercise (a “Buy-In” ), then the Maker shall (1) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of shares of Common Stock issuable upon conversion of this Note that the Maker was required to deliver to the Holder in connection with such conversion times (B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) at the option of the Holder, either reinstate the portion of the Note and equivalent number of shares of Common Stock for which such conversion was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Maker timely complied with its conversion and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (1) of the immediately preceding sentence the Maker shall be required to pay the Holder $1,000. The Holder shall provide the Maker written notice indicating the amounts payable to the Holder in respect of the Buy-In, together with applicable confirmations and other evidence reasonably requested by the Maker.  Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Maker’s failure to timely deliver shares of Common Stock upon conversion of this Note as required pursuant to the terms herein.

 

3.3           Ownership Cap.  Notwithstanding anything to the contrary set forth in Section 3 of this Note: (i) at no time may the Company issue to Holder shares of Common Stock, and (ii) at no time may the Holder convert any portion of this Note into shares of Common Stock, if the number of shares of Common Stock to be issued pursuant to such issuance or conversion would exceed, when aggregated with all other shares of Common Stock owned by the Holder at such time and all shares of Common Stock that the Holder is then the beneficial owner of (as determined in accordance with Section 13(d) of the Exchange Act and the rules thereunder), the number of shares of Common Stock that would result in the Holder beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules thereunder) more than 9.999% of the then issued and outstanding shares of Common Stock.

 

3.4           Adjustment of Conversion Price.

 

(a)           Until the Note has been paid in full or converted in full, the Conversion Price shall be subject to adjustment from time to time as set forth below (but shall not be increased, other than pursuant to Section 3.4(a)(i) hereof); provided, however, that if any adjustment would cause the Conversion Price to be below the par value of the Company’s Common Stock, which is $0.001 per share (“Par Value”), then the Conversion Price shall adjust to Par Value.

 

  

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(i)           Adjustments for Stock Splits and Combinations.  If the Maker shall at any time or from time to time after the Closing Date (but whether before or after the Issuance Date) effect a split of the outstanding Common Stock, the applicable Conversion Price in effect immediately prior to the stock split shall be proportionately decreased.  If the Maker shall at any time or from time to time after the Closing Date (but whether before or after the Issuance Date), combine the outstanding shares of Common Stock, the applicable Conversion Price in effect immediately prior to the combination shall be proportionately increased.  Any adjustments under this Section 3.4(a)(i) shall be effective at the close of business on the date the stock split or combination occurs.

 

(ii)          Adjustments for Certain Dividends and Distributions.  If the Maker shall at any time or from time to time after the Closing Date (but whether before or after the Issuance Date) make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in shares of Common Stock, then, and in each event, the applicable Conversion Price in effect immediately prior to such event shall be decreased as of the time of such issuance or, in the event such record date shall have been fixed, as of the close of business on such record date, by multiplying the applicable Conversion Price then in effect by a fraction:

 

(1)           the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date; and

 

(2)           the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution.

 

(iii)         Adjustment for Other Dividends and Distributions.  If the Maker shall at any time or from time to time after the Closing Date (but whether before or after the Issuance Date) make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in other than shares of Common Stock, then, and in each event, an appropriate revision to the applicable Conversion Price shall be made and provision shall be made (by adjustments of the Conversion Price or otherwise) so that the Holder of this Note shall receive upon conversions thereof, in addition to the number of shares of Common Stock receivable thereon, the number of securities of the Maker or other issuer (as applicable) or other property that it would have received had this Note been converted into Common Stock in full (without regard to any conversion limitations herein) on the date of such event and had thereafter, during the period from the date of such event to and including the Conversion Date, retained such securities (together with any distributions payable thereon during such period) or assets, giving application to all adjustments called for during such period under this Section 3.4(a)(iii) with respect to the rights of the holders of this Note and the Notes; provided, however, that if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be adjusted pursuant to this paragraph as of the time of actual payment of such dividends or distributions.

 

  

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(iv)          Adjustments for Reclassification, Exchange or Substitution.  If the Common Stock at any time or from time to time after the Closing Date (but whether before or after the Issuance Date) shall be changed to the same or different number of shares or other securities of any class or classes of stock or other property, whether by reclassification, exchange, substitution or otherwise (other than by way of a stock split or combination of shares or stock dividends provided for in Sections 3.4(a)(i), (ii) and (iii) hereof, or a reorganization, merger, consolidation, or sale of assets provided for in Section 3.4(a)(v) hereof), then, and in each event, an appropriate revision to the Conversion Price shall be made and provisions shall be made (by adjustments of the Conversion Price or otherwise) so that the Holder shall have the right thereafter to convert this Note into the kind and amount of shares of stock or other securities or other property receivable upon reclassification, exchange, substitution or other change, by holders of the number of shares of Common Stock into which such Note might have been converted immediately prior to such reclassification, exchange, substitution or other change, all subject to further adjustment as provided herein.

 

(v)           Adjustments for Issuance of Additional Shares of Common Stock.  In the event the Maker shall at any time or from time to time after the Closing Date (but whether before or after the Issuance Date) issue or sell any additional shares of Common Stock  (“Additional Shares of Common Stock”) (otherwise than as provided in the foregoing subsections (i) through (iv) of this Section 3.4(a) or pursuant to Common Stock Equivalents (hereafter defined) granted or issued prior to the Closing Date), at an effective price per share less than the Conversion Price then in effect or without consideration, then the Conversion Price upon each such issuance shall be reduced to a price equal to the consideration per share paid for such Additional Shares of Common Stock.  For purposes of clarification, the amount of consideration received for such Additional Shares of Common Stock shall not include the value of any additional securities or other rights received in connection with such issuance of Additional Shares of Common Stock (i.e. warrants, rights of first refusal or other similar rights).

 

(vi)          Issuance, Amendment or Adjustment of Common Stock Equivalents.  If (A) the Maker, at any time after the Closing Date (but whether before or after the Issuance Date), shall issue any securities convertible into or exercisable or exchangeable for, directly or indirectly, Common Stock (“Convertible Securities”), other than the Notes or any rights or warrants or options to purchase any such Common Stock or Convertible Securities (collectively with the Convertible Securities the “Common Stock Equivalents”) and the price per share for which shares of Common Stock may be issuable pursuant to any such Common Stock Equivalent shall be less than the applicable Conversion Price then in effect, or (B) the price per share for which shares of Common Stock may be issuable under any Common Stock Equivalents is amended or adjusted, pursuant to the terms of such Common Stock Equivalents or otherwise, and such price as so amended or adjusted shall be less than the applicable Conversion Price in effect at the time of such amendment or adjustment, then, in each such case (A) or (B), the applicable Conversion Price upon each such issuance or amendment or adjustment shall be adjusted as provided in subsection (vi) of this Section 3.4(a) as if the maximum number of shares of Common Stock issuable upon conversion, exercise or exchange of such Common Stock Equivalents had been issued on the date of such issuance or amendment or adjustment.

 

  

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(vii)         Consideration for Stock.  In case any shares of Common Stock or any Common Stock Equivalents shall be issued or sold:

 

(1)           in connection with any merger or consolidation in which the Maker is the surviving corporation (other than any consolidation or merger in which the previously outstanding shares of Common Stock of the Maker shall be changed to or exchanged for the stock or other securities of another corporation), the amount of consideration therefor shall be, deemed to be the fair value, as determined reasonably and in good faith by the Board of Directors of the Maker and approved by the Requisite Purchasers, of such portion of the assets and business of the nonsurviving corporation as such Board may determine to be attributable to such shares of Common Stock, Convertible Securities, rights or warrants or options, as the case may be; or

 

(2)           in the event of any consolidation or merger of the Maker in which the Maker is not the surviving corporation or in which the previously outstanding shares of Common Stock of the Maker shall be changed into or exchanged for the stock or other securities of another corporation or other property, or in the event of any sale of all or substantially all of the assets of the Maker for stock or other securities or other property of any corporation, the Maker shall be deemed to have issued shares of its Common Stock, at a price per share equal to the valuation of the Maker’s Common Stock based on the actual exchange ratio on which the transaction was predicated, as applicable, and the fair market value on the date of such transaction of all such stock or securities or other property of the other corporation. If any such calculation results in adjustment of the applicable Conversion Price, or the number of shares of Common Stock issuable upon conversion of the Notes, the determination of the applicable Conversion Price or the number of shares of Common Stock issuable upon conversion of the Notes immediately prior to such merger, consolidation or sale, shall be made after giving effect to such adjustment of the number of shares of Common Stock issuable upon conversion of the Notes. In the event Common Stock is issued with other shares or securities or other assets of the Maker for consideration which covers both, the consideration computed as provided in this Section 3.4(a)(vii) shall be allocated among such securities and assets as determined in good faith by the Board of Directors of the Maker, and approved by the Requisite Purchasers.

 

(b)           Record Date. In case the Maker shall take record of the holders of its Common Stock for the purpose of entitling them to subscribe for or purchase Common Stock or Convertible Securities, then the date of the issue or sale of the shares of Common Stock shall be deemed to be such record date.

 

(c)           [Intentionally Omitted]

 

  

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(d)           No Impairment. The Maker shall not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, 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 to be observed or performed hereunder by the Maker, but will at all times in good faith assist in the carrying out of all the provisions of this Section 3.4 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the Holder against impairment. In the event a Holder shall elect to convert any Notes as provided herein, the Maker cannot refuse conversion based on any claim that such Holder or any one associated or affiliated with such Holder has been engaged in any violation of law, violation of an agreement to which such Holder is a party or for any reason whatsoever, unless, an injunction from a court, or notice, restraining and or adjoining conversion of all or of said Notes shall have issued and the Maker posts a surety bond for the benefit of such Holder in an amount equal to one hundred fifty percent (150%) of the amount of the Notes the Holder has elected to convert, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such Holder (as liquidated damages) in the event it obtains judgment.

 

(e)           Certificates as to Adjustments. Upon occurrence of each adjustment or readjustment of the Conversion Price or number of shares of Common Stock issuable upon conversion of this Note pursuant to this Section 3.4, the Maker at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to the Holder a certificate setting forth such adjustment and readjustment, showing in detail the facts upon which such adjustment or readjustment is based. The Maker shall, upon written request of the Holder, at any time, furnish or cause to be furnished to the Holder a like certificate setting forth such adjustments and readjustments, the applicable Conversion Price in effect at the time, and the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon the conversion of this Note. Notwithstanding the foregoing, the Maker shall not be obligated to deliver a certificate unless such certificate would reflect an increase or decrease of at least one percent (1%) of such adjusted amount.

 

(f)           Issue Taxes. The Maker shall pay any and all issue and other taxes, excluding federal, state or local income taxes, that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of this Note pursuant thereto; provided, however, that the Maker shall not be obligated to pay any transfer taxes resulting from any transfer requested by the Holder in connection with any such conversion.

 

(g)           Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of this Note. In lieu of any fractional shares to which the Holder would otherwise be entitled, the Maker shall pay cash equal to the product of such fraction multiplied by the VWCP for the five (5) consecutive Trading Day period immediately preceding, but not including, the Conversion Date.

 

(h)           Reservation of Common Stock.  The Maker shall at all times while this Note shall be outstanding, reserve and keep available out of its authorized but unissued Common Stock, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of this Note and all interest accrued thereon (disregarding for this purpose any and all limitations of any kind on such conversion).  The Maker shall, from time to time in accordance with the Delaware General Corporation Law, increase the authorized number of shares of Common Stock or take other effective action if at any time the unissued number of authorized shares shall not be sufficient to satisfy the Maker’s obligations under this Section 3.4(h).

 

  

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(i)           Regulatory Compliance. If any shares of Common Stock to be reserved for the purpose of conversion of this Note or any interest accrued thereon require registration or listing with or approval of any governmental authority, stock exchange or other regulatory body under any federal or state law or regulation or otherwise before such shares may be validly issued or delivered upon conversion, the Maker shall, at its sole cost and expense, in good faith and as expeditiously as possible, secure such registration, listing or approval, as the case may be.

 

(j)           Effect of Events Prior to the Issuance Date.  If the Issuance Date of this Note is after the Closing Date, then, if the Conversion Price or any other right of the Holder of this Note would have been adjusted or modified by operation of any provision of this Note had this Note been issued on the Closing Date, such adjustment or modification shall be deemed to apply to this Note as of the Issuance Date as if this Note had been issued on the Closing Date.

 

3.5           Prepayment.

 

(a)           Prepayment Upon an Event of Default.  Notwithstanding anything to the contrary contained herein, upon the occurrence of an Event of Default, the Agent, at any time prior to the full release of the security interest in the Collateral, and thereafter, the Holder, shall have the right, after receiving a written notice from the Company indicating that the Company received written notice from the Holders of at least a majority of the combined principal amount of the then outstanding I Notes, including the I Notes that have been issued by way of payment of interest in kind and the I Notes issuable upon exercise of the Purchase Options (for clarity, the underlying I Notes of unexercised Purchase Options will be considered outstanding for purposes of this section), but excluding, in all instances, all Notes issued for consideration other than cash (and additionally excluding all Notes: (i) issued by way of payment of interest in kind upon such Notes issued for consideration other than cash, and (ii) potentially issuable upon exercise of the Purchase Option related to such Notes issued for consideration other than cash), declaring that an Event of Default has occurred and that the Holders may exercise their rights under this Section 3.5(a), at the Holder’s option to require the Maker to prepay all or a portion of this Note in cash at a price equal to the sum of (i) the greater of (A) one hundred percent (100%) of the aggregate principal amount of this Note plus all accrued and unpaid interest and (B) (I) the aggregate principal amount of this Note plus all accrued but unpaid interest hereon, divided by (II) the Conversion Price on (x) the date the Prepayment Price (as defined below) is demanded or otherwise due or (y) the date the Prepayment Price is paid in full, whichever is less, multiplied by (III) the Daily Closing Price on (1) the date the Prepayment Price is demanded or otherwise due, or (2) the date the Prepayment Price is paid in full, or (3) the date immediately prior to the occurrence of such Event of Default, whichever is greatest, and (ii) all other amounts, costs, expenses and liquidated damages due in respect of this Note and the other Transaction Documents (the “Prepayment Price”).  The Company shall provide the Holders written notice within one (1) Trading Day from the date that it received written notice from the Holders of at least a majority of the combined principal amount of the then outstanding I Notes, including the I Notes that have been issued by way of payment of interest in kind and the I Notes issuable upon exercise of the Purchase Options declaring that an Event of Default has occurred

 

  

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(b)           Mechanics of Prepayment at Option of Holder in Connection with a Change of Control.  No sooner than fifteen (15) days prior to nor later than ten (10) days prior to the consummation of a Change of Control, but not prior to the public announcement of such Change of Control, the Maker shall deliver written notice thereof via facsimile and overnight courier (“Notice of Change of Control”) to the Holder of this Note and to each Other Holder of the Notes.  At any time after receipt of a Notice of Change of Control (or, in the event a Notice of Change of Control is not delivered at least ten (10) days prior to a Change of Control, at any time within ten (10) days prior to a Change of Control), any holder of the Notes then outstanding may, after receiving a written notice from Company indicating that the Company received written notice from the Holders of at least a majority of the combined principal amount of the then outstanding I Notes, including the I Notes that have been issued by way of payment of interest in kind and the I Notes issuable upon exercise of the Purchase Options (for clarity, the underlying I Notes of unexercised Purchase Options will be considered outstanding for purposes of this section), but excluding, in all instances, all Notes issued for consideration other than cash (and additionally excluding all Notes: (i) issued by way of payment of interest in kind upon such Notes issued for consideration other than cash, and (ii) potentially issuable upon exercise of the Purchase Option related to such Notes issued for consideration other than cash), declaring that a Change of Control has occurred and that the Holders may exercise their rights under this Section 3.5(b), require the Maker to prepay, effective immediately prior to the consummation of such Change of Control, all of the holder’s Notes then outstanding by delivering written notice thereof via facsimile and overnight courier (“Notice of Prepayment at Option of Holder Upon Change of Control”) to the Maker, which Notice of Prepayment at Option of Holder Upon Change of Control shall indicate (i) the principal amount of the Notes that such holder is electing to have prepaid and (ii) the applicable Prepayment Price, as calculated pursuant to Section 3.5(a) above. In the event the Maker receives a Notice of Prepayment at Option of Holder Upon Change of Control from more than one Holder of the Notes and the Maker can prepay some, but not all, of the Notes pursuant to this Section 3.5, the Maker shall prepay from each Holder of the Notes electing to have its Notes prepaid at such time an amount equal to such Holder’s pro-rata amount (based on the principal amount of the Notes held by such Holder relative to the principal amount of the Notes outstanding) of all the Notes being prepaid at such time.  The Company shall provide the Holders written notice within one (1) Trading Day from the date that it received written notice from the Holders of at least a majority of the combined principal amount of the then outstanding I Notes, including the I Notes that have been issued by way of payment of interest in kind and the I Notes issuable upon exercise of the Purchase Options declaring that a Change of Control has occurred.

 

  

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(c)           Mechanics of Prepayment at Option of Holder Upon Other Event of Default.  Within one (1) Trading Day after the occurrence of an Event of Default other than a Change of Control, the Maker shall deliver written notice thereof via facsimile and overnight courier (“Notice of Event of Default”) to each Holder of the Notes.  At any time after the earlier of a Holder’s receipt of a Notice of Event of Default and such Holder becoming aware of an Event of Default, any Holder of this Note may, after receiving a written notice from the Company indicating that the Company received written notice from the Holders of at least a majority of the combined principal amount of the then outstanding I Notes, including the I Notes that have been issued by way of payment of interest in kind and the I Notes issuable upon exercise of the Purchase Options (for clarity, the underlying I Notes of unexercised Purchase Options will be considered outstanding for purposes of this section), but excluding, in all instances, all Notes issued for consideration other than cash (and additionally excluding all Notes: (i) issued by way of payment of interest in kind upon such Notes issued for consideration other than cash, and (ii) potentially issuable upon exercise of the Purchase Option related to such Notes issued for consideration other than cash), declaring that an Event of Default has occurred and that the Holders may exercise their rights under this Section 3.5(c), require the Maker to prepay all (but not less than all) of the Notes held by such Holder by delivering written notice thereof via facsimile and overnight courier (“Notice of Prepayment at Option of Holder Upon Event of Default”) to the Maker, which Notice of Prepayment at Option of Holder Upon Event of Default shall indicate the applicable Prepayment Price, as calculated pursuant to Section 3.5(a) above. In the event the Maker receives a Notice of Prepayment at Option of Holder Upon Event of Default from more than one Holder of the Notes and the Maker can prepay some, but not all, of the Notes pursuant to this Section 3.5, the Maker shall prepay from each Holder of the Notes electing to have its Notes prepaid at such time an amount equal to such Holder’s pro-rata amount (based on the principal amount of the Notes held by such Holder relative to the principal amount of the Notes outstanding) of all the Notes being prepaid at such time.

 

  

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(d)           Payment of Prepayment Price. Upon the Maker’s receipt of a Notice(s) of Prepayment at Option of Holder Upon Event of Default or a Notice(s) of Prepayment at Option of Holder Upon Change of Control from any Holder of the Notes, the Maker shall immediately notify each holder of the Notes by facsimile of the Maker’s receipt of such Notice(s) of Prepayment at Option of Holder Upon Event of Default or Notice(s) of Prepayment at Option of Holder Upon Change of Control and each holder which has sent such a notice shall promptly submit to the Maker such holder’s original Notes that are to be prepaid. The Maker shall deliver the applicable Prepayment Price, in the case of a prepayment pursuant to Section 3.5(c) hereof, to such holder within five (5) Trading Days after the Maker’s receipt of a Notice of Prepayment at Option of Holder Upon Event of Default and, in the case of a prepayment pursuant to Section 3.5(b) hereof, the Maker shall deliver the applicable Prepayment Price immediately prior to the consummation of the Change of Control; provided that a holder’s original Note shall have been so delivered to the Maker; provided further that if the Maker is unable to prepay all of the Notes to be prepaid, the Maker shall prepay an amount from each holder of the Notes being prepaid equal to such holder’s pro-rata amount (based on the number of Notes held by such holder relative to the number of Notes outstanding) of all Notes being prepaid.  If the Maker shall fail to prepay all of the Notes submitted for prepayment (including as a result of a dispute as to the calculation of the Prepayment Price), in addition to any remedy such holder of the Notes may have under this Note and the Purchase Agreement, the applicable Prepayment Price payable in respect of such Notes not prepaid shall bear interest at the rate of two percent (2%) per month (prorated for partial months) until paid in full.  Until the Maker pays such unpaid applicable Prepayment Price in full to a holder of the Notes submitted for prepayment, such holder shall have the option to, in lieu of prepayment, require the Maker to promptly return to such holder(s) all of the Notes that were submitted for prepayment by such holder(s) under this Section 3.5 and for which the applicable Prepayment Price has not been paid, by sending written notice thereof to the Maker via facsimile (the “Void Optional Prepayment Notice”).  Maker shall promptly send a copy of such Void Optional Prepayment Notice to each of the Other Holders. Upon the Maker’s receipt of such Void Optional Prepayment Notice(s) and prior to payment of the full applicable Prepayment Price to such holder, (i) the Notice(s) of Prepayment at Option of Holder Upon Event of Default or the Notice(s) of Prepayment at Option of Holder Upon Change of Control, as the case may be, shall be null and void with respect to those Notes submitted for prepayment and for which the applicable Prepayment Price has not been paid; (ii) the Maker shall immediately return any Notes submitted to the Maker by each holder for prepayment under this Section 3.5(d) and for which the applicable Prepayment Price has not been paid; and (iii) the Conversion Price of such returned Notes shall be adjusted to the lesser of (A) the Conversion Price as in effect on the date on which the Void Optional Prepayment Notice(s) is delivered to the Maker and (B) the lowest Daily Closing Price during the period beginning on the date on which the Notice(s) of Prepayment of Option of Holder Upon Change of Control or the Notice(s) of Prepayment at Option of Holder Upon Event of Default, as the case may be, is delivered to the Maker and ending on the date on which the Void Optional Prepayment Notice(s) is delivered to the Maker; provided that no adjustment shall be made if such adjustment would result in an increase of the Conversion Price then in effect.  A holder’s delivery of a Void Optional Prepayment Notice and exercise of its rights following such notice shall not affect the Maker’s obligations to make any payments which have accrued prior to the date of such notice. Payments provided for in this Section 3.5 shall have priority to payments to other creditors and stockholders in connection with a Change of Control.

 

  

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3.6           Inability to Fully Convert.

 

(a)           Holder’s Option if Maker Cannot Fully Convert. If, upon the Maker’s receipt of a Conversion Notice, the Maker cannot issue shares of Common Stock for any reason, including, without limitation, because the Maker (x) does not have a sufficient number of shares of Common Stock authorized and available or (y) is otherwise prohibited by applicable law or by the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Maker or any of its securities from issuing all of the Common Stock which is to be issued to the Holder pursuant to a Conversion Notice, then the Maker shall issue as many shares of Common Stock as it is able to issue in accordance with the Holder’s Conversion Notice and, with respect to the unconverted portion of this Note, the Holder, solely at Holder’s option, can elect to:

 

(i)           require the Maker to prepay that portion of this Note for which the Maker is unable to issue Common Stock in accordance with the Holder’s Conversion Notice (the “Mandatory Prepayment”) at a price equal to the Prepayment Price as of such Conversion Date (the “Mandatory Prepayment Price”);

 

(ii)          void its Conversion Notice and retain or have returned, as the case may be, this Note that was to be converted pursuant to the Conversion Notice (provided that the Holder’s voiding its Conversion Notice shall not effect the Maker’s obligations to make any payments which have accrued prior to the date of such notice); or

 

(iii)         exercise its Buy-In rights pursuant to and in accordance with the terms and provisions of Section 3.2(c) of this Note.

 

  

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(b)           Mechanics of Fulfilling Holder’s Election. The Maker shall immediately send via facsimile to the Holder and to each of the Other Holders, upon receipt of a facsimile copy of a Conversion Notice from the Holder, which cannot be fully satisfied as described in Section 3.6(a) above, a notice of the Maker’s inability to fully satisfy the Conversion Notice (the “Inability to Fully Convert Notice”).  Such Inability to Fully Convert Notice shall indicate (i) the reason why the Maker is unable to fully satisfy such holder’s Conversion Notice; (ii) the amount of this Note which cannot be converted; and (iii) the applicable Mandatory Prepayment Price. The Holder shall notify the Maker of its election pursuant to Section 3.7(a) above by delivering written notice via facsimile to the Maker (“Notice in Response to Inability to Convert”). Maker shall promptly deliver a copy of such Notice in Response to Inability to Convert to each of the Other Holders.

 

(c)           Payment of Prepayment Price. If the Holder shall elect to have its Notes prepaid pursuant to Section 3.6(a)(i) above, the Maker shall pay the Mandatory Prepayment Price to the Holder within three (3) days of the Maker’s receipt of the Holder’s Notice in Response to Inability to Convert;  provided  that prior to the Maker’s receipt of the Holder’s Notice in Response to Inability to Convert the Maker has not delivered a notice to the Holder stating, to the satisfaction of the Holder, that the event or condition resulting in the Mandatory Prepayment has been cured and all Conversion Shares issuable to the Holder can and will be delivered to the Holder in accordance with the terms of this Note.  If the Maker shall fail to pay the applicable Mandatory Prepayment Price to the Holder on the date that is one (1) Trading Day following the Maker’s receipt of the Holder’s Notice in Response to Inability to Convert (including as a result of a dispute as to the determination of the calculation of the Prepayment Price), in addition to any remedy the Holder may have under this Note and the Purchase Agreement, such unpaid amount shall bear interest at the rate of two percent (2%) per month (prorated for partial months) until paid in full. Until the full Mandatory Prepayment Price is paid in full to the Holder, the Holder may (i) void the Mandatory Prepayment with respect to that portion of the Note for which the full Mandatory Prepayment Price has not been paid; (ii) receive back such Note; and (iii) require that the Conversion Price of such returned Note be adjusted to the lesser of (A) the Conversion Price as in effect on the date on which the Holder voided the Mandatory Prepayment and (B) the lowest Daily Closing Price during the period beginning on the Conversion Date and ending on the date the Holder voided the Mandatory Prepayment.

 

(d)           Pro-rata Conversion and Prepayment. In the event the Maker receives a Conversion Notice from more than one holder of the Notes on the same day and the Maker can convert and prepay some, but not all, of the Notes pursuant to this Section 3.6, the Maker shall convert and prepay from each holder of the Notes electing to have its Notes converted and prepaid at such time an amount equal to such holder’s pro-rata amount (based on the principal amount of the Notes held by such holder relative to the principal amount of the Notes outstanding) of all the Notes being converted and prepaid at such time.

 

(e)           No Rights as Stockholder. Nothing contained in this Note shall be construed as conferring upon the Holder, prior to the conversion of this Note, the right to vote or to receive dividends or to consent or to receive notice as a stockholder in respect of any meeting of stockholders for the election of directors of the Maker or of any other matter, or any other rights as a stockholder of the Maker.

 

  

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ARTICLE 4

 

4.1           Covenants. For so long as any Note is outstanding, without the prior written consent of the Requisite Purchasers:

 

(a)           Compliance with Transaction Documents. The Maker shall, and shall cause its Subsidiaries to, comply with its obligations under this Note, the Notes and the other Transaction Documents.

 

(b)           Payment of Taxes, Etc. The Maker shall, and shall cause each of its Subsidiaries to, promptly pay and discharge, or cause to be paid and discharged, when due and payable, all lawful taxes, assessments and governmental charges or levies imposed upon the income, profits, property or business of the Maker and the Subsidiaries, except for such failures to pay that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect; provided, however , that any such tax, assessment, charge or levy need not be paid if the validity thereof shall currently be contested in good faith by appropriate proceedings and if the Maker or such Subsidiaries shall have set aside on its books adequate reserves with respect thereto, and provided, further, that the Maker and such Subsidiaries will pay all such taxes, assessments, charges or levies forthwith upon the commencement of proceedings to foreclose any lien which may have attached as security therefor.

 

(c)           Corporate Existence. The Maker shall, and shall cause each of its Subsidiaries to, maintain in full force and effect its corporate existence, rights and franchises and all licenses and other rights to use property owned or possessed by it and reasonably deemed to be necessary to the conduct of its business.

 

(d)           Investment Company Act. The Maker shall conduct its businesses in a manner so that it will not become subject to the Investment Company Act of 1940, as amended.

 

(e)           Sale of Collateral; Liens.  From the date hereof until the full release of the security interest in the Collateral, (i) Maker shall not sell, lease, transfer or otherwise dispose of any of the Collateral, or attempt or contract to do so; and (ii) Maker shall not, directly or indirectly, create, permit or suffer to exist, and shall defend the Collateral against and take such other action as is necessary to remove, any lien, security interest or other encumbrance on the Collateral (except for the pledge, assignment and security interest created under the Security Agreement and Permitted Liens (as defined in the Security Agreement)); notwithstanding the foregoing, Maker shall be able to take such actions with the Collateral as may be necessary to allow the Maker to be able to enter into a strategic alliance or partnership  (x) with respect to any product candidate other than Tesetaxel in any jurisdiction, (y) with respect to Tesetaxel in any jurisdiction other than the United States, European Union countries, China and Japan (the “Restricted Territories”), and (z) with respect to Tesetaxel in the Restricted Territories only in conjunction with the occurrence of a Release Event (as defined in the Lock-Up Agreement).

 

  

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(f)           Financing.  The Maker shall not enter into any capital-raising agreement for any securities that rank senior or pari passu to the I Notes without the consent of the Holders of at least a majority of the combined principal amount of the then outstanding I Notes, including the I Notes that have been issued by way of payment of interest in kind and the I Notes issuable upon exercise of the Purchase Options (for clarity, the underlying I Notes of unexercised Purchase Options will be considered outstanding for purposes of this section), but excluding, in all instances, all Notes issued for consideration other than cash (and additionally excluding all Notes: (i) issued by way of payment of interest in kind upon such Notes issued for consideration other than cash, and (ii) potentially issuable upon exercise of the Purchase Option related to such Notes issued for consideration other than cash).

 

ARTICLE 5

 

5.1           Notices. Any notice, demand, request, waiver or other communication required or permitted to be given hereunder shall be in writing and shall be effective (a) upon hand delivery, by telecopy, facsimile or electronic transmission to the address(es) or number designated in the Purchase Agreement (if delivered on a Trading Day during normal business hours where such notice is to be received), or the first Trading Day following such delivery (if delivered other than on a Trading Day during normal business hours where such notice is to be received) or (b) on the second Trading Day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The Maker will give written notice to the Holder at least ten (10) days prior to the date on which the Maker takes a record (x) with respect to any dividend or distribution upon the Common Stock; (y) with respect to any pro rata subscription offer to holders of Common Stock; or (z) for determining rights to vote with respect to any Change of Control, dissolution, liquidation or winding-up and in no event shall such notice be provided to such holder prior to such information being made known to the public. The Maker will also give written notice to the Holder at least ten (10) days prior to the date on which any Change of Control, dissolution, liquidation or winding-up will take place and in no event shall such notice be provided to the Holder prior to such information being made known to the public. The Maker shall promptly notify the Holder of this Note of any notices sent or received, or any actions taken with respect to the Notes.

 

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

 

5.3           Headings. Article and section headings in this Note are included herein for purposes of convenience of reference only and shall not constitute a part of this Note for any other purpose.

 

  

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5.4           Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note, at law or in equity (including, without limitation, a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit a holder’s right to pursue actual damages for any failure by the Maker to comply with the terms of this Note. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the holder thereof and shall not, except as expressly provided herein, be subject to any other obligation of the Maker (or the performance thereof).  The Maker acknowledges that a breach by it of its obligations hereunder will cause irreparable and material harm to the Holder and that the remedy at law for any such breach would be inadequate. Therefore the Maker agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available rights and remedies, at law or in equity, to equitable relief, including but not limited to an injunction restraining any such breach or threatened breach, without the necessity of showing economic loss and without any bond or other security being required.

 

5.5           Enforcement Expenses. The Maker agrees to pay all costs and expenses of enforcement of this Note, including, without limitation, reasonable attorneys’ fees and expenses.

 

5.6           Binding Effect.  The obligations of the Maker and the Holder set forth herein shall be binding upon the successors and assigns of each such party, whether or not such successors or assigns are permitted by the terms herein.

 

5.7           Amendments.  No provision of the I Notes may be modified or amended on behalf of all of the Holders holding I Notes other than by a written instrument signed by the Maker and the Holders of at least a majority of the combined principal amount of the then outstanding I Notes, including the I Notes that have been issued by way of payment of interest in kind and the I Notes issuable upon exercise of the Purchase Options (for clarity, the underlying I Notes of unexercised Purchase Options will be considered outstanding for purposes of this section), but excluding, in all instances, all Notes issued for consideration other than cash (and additionally excluding all Notes: (i) issued by way of payment of interest in kind upon such Notes issued for consideration other than cash, and (ii) potentially issuable upon exercise of the Purchase Option related to such Notes issued for consideration other than cash); provided that if any of the rights of the Holder under this Note are materially diminished by such waiver or amendment in a manner that is not similar in all material respects to the affect on the rights or obligations of Other Holders holding I Notes under the I Notes, then such waiver or amendment shall not be effective with respect to the Holder without the written consent of the Holder.  The Holder acknowledges that any amendment or modification made in compliance with this Section 5.7 shall be binding on all Holders of the I Notes, including, without limitation, an amendment or modification that has an adverse effect on any or all Holders.  Notwithstanding the foregoing, nothing provided in this Section 5.7 shall limit the Holder’s right to waive or amend any provision of this Note on its own behalf.

 

5.8           Compliance with Securities Laws. The Holder of this Note acknowledges that this Note is being acquired solely for the Holder’s own account and not as a nominee for any other party, and for investment, and that the Holder shall not offer, sell or otherwise dispose of this Note in violation of securities laws. This Note and any Note issued in substitution or replacement therefor shall be stamped or imprinted with a legend in substantially the following form:

 

“THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS.”

 

  

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5.9           Consent to Jurisdiction. Each of the Maker and the Holder (i) hereby irrevocably submits to the exclusive jurisdiction of the United States District Court sitting in the Southern District of New York and the courts of the State of New York located in New York county for the purposes of any suit, action or proceeding arising out of or relating to this Note and (ii) hereby waives, and agrees not to assert in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper. Each of the Maker and the Holder consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under the Purchase Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing in this Section 5.9 shall affect or limit any right to serve process in any other manner permitted by law. Each of the Maker and the Holder hereby agree that the prevailing party in any suit, action or proceeding arising out of or relating to this Note shall be entitled to reimbursement for reasonable legal fees from the non-prevailing party.

 

5.10         Parties in Interest. This Note shall be binding upon, inure to the benefit of and be enforceable by the Maker, the Holder and their respective successors and permitted assigns.

 

5.11         Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.

 

5.12         Maker Waivers; Dispute Resolution. Except as otherwise specifically provided herein, the Maker and all others that may become liable for all or any part of the obligations evidenced by this Note, hereby waive presentment, demand, notice of nonpayment, protest and all other demands’ and notices in connection with the delivery, acceptance, performance and enforcement of this Note, and do hereby consent to any number of renewals of extensions of the time or payment hereof and agree that any such renewals or extensions may be made without notice to any such persons and without affecting their liability herein and do further consent to the release of any person liable hereon, all without affecting the liability of the other persons, firms or Maker liable for the payment of this Note, AND DO HEREBY WAIVE TRIAL BY JURY.

 

(a)           No delay or omission on the part of the Holder in exercising its rights under this Note, or course of conduct relating hereto, shall operate as a waiver of such rights or any other right of the Holder, nor shall any waiver by the Holder of any such right or rights on any one occasion be deemed a waiver of the same right or rights on any future occasion.

 

  

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(b)           THE MAKER ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS NOTE IS A PART IS A COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED BY APPLICABLE LAW, HEREBY WAIVES ITS RIGHT TO NOTICE AND HEARING WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE HOLDER OR ITS SUCCESSORS OR ASSIGNS MAY DESIRE TO USE.

 

(c)           In the case of a dispute as to the determination of the Daily Closing Price or the VWCP or the arithmetic calculation of the Conversion Price, any adjustment to the Conversion Price, liquidated damages amount, interest or dividend calculation, or any redemption price, redemption amount, adjusted Conversion Price, or similar calculation, or as to whether a subsequent issuance of securities is prohibited hereunder or would lead to an adjustment to the Conversion Price, the Maker shall submit the disputed determinations or arithmetic calculations via facsimile within two (2) Trading Days of receipt, or deemed receipt, of the Conversion Notice, any redemption notice, default notice or other event giving rise to such dispute, as the case may be, to the Holder.  If the Holder and the Maker are unable to agree upon such determination or calculation within two (2) Trading Days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Maker shall, within two (2) Trading Days submit via facsimile: (a) the disputed determination of the Daily Closing Price or the VWCP to an independent, reputable investment bank selected by the Maker and approved by the Holder, which approval shall not be unreasonably withheld; (b) the disputed arithmetic calculation of the Conversion Price, adjusted Conversion Price or any redemption price, redemption amount or default amount to the Maker’s independent, outside accountant; or (c) the disputed facts regarding whether a subsequent issuance of securities is prohibited hereunder or would lead to an adjustment to the Conversion Price (or any of the other above described facts not expressly designated to the investment bank or accountant), to an expert attorney from a nationally recognized outside law firm (having at least one hundred (100) attorneys and having with no prior relationship with the Maker) selected by the Maker and approved by the Lead Purchaser (as defined in the Purchase Agreement).  The Maker, at the Maker’s expense, shall cause the investment bank, the accountant, the law firm, or other expert, as the case may be, to perform the determinations or calculations and notify the Maker and the Holder of the results no later than five (5) Trading Days from the time it receives the disputed determinations or calculations. Such investment bank’s, accountant’s or attorney’s determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.

 

5.13        Definitions. Capitalized terms used herein and not defined shall have the meanings set forth in the Purchase Agreement.  For the purposes hereof, the following terms shall have the following meanings:

 

(a)           “Affiliate” means any Person directly or indirectly controlling, controlled by, or under direct or indirect common control with another Person. A Person shall be deemed to be “controlled by” any other Person if such other Person possesses, directly or indirectly, power (a) to vote ten percent (10%) or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors or managing general partners; or (b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise.

 

  

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(b)           “Daily Closing Price” means, on any particular date: (i) the last trading price per share of the Common Stock on such date during regular trading hours on the principal Trading Market on which the Common Stock is then listed, or if there is no such price on such date, then the last trading price during regular trading hours on such Trading Market on the date nearest preceding such date; or (ii) if the Common Stock is not listed then on a Trading Market, the last trading price for a share of Common Stock in the over-the-counter market during regular trading hours, as reported in the National Quotation Bureau Incorporated or similar organization or agency succeeding to its functions of reporting prices at the close of business on such date; or (iii) if the Common Stock is not then reported by the National Quotation Bureau Incorporated (or similar organization or agency succeeding to its functions of reporting prices), then the average of the “Pink Sheet” quotes on such date, as determined in good faith by the Holder; or (iv) if the Common Stock is not then publicly traded, the fair market value of a share of Common Stock as determined by the Holder and reasonably acceptable to the Maker.

 

(c)           “Equity Conditions” means, during the period in question: (i) the Maker shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Conversion Notices of the Holder, if any; (ii) all liquidated damages and other amounts owing to the Holder in respect of this Note shall have been paid; (iii) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are eligible for trading on a Trading Market (and the Maker believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future); (iv) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the shares then issuable pursuant to the Transaction Documents (disregarding any limitations on issuance or conversion contained in such documents); (v) there is then existing no Event of Default or event which, with the passage of time or the giving of notice, would constitute an Event of Default;  and (vi) no public announcement of a pending or proposed Change of Control has occurred.

 

(d)           “Indebtedness” means: (a) all obligations for borrowed money; (b) all obligations evidenced by bonds, debentures, notes, or other similar instruments and all reimbursement or other obligations in respect of letters of credit, bankers acceptances, current swap agreements, interest rate hedging agreements, interest rate swaps, or other financial products; (c) all capital lease obligations that exceed $50,000 in the aggregate in any fiscal year; (d) all obligations or liabilities secured by a lien or encumbrance on any asset of the Maker, irrespective of whether such obligation or liability is assumed; (e) all obligations for the deferred purchase price of assets, together with trade debt and other accounts payable that exceed $50,000 in the aggregate in any fiscal year; (f) all synthetic leases; (g) any obligation guaranteeing or intended to guarantee (whether directly or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse) any of the foregoing obligations of any other person; (h) trade debt; and (i) endorsements for collection or deposit.

 

(e)           “Investment” means, with respect to any Person, all investments in any other Person, whether by way of extension of credit, loan, advance, purchase of stock or other ownership interest (other than ownership interests in such Person), bonds, notes, debentures or other securities, or otherwise, and whether existing on the Issuance Date or thereafter made, but such term shall not include the cash surrender value of life insurance policies on the lives of officers or employees, excluding amounts due from customers for services or products delivered or sold in the ordinary course of business.

 

  

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

 

(g)           “Tradable” with respect to any shares of Common Stock as of any time means that as of such time :(i) such shares shall be held, or eligible to be held, in an account on behalf of the Holder at the DTC; (ii) there shall be no SEC or judicial stop trade order or trading suspension stop-order or any restriction in place with the transfer agent for the Common Stock with restricting the trading of such Common Stock; and (iii) such shares shall be then eligible under all applicable federal and state securities laws for immediate resale to the public without volume, manner of sale, holding period, prospectus delivery, filing, registration, qualification or other limitations, requirements or restrictions.

 

(h)           “Trading Day” means (a) a day on which the Common Stock is traded on a Trading Market; or (b) if the Common Stock is not traded on a Trading Market, a day on which the Common Stock is quoted in the over-the-counter market as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding its functions of reporting prices);  provided, however , that in the event that the Common Stock is not listed or quoted as set forth in (a) or (b) hereof, then Trading Day shall mean any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or other government action to close.

 

(i)           “Trading Market” means the OTC Bulletin Board, the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market, the New York Stock Exchange (“NYSE”), the NYSE Amex Equities or the OTC Markets, Inc., or any successor markets thereto.

 

(j)           “VWCP” means, for any specified period of consecutive Trading Days, the quotient of: (i) the sum of the individual products, calculated for each Trading Day within such period, of (A) the Daily Closing Price for such Trading Day in such specified period multiplied by (B) the trading volume for the Common Stock for such Trading Day in such specified period as reported by the Trading Market, National Quotation Bureau Incorporated or other reporting organization or agency, as applicable, and (ii) the total aggregate trading volume for the Common Stock for all Trading Days in such specified period, as reported by the Trading Market, National Quotation Bureau Incorporated or other reporting organization or agency, as applicable.

 

[Signature Pages Follow]

 

  

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IN WITNESS WHEREOF, the Maker has caused this Note to be duly executed by its duly authorized officer as of the date first above indicated.

 

	 	

GENTA INCORPORATED

	 
	 	 	 	 
	 	 	 	 
	
 

	
By: 

	/s/ 	 
	 	 	

Name: Gary Siegel

	 
	 	 	

Title: Vice President, Finance

	 

  

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EXHIBIT A

WIRE INSTRUCTIONS

 

Payee:                                                                                                                             

 

Bank:                                                                                                                              

 

Address:                                                                                                                            

 

                                                                                                                                         

 

Bank No.:                                                                                                                       

 

Account No.:                                                                                                                

 

Account Name:                                                                                                             

                   

  

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FORM OF

 

NOTICE OF CONVERSION

 

 (To be Executed by the Registered Holder in order to Convert the Note)

 

The undersigned hereby irrevocably elects to convert $ ________________ of the principal amount of the above Note No. ___ into shares of Common Stock of Genta Incorporated (the “Maker”) according to the conditions hereof, as of the date written below.

 

	Date of Conversion	 

 

	Applicable Conversion Price	 

 

Number of shares of Common Stock beneficially owned or deemed beneficially owned by the Holder on the Date of Conversion: _________________________

 

	Signature	 

[Name]

 

	Address:	 
	 	 
	 	 

 

 

31ex10-1.htm

Exhibit 10.1

 

 

 

 

 

SECURITIES PURCHASE

 

AGREEMENT

 

Dated as of March 28, 2012

 

by and among

 

GENTA INCORPORATED

 

and

 

THE PURCHASERS LISTED ON EXHIBIT A

 

  

  

  

 

SECURITIES PURCHASE AGREEMENT

 

This SECURITIES PURCHASE AGREEMENT (this “Agreement”) dated as of March 28, 2012 (the “Effective Date”) by and among Genta Incorporated, a Delaware corporation (the “Company”), and each of the purchasers of the senior secured convertible promissory notes of the Company whose names are set forth on Exhibit A attached hereto (each a “Purchaser” and collectively, the “Purchasers”).

 

The parties hereto agree as follows:

 

ARTICLE 1

 

PURCHASE AND SALE OF NOTES

 

1.1           Purchase and Sale of Notes.  Upon the following terms and conditions, the Company shall issue and sell to the Purchasers, and the Purchasers shall purchase from the Company, 6.00% senior secured convertible promissory notes due March 30, 2022 convertible into shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), in substantially the form attached hereto as Exhibit B (the “I Notes”), in an aggregate amount of up to $13,500,000, such amount to be paid in cash and other forms of consideration approved by the board of directors of the Company (the “Purchase Price”).  The I Notes issued at the First Closing (as defined in Section 1.2(a)) shall be collectively referred to herein as the “First Closing Notes,” any additional I Notes issued upon exercise of the Purchase Option (as defined in Section 1.2(b)) shall be collectively referred to herein as the “Additional Closing Notes” and the First Closing Notes together with Additional Closing Notes, as well as additional notes issued thereon as payment in kind, shall be collectively referred to herein as the “Notes.”  Any shares of Common Stock issuable upon conversion or otherwise in respect of the Notes are herein referred to as the “Conversion Shares.”  The Notes, the Purchase Option and the Conversion Shares are sometimes collectively referred to herein as the “Securities.”  The Company and the Purchasers are executing and delivering this Agreement in accordance with and in reliance upon the exemption from securities registration afforded by Section 4(2) of the U.S. Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the “Securities Act”), including Regulation D (“Regulation D”), and/or upon such other exemption from the registration requirements of the Securities Act as may be available with respect to any or all of the investments to be made hereunder.

 

1.2           Closing.

 

(a)           The first closing under this Agreement (the “First Closing”) shall take place on or before March 30, 2012 (the “First Closing Date”), provided, that all of the conditions set forth in Article 4 hereof and applicable to the First Closing have been fulfilled or waived in accordance herewith.  The First Closing shall take place at the offices of Tang Capital Partners, LP (the “Lead Purchaser”), 4747 Executive Drive, Suite 510, San Diego, CA 92121 at 10:00 a.m. Pacific Time, or at such other time and place as the parties may agree.  Subject to the terms and conditions of this Agreement, at the First Closing, the Purchasers shall purchase and the Company shall issue and deliver or cause to be delivered to each Purchaser I Notes for the principal amount set forth opposite the name of such Purchaser on Exhibit A hereto.

 

  

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(b)           For purposes of this Agreement, “Expiration Date” shall mean the date that is five (5) years from the First Closing Date.  At any time and from time to time on or prior to the Expiration Date, each of the Purchasers shall have the option (the “Purchase Option”), in each such Purchaser’s sole discretion, to purchase additional I Notes up to the amount set forth opposite such Purchaser’s name on Exhibit A in one or more closings (each an “Additional Closing”, and along with the First Closing, each a “Closing”) at such time the Purchaser chooses (an “Additional Closing Date”, and along with the First Closing Date, each a “Closing Date”).  The issuance of such additional I Notes at any Additional Closing, shall be made on the terms and conditions set forth in this Agreement, and the representations and warranties of the Company set forth in Article 2 and the representations and warranties of such Purchaser in Article 2 hereof shall speak as of the date of such Additional Closing.  Any I Notes issued pursuant to this Section 1.2(b) shall be deemed to be “Notes” for all purposes under this Agreement.

 

1.3           Closing Deliveries.  Subject to, and in accordance with the terms hereof, and upon the express fulfillment or waiver of each of the conditions set forth in this Agreement, at each Closing:

 

(a)           each Purchaser shall deliver the applicable portion of the Purchase Price by wire transfer of immediately available funds to the Company, or such other consideration as may be mutually agreed upon by the Company and each Purchaser; and

 

(b)           the Company shall issue and deliver or cause to be delivered to each Purchaser an I Note in the principal amount equal to the portion of the Purchase Price paid by such Purchaser for such I Note.

 

ARTICLE 2

 

REPRESENTATIONS AND WARRANTIES

 

2.1           Representations and Warranties of the Company.  The Company hereby represents and warrants to the Purchasers, as of the Effective Date and each Closing (except as set forth in the Public Filings (as defined below) or as otherwise set forth on Schedule I attached hereto with each numbered schedule thereof corresponding to the section number herein (the “Schedule of Exceptions”, it being acknowledged and agreed by each of the parties hereto that, in connection with the consummation of any such Additional Closing, the Company shall have the right, but not the obligation, to update such Schedule of Exceptions), as follows:

 

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

 

  

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

 

(c)           Capitalization.  The authorized capital stock and the issued and outstanding shares of capital stock of the Company as of the Closing Date is set forth on Schedule 2.1(c) hereto.  All of the outstanding shares of the Common Stock and any other outstanding security of the Company have been duly and validly authorized.  Except as set forth in this Agreement, the Public Filings (as defined in Section 2.1(f)) or as set forth on Schedule 2.1(c) hereto, no shares of Common Stock or any other security of the Company are entitled to preemptive rights or registration rights and there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company.  Furthermore, except as set forth in this Agreement and as set forth on Schedule 2.1(c) hereto, there are no equity plans, contracts, commitments, understandings, or arrangements by which the Company is or may become bound to issue additional shares of the capital stock of the Company or options, securities or rights convertible into shares of capital stock of the Company.  Except for customary transfer restrictions contained in agreements entered into by the Company in order to sell restricted securities or as provided on Schedule 2.1(c) hereto, the Company is not a party to or bound by any agreement or understanding granting registration or anti-dilution rights to any person with respect to any of its equity or debt securities.  Except as set forth on Schedule 2.1(c), the Company is not a party to, and it has no knowledge of, any agreement or understanding restricting the voting or transfer of any shares of the capital stock of the Company.  The Company has not made any representations regarding equity incentives to any officer, employee, director or consultant that are not disclosed in the Public Filings.

 

  

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

 

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

 

  

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

 

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

 

  

5

  

 

(h)           No Material Adverse Change.  Since the last day of the most recently ended period in respect of which a third party audit of the Company and its subsidiaries was performed (the “Most Recent Audit Date”), the Company has not experienced or suffered any Material Adverse Effect, except as disclosed on Schedule 2.1(h) hereto.

 

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

 

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

 

(k)          Indebtedness.  Schedule 2.1(k) hereto sets forth, as of the Closing, all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments.  For the purposes of this Agreement, “Indebtedness” shall include, without limitation: (i) any liabilities for borrowed money or other amounts owed; (ii) all guaranties, endorsements and other contingent obligations in respect of Indebtedness of others, whether or not the same are or should be reflected in the Company’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (iii) all leases required to be capitalized in accordance with GAAP.  Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.

 

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

 

  

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

 

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

 

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

 

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

 

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

 

  

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

 

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

 

  

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(t)           Books and Records; Internal Accounting Controls.  The records and documents of the Company and its Subsidiaries accurately reflect in all material respects the information relating to the business of the Company and the Subsidiaries, the location and collection of their assets, and the nature of all transactions giving rise to the obligations or accounts receivable of the Company or any Subsidiary.  The Company is in material compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing Date.  The Company and its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.  The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.  The Company’s certifying officers have evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by the Company’s most recently filed periodic report under the Exchange Act (such date, the “Evaluation Date”).  The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date.  Since the Evaluation Date, there have been no changes in the Company’s internal control over financial reporting (as such term is defined in the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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

 

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

 

  

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

  

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

  

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(aa)         Independent Nature of Purchasers.  The Company acknowledges that the obligations of each Purchaser under the Transaction Documents are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under the Transaction Documents.  The Company acknowledges that the decision of each Purchaser to purchase Notes and Purchase Options pursuant to this Agreement has been made by such Purchaser independently of any other purchase and independently of any information, materials, statements or opinions as to the business, affairs, operations, assets, properties, liabilities, results of operations, condition (financial or otherwise) or prospects of the Company or of its Subsidiaries which may have made or given by any other Purchaser or by any agent or employee of any other Purchaser, and no Purchaser or any of its agents or employees shall have any liability to any Purchaser (or any other person) relating to or arising from any such information, materials, statements or opinions.  The Company acknowledges that nothing contained herein, or in any Transaction Document, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents.  The Company acknowledges that for reasons of administrative convenience only, the Transaction Documents have been prepared by counsel for one of the Purchasers and such counsel does not represent all of the Purchasers but only such Purchaser and the other Purchasers have retained their own individual counsel with respect to the transactions contemplated hereby.  The Company acknowledges that it has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by the Purchasers.  The Company acknowledges that such procedure with respect to the Transaction Documents in no way creates a presumption that the Purchasers are in any way acting in concert or as a group with respect to the Transaction Documents or the transactions contemplated hereby or thereby.  The Company acknowledges that each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose.

 

(bb)         No Integrated Offering.  Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would cause the offering of the Notes and the Purchase Options pursuant to this Agreement to be integrated with prior offerings by the Company for purposes of the Securities Act which would prevent the Company from selling the Securities pursuant to Regulation D and Rule 506 thereof under the Securities Act nor will the Company or any of its affiliates or subsidiaries take any action or steps that would cause the offering of the Securities to be integrated with other offerings if to do so would prevent the Company from selling Securities pursuant to Regulation D and Rule 506 thereof under the Securities Act or otherwise prevent a completed offering of Securities hereunder.  Except as set forth on Schedule 2.1(bb) hereto, the Company does not have any registration statement pending before the SEC or currently under the SEC’s review and since the Most Recent Audit Date, the Company has not offered or sold any of its equity securities or debt securities convertible into shares of Common Stock.

 

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

 

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

 

  

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

 

(ff)           Insurance.  The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged.  Neither the Company nor any such Subsidiary has been refused any insurance coverage sought or applied for and neither the Company nor any such Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect.

 

(gg)         Trading Activities.  Except as set forth herein or in the Notes, it is understood and acknowledged by the Company that none of the Purchasers have been asked to agree, nor has any Purchaser agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term.  The Company further understands and acknowledges that (i) one or more Purchasers may engage in hedging and/or trading activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Conversion Shares are being determined and (ii) such hedging and/or trading activities, if any, can reduce the value of the existing stockholders’ equity interest in the Company both at and after the time the hedging and/or trading activities are being conducted.  The Company acknowledges that such aforementioned hedging and/or trading activities, assuming such trading and hedging activities are in compliance with all applicable securities laws, do not constitute a breach of this Agreement, the Notes, the Purchase Options or any of the documents executed in connection herewith.

 

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

 

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

 

  

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(b)           Authorization and Power.  Each Purchaser has the requisite power and authority to enter into and perform this Agreement, the Amendment Agreement and the Security Agreement and to purchase the Securities being sold to it hereunder.  The execution, delivery and performance of this Agreement, the Amendment Agreement and the Security Agreement by each Purchaser and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate or partnership action, and no further consent or authorization of such Purchaser or its Board of Directors, stockholders, or partners, as the case may be, is required.  When executed and delivered by the Purchasers, this Agreement, the Amendment Agreement and the Security Agreement shall constitute valid and binding obligations of each Purchaser enforceable against such Purchaser in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, conservatorship, receivership or similar laws relating to, or affecting generally the enforcement of, creditor’s rights and remedies or by other equitable principles of general application.

 

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

 

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

 

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

 

  

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(f)           No General Solicitation.  Each Purchaser acknowledges that the Securities were not offered to such Purchaser by means of any form of general or public solicitation or general advertising, or publicly disseminated advertisements or sales literature, including (i) any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media, or broadcast over television or radio; or (ii) any seminar or meeting to which such Purchaser was invited by any of the foregoing means of communications.  Each Purchaser, in making the decision to purchase the Securities, has relied upon independent investigation made by it and has not relied on any information or representations made by third parties, and was not solicited through any pending registration statement of the Company described on Schedule 2.1(bb).

 

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

 

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

 

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

 

2.3           Outstanding Notes and Purchase Rights.  Each Purchaser represents and warrants that as of the Effective Date, such Purchaser holds the Company securities in the principal amounts set forth on such Purchaser’s signature page hereto.

 

ARTICLE 3

 

COVENANTS

 

Unless otherwise specified in this Article, for so long as any Notes or Purchase Options remain outstanding in whole or in part, the Company covenants with each Purchaser as follows, which covenants are for the benefit of each Purchaser and their respective permitted assignees:

 

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

 

  

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

 

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

 

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

 

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

 

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

 

(a)           Quarterly Reports on Form 10-Q (or an equivalent form), including financial statements, promptly following the end of each quarter, and in any event within 45 days of the end of each quarter, if such reports are no longer filed with the SEC or as soon as practical after the document is filed with the SEC, and in any event within five days after the document is filed with the SEC;

 

  

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(b)           Annual Reports on Form 10-K (or an equivalent form), including financial statements, promptly following the end of each year, and in any event within 90 days of the end of each year, if such reports are no longer filed with the SEC or as soon as practical after the document is filed with the SEC, and in any event within five days after the document is filed with the SEC; and

 

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

 

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

 

3.8           Use of Proceeds.  The proceeds from the sale of the Securities hereunder shall be used by the Company for general corporate purposes.  In no event shall the proceeds be used: (a) to redeem any Common Stock or securities convertible, exercisable or exchangeable into Common Stock, (b) other than in connection with the repayment of debt pursuant to its terms, (c) to settle any outstanding litigation in excess of $100,000 per occurrence or (d) to pay any portion of salary, wages, severance, bonuses, or accrued vacation to or for any employee of the Company or any of its subsidiaries in excess of amounts as in effect as of March 15, 2012 (including any deferred amounts).

 

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

 

3.10         Disclosure of Transaction.  The Company shall issue a press release describing the material terms of the transactions contemplated hereby (the “Press Release”) no later than 9:00 A.M. Eastern Time on the first Trading Day following the effective date of this Agreement.  The Company shall also file with the SEC, concurrently with the Press Release, a Current Report on Form 8-K (the “Form 8-K”) describing the material terms of the transactions contemplated hereby, which Press Release and Form 8-K shall be subject to prior review and comment by the Purchasers.  “Trading Day” means any day during which the principal exchange on which the Common Stock is traded shall be open for trading.  The Company acknowledges and represents to each Purchaser that upon the issuance and filing of the Press Release and the Form 8-K, none of the Purchasers will be in possession of material non-public information.

 

  

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

 

3.12         Pledge of Securities.  The Company acknowledges that the Securities may be pledged by a Purchaser in connection with a bona fide margin agreement or other loan or financing arrangement that is secured by the Securities.  The pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and no Purchaser effecting a pledge of the Securities shall be required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or any other Transaction Document; provided, that a Purchaser and its pledgee shall be required to comply with the provisions of Article 5 hereof in order to effect a sale, transfer or assignment of Securities to such pledgee.  At the Purchasers’ expense, the Company hereby agrees to execute and deliver such documentation as a pledgee of the Securities may reasonably request in connection with a pledge of the Securities to such pledgee by a Purchaser.

 

3.13         Amendments to Charter Documents.  The Company shall not, without the written consent of the Requisite Purchasers, amend or waive any provision of the Certificate or Bylaws of the Company in any way that would adversely affect exercise rights, voting rights, conversion rights, prepayment rights, redemption rights or other rights of the holder of the Securities.

 

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

 

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

 

3.16         Registration Priority.  The Company covenants and agrees that, prior to the one year anniversary of the First Closing Date, it shall not: (a) file a registration statement under the Securities Act relating to the sale of any securities of the Company; or (b) undertake any offering pursuant to any registration statement under the Securities Act, in each case other than any offering of Common Stock or options to employees, officers, directors, or consultants of the Company pursuant to any stock option plan duly adopted by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose, duly approved by the Company’s stockholders and described in the Public Filings.

 

  

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3.17         Subsequent Financings.

 

(a)           The Company covenants and agrees that so long any Notes or Purchase Options remain outstanding, without the written consent of the Requisite Purchasers, it will not enter into any capital raising transaction or offer to sell to, issue to or exchange with (or make any other type of distribution to) any third party any securities of the Company that rank senior to or pari passu to the Notes (a “Subsequent Financing”).

 

(b)           For purposes of this Agreement, a Subsequent Financing shall not include the issuance of any Securities under the terms of this Agreement or Transaction Documents (including in connection with any adjustments to the conversion price of any such Securities pursuant to their terms).

 

3.18         Lock-Up Agreement.  If, during the Lockup Period (as defined in the Lock-Up Agreement (as defined below)), the Company hires or appoints any new officer or director who is required to comply with the reporting obligations under Section 16 of the Exchange Act and who has not executed a Lock-Up Agreement, the Company shall cause each such executive officer and director to execute and deliver to the Purchasers a Lock-Up Agreement in connection with the commencement of such officer’s or director’s services to the Company.

 

3.19         The Company covenants and agrees that so long any Notes or Purchase Options remain outstanding, without the written consent of the Requisite Purchasers, the Company shall not effect any reverse stock split.

 

3.20         Immediately following the execution hereof, the Company shall take all action necessary to reserve (and hereby covenants to continue to reserve), free of preemptive rights and other similar contractual rights, a number of its authorized but unissued shares of Common Stock equal to 100% of the aggregate number of shares of Common Stock then issuable upon conversion or otherwise in respect of the Notes issued or issuable under this Agreement (including any Notes issuable upon exercise of the Purchase Options or any Notes issued by way of payment of interest in kind).

 

3.21         The Company covenants and agrees that from and after the execution hereof, the Agent (or any agent acting on the Agent’s behalf) is authorized to direct the Intermediary (as such term is defined in that certain Pledged Collateral Account Control Agreement with Restricted Access, dated as of September 9, 2011, by and among the Company, Tang Capital Partners, LP and Barclays Capital Inc.) to disburse any and all property held in account number 831-18459 (and entitled “Genta Incorporated pledged collateral account FBO Tang Capital Partners, L.P. as agent”); provided, however, that to the extent such direction is made prior to the execution hereof, the Company, at the First Closing, ratifies any such direction made to the Intermediary and any and all actions entered into by the Agent (or any of its agents) in connection therewith.  In connection with any such disbursement, a principal amount of those certain H Notes issued by the Company to the holders thereof pursuant to that certain Securities Purchase Agreement, dated as of September 9, 2011, by and among the Company and the other parties thereto, shall be cancelled, such principal amount to be equal to the aggregate value of the property disbursed to the Agent pursuant to the terms hereof.

 

  

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ARTICLE 4

 

CONDITIONS

 

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

 

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

 

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

 

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

 

(d)           Delivery of Transaction Documents.  Each of the Transaction Documents to which the Purchasers are a party shall have been duly executed and delivered by the Purchasers to the Company.

 

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

 

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

 

  

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

  

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

 

(k)          Lock-Up Agreement.  At the First Closing, the Company shall have caused each executive officer and director of the Company listed on Schedule II hereto to furnish to the Purchasers a letter or letters, substantially in the form attached hereto as Exhibit G (the “Lock-Up Agreement”).

 

(l)           Delivery of Transaction Documents.  Each of the Transaction Documents to which the Company is a party shall have been duly executed and delivered by the Company to the Purchasers.

 

ARTICLE 5

 

CERTIFICATE LEGEND

 

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

 

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

 

ARTICLE 6

 

INDEMNIFICATION

 

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

 

  

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

 

ARTICLE 7

 

MISCELLANEOUS

 

7.1           Purchasers’ Agent.

 

(a)           Appointment.  The Purchasers hereby appoint Tang Capital Partners, LP, as the “Agent” for the Purchasers under each of the Notes, the Security Agreement and that certain Pledged Operating Account Control Agreement, dated as of September 9, 2011, by and among the Company, the Agent and Barclays Capital Inc. (the “Deposit Account Control Agreement”) and Agent agrees to act as Agent in accordance with the terms and conditions of this Agreement and each of the Notes, the Security Agreement and the Deposit Account Control Agreement.  Notwithstanding anything to the contrary herein, the Agent may be removed or replaced with the written consent of the Requisite Purchasers (as defined in the Security Agreement).  “Collateral”, as used herein, shall mean all of the collateral over which the Purchasers are granted a security interest pursuant to any of the Transaction Documents.

 

  

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

 

(i)           Until the full release of the security interest in the Collateral, the Purchasers hereby authorize Agent to take all actions, to make all decisions and to exercise all powers and remedies on their behalf under the provisions of each of the Notes, the Security Agreement and the Deposit Account Control Agreement, including, without limitation, all such actions, decisions and powers as are reasonably incidental thereto.  The Agent may execute any of its duties hereunder by or through agents, designees or employees.  The powers conferred on the Agent hereunder are solely to ratably protect the interests in the Collateral of the holders of the Notes and shall not impose any duty upon it to exercise any such powers, provided that the Agent shall take (or refrain from taking) any action upon the written direction of the holders of a majority of the then outstanding principal amount of the Notes, and shall act on behalf of, and for the ratable benefit of, the holders of the Notes in good faith and in a manner that it reasonably believes treats all holders of Notes proportionally.  Except for the safe custody of any Collateral in its possession or control and the accounting for moneys actually received by it, the Agent shall have no duty as to any Collateral, as to ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not the Agent has or is deemed to have knowledge of such matters, or as to the taking of any necessary steps to preserve rights against any parties or any other rights pertaining to any Collateral.  The Agent shall be deemed to have exercised reasonable care in the custody and preservation of any Collateral in its possession or control if such Collateral is accorded treatment substantially equal to that which it accords its own property.  The Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects with reasonable care.

 

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

 

  

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(iii)         The Company hereby agrees to pay the Agent, promptly on demand, all documented reasonable fees and expenses incurred by the Agent (including disbursements and out-of-pocket expenses), including the reasonable fees and expenses of the Agent’s counsel, experts, or other agents, in connection with: (a) the negotiation, preparation, execution, delivery, performance, documentation, amendment, and administration of any Transaction Document or other document related thereto; (b) the custody or preservation of any of the Collateral; (c) the exercise or enforcement of any of the rights of the Agent or the holders of Notes, including without limitation the collection from or other realization upon any of the Collateral; (d) the monitoring, review, and documentation of any sale of any or all of the Collateral; (e) any restructuring, workout, or other amendment relating to the Transaction Documents or any obligations of the Company thereunder; (f) any case, action or proceeding before any court or other governmental authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or any general assignment for the benefit of creditors, composition, marshalling of assets for creditors or other similar arrangement in respect of creditors generally or any substantial portion of its creditors, including without limitation any proceedings commenced by or against the Company under Chapter 7 or 11 of the United States Bankruptcy Code; or (g) the failure by the Company to perform or observe any of the provisions hereof (collectively, “Agent Fees and Expenses”).  To the extent not paid by the Company, each Purchaser agrees to pay to the Agent, promptly on demand, such Purchaser’s Pro Rata (as defined in the Security Agreement) share of the Agent Fees and Expenses.

 

(iv)          The Company, the Agent, and each of the Purchasers hereby agree that (a) any payment in respect of the Notes by or on behalf of the Company, and (b) the Collateral, and all proceeds thereof, shall be applied:

 

(1)           First, to the Agent for the payment of any unpaid Agent Fees and Expenses; and

 

(2)           Second, to the Purchasers Pro Rata for the payment of principal and interest under the Notes.

 

(v)           To the extent not indemnified by the Company, each Purchaser hereby agrees to hold the Agent harmless, and to indemnify the Indemnified Persons from and against its Pro Rata share of any and all claims, losses, damages, taxes, reasonable expenses or liabilities (including without limitation reasonable attorneys fees and expenses) that may be incurred by such Indemnified Persons and that arise out of or are related to the performance by Agent of its services as Agent hereunder, unless such liability shall be caused by the willful misconduct or gross negligence of such Indemnified Persons.  The undertakings in this Section 7.1(b)(v) shall survive the payment of all Secured Obligations (as defined in the Security Agreement), with respect to the Notes and the resignation or replacement of the Agent.

 

  

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

 

(d)           Agent in Individual Capacity.  Tang Capital Partners, LP may make investments, purchase notes and generally engage in any kind of business with the Company as though Tang Capital Partners, LP were not the Agent under the Security Agreement and without notice to or consent of the Purchasers.  The Purchasers acknowledge that, pursuant to such activities, Tang Capital Partners, LP, or its affiliates may receive information regarding the Company and its subsidiaries and affiliates (including information that may be subject to confidentiality obligations in favor of any of the foregoing entities) and acknowledge that the Agent shall be under no obligation to provide such information to them unless it receives such information in its capacity as Agent.  With respect to its Notes and Purchase Options, Tang Capital Partners, LP shall have the same rights and powers under this Agreement as any other Purchaser and may exercise the same as though it were not the Agent, and the terms “Purchaser” and “Purchasers” include Tang Capital Partners, LP in its individual capacity.

 

7.2           Fees and Expenses.  Except as provided in Section 7.1(b)(iii) and (iv), each party shall pay the fees and expenses of its advisors, counsel, accountants and other experts, if any, and all other expenses, incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement and the transactions contemplated hereby; provided, however, that the Company shall pay all documented, actual attorneys’ fees and expenses (including disbursements and out-of-pocket expenses) incurred by the Lead Purchaser in connection with: (a) the preparation, negotiation, execution and delivery of the Transaction Documents and the transactions contemplated thereunder, which payment shall be made at the Closing (which payment may be withheld from the amount delivered to the Company by the Lead Purchaser at the each Closing); and (b) any amendments, modifications or waivers of this Agreement or any of the other Transaction Documents, including the transactions contemplated hereunder and thereunder.  In addition, the Company shall pay all reasonable fees and expenses incurred by the Purchasers in connection with the enforcement of this Agreement or any of the other Transaction Documents, including, without limitation, all reasonable attorneys’ fees and expenses; provided, however, that in the event that the enforcement of this Agreement is contested and it is finally judicially determined that the Purchasers was not entitled to the enforcement of the Agreement sought, then the Purchasers seeking enforcement shall reimburse the Company for all fees and expenses paid pursuant to this sentence.

 

7.3           Specific Performance; Consent to Jurisdiction; Venue.

 

(a)           The Company and the Purchasers acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement or the other Transaction Documents were not performed in accordance with their specific terms or were otherwise breached.  It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement or the other Transaction Documents and to enforce specifically the terms and provisions hereof or thereof without the requirement of posting a bond or providing any other security, this being in addition to any other remedy to which any of them may be entitled pursuant to the terms hereof, or by law or in equity.

 

  

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(b)           The parties agree that venue for any dispute arising under this Agreement will lie exclusively in the state or federal courts located in New York County, New York, and the parties irrevocably waive any right to raise forum non conveniens or any other argument that New York is not the proper venue.  The parties irrevocably consent to personal jurisdiction in the state and federal courts of the state of New York.  The Company and each Purchaser consent to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing in this Section 7.2 shall affect or limit any right to serve process in any other manner permitted by law.  The parties hereby waive all rights to a trial by jury.

 

7.4           Entire Agreement; Amendment.  This Agreement and the Transaction Documents contain the entire understanding and agreement of the parties with respect to the matters covered hereby and, except as specifically set forth herein or in the other Transaction Documents, neither the Company nor any Purchaser makes any representation, warranty, covenant or undertaking with respect to such matters, and this Agreement and the Transaction Documents supersede all prior understandings and agreements with respect to said subject matter, all of which are merged herein.  No provision of this Agreement may be waived or amended on behalf of all Purchasers other than by a written instrument signed by the Company and the Purchasers holding at a majority of the combined principal amount of the then outstanding Notes, including the Notes that have been issued by way of payment of interest in kind and the Notes potentially issuable upon exercise of the Purchase Options (for clarity, even if the Purchase Options have not been exercised, the underlying Notes will still be considered Notes for this purpose), but excluding, in all instances, all Notes issued for consideration other than cash (and additionally excluding all Notes: (i) issued by way of payment of interest in kind upon such Notes issued for consideration other than cash, and (ii) potentially issuable upon exercise of the Purchase Option related to such Notes issued for consideration other than cash) (the “Requisite Purchasers”); provided, that if any of the rights under this Agreement of any Purchaser then holding Securities are materially diminished or the obligations under this Agreement of any Purchaser then holding Securities are materially increased by such waiver or amendment, in each case in a manner that is not similar in all material respects to the effect on the rights or obligations of other Purchasers, then such waiver or amendment shall not be effective with respect to such adversely affected Purchaser without the written consent of such adversely affected Purchaser.  Notwithstanding the foregoing, (a) nothing provided in this Section 7.4 shall limit an individual Purchaser’s right to waive or amend any provision of this Agreement on its own behalf and (b) no provision of this Agreement may be modified or amended that would affect the rights or duties of the Agent hereunder unless the same is in writing and signed by the Agent.  The Purchasers acknowledge that any amendment or waiver effected in accordance with this Section 7.4 shall be binding upon each Purchaser (and their permitted assigns) and the Company, including, without limitation, an amendment or waiver that has an adverse effect on any or all Purchasers.

 

  

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

 

	

If to the Company or its Subsidiaries:

	

Genta Incorporated

	 	

200 Connell Drive

	 	

Berkeley Heights, NJ 07922

	 	

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

	 	

Telephone No.: (908) 286-9800

	 	

Telecopy No.: (908) 464-1705

	 	

Email:Warrell@genta.com

	 	 
	 	 
	

with copies to:

	

Morgan, Lewis & Bockius LLP

	 	

502 Carnegie Center

	 	

Princeton, NJ 08540

	 	

Attention: Emilio Ragosa

	 	

Telephone No.: (609) 919-6633

	 	

Telecopy No.: (609) 919-6701

	 	

Email: eragosa@morganlewis.com

	 	 
	

If to any Purchaser:

	

At the address of such Purchaser set forth on the signature page to this Agreement, with copies to Purchaser’s counsel, if any, as set forth on the signature page or as specified in writing by such Purchaser.

	 	 
	

With a copy to:

	

Ropes & Gray LLP

	 	

Three Embarcadero Center

	 	

San Francisco, CA 94111

	 	

Attention: Ryan Murr

	 	

Telephone No.: (415) 315-6395

	 	

Telecopy No.: (415) 315-6365

	 	

Email: ryan.murr@ropesgray.com

 

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

 

7.6           Waivers.  No waiver by either party of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter.

 

  

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

 

7.8           Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns.  The Purchasers may assign the Securities and its rights under this Agreement and the other Transaction Documents and any other rights hereto and thereto without the consent of the Company.

 

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

 

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

 

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

 

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

 

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

 

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

 

  

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7.15         Further Assurances.  From and after the date of this Agreement, upon the request of the Purchasers or the Company, the Company and each Purchaser shall execute and deliver such instruments, documents and other writings as may be reasonably necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of this Agreement and the other Transaction Documents

 

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

 

7.17         Sharing of Payments.  Each Purchaser severally agrees that if it receives (a) payment of principal on the Maturity Date (as defined in the Notes) or (b) payment of the Prepayment Price (as defined in the Notes), in each case in an amount that is ratably more than any other Purchaser (based on the principal amount of the Notes held by such Purchaser (in the case of (a) above) or the Notes held by such Purchaser being prepaid at such time (in the case of (b) above) relative to the principal amount of all Notes held by the Purchasers (in the case of (a) above) or all Notes held by the Purchasers being prepaid at such time (in the case of (b) above)), then: (i) the Purchaser receiving such payment shall purchase, and shall be deemed to have simultaneously purchased, from the other Purchasers a participation in the Notes held by the other Purchasers (in the case of (a) above) or the Notes held by the other Purchasers being prepaid at such time (in the case of (b) above) and shall pay to the other Purchasers a purchase price in an amount so that the share of the Notes held by each Purchaser after the receipt of such payment shall be in the same proportion that existed prior to the receipt of such payment; and (ii) such other adjustments and purchases of participations shall be made from time to time as shall be equitable to ensure that all Purchasers share any such payment ratably as aforesaid in accordance with the applicable Note; provided, that, if all or any portion of a disproportionate payment obtained as a result of such payment is thereafter recovered from the purchasing Purchaser by the Company or any Person claiming through or succeeding to the rights of Company, the purchase of a participation shall be rescinded and the purchase price thereof shall be restored to the extent of the recovery, but without interest.  Each Purchaser that purchases a participation pursuant to this Section 7.17 shall from and after the purchase have the right to give all notices, requests, demands, directions and other communications under this Agreement and the other Transaction Documents with respect to the portion of the Notes purchased to the same extent as though the purchasing Purchaser were the original owner of the Notes purchased.  The Company expressly consents to the foregoing arrangements and agrees that any Purchaser holding a participation in a Note so purchased may exercise any and all rights with respect to the participation as fully as if such Purchaser were the original owner of the Note purchased.  In addition, without limiting the foregoing, prior to the full release of the security interest in the Collateral, all payments received by any Purchaser in respect of the Collateral shall be received in trust for the benefit of the Agent for the benefit of the holders of the Notes, shall be segregated from other funds of such Purchaser, and shall be forthwith paid over to the Agent for the benefit of the holders of the Notes in the same form as so received (with any necessary endorsement) for distribution as set forth in Section 7.1(b)(iv) of this Agreement.

 

  

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7.18         Independent Nature of Purchasers’ Obligations and Rights.  The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under any Transaction Document.  Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the Purchaser as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents.  Each Purchaser confirms that it has independently participated in the negotiation of the transaction contemplated hereby with the advice of its own counsel and advisors.  Each Purchaser shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of any other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose.

 

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

 

 

 

	 	

GENTA INCORPORATED

	 
	 	 	 
	 	 	 
	 	 	 	 
	
 

	
By: 

	 	 
	 	Name:	 	 
	 	Title:	 	 
	 	 	 	 

 

                                                     

[SIGNATURE PAGES CONTINUE]

 

  

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[PURCHASER SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]

 

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

 

 

	Name of Purchaser:	 

 

	Signature of Authorized Signatory of Purchaser:	 

 

 

	Name of Authorized Signatory:	 

 

	Title of Authorized Signatory:	 

 

	

Email Address of Purchaser:

	 

 

	

Fax Number of Purchaser:

	 

 

Address for Notice of Purchaser:

 

 

 

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

 

 

 

Principal Amount and Type of Company Securities Currently Held:

 

 

	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 

 

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

 

[SIGNATURE PAGES CONTINUE]

 

  

  

  

 

SCHEDULE I

SCHEDULE OF EXCEPTIONS

 

 

 

 

  

  

  

 

SCHEDULE II

OFFICERS & DIRECTORS

 

 

 

 

 

  

  

  

 

EXHIBIT A

LIST OF PURCHASERS

 

	
=

	  	  	  
	  	  	  	  
	  	  	  	  

 

 

  

  

  

 

EXHIBIT B

FORM OF I NOTE

 

 

 

 

 

  

  

  

 

EXHIBIT C

OFFICER’S CERTIFICATE

 

 

 

 

 

  

  

  

 

EXHIBIT D

AMENDMENT AGREEMENT

 

 

 

 

 

  

  

  

 

EXHIBIT E

SECURITY AGREEMENT

 

 

 

 

 

  

  

  

 

EXHIBIT F

OPINION OF COMPANY COUNSEL

 

 

 

 

 

  

  

  

 

EXHIBIT G

FORM OF LOCK-UP AGREEMENT

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00202-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00202-of-00352.parquet"}]]