Document:

SECURITIES PURCHASE

AGREEMENT

Dated as of June 5, 2008

by and among

GENTA INCORPORATED

and

THE PURCHASERS LISTED ON EXHIBIT A

 

 

SECURITIES PURCHASE AGREEMENT

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

The parties hereto agree as follows:

ARTICLE 1

 

PURCHASE AND SALE OF NOTES

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

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

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

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

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

 

 

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

ARTICLE 2

 

REPRESENTATIONS AND WARRANTIES

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

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

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

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

 

 

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

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

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

(f) Commission Documents, Financial Statements. The Common Stock of the Company is registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the Securities Exchange Commission (“SEC”) pursuant to the reporting requirements of the Exchange Act (all of the foregoing including filings incorporated by reference therein being referred to herein as the “Commission Documents”). At the times of their respective filings, the Form 10-Q for the fiscal quarter ended March 31, 2008 (the “Form 10-Q”) and the Form 10-K for the fiscal year ended December 31, 2007 (the “Form 10-K”, and together with the Form 10-Q and any other report, schedule, form, statement or other document filed by the 

 

 

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Company with the SEC pursuant to the reporting requirements of the Exchange Act subsequent to the filing of the Form 10-K and prior to the date of this Agreement, the “Public Filings”) complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder and other federal, state and local laws, rules and regulations applicable to such documents, and the Form 10-Q and Form 10-K did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements of the Company included in the Commission Documents complied as to
form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC or other applicable rules and regulations with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) applied on a consistent basis during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements), and fairly present in all material respects the financial position of the Company and its Subsidiaries as of the dates thereof and the results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).

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

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

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

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

(k) Indebtedness. Schedule 2.1(k) hereto sets forth as of the applicable Closing Date all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness” shall include, without limitation, (a) any liabilities for borrowed money or other amounts owed, (b) all guaranties, endorsements and other contingent obligations in respect of Indebtedness of others, whether or not the same are or should be reflected in the Company’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business; and (c) the present value of any lease payments in excess of $10,000 due under leases required to be capitalized in accordance with GAAP. Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.

 

 

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

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

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

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

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

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

 

 

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

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

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

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

 

 

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

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

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

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

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

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

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

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

 

 

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

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

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

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

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

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

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

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

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

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

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

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

 

 

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

(bb) No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would cause the offering of the Securities pursuant to this Agreement to be integrated with prior offerings by the Company for purposes of the Securities Act which would prevent the Company from selling the Securities pursuant to Regulation D and Rule 506 thereof under the Securities Act, or any applicable exchange-related stockholder approval provisions, nor will the Company or any of its affiliates or subsidiaries take any action or steps that would cause the offering of the Securities to be integrated with other offerings if to do so
would prevent the Company from selling Securities pursuant to Regulation D and Rule 506 thereof under the Securities Act or otherwise prevent a completed offering of Securities hereunder. The Company does not have any registration statement pending before the SEC or currently under the SEC’s review and except as set forth on Schedule 2.1(bb) hereto, since December 31, 2007, the Company has not offered or sold any of its equity securities or debt securities convertible into shares of Common Stock.

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

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

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

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

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

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

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

 

 

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

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

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

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

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

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

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

 

 

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

ARTICLE 3

COVENANTS

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

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

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

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

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

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

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

 

 

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

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

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

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

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

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

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

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

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

 

 

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

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

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

3.15 Subsequent Financings.

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

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

 

 

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

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

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

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

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

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

ARTICLE 4

CONDITIONS

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

 

 

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

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

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

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

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

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

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

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

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

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

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

 

 

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

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

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

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

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

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

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

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

ARTICLE 5

CERTIFICATE LEGEND

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

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

 

 

17

 

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

ARTICLE 6

INDEMNIFICATION

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

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

 

 

18

 

ARTICLE 7

MISCELLANEOUS

7.1 Purchasers’ Agent.

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

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

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

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

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

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

 

 

19

 

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

7.3 Specific Performance; Consent to Jurisdiction; Venue.

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

(b) The parties agree that venue for any dispute arising under this Agreement will lie exclusively in the state or federal courts located in New York County, New York, and the parties irrevocably waive any right to raise forum non conveniens or any other argument that New York is not the proper venue. The parties irrevocably consent to personal jurisdiction in the state and federal courts of the state of New York. The Company and each Purchaser consent to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing in this Section 7.3 shall
affect or limit any right to serve process in any other manner permitted by law. The Company and the Purchasers hereby agree that the prevailing party in any suit, action or proceeding arising out of or relating to the Securities, this Agreement or the other Transaction Documents, shall be entitled to reimbursement for reasonable legal fees from the non-prevailing party. The parties hereby waive all rights to a trial by jury.

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

 

20

 

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

 

	
                        If to the Company or its Subsidiaries:
 	
                         
 	
                        Genta Incorporated

            200 Connell Drive

            Berkeley Heights, NJ 07922
 
	
                         
 	
                         
 	
                        Attention: Raymond P. Warrell,Jr., M.D.
 
	
                         
 	
                         
 	
                        Telephone No.: (908) 286-9800
 
	
                         
 	
                         
 	
                        Telecopy No.: (908) 286-3966
 
	
                        with copies to:   
 	
                         
 	
                        Morgan, Lewis & Bockius LLP

            502 Carnegie Center

            Princeton, NJ 08540
 
	
                         
 	
                         
 	
                        Attention: Emilio Ragosa
 
	
                         
 	
                         
 	
                        Telephone No.: (609) 919-6633
 
	
                         
 	
                         
 	
                        Telecopy No.: (609) 919-6701
 
	
                        If to any Purchaser:
 	
                         
 	
                        At the address of such Purchaser set forth on Exhibit A to this Agreement, with copies to Purchaser’s counsel as set forth on Exhibit A or as specified in writing by such Purchaser, with a copy to:
 
	
                         With a copy to:
 	
                         
 	
                        Cooley Godward Kronish LLP
 
	
                         
 	
                         
 	
                        4401 Eastgate Mall
 
	
                         
 	
                         
 	
                        San Diego, CA 92121
 
	
                         
 	
                         
 	
                        Attention: Ethan Christensen
 
	
                         
 	
                         
 	
                        Telephone No.: (858) 550-6076 
 
	
                         
 	
                         
 	
                        Telecopy No.: (858) 550-6420
 

 

 

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

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

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

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

 

21

 

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

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

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

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

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

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

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

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

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

 

 

22

 

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

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 

23

 

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

 

	
                         
 	
                         
 	
                         
 	
                        GENTA INCORPORATED
 
	
                         
 	
                         
 	
                         
 	
                         
 	
                        By: 
 	
                        
 /s/ Raymond P. Warrell, Jr., M.D.
 
	
                         
 	
                         
 	
                         
 	
                         
 	
                        Name: 
 	
                        Raymond P. Warrell, Jr., M.D.
 
	
                         
 	
                         
 	
                         
 	
                         
 	
                        Title: 
 	
                        Chairman and Chief Executive Officer
 

[SIGNATURE PAGES CONTINUE]

 

 

[PURCHASER SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]

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

Name of Purchaser: ________________________________________________________

Signature of Authorized Signatory of Purchaser: __________________________________

Name of Authorized Signatory: ____________________________________________________

Title of Authorized Signatory: _____________________________________________________

Email Address of Purchaser:________________________________________________

Fax Number of Purchaser: ________________________________________________

Address for Notice of Purchaser:

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

Subscription Amount: $_________________

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

[SIGNATURE PAGES CONTINUE]

 

 

EXHIBIT A

LIST OF PURCHASERS

 

 

	
      Names and Addresses of Purchasers
 	
                         
 	
                        Investment Amount
 	
                         
 
	
                        Arcus Ventures Fund
 	
                         
 	
                        $
 	
                        750,000.00
 	
                         
 
	
                        Baker Biotech Fund I, L.P.
 	
                         
 	
                        $
 	
                        168,000.00
 	
                         
 
	
                        Baker Biotech Fund I, L.P.
 	
                         
 	
                        $
 	
                        205,000.00
 	
                         
 
	
                        14159, L.P.
 	
                         
 	
                        $
 	
                        51,000.00
 	
                         
 
	
                        Baker Brothers Life Sciences, L.P.
 	
                         
 	
                        $
 	
                        1,576,000.00
 	
                         
 
	
                        Boxer Capital LLC
 	
                         
 	
                        $
 	
                        1,750,000.00
 	
                         
 
	
                        Bristol Investment Fund, Ltd.
 	
                         
 	
                        $
 	
                        200,000.00
 	
                         
 
	
                        Carl Berg
 	
                         
 	
                        $
 	
                        250,000.00
 	
                         
 
	
                        Cat Trail Private Equity Fund LLC
 	
                         
 	
                        $
 	
                        1,500,000.00
 	
                         
 
	
                        Cranshire Capital LP
 	
                         
 	
                        $
 	
                        250,000.00
 	
                         
 
	
                        Enable Growth Partners LP
 	
                         
 	
                        $
 	
                        1,000,000.00
 	
                         
 
	
                        Eric Bannasch
 	
                         
 	
                        $
 	
                        250,000.00
 	
                         
 
	
                        Firebird Global Master Fund II, Ltd
 	
                         
 	
                        $
 	
                        500,000.00
 	
                         
 
	
                        Highbridge International LLC
 	
                         
 	
                        $
 	
                        2,000,000.00
 	
                         
 
	
                        Iroquois Master Fund Ltd.
 	
                         
 	
                        $
 	
                        250,000.00
 	
                         
 
	
                        Loretta Itri
 	
                         
 	
                        $
 	
                        300,000.00
 	
                         
 
	
                        Perceptive Life Sciences Master Fund LTD
 	
                         
 	
                        $
 	
                        500,000.00
 	
                         
 
	
                        RA Capital Biotech Fund II, LP
 	
                         
 	
                        $
 	
                        30,000.00
 	
                         
 
	
                        RA Capital Biotech Fund, LP
 	
                         
 	
                        $
 	
                        2,470,000.00
 	
                         
 
	
                        Radcliffe SPC, Ltd
 	
                         
 	
                        $
 	
                        1,000,000.00
 	
                         
 
	
                        Raymond P. Warrell, Jr.
 	
                         
 	
                        $
 	
                        1,750,000.00
 	
                         
 
	
                        Raymond P. Warrell, Jr.
 	
                         
 	
                        $
 	
                        200,000.00
 	
                         
 
	
                        Rockmore Investment Master Fund Ltd.
 	
                         
 	
                        $
 	
                        100,000.00
 	
                         
 
	
                        Rodman & Renshaw LLC
 	
                         
 	
                        $
 	
                        100,000.00
 	
                         
 
	
                        RRC Biofund
 	
                         
 	
                        $
 	
                        100,000.00
 	
                         
 
	
                        Trustees of the Tang Family Trust
 	
                         
 	
                        $
 	
                        50,000.00
 	
                         
 
	
                        Noa Young Tang
 	
                         
 	
                        $
 	
                        5,000.00
 	
                         
 
	
                        Tang Capital Partners, LP
 	
                         
 	
                        $
 	
                        2,695,000.00
 	
                         
 
	
                         
 	
                         
 	
                        $
 	
                        20,000,000.00
 	
                         
 

 

EXHIBIT B

FORM OF SENIOR SECURED CONVERTIBLE PROMISSORY NOTE

 

 

EXHIBIT C

FORM OF SECURITY AGREEMENT

 

 

EXHIBIT D

FORM OF IP SECURITY AGREEMENT

 

 

EXHIBIT E

FORM OF OFFICER’S CERTIFICATE

 

 

EXHIBIT F

OPINION OF COUNSEL TO COMPANYGENERAL SECURITY AGREEMENT

Dated as of June 9, 2008

between

THE GRANTORS REFERRED TO HEREIN

as Grantors

and

TANG CAPITAL PARTNERS, L.P.

as Agent

 

 

GENERAL SECURITY AGREEMENT

THIS GENERAL SECURITY AGREEMENT dated as of June 9, 2008 (the “Agreement”) between GENTA INCORPORATED, a Delaware corporation (the “Company”), the other Persons listed on the signature pages hereof as Grantors and the Additional Grantors (as defined in Section 18) (the Company, the Persons so listed and the Additional Grantors being, collectively, the “Grantors”) and TANG CAPITAL PARTNERS, L.P., as agent (together with any successor agent, the “Agent”) for the Purchasers (as defined in the Securities Purchase Agreement).

PRELIMINARY STATEMENTS

A. The Company has entered into a Securities Purchase Agreement dated as of June 5, 2008 (as amended, amended and restated, supplemented or otherwise modified from time to time, being the “Securities Purchase Agreement”) with the Purchasers pursuant to which, subject to the terms and conditions set forth therein, the Purchasers have agreed to purchase from the Company, and the Company has agreed to sell to the Purchasers, the Company’s Senior Secured Convertible Promissory Notes in an aggregate original principal amount not to exceed $40,000,000 (the “Notes”).

B. The Grantors are entering into this Agreement in order to grant to the Agent for the ratable benefit of the Purchasers a security interest in all of their right, title and interest in and to the Collateral (as defined herein) now owned or hereafter acquired.

C. Each Grantor is the owner of the shares (the “Initial Pledged Shares”) of stock set forth opposite such Grantor’s name on and as otherwise described in Part I of Schedule I hereto and issued by the corporations and entities named therein and of the indebtedness (the “Initial Pledged Debt”) set forth opposite such Grantor’s name on and as otherwise described in Part II of Schedule I hereto and issued by the issuers named therein.

D. It is a condition precedent to the purchase of the Notes by the Purchasers pursuant to the Securities Purchase Agreement that the Grantors shall have granted the assignment and security interest and made the pledge and assignment contemplated by this Agreement.

E. Each Grantor will derive substantial direct and indirect benefit from the transactions contemplated by the Note Purchase Documents (as defined below).

NOW, THEREFORE, in consideration of the premises and in order to induce the Purchasers to purchase the Notes from the Company as set forth in the Securities Purchase Agreement and for other good and valuable consideration, each Grantor hereby agrees with the Agent for the ratable benefit of the Purchasers as follows:

DEFINITIONS

As used in this Agreement, the following terms shall have the meanings set forth below. Terms used herein and not otherwise defined herein are used in this Agreement as defined in the Securities Purchase Agreement and the Notes. Further, unless otherwise defined in this 

 

 

1

 

Agreement or in the Securities Purchase Agreement, terms defined in the UCC are used in this Agreement as such terms are defined in the UCC. 

“Debtor Relief Laws” means the Bankruptcy Code of the United States of America, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States of America or other applicable jurisdictions from time to time in effect affecting the rights of creditors generally.

“Governmental Authority” means (a) any international, foreign, federal, state, county or municipal government, or political subdivision thereof, (b) any governmental or quasi-governmental agency, authority, board, bureau, commission, department, instrumentality, central bank or public body, or (c) any court, administrative tribunal or public utility.

“Laws” or “Law” means all international, foreign, federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.

“Liabilities” means all advances to, and debts, liabilities, obligations, covenants and duties of, Company or any other Grantor arising under any Note Purchase Document, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest that accrues after the commencement of any proceeding under any Debtor Relief Laws by or against Company or any other Grantor or any Subsidiary or Affiliate of Company or any other Grantor.

“Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement (including in the nature of, cash collateral accounts or security interests), encumbrance, lien (statutory or other), fixed or floating charge, or other security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable Laws of any jurisdiction), including the interest of a purchaser of accounts receivable. 

“Note Purchase Documents” means the Securities Purchase Agreement, the Notes and the Security Documents, and each certificate, fee letter, and other instrument or agreement from time to time executed by Company or any of its Subsidiaries and delivered in connection with the Securities Purchase Agreement.

“Requisite Purchasers” means, as of any date of determination, Purchasers holding Notes aggregating more than 66 2/3% of such Notes in aggregate principal amount then outstanding.

“Security Documents” means this Agreement and the Intellectual Property Security Agreement (as defined below).

 

 

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“UCC” means the Uniform Commercial Code as in effect, from time to time, in the State of New York, provided that, if perfection or the effect of perfection or non-perfection or the priority of any security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than New York, “UCC” means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority.

SECTION 1. Grant of Security. Each Grantor hereby assigns and pledges to the Agent for the ratable benefit of the Purchasers, and hereby grants to the Agent for the ratable benefit of the Purchasers a security interest in, such Grantor’s right, title and interest in and to the following, in each case, as to each type of property described below, whether now owned or hereafter acquired by such Grantor, wherever located, and whether now or hereafter existing or arising (collectively, the “Collateral”):

(a) all equipment in all of its forms, all fixtures and all parts thereof and all accessions thereto (any and all such equipment, fixtures, parts and accessions being the “Equipment”);

(b) all inventory in all of its forms (including, but not limited to raw materials and work in process therefor, finished goods thereof and materials used or consumed in the manufacture, production, preparation or shipping thereof, goods in which such Grantor has an interest in mass or a joint or other interest or right of any kind (including, without limitation, goods in which such Grantor has an interest or right as consignee) and goods that are returned to or repossessed or stopped in transit by such Grantor), and all accessions thereto and products thereof and documents therefor (any and all such inventory, accessions, products and documents being the “Inventory”);

(c) all goods other than Equipment and Inventory and all accessions thereto (any and all such goods and accessions being the “Other Goods”);

(d) all accounts, chattel paper, instruments, deposit accounts, documents, letter-of-credit rights, general intangibles and other obligations of any kind, whether or not arising out of or in connection with the sale or lease of goods or the rendering of services and whether or not earned by performance, and all rights now or hereafter existing in and to all security agreements, leases and other contracts securing or otherwise relating to any such accounts, chattel paper, instruments, deposit accounts, documents, letter-of-credit rights, general intangibles or obligations (any and all such accounts, chattel paper, instruments, deposit accounts, documents, letter-of-credit rights, general intangibles and obligations, to the extent not referred to in clause (e) or (f) below, being the “Receivables”, and any and all such security agreements, leases and other contracts being the “Related Contracts”);

(e) the following (the “Security Collateral”):

(i) the Initial Pledged Shares and the certificates, if any, representing the Initial Pledged Shares, and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Initial Pledged Shares;

 

 

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(ii) the Initial Pledged Debt and the instruments, if any, evidencing the Initial Pledged Debt, and all interest, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Initial Pledged Debt;

(iii) all additional shares of stock from time to time acquired by such Grantor in any manner (such shares, together with the Initial Pledged Shares, being the “Pledged Shares”), and the certificates, if any, representing such additional shares, and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares;

(iv) all additional indebtedness from time to time owed to such Grantor (such indebtedness, together with the Initial Pledged Debt, being the “Pledged Debt”) and the instruments, if any, evidencing such indebtedness, and all interest, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such indebtedness; and

(v) all other investment property (including, without limitation, all (A) securities, whether certificated or uncertificated, (B) security entitlements, (C) securities accounts, (D) commodity contracts and (E) commodity accounts) in which such Grantor has now, or acquires from time to time hereafter, any right, title or interest in any manner, and the certificates or instruments, if any, representing or evidencing such investment property, and all dividends, interest, distributions, value, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such investment property;

(f) the following (collectively, the “Account Collateral”):

(i) any cash collateral account of such Grantor, all financial assets from time to time credited thereto (including, without limitation, all investments from time to time credited thereto), and all dividends, interest, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such financial assets;

(ii) all deposit accounts or any other cash collateral of such Grantor from time to time, all funds held therein and all certificates and instruments, if any, from time to time representing or evidencing such deposit accounts;

(iii) all notes, certificates of deposit, checks and other instruments from time to time delivered to or otherwise possessed by the Agent for or on behalf of such Grantor, including, without limitation, those delivered or possessed in substitution for or in addition to any or all of the then existing Account Collateral; and

 

 

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(iv) all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the then existing Account Collateral;

(g) the following (collectively, the “Intellectual Property Collateral”):

(i) all United States, international and foreign patents, patent applications and statutory invention registrations, including, without limitation, the patents and patent applications set forth in Schedule IV hereto (as such Schedule IV may be supplemented from time to time by supplements to this Agreement, each such supplement being in substantially the form of Exhibit C hereto (an “IP Security Agreement Supplement”), executed and delivered by such Grantor to the Agent from time to time), together with all reissues, divisions, continuations, continuations-in-part, extensions and reexaminations thereof, all inventions therein, all rights therein provided by
international treaties or conventions and all improvements thereto, and all other rights of any kind whatsoever of such Grantor accruing thereunder or pertaining thereto (the “Patents”);

(ii) all trademarks (including, without limitation, service marks), certification marks, collective marks, trade dress, logos, domain names, product configurations, trade names, business names, corporate names and other source identifiers, whether or not registered, whether currently in use or not, including, without limitation, all common law rights and registrations and applications for registration thereof, including, without limitation, the trademark registrations and trademark applications set forth in Schedule IV hereto (as such Schedule IV may be supplemented from time to time by IP Security Agreement Supplements executed and delivered by such Grantor to the Agent from time to time), and all other marks registered in the U.S. Patent and Trademark Office or in any office or agency of any State or Territory of the United States or
any foreign country, and all rights therein provided by international treaties or conventions, all reissues, extensions and renewals of any of the foregoing, together in each case with the goodwill of the business connected therewith and symbolized thereby, and all rights corresponding thereto throughout the world and all other rights of any kind whatsoever of such Grantor accruing thereunder or pertaining thereto (the “Trademarks”);

(iii) all copyrights, copyright applications, copyright registrations and like protections in each work of authorship, whether statutory or common law, whether published or unpublished, any renewals or extensions thereof, all copyrights of works based on, incorporated in, derived from, or relating to works covered by such copyrights, including, without limitation, the copyright registrations and copyright applications set forth in Schedule IV hereto (as such Schedule IV may be supplemented from time to time by IP Security Agreement Supplements executed and delivered by such Grantor to the Agent from time to time), together with all rights corresponding thereto throughout the world and all other rights of any kind whatsoever of such Grantor accruing thereunder or pertaining thereto (the “Copyrights”);

(iv) all confidential and proprietary information, including, without limitation, know-how, trade secrets, manufacturing and production processes and techniques, inventions, research and development information, technical data, financial, marketing and business data, pricing and cost information, business and marketing plans and customer and supplier lists and information (the “Trade Secrets”);

 

 

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(v) all computer software programs and databases (including, without limitation, source code, object code and all related applications and data files), firmware, and documentation and materials relating thereto, and all rights with respect to the foregoing, together with any and all options, warranties, service contracts, program services, test rights, maintenance rights, improvement rights, renewal rights and indemnifications and any substitutions, replacements, additions or model conversions of any of the foregoing (the “Computer Software”);

(vi) all license agreements, permits, authorizations and franchises, whether with respect to the Patents, Trademarks, Copyrights, Trade Secrets or Computer Software, or with respect to the patents, trademarks, copyrights, trade secrets, computer software or other proprietary right of any other Person, including, without limitation, the material license agreements set forth in Schedule IV hereto (as such Schedule IV may be supplemented from time to time by IP Security Agreement Supplements executed and delivered by such Grantor to the Agent from time to time), and all income, royalties and other payments now or hereafter due and/or payable with respect thereto, subject, in each case, to the terms of such license agreements, permits, authorizations and franchises, (the “Licenses”); and

(vii) any and all claims for damages for past, present and future infringement, misappropriation or breach with respect to the Patents, Trademarks, Copyrights, Trade Secrets, Computer Software or Licenses, with the right, but not the obligation, to sue for and collect, or otherwise recover, such damages; 

(h) any commercial tort claims of such Grantor more particularly described on Schedule V hereto (the “Existing Commercial Tort Claims”); and

(i) all proceeds of, collateral for and supporting obligations relating to, any and all of the Collateral (including, without limitation, proceeds, collateral and supporting obligations that constitute property of the types described in clauses (a) through (h) of this Section 1 and this clause (i)) and, to the extent not otherwise included, all (i) payments under insurance (whether or not the Agent is the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral and (ii) money.

Notwithstanding the foregoing provisions of this Section 1, the grant of a security interest as provided herein shall not extend to, and the term “Collateral” shall not include, as to any Grantor, (i) any intent to use application at the U.S. Patent and Trademark Office with respect to intellectual property to the extent an assignment for security purposes would void the same and (ii) the collateral described in that certain financing statement No. 63105681 filed on September 7, 2006 with the Delaware Department of State (as in effect on the date hereof) naming the Company as debtor and Dell Financial Services, L.P. as secured party so long as such financing statement remains in effect (provided that the grant of a security interest as provided herein shall extend to, and the term “Collateral” shall include, such collateral from and after such time as such
financing statement is no longer in effect).

 

 

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If any Grantor shall at any time acquire a commercial tort claim, such Grantor shall immediately notify the Agent in a writing signed by such Grantor of the brief details thereof and grant to the Agent for the ratable benefit of the Purchasers in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to the Agent.

SECTION 2. Security for Obligations. This Agreement secures the payment and performance of all Liabilities, together with the prompt payment of all expenses, including, without limitation, reasonable attorney costs and disbursements incurred by the Agent or the Purchasers incidental to the collection of the Liabilities and the enforcement or protection of the Agent’s security interest in the Collateral (collectively, the “Secured Obligations”). 

SECTION 3. Grantors Remain Liable. Anything herein to the contrary notwithstanding, (a) each Grantor shall remain liable under the contracts and agreements included in such Grantor’s Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by the Agent of any of the rights hereunder shall not release any Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral and (c) no Purchaser shall have any obligation or liability under the contracts and agreements included in the Collateral by reason of this Agreement or any other Note Purchase Document or any other agreement, nor shall any Purchaser be obligated to perform any of the obligations or duties of any Grantor
thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

SECTION 4. Delivery and Control of Security Collateral. 

(a) All certificates or instruments representing or evidencing Security Collateral shall be delivered to and held by or on behalf of the Agent pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Agent. The Agent shall have the right, upon the occurrence and during the continuance of an Event of Default, to transfer to or to register in the name of the Agent or any of its nominees any or all of the Security Collateral, subject only to the revocable rights specified in Section 11(a). In addition, the Agent shall have the right, upon the occurrence and during the continuance of an Event of Default, to exchange certificates or instruments representing or evidencing Security Collateral
for certificates or instruments of smaller or larger denominations.

(b) With respect to any Security Collateral in which any Grantor has any right, title or interest and that constitutes an uncertificated security issued by a Subsidiary of such Grantor, such Grantor will cause the issuer thereof either (i) to register the Agent as the registered owner, for the purpose of security, of such security or (ii) to agree in an authenticated record with such Grantor and the Agent that such issuer will comply with instructions with respect to such security originated by the Agent without further consent of such Grantor, such authenticated record to be in form and substance reasonably satisfactory to the Agent. The Agent shall not provide any directions to, or deliver any instructions or entitlement orders to any issuer pursuant to this Section 4(b) unless an Event of Default has occurred and is continuing. 

 

 

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Furthermore, the Agent shall promptly rescind such direction, instruction or entitlement order and notify such parties at any time when no Event of Default has occurred and is continuing.

SECTION 5. Representations and Warranties. Each Grantor represents and warrants as follows:

(a) Such Grantor’s exact legal name, as defined in Section 9-503(a) of the UCC, is correctly set forth on the signature pages of this Agreement. Such Grantor is an organization of the type specified on the signature pages of this Agreement and is organized under the laws of the jurisdiction specified on the signature pages of this Agreement.

(b) All of the Equipment and Inventory (other than Equipment and Inventory constituting mobile goods and Equipment and Inventory in transit in the ordinary course of business) of such Grantor are located at the places specified therefor in Schedule II hereto, as such Schedule II may be amended from time to time pursuant to Section 7(a). The chief executive office of such Grantor and the original copies of each Related Contract to which such Grantor is a party and all originals of all chattel paper that evidence Receivables of such Grantor, are located at the address specified therefor in Schedule III hereto, as such Schedule III may be amended from time to time pursuant to Section 9(a). The Grantor is located (within the meaning of Section 9-307 of the UCC) in the state or jurisdiction set forth in Schedule III hereto. Such
Grantor’s federal tax identification number is set forth opposite such Grantor’s name in Schedule III hereto. All Security Collateral consisting of certificated securities and instruments have been delivered to the Agent. All originals of all chattel paper that evidence Receivables have been delivered to the Agent, in each case to the extent that delivery thereof to the Agent is required under Section 4. None of the Receivables are evidenced by a promissory note or other instrument that has not been delivered to the Agent.

(c) Such Grantor is the legal and beneficial owner of the Collateral of such Grantor free and clear of any Lien, claim, option or right of others, except for the security interests created under this Agreement and Permitted Liens (as defined in the Note). No effective financing statement or other instrument similar in effect covering all or any part of such Collateral or listing such Grantor or any trade name of such Grantor as debtor is on file in any recording office, except such as may have been filed in favor of the Agent relating to the Note Purchase Documents and Permitted Liens. Such Grantor has the trade names listed on Schedule IV hereto.

(d) Such Grantor has exclusive possession and control of the Equipment and Inventory other than Inventory or Equipment stored at any leased premises or warehouse (which leased premises or warehouse is so indicated by an asterisk on Schedule II hereto, as such Schedule II may be amended from time to time pursuant to Section 7(a)).

(e) The Pledged Shares pledged by such Grantor hereunder have been duly authorized and validly issued and are fully paid and non assessable. The Pledged Debt issued to any Grantor and pledged by such Grantor hereunder has been duly authorized, authenticated or issued and delivered, is the legal, valid and binding obligation of the obligor, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a 

 

 

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proceeding in equity or at law, is evidenced by one or more promissory notes (which notes have been delivered to the Agent), and is not in default.

(f) The Initial Pledged Shares constitute the percentage of the issued and outstanding shares of stock of the issuers thereof indicated on Schedule I hereto as of the date hereof. The Initial Pledged Debt constitutes all of the outstanding indebtedness owed to such Grantor by the issuers thereof and is outstanding, as of the date hereof, in the principal amount indicated on Schedule I hereto as of the date hereof.

(g) All of the investment property owned by such Grantor as of the date hereof is listed on Schedule I hereto.

(h) Other than the execution and delivery of deposit account control agreements and securities account control agreements, and the delivery of the original title certificates to motor vehicles, all filings and other actions necessary or reasonably desirable to perfect and protect the security interest in the Collateral of such Grantor created under this Agreement have been or are concurrently herewith being duly made or taken and are in full force and effect, and this Agreement creates in favor of the Agent for the benefit of the Purchasers a valid and, together with such filings and other actions, perfected first priority security interest in the Collateral of such Grantor, securing the payment of the Secured Obligations.

(i) Other than the execution and delivery of deposit account control agreements and securities account control agreements, and the delivery of the original title certificates to motor vehicles, no authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for (i) the grant by such Grantor of the assignment, pledge and security interest granted hereunder or for the execution, delivery or performance of this Agreement by such Grantor, (ii) the perfection or maintenance of the assignment, pledge and security interest created hereunder (including the first priority nature of such assignment, pledge or security interest), except for the filing of financing and continuation statements under the UCC, which financing statements upon due
filing will be in full force and effect, the recordation of the Intellectual Property Security Agreements referred to in Section 10(f) with the U.S. Patent and Trademark Office and the U.S. Copyright Office, and the actions described in Section 4 with respect to the Security Collateral, or (iii) for the exercise by the Agent of its voting or other rights provided for in this Agreement or the remedies in respect of the Collateral pursuant to this Agreement, except as may be required in connection with the disposition of any portion of the Security Collateral by laws affecting the offering and sale of securities generally.

(j) The Inventory that has been produced or distributed by such Grantor has been produced in compliance with all material requirements of applicable law, including, without limitation, the Fair Labor Standards Act.

(k) As to itself and its Intellectual Property Collateral:

(i) To the best of such Grantor’s knowledge, the rights of such Grantor in or to the Intellectual Property Collateral do not conflict with, misappropriate or infringe upon the intellectual property rights of any third party, and no written claim has been asserted that the use of such Intellectual Property Collateral does or may infringe upon the intellectual property rights of any third party. 

 

 

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(ii) Such Grantor is the exclusive owner or non-exclusive licensee of the entire and unencumbered right, title and interest in and to the Intellectual Property Collateral and is entitled to use all such Intellectual Property Collateral without limitation, subject only to the license terms of the Licenses.

(iii) The Intellectual Property Collateral set forth on Schedule IV hereto includes all of the patents, patent registrations, patent applications, trademark registrations and applications, copyright registrations and applications and Licenses owned by such Grantor.

(iv) The Intellectual Property Collateral is subsisting and has not been adjudged invalid or unenforceable in whole or part, and to the best of such Grantor’s knowledge, is valid and enforceable. Such Grantor is not aware of any uses of any item of Intellectual Property Collateral that would reasonably be expected to lead to such item becoming invalid or unenforceable.

(v) Such Grantor has made or performed all filings, recordings and other acts and has paid all required fees and taxes to maintain and protect its interest in each and every item of Intellectual Property Collateral in full force and effect, and to protect and maintain its interest therein including, without limitation, recordations of any of its interests in the Patents and Trademarks with the U.S. Patent and Trademark Office, except with respect to any items of Intellectual Property Collateral which such Grantor, in the reasonable exercise of its business judgment, deems not to be material to the ongoing business of such Grantor. Such Grantor has used proper statutory notice in connection with its use of each patent, trademark and copyright of the Intellectual Property Collateral.

(vi) No action, suit, investigation, litigation or proceeding has been asserted or is pending or threatened against such Grantor (i) based upon or challenging or seeking to deny or restrict the use of any of the Intellectual Property Collateral, or (ii) alleging that any services provided by, processes used by, or products manufactured or sold by, such Grantor infringe upon or misappropriate any material item of patent, trademark, copyright or any other proprietary right of any third party. To the best of such Grantor’s knowledge, no Person is engaging in any activity that infringes upon or misappropriates the Intellectual Property Collateral or upon the rights of such Grantor therein. Except as set forth on Schedule IV hereto, such Grantor has not granted any license, release, covenant not to sue, non-assertion assurance, or
other right to any Person with respect to any material part of the Intellectual Property Collateral. The consummation of the transactions contemplated by the Note Purchase Documents and other related documents will not result in the termination or material impairment of any material item of the Intellectual Property Collateral.

(vii) With respect to each License material to the business of such Grantor: (A) such License is valid and binding and in full force and effect against such Grantor and represents the entire agreement between the respective licensor and licensee with respect to the subject matter of such License; (B) such Grantor has not received any notice of termination or cancellation under such License; (C) such Grantor has not received any notice of a breach or 

 

 

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default under such License, which breach or default has not been cured; (D) such Grantor has not granted to any other third party any rights, adverse or otherwise, under such License, other than pursuant to a License set forth in Schedule IV hereto; and (E) neither such Grantor nor to the best of such Grantor’s knowledge, any other party to such License is in breach or default of such License in any material respect, and no event has occurred that, with notice or lapse of time or both, would constitute such a breach or default or permit termination, modification or acceleration under such License.

SECTION 6. Further Assurances. 

(a) Each Grantor agrees that from time to time, at the expense of such Grantor, such Grantor will promptly execute and deliver, or otherwise authenticate, all further instruments and documents, and take all further action, that may be necessary or reasonably desirable, or that the Agent may request, in order to perfect and protect any pledge, assignment or security interest granted or purported to be granted by such Grantor hereunder or to enable the Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral of such Grantor. Without limiting the generality of the foregoing, each Grantor will promptly with respect to Collateral of such Grantor: (i) at the reasonable request of the Agent, mark conspicuously each chattel paper included in Receivables and each of its records pertaining to such Collateral
with a legend, in form and substance reasonably satisfactory to the Agent, indicating that such chattel paper or Collateral is subject to the security interest granted hereby; provided that no such legend shall be required if such Collateral is delivered to the Agent pursuant to clause (ii) below; (ii) if any such Collateral shall be evidenced by a promissory note or other instrument or chattel paper, deliver and pledge to the Agent hereunder such note or instrument or chattel paper duly indorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance reasonably satisfactory to the Agent; (iii) execute or authenticate and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or reasonably desirable, or as the Agent may reasonably request, in order to perfect and preserve the security interest granted or purported to be granted by such Grantor hereunder; (iv) deliver
and pledge to the Agent for benefit of the Purchasers certificates representing Security Collateral that constitutes certificated securities, accompanied by undated stock or bond powers executed in blank; and (v) deliver to the Agent evidence that all other action that the Agent may deem reasonably necessary or reasonably desirable in order to perfect and protect the security interest created by such Grantor under this Agreement has been taken. Without limiting the generality of the foregoing, each Grantor will, within 10 days after the date hereof, enter into deposit account control agreements and securities account control agreements in form and substance satisfactory to the Agent relating to any Collateral of such Grantor. 

(b) Each Grantor hereby authorizes the Agent to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Collateral of such Grantor without the signature of such Grantor where permitted by law. A photocopy or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law.

 

 

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(c) Each Grantor will furnish to the Agent from time to time statements and schedules further identifying and describing the Collateral of such Grantor and such other reports in connection with such Collateral as the Agent may reasonably request, all in reasonable detail.

(d) With respect to any Related Contracts entered into after the date hereof, with respect to which the account debtor is the United States or any department, agency, or instrumentality of the United States, each Grantor party to such Related Contract agrees to cause the security interest granted to the Agent in such Related Contract to be duly acknowledged under the Assignment of Claims Act of 1940 (31 U.S.C. 3727).

SECTION 7. As to Equipment and Inventory. 

(a) Each Grantor will keep the Equipment and Inventory of such Grantor (other than Inventory sold in the ordinary course of business, Equipment and Inventory constituting mobile goods or Equipment and Inventory in transit in the ordinary course of such Grantor’s business) at the places therefor specified in Section 5(a) or, upon 30 days’ prior written notice to the Agent, at such other places in a jurisdiction where all action required by Section 6 shall have been taken with respect to such Equipment and Inventory (and, upon the taking of such action in such jurisdiction, Schedule II hereto shall be automatically amended to include such other places).

(b) Each Grantor will cause the Equipment of such Grantor (other than any Equipment not material to the business of such Grantor) to be maintained and preserved in the same condition, repair and working order as when new, ordinary wear and tear excepted, and in accordance with any manufacturer’s manual, and will forthwith, or in the case of any loss or damage to any of such Equipment as soon as practicable after the occurrence thereof, make or cause to be made all repairs, replacements and other improvements in connection therewith that are necessary or reasonably desirable to such end.

(c) Each Grantor will pay promptly when due all property and other taxes, assessments and governmental charges or levies imposed upon, and all claims (including, without limitation, claims for labor, materials and supplies) against, the Equipment and Inventory of such Grantor, except to the extent payment thereof is not required by the Securities Purchase Agreement. In producing its Inventory, each Grantor will comply with all requirements of applicable law, including, without limitation, the Fair Labor Standards Act.

SECTION 8. Insurance. 

(a) Each Grantor will, at its own expense, maintain insurance with respect to the Equipment and Inventory of such Grantor in such amounts, against such risks, in such form and with such insurers, as is customary with companies of a similar size and line of business and shall otherwise be reasonably satisfactory to the Agent. Each policy of each Grantor for general liability insurance shall provide for the Agent as additional insured, and each policy for property damage insurance shall provide for all losses to be paid directly to the Agent. Each such policy shall in addition (i) name such Grantor and the Agent as insured parties thereunder (without any representation or warranty by or obligation upon the Agent) as their interests may appear, (ii) contain the agreement by the insurer that any loss thereunder shall be payable to the Agent,  

 

 

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(iii) provide that there shall be no recourse against the Agent for payment of premiums or other amounts with respect thereto and (iv) provide that at least 30 days’ prior written notice of cancellation shall be given to the Agent by the insurer. Each Grantor will, if so requested by the Agent, deliver to the Agent original or duplicate policies or certificates of such insurance provided by the insurance companies and, as often as the Agent may reasonably request, a report of a reputable insurance broker with respect to such insurance. Further, each Grantor will, at the request of the Agent, duly execute and deliver instruments of assignment of such insurance policies to comply with the requirements of this Section 8 and use reasonable efforts to cause the insurers to acknowledge notice of such assignment.

(b) Reimbursement under any liability insurance maintained by any Grantor pursuant to this Section 8 may be paid directly to the Person who shall have incurred liability covered by such insurance. In case of any loss involving damage to Equipment or Inventory when subsection (c) of this Section 8 is not applicable, the applicable Grantor will make or cause to be made the necessary repairs to or replacements of such Equipment or Inventory, and any proceeds of insurance properly received by or released to such Grantor shall be used by such Grantor, except as otherwise required hereunder or by the Securities Purchase Agreement, to pay or as reimbursement for the costs of such repairs or replacements.

(c) So long as no Event of Default shall have occurred and be continuing, all insurance payments received by the Agent in connection with any loss, damage or destruction of any Inventory or Equipment will be released by the Agent to the applicable Grantor for the repair, replacement or restoration thereof, subject to such terms and conditions with respect to the release thereof as the Agent may reasonably require. To the extent that (i) the amount of any such insurance payments exceeds the cost of any such repair, replacement or restoration, or (ii) such insurance payments are not otherwise required by the applicable Grantor to complete any such repair, replacement or restoration required hereunder, the Agent will not be required to release the amount thereof to such Grantor and may hold or continue to hold such amount as additional
security for the Secured Obligations of such Grantor (except that the Agent will release to such Grantor any such amount if and to the extent that any prepayment of the Notes is required under the Securities Purchase Agreement in connection with the receipt of such amount and such prepayment has been made). Upon the occurrence and during the continuance of any Event of Default, all insurance payments in respect of such Equipment or Inventory shall be paid to the Agent and shall, in the Agent’s sole discretion, (i) be released to the applicable Grantor to be applied as set forth in the first sentence of this subsection (c) or (ii) be held as additional Collateral hereunder or applied as specified in Section 16(b).

SECTION 9. Place of Perfection; Records; Collection of Receivables. 

(a) No Grantor will change its name, type of legal entity, federal tax identification number, organizational identification number or location from those set forth in Section 5(a) and Section 5(b) without first giving at least 30 days’ advance written notice to the Agent and taking all action required by the Agent for the purpose of perfecting or protecting the liens granted by this Agreement. Each Grantor will also keep the originals of the Related Contracts to which such Grantor is a party and all originals of all chattel paper that evidence Receivables of such Grantor, at the location therefor specified in Section 5(a) or, upon 30 days’ prior written notice to the Agent, at such other location in a jurisdiction where all actions 

 

 

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required by Section 6 shall have been taken with respect to the Collateral of such Grantor (and, upon the taking of such action in such jurisdiction, Schedule III hereto shall be automatically amended to include such other location). Each Grantor will hold and preserve its records relating to the Collateral, the Related Contracts and chattel paper and will permit representatives of the Agent at any time during normal business hours and with reasonable prior notice to inspect and make abstracts from such records and other documents.

(b) Except as otherwise provided in this subsection (b), each Grantor will continue to collect, at its own expense, all amounts due or to become due to such Grantor under the Receivables and the Related Contracts. In connection with such collections, such Grantor may take (and, at the Agent’s direction upon the occurrence and during the continuance of an Event of Default, will take) such action as such Grantor or the Agent may deem reasonably necessary or advisable to enforce collection of the Receivables and the Related Contracts; provided that the Agent shall have the right at any time, upon the occurrence and during the continuance of an Event of Default, to notify the obligors (each individually, a “Contract Obligor” and collectively, the “Contract Obligors”) under any Receivables or Related Contracts of the assignment of such Receivables or Related Contracts to the Agent and to direct such Contract Obligors to make payment of all amounts due or to become due to such Grantor thereunder directly to the Agent and, upon such notification and at the expense of such Grantor, to enforce collection of any such Receivables or Related Contracts, and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as such Grantor might have done. Upon the occurrence and during the continuance of an Event of Default, (i) all amounts and proceeds (including instruments) received by such Grantor in respect of the
Receivables and the Related Contracts of such Grantor shall be received in trust for the benefit of the Agent hereunder, shall be segregated from other funds of such Grantor and shall be forthwith paid over to the Agent in the same form as so received (with any necessary endorsement) to be held as cash collateral and shall be applied as provided in Section 16(b) and (ii) such Grantor will not adjust, settle or compromise the amount or payment of any Receivable, release wholly or partly any Contract Obligor thereof, or allow any credit or discount thereon. No Grantor will permit or consent to the subordination of its right to payment under any of the Receivables or the Related Contracts to any other indebtedness or obligations of the Contract Obligor thereof.

SECTION 10. As to Intellectual Property Collateral. 

(a) With respect to each item of its Intellectual Property Collateral (except with respect to any items of Intellectual Property Collateral which such Grantor, in its reasonable business judgment, deems not to be material to the ongoing business of such Grantor), each Grantor agrees to take, at its expense, all necessary steps, including, without limitation, in the U.S. Patent and Trademark Office, the U.S. Copyright Office and any other governmental authority, to (i) maintain the validity and enforceability of each such item of Intellectual Property Collateral and maintain each such item of Intellectual Property Collateral in full force and effect, and (ii) pursue the registration and maintenance of each patent, trademark, or copyright registration or application, now or hereafter included in the Intellectual Property Collateral of such Grantor, including, without limitation,
the payment of required fees and taxes, the filing of responses to office actions issued by the U.S. Patent and Trademark Office, the U.S. Copyright Office or other governmental authorities, the filing of applications for renewal or extension, the 

 

 

14

 

filing of affidavits under Sections 8 and 15 of the U.S. Trademark Act, the filing of divisional, continuation, continuation-in-part, reissue and renewal applications or extensions, the payment of maintenance fees and the participation in interference, reexamination, opposition, cancellation, infringement and misappropriation proceedings. Each Grantor shall give the Agent prompt written notice of any applications or registrations of the Intellectual Property Collateral of such Grantor filed with the U.S. Patent and Trademark Office, including the date of such filing and the registration or application numbers, if any, and each Grantor shall give the Agent not less than 30 days prior written notice of the filing of any applications or registrations of the Intellectual Property Collateral of such Grantor filed with the U.S. Copyright Office, including the title of such Intellectual Property
Collateral to be registered, as such title will appear on such applications or registrations, and the date such applications or registrations will be filed. No Grantor shall, without the written consent of the Agent, discontinue use of or otherwise abandon any Intellectual Property Collateral, or abandon any right to file an application for letters patent, trademark, or copyright, unless such Grantor shall have previously determined that such use or the pursuit or maintenance of such Intellectual Property Collateral is no longer desirable in the conduct of such Grantor’s business, in which case, such Grantor will give prompt notice of any such abandonment to the Agent.

(b) Except as provided in this Section regarding the discontinuation of use or abandonment of any Intellectual Property Collateral, each Grantor agrees promptly to notify the Agent if such Grantor learns (i) that any item of the Intellectual Property Collateral may have become abandoned, placed in the public domain, invalid or unenforceable, or of any adverse determination or development regarding such Grantor’s ownership of any of the Intellectual Property Collateral or its right to register the same or to keep and maintain and enforce the same, or (ii) of any adverse determination or the institution of any proceeding (including, without limitation, the institution of any proceeding in the U.S. Patent and Trademark Office or any court) regarding any item of the Intellectual Property Collateral.

(c) In the event that any Grantor becomes aware that any item of the Intellectual Property Collateral material to the business of such Grantor is being infringed or misappropriated by a third party, such Grantor shall promptly notify the Agent and shall take such actions, at its expense, as such Grantor or the Agent deems reasonable and appropriate under the circumstances to protect such Intellectual Property Collateral, including, without limitation, suing for infringement or misappropriation and for an injunction against such infringement or misappropriation.

(d) Each Grantor shall use proper statutory notice in connection with its use of each item of its Intellectual Property Collateral. Except with respect of any item of Intellectual Property Collateral, which such Grantor, in the reasonable exercise of its business judgment, deems not to be material to the ongoing business of such Grantor, no Grantor shall do or permit any act or knowingly omit to do any act whereby any of its Intellectual Property Collateral may lapse or become invalid or unenforceable or placed in the public domain.

(e) Except with respect to any item of Intellectual Property Collateral, which such Grantor, in the reasonable exercise of its business judgment, deems not to be material to the ongoing business of such Grantor, each Grantor shall take all steps which it or the Agent deems reasonable and appropriate under the circumstances to preserve and protect each item of its 

 

 

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Intellectual Property Collateral, including, without limitation, maintaining the quality of any and all products or services used or provided in connection with any of the Trademarks, consistent with the quality of the products and services as of the date hereof, and taking all steps necessary to ensure that all licensed users of any of the Trademarks use such consistent standards of quality.

(f) With respect to its Intellectual Property Collateral, each Grantor agrees to execute an agreement, in substantially the form set forth in Exhibit B hereto (an “Intellectual Property Security Agreement”), for recording the security interest granted hereunder to the Agent in such Intellectual Property Collateral with the U.S. Patent and Trademark Office, the U.S. Copyright Office and any other governmental authorities necessary to perfect the security interest hereunder in such Intellectual Property Collateral.

(g) Each Grantor agrees that, should it obtain an ownership interest in any item of the type set forth in Section 1(g) which is not on the date hereof a part of the Intellectual Property Collateral (the “After-Acquired Intellectual Property”), (i) the provisions of Section 1 shall automatically apply thereto, (ii) any such After-Acquired Intellectual Property and, in the case of trademarks, the goodwill of the business connected therewith or symbolized thereby, shall automatically become part of the Intellectual Property Collateral subject to the terms and conditions of this Agreement with respect thereto, (iii) such Grantor shall give prompt written notice
thereof to the Agent in accordance herewith and (iv) such Grantor shall execute and deliver to the Agent an IP Security Agreement Supplement covering such After-Acquired Intellectual Property as “Additional Collateral” thereunder and as defined therein, and shall record such IP Security Agreement Supplement with the U.S. Patent and Trademark Office, the U.S. Copyright Office and any other governmental authorities necessary to perfect the security interest hereunder in such After-Acquired Intellectual Property.

SECTION 11. Voting Rights; Dividends; Etc. 

(a) So long as no Event of Default shall have occurred and be continuing:

(i) Each Grantor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Security Collateral of such Grantor or any part thereof for any purpose; provided that such Grantor will not exercise or refrain from exercising any such right if such action would have a material adverse effect on the value of the Security Collateral or any part thereof.

(ii) Each Grantor shall be entitled to receive and retain any and all dividends, interest and other distributions paid in respect of the Security Collateral of such Grantor if and to the extent that the payment thereof is not otherwise prohibited by the terms of the Note Purchase Documents; provided that any and all dividends, interest and other distributions paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Security Collateral received after the date hereof, shall be, and shall be forthwith delivered to the Agent to hold as, Security Collateral and shall, if
received by such Grantor, be received in trust for the benefit of the Agent, be segregated from the other property or funds of such Grantor and be forthwith delivered to the Agent as Security Collateral in the same form as so received (with any necessary endorsement).

 

 

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(iii) The Agent will execute and deliver (or cause to be executed and delivered) to each Grantor all such proxies and other instruments as such Grantor may reasonably request for the purpose of enabling such Grantor to exercise the voting and other rights that it is entitled to exercise pursuant to paragraph (i) above and to receive the dividends or interest payments that it is authorized to receive and retain pursuant to paragraph (ii) above.

(b) Upon the occurrence and during the continuance of an Event of Default:

(i) All rights of each Grantor (x) to exercise or refrain from exercising the voting and other consensual rights that it would otherwise be entitled to exercise pursuant to Section 11(a)(i) shall, upon notice to such Grantor by the Agent, cease and (y) to receive the dividends, interest and other distributions that it would otherwise be authorized to receive and retain pursuant to Section 11(a)(ii) shall automatically cease, and all such rights shall thereupon become vested in the Agent, which shall thereupon have the sole right to exercise or refrain from exercising such voting and other consensual rights and to receive and hold as Security Collateral such dividends, interest and other distributions.

(ii) All dividends, interest and other distributions that are received by any Grantor contrary to the provisions of paragraph (i) of this Section 11(b) shall be received in trust for the benefit of the Agent, shall be segregated from other funds of such Grantor and shall be forthwith paid over to the Agent as Security Collateral in the same form as so received (with any necessary endorsement).

SECTION 12. Transfers and Other Liens; Additional Shares. 

(a) Each Grantor agrees that it will not (i) sell, assign or otherwise dispose of, or grant any option with respect to, any of the Collateral, other than sales, assignments and other dispositions of Collateral, and options relating to Collateral, permitted under the terms of the Securities Purchase Agreement, or (ii) create or suffer to exist any Lien upon or with respect to any of the Collateral of such Grantor except for the pledge, assignment and security interest created under this Agreement and Permitted Liens.

(b) Each Grantor agrees that it will (i) cause each issuer of the Pledged Shares pledged by such Grantor not to issue any stock or other securities in addition to or in substitution for the Pledged Shares issued by such issuer, except to such Grantor, and (ii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all additional shares of stock or other securities.

SECTION 13. Agent Appointed Attorney in Fact. Each Grantor hereby irrevocably appoints the Agent such Grantor’s attorney in fact, with full authority in the place and stead of such Grantor and in the name of such Grantor or otherwise, from time to time, upon the occurrence and during the continuance of an Event of Default, in the Agent’s discretion, to take any action and to execute any instrument that the Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation:

 

 

17

 

 (a) to obtain and adjust insurance required to be paid to the Agent pursuant to Section 8,

(b) to ask for, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral,

(c) to receive, endorse and collect any drafts or other instruments, documents and chattel paper, in connection with clause (a) or (b) above, and

(d) to file any claims or take any action or institute any proceedings that the Agent may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Agent with respect to any of the Collateral.

SECTION 14. Agent May Perform. If any Grantor fails to perform any agreement contained herein, the Agent may, as the Agent deems necessary to protect the security interest granted hereunder in the Collateral or to protect the value thereof, but without any obligation to do so and without notice, itself perform, or cause performance of, such agreement, and the expenses of the Agent incurred in connection therewith shall be payable by such Grantor under Section 17(b).

SECTION 15. The Agent’s Duties. 

(a) The powers conferred on the Agent hereunder are solely to protect the Purchasers’ interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Agent shall have no duty as to any Collateral, as to ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not any Purchaser has or is deemed to have knowledge of such matters, or as to the taking of any necessary steps to preserve rights against any parties or any other rights pertaining to any Collateral. The Agent shall be deemed to have exercised reasonable care in the custody and preservation of any Collateral in its
possession if such Collateral is accorded treatment substantially equal to that which it accords its own property.

(b) Anything contained herein to the contrary notwithstanding, the Agent may from time to time, when the Agent deems it to be necessary, appoint one or more subagents (each a “Subagent”) for the Agent hereunder with respect to all or any part of the Collateral. In the event that the Agent so appoints any Subagent with respect to any Collateral, (i) the assignment and pledge of such Collateral and the security interest granted in such Collateral by each Grantor hereunder shall be deemed for purposes of this Agreement to have been made to such Subagent, in addition to the Agent, for the ratable benefit of the Purchasers, as security for the Secured Obligations of such Grantor, (ii) such Subagent shall automatically be vested, in addition to
the Agent, with all rights, powers, privileges, interests and remedies of the Agent hereunder with respect to such Collateral, and (iii) the term “Agent,” when used herein in relation to any rights, powers, privileges, interests and remedies of the Agent with respect to such Collateral, shall include such Subagent; provided that no such Subagent shall be authorized to take any action with respect to any such Collateral unless and except to the extent expressly authorized in writing by the Agent.

 

 

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SECTION 16. Remedies. If any Event of Default shall have occurred and be continuing:

(a) The Agent may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a Purchaser upon default under the UCC and also may:  (i) require each Grantor to, and each Grantor hereby agrees that it will at its expense and upon request of the Agent forthwith, assemble all or part of the Collateral as directed by the Agent and make it available to the Agent at a place and time to be designated by the Agent that is reasonably convenient to both parties; (ii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Agent’s offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Agent may deem
commercially reasonable; (iii) occupy any premises owned or leased by any of the Grantors where the Collateral or any part thereof is assembled or located for a reasonable period in order to effectuate its rights and remedies hereunder or under law, without obligation to such Grantor in respect of such occupation; and (iv) exercise any and all rights and remedies of any of the Grantors under or in connection with the Receivables and the Related Contracts or otherwise in respect of the Collateral, including, without limitation, any and all rights of such Grantor to demand or otherwise require payment of any amount under, or performance of any provision of, the Receivables and the Related Contracts. Each Grantor agrees that, to the extent notice of sale shall be required by law, at least ten days’ notice to such Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Agent shall not be
obligated to make any sale of Collateral regardless of notice of sale having been given. The Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.

(b) Any cash held by or on behalf of the Agent and all cash proceeds received by or on behalf of the Agent in respect of any sale of, collection from, or other realization upon all or any part of the Collateral  may, in the discretion of the Agent, be held by the Agent as collateral for, and/or then or at any time thereafter applied (after payment of any amounts payable to the Agent pursuant to Section 17) in whole or in part by the Agent for the ratable benefit of the Purchasers against, all or any part of the Secured Obligations, in the following manner:

(i) first, to the Agent for any amounts as shall be required to reimburse the Agent for all reasonable costs and expenses incidental to the collection of the  Liabilities and the enforcement or protection of the Agent’s security interest in the Collateral; and

(ii) second, to the payment in full of the other Secured Obligations, in each case equally and ratably in accordance with their respective amounts thereof then due and owing or as the Purchasers (including the Agent in respect of its Notes) holding the same may otherwise agree.

 

 

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Any surplus of such cash or cash proceeds held by or on the behalf of the Agent and remaining after payment in full of all the Secured Obligations shall be paid over to the applicable Grantor or to whosoever may be lawfully entitled to receive such surplus.

(c) All payments received by any Grantor in respect of the Collateral shall be received in trust for the benefit of the Agent, shall be segregated from other funds of such Grantor and shall be forthwith paid over to the Agent in the same form as so received (with any necessary endorsement).

(d) The Agent may, without notice to any Grantor except as required by law and at any time or from time to time, charge, set off and otherwise apply all or any part of the Secured Obligations against any funds held in any deposit account of such Grantor.

(e) In the event of any sale or other disposition of any of the Intellectual Property Collateral of any Grantor, the goodwill of the business connected with and symbolized by any Trademarks subject to such sale or other disposition shall be included therein, and such Grantor shall supply to the Agent or its designee such Grantor’s know-how and expertise, and documents and things relating to any Intellectual Property Collateral subject to such sale or other disposition, and such Grantor’s customer lists and other records and documents relating to such Intellectual Property Collateral and to the manufacture, distribution, advertising and sale of products and services of such Grantor.

(f) If the Agent shall determine to exercise its right to sell all or any of the Security Collateral of any Grantor pursuant to this Section 16, such Security Collateral or the part thereof to be sold shall not, for any reason whatsoever, be effectively registered under Securities Act of 1933, as amended (as so amended the “Act”), the Agent may, in its discretion (subject only to applicable requirements of law), sell such Security Collateral or part thereof by private sale in such manner and under such circumstances as the Agent may deem necessary or advisable, but subject to the other requirements of this Section 16(f), and shall not be required to effect such registration or cause the same to be effected. Without limiting the generality of
the foregoing, in any such event the Agent may, in its sole discretion, (i) in accordance with applicable securities laws, proceed to make such private sale notwithstanding that a registration statement for the purpose of registering such Security Collateral or part thereof could be or shall have been filed under the Act; (ii) approach and negotiate with a single possible purchaser to effect such sale; and (iii) restrict such sale to a purchaser who will represent and agree that such purchaser is purchasing for its own account, for investment, and not with a view to the distribution or sale of such Security Collateral or part thereof. In addition to a private sale as provided above in this Section 16(f), if any of such Security Collateral shall not be freely distributable to the public without registration under the Act at the time of any proposed sale hereunder, then the Agent shall not be required to effect such registration or cause the same to be effected but may, in its sole
discretion (subject only to applicable requirements of law), require that any sale hereunder (including a sale at auction) be conducted subject to such restrictions as the Agent may, in its sole discretion, deem necessary or appropriate in order that such sale (notwithstanding any failure so to register) may be effected in compliance with the Debtor Relief Laws and other laws affecting the enforcement of creditors’ rights and the Act and all applicable state securities laws.

 

 

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SECTION 17. Indemnity and Expenses. 

(a) Each Grantor agrees to indemnify, defend and save and hold harmless the Agent and each other Purchaser and each of their respective Affiliates and their respective officers, directors, employees, agents, trustees and advisors (each, an “Indemnified Party”) from and against, and shall pay on demand, any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or resulting from this Agreement, except to the extent such claim, damage, loss, liability or expense resulted from such Indemnified Party’s gross negligence or willful misconduct.

(b) Each Grantor will upon demand pay to the Agent the amount of any and all reasonable expenses, including, without limitation, the reasonable fees and expenses of its counsel and of any experts and agents, that the Agent may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from or other realization upon, any of the Collateral of such Grantor, (iii) the exercise or enforcement of any of the rights of the Agent or the other Purchasers hereunder or (iv) the failure by such Grantor to perform or observe any of the provisions hereof.

SECTION 18. Amendments; Waivers; Additional Grantors; Etc. 

(a) No amendment or waiver of any provision of this Agreement, and no consent to any departure by any Grantor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure on the part of the Agent or any other Purchaser to exercise, and no delay in exercising any right hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right.

(b) Upon the execution and delivery by any Person of a security agreement supplement in substantially the form of Exhibit A hereto (each a “Security Agreement Supplement”), (i) such Person shall be referred to as an “Additional Grantor” and shall be and become a Grantor hereunder and each reference in this Agreement and the other Note Purchase Documents to “Grantor” shall also mean and be a reference to such Additional Grantor, and (ii) the supplemental schedules I, II, III, IV, and V attached to each Security Agreement Supplement shall be incorporated into and become a part of and supplement Schedules I, II, III, IV, and V,
respectively, hereto, and the Agent may attach such supplemental schedules to such Schedules; and each reference to such Schedules shall mean and be a reference to such Schedules as supplemented pursuant to each Security Agreement Supplement.

SECTION 19. Notices; Etc. All notices and other communications provided for hereunder shall be in writing and mailed, telecopied, e-mailed, or delivered to its address, telecopier number or e-mail address set forth opposite such Grantor’s or the Agent’s name on the signature pages hereto or on the signature page to the Security Agreement Supplement pursuant to which it became a party hereto; or, as to any party, at such other address, telecopier number or e-mail address as shall be designated by such party in a written notice to the other parties. All 

 

 

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such notices and other communications shall, when mailed, telecopied, e-mailed, or delivered, be effective when deposited in the mails or telecopied, sent by e-mail, or delivered, respectively, addressed as aforesaid; except that notices and other communications to the Agent shall not be effective until received by the Agent. Delivery by telecopier or by e-mail of an executed counterpart of any amendment or waiver of any provision of this Agreement or of any Security Agreement Supplement or Schedule hereto shall be effective as delivery of an original executed counterpart thereof.

SECTION 20. Continuing Security Interest; Assignments under the Securities Purchase Agreement. This Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until the payment in full of the Secured Obligations, (b) be binding upon each Grantor, its successors and assigns and (c) inure, together with the rights and remedies of the Agent hereunder, to the benefit of the Purchasers and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), any Purchaser may assign or otherwise transfer all or any portion of its rights and obligations under the Securities Purchase Agreement as permitted thereunder to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to
such Purchaser herein or otherwise, in each case as provided in the Securities Purchase Agreement.

SECTION 21. Termination. Upon the payment in full of the Secured Obligations, the pledge, assignment and security interest granted hereby shall terminate and all rights to the Collateral shall revert to the applicable Grantor. Upon any such termination, the Agent will, at the applicable Grantor’s expense, execute and deliver to such Grantor such documents as such Grantor shall reasonably request to evidence such termination.

SECTION 22. Security Interest Absolute. The obligations of each Grantor under this Agreement are independent of the Secured Obligations or any other obligations of any other Grantor under or in respect of the Note Purchase Documents, and a separate action or actions may be brought and prosecuted against each Grantor to enforce this Agreement, irrespective of whether any action is brought against any other Grantor or whether such other Grantor is joined in any such action or actions. All rights of the Agent and the other Purchasers and the pledge, assignment and security interest hereunder, and all obligations of each Grantor hereunder, shall be irrevocable, absolute and unconditional irrespective of, and each Grantor hereby irrevocably waives (to the maximum extent permitted by applicable law) any defenses it may now have or may
hereafter acquire in any way relating to, any or all of the following:

(a) any lack of validity or enforceability of any Note Purchase Document or any other agreement or instrument relating thereto;

(b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations or any other obligations of any other Grantor under or in respect of the Note Purchase Documents or any other amendment or waiver of or any consent to any departure from any Note Purchase Document, including, without limitation, any increase in the Secured Obligations resulting from the extension of additional credit to Company or otherwise;

 

 

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 (c) any taking, exchange, release or non perfection of any Collateral or any other collateral, or any taking, release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Secured Obligations;

(d) any manner of application of any Collateral or any other collateral, or proceeds thereof, to all or any of the Secured Obligations, or any manner of sale or other disposition of any Collateral or any other collateral for all or any of the Secured Obligations;

(e) any change, restructuring or termination of the corporate structure or existence of any Grantor;

(f) any failure of any Purchaser to disclose to any Grantor any information relating to the business, condition (financial or otherwise), operations, performance, assets, nature of assets, liabilities or prospects of any other Grantor now or hereafter known to such Purchaser (each Grantor waiving any duty on the part of the Purchasers to disclose such information);

(g) the failure of any other Person to execute this Agreement or any other Note Purchase Document, guaranty or agreement or the release or reduction of liability of any Grantor or any guarantor or surety with respect to the Secured Obligations; or

(h) any other circumstance (including, without limitation, any statute of limitations) or any existence of or reliance on any representation by any Purchaser that might otherwise constitute a defense available to, or a discharge of, such Grantor or any other Grantor or a third party grantor of a security interest.

This Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Secured Obligations is rescinded or must otherwise be returned by any Purchaser or by any other Person upon the insolvency, bankruptcy or reorganization of any Grantor or otherwise, all as though such payment had not been made. 

SECTION 23. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of an original executed counterpart of this Agreement.

SECTION 24. Governing Law. This Agreement shall be governed by, and construed in accordance with, the law of the State of New York without regard to principles thereof regarding conflict of laws.

 

 

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IN WITNESS WHEREOF, each Grantor has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written.

 

	
                         
 	
                         
 	GENTA INCORPORATED,

        a Delaware corporation

	
                          
 	
                         
 	
                        By: 
 	
                        
 /s/ Raymond P. Warrell, Jr., M.D.
 
	
                         
 	
                         
 	
                         
 	
                        Name: Raymond P. Warrell, Jr., M.D.
 
	
                         
 	
                         
 	
                         
 	
                        Title: Chairman and Chief Executive Officer
 

Address for Notices:

Genta Incorporated

200 Connell Drive

Berkeley Heights, NJ 07922

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

Telephone No.: (908) 286-9800

SECURITY AGREEMENT

 

 

IN WITNESS WHEREOF, the Agent has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written.

 

	
                         
 	
                         
 	TANG CAPITAL PARTNERS, L.P.,

        as Agent

	
                          
 	
                         
 	
                        By: 
 	
                        
 /s/ Kevin C. Tang
 
	
                         
 	
                         
 	
                         
 	
                             Name: Kevin C. Tang
      Title: Managing Director
 

Address for Notices:

c/o Tang Capital Management, LLC 

4401 Eastgate Mall 

San Diego, CA 92121 

SECURITY AGREEMENT

 

 

 

Schedules

 

	
      Schedule I
 	
      -
 	
      Pledged Shares and Pledged Debt
 
	
                        Schedule II
 	
                        -
 	
                        Locations of Equipment and Inventory
 
	
                        Schedule III
 	
                        -
 	
                        Chief Executive Office and Federal Tax Identification Number
 
	
                        Schedule IV
 	
                        -
 	
                        Patents, Trademarks and Trade Names, Copyrights and Licenses
 
	
                        Schedule V
 	
                        -
 	
                        Existing Commercial Tort Claims
 
	
                         
 	
                         
 	
                         
 
	
                        Exhibits
 
	
                         
 	
                         
 	
                         
 
	
                        Exhibit A
 	
                        -
 	
                        Form of Security Agreement Supplement
 
	
                        Exhibit B
 	
                        -
 	
                        Form of Intellectual Property Security Agreement
 
	
                        Exhibit C
 	
                        -
 	
  Form of Intellectual Property Security Agreement Supplement
 

SECURITY AGREEMENT

 

 

Schedule I to the

Security Agreement

PLEDGED SHARES AND PLEDGED DEBT

PART I

 

	
                        Grantor
 	
                         
 	
                        Stock Issuer
 	
                         
 	
                        Class of Stock
 	
                         
 	
                        Par Value
 	
                         
 	
                        Stock Certificate No(s)
 	
                         
 	
                        Number of Shares
 	
                         
 	
                        Percentage of Outstanding Shares
 
	
                        None
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 

SCHEDULE I TO SECURITY AGREEMENT

 

 

PART II

 

	
                        Grantor
 	
                         
 	
                        Debt Issuer
 	
                         
 	
                        Description
 	
                         
 	
                        Maturity
 	
                         
 	
                        Outstanding Principal Amount
 
	
                        None
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 

SCHEDULE I TO SECURITY AGREEMENT

 

 

Schedule II to the

Security Agreement

LOCATIONS OF EQUIPMENT AND INVENTORY

 

	
                        Grantor(s)
 	
                         
 	
                        Locations of Equipment:
 	
                         
 	
                        Locations of Inventory:
 
	
                        Genta Incorporated
 	
                         
 	
                        200 Connell Drive, Berkeley Heights, NJ 07922
 	
                         
 	
                        Almac, 4204 Technology Drive, Durham NC 27704
 
	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 
	
                         
 	
                         
 	
                         
 	
                         
 	
                        Chesapeake Biological Laboratory, 1111 South Paca Street, Baltimore MD 21230
 
	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 
	
                         
 	
                         
 	
                         
 	
                         
 	
                        Southern Testing, 3809 Airport Drive, Wilson NC 27896
 
	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 
	
                         
 	
                         
 	
                         
 	
                         
 	
                        Halls Warehouse Corp, 501 Kentile Road, South Plainfield NJ 07080
 
	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 
	
                         
 	
                         
 	
                         
 	
                         
 	
                        Cardinal Health, SPS, 15 Ingram Blvd, Suite 100, La Vergne, TN 37086
 
	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 
	
                         
 	
                         
 	
                         
 	
                         
 	
                        Aptuit Europe Limited, Tenth Avenue, Deeside Industrial Park, Deeside, Flintshire CH5 2VA United Kingdom
 

[To be provided.]

SCHEDULE II TO SECURITY AGREEMENT

 

 

 

 

Schedule III to the

Security Agreement

CHIEF EXECUTIVE OFFICE, LOCATION

AND FEDERAL TAX IDENTIFICATION NUMBER

 

	
                        Grantor
 	
                         
 	
                        Location
 	
                         
 	
                        Chief Executive Office
 	
                         
 	
                        Federal Tax Identification Number
 
	
                        Genta Incorporated
 	
                         
 	
                        200 Connell Drive, Berkeley Heights, NJ 07922
 	
                         
 	
                        Raymond P. Warrell, Jr., M.D.
 	
                         
 	
                        33-0326866
 

SCHEDULE III TO SECURITY AGREEMENT

 

 

Schedule IV to the

Security Agreement

PATENTS, TRADEMARKS AND

TRADE NAMES, COPYRIGHTS AND LICENSES

PATENTS

 

	
                        Grantor
 	
                         
 	
                        Patents
 	
                         
 	
                        Country
 	
                         
 	
                        Applic. No.
 	
                         
 	
                        Filing Date
 
	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 

See attached.

FEDERAL TRADEMARKS

 

	
                        Grantor
 	
                         
 	
                        Trademarks
 	
                         
 	
                        Serial No.
 	
                         
 	
                        Reg. No.
 	
                         
 	
                        Filing Date
 	
                         
 	
                        Reg. Date
 
	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 

See attached.

STATE TRADEMARKS

 

	
                        Grantor
 	
                         
 	
                        Trademark
 	
                         
 	
                        State
 	
                         
 	
                        Reg. No
 	
                         
 	
                        Reg. Date
 
	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 

See attached.

FOREIGN TRADEMARKS

 

	
                        Grantor
 	
                         
 	
                        Trademark
 	
                         
 	
                        Country
 	
                         
 	
                        Reg. No
 	
                         
 	
                        Filing Date
 
	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 

See attached.

TRADE NAMES

 

	
                        Grantor
 	
                         
 	
                        Trade Name
 	
                         
 	
                        State/Country
 	
                         
 	
                        Reg. No
 	
                         
 	
                        Issue Date
 
	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 

See attached.

SCHEDULE IV TO SECURITY AGREEMENT

 

 

 

 

COPYRIGHTS

 

	
                        Grantor
 	
                         
 	
                        Copyrights
 	
                         
 	
                        Country
 	
                         
 	
                        Reg. No
 	
                         
 	
                        Reg. Date
 
	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 

See attached.

MATERIAL LICENSES

 

	
                        Grantor
 	
                         
 	
                        Licenses
 	
                         
 	
                        Title
 	
                         
 	
                        Date
 	
                         
 	
                        Parties
 
	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 

See attached.

EXCEPTION PURSUANT TO SECTION 5(K)(VI) OF THE SECURITY AGREEMENT

 

	
                        Grantor
 	
                         
 	
                        Title
 	
                         
 	
                        Date
 	
                         
 	
                        Parties
 
	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 

SCHEDULE IV TO SECURITY AGREEMENT

 

 

2

 

Schedule V to the

Security Agreement

EXISTING COMMERCIAL TORT CLAIMS

None.

SCHEDULE V TO SECURITY AGREEMENT

 

 

Exhibit A to the

Security Agreement

FORM OF SECURITY AGREEMENT SUPPLEMENT

___________, 200_

Tang Capital Partners, L.P.,

as the Agent for the

Purchasers referred to in the

Securities Purchase Agreement referred to below

_______________________________

_______________________________

Attn:  __________________________

GENTA INCORPORATED

Ladies and Gentlemen:

Reference is made to (i) the Securities Purchase Agreement dated as of June 5, 2008 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Securities Purchase Agreement”), among Genta Incorporated, a Delaware corporation, as the Company, the Purchasers party thereto, and Tang Capital Partners, L.P., as Agent (together with any successor Agent appointed pursuant to the Securities Purchase Agreement, the “Agent”), and (ii) the General Security Agreement dated as of June 9, 2008 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Security Agreement”) between the Grantors from time to time party thereto and the Agent for the Purchasers. Terms defined in the Securities Purchase Agreement or the Security Agreement and not otherwise defined herein are used herein as defined in the Securities Purchase Agreement or the Security Agreement.

SECTION 1. Grant of Security. The undersigned hereby assigns and pledges to the Agent for the ratable benefit of the Purchasers, and hereby grants to the Agent for the ratable benefit of the Purchasers, a security interest in, all of its right, title and interest in and to all of the Collateral of the undersigned, whether now owned or hereafter acquired by the undersigned, wherever located and whether now or hereafter existing or arising, including, without limitation, the property and assets of the undersigned set forth on the attached supplemental schedules to the Schedules to the Security Agreement.

SECTION 2. Security for Obligations. The pledge and assignment of, and the grant of a security interest in, the Collateral by the undersigned under this Security Agreement Supplement and the Security Agreement secures the payment and performance of all Liabilities, together with the prompt payment of all expenses, including, without limitation, reasonable attorney costs and disbursements incurred by the Agent or the Purchasers incidental to the collection of the Liabilities and the enforcement or protection of the Agent’s security interest in the Collateral.

 

 

 SECURITY AGREEMENT SUPPLEMENT

 

SECTION 3. Supplements to Security Agreement Schedules. The undersigned has attached hereto supplemental Schedules I, II, III, IV, and V to Schedules I, II, III, IV, and V, respectively, to the Security Agreement, and the undersigned hereby certifies, as of the date first above written, that such supplemental schedules have been prepared by the undersigned in substantially the form of the equivalent Schedules to the Security Agreement and are complete and correct in all material respects.

SECTION 4. Representations and Warranties. The undersigned hereby makes each representation and warranty set forth in Section 5 of the Security Agreement (as supplemented by the attached supplemental schedules) to the same extent as each other Grantor.

SECTION 5. Obligations Under the Security Agreement. The undersigned hereby agrees, as of the date first above written, to be bound as a Grantor by all of the terms and provisions of the Security Agreement to the same extent as each of the other Grantors. The undersigned further agrees, as of the date first above written, that each reference in the Security Agreement to an “Additional Grantor” or a “Grantor” shall also mean and be a reference to the undersigned.

SECTION 6. Governing Law. This Security Agreement Supplement shall be governed by, and construed in accordance with, the law of the State of New York without regard to principles thereof regarding conflict of laws.

 

 

	
                         
 	
                         
 	
                        Very truly yours,
 
	
                         
 	
                         
 	
                         
 
	
                         
 	
                         
 	
                        [NAME OF ADDITIONAL GRANTOR]
 
	
                          
 	
                         
 	
                        

                        By: 
 	
                          
 
	
                         
 	
                         
 	
                         
 	
                        Title:
 
	
                         
 	
                         
 	
                         
 	
                         
 
	
                         
 	
                         
 	
                         
 	
                        Address for Notices:
 
	
                         
 	
                         
 	
                         
 	
                        ___________________________________
 
	
                         
 	
                         
 	
                         
 	
                        ___________________________________
 
	
                         
 	
                         
 	
                         
 	
                        ___________________________________
 
	
                         
 	
                         
 	
                         
 	
                         
 
	
                         
 	
                         
 	
                         
 	
                         
 
	
                         
 	
                         
 	
                         
 	
                         
 

SECURITY AGREEMENT SUPPLEMENT

 

 

2

 

Exhibit B to the

Security Agreement

FORM OF INTELLECTUAL PROPERTY SECURITY AGREEMENT

THIS INTELLECTUAL PROPERTY SECURITY AGREEMENT (as amended, amended and restated, supplemented or otherwise modified from time to time, the “IP Security Agreement”) dated as of June 9, 2008, is made by the Persons listed on the signature pages hereof (collectively, the “Grantors”) in favor of Tang Capital Partners, L.P., as Agent (the
“Agent”) for the Purchasers (as defined in the Securities Purchase Agreement referred to below).

WHEREAS, Genta Incorporated, a Delaware corporation, has entered into a Securities Purchase Agreement dated as of June 5, 2008 (as amended and restated, supplemented or otherwise modified from time to time, the “Securities Purchase Agreement”), with Tang Capital Partners, L.P., as Agent, and the Purchasers party thereto. Terms defined in the Securities Purchase Agreement and not otherwise defined herein are used herein as defined in the Securities Purchase Agreement.

WHEREAS, as a condition precedent to the purchase of the Notes by the Purchasers under the Securities Purchase Agreement, each Grantor has executed and delivered that certain General Security Agreement dated as of June 9, 2008 between the Grantors and the Agent (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Security Agreement”).

WHEREAS, under the terms of the Security Agreement, the Grantors have granted a security interest in, among other property, certain intellectual property of the Grantors to the Agent for the ratable benefit of the Purchasers, and have agreed as a condition thereof to execute this IP Security Agreement covering such intellectual property for recording with the U.S. Patent and Trademark Office, the United States Copyright Office and other governmental authorities.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Grantor agrees as follows:

SECTION 1. Grant of Security. Each Grantor hereby grants to the Agent for the ratable benefit of the Purchasers a security interest in and to all of such Grantor’s right, title and interest in and to the following (the “Collateral”):

(i) the United States, international, and foreign patents, patent applications and patent licenses set forth in Schedule A hereto (as such Schedule A may be supplemented from time to time by supplements to the Security Agreement and this IP Security Agreement, each such supplement being in substantially the form of Exhibit C to the Security Agreement (an “IP Security Agreement Supplement”), executed and delivered by such Grantor to the Agent from time to time), together with all reissues, divisions, continuations, continuations-in-part, extensions and reexaminations thereof, and all rights therein provided by international treaties or conventions (the “Patents”);

 

 

INTELLECTUAL PROPERTY SECURITY AGREEMENT

 

(ii) the United States and foreign trademark and service mark registrations, applications, and licenses set forth in Schedule B hereto (as such Schedule B may be supplemented from time to time by IP Security Agreement Supplements executed and delivered by such Grantor to the Agent from time to time) (the “Trademarks”);

(iii) the copyrights, United States and foreign copyright registrations and applications and copyright licenses set forth in Schedule C hereto (as such Schedule C may be supplemented from time to time by IP Security Agreement Supplements executed and delivered by such Grantor to the Agent from time to time) (the “Copyrights”);

(iv) any and all claims for damages for past, present and future infringement, misappropriation or breach with respect to the Patents, Trademarks and Copyrights, with the right, but not the obligation, to sue for and collect, or otherwise recover, such damages; and

(v) any and all proceeds of the foregoing.

SECTION 2. Security for Obligations. The pledge and assignment of, and the grant of a security interest in, the Collateral by each Grantor under this IP Security Agreement secures the payment of the Secured Obligations (as defined in the Security Agreement) now or hereafter existing, whether direct or indirect, absolute or contingent, and whether for principal, reimbursement obligations, interest (including any interest that accrues after the commencement of bankruptcy), premiums, penalties, fees, indemnifications, contract causes of action, costs, expenses or otherwise.

SECTION 3. Recordation. Each Grantor authorizes and requests that the Register of Copyrights, the Commissioner of Patents and Trademarks and any other applicable government officer record this IP Security Agreement.

SECTION 4. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

SECTION 5. Grants, Rights and Remedies. This IP Security Agreement has been entered into in conjunction with the provisions of the Security Agreement. Each Grantor does hereby acknowledge and confirm that the grant of the security interest hereunder to, and the rights and remedies of, the Agent with respect to the Collateral are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated herein by reference as if fully set forth herein.

SECTION 6. Governing Law. This IP Security Agreement shall be governed by, and construed in accordance with, the law of the State of New York without regard to principles thereof regarding conflict of laws.

 

 

INTELLECTUAL PROPERTY SECURITY AGREEMENT

2

 

IN WITNESS WHEREOF, each Grantor has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written.

 

	
                         
 	
                         
 	
                        GENTA INCORPORATED,
 a Delaware corporation
 
	
                          
 	
                         
 	
                        

                        By 
 	
                          
 
	
                         
 	
                         
 	
                         
 	
                        Name: Raymond P. Warrell, Jr., M.D.
 
	
                         
 	
                         
 	
                         
 	
                        Title: Chairman and Chief Executive Officer
 

Address for Notices:

Genta Incorporated

200 Connell Drive

Berkeley Heights, NJ 07922

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

Telephone No.: (908) 286-9800

 

 

INTELLECTUAL PROPERTY SECURITY AGREEMENT

 

IN WITNESS WHEREOF, the Agent has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written.

 

	
                         
 	
                         
 	
                        TANG CAPITAL PARTNERS, L.P.,
 as Agent
 
	
                          
 	
                         
 	
                        

                        By 
 	
                          
 
	
                         
 	
                         
 	
                         
 	
                        Name:

            Title:
 

Address for Notices:

 

	
                         
 	
                         
 	
                         
 	
                         
 
	
                         
 	
                         
 	
                         
 	
                         
 
	
                         
 	
                         
 	
                         
 	
                         
 

 

 

INTELLECTUAL PROPERTY SECURITY AGREEMENT

 

Schedule A to the

IP Security Agreement

PATENTS

 

	
                        Grantor
 	
                         
 	
                        Patents
 	
                         
 	
                        Country
 	
                         
 	
                        Applic. No.
 	
                         
 	
                        Filing Date
 	
                         
 
	
                        See attached.
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 

 

 

INTELLECTUAL PROPERTY SECURITY AGREEMENT

SCHEDULE A

 

Schedule B to the

IP Security Agreement

FEDERAL TRADEMARKS

 

	
                        Grantor
 	
                         
 	
                        Trademarks
 	
                         
 	
                        Serial No.
 	
                         
 	
                        Reg. No.
 	
                         
 	
                        Filing Date
 	
                         
 	
                        Reg. Date
 	
                         
 
	
                        See attached.
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 

 

 

INTELLECTUAL PROPERTY SECURITY AGREEMENT

SCHEDULE B

 

Schedule C to the

IP Security Agreement

COPYRIGHTS

 

	
                        Grantor
 	
                         
 	
                        Copyrights
 	
                         
 	
                        Country
 	
                         
 	
                        Reg. No
 	
                         
 	
                        Reg. Date
 	
                         
 
	
                        See attached.
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 	
                         
 

 

 

INTELLECTUAL PROPERTY SECURITY AGREEMENT

SCHEDULE C

 

Exhibit C to the

Security Agreement

FORM OF INTELLECTUAL PROPERTY 

SECURITY AGREEMENT SUPPLEMENT

THIS INTELLECTUAL PROPERTY SECURITY AGREEMENT SUPPLEMENT (this “IP Security Agreement Supplement”) dated as of ___________, 200_, is made by the Person listed on the signature page hereof (the “Grantor”) in favor of Tang Capital
Partners, L.P., as Agent (the “Agent”) for the Purchasers (as defined in the Securities Purchase Agreement referred to below).

WHEREAS, Genta Incorporated, a Delaware corporation, has entered into a Securities Purchase Agreement dated as of June 5, 2008 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Securities Purchase Agreement”) with Tang Capital Partners, L.P., as Agent, and the Purchasers party thereto. Terms defined in the Securities Purchase Agreement and not otherwise defined herein are used herein as defined in the Securities Purchase Agreement.

WHEREAS, pursuant to the Securities Purchase Agreement, the Grantor and certain other Persons have executed and delivered that certain General Security Agreement dated as of June 9, 2008 between the Grantor, such other Persons and the Agent (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Security Agreement”). To create a short form version of the Security Agreement covering certain intellectual property of the Grantor and such other Persons for recording with the U.S. Patent and Trademark Office, the United States Copyright Office and other governmental authorities, the Grantor and such other Persons have executed and delivered that certain
Intellectual Property Security Agreement made by the Grantor and such other Persons to the Agent dated as of June 9, 2008 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “IP Security Agreement”).

WHEREAS, under the terms of the Security Agreement and the IP Security Agreement, the Grantor has granted a security interest in the Additional Collateral (as defined in Section 1 below) of the Grantor to the Agent for the ratable benefit of the Purchasers and has agreed as a condition thereof to execute this IP Security Agreement Supplement for recording with the U.S. Patent and Trademark Office, the United States Copyright Office and other governmental authorities.

 

 

INTELLECTUAL PROPERTY SECURITY AGREEMENT SUPPLEMENT

 EXHIBIT C

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Grantor agrees as follows:

SECTION 1. Confirmation of Grant of Security. The Grantor hereby acknowledges and confirms the grant of a security interest to the Agent for the ratable benefit of the Purchasers under the Security Agreement and the IP Security Agreement in and to all of the Grantor’s right, title and interest in and to the following (the “Additional Collateral”):

(i) The United States, international, and foreign patents, patent applications, and patent licenses set forth in Schedule A hereto, together with all reissues, divisions, continuations, continuations-in-part, extensions and reexaminations thereof, and all rights therein provided by international treaties or conventions (the “Patents”);

(ii) The United States and foreign trademark and service mark registrations, applications, and licenses set forth in Schedule B hereto (the “Trademarks”);

(iii) The copyrights, United States and foreign copyright registrations and applications and copyright licenses set forth in Schedule C hereto (the “Copyrights”);

(iv) any and all claims for damages for past, present and future infringement, misappropriation or breach with respect to the Patents, Trademarks and Copyrights, with the right, but not the obligation, to sue for and collect, or otherwise recover, such damages; and

(v) any and all proceeds of the foregoing.

SECTION 2. Supplement to Security Agreement and IP Security Agreement. Schedule IV to the Security Agreement and Schedules A, B and C to the IP Security Agreement are each, effective as of the date hereof, hereby supplemented to add to such Schedules the Additional Collateral.

SECTION 3. Recordation. The Grantor authorizes and requests that the Register of Copyrights, the Commissioner of Patents and Trademarks and any other applicable government officer to record this IP Security Agreement Supplement.

SECTION 4. Governing Law. This IP Security Agreement Supplement shall be governed by, and construed in accordance with, the law of the State of New York without regard to principles thereof regarding conflict of laws.

 

 

INTELLECTUAL PROPERTY SECURITY AGREEMENT SUPPLEMENT

 EXHIBIT C

2

 

IN WITNESS WHEREOF, the Grantor has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written.

 

	
                         
 	
                         
 	
                        [NAME OF GRANTOR]
 
	
                          
 	
                         
 	
                        

                        By 
 	
                          
 
	
                         
 	
                         
 	
                         
 	
                        Name:

            Title:
 

Address for Notices:

 

	
                         
 	
                         
 	
                         
 	
                         
 
	
                         
 	
                         
 	
                         
 	
                         
 
	
                         
 	
                         
 	
                         
 	
                         
 

 

 

INTELLECTUAL PROPERTY SECURITY AGREEMENT SUPPLEMENT

 EXHIBIT C

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