Document:

EXCHANGE AGREEMENT

This EXCHANGE AGREEMENT (the “Agreement”), dated as of June 29, 2011, is by and among Radient Pharmaceuticals Corporation, a Delaware corporation (the “Company”), Iroquois Master Fund Ltd., Cranshire Capital, L.P., Freestone Advantage Partners, LP, Kingsbrook Opportunities Master Fund LP and Bristol Investment Fund, Ltd. (collectively, the “Claimants” and each individually, a “Claimant”).

 

RECITALS

 

A.          The Company and each of the Claimants entered into that certain Securities Purchase Agreement dated as of January 30, 2011 (the “Securities Purchase Agreement”).

 

B            Pursuant to the Securities Purchase Agreement, the Company issued to the Claimants (i) Convertible Notes due December 1, 2011, in the aggregate original principal amount of $8,437,500, which were convertible into shares of Common Stock (as defined below) pursuant to the terms thereof (collectively, the “January Notes”), and (ii) two series of warrants to initially purchase up to 21,093,750 shares of Common Stock in the aggregate (collectively, the “January Warrants”). “January Transaction Documents” means the Transaction Documents (as defined in the Securities Purchase Agreement).

C.           The Claimants brought an action in the Supreme Court of the State of New York, New York County (the “Court”), Index No. 651665/11 (the “Action”), alleging that the Company breached various provisions of the January Notes.

D.           The Company and each of the Claimants desire to settle all disputes between them in accordance with the terms of this Agreement.

 

E.           In exchange for the Claimant Claims (as defined below), the Company has authorized the issuance of:

(i)           670,100 shares of the Company’s preferred stock designated as “Series A Convertible Preferred Stock” (the “Series A Preferred Stock”), which Series A Preferred Stock shall, in accordance with its terms, (w) be convertible into shares of the Company’s common stock, $0.001 par value per share (the “Common Stock”), (as converted, collectively, the “Preferred Conversion Shares”), (x) have a par value of $0.001 per share, (y) have a stated or liquidation value of $10.00 per share, or $6,701,000 as to all shares of Series A Preferred Stock, and (z) contain such other rights, preferences and limitations as are set forth on the Certificate of Designations attached hereto as Exhibit A (the “Certificate of Designations”);

(ii)           convertible notes in the aggregate original principal amount of $4,950,000, in the form attached hereto as Exhibit B (each a “Note” and collectively, the “Notes”), which Notes shall be convertible into shares of Common Stock (as converted, collectively, the “Note Conversion Shares”), in accordance with the terms of the Notes; and

 

  

  

  

 

(iii)           warrants to acquire shares of Common Stock, in the form attached hereto as Exhibit C (each a “Warrant” and collectively, the “Warrants”) (as exercised, collectively, the “Warrant Shares”), in accordance with the terms of the Warrants.

F.           The Preferred Conversion Shares and the Note Conversion Shares are collectively referred to herein as the “Conversion Shares.” The Series A Preferred Stock, the Notes, the Conversion Shares, the Warrants and the Warrant Shares are collectively referred to herein as the “Securities.”

 

G.           The exchange of the Claimant Claims for the Series A Preferred Stock, the Notes and the Warrants will be made in reliance upon the exemption from registration provided by Section 3(a)(10) of the Securities Act of 1933, as amended (the “1933 Act”).

 

AGREEMENTS

 

NOW THEREFORE, in consideration of the foregoing and the mutual covenants hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Claimant and the Company hereby agree as follows:

 

1.           Court Order; Closing.

 

(a)           Court Order. Upon the execution and delivery of this Agreement, the parties will cause their respective counsel to file a joint application with the Court seeking the Court’s approval of the fairness to the Claimants of the issuance of the Series A Preferred Stock, the Notes and the Warrants, the terms of this Agreement and the transactions contemplated hereunder and under the other Transaction Documents and the issuance of the Series A Preferred Stock, the Notes and the Warrants pursuant to the exemption from registration provided by Section 3(a)(10) of the 1933 Act (such order is referred to herein as the “Court Order”).

 

(b)           Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) shall take place at the offices of Greenberg Traurig, LLP, 200 Park Avenue, New York, New York 10166, at 9:00 a.m. local time on the first (1st) Business Day immediately following the day on which the Court Order is entered on the docket of the Court, or such other date and time as the Claimants and the Company may mutually determine (the “Closing Date”). The deliveries actually delivered under Section 1(c) and Section 1(d) at the Closing shall be deemed delivered simultaneously.

 

(c)           Company’s Deliveries at the Closing. Subject to each Claimant’s compliance with Section 1(d), at the Closing the Company shall:

 

(i)           file the Certificate of Designations with the Secretary of State of the State of Delaware;

 

(ii)           deliver to each Claimant a stock certificate representing the number of shares of Series A Preferred Stock as is set forth opposite such Claimant’s name in column (3) on the Schedule of Claimants attached hereto, duly executed on behalf of the Company and registered in the name of such Claimant or its designee;

 

  

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(iii)           deliver to each Claimant a Note in the original principal amount as is set forth opposite such Claimant’s name in column (4) on the Schedule of Claimants attached hereto, duly executed on behalf of the Company and registered in the name of such Claimant or its designee;

 

(iv)           deliver to each Claimant a Warrant to initially acquire up to the aggregate number of Warrant Shares as is set forth opposite such Claimant’s name in column (5) on the Schedule of Claimants attached hereto, duly executed on behalf of the Company and registered in the name of such Claimant or its designee; and

 

(v)           deliver the other documents, instruments and certificates set forth in Section 7.

 

(d)           Claimants’ Deliveries at the Closing. Subject to the Company’s compliance with Section 1(c), at the Closing the Claimants shall cause to be delivered to the Company a Stipulation of Discontinuance, in the form attached hereto as Exhibit D (the “Stipulation”), executed by Greenberg Traurig, LLP, pursuant to which the Claimants voluntarily dismiss the Action with prejudice.

 

2.           No Legends; Stop Transfer Instructions. Except for the legends expressly required by the Certificate of Designations, neither the shares of Series A Preferred Stock, nor the Notes, nor the Warrants nor any certificates evidencing any Conversion Shares or Warrant Shares shall bear any restrictive or other legends. The Company shall not, and the Company shall cause all other Persons (as defined in the Notes) to not, issue any stop-transfer order, instruction or other restriction with respect to any of the shares of Series A Preferred Stock, any of the Notes, any of the Warrants or any of the Conversion Shares or Warrant Shares.

 

3.           Company Release. The Company, on its own behalf and on behalf of its Subsidiaries and its and their respective officers, directors, affiliates, investors and other related Persons (the Company and all of the foregoing Persons are referred to herein as (“Company Releasors”), hereby irrevocably, fully and unconditionally releases and forever discharges each Claimant and each of such Claimant’s present and former directors, officers, shareholders, members, managers, investment managers, investment advisers, partners, employees, agents, advisors and representatives (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding the lack of such title or any other title) and each Person, if any, who controls each Claimant within the meaning of the 1933 Act or the Securities Exchange Act of 1934, as amended (the “1934 Act”), and each of the present and former directors, officers, shareholders, members, managers, investment managers, investment advisers, partners, employees, agents, advisors and representatives (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding the lack of such title or any other title) of such controlling Persons and each of their direct and indirect related Persons (each Claimant and all such other Persons referred to above are referred to herein collectively as the “Claimant Releasees”) from all claims, actions, obligations, causes of action, suits, losses, omissions, damages, contingencies, judgments, fines, penalties, charges, costs (including, without limitation, court costs, reasonable attorneys’ fees and costs of defense and investigation), expenses and liabilities, of every name and nature, whether known or unknown, absolute or contingent, suspected or unsuspected, matured or unmatured, both at law and in equity, (collectively, the “Claims”) which any Company Releasor may now own, hold, have or claim to have against any of the Claimant Releasees for, upon, or by reason of any nature, cause, action or inaction or thing whatsoever which arises from the beginning of the world to the date and time of this Agreement relating to the Company and its Subsidiaries (collectively, the “Company Claims”). The Company, on behalf of itself and its successors, assigns and other legal representatives and all of the other Company Releasors, covenants that it will not (and that it will cause all other Persons who may seek to claim as, by, through or in relation to any of the Company Releasors or the matters released by the Company Releasors in this Agreement not to) sue any of the Claimant Releasees on the basis of or related to or in connection with any Company Claim herein released and discharged, as provided in this paragraph. Notwithstanding the foregoing, nothing contained in this paragraph shall release or relieve any obligations of any Claimant under this Agreement or under any other Transaction Document to which it is a party.

 

  

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4.           Claimant Release. Each Claimant, on its own behalf and on behalf of its officers and directors (or managers (as applicable), (such Claimant and all of the foregoing Persons are referred to herein as (“Claimant Releasors”), hereby irrevocably, fully and unconditionally releases and forever discharges the Company and the Persons set forth on Schedule 1 attached hereto (the Company and the Persons set forth on Schedule 1 attached hereto are referred to herein collectively as the “Company Releasees”) from all Claims which such Claimant Releasors may now own, hold, have or claim to have against any of the Company Releasees for, upon, or by reason of any nature, cause, action or inaction or thing whatsoever which arises from the beginning of the world to the date and time of this Agreement relating to the Company and its Subsidiaries (collectively, the “Claimant Claims”). Each Claimant on behalf of itself and its successors, assigns and other legal representatives and its other Claimant Releasors, covenants that it will not (and that it will cause all other Persons who may seek to claim as, by, through or in relation to such Claimant’s Claimant Releasors or the matters released by such in this Agreement not to) sue any of the Company Releasees on the basis of or related to or in connection with any of such Claimant’s Claimant Claims herein released and discharged, as provided in this paragraph. Notwithstanding the foregoing, nothing contained in this paragraph shall release or relieve any obligations of the Company under this Agreement or any of the other Transaction Documents.

 

5.           Company Representations and Warranties. The Company represents and warrants to each of the Claimants that:

 

(a)           Organization. The Company is duly organized and validly existing and in good standing under the laws of the jurisdiction in which it is formed, and has the requisite power and authority to own its properties and to carry on its business as now being conducted and as presently proposed to be conducted. Each Subsidiary is duly organized and validly existing and in good standing under the laws of the jurisdiction in which it is formed, and has the requisite power and authority to own its properties and to carry on its business as now being conducted and as presently proposed to be conducted. The Company has no Subsidiaries other than as set forth on Schedule 5(a) attached hereto. “Subsidiaries” means any Person in which the Company, directly or indirectly, (I) owns any of the outstanding capital stock or holds any equity or similar interest of such Person or (II) controls or operates any part of the business, operations or administration of such Person, and each of the foregoing, is individually referred to herein as a “Subsidiary.”

 

  

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(b)           Authorization; Enforcement; Validity. The Company has the requisite power and authority to enter into and perform its obligations under this Agreement and the other Transaction Documents (as defined below) and to issue the Securities in accordance with the terms hereof and thereof. The execution and delivery of this Agreement and the other Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the shares of Series A Preferred Stock and the reservation for issuance and issuance of the Preferred Conversion Shares issuable upon conversion of the shares of Series A Preferred Stock, the issuance of the Notes and the reservation for issuance and issuance of the Note Conversion Shares issuable upon conversion of the Note and the issuance of the Warrants and the reservation for issuance and issuance of the Warrant Shares issuable upon exercise of the Warrants) have been duly authorized by the Company’s board of directors, and, except for the filing of the Certificate of Designations and Stockholder Approval (as defined below), no further filing, consent or authorization is required by the Company, its Subsidiaries, their respective boards of directors or their stockholders or other governing body. This Agreement has been, and the other Transaction Documents will be prior to the consummation of the transactions contemplated hereby, duly executed and delivered by the Company, and each constitutes the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with its respective terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies and except as rights to indemnification and to contribution may be limited by federal or state securities law. “Transaction Documents” means, collectively, this Agreement, the Notes, the Certificate of Designations, the Warrants, the Confessions of Judgment (as defined below), the Irrevocable Transfer Agent Instructions (as defined below) and each of the other agreements and instruments entered into or delivered by any of the parties hereto in connection with the transactions contemplated hereby and thereby, as may be amended from time to time.

 

  

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(c)           Issuance of Securities. The issuance of the shares of Series A Preferred Stock, the Notes and the Warrants is duly authorized, and upon issuance in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and non-assessable and free from all preemptive or similar rights, taxes, liens, charges and other encumbrances with respect to the issue thereof. As of the date hereof, the Company shall have reserved from its duly authorized capital stock (i) 21,293,046 shares of Common Stock for issuance upon conversion of the shares of Series A Preferred Stock and (ii) 15,729,082 shares of Common Stock for issuance upon conversion of the Notes. Simultaneously with the receipt of Stockholder Approval, the Company shall have reserved from its duly authorized capital stock not less than 130% of the sum of (i) the maximum number of Preferred Conversion Shares issuable upon conversion of the shares of Series A Preferred Stock (assuming for purposes hereof that the shares of Series A Preferred Stock are convertible at the initial Conversion Price (as defined in the Certificate of Designations) and without taking into account any limitations on the conversion of the shares of Series A Preferred Stock set forth in the Certificate of Designations), (ii) the maximum number of Note Conversion Shares issuable upon conversion of the Notes (without taking into account any limitations on conversion of the Notes set forth therein) and (iii) the maximum number of Warrant Shares issuable upon exercise of the Warrants (without taking into account any limitations on exercise of the Warrants set forth therein). Upon conversion in accordance with the Certificate of Designations or the Notes (as the case may be) or exercise in accordance with the Warrants, the Preferred Conversion Shares, the Note Conversion Shares and the Warrant Shares, respectively, when issued, will be validly issued, fully paid and non-assessable and free from all preemptive or similar rights, taxes, liens, charges and other encumbrances with respect to the issue thereof, with the holders being entitled to all rights accorded to a holder of Common Stock. The offer and issuance by the Company of the shares of Series A Preferred Stock, the Notes and the Warrants is exempt from registration pursuant to Section 3(a)(10) under the 1933 Act. The issuance by the Company of the Preferred Conversion Shares, the Note Conversion Shares and the Warrant Shares will be exempt from registration pursuant to Section 3(a)(9) under the 1933 Act. The offer and issuance by the Company of the Securities is exempt from the Trust Indenture Act of 1939, as amended. All of the Securities are freely transferable and freely tradable by each of the Claimants without restriction.

 

(d)           No Conflicts. The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the shares of Series A Preferred Stock, the Preferred Conversion Shares, the Notes and the Note Conversion Shares, the Warrants and the Warrant Shares and the reservation for issuance of the Preferred Conversion Shares, the Note Conversion Shares and the Warrant Shares) will not (i) result in a violation of the Certificate of Incorporation (as in the Certificate of Designations) (including, without limitation, any certificate of designation contained therein) or other organizational documents of the Company or any of its Subsidiaries, any capital stock of the Company or any of its Subsidiaries or bylaws of the Company or any of its Subsidiaries, (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, indenture or instrument to which the Company or any of its Subsidiaries is a party or (iii) result in a violation of any law, rule, regulation, order, judgment or decree applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected except, in the case of clause (ii) above, to the extent such violations that could not reasonably be expected to have a Material Adverse Effect. “Material Adverse Effect” means any material adverse effect on (i) the business, properties, assets, liabilities, operations (including results thereof), condition (financial or otherwise) or prospects of the Company or any Subsidiary, either individually or taken as a whole, (ii) the transactions contemplated hereby or in any of the other Transaction Documents or (iii) the authority or ability of the Company to perform any of its obligations under any of the Transaction Documents.

 

  

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(e)           Consents. Except for the filing of the Certificate of Designations and the Stockholder Approval, the Company is not required to obtain any consent from, authorization or order of, or make any filing or registration with any court, governmental agency or any regulatory or self-regulatory agency or any other Person in order for it to execute, deliver or perform any of its obligations under, or contemplated by, the Transaction Documents, in each case, in accordance with the terms hereof or thereof. All consents, authorizations, orders, filings and registrations which the Company is required to obtain at or prior to the consummation of the transactions contemplated by this Agreement have been obtained or effected on or prior to the consummation of the transactions contemplated by this Agreement, and the Company is not aware of any facts or circumstances which might prevent the Company from obtaining or effecting any of the registration, application or filings contemplated by the Transaction Documents.

 

(f)           Application of Takeover Protections; Rights Agreement. The Company and its board of directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, interested stockholder, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Certificate of Incorporation, bylaws or other organizational documents or the laws of the jurisdiction of its incorporation or otherwise which is or could become applicable as a result of the transactions contemplated by this Agreement, including, without limitation, the Company’s issuance of the Securities and each Claimant’s ownership of the Securities, together with all other securities now or hereafter owned or acquired by such Claimant. The Company and its board of directors have taken all necessary action, if any, in order to render inapplicable any shareholder rights plan or similar arrangement relating to accumulations of beneficial ownership of shares of Common Stock or a change in control of the Company or any of its Subsidiaries.

 

(g)           Transfer Taxes. On the date hereof, all stock transfer or other taxes (other than income or similar taxes) which are required to be paid in connection with the offer, issuance and transfer of the Securities to be issued to each Claimant hereunder and under the other Transaction Documents will be, or will have been, fully paid or provided for by the Company, and all laws imposing such taxes will be or will have been complied with.

 

(h)           Equity Capitalization.  As of the date hereof, the authorized capital stock of the Company consists of (i) 200,000,000 shares of Common Stock, of which, 125,039,264 shares of Common Stock are issued and outstanding and (ii) 25,000,000 shares of preferred stock, of which, no shares of preferred stock are issued and outstanding. No shares of Common Stock are held in treasury. All of such outstanding shares of Common Stock and preferred stock are duly authorized and have been, or upon issuance will be, validly issued and are fully paid and non-assessable.

 

(i)           Ranking of Notes. Except as set forth on Schedule 5(i) hereto, no Indebtedness (as defined in the Notes) of the Company will be senior to, or pari passu with, the Notes in right of payment, whether with respect to payment or redemptions, interest, damages, upon liquidation or dissolution or otherwise.

 

  

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(j)           Investment Company Status. The Company is not, and upon the consummation of the transactions contemplated by this Agreement will not be, an “investment company,” an affiliate of an “investment company,” a company controlled by an “investment company” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company” as such terms are defined in the Investment Company Act of  1940, as amended.

 

(k)           Disclosure. The Company confirms that neither it nor any other Person acting on its behalf has provided any of the Claimants or their agents or counsel with any information that constitutes or could reasonably be expected to constitute material, non-public information concerning the Company or any of its Subsidiaries, other than the existence of the transactions contemplated by this Agreement and the other Transaction Documents. The Company understands and confirms that each of the Claimants will rely on the foregoing representations in effecting transactions in securities of the Company.

 

(l)           Assignment of Claims. There has been no actual assignment or transfer or purported assignment or other transfer by any Company Releasor of all or any portion of any Company Claim or other matter or any interest which has been released by any Company Releasor by any provision of this Agreement. The Company is the sole owner and real party-in-interest regarding all Company Claims and other matters released by the Company Releasors pursuant to this Agreement.

 

6.           Claimant Representations and Warranties. Each Claimant represents and warrants to the Company with respect to only itself that:

 

(a)           Organization. Such Claimant is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder.

 

(b)           Validity; Enforcement. This Agreement has been duly and validly authorized, executed and delivered on behalf of such Claimant and constitutes the legal, valid and binding obligations of such Claimant enforceable against such Claimant in accordance with their respective terms, except as such enforceability may be limited by general principles of equity or to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies.

 

(c)           No Conflicts. The execution, delivery and performance by such Claimant of this Agreement and the consummation by such Claimant of the transactions contemplated hereby will not (i) result in a violation of the organizational documents of such Claimant, (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, indenture or instrument to which such Claimant is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws) applicable to such Claimant, except in the case of clauses (ii) and (iii) above, for such conflicts, defaults, rights or violations which would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of such Claimant to perform its obligations hereunder.

 

  

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(d)           Assignment of Claims. There has been no actual assignment or transfer or purported assignment or other transfer by such Claimant of all or any portion of any of such Claimant’s Claimant Claim or other matter or any interest which has been released by such Claimant by any provision of this Agreement. Such Claimant is the sole owner and real party-in-interest regarding such Claimant’s Claimant Claims and other matters released by such Claimant pursuant to this Agreement.

 

7.           Additional Deliveries of the Company. The Company shall deliver to each Claimant at the Closing:

 

(a)           Duly executed versions of the other Transaction Documents to which the Company is a party.

 

(b)           The opinion of Hunter Taubman Weiss LLP, the Company’s counsel, in form and substance reasonably acceptable to each of the Claimants.

 

(c)           A copy of the Irrevocable Transfer Agent Instructions that have been delivered to and acknowledged in writing by the Transfer Agent.

 

(d)           A certificate evidencing the formation and good standing of the Company issued by the Delaware Secretary of State as of a date within ten (10) days prior to the Closing.

 

(e)           A certificate evidencing the Company’s qualification as a foreign corporation and good standing issued by the Secretary of State (or comparable office) of each jurisdiction in which the Company conducts business and is required to so qualify, as of a date within ten (10) days prior to the Closing.

 

(f)           A certified copy of the Certificate of Incorporation within ten (10) days prior to the Closing as certified by the Delaware Secretary of State.

 

(g)           A certified copy of the Certificate of Designations as certified by the Delaware Secretary of State.

 

(h)           A certificate, in the form previously provided to the Company, executed by the Secretary of the Company dated as of the date of the Closing, as to (i) the resolutions consistent with Section 5(b) as adopted by the Company’s board of directors, (ii) the Certificate of Incorporation then in effect and (iii) the bylaws of the Company then in effect.

 

  

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(i)           Such other documents, instruments or certificates relating to the transactions contemplated by this Agreement as such Claimant or its counsel may reasonably request.

 

8.           Transfer Agent Instructions. At the Closing, the Company shall issue irrevocable instructions to Corporate Stock Transfer Company, Denver, Colorado (together with any subsequent transfer agent, the “Transfer Agent”) in the form previously provided to the Company (the “Irrevocable Transfer Agent Instructions”) to issue certificates or credit shares to the applicable balance accounts at the Depository Trust Company (“DTC”) through DTC’s Fast Automated Securities Transfer Program, registered in the name of each Claimant or its respective nominee(s), for the Preferred Conversion Shares, the Note Conversion Shares and the Warrant Shares in such amounts as specified from time to time by each Claimant to the Company upon conversion of shares of Series A Preferred Stock or Notes and exercise of the Warrants (as the case may be). The Company represents and warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 8 will be given by the Company to its Transfer Agent with respect to the Securities, and that the Securities shall otherwise be freely transferable on the books and records of the Company. If a Claimant effects a sale, assignment or transfer of Conversion Shares or the Warrant Shares, the Company shall permit the transfer and shall promptly instruct the Transfer Agent to issue one or more certificates or credit shares to the applicable balance accounts at DTC in such name and in such denominations as specified by such Claimant to effect such sale, transfer or assignment.

 

9.           Listing. The Company shall promptly secure the listing or designation for quotation (as the case may be) of all of the Conversion Shares and the Warrant Shares upon each national securities exchange and automated quotation system, if any, upon which the Common Stock is listed or designated for quotation (as the case may be) and shall maintain such listing or designation for quotation (as the case may be) of all Conversion Shares and Warrant Shares from time to time issuable under the terms of the Transaction Documents on such national securities exchange or automated quotation system. The Company shall maintain the listing or designation for quotation (as the case may be) of the Common Stock on The New York Stock Exchange, the Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market the NYSE or the OTCQX US Exchange. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 9.

 

10.           “Blue Sky” Compliance; Reservation. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to, qualify the Securities for issuance to each Claimant pursuant to this Agreement under applicable securities or “Blue Sky” laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to each Claimant. Without limiting any other obligation of the Company under this Agreement, the Company shall timely make all filings and reports relating to the offer and issuance of the Securities required under all applicable securities laws (including, without limitation, all applicable federal securities laws and all applicable “Blue Sky” laws), and the Company shall comply with all applicable federal, state, local and foreign laws, statutes, rules, regulations and the like relating to the offering and issuance of the Securities to each of the Claimants. In addition to the Company’s obligations under the Notes and the Certificate of Designations and without limiting any of the Company’s obligation thereunder, at all times prior to obtaining Stockholder Approval the Company shall additionally reserve for issuance solely upon conversion of, issuance under, or in respect of, the Notes and the shares of Series A Preferred Stock (i) all available shares of authorized and unissued Common Stock that are not reserved for issuance as of the close of business on the date immediately prior to the date hereof with respect to Convertible Securities (as defined in the Notes) and Options (as defined in the Notes) outstanding immediately prior to the execution of this Agreement and (ii) all shares of Common Stock that become available for reservation after such time and prior to the receipt of Stockholder Approval.

 

  

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11.           Entire Agreement. This Agreement contains the entire agreement and understanding among the parties solely as to the settlement and compromise of all Company Claims and Claimant Claims between the parties and supersedes and replaces all prior settlement negotiations and proposed agreements, written or oral; provided, however, without implication that the contrary would otherwise be true, nothing contained in this Agreement or any other Transaction Document shall (or shall be deemed to), except as expressly contemplated by the last sentence of this Section 11, (i) have any effect on any agreements any Claimant has entered into with, or any instruments any Claimant has received from, the Company or any of its Subsidiaries prior to the date hereof with respect to any prior investment made by such Claimant in the Company or (ii) waive, alter, modify or amend in any respect any obligations of the Company or any of its Subsidiaries, or any rights of or benefits to any Claimant or any other Person, in any agreement entered into prior to the date hereof between or among the Company and/or any of its Subsidiaries and any Claimant, or any instruments any Claimant received from the Company and/or any of its Subsidiaries prior to the date hereof, and all such agreements and instruments shall continue in full force and effect. Except as specifically set forth herein or in the other Transaction Documents, neither the Company nor any Claimant makes any representation, warranty, covenant or undertaking with respect to the matters contained herein of therein. The parties hereto acknowledge that no other party, or agent, representative or attorney of any other party, has made any promise, representation, or warranty whatsoever, express or implied, not contained in this Agreement concerning the subject matter hereof, to induce this Agreement or otherwise, and the parties acknowledge that they have not executed this Agreement in reliance upon such promise, representation, or warranty not contained herein. No party hereto has granted any waiver or release except as, and to the extent, expressly set forth in this Agreement. For clarification purposes, the Recitals are part of this Agreement. No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration also is offered to all of the parties to the Transaction Documents. From and after the Closing, the January Transaction Documents are each hereby terminated and of no further force or effect.

 

  

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

 

13.           Notices. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, if delivered personally; (ii) when sent, if sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); (iii) when sent, if sent by e-mail (provided that such sent e-mail is kept on file (whether electronically or otherwise) by the sending party and the sending party does not receive an automatically generated message from the recipient’s e-mail server that such e-mail could not be delivered to such recipient) and (iv) if sent by overnight courier service, one (1) Business Day after deposit with an overnight courier service with next day delivery specified, in each case, properly addressed to the party to receive the same. The addresses, facsimile numbers and e-mail addresses for such communications shall be:

 

If to the Company:

 

Radient Pharmaceuticals Corporation

2492 Walnut Avenue, Suite 100

Tustin, California 92780-7039

Telephone:  (714) 505-4460

Facsimile:  (714) 505-4464

Attention:  Chief Executive Officer

With a copy (for informational purposes only) to:

 

Hunter Taubman Weiss, LLP

17 State Street, Suite 2000

New York, New York 10004

Telephone:  (212) 607-5950

Facsimile:  (212) 202-6380

Attention:  Stephen A. Weiss, Esq.

Rachael Schmierer, Esq.

 

  

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If to a Claimant:

 

To its address, facsimile number or e-mail address (as the case may be) set forth on the Schedule of Claimants,

 

or to such other address, facsimile number or e-mail address and/or to the attention of such other Person as the recipient party has specified by written notice given to each other party five (5) days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine containing the time, date and recipient facsimile number or (C) provided by an overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight courier service in accordance with clause (i), (ii) or (iv) above, respectively. A copy of the e-mail transmission containing the time, date and recipient e-mail address shall be rebuttable evidence of receipt by e-mail in accordance with clause (iii) above.

 

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

 

15.           Headings; Gender. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. Unless the context clearly indicates otherwise, each pronoun herein shall be deemed to include the masculine, feminine, neuter, singular and plural forms thereof. The terms “including,” “includes,” “include” and words of like import shall be construed broadly as if followed by the words “without limitation.”  The terms “herein,” “hereunder,” “hereof” and words of like import refer to this entire Agreement instead of just the provision in which they are found.

 

16.           Severability.  If any provision of this Agreement is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Agreement so long as this Agreement as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).

 

  

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17.           Disclosure of Transactions and Other Material Information. The Company shall, on or before 8:30 a.m., New York time, on the second (2nd) Business Day after the date of this Agreement, file a Current Report on Form 8-K describing all the material terms of the transactions contemplated by the Transaction Documents in the form required by the 1934 Act and attaching all the material Transaction Documents (including, without limitation, this Agreement, the Certificate of Designations, the form of the Notes, the form of the Warrants and the forms of Confessions of Judgment) (including all attachments, the “8-K Filing”). From and after the filing of the 8-K Filing, the Company shall have disclosed all material, non-public information (if any) delivered to any of the Claimants by the Company or any of its Subsidiaries, or any of their respective officers, directors, employees or agents in connection with the transactions contemplated by the Transaction Documents. The Company shall not, and the Company shall cause each of its Subsidiaries and each of its and their respective officers, directors, employees and agents not to, provide any Claimant with any material, non-public information regarding the Company or any of its Subsidiaries from and after the filing of the 8-K Filing without the express prior written consent of such Claimant. In the event of a breach of any of the foregoing covenants by the Company, any of its Subsidiaries, or any of its or their respective officers, directors, employees and agents (as determined in the reasonable good faith judgment of such Claimant), in addition to any other remedy provided herein or in the Transaction Documents, such Claimant shall have the right to make a public disclosure, in the form of a press release, public advertisement or otherwise, of such material, non-public information without the prior approval by the Company, any of its Subsidiaries, or any of its or their respective officers, directors, employees or agents. No Claimant shall have any liability to the Company, any of its Subsidiaries, or any of its or their respective officers, directors, employees, stockholders or agents, for any such disclosure. Subject to the foregoing, neither the Company, its Subsidiaries nor any Claimant shall issue any press releases or any other public statements with respect to the transactions contemplated hereby; provided, however, the Company shall be entitled, without the prior approval of any Claimant, to issue any press release or make other public disclosure with respect to such transactions (i) in substantial conformity with the 8-K Filing and contemporaneously therewith and (ii) as is required by applicable law and regulations (provided that in the case of clause (i) each Claimant shall be consulted by the Company in connection with any such press release or other public disclosure prior to its release). Without the prior written consent of the applicable Claimant, the Company shall not (and shall cause each of its Subsidiaries and affiliates to not) disclose the name of such Claimant in any filing (other than the 8-K Filing), announcement, release or otherwise. Notwithstanding anything contained in this Agreement to the contrary and without implication that the contrary would otherwise be true, the Company expressly acknowledges and agrees that no Claimant shall have (unless expressly agreed to by a particular Claimant after the date hereof in a written definitive and binding agreement executed by the Company and such particular Claimant (it being understood and agreed that no Claimant may bind any other Claimant with respect thereto)), any duty of confidentiality with respect to, or a duty not to trade on the basis of, any information regarding the Company or any of its Subsidiaries.

 

  

14

  

 

18.           Successors and Assigns; No Third Party Beneficiaries; Amendments and Waivers. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. No party may assign this Agreement or any rights or obligations hereunder without the prior written consent of the other parties hereto, provided that a Claimant may assign some or all of its rights hereunder in connection with any transfer of any of its Securities without the consent of the other parties hereto, in which event such assignee shall be deemed to be a Claimant hereunder with respect to such assigned rights. 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, other than the Company Releasees and the Claimant Releasees. No provision of this Agreement may be amended other than by an instrument in writing signed by the parties hereto. No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party.

 

19.           Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

 

20.           Expenses. Except as otherwise set forth in the Transaction Documents, each party to this Agreement shall bear its own expenses in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement and the other Transaction Documents.

 

21.           Indemnification.  In consideration of each Claimant’s execution and delivery of the Transaction Documents to which it is a party and acquiring the Series A Preferred Stock, the Notes and the Warrants hereunder and in addition to all of the other obligations of the Company under the Transaction Documents, the Company shall defend, protect, indemnify and hold harmless each Claimant Releasee from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Claimant Releasee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by any Claimant Releasee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in any of the Transaction Documents, (b) any breach of any covenant, agreement or obligation of the Company contained in any of the Transaction Documents or (c) any cause of action, suit, proceeding or claim brought or made against such Claimant Releasee by a third party (including for these purposes a derivative action brought on behalf of the Company or any Subsidiary) or which otherwise involves such Claimant Releasee that arises out of, relates to or results from (i) the execution, delivery, performance or enforcement of any of the Transaction Documents, (ii) any disclosure properly made by such Claimant pursuant to Section 17 or (iii) the status of such Claimant Releasee or holder of Securities either as a holder of any Securities or of the January Notes or the January Warrants or as a party to this Agreement or any of the January Transaction Documents (regardless of the termination thereof) (including, without limitation, as a party in interest or otherwise in any action or proceeding for injunctive or other equitable relief). To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law.

 

  

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22.           Survival. The representations, warranties, agreements and covenants shall survive the execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement and the other Transaction Documents. Each Claimant shall be responsible only for its own representations, warranties, agreements and covenants hereunder.

 

23.           Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. No specific representation or warranty shall limit the generality or applicability of a more general representation or warranty.

 

24.           Remedies. Each Claimant and each holder of any Securities shall have all rights and remedies set forth in the Transaction Documents and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which such holders have under any law. Any Person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. Furthermore, the Company recognizes, acknowledges and agrees that in the event that the Company fails to perform, observe, or discharge any or all of the Company’s obligations under any of the Transaction Documents, irreparable harm to the Claimants will result therefrom. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under any of the Transaction Documents will be inadequate and agrees that each Claimant shall be entitled, in addition to all other available remedies, to specific performance and/or temporary, preliminary and permanent injunctive or other equitable relief from any court of competent jurisdiction in any such case without the necessity of showing economic loss and without posting a bond or any other security.

 

25.           Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) the Transaction Documents, whenever any Claimant exercises a right, election, demand or option under any Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Claimant may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.

 

26.           Non-Disparagement. The Company shall not (and the Company shall cause each of the other Company Releasors to not) disparage (or induce or encourage other Persons to disparage) any Claimant Releasee. Each Claimant shall not (and each Claimant shall cause all of such Claimant’s Claimant Releasors not to) disparage (or induce or encourage other Persons to disparage) any of the Company Releasees.

 

  

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27.          Exchange Transactions and Participation Right.

 

(a)           Exchange Transactions. The Company agrees that for the period commencing on the date hereof and ending on the date immediately following the later to occur of (x) the ninety (90) day anniversary of the Closing Date and (y) the thirty (30) day anniversary of the date on which Stockholder Approval is obtained (provided that such period shall be extended by the number of days during such period and any extension thereof contemplated by this proviso in which the Company is not compliance with this Section 27(a)) (the “Restricted Period”), neither the Company nor any of its Subsidiaries shall directly or indirectly issue, offer, sell, exchange, grant any option or right to purchase, or otherwise dispose of (or announce any issuance, offer, sale, exchange, grant of any option or right to purchase or other disposition of) any equity security or any equity-linked or related security (including, without limitation, any “equity security” (as that term is defined under Rule 405 promulgated under the 1933 Act), any Convertible Securities, any debt, any preferred stock or any purchase rights) (any such issuance, offer, sale, exchange, grant, disposition or announcement (whether occurring during the Restricted Period or at any time thereafter) is referred to as a “Subsequent Placement”) involving Section 3(a)(9) of the 1933 Act or Section 3(a)(10) of 1933 Act. Notwithstanding the foregoing, the restrictions contained in this Section 27(a) shall not apply in connection with the issuance of any of the Securities.

 

(b)           Participation Right. From the date hereof through the two (2) year anniversary of the Closing Date, neither the Company nor any of its Subsidiaries shall, directly or indirectly, effect any Subsequent Placement unless the Company shall have first complied with Section 27(b)(i) or Section 27(b)(ii) (as applicable). The Company acknowledges and agrees that the rights set forth in Section 27(b) are rights granted by the Company, separately, to each Claimant.

 

	
  

	
(i)

	
Non-Retail Subsequent Placement.

 

(1)           At least five (5) Trading Days prior to any proposed or intended Subsequent Placement that is not a Retail Subsequent Placement (as defined below), the Company shall deliver to each Claimant a written notice of its proposal or intention to effect a Subsequent Placement (each such notice, a “Pre-Notice”), which Pre-Notice shall not contain any information (including, without limitation, material, non-public information) other than: (A) a statement that the Company proposes or intends to effect a Subsequent Placement, (B) a statement that the statement in clause (A) above does not constitute material, non-public information and (C) a statement informing such Claimant that it is entitled to receive an Offer Notice (as defined below) with respect to such Subsequent Placement upon its written request. Upon the written request of a Claimant within three (3) Trading Days after the Company’s delivery to such Claimant of such Pre-Notice, and only upon a written request by such Claimant, the Company shall promptly, but no later than one (1) Trading Day after such request, deliver to such Claimant an irrevocable written notice (the “Offer Notice”) of any proposed or intended issuance or sale or exchange (the “Offer”) of the securities being offered (the “Offered Securities”) in a Subsequent Placement, which Offer Notice shall (w) identify and describe the Offered Securities, (x) describe the price and other terms upon which they are to be issued, sold or exchanged, and the number or amount of the Offered Securities to be issued, sold or exchanged, (y) identify the Persons (if known) to which or with which the Offered Securities are to be offered, issued, sold or exchanged, or if the Offered Securities are to be offered through a broker/dealer or other placement agent, the name of such broker dealer or placement agent, and (z) offer to issue and sell to or exchange with such Claimant in accordance with the terms of the Offer 50% (or 100% if the applicable Subsequent Placement constitutes a Variable Rate Transaction (as defined below)) of the Offered Securities, provided that the number of Offered Securities which such Claimant shall have the right to subscribe for under this Section 27(b)(i) shall be (a) based on such Claimant’s pro rata portion of the aggregate original principal amount of the Notes acquired hereunder by all Claimants (the “Pro Rata Amount”), and (b) with respect to each Claimant that elects to purchase its Pro Rata Amount, any additional portion of the Offered Securities attributable to the Pro Rata Amounts of other Claimants as such Claimant shall indicate it will purchase or acquire should the other Claimants subscribe for less than their Pro Rata Amounts (the “Undersubscription Amount”).

 

  

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(2)           To accept an Offer, in whole or in part, such Claimant must deliver a written notice to the Company prior to the end of the fifth (5th) Business Day after such Claimant’s receipt of the Offer Notice (the “Offer Period”), setting forth the portion of such Claimant’s Pro Rata Amount that such Claimant elects to purchase and, if such Claimant shall elect to purchase all of its Pro Rata Amount, the Undersubscription Amount, if any, that such Claimant elects to purchase (in either case, the “Notice of Acceptance”). If the Pro Rata Amounts subscribed for by all Claimants are less than the total of all of the Pro Rata Amounts, then such Claimant who has set forth an Undersubscription Amount in its Notice of Acceptance shall be entitled to purchase, in addition to the Pro Rata Amounts subscribed for, the Undersubscription Amount it has subscribed for; provided, however, if the Undersubscription Amounts subscribed for exceed the difference between the total of all the Pro Rata Amounts and the Pro Rata Amounts subscribed for (the “Available Undersubscription Amount”), such Claimant who has subscribed for any Undersubscription Amount shall be entitled to purchase only that portion of the Available Undersubscription Amount as the Pro Rata Amount of such Claimant bears to the total Pro Rata Amounts of all Claimants that have subscribed for Undersubscription Amounts (but in no event shall it be greater than such Claimant’s specified Undersubscription Amount), subject to rounding by the Company to the extent it deems reasonably necessary. Notwithstanding the foregoing, if the Company desires to modify or amend the terms and conditions of the Offer prior to the expiration of the Offer Period, the Company may deliver to each Claimant a new Offer Notice and the Offer Period shall expire on the fifth (5th) Business Day after such Claimant’s receipt of such new Offer Notice.

 

(3)           The Company shall have ten (10) Business Days (only if the Pre-Notice with respect to such Subsequent Placement was delivered on or prior to the Second Installment Date (as defined in the Notes)) or twenty (20) Business Days (only if the Pre-Notice with respect to such Subsequent Placement was delivered after the Second Installment Date) (as applicable) from the expiration of the Offer Period above (i) to offer, issue, sell or exchange all or any part of such Offered Securities as to which a Notice of Acceptance has not been given by a Claimant (the “Refused Securities”) pursuant to definitive securities purchase agreements or subscription agreements (each, a “Subsequent Placement Agreement”), but only to the offerees described in the Offer Notice (if so described therein) and only upon terms and conditions (including, without limitation, unit prices and interest rates) that are not more favorable in any  material respect to the acquiring Person or Persons or less favorable in any material respect to the Company than those set forth in the Offer Notice, and (ii) to publicly announce (a) the execution of such Subsequent Placement Agreements, and (b) either (x) the consummation of the transactions contemplated by such Subsequent Placement Agreements or (y) the termination of such offering of the Offered Securities, which shall be filed with the SEC on a Current Report on Form 8-K with such Subsequent Placement Agreements and any documents contemplated therein filed as exhibits thereto.

 

  

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(4)           In the event the Company shall propose to sell less than all the Refused Securities (any such sale to be in the manner and on the terms specified in Section 27(b)(i)(3) above), then such Claimant may, at its sole option and in its sole discretion, reduce the number or amount of the Offered Securities specified in its Notice of Acceptance to an amount that shall be not less than the number or amount of the Offered Securities that such Claimant elected to purchase pursuant to Section 27(b)(i)(2) above multiplied by a fraction, (i) the numerator of which shall be the number or amount of Offered Securities the Company actually proposes to issue, sell or exchange (including Offered Securities to be issued or sold to Claimants pursuant to this Section 27(b)(i) prior to such reduction) and (ii) the denominator of which shall be the original amount of the Offered Securities. In the event that any Claimant so elects to reduce the number or amount of Offered Securities specified in its Notice of Acceptance, the Company may not issue, sell or exchange more than the reduced number or amount of the Offered Securities unless and until such securities have again been offered to the Claimants in accordance with Section 27(b)(i)(1) above.

 

(5)           Upon the closing of the issuance, sale or exchange of all or less than all of the Refused Securities, such Claimant shall acquire from the Company, and the Company shall issue to such Claimant, the number or amount of Offered Securities specified in its Notice of Acceptance. The purchase by such Claimant of any Offered Securities is subject in all cases to the preparation, execution and delivery by the Company and such Claimant of a separate purchase agreement relating to such Offered Securities reasonably satisfactory in form and substance to such Claimant and its counsel.

 

(6)           Any Offered Securities not acquired by a Claimant or other Persons in accordance with this Section 27(b)(i) may not be issued, sold or exchanged until they are again offered to such Claimant under the procedures specified in this Agreement.

 

(7)           The Company and each Claimant agree that if any Claimant elects to participate in the Offer, without the prior written consent of such participating Claimant, neither the Subsequent Placement Agreement with respect to such Offer nor any other transaction documents related thereto shall include any term or provision whereby such Claimant shall be required to agree to any restrictions on trading as to any securities of the Company or be required to consent to any amendment to or termination of, or grant any waiver or release or the like under or in connection with, any agreement previously entered into with the Company or any instrument received from the Company.

 

  

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(8)           No later than the end of the applicable period set forth in Section 27(b)(i)(3) above, the Company shall publicly disclose its intention to issue the Offered Securities or confirm in writing to such Claimant that the transaction with respect to the Subsequent Placement has been abandoned, in either case, in such a manner such that such Claimant will not be in possession of any material, non-public information. If by the end of the applicable period set forth in Section 27(b)(i)(3) above, no public disclosure regarding a transaction with respect to the Offered Securities has been made, and no notice regarding the abandonment of such transaction has been received by such Claimant, such transaction shall be deemed to have been abandoned and such Claimant shall not be in possession of any material, non-public information with respect to the Company or any of its Subsidiaries. Should the Company decide to pursue such transaction with respect to the Offered Securities, the Company shall provide such Claimant with another Offer Notice in accordance with, and subject to, the terms of this Section 27(b)(i) and such Claimant will again have the right of participation set forth in this Section 27(b)(i).

 

(9)           The restrictions contained in this Section 27(b)(i) shall not apply in connection with the issuance of (i) any Excluded Securities or (ii) any of the Securities. The Company shall not circumvent the provisions of this Section 27(b)(i) by providing terms or conditions to one Claimant that are not provided to all Claimants.

 

	
  

	
(ii)

	
Retail Subsequent Placement.

 

(1)           Five (5) Trading Days prior to the consummation of any proposed or intended Subsequent Placement in which all of the participants therein are solely natural persons who are “accredited investors” (as that term is defined under Regulation D promulgated by the SEC under the 1933 Act) (such a Subsequent Placement is referred to herein as a “Retail Subsequent Placement”), the Company shall deliver to each Claimant an irrevocable written notice (the “Retail Offer Notice”) of such proposed or intended issuance or sale or exchange (the “Retail Offer”) of the securities being offered (the “Retail Offered Securities”) in the Retail Subsequent Placement, which Retail Offer Notice shall (w) identify and describe the Retail Offered Securities, (x) describe the price and other terms upon which they are to be issued, sold or exchanged, and the number or amount of the Retail Offered Securities to be issued, sold or exchanged, (y) identify the Persons (if known) to which or with which the Retail Offered Securities are to be offered, issued, sold or exchanged, or if the Retail Offered Securities are to be offered through a broker/dealer or other placement agent, the name of such broker dealer or placement agent, and (z) offer to issue and sell to or exchange with such Claimant in accordance with the terms of the Retail Offer 50% of the Retail Offered Securities, provided that the number of Retail Offered Securities which such Claimant shall have the right to subscribe for under this Section 27(b)(ii) shall be (a) based on such Claimant’s pro rata portion of the aggregate original principal amount of the Notes acquired hereunder by all Claimants (the “Retail Pro Rata Amount”), and (b) with respect to each Claimant that elects to purchase its Retail Pro Rata Amount, any additional portion of the Retail Offered Securities attributable to the Retail Pro Rata Amounts of other Claimants as such Claimant shall indicate it will purchase or acquire should the other Claimants subscribe for less than their Retail Pro Rata Amounts (the “Retail Undersubscription Amount”).

 

  

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(2)           To accept a Retail Offer, in whole or in part, such Claimant must deliver a written notice to the Company prior to the end of the fifth (5th) Business Day after such Claimant’s receipt of the Retail Offer Notice (the “Retail Offer Period”), setting forth the portion of such Claimant’s Retail Pro Rata Amount that such Claimant elects to purchase and, if such Claimant shall elect to purchase all of its Retail Pro Rata Amount, the Retail Undersubscription Amount, if any, that such Claimant elects to purchase (in either case, the “Retail Notice of Acceptance”). If the Retail Pro Rata Amounts subscribed for by all Claimants are less than the total of all of the Retail Pro Rata Amounts, then such Claimant who has set forth an Retail Undersubscription Amount in its Retail Notice of Acceptance shall be entitled to purchase, in addition to the Retail Pro Rata Amounts subscribed for, the Retail Undersubscription Amount it has subscribed for; provided, however, if the Retail Undersubscription Amounts subscribed for exceed the difference between the total of all the Retail Pro Rata Amounts and the Retail Pro Rata Amounts subscribed for (the “Retail Available Undersubscription Amount”), such Claimant who has subscribed for any Retail Undersubscription Amount shall be entitled to purchase only that portion of the Retail Available Undersubscription Amount as the Retail Pro Rata Amount of such Claimant bears to the total Retail Pro Rata Amounts of all Claimants that have subscribed for Retail Undersubscription Amounts (but in no event shall it be greater than such Claimant’s specified Retail Undersubscription Amount), subject to rounding by the Company to the extent it deems reasonably necessary. Notwithstanding the foregoing, if the Company desires to modify or amend, in any material respect, the terms and conditions of the Retail Offer prior to the expiration of the Retail Offer Period, the Company shall deliver to each Claimant a new Retail Offer Notice and the Retail Offer Period shall expire on the fifth (5th) Business Day after such Claimant’s receipt of such new Retail Offer Notice.

 

(3)           On the first (1st) Business Day immediately following the expiration of the Retail Offer Period above, the Company shall (i) offer, issue, sell or exchange all or any part of such Retail Offered Securities as to which a Retail Notice of Acceptance has not been given by a Claimant (the “Retail Refused Securities”) pursuant to definitive securities purchase or subscription agreement(s) (each, a “Retail Subsequent Placement Agreement”), but only to the offerees described in the Retail Offer Notice (if so described therein) and only upon terms and conditions (including, without limitation, unit prices and interest rates) that are not more favorable in any material respect to the acquiring Person or Persons or less favorable in any material respect to the Company than those set forth in the Retail Offer Notice and (ii) publicly announce (a) the execution of such Retail Subsequent Placement Agreement and (b) the consummation of the transactions contemplated by such Retail Subsequent Placement Agreement, which shall be filed with the SEC on a Current Report on Form 8-K with such Retail Subsequent Placement Agreement and any documents contemplated therein filed as exhibits thereto.

 

  

21

  

 

(4)           In the event the Company shall propose to sell less than all the Retail Refused Securities (any such sale to be in the manner and on the terms specified in Section 27(b)(ii)(3) above), then such Claimant may, at its sole option and in its sole discretion, reduce the number or amount of the Retail Offered Securities specified in its Retail Notice of Acceptance to an amount that shall be not less than the number or amount of the Retail Offered Securities that such Claimant elected to purchase pursuant to Section 27(b)(ii)(2) above multiplied by a fraction, (i) the numerator of which shall be the number or amount of Retail Offered Securities the Company actually proposes to issue, sell or exchange (including Retail Offered Securities to be issued or sold to Claimants pursuant to this Section 27(b)(ii) prior to such reduction) and (ii) the denominator of which shall be the original amount of the Retail Offered Securities. In the event that any Claimant so elects to reduce the number or amount of Retail Offered Securities specified in its Retail Notice of Acceptance, the Company may not issue, sell or exchange more than the reduced number or amount of the Retail Offered Securities unless and until such securities have again been offered to the Claimants in accordance with Section 27(b)(ii)(1) above.

 

(5)           Upon the closing of the issuance, sale or exchange of all or less than all of the Retail Refused Securities, such Claimant shall acquire from the Company, and the Company shall issue to such Claimant, the number or amount of Retail Offered Securities specified in its Retail Notice of Acceptance. The purchase by such Claimant of any Retail Offered Securities is subject in all cases to the preparation, execution and delivery by the Company and such Claimant of a separate purchase agreement relating to such Retail Offered Securities reasonably satisfactory in form and substance to such Claimant and its counsel.

 

(6)           Any Retail Offered Securities not acquired by a Claimant or other Persons in accordance with this Section 27(b)(ii) may not be issued, sold or exchanged until they are again offered to such Claimant under the procedures specified in this Agreement.

 

(7)           The Company and each Claimant agree that if any Claimant elects to participate in the Retail Offer, without the prior written consent of such participating Claimant, neither the Retail Subsequent Placement Agreement with respect to such Retail Offer nor any other transaction documents related thereto shall include any term or provision whereby such Claimant shall be required to agree to any restrictions on trading as to any securities of the Company or be required to consent to any amendment to or termination of, or grant any waiver or release or the like under or in connection with, any agreement previously entered into with the Company or any instrument received from the Company.

 

  

22

  

 

(8)           No later than the end of the applicable Retail Offer Period, the Company shall publicly disclose its intention to issue the Offered Securities or confirm in writing to such Claimant that the transaction with respect to the Retail Subsequent Placement has been abandoned, in either case, in such a manner such that such Claimant will not be in possession of any material, non-public information, by the fifth (5th) Business Day following delivery of the Retail Offer Notice. If by the end of the applicable Retail Offer Period, no public disclosure regarding a transaction with respect to the Retail Offered Securities has been made, and no notice regarding the abandonment of such transaction has been received by such Claimant, such transaction shall be deemed to have been abandoned and such Claimant shall not be in possession of any material, non-public information with respect to the Company or any of its Subsidiaries. Should the Company decide to pursue such transaction with respect to the Retail Offered Securities, the Company shall provide such Claimant with another Retail Offer Notice in accordance with, and subject to, the terms of this Section 27(b)(ii) and such Claimant will again have the right of participation set forth in this Section 27(b)(ii).

 

(9)           The restrictions contained in this Section 27(b)(ii) shall not apply in connection with the issuance of (i) any Excluded Securities or (ii) any of the Securities. The Company shall not circumvent the provisions of this Section 27(b)(ii) by providing terms or conditions to one Claimant that are not provided to all Claimants.

 

28.           Variable Rate Transaction. Until the first (1st) Business Day immediately following the Second Pre-Installment Date (as defined in the Notes), the Company and each Subsidiary shall be prohibited from effecting or entering into an agreement to effect any Subsequent Placement involving a Variable Rate Transaction. “Variable Rate Transaction” means a transaction in which the Company or any Subsidiary (i) issues or sells any Convertible Securities either (A) at a conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of, or quotations for, the shares of Common Stock at any time after the initial issuance of such Convertible Securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such Convertible Securities or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock, other than pursuant to a customary “weighted average” anti-dilution provision or (ii) enters into any agreement (including, without limitation, an “equity line of credit” or an “at the market offering”) whereby the Company or any Subsidiary may sell securities at a future determined price (other than standard and customary “preemptive” or “participation” rights).

 

  

23

  

 

29.           Stockholder Approval. The Company shall prepare and file with the SEC (as defined in the Notes), as promptly as practicable after the date hereof, but in no event later than three (3) Business Days after the date of this Agreement, the Proxy Statement (as defined below). The Company shall provide each stockholder entitled to vote at a special or annual meeting of stockholders of the Company (the “Stockholder Meeting”), which shall be called as promptly as practicable after the date hereof, but in no event later than the earlier of (i) 20 days after the SEC informs the Company that there will be no review of the Proxy Statement or that they have no further comments to the Proxy Statement and (ii) August 31, 2011 (such earlier date is referred to herein as the “Stockholder Meeting Deadline”), a proxy statement (the “Proxy Statement”), in a form reasonably acceptable to the Claimants after review by each of their respective counsel at the expense of the Company, soliciting each such stockholder’s affirmative vote at the Stockholder Meeting solely for approval of resolutions (the “Resolutions”) providing for (a) an increase in the authorized shares of Common Stock of the Company to 750,000,000 and any actions required to cause such increase to occur, (b) the election of directors, and (c) the approval of the auditors (such affirmative approval being referred to herein as the “Stockholder Approval”), and the Company shall use its reasonable best efforts to solicit its stockholders’ approval of such Resolutions and to cause the Board of Directors of the Company to recommend to the stockholders that they approve the Resolutions.  In connection therewith, the Company shall, at its expense, hire a proxy solicitation firm acceptable to Iroquois Master Fund Ltd. to solicit the Stockholder Approval. The Company shall be obligated to seek to obtain the Stockholder Approval by the Stockholder Meeting Deadline. If, despite the Company’s reasonable best efforts, Stockholder Approval is not obtained at the Stockholder Meeting, the Company shall cause an additional Stockholder Meeting to be held each calendar quarter thereafter with respect to the Resolutions until the Stockholder Approval is obtained. The Company shall respond to all comments received from the SEC with respect to the Proxy Statement as soon as practicable after the receipt thereof (but in no event later than five (5) Business Days after the receipt thereof).

 

30.           Independent Nature of Claimants’ Obligations and Rights. The obligations of each Claimant under the Transaction Documents are several and not joint with the obligations of any other Claimant, and no Claimant shall be responsible in any way for the performance of the obligations of any other Claimant under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Claimant pursuant hereto or thereto, shall be deemed to constitute the Claimants as, and the Company acknowledges that the Claimants do not so constitute, a partnership, an association, a joint venture or any other kind of group or entity, or create a presumption that the Claimants are in any way acting in concert or as a group or entity with respect to such obligations or the transactions contemplated by the Transaction Documents or any matters, and the Company acknowledges that the Claimants are not acting in concert or as a group, and the Company shall not assert any such claim, with respect to such obligations or the transactions contemplated by the Transaction Documents. The decision of each Claimant to acquire Securities pursuant to the Transaction Documents has been made by such Claimant independently of any other Claimant. Each Claimant acknowledges that no other Claimant has acted as agent for such Claimant in connection with such Claimant making its acquisition hereunder and that no other Claimant will be acting as agent of such Claimant in connection with monitoring such Claimant’s position in the Securities or enforcing its rights under the Transaction Documents. Each Claimant 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 Claimant to be joined as an additional party in any proceeding for such purpose. The use of a single agreement to effectuate the issuance and acquisition of the Securities contemplated hereby was solely in the control of the Company, not the action or decision of any Claimant, and was done solely for the convenience of the Company and its Subsidiaries and not because it was required or requested to do so by any Claimant. It is expressly understood and agreed that each provision contained in this Agreement and in each other Transaction Document is between the Company, each Subsidiary and a Claimant, solely, and not between the Company, its Subsidiaries and the Claimants collectively and not between and among the Claimants. The Company further acknowledges and agrees that each Claimant is acting solely in the capacity of an arm’s length party with respect to the Transaction Documents and the transactions contemplated by this Agreement and the other Transaction Documents and that no Claimant is or has been an “affiliate” (as defined in Rule 144 promulgated by the SEC under the 1933 Act) of the Company or any of its Subsidiaries (including, without limitation, as a result of the acquisition or holding of any of the Securities or otherwise).

 

  

24

  

31.           Termination. Notwithstanding anything contained in this Agreement to the contrary, (a) if (i) the Company breaches any of its obligations under this Agreement prior to the Closing or (ii) the Closing shall not have occurred (other than as a result of a breach by any Claimant of any of its obligations under this Agreement) within seven (7) Business Days after the date of this Agreement, then, at the election of the Required Holders (as defined in the Notes) (determined as if all Notes were issued pursuant to this Agreement and were then outstanding in the original principal amounts set forth in column (4) of the Schedule of Claimants attached hereto) delivered in writing to the Company, this Agreement shall be terminated and be null and void ab initio; (b) if (I) any Claimant breaches any of its obligations under this Agreement prior to the Closing or (II) the Closing shall not have occurred (other than as a result of a breach by the Company of any of its obligations under this Agreement) within seven (7) Business Days after the date of this Agreement, then, at the election of the Company delivered in writing to the Claimants, (x) in the case of an occurrence of clause (I) above, this Agreement shall be terminated and be null and void ab initio only with respect to the applicable breaching Claimant and (y) in the case of an occurrence of clause (II) above, this Agreement shall be terminated and be null and void ab initio; and (c) this Agreement is subject to the obtaining of the Court Order and entry of the Court Order on the docket of the Court, and if the Court Order is not obtained, or entered on the docket of the Court, within three (3) Business Days after the date hereof, then this Agreement shall automatically be terminated and be null and void ab initio.

 

[signature page follows]

 

  

25

  

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the date first above written.

 

	  	
RADIENT PHARMACEUTICALS

CORPORATION

	 
	  	  	 
	  	
By:

	  	 
	  	
Its:

	  	 

  

  

  

  

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the date first above written.

 

	  	
IROQUOIS MASTER FUND LTD.

	 	 
	  	
By:

	
Iroquois Capital Management, L.L.C.

	  	
Its:

	
Investment Manager

	 	 	 
	 	 	 
	  	
By:

	
Joshua Silverman, Authorized Signatory

 

  

  

  

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the date first above written.

 

	 	
CRANSHIRE CAPITAL, L.P.

	 	 
	 	
By:

	
Downsview Capital, Inc.

	 	
Its:

	
General Partner

	 	 	 
	 	  	  
	 	
By:

	
Mitchell P. Kopin

	 	
Its:

	
President

 

  

  

  

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the date first above written.

 

	 	
FREESTONE ADVANTAGE PARTNERS,

LP

	 	 
	 	 
	 	
By:

	
Mitchell P. Kopin, Authorized Signatory

 

  

  

  

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the date first above written.

 

	 	
BRISTOL INVESTMENT FUND, LTD.

	 	 
	 	 
	 	
By:

	
Paul Kessler

	 	
Its:

	
Director

 

  

  

  

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the date first above written.

 

	 	
KINGSBROOK OPPORTUNITIES

MASTER FUND LP

	 	  
	 	
By:

	
KINGSBROOK OPPORTUNITIES GP 

	 	LLC, its general partner
	 	  
	 	
By:

	  
	 	 	

Adam J. Chill, Managing Member

 

  

  

  

 

SCHEDULE OF CLAIMANTS

	
(1)

	 	
(2)

	 	
(3)

	 	 	
(4)

	 	 	
(5)

	 
	  	 	  	 	 	 	 	 	 	 	 	 
	

Claimant

	 	

Address, Facsimile Number and

E-mail Address

	 	

Number of

Shares of Series A

Preferred Stock

	 	 	

Original Principal

Amount of Note

	 	 	

Number of

Warrant Shares

	 
	  	 	  	 	 	 	 	 	 	 	 	 
	
Iroquois Master Fund Ltd.

	 	
Iroquois Master Fund Ltd.

641 Lexington Avenue, 26th  Floor

New York, New York  10022

Facsimile: (212) 207-3452

E-mail: mkulick@icfund.com

	 	 	135,647	 	 	$	1,002,023.33	 	 	 	19,122,919	 
	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 
	
Cranshire Capital, L.P.

	 	
3100 Dundee Road, Suite 703

Northbrook, Illinois 60062

Attn:  Mitchell P. Kopin

Facsimile: (847) 562-9031

E-mail: notices@cranshirecapital.com

	 	 	72,686	 	 	$	536,924.83	 	 	 	10,246,904	 
	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 
	
Freestone Advantage Partners, LP

	 	
3100 Dundee Road, Suite 703

Northbrook, Illinois 60062

Attn:  Mitchell P. Kopin

Facsimile: (847) 562-9031

E-mail: notices@cranshirecapital.com

	 	 	12,827	 	 	$	94,751.44	 	 	 	1,808,828	 
	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 
	
Bristol Investment Fund, Ltd.

	 	
c/o Bristol Capital Advisors, LLC

6353 W. Sunset Blvd., Suite 4006

Hollywood, CA 90028

Facsimile: (323) 960-3805

Attn: Amy Wang, Esq.

          Paul Kessler

E-mail: amy@bristolcompanies.net

	 	 	213,781	 	 	$	1,579,190.67	 	 	 	30,137,843	 
	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 
	
Kingsbrook Opportunities Master Fund LP

	 	
c/o Kingsbrook Partners LP

590 Madison Avenue, 27th Floor

New York, New York 10022

Attn: Adam Chill

Facsimile: (212) 600-8290

E-mail: investments@kingsbrookpartners.com / operations@kingsbrookpartners.com

	 	 	235,159	 	 	$	1,737,109.73	 	 	 	33,151,619	 
	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 
	
Totals:

	 	  	 	 	670,100	 	 	$	4,950,000	 	 	 	94,468,113	 

 

  

  

  

 

SCHEDULE I

 

	
Current Officers & Directors:

	 	  
	  	 	  
	
DOUGLAS C. MACLELLAN

	 	
President, Chief Executive Officer, and Director

(Principal Executive Officer)

	  	 	  
	
AKIO ARIURA

	 	
Chief Operating Officer, Chief Financial Officer and

Secretary (Principal Financial Officer and Principal

Accounting Officer)

	  	 	  
	
ROBERT M. BEART

	 	
Director

	  	 	  
	
MICHAEL BOSWELL

	 	
Director

	  	 	  
	
ROBERT L. ROOKS

	 	
Director

	  	 	  
	
MINGHUI JIA

	 	
Director

	  	 	  
	
Former Officers & Directors:

 

Gary L. Dreher, Former CEO

William Thompson

Edward Arquilla

Marvin Rosenthale

	 	  
	  	 	  
	
Current & Former Legal Counsel:

 

Hunter Taubman Weiss LLP

Leser Hunter Taubman & Taubman

Richard Bruck, Esq.Unassociated Document

[FORM OF CONVERTIBLE NOTE]

 

ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 15 HEREOF.  THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.

 

Radient Pharmaceuticals Corporation

 

CONVERTIBLE NOTE

 

	
Issuance Date:  July [___], 2011

	
Original Principal Amount: U.S. $[            ]

FOR VALUE RECEIVED, Radient Pharmaceuticals Corporation, a Delaware corporation (the “Company”), hereby promises to pay to [_____________] or its registered assigns (the “Holder”) (a) the amount set out above as the Original Principal Amount, as such Original Principal Amount is reduced pursuant to the terms hereof pursuant to redemption, conversion or otherwise (the “Principal”), whether upon the Maturity Date (as defined below), each Installment Date (as defined below), or upon acceleration, redemption or otherwise (in each case in accordance with the terms hereof), and (b) interest (“Interest”) on any outstanding Principal, at the applicable Interest Rate (as defined below) from the date set out above as the date of issuance of this Convertible Note (the “Issuance Date”) until the same becomes due and payable, whether upon any Installment Date, the Maturity Date or acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof). This Convertible Note (including all Convertible Notes issued in exchange, transfer or replacement hereof, this “Note”) is one of an issue of Convertible Notes issued pursuant to the Exchange Agreement on the Closing Date (as defined below) (collectively, the “Notes” and such other Convertible Notes, the “Other Notes”). Certain capitalized terms used herein are defined in Section 28 below.

 

1.           PAYMENTS OF PRINCIPAL.  On each Installment Date (which includes the Maturity Date), the Company shall pay to the Holder an amount equal to the Installment Amount due on such Installment Date in accordance with Section 8 below. As used in this Note, the term “Maturity Date” shall mean the twentieth (20th) Trading Day immediately following the Third Installment Date (as defined below), as such date may be extended at the option of the Holder (i) in the event that, and for so long as, an Event of Default (as defined below) shall have occurred and be continuing on the Maturity Date (as may be extended pursuant to this Section 1) or any event shall have occurred and be continuing on the Maturity Date (as may be extended pursuant to this Section 1) that with the passage of time and the failure to cure would result in an Event of Default and (ii) through the date that is ten (10) Business Days after the consummation of a Change of Control in the event that a Change of Control is publicly announced or a Change of Control Notice (as defined below) is delivered prior to the Maturity Date.

 

  

  

 

 

2.           INTEREST AND PREPAYMENT.

 

(a)           Interest on this Note shall commence accruing on the Issuance Date, shall accrue daily at the Interest Rate on the outstanding Principal amount from time to time, shall be computed on the basis of a 360-day year comprised of twelve (12) thirty (30) day months and shall be payable in arrears on each Installment Date(each, an “Interest Date”) in accordance with Section 8 as part of the applicable Installment Amount due on the applicable Interest Date. From and after the occurrence and during the continuance of any Event of Default, the Interest Rate shall automatically be increased to eighteen percent (18%). In the event that such Event of Default is subsequently cured, the increase referred to in the preceding sentence shall cease to be effective as of the date of such cure, provided that the Interest as calculated and unpaid at such increased rate during the continuance of such Event of Default shall continue to apply to the extent relating to the days after the occurrence of such Event of Default through and including the date of such cure of such Event of Default.

 

(b)           Other than as specifically permitted by this Note, the Company may not prepay any portion of the outstanding Principal or accrued and unpaid Interest or accrued and unpaid Late Charges on Principal, if any.

 

3.           CONVERSION OF NOTES. In addition to the Automatic Conversions of Installment Amounts on each Installment Date as provided in Section 8 below, this Note may, at the option of the Holder, be convertible into shares of Common Stock on the terms and conditions set forth in this Section 3. “Common Stock” means (i) the Company’s shares of common stock, $0.001 par value per share, and (ii) any capital stock into which such common stock shall have been changed or any share capital resulting from a reclassification of such common stock.

 

(a)           Conversion Right.  Subject to the provisions of Section 3(d), on any one or more occasions on or after the date hereof, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount (as defined below) into fully paid and non-assessable shares of Common Stock in accordance with Section 3(c), at the Conversion Rate (as defined below) then in effect.  The Company shall not issue any fraction of a share of Common Stock upon any conversion.  If the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share.  The Company shall pay any and all transfer, stamp and similar taxes that may be payable with respect to the issuance and delivery of Common Stock upon conversion of any Conversion Amount.

 

(b)           Conversion Rate.  The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to Section 3(a) shall be determined by dividing (x) such Conversion Amount by (y) the Conversion Price (the “Conversion Rate”).

 

(i)           “Conversion Amount” means the sum of (A) the portion of the Principal to be converted, amortized, redeemed or otherwise with respect to which this determination is being made, and (B) any accrued and unpaid Interest and Late Charges with respect to such Principal.

 

  

2

 

 

(ii)          “Conversion Price” means, as of any Conversion Date (as defined below) or other date of determination, $0.185 per share, subject to adjustment as provided herein.

 

(c)           Mechanics of Conversion.

 

(i)           Optional Conversion.  To convert any Conversion Amount into shares of Common Stock on any date (a “Conversion Date”), the Holder shall deliver (whether via facsimile or otherwise), for receipt on or prior to 11:59 p.m., New York time, on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit I (the “Conversion Notice”) to the Company.  Following conversion as aforesaid, the Holder shall provide a copy of such Conversion Notice to Hunter Taubman Weiss LLP sent via electronic mail to sweiss@htwlaw.com on or prior to the first (1st) Business Day following such Conversion Date. If required by Section 3(c)(iii), within three (3) Trading Days following a conversion of this Note as aforesaid, the Holder shall surrender this Note to a nationally recognized overnight delivery service for delivery to the Company (or an indemnification undertaking with respect to this Note in the case of its loss, theft or destruction as contemplated by Section 16(b)). On or before the second (2nd) Trading Day following the date of receipt of a Conversion Notice, the Company shall transmit by facsimile an acknowledgment of confirmation, in the form attached hereto as Exhibit II, of receipt of such Conversion Notice to the Holder and the Company’s transfer agent (the “Transfer Agent”). On or before the third (3rd) Trading Day following the date of receipt of a Conversion Notice, the Company shall (1) provided that the Transfer Agent is participating in The Depository Trust Company’s (“DTC”) Fast Automated Securities Transfer Program, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder’s or its designee’s balance account with DTC through its Deposit/Withdrawal at Custodian system or (2) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver (via reputable overnight courier) to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled. If this Note is physically surrendered for conversion pursuant to Section 3(c)(iii) and the outstanding Principal of this Note is greater than the Principal portion of the Conversion Amount being converted, then the Company shall as soon as practicable and in no event later than three (3) Business Days after receipt of this Note and at its own expense, issue and deliver to the Holder (or its designee) a new Note (in accordance with Section 16(d)) representing the outstanding Principal not converted. The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of this Note shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date. In the event of a partial conversion of this Note pursuant hereto, the Principal amount converted shall be deducted from the Installment Amount(s) relating to the Installment Date(s) as set forth in the applicable Conversion Notice.

 

  

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(ii)          Company’s Failure to Timely Convert.  If the Company shall fail, for any reason or for no reason, to issue to the Holder within three (3) Trading Days after the Company’s receipt of a Conversion Notice (whether via facsimile or otherwise), a certificate for the number of shares of Common Stock to which the Holder is entitled and register such shares of Common Stock on the Company’s share register or to credit the Holder’s or its designee’s balance account with DTC for such number of shares of Common Stock to which the Holder is entitled upon the Holder’s conversion of any Conversion Amount (as the case may be) (a “Conversion Failure”), then, in addition to all other remedies available to the Holder, (1) the Company shall pay in cash to the Holder on each Trading Day after such third (3rd) Trading Day that the issuance of such shares of Common Stock is not timely effected an amount equal to 1% of the product of (A) the sum of the number of shares of Common Stock not issued to the Holder on a timely basis and to which the Holder is entitled multiplied by (B) the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the last possible date which the Company could have issued such shares of Common Stock to the Holder without violating Section 3(c)(i) and (2) the Holder, upon written notice to the Company, may void its Conversion Notice with respect to, and retain or have returned (as the case may be) any portion of this Note that has not been converted pursuant to such Conversion Notice, provided that the voiding of a Conversion Notice shall not affect the Company’s obligations to make any payments which have accrued prior to the date of such notice pursuant to this Section 3(c)(ii) or otherwise. In addition to the foregoing, if within three (3) Trading Days after the Company’s receipt of a Conversion Notice (whether via facsimile or otherwise), the Company shall fail to issue and deliver a certificate to the Holder and register such shares of Common Stock on the Company’s share register or credit the Holder’s or its designee’s balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon the Holder’s conversion hereunder (as the case may be), and if on or after such third (3rd) Trading Day the Holder (or any other Person in respect, or on behalf, of the Holder) purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of all or any portion of the number of shares of Common Stock, or a sale of a number of shares of Common Stock equal to all or any portion of the number of shares of Common Stock, issuable upon such conversion that the Holder so anticipated receiving from the Company, then, in addition to all other remedies available to the Holder, the Company shall, within three (3) Business Days after the Holder’s request and in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total purchase price (including brokerage commissions and other out-of-pocket expenses, if any) for the shares of Common Stock so purchased (including, without limitation, by any other Person in respect, or on behalf, of the Holder) (the “Buy-In Price”), at which point the Company’s obligation to so issue and deliver such certificate or credit the Holder’s balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon the Holder’s conversion hereunder (as the case may be) (and to issue such shares of Common Stock) shall terminate, or (ii) promptly honor its obligation to so issue and deliver to the Holder a certificate or certificates representing such shares of Common Stock or credit the Holder’s balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon the Holder’s conversion hereunder (as the case may be) and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock multiplied by (B) the lowest Closing Sale Price of the Common Stock on any Trading Day during the period commencing on the date of the applicable Conversion Notice and ending on the date of such issuance and payment under this clause (ii).

 

  

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(iii)         Registration; Book-Entry. The Company shall maintain a register (the “Register”) for the recordation of the names and addresses of the holders of each Note and the principal amount of the Notes held by such holders (the “Registered Notes”).  The entries in the Register shall be conclusive and binding for all purposes absent manifest error.  The Company and the holders of the Notes shall treat each Person whose name is recorded in the Register as the owner of a Note for all purposes, including, without limitation, the right to receive payments of Principal and Interest, if any, hereunder, notwithstanding notice to the contrary.  A Registered Note may be assigned or sold in whole or in part only by registration of such assignment or sale on the Register.  Upon its receipt of a request to assign or sell all or part of any Registered Note by a Holder, the Company shall record the information contained therein in the Register and issue one or more new Registered Notes in the same aggregate principal amount as the principal amount of the surrendered Registered Note to the designated assignee or transferee pursuant to Section 16, provided that if the Company does not so record an assignment, transfer or sale (as the case may be) of all or part of any Registered Note within two (2) Business Days of such a request, then the Register shall be automatically updated to reflect such assignment, transfer or sale (as the case may be).  Notwithstanding anything to the contrary in this Section 3(c)(iii), a Holder may assign any Note or any portion thereof to an Affiliate of such Holder or a Related Fund of such Holder without delivering a request to assign or sell such Note to the Company and the recordation of such assignment or sale in the Register (a “Related Party Assignment”); provided, that (x) the Company may continue to deal solely with such assigning or selling Holder unless and until such Holder has delivered a request to assign or sell such Note or portion thereof to the Company for recordation in the Register; (y) the failure of such assigning or selling Holder to deliver a request to assign or sell such Note or portion thereof to the Company shall not affect the legality, validity, or binding effect of such assignment or sale and (z) such assigning or selling Holder shall, acting solely for this purpose as a non-fiduciary agent of the Company, maintain a register (the “Related Party Register”) comparable to the Register on behalf of the Company, and any such assignment or sale shall be effective upon recordation of such assignment or sale in the Related Party Register.  Notwithstanding anything to the contrary set forth herein, upon conversion of any portion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Company unless (A) the full Conversion Amount represented by this Note is being converted or (B) the Holder has provided the Company with prior written notice (which notice may be included in a Conversion Notice) requesting physical surrender and reissue of this Note.  The Holder and the Company shall maintain records showing the Principal, Interest and Late Charges, if any, converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Note upon conversion.

 

  

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(iv)        Pro Rata Conversion; Disputes.  In the event that the Company receives a Conversion Notice from more than one holder of Notes for the same Conversion Date and the Company can convert some, but not all, of such portions of the Notes submitted for conversion, the Company, subject to Section 3(d), shall convert from each holder of Notes electing to have Notes converted on such date a pro rata amount of such holder’s portion of its Notes submitted for conversion based on the principal amount of Notes submitted for conversion on such date by such holder relative to the aggregate principal amount of all Notes submitted for conversion on such date.  In the event of a dispute as to the number of shares of Common Stock issuable to the Holder in connection with a conversion of this Note, the Company shall issue to the Holder the number of shares of Common Stock not in dispute and resolve such dispute in accordance with Section 21.

 

(d)           Beneficial Ownership Limitation.  Notwithstanding anything to the contrary contained in this Note, this Note shall not be convertible by the Holder hereof, and no Automatic Conversion shall occur and the Company shall not otherwise issue any shares of Common Stock pursuant to Section 8 hereof, to the extent (but only to the extent) that the Holder or any of its affiliates would beneficially own in excess of 9.9% (the “Maximum Percentage”) of the Common Stock. To the extent the above limitation applies, the determination of whether this Note shall be convertible (vis-à-vis other convertible, exercisable or exchangeable securities owned by the Holder or any of its affiliates) and of which such securities shall be convertible, exercisable or exchangeable (as among all such securities owned by the Holder and its affiliates) shall, subject to such Maximum Percentage limitation, be determined on the basis of the first submission to the Company for conversion, exercise or exchange (as the case may be). No prior inability to convert this Note, or to issue shares of Common Stock, pursuant to this paragraph shall have any effect on the applicability of the provisions of this paragraph with respect to any subsequent determination of convertibility. For purposes of this paragraph, beneficial ownership and all determinations and calculations (including, without limitation, with respect to calculations of percentage ownership) shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “1934 Act”), and the rules and regulations promulgated thereunder. The provisions of this paragraph shall be implemented in a manner otherwise than in strict conformity with the terms of this paragraph to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Maximum Percentage beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such Maximum Percentage limitation. The limitations contained in this paragraph shall apply to a successor Holder of this Note. The holders of Common Stock shall be third party beneficiaries of this paragraph and the Company may not waive this paragraph without the consent of holders of a majority of its Common Stock. For any reason at any time, upon the written or oral request of the Holder, the Company shall within one (1) Business Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.

 

  

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4.           RIGHTS UPON EVENT OF DEFAULT.

 

(a)           Event of Default.  The occurrence of any the following events shall constitute an “Event of Default”:

 

(i)           any restrictive legend is placed on any certificate or any shares of Common Stock issued to the Holder upon conversion or exercise (as the case may be) of any Securities (as defined in the Exchange Agreement) acquired by the Holder as and when required by such Securities;

 

(ii)          the suspension from trading or failure of the Common Stock to be listed on an Eligible Market for a period of five (5) consecutive Trading Days or for more than an aggregate of ten (10) Trading Days in any 365-day period;

 

(iii)         subject to Section 3(d), the Company’s (A) failure to cure a Conversion Failure by delivery of the required number of shares of Common Stock within ten (10) Business Days after the applicable Conversion Date or (B) notice, written or oral, to any holder of the Notes, including by way of public announcement or through any of its agents, at any time, of its intention not to comply with a request for conversion of any Notes into shares of Common Stock that is tendered in accordance with the provisions of the Notes;

 

(iv)         from and after the date on which Stockholder Approval is obtained, at any time following the tenth (10th) consecutive Business Day that the Holder’s Authorized Share Allocation is less than the number of shares of Common Stock that the Holder would be entitled to receive upon a conversion of the full Conversion Amount of this Note (without regard to any limitations on conversion set forth in Section 3(d) or otherwise);

 

(v)          the Company’s failure to pay to the Holder any amount of Principal (including, without limitation, any redemption payments), Interest, Late Charges or other amounts when and as due under this Note or any other Transaction Document (as defined in the Exchange Agreement) or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated hereby and thereby to which the Holder is a party, except, in the case of a failure to pay Interest, Late Charges or any other such amounts specified above, other than the Principal, when and as due, in which case only if such failure continues for a period of at least five (5) Business Days;

 

(vi)         any default under, redemption of or acceleration prior to maturity of any Indebtedness of the Company or any of its Subsidiaries other than with respect to any Other Notes;

 

  

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(vii)       the Company or any of its Subsidiaries, pursuant to or within the meaning of Title 11, U.S. Code, or any similar Federal, foreign or state law for the relief of debtors (collectively, “Bankruptcy Law”), (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a receiver, trustee, assignee, liquidator or similar official (a “Custodian”), (D) makes a general assignment for the benefit of its creditors or (E) admits in writing that it is generally unable to pay its debts as they become due;

 

(viii)      a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that (A) is for relief against the Company or any of its Subsidiaries in an involuntary case, (B) appoints a Custodian of the Company or any of its Subsidiaries or (C) orders the liquidation of the Company or any of its Subsidiaries;

 

(ix)         a final judgment or judgments for the payment of money aggregating in excess of $200,000 are rendered against the Company or any of its Subsidiaries and which judgments are not, within sixty (60) days after the entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within sixty (60) days after the expiration of such stay; provided, however, that any judgment which is covered by insurance or an indemnity from a credit worthy party shall not be included in calculating the $200,000 amount set forth above so long as the Company provides the Holder a written statement from such insurer or indemnity provider (which written statement shall be reasonably satisfactory to the Holder) to the effect that such judgment is covered by insurance or an indemnity and the Company will receive the proceeds of such insurance or indemnity within thirty (30) days of the issuance of such judgment;

 

(x)          other than as specifically set forth in another clause of this Section 4(a), the Company breaches any material representation, warranty, covenant or other term or condition of any Transaction Document, except, in the case of a breach of a covenant or other term or condition which is curable, only if such breach continues for a period of at least ten (10) consecutive Business Days;

 

(xi)         any breach or failure in any respect to comply with (x) Section 13 of this Note, except, in the case of a breach of or failure to comply with Section 13 which is curable, only if such breach or failure continues for a period of at least ten (10) consecutive Business Days or (y) Section 8 of this Note;

 

(xii)        any material damage to, or loss, theft or destruction of, a material amount of property of the Company, whether or not insured, or any strike, lockout, labor dispute, embargo, condemnation, act of God or public enemy, or other casualty which causes, for more than thirty (30) consecutive days, the cessation or substantial curtailment of revenue producing activities at any facility of the Company or any Subsidiary, if any such event or circumstance could reasonably be expected to have a Material Adverse Effect (as defined in the Exchange Agreement);

 

  

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(xiii)       Stockholder Approval (as defined in the Exchange Agreement) is not obtained on or prior to the Stockholder Meeting Deadline (as defined in the Exchange Agreement); or

 

(xiv)      any Event of Default (as defined in the Other Notes) occurs with respect to any Other Notes which is not cured or waived in writing by the holder(s) of the Other Notes (individually, the “Other Holder” and collectively, the “Other Holders”).

 

(b)           Redemption Right. Upon the occurrence and during the continuation of an Event of Default, the Holder may require the Company to redeem all or any portion of this Note by delivering written notice thereof (the “Event of Default Redemption Notice”) to the Company, which Event of Default Redemption Notice shall indicate the portion of this Note the Holder is electing to redeem.  Each portion of this Note subject to redemption by the Company pursuant to this Section 4(b) shall be redeemed by the Company in cash at a price equal to 125% of the greater of (x) the Conversion Amount to be redeemed and (y) the product of (A) the Conversion Rate in effect at such time as the Holder delivers an Event of Default Redemption Notice with respect to such Conversion Amount being redeemed and (B) the greatest Closing Sale Price of the Common Stock on any Trading Day during the period commencing on the date immediately preceding such Event of Default and ending on the date the Holder delivers the Event of Default Redemption Notice (the “Event of Default Redemption Price”).  Redemptions required by this Section 4(b) shall be made in accordance with the provisions of Section 11.  To the extent redemptions required by this Section 4(b) are deemed or determined by a court of competent jurisdiction to be prepayments of the Note by the Company, such redemptions shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 4(b), but subject to Section 3(d), until the Event of Default Redemption Price (together with any Late Charges thereon) is paid in full, the Conversion Amount submitted for redemption under this Section 4(b) (together with any Late Charges thereon) may be converted, in whole or in part, by the Holder into Common Stock pursuant to the terms of this Note. In the event of a partial redemption of this Note pursuant hereto, the Principal amount redeemed shall be deducted from the Installment Amount(s) relating to the applicable Installment Date(s) as set forth in the Event of Default Redemption Notice. The parties hereto agree that in the event of the Company’s redemption of any portion of the Note under this Section 4(b), the Holder’s damages would be uncertain and difficult to estimate because of the parties’ inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for the Holder.  Accordingly, any redemption premium due under this Section 4(b) is intended by the parties to be, and shall be deemed, a reasonable estimate of the Holder’s actual loss of its investment opportunity and not as a penalty.

 

  

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5.           RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.

 

(a)           Assumption.  The Company shall not enter into or be party to a Fundamental Transaction unless (i)  the Successor Entity assumes in writing all of the obligations of the Company under this Note and the other Transaction Documents in accordance with the provisions of this Section 5(a) pursuant to written agreements in form and substance reasonably satisfactory to the Required Holders and approved by the Required Holders prior to such Fundamental Transaction, including agreements to deliver to each holder of Notes in exchange for such Notes a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to the Notes, including, without limitation, having a principal amount and interest rate equal to the principal amounts and the interest rates of the Notes then outstanding held by such holder, having similar conversion rights and having similar ranking and security to the Notes, and satisfactory to the Required Holders and (ii) the Successor Entity (including its Parent Entity) is a publicly traded corporation whose common stock is quoted on or listed for trading on an Eligible Market.  Upon the occurrence of any Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Note referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Note with the same effect as if such Successor Entity had been named as the Company herein.  Upon consummation of the Fundamental Transaction, the Successor Entity shall deliver to the Holder confirmation that there shall be issued upon conversion or redemption of this Note at any time after the consummation of the Fundamental Transaction, in lieu of the shares of Common Stock or other securities, cash, assets or other property (except such items still issuable under Section 6, which shall continue to be receivable thereafter) issuable upon the conversion or redemption of the Notes prior to such Fundamental Transaction, such shares of the publicly traded common stock (or their equivalent) of the Successor Entity (including its Parent Entity), as adjusted in accordance with the provisions of this Note which the Holder would have been entitled to receive upon the happening of such Fundamental Transaction had this Note been converted immediately prior to such Fundamental Transaction (without regard to any limitations on the conversion of this Note). The provisions of this Section shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations on the conversion or redemption of this Note.

 

  

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(b)           Redemption Right.  No sooner than fifteen (15) days 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 Company shall deliver written notice thereof via facsimile and overnight courier to the Holder (a “Change of Control Notice”).  At any time during the period beginning after the Holder’s receipt of a Change of Control Notice and ending twenty (20) Trading Days after the date of the consummation of such Change of Control, the Holder may require the Company to redeem (a “Change of Control Redemption”) all or any portion of this Note by delivering written notice thereof (“Change of Control Redemption Notice”, and the date thereof, the “Change of Control Redemption Notice Date”) to the Company, which Change of Control Redemption Notice shall indicate the Conversion Amount the Holder is electing to require the Company to redeem.  The portion of this Note subject to redemption pursuant to this Section 5(b) shall be redeemed by the Company in cash at a price equal to 125% of the greater of (x) the Conversion Amount to be redeemed and (y) the product of (A) the Conversion Rate in effect at such time as the Holder delivers a Change of Control Redemption Notice with respect to such Conversion Amount being redeemed and (B) the greatest Closing Sale Price of the shares of Common Stock during the period beginning on the date immediately preceding the earlier to occur of (1) the consummation of the Change of Control and (2) the public announcement of such Change of Control and ending on the date the Holder delivers the Change of Control Redemption Notice (the “Change of Control Redemption Price”).  Redemptions required by this Section 5 shall be made in accordance with the provisions of Section 11 and shall have priority to payments to stockholders in connection with a Change of Control.  To the extent redemptions required by this Section 5(b) are deemed or determined by a court of competent jurisdiction to be prepayments of the Note by the Company, such redemptions shall be deemed to be voluntary prepayments.  Notwithstanding anything to the contrary in this Section 5, but subject to Section 3(d), until the Change of Control Redemption Price (together with any interest thereon) is paid in full, the Conversion Amount submitted for redemption under this Section 5(b) (together with any interest thereon) may be converted, in whole or in part, by the Holder into Common Stock pursuant to Section 3.  In the event of a partial redemption of this Note pursuant hereto, the Principal amount redeemed shall be deducted from the Installment Amount(s) relating to the applicable Installment Date(s) as set forth in the Change of Control Redemption Notice. The parties hereto agree that in the event of the Company’s redemption of any portion of the Note under this Section 5(b), the Holder’s damages would be uncertain and difficult to estimate because of the parties’ inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for the Holder. Accordingly, any redemption premium due under this Section 5(b) is intended by the parties to be, and shall be deemed, a reasonable estimate of the Holder’s actual loss of its investment opportunity and not as a penalty.

 

6.           DISTRIBUTION OF ASSETS; RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.

 

(a)           Distribution of Assets.  If the Company shall declare or make any dividend or other distributions of its assets (or rights to acquire its assets) to any or all holders of shares of Common Stock, by way of return of capital or otherwise (including without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (the “Distributions”), then the Holder will be entitled to such Distributions as if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without taking into account any limitations or restrictions on the convertibility of this Note) immediately prior to the date on which a record is taken for such Distribution or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for such Distributions (provided, however, to the extent that the Holder’s right to participate in any such Distributions would result in the Holder exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such Distribution to such extent (or the beneficial ownership of any such shares of Common Stock as a result of such Distribution to such extent) and such Distribution to such extent shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Maximum Percentage).

 

  

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

 

(c)           Other Corporate Events.  In addition to and not in substitution for any other rights hereunder, prior to the consummation of any Fundamental Transaction pursuant to which holders of shares of Common Stock are entitled to receive securities or other assets with respect to or in exchange for shares of Common Stock (a “Corporate Event”), the Company shall make appropriate provision to insure that the Holder will thereafter have the right to receive upon a conversion of this Note, (i) in addition to the shares of Common Stock receivable upon such conversion, such securities or other assets to which the Holder would have been entitled with respect to such shares of Common Stock had such shares of Common Stock been held by the Holder upon the consummation of such Corporate Event (without taking into account any limitations or restrictions on the convertibility of this Note) or (ii) in lieu of the shares of Common Stock otherwise receivable upon such conversion, such securities or other assets received by the holders of shares of Common Stock in connection with the consummation of such Corporate Event in such amounts as the Holder would have been entitled to receive had this Note initially been issued with conversion rights for the form of such consideration (as opposed to shares of Common Stock) at a conversion rate for such consideration commensurate with the Conversion Rate.  Provision made pursuant to the preceding sentence shall be in a form and substance satisfactory to the Required Holders.  The provisions of this Section shall apply similarly and equally to successive Corporate Events and shall be applied without regard to any limitations on the conversion or redemption of this Note.

 

  

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7.           RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

 

(a)           Adjustment of Conversion Price upon Issuance of Common Stock.  If and whenever on or after the Subscription Date the Company issues or sells, or in accordance with this Section 7(a) is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding any Excluded Securities issued or sold or deemed to have been issued or sold) for a consideration per share (the “Dilutive Issuance Price”) that is less than a price equal to the Conversion Price in effect immediately prior to such issue or sale or deemed issuance or sale (the “Applicable Conversion Price”) (the foregoing, a “Dilutive Issuance”), then immediately following such Dilutive Issuance, the Applicable Conversion Price then in effect shall be reduced to an amount equal to the Dilutive Issuance Price. For all purposes of the foregoing (including, without limitation, determining the reduced Conversion Price and consideration per share under this Section 7(a)), the following shall be applicable:

 

(i)           Issuance of Options.  If the Company in any manner grants any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option is less than the Applicable Conversion Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share.  For purposes of this Section 7(a)(i), the “lowest price per share for which one share of Common Stock is issuable upon exercise of such Options or upon conversion, exercise or exchange of such Convertible Securities issuable upon exercise of any such Option” shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting or sale of the Option, upon exercise of the Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option less any consideration paid or payable by the Company with respect to such one share of Common Stock upon the granting or sale of such Option, upon exercise of such Option and upon conversion exercise or exchange of any Convertible Security issuable upon exercise of such Option.  No further adjustment of the Conversion Price shall be made upon the actual issuance of such shares of Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Convertible Securities.

 

(ii)          Issuance of Convertible Securities.  If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof is less than the Applicable Conversion Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share.  For the purposes of this Section 7(a)(ii), the “lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof” shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to one share of Common Stock upon the issuance or sale of the Convertible Security and upon conversion, exercise or exchange of such Convertible Security less any consideration paid or payable by the Company with respect to such one share of Common Stock upon the issuance or sale of such Convertible Security and upon conversion, exercise or exchange of such Convertible Security.  No further adjustment of the Conversion Price shall be made upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Conversion Price has been or is to be made pursuant to other provisions of this Section 7(a), no further adjustment of the Conversion Price shall be made by reason of such issue or sale.

 

  

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(iii)         Change in Option Price or Rate of Conversion.  If the purchase price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exercise or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exercisable or exchangeable for shares of Common Stock increases or decreases at any time, the Conversion Price in effect at the time of such increase or decrease shall be adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities provided for such increased or decreased purchase price, additional consideration or increased or decreased conversion rate, as the case may be, at the time initially granted, issued or sold.  For purposes of this Section 7(a)(iii), if the terms of any Option or Convertible Security that was outstanding as of the Subscription Date are increased or decreased in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the shares of Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such increase or decrease.  No adjustment pursuant to this Section 7(a) shall be made if such adjustment would result in an increase of the Conversion Price then in effect.

 

(iv)        Calculation of Consideration Received.  In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction, (x) the Options will be deemed to have been issued for the Option Value and (y) the other securities issued or sold in such integrated transaction shall be deemed to have been issued for the difference of (I) the aggregate consideration received by the Company less any consideration paid or payable by the Company pursuant to the terms of such other securities of the Company, less (II) the Option Value.  If any shares of Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor.  If any shares of Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Company will be the Closing Sale Price of such security on the date of receipt.  If any shares of Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such shares of Common Stock, Options or Convertible Securities, as the case may be.  The fair value of any consideration other than cash or securities will be determined jointly by the Company and the Required Holders.  If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will be determined within five (5) Trading Days after the tenth (10th) day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Required Holders.  The determination of such appraiser shall be final and binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company.

 

  

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(v)         Record Date.  If the Company takes a record of the holders of shares of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in shares of Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase shares of Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

 

(b)           Adjustment of Conversion Price upon Subdivision or Combination of Common Stock.  If the Company at any time on or after the Subscription Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced.  If the Company at any time on or after the Subscription Date combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased.  Any adjustment pursuant to this Section 7(b) shall become effective immediately after the effective date of such subdivision or combination.

 

(c)           Other Events.  If any event occurs of the type contemplated by the provisions of this Section 7 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features, but excluding Excluded Securities), then the Company’s Board of Directors will make an appropriate adjustment in the Conversion Price so as to protect the rights of the Holder under this Note; provided, that no such adjustment pursuant to this Section 7(c) will increase the Conversion Price as otherwise determined pursuant to this Section 7.

 

8.           INSTALLMENT DATE AUTOMATIC CONVERSIONS. The applicable Installment Amount due on each Installment Date shall be automatically converted into Common Stock in accordance with, and subject to, this Section 8 (an “Automatic Conversion”).

 

  

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(a)           Mechanics of Automatic Conversion.

 

(i)           On each Pre-Installment Date, the Company shall issue and deliver to the Holder’s account with DTC (or if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver a certificate) such number of validly issued, fully paid and non-assessable shares of Common Stock (the “Pre-Installment Conversion Shares”) equal to the quotient of (x) the applicable Installment Amount divided by (y) the Pre-Installment Conversion Price, and as to which the Holder shall be the owner thereof on the applicable Pre-Installment Date.

 

(ii)           The applicable Installment Amount, if any, which remains outstanding as of the applicable Installment Date shall be automatically converted as of the applicable Installment Date into a number of validly issued, fully paid and non-assessable shares of Common Stock equal to the quotient of (x) such remaining applicable Installment Amount divided by (y) the Automatic Conversion Price, and the Company shall, on the applicable Installment Date, deliver to the Holder’s account with DTC (or if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver a certificate) such shares of Common Stock issued upon such conversion (subject to the reduction contemplated by the immediately following sentence and, if applicable, Section 8(b)). The number of shares of Common Stock to be delivered on such Installment Date shall be reduced by the number of Pre-Installment Conversion Shares delivered on the Pre-Installment Date immediately preceding such Installment Date.

 

(b)           Excess Pre-Installment Conversion Shares. If, with respect to an Installment Date, the number of Pre-Installment Conversion Shares delivered to the Holder exceeds the number of Post-Installment Conversion Shares with respect to such Installment Date, then the number of shares of Common Stock equal to such excess shall constitute a credit against the number of shares of Common Stock to be issued to such Holder pursuant to Section 3 and Section 8 hereof and shall reduce the number of shares of Common Stock required to be actually issued by the Company to the Holder under such sections on a share-for-share basis until such time as the number of shares that would have been issued by the Company to such Holder (not taking account of such credit) equals the amount of such excess.

 

  

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(c)           Event of Default Between Pre-Installment Date and Installment Date. If an Event of Default occurs and is continuing after the applicable Pre-Installment Date and prior to the applicable Installment Date, then at the option of the Holder, the Holder may require the Company to do any one or more of the following: (i) the Company shall redeem in cash all or any part designated by the Holder of the applicable Installment Amount (including at the election of the Holder, such amount converted to Pre-Installment Conversion Shares in which case the Holder shall return such Pre-Installment Conversion Shares to the Company) (such designated amount is referred to as the “Designated Redemption Amount”) and/or (ii) the Automatic Conversion shall be null and void with respect to all or any part designated by the Holder of the unconverted applicable Installment Amount and the Holder shall be entitled to all the rights of a holder of this Note with respect to such amount of the applicable Installment Amount; provided, however, that the Conversion Price for such unconverted Installment Amount shall thereafter be adjusted to equal the lesser of (A) the Automatic Conversion Price as in effect on the date on which the Holder voided the Automatic Conversion or (B) the Automatic Conversion Price as in effect on the date on which the Holder delivers a Conversion Notice relating thereto. If the Company fails to redeem any Designated Redemption Amount on or before the applicable Installment Date by payment of such amount on the applicable Installment Date, then the Holder shall have the rights set forth in Section 11 as if the Company failed to pay an Event of Default Redemption Price as of the applicable Installment Date and all other rights under this Note (including, without limitation, such failure constituting an Event of Default described in Section 4(a)(v)).

 

(d)           Miscellaneous. Notwithstanding anything to the contrary in this Section 8(a), but subject to the limitations set forth in Section 3(d), until the Company delivers Common Stock representing the applicable Post-Installment Conversion Shares (reduced by the number of applicable Pre-Installment Conversion Shares), the applicable Installment Amount may be converted by the Holder into Common Stock pursuant to Section 3.  In the event that the Holder elects to convert any portion of this Note prior to the applicable Installment Date as set forth in the immediately preceding sentence, the amount so converted that constitutes Principal shall be deducted from the Installment Amount(s) relating to the applicable Installment Date(s) as set forth in the applicable Conversion Notice. Notwithstanding anything contained in this Section 8 to the contrary, this Section 8 is subject to the limitations set forth in Section 3(d) and to the extent that the issuance of any shares of Common Stock to the Holder pursuant to this Section 8 would result in the Holder exceeding the Maximum Percentage, then the Holder shall not be entitled to be issued such shares of Common Stock to such extent and such shares of Common Stock shall not be issued until such time as the Holder’s right thereto would not result in the Holder exceeding the Maximum Percentage.

 

9.           NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by amendment of its certificate of incorporation, bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Note, and will at all times in good faith carry out all of the provisions of this Note and take all action as may be required to protect the rights of the Holder of this Note.

 

  

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10.         RESERVATION OF AUTHORIZED SHARES.

 

(a)           Reservation. From the Issuance Date and all times prior to the receipt of Stockholder Approval, the Company shall reserve out of its authorized and unissued Common Stock 15,729,082 shares of Common Stock for all of the Notes. From and after receipt of the Stockholder Approval, for so long as any of the Notes are outstanding, the Company shall take all action necessary to reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Notes, 130% of the number of shares of Common Stock as shall from time to time be necessary to effect the conversion of all of the Notes then outstanding, provided that at no time after receipt of Stockholder Approval shall the number of shares of Common Stock so reserved be less than the number of shares required to be reserved by this sentence (without regard to any limitations on conversions) (the “Required Reserve Amount”). The initial number of shares of Common Stock reserved for conversions of the Notes and each increase in the number of shares so reserved shall be allocated pro rata among the holders of the Notes based on the original principal amount of the Notes held by each holder at the Closing (as defined in the Exchange Agreement) or increase in the number of reserved shares, as the case may be (the “Authorized Share Allocation”).  In the event that a holder shall sell or otherwise transfer any of such holder’s Notes, each transferee shall be allocated a pro rata portion of such holder’s Authorized Share Allocation.  Any shares of Common Stock reserved and allocated to any Person which ceases to hold any Notes shall be allocated to the remaining holders of Notes, pro rata based on the principal amount of the Notes then held by such holders.

 

(b)           Insufficient Authorized Shares. If at any time after Stockholder Approval is obtained the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon conversion of the Notes at least a number of shares of Common Stock equal to the Required Reserve Amount (an “Authorized Share Failure”), then the Company shall immediately take all action necessary to increase the Company’s authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for the Notes then outstanding.  Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than sixty (60) days after the occurrence of such Authorized Share Failure, the Company shall either (x) obtain the written consent of its stockholders for the approval of an increase in the number of authorized shares of Common Stock and provide each stockholder with an information statement with respect thereto or (y) hold a meeting of its stockholders for the approval of an increase in the number of authorized shares of Common Stock; provided, that if the SEC reviews the (i) proxy statement contemplated in clause (y) above or (ii) the information statement contemplated in clause (x) above, then the sixty (60) day period may be extended for an additional period not to exceed thirty (30) days.  In connection with such meeting, the Company shall provide each stockholder with a proxy statement and shall use its best efforts to solicit its stockholders’ approval of such increase in authorized shares of Common Stock and to cause its Board of Directors to recommend to the stockholders that they approve such proposal.

 

  

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11.           REDEMPTIONS.

 

(a)           Mechanics.  The Company shall deliver the applicable Event of Default Redemption Price to the Holder within five (5) Business Days after the Company’s receipt of the Holder’s Event of Default Redemption Notice (the “Event of Default Redemption Date”).  If the Holder has submitted a Change of Control Redemption Notice in accordance with Section 5(b), the Company shall deliver the applicable Change of Control Redemption Price to the Holder (i) concurrently with the consummation of such Change of Control if such notice is received prior to or simultaneous with the consummation of such Change of Control and (ii) within five (5) Business Days after the Company’s receipt of such notice otherwise (such date, the “Change of Control Redemption Date”).  In the event that the Company does not pay the applicable Redemption Price to the Holder within the time period required, at any time thereafter and until the Company pays such unpaid Redemption Price in full, the Holder shall have the option, in lieu of redemption, to require the Company to promptly return to the Holder all or any portion of this Note representing the Conversion Amount that was submitted for redemption and for which the applicable Redemption Price (together with any Late Charges thereon) has not been paid. In the event of a redemption of less than all of the Conversion Amount of this Note, the Company shall promptly cause to be issued and delivered to the Holder a new Note (in accordance with Section 16(d)) representing the outstanding Principal which has not been redeemed. Upon the Company’s receipt of such notice, (x) the applicable Redemption Notice shall be null and void with respect to such Conversion Amount, (y) the Company shall immediately return this Note, or issue a new Note (in accordance with Section 16(d)), to the Holder, and in each case the principal amount of this Note or such new Note (as the case may be) shall be increased by an amount equal to the difference between (1) the applicable Event of Default Redemption Price or Change of Control Redemption Price (as the case may be) minus (2) the Principal portion of the Conversion Amount submitted for redemption and (z) the Conversion Price of this Note or such new Notes (as the case may be) shall be automatically adjusted with respect to each conversion effected thereafter by the Holder to the lowest of (A) the Conversion Price as in effect on the date on which the applicable Redemption Notice is voided, (B) 75% of the lowest Closing Bid Price of the Common Stock during the period beginning on and including the date on which the applicable Redemption Notice is delivered to the Company and ending on and including the date on which the applicable Redemption Notice is voided and (C) 75% of the arithmetic average of the Weighted Average Prices of the Common Stock for the five (5) Trading Day period immediately preceding the Conversion Date of the applicable conversion. The Holder’s delivery of a notice voiding a Redemption Notice and exercise of its rights following such notice shall not affect the Company’s obligations to make any payments of Late Charges which have accrued prior to the date of such notice with respect to the Conversion Amount subject to such notice.

 

(b)           Redemption by Other Holders.  Upon the Company’s receipt of notice from any of the holders of the Other Notes for redemption or repayment as a result of an event or occurrence substantially similar to the events or occurrences described in Section 4(b) or Section 5(b) (each, an “Other Redemption Notice”), the Company shall immediately, but no later than one (1) Business Day of its receipt thereof, forward to the Holder by facsimile a copy of such notice. If the Company receives a Redemption Notice and one or more Other Redemption Notices, during the seven (7) Business Day period beginning on and including the date which is three (3) Business Days prior to the Company’s receipt of the Holder’s Redemption Notice and ending on and including the date which is three (3) Business Days after the Company’s receipt of the Holder’s Redemption Notice and the Company is unable to redeem all principal, interest and other amounts designated in such Redemption Notice and such Other Redemption Notices received during such seven (7) Business Day period, then the Company shall redeem a pro rata amount from each holder of the Notes (including the Holder) based on the principal amount of the Notes submitted for redemption pursuant to such Redemption Notice and such Other Redemption Notices received by the Company during such seven (7) Business Day period.

 

  

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12.          VOTING RIGHTS.  The Holder shall have no voting rights as the holder of this Note, except as provided by law and as expressly provided in this Note.

 

13.          COVENANTS.

 

(a)           Rank.    All payments due under this Note shall rank (i) senior to all the Company’s debt currently outstanding or hereafter created, unless prohibited by law, other than as set forth in the immediately following clause (ii); and (ii) pari passu with and be of equal priority to: (x) all of the 12% promissory notes that the Company issued on December 8, 2008, January 30, 2009, May 4, 2009 and June 12, 2009 that remain outstanding as of the Issuance Date (y) all Other Notes, provided, that the terms of such Indebtedness set forth in clauses (x) and (y) above are not increased, amended, waived, modified, changed or extended in any manner or respect on or after the Issuance Date.

 

(b)           Incurrence of Indebtedness. So long as this Note is outstanding, the Company shall not, and the Company shall not permit any of its Subsidiaries to, directly or indirectly, incur or guarantee, assume or suffer to exist any Indebtedness, other than: (i) the Indebtedness expressly set forth on Schedule 5(i) to the Exchange Agreement, provided, that the terms of such Indebtedness are not increased, amended, waived, modified, changed or extended in any manner or respect on or after the Issuance Date; (ii) Indebtedness evidenced by this Note and the Other Notes; (iii) unsecured Indebtedness incurred by the Company that is made expressly subject to and subordinate in right of payment to the Indebtedness evidenced by this Note and the Other Notes, as reflected in a written agreement acceptable to the Required Holders and approved by the Required Holders in writing, and which Indebtedness does not provide at any time for (A) the payment, prepayment, repayment, repurchase or defeasance, directly or indirectly, of any principal or premium, if any, thereon until ninety-one (91) days after the Maturity Date or later and (B) total interest and fees at a rate in excess of 8% per annum; (iv) trade payables incurred in the ordinary course of business consistent with past practice; and (v) Indebtedness contemplated to be incurred by Jade Pharmaceuticals Inc. (the “Jade Indebtedness”) and NuVax Therapeutics, Inc. (the “NuVax Indebtedness”); provided, that (w) the aggregate amount of Jade Indebtedness or NuVax Indebtedness outstanding at any one time shall not exceed $2,000,000 for each of the Jade Indebtedness and the NuVax Indebtedness, (x) neither the Jade Indebtedness nor the NuVax Indebtedness shall at any time be incurred, guaranteed or assumed by the Company; and (y) neither the Jade Indebtedness nor the NuVax Indebtedness shall be, directly or indirectly, convertible or exchangeable into, or exercisable for, shares of Common Stock.

 

(c)           Existence of Liens. So long as this Note is outstanding, the Company shall not, and the Company shall not permit any of its Subsidiaries to, directly or indirectly, allow or suffer to exist any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by the Company or any of its Subsidiaries (collectively, “Liens”) other than Permitted Liens.

 

  

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(d)           Cash Dividend.  So long as this Note is outstanding, the Company shall not, and the Company shall not permit any of its Subsidiaries to, directly or indirectly, pay cash dividends or distributions on any equity securities of the Company or of its Subsidiaries.

 

(e)           Restricted Payments.  The Company shall not, and the Company shall not permit any of its Subsidiaries to, directly or indirectly, redeem, defease, repurchase, repay or make any payments in respect of, by the payment of cash or cash equivalents (in whole or in part, whether by way of open market purchases, tender offers, private transactions or otherwise), all or any portion of any Indebtedness (other than this Note, the Other Notes, the Jade Indebtedness and the NuVax Indebtedness), whether by way of payment in respect of principal of (or premium, if any) or interest on, such Indebtedness.

 

(f)           Restriction on Redemption. Until all of the Notes have been converted, redeemed or otherwise satisfied in accordance with their terms, the Company shall not, directly or indirectly, redeem or repurchase its capital stock without the prior express written consent of the Required Holders.

 

(g)           Intellectual Property.  The Company shall not, and the Company shall not permit any of its Subsidiaries, directly or indirectly, to encumber or allow any Liens on, any of its copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work, whether published or unpublished, any patents, patent applications and like protections, including improvements, divisions, continuations, renewals, reissues, extensions, and continuations-in-part of the same, trademarks, service marks and, to the extent permitted under applicable law, any applications therefor, whether registered or not, and the goodwill of the business of the Company and its Subsidiaries connected with and symbolized thereby, know-how, operating manuals, trade secret rights, rights to unpatented inventions, and any claims for damage by way of any past, present, or future infringement of any of the foregoing, other than Permitted Liens.

 

(h)           Preservation of Existence, Etc.  The Company shall maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, its existence, rights and privileges, and become or remain, and cause each of its Subsidiaries to become or remain, duly qualified and in good standing in each jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary.

 

(i)           Maintenance of Properties, Etc.  The Company shall maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all of its properties which are necessary or useful in the proper conduct of its business in good working order and condition, ordinary wear and tear excepted, and comply, and cause each of its Subsidiaries to comply, at all times with the provisions of all leases to which it is a party as lessee or under which it occupies property, so as to prevent any loss or forfeiture thereof or thereunder.

 

  

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(j)           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.

 

(k)           Transactions with Affiliates.  The Company shall not, nor shall it permit any of its Subsidiaries to, enter into, renew, extend or be a party to, any transaction or series of related transactions (including, without limitation, the purchase, sale, lease, transfer or exchange of property or assets of any kind or the rendering of services of any kind) with any Affiliate, except in the ordinary course of business in a manner and to an extent consistent with past practice and necessary or desirable for the prudent operation of its business, for fair consideration and on terms no less favorable to it or its Subsidiaries than would be obtainable in a comparable arm’s length transaction with a Person that is not an Affiliate thereof.

 

(l)            Distributions to Subsidiaries. So long as this Note is outstanding, the Company shall not make any payments, transfers or other distributions of cash, cash equivalents, any property or any other assets of the Company to Jade Pharmaceuticals Inc. or NuVax Therapeutics, Inc.

 

(m)          Change in Corporate Structure. The Company shall not modify its corporate structure.

 

14.           VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES.  The written consent of the Required Holders shall be required for any change or amendment to any of the Notes, unless the change shall only effect the Holder and the Company shall have offered such change to all holders of Notes and complied with the requirement of Section 11 of the Exchange Agreement, in which case only the consent of the Holder is required.

 

15.           TRANSFER.  This Note and any shares of Common Stock issued upon conversion of this Note may be offered, sold, assigned or transferred by the Holder without the consent of the Company.

 

16.           REISSUANCE OF THIS NOTE.

 

(a)           Transfer.  If this Note is to be transferred, the Holder shall surrender this Note to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Note (in accordance with Section 16(d)), registered as the Holder may request, representing the outstanding Principal being transferred by the Holder and, if less than the entire outstanding Principal is being transferred, a new Note (in accordance with Section 16(d)) to the Holder representing the outstanding Principal not being transferred.  The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of Section 3(c)(iii) following conversion or redemption of any portion of this Note, the outstanding Principal represented by this Note may be less than the Principal stated on the face of this Note.

 

  

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(b)           Lost, Stolen or Mutilated Note.  Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver to the Holder a new Note (in accordance with Section 16(d)) representing the outstanding Principal.

 

(c)           Note Exchangeable for Different Denominations.  This Note is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Note or Notes (in accordance with Section 16(d) and in principal amounts of at least $100,000) representing in the aggregate the outstanding Principal of this Note, and each such new Note will represent such portion of such outstanding Principal as is designated by the Holder at the time of such surrender.

 

(d)           Issuance of New Notes.  Whenever the Company is required to issue a new Note pursuant to the terms of this Note, such new Note (i) shall be of like tenor with this Note, (ii) shall represent, as indicated on the face of such new Note, the Principal remaining outstanding (or in the case of a new Note being issued pursuant to Section 16(a) or Section 16(c), the Principal designated by the Holder which, when added to the principal represented by the other new Notes issued in connection with such issuance, does not exceed the Principal remaining outstanding under this Note immediately prior to such issuance of new Notes), (iii) shall have an issuance date, as indicated on the face of such new Note, which is the same as the Issuance Date of this Note, (iv) shall have the same rights and conditions as this Note, and (v) shall represent accrued and unpaid Interest and Late Charges, if any, on the Principal of this Note, from the Issuance Date.

 

17.           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 and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue actual and consequential damages for any failure by the Company 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 and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof).  The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate.  The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required. The Company shall provide all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Note (including, without limitation, compliance with Section 7).

 

  

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18.           PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS.  If (a) this Note is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or the Holder otherwise takes action to collect amounts due under this Note or to enforce the provisions of this Note or (b) there occurs any bankruptcy, reorganization, receivership of the Company or other proceedings affecting Company creditors’ rights and involving a claim under this Note, then the Company shall pay the costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including, but not limited to, attorneys’ fees and disbursements.

 

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

 

20.           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. No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party.

 

21.           DISPUTE RESOLUTION.  In the case of a dispute as to the determination of the Closing Bid Price, the Closing Sale Price or the Weighted Average Price or the arithmetic calculation of the Conversion Rate, the Conversion Price, the Automatic Conversion Price, the Pre-Installment Conversion Price or any Redemption Price, the Company shall submit the disputed determinations or arithmetic calculations via facsimile within one (1) Business Day of receipt, or deemed receipt, of the Conversion Notice or Redemption Notice or other event giving rise to such dispute, as the case may be, to the Holder.  If the Holder and the Company are unable to agree upon such determination or calculation within one (1) Business Day of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within one Business Day submit via facsimile (a) the disputed determination of the Closing Bid Price, the Closing Sale Price or the Weighted Average Price to an independent, reputable investment bank selected by the Holder and approved by the Company, such approval not to be unreasonably withheld, or (b) the disputed arithmetic calculation of the Conversion Rate, Conversion Price, Automatic Conversion Price, Pre-Installment Conversion Price or any Redemption Price to the Company’s independent, outside accountant.  The Company shall cause the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than five (5) Business Days from the time it receives the disputed determinations or calculations.  Such investment bank’s or accountant’s determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.  The party whose calculation is furthest from the investment bank’s or accountant’s determination or calculation, as the case may be, shall be obligated to pay the fees and expenses of such investment bank or accountant.

 

  

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22.           NOTICES; PAYMENTS.

 

(a)           Notices.  Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance with Section 13 of the Exchange Agreement.  The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Note, including in reasonable detail a description of such action and the reason therefore.  Without limiting the generality of the foregoing, the Company shall give written notice to the Holder (i) immediately upon any adjustment of the Conversion Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least twenty (20) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.

 

(b)           Payments.  Except as otherwise provided in this Note, whenever any payment of cash is to be made by the Company to any Person pursuant to this Note, such payment shall be made in lawful money of the United States of America by a check drawn on the account of the Company and sent via overnight courier service to such Person at such address as previously provided to the Company in writing (which address, in the case of each of the Claimants (as defined in the Exchange Agreement), shall initially be as set forth on the Schedule of Claimants attached to the Exchange Agreement); provided, that the Holder may elect to receive a payment of cash via wire transfer of immediately available funds by providing the Company with prior written notice setting out such request and the Holder’s wire transfer instructions.  Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a Business Day, the same shall instead be due on the next succeeding day which is a Business Day.  Any amount of Principal or other amounts due under the Transaction Documents which is not paid when due shall result in a late charge being incurred and payable by the Company in an amount equal to interest on such amount at the rate of twenty four percent (24%) per annum from the date such amount was due until the same is paid in full (“Late Charge”).

 

23.           CANCELLATION.  After all Principal and other amounts at any time owed on this Note have been paid in full, this Note shall automatically be deemed canceled, shall be surrendered to the Company for cancellation and shall not be reissued.

 

24.           WAIVER OF NOTICE.  To the extent permitted by law, the Company hereby waives demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and the Exchange Agreement.

 

  

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25.           GOVERNING LAW; JURISDICTION; JURY TRIAL.  This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Note shall be governed by, the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York.  The Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper.  The Company hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address it set forth on the signature page hereto and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Company in any other jurisdiction to collect on the Company’s obligations to the Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other court ruling in favor of the Holder.  THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

26.           CURRENCY.  All principal, interest and other amounts owing under this Note or any Transaction Document that, in accordance with their terms, are paid in cash shall be paid in US dollars.  All amounts denominated in other currencies shall be converted in the US dollar equivalent amount in accordance with the Exchange Rate on the date of calculation.

 

27.           SEVERABILITY. If any provision of this Note is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Note so long as this Note as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties.  The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).

 

28.           CERTAIN DEFINITIONS.  For purposes of this Note, the following terms shall have the following meanings:

 

(a)           “Affiliate” means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, such Person, it being understood for purposes of this definition that “control” of a Person means the power directly or indirectly either to vote 10% or more of the stock having ordinary voting power for the election of directors of such Person or direct or cause the direction of the management and policies of such Person whether by contract or otherwise.

 

  

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(b)           “Approved Stock Plan” means any stock option plan which has been approved by the Board of Directors of the Company, pursuant to which the Company’s securities may be issued to any employee, officer or director for services provided to the Company in their capacity as such, provided that the issuance price, exercise price or deemed issuance or exercise price, for any securities issued pursuant to such a plan is equal to or exceeds the then existing exercise price for the Warrants.

 

(c)           “Automatic Conversion Price” means, with respect to a particular date of determination, the lower of (i) the Conversion Price then in effect and (ii) the price which is equal to the product of (1) 70% multiplied by (2) the quotient of (A) the sum of each of the three (3) lowest Closing Bid Prices of the Common Stock during the twenty (20) consecutive Trading Day period immediately preceding the applicable Installment Date (or, solely with respect to the Second Installment Date, if the Second Pre-Installment Date occurs prior to the receipt of Stockholder Approval and the Second Installment Date occurs more than twenty (20) Trading Days thereafter, the sum of each of the three (3) lowest Closing Bid Prices of the Common Stock during the period commencing on the Trading Day immediately following the Second Pre-Installment Date and ending on the Trading Day immediately preceding the Second Installment Date) (each such period, an “Automatic Conversion Measuring Period”) divided by (B) three (3). All such determinations to be appropriately adjusted for any stock split, stock dividend, stock combination or other similar transaction during any such Automatic Conversion Measuring Period. In the event of a dispute as to the determination of the Automatic Conversion Price, then such dispute shall be resolved pursuant to Section 21.

 

(d)           “Bloomberg” means Bloomberg Financial Markets.

 

(e)           “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.

 

(f)           “Change of Control” means any Fundamental Transaction other than (i) any reorganization, recapitalization or reclassification of the Common Stock in which holders of the Company’s Voting Stock immediately prior to such reorganization, recapitalization or reclassification continue after such reorganization, recapitalization or reclassification to hold publicly traded securities and, directly or indirectly, are, in all material respect, the holders of the voting power of the surviving entity (or entities with the authority or voting power to elect the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities) after such reorganization, recapitalization or reclassification, (ii) pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Company, (iii) a merger or consolidation of the Company in which the Company is the surviving entity and the holders of the Company’s Voting Stock immediately prior to such merger or consolidation hold a majority of the Company’s Voting Stock after such merger or consolidation or (iv) a merger or consolidation of a Subsidiary in which such Subsidiary is the surviving entity and such Subsidiary is wholly-owned by the Company or another Subsidiary that is wholly-owned by the Company after such merger or consolidation.

 

  

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(g)           “Closing Bid Price” and “Closing Sale Price” means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price, as the case may be, then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the “pink sheets” by OTC Markets Group, Inc. (formerly Pink Sheets LLC).  If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case may be, of such security on such date shall be the fair market value as mutually determined by the Company and the Holder.  If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 21. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction during the applicable calculation period.

 

(h)           “Closing Date” shall have the meaning set forth in the Exchange Agreement, which date is the date the Company initially issued Notes pursuant to the terms of the Exchange Agreement.

 

(i)           “Contingent Obligation” means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any Indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto.

 

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

 

  

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(k)           “Current Subsidiary” means any Person in which the Company on the Subscription Date, directly or indirectly, (i) owns any of the outstanding capital stock or holds any equity or similar interest of such Person or (ii) controls or operates all or any part of the business, operations or administration of such Person, and all of the foregoing, collectively, “Current Subsidiaries.”

 

(l)           “Eligible Market” means any one or more of the Principal Market, The New York Stock Exchange, Inc., The NASDAQ Capital Market, The NASDAQ Global Market, The NASDAQ Global Select Market or the NYSE Amex.

 

(m)           “Exchange Agreement” means that certain exchange agreement, dated as of the Subscription Date, by and among the Company and the Claimants to which the Company issued the Notes, the shares of Series A Convertible Preferred Stock and Warrants, as may be amended from time to time.

 

(n)           “Exchange Rate” means, in relation to any amount of currency to be converted into US dollars pursuant to this Note, the US dollar exchange rate as published in the Wall Street Journal on the relevant date of calculation (it being understood and agreed that where an amount is calculated with reference to, or over, a period of time, the date of calculation shall be the final date of such period of time).

 

(o)           “Excluded Securities” means (i) shares of Common Stock or standard options to purchase Common Stock to directors, officers or employees of the Company in their capacity as such pursuant to an Approved Stock Plan, provided that (1) all such issuances (taking into account the shares of Common Stock issuable upon exercise of such options) after the date hereof pursuant to this clause (A) do not, in the aggregate, exceed more than 1,500,000 shares of Common Stock (adjusted for stock splits, stock combinations and other similar transactions occurring after the date of this Agreement) and (2) the exercise price of any such options is not lowered, none of such options are amended to increase the number of shares issuable thereunder and none of the terms or conditions of any such options are otherwise materially changed in any manner that adversely affects any of the Claimants; (ii) shares of Common Stock issued upon the conversion or exercise of Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) issued prior to the date hereof, provided that the conversion or exercise (as the case may be) of any such Convertible Security is made solely pursuant to the conversion or exercise (as the case may be) provisions of such Convertible Security that were in effect on the date immediately prior to the Subscription Date, the conversion or exercise price of any such Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) is not lowered, none of such Convertible Securities are (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) (nor is any provision of any such Convertible Securities) amended or waived in any manner (whether by the Company or the holder thereof) to increase the number of shares issuable thereunder and none of the terms or conditions of any such Convertible Securities (other than standard options to purchase Common Stock issued pursuant to an Approved Stock Plan that are covered by clause (i) above) are otherwise materially changed or waived (whether by the Company or the holder thereof) in any manner that adversely affects any of the Claimants; (iii) the Warrant Shares and (iv) shares of Common Stock in connection with mergers, acquisitions, strategic licensing arrangements, strategic business partnerships or joint ventures, in each case with non-affiliated third parties and otherwise on an arm’s-length basis, the purpose of which is not to raise additional capital. Notwithstanding the foregoing, (x) any Common Stock issued or issuable to raise capital for the Company or its Subsidiaries, directly or indirectly, in connection with any transaction contemplated by clause (iv) above, including, without limitation, securities issued in one or more related transactions or that result in similar economic consequences, shall not constitute Excluded Securities, (y) shares of Common Stock issuable upon conversion of Notes (whether pursuant to Sections 3 or 8) shall not constitute Excluded Securities and (z) shares of Common Stock issuable upon conversion of shares of Series A Preferred Stock (whether pursuant to Sections 4 or 6 of the Certificate of Designations) shall not constitute Excluded Securities.

 

  

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(p)           “Fundamental Transaction” means that (i) the Company or any of its Subsidiaries shall, directly or indirectly, in one or more related transactions, (1) consolidate or merge with or into (whether or not the Company or any of its Subsidiaries is the surviving corporation) any other Person, or (2) sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of its respective properties or assets to any other Person, or (3) allow any other Person to make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the Company held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (4) consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with any other Person whereby such other Person acquires more than 50% of the outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the Company held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination), or (5) reorganize, recapitalize or reclassify the Common Stock, or (ii) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act and the rules and regulations promulgated thereunder) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding Voting Stock of the Company or (iii) without the prior written consent of the Required Holders, the individuals who were directors of the Company on the Subscription Date shall cease for any reason at any time to constitute a majority of the board of directors of the Company.

 

(q)           “GAAP” means United States generally accepted accounting principles, consistently applied.

 

(r)           “Holder Pro Rata Amount” means a fraction (i) the numerator of which is the original Principal amount of this Note on the Closing Date and (ii) the denominator of which is the aggregate original Principal amount of all Notes issued to the initial holders pursuant to the Exchange Agreement on the Closing Date.

 

  

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(s)           “Indebtedness” of any Person means, without duplication (i) all indebtedness for borrowed money, (ii) all obligations issued, undertaken or assumed as the deferred purchase price of property or services, including (without limitation) “capital leases” in accordance with GAAP (other than trade payables entered into in the ordinary course of business), (iii) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (iv) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (v) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (vi) all monetary obligations under any leasing or similar arrangement which, in connection with GAAP, consistently applied for the periods covered thereby, is classified as a capital lease, (vii) all indebtedness referred to in clauses (i) through (vi) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (viii) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (i) through (vii) above.

 

(t)           “Installment Amount” means (i) with respect to any Installment Date other than the Maturity Date, the lesser of (A) the product of (I) $1,237,500, multiplied by (II) the Holder Pro Rata Amount and (B) the Principal amount then outstanding under this Note as of such Installment Date, and (ii) with respect to the Installment Date that is the Maturity Date, the Principal amount then outstanding under this Note as of such Installment Date, in each case, as any such Installment Amount may be reduced pursuant to the terms of this Note, whether upon conversion, redemption or otherwise, together with, in each case of clauses (i) and (ii), the sum of any accrued and unpaid Interest as of such Installment Date under this Note and accrued and unpaid Interest and Late Charges, if any, under this Note as of such Installment Date. In the event the Holder shall sell or otherwise transfer any portion of this Note, the transferee shall be allocated a pro rata portion of each unpaid Installment Amount hereunder.

 

  

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(u)           “Installment Date” means each of the following dates: (i) the twentieth (20th) Trading Day immediately following the Issuance Date (the “First Installment Date”), (ii) as applicable, (x) the twentieth (20th) Trading Day immediately following the First Installment Date but only if either (A) the aggregate remaining shares of Common Stock required, prior to receipt of Stockholder Approval, to be reserved under the Transaction Documents for issuance upon conversion of the Notes and upon conversion of the shares of Series A Preferred Stock (as defined in the Exchange Agreement) exceed the sum of the aggregate number of shares of Common Stock that would be due under all Notes pursuant Section 8 thereof and the aggregate number of shares of Common Stock that would be due to the holders of the shares of Series A Preferred Stock pursuant to Section 6 of the Certificate of Designations on the twentieth (20th) Trading Day immediately following the First Installment Date as if such twentieth (20th) Trading Day was an Installment Date and an Automatic Conversion Date (as defined in the Certificate of Designations) or (B) Stockholder Approval was obtained on or prior to the First Installment Date, (y) if clause (x) does not apply and the Second Pre-Installment Date was the twentieth (20th) Trading Day immediately following the Issuance Date, the first (1st) Trading Day immediately following the earlier to occur of (1) the date on which Stockholder Approval is obtained and (2) the Stockholder Meeting Deadline (but if such earlier date under clause (1) or (2) above is less than twenty (20) Trading Days immediately following the Second Pre-Installment Date, then the date resulting from this clause (y) shall be the twentieth (20th) Trading Day immediately following the Second Pre-Installment Date) or (z) if neither clause (x) nor clause (y) applies, the twentieth (20th) Trading Day immediately following the earlier to occur of (I) the date on which Stockholder Approval is obtained and (II) the Stockholder Meeting Deadline (such date resulting from clause (x), (y) or (z) (as applicable) is referred to herein as the “Second Installment Date”); (iii) the twentieth (20th) Trading Day immediately following the Second Installment Date (the “Third Installment Date”); and (iv) the Maturity Date. 
 

 

(v)           “Interest Rate” means four percent (4%) per annum, as may be adjusted from time to time in accordance with Section 2.

 

(w)           “New Subsidiary” means, as of any date of determination, any Person in which the Company after the Subscription Date, directly or indirectly, (i) owns or acquires any of the outstanding capital stock or holds any equity or similar interest of such Person or (ii) controls or operates all or any part of the business, operations or administration of such Person, and all of the foregoing, collectively, “New Subsidiaries.”

 

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

 

(y)           “Option Value” means the value of an Option based on the Black and Scholes Option Pricing model obtained from the “OV” function on Bloomberg determined as of the day prior to the public announcement of the applicable Option for pricing purposes and reflecting (i) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of the applicable Option as of the applicable date of determination, (ii) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg as of the day immediately following the public announcement of the applicable Option, (iii) the underlying price per share used in such calculation shall be the highest Weighted Average Price during the period beginning on the day prior to the execution of definitive documentation relating to the issuance of the applicable Option and the public announcement of such issuance and (iv) a 360 day annualization factor.

 

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

 

  

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(aa)           “Permitted Liens” means (i) any Lien for taxes not yet due or delinquent or being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, (ii) any statutory Lien arising in the ordinary course of business by operation of law with respect to a liability that is not yet due or delinquent, (iii) any Lien created by operation of law, such as materialmen’s liens, mechanics’ liens and other similar liens, arising in the ordinary course of business with respect to a liability that is not yet due or delinquent or that are being contested in good faith by appropriate proceedings, (iv) Liens (A) upon or in any equipment acquired or held by the Company or any of its Subsidiaries to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition or lease of such equipment, or (B) existing on such equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such equipment, (v) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clause (iv) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the Indebtedness being extended, renewed or refinanced does not increase, (vi) leases or subleases and licenses and sublicenses granted to others in the ordinary course of the Company’s business, not interfering in any material respect with the business of the Company and its Subsidiaries taken as a whole, (vii) Liens in favor of customs and revenue authorities arising as a matter of law to secure payments of custom duties in connection with the importation of goods, and (viii) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Section 4(a)(ix).

 

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

 

(cc)           “Post-Installment Conversion Shares” means, for any Installment Date, that number of shares of Common Stock equal to the applicable Installment Amount on such Installment Date divided by the Automatic Conversion Price (without taking into account the delivery of any Pre-Installment Conversion Shares), rounded up to the nearest whole share of Common Stock.

 

(dd)           “Pre-Installment Conversion Price” means, with respect to a particular date of determination, the lower of (i) the Conversion Price then in effect and (ii) the price which is equal to the product of (1) 70% multiplied by (2) the quotient of (A) the sum of each of the three (3) lowest Closing Bid Prices of the Common Stock during the twenty (20) consecutive Trading Day period immediately preceding the applicable Pre-Installment Date divided by (B) three (3). All such determinations to be appropriately adjusted for any stock split, stock dividend, stock combination or other similar transaction during any such measuring period. In the event of a dispute as to the determination of the Pre-Installment Conversion Price, then such dispute shall be resolved pursuant to Section 21.

 

  

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(ee)         “Pre-Installment Date” means each of the following dates: (i) the Issuance Date, (ii) as applicable, (x) the twentieth (20th) Trading Day immediately following the Issuance Date but only if either (A) the aggregate remaining shares of Common Stock required, prior to receipt of Stockholder Approval, to be reserved under the Transaction Documents for issuance upon conversion of the Notes and upon conversion of the shares of Series A Preferred Stock exceed the sum of the aggregate number of Pre-Installment Conversion Shares that would be due under all Notes and the aggregate number of Pre-Automatic Conversion Shares (as defined in the Certificate of Designations) that would be due to the holders of the shares of Series A Preferred Stock on the twentieth (20th) Trading Day immediately following the Issuance Date as if such twentieth (20th) Trading Day was a Pre-Installment Date and a Pre-Automatic Conversion Date (as defined in the Certificate of Designations) or (B) Stockholder Approval was obtained on or prior to the First Installment Date or (y) if clause (x) does not apply, the first (1st) Trading Day immediately following the earlier to occur of (1) the date on which Stockholder Approval is obtained and (2) the Stockholder Meeting Deadline (such date resulting from clause (x) or (y) (as applicable) is referred to herein as the “Second Pre-Installment Date”); (iii) the twentieth (20th) Trading Day immediately following the Second Pre-Installment Date (the “Third Pre-Installment Date”); and (iv) the twentieth (20th) Trading Day immediately following the Third Pre-Installment Date.

 

(ff)          “Principal Market” means OTCQX US Exchange.

 

(gg)        “Redemption Notices” means, collectively, the Event of Default Redemption Notices and the Change of Control Redemption Notices, each of the foregoing, individually, a Redemption Notice.

 

(hh)        “Redemption Prices” means, collectively, the Event of Default Redemption Price and the Change of Control Redemption Price, each of the foregoing, individually, a Redemption Price.

 

(ii)           “Required Holders” means the holders of Notes representing at least sixty percent (60%) of the aggregate principal amount of the Notes then outstanding.

 

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

 

(kk)         “Subscription Date” means June 29, 2011.

 

(ll)           “Subsidiaries” means, as of any date of determination, collectively, all Current Subsidiaries and all New Subsidiaries, and each of the foregoing, individually, a “Subsidiary.”

 

(mm)       “Successor Entity” means the Person, which may be the Company, formed by, resulting from or surviving any Fundamental Transaction or the Person with which such Fundamental Transaction shall have been made, provided that if such Person is not a publicly traded entity whose common stock or equivalent equity security is quoted or listed for trading on an Eligible Market, Successor Entity shall mean such Person’s Parent Entity.

 

  

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(nn)        “Trading Day” means, as applicable, (x) with respect to all price determinations relating to the Common Stock, any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded, provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time) unless such day is otherwise designated as a Trading Day in writing by the Holder or (y) with respect to all determinations other than price determinations relating to the Common Stock, any day on which The New York Stock Exchange (or any successor thereto) is open for trading of securities.

 

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

 

(pp)        “Warrants” has the meaning ascribed to such term in the Exchange Agreement, as may be amended from time to time, and shall include all warrants issued in exchange therefor or replacement thereof.

 

(qq)        “Warrant Shares” means shares of Common Stock issuable by the Company upon the exercise of any of the Warrants.

 

(rr)          “Weighted Average Price” means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market during the period beginning at 9:30:01 a.m., New York Time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York Time (or such other time as the Principal Market publicly announces is the official close of trading) as reported by Bloomberg through its “Volume at Price” functions, or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York Time (or such other time as such market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York Time (or such other time as such market publicly announces is the official close of trading) as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the “pink sheets” by OTC Markets Group, Inc. (formerly Pink Sheets LLC).  If the Weighted Average Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder.  If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 21.  All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction during the applicable calculation period.

 

  

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29.           DISCLOSURE. Upon receipt or delivery by the Company of any notice in accordance with the terms of this Note, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries, the Company shall within one (1) Business Day after any such receipt or delivery publicly disclose such material, nonpublic information on a Current Report on Form 8-K or otherwise.  In the event that the Company believes that a notice contains material, nonpublic information relating to the Company or its Subsidiaries, the Company so shall indicate to such Holder contemporaneously with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to presume that all matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries.

 

30.           MAXIMUM PAYMENTS. Nothing contained in this Note shall, or shall be deemed to, establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law. In the event that the rate of interest required to be paid or other charges under this Note exceeds the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Company to the Holder and thus refunded to the Company.

 

[Signature Page Follows]

 

  

36

  

 

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

 

	
RADIENT PHARMACEUTICALS CORPORATION

	  	  	 
	
By:

	  	 
	  	
Name:

	 
	  	
Title:

	 

 

  

  

  

 

EXHIBIT I

RADIENT PHARMACEUTICALS CORPORATION

CONVERSION NOTICE

 

Reference is made to the Convertible Note (the “Note”) issued to the undersigned by Radient Pharmaceuticals Corporation, a Delaware corporation (the “Company”). In accordance with and pursuant to the Note, the undersigned hereby elects to convert the Conversion Amount (as defined in the Note) of the Note indicated below into shares of common stock, par value $0.001 per share, of the Company (the “Common Stock”), as of the date specified below.

 

	
Conversion Date:

	  
	 	 
	
Aggregate Conversion Amount to be converted:

	  
	 	 
	
Conversion Price:

	  
	 	 
	
Number of shares of Common Stock to be issued:

	  
	 
	
Please issue the Common Stock into which the Note is being converted in the following name and to the following address:

	 	 
	
Issue to:

	  
	  	  
	  	  
	 	 
	
Facsimile Number:

	  
	 	 
	
Holder:

	  
	 	 
	
By:

	  
	 	 
	
Title:

	  
	 	 
	
Dated:

	  
	 	 
	
Account Number:

	  
	
  (if electronic book entry transfer)

	  
	 	 
	
Transaction Code Number:

	  
	
  (if electronic book entry transfer)

	  
	
Installment Amount(s) to be reduced (and corresponding Installment Date(s)) and amount of reduction:

	
  

 

  

  

  

 

EXHIBIT II

 

ACKNOWLEDGMENT

 

The Company hereby acknowledges this Conversion Notice and hereby directs Corporate Stock Transfer, Inc. to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated ___________, 2011 from the Company and acknowledged and agreed to by Corporate Stock Transfer, Inc.

 

	
RADIENT PHARMACEUTICALS CORPORATION

	  	  	 
	
By:

	  	 
	  	
Name:

	 
	  	
Title:

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