Document:

ex4-5.htm

Exhibit 4.5

 

THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”).  THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO SUCH SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

 

GENTA INCORPORATED

FORM SENIOR SECURED CONVERTIBLE PROMISSORY NOTE PURCHASE WARRANT

 

	Note Warrant No. [______]	Issue Date: September 9, 2011

 

THIS SENIOR SECURED CONVERTIBLE PROMISSORY NOTE PURCHASE WARRANT certifies that, for value received, [______________] (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the Issue Date and on or prior to the close of business on the day that is five (5) years following the Closing (as defined in the Purchase Agreement (as defined below)) (the “Termination Date”) but not thereafter, to subscribe for and purchase from Genta Incorporated, a Delaware corporation (the “Company”), up to $[ _____________ ] in principal amount (the “Exercise Price”) of Senior Secured Convertible Promissory Notes in substantially the form attached hereto as Exhibit A (the “Note”).  This warrant (this “Warrant”) is one of a series of warrants of like tenor (the “Warrants”) issuable by the Company under that certain Securities Purchase Agreement by and among the Company and the Purchasers named therein, dated as of September 2, 2011 (the “Purchase Agreement”).  The Notes issued under this Warrant shall be G Notes (as defined in the Purchase Agreement) for all purposes under the Purchase Agreement.

   Section 1.           Exercise of Warrant.

 

(a)           Process.  Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Issue Date and on or before the Termination Date by delivery to the Company (the date of such delivery, the “Exercise Date”) of a duly executed facsimile copy of the Notice of Exercise annexed hereto (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company); provided purchase rights represented by this Warrant will only be exercisable, on a dollar-for-dollar basis, to the extent that the Holder’s security interest in the Cash Collateral Account (as defined in the H Notes (as defined in the Purchase Agreement)) is released in accordance with the terms of the H Notes.  Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased the entire principal amount of the Notes available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days (as defined in the G Notes) of the date the final Notice of Exercise is delivered to the Company.  Partial exercises of this Warrant resulting in purchases of a portion of the total principal amount of the Notes available hereunder shall have the effect of reducing the principal amount of the Notes purchasable hereunder by an amount equal to the principal amount of the Notes purchased.  The Holder and the Company shall maintain records showing the principal amount of the Notes purchased and the date of such purchases.  The Company shall deliver any objection to any Notice of Exercise within one (1) Trading Day of receipt of such notice.  In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error.  The Holder may provide this Warrant, or an affidavit of lost security, to the Company within a reasonable period after the delivery of any Notice of Exercise related to any partial exercise of this Warrant, and the Company, at its expense, will promptly and, in any event within three (3) Trading Days thereafter, issue and deliver to the Holder a new Warrant of like tenor, registered in the name of the Holder and exercisable, in the aggregate, for the remaining principal balance of the Notes available for purchase under this Warrant.  The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the principal amount of the Notes hereunder, the principal amount of the Notes available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

 

  

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(b)           Cash Exercise.  This Warrant may be exercised in whole or in part at any time prior to the Termination Date, by delivery of the following to the Company:

 

(i)         A duly completed and executed Notice of Exercise in the form attached hereto; and

 

(ii)        The aggregate principal amount of the Notes with respect to which this Warrant is being exercised, in lawful money of the United States, in cash, certified check or bank draft payable to the order of the Company (or as otherwise agreed to by the Company).

 

(c)           Cashless Exercise.  If at any time prior to the Termination Date the Holder elects to exercise this Warrant and on the Trading Day prior to the Exercise Date the Daily Closing Price (as defined in the Notes) of the Company’s Common Stock is greater than the then applicable Conversion Price (as defined in the Notes), the Holder of this Warrant may elect to exercise this Warrant in whole or in part by means of a “cashless exercise.”  In the event of a “cashless exercise,” by delivery to the Company of a duly completed and executed Notice of Exercise in the form attached hereto, the Holder shall be entitled to receive, without payment of any consideration, a Note in the principal amount equal to the difference between (A) the face amount of the Warrant being exercised minus (B) the quotient of (1) the product of (x) the face amount of the Warrant being exercised and (y) the Conversion Price on the date of the exercise, divided by (2) the VWCP (as defined in the G Notes) for the three (3) consecutive Trading Day period ending on the Trading Day immediately preceding the date of such election.

 

(d)           Delivery of Note, etc.

 

(i)         Upon exercise of this Warrant, the Company shall promptly (but in no event later than three (3) Trading Days after the Exercise Date) (the “Note Delivery Date”) issue and deliver (or cause to be issued and delivered) to the Holder the Note issuable upon such exercise. The Holder, or any person permissibly designated by the Holder to receive the Note, shall be deemed to have become the holder of record of such Note as of the Exercise Date.

 

  

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(ii)        To the extent permitted by law, the Company’s obligations to issue and deliver a Note in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other person, and irrespective of any other circumstance that might otherwise limit such obligation of the Company to the Holder in connection with the issuance of a Note. Nothing herein shall limit the Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver the Note issuable upon exercise of the Warrant as required pursuant to the terms hereof.

 

(iii)       If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Note, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased portion of the Note called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

 

(iv)        If the Company fails to transmit to the Holder a Note pursuant to this Section 1(d) by the third Trading Day immediately following the Note Delivery Date, then the Holder will have the right to rescind such exercise.

 

(v)         Issuance of a Note shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Note, all of which taxes and expenses shall be paid by the Company, and such Note shall be issued in the name of the Holder or in such name or names as may be directed by the Holder;  provided,  however, that in the event a Note is to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.

 

(e)           Changes to G Notes.  If, at any time while this Warrant is outstanding, the Company effects any transaction whereby the G Notes are amended, modified or otherwise changed into or exchanged for other securities, then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive the amount and kind of such amended, modified, changed or exchanged securities that the Holder would have been entitled to receive had the Holder exercised this Warrant for G Notes immediately prior to such event.

 

  

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(f)           Notice to Allow Exercise by Holder.  If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock; (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock; (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; (D) the approval of any stockholders of the Company shall be sought in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then, in each case, the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice; provided further that upon exercise of this Warrant, the Holder shall receive the benefit of the adjustments provided for in Section 3.4 of the G Note for any such dividend, distribution, redemption, rights or warrants. Subject to applicable law, the Holder is entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice.  Notwithstanding the foregoing, the delivery of the notice described in this Section 1(f) is not intended to and shall not bestow upon the Holder any voting rights whatsoever with respect to the Warrant.

 

   Section 2.           Transfer of Warrant.

 

(a)           Transferability.  Subject to compliance with any applicable securities laws and the conditions set forth in Section 2(d) hereof, this Warrant and all rights hereunder are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer.  Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant in the name of the assignee or assignees and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled.  A Warrant, if properly assigned, may be exercised by a new holder for the purchase of Notes without having a new Warrant issued.

 

(b)           New Warrant. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney.  Subject to compliance with Section 2(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the original Issue Date and shall be identical with this Warrant except as to the principal amount of Notes issuable pursuant thereto.

 

  

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(c)           Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time.  The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

 

(d)           Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such transfer: (i) that the Holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel satisfactory to the Company (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that such transfer may be made without registration under the Securities Act and under applicable state securities or blue sky laws; (ii) that the transferor or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company; and (iii) that the transferee be an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8) promulgated under the Securities Act or a qualified institutional buyer as defined in Rule 144A(a)(1) promulgated under the Securities Act.

 

   Section 3.           Investment Intent; Limited Transferability.

 

(a)          By accepting this Warrant, the Holder represents to the Company that it understands that this Warrant has not been, and any securities obtainable upon exercise of this Warrant may not have been, registered for sale under the Securities Act or any state securities or “blue sky” laws and are being offered and sold to the Holder pursuant to one or more exemptions from the registration requirements of the Securities Act and applicable State securities or “blue sky” laws.  In the absence of an effective registration of such securities or an exemption therefrom, the Notes shall bear a legend substantially similar to the legend set forth in the Purchase Agreement.  The Holder understands that it may have to bear the economic risk of its investment in this Warrant and any securities obtainable upon exercise of this Warrant for an indefinite period of time, until such securities have been registered under the Securities Act and any applicable state securities or “blue sky” laws and therefore cannot be sold unless subsequently registered under such laws, or an exemption from such registration is available.  The Holder further represents to the Company, by accepting this Warrant, that it has full power and authority to accept this Warrant and make the representations set forth herein.

 

(b)          The Holder agrees and acknowledges that this Warrant may not be sold, transferred, assigned or hypothecated by the Holder except in compliance with the provisions of the Securities Act and any applicable State securities or “blue sky” laws.

 

   Section 4.           Miscellaneous.

 

(a)           Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant, if mutilated, the Company will make and deliver a new Warrant of like tenor and dated as of such cancellation, in lieu of such Warrant.

 

(b)           Saturdays, Sundays, Holidays, etc.  If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Trading Day, then such action may be taken or such right may be exercised on the next succeeding Trading Day.

 

(c)           Company Covenants.

 

(i)         The Company covenants that during the period the Warrant is outstanding and exercisable, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for conversion of the Notes in full, without regard to any limitations on conversion set forth in the Notes, upon the exercise of any purchase rights under this Warrant.  The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing Notes to execute and issue the necessary Notes upon the exercise of the purchase rights under this Warrant.  The Company will take all such reasonable action as may be necessary to assure that such Notes may be issued as provided herein without violation of any applicable law or regulation.  The Company covenants that all Notes which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant, be duly authorized, validly issued and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

 

(ii)        The Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment.  Without limiting the generality of the foregoing, the Company will use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant.

 

(d)           Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

 

  

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(e)           Restrictions.  The Holder acknowledges that the Notes acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities 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.

 

(f)           Non-waiver and Expenses.  No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder’s rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date.  If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

 

(g)           Notices.  Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

 

(h)           Limitation of Liability.  No provision hereof, in the absence of any affirmative action by Holder to exercise this Warrant to purchase Notes, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the Exercise Price of any Notes of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

(i)            Remedies.  Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant.  The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

 

(j)            Successors and Assigns.  Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder.  The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by any such Holder or holder of Notes.

 

  

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(k)           Amendment; Waiver.  No provision of this Warrant may be waived or amended on behalf of all holders of Warrants other than by a written instrument signed by the Company and the holders holding at least 66 2/3% of the principal amount of the Notes that may be acquired upon exercise of the then outstanding Warrants; provided that if any holder then holding Warrants is materially adversely affected by such waiver or amendment on behalf of all holders in a manner that is not similar in all material respects to the affect on the other holders then holding Warrants, such waiver or amendment shall not be effective without the written consent of the adversely affected holder.  Notwithstanding the foregoing, nothing provided in this Section 4(k) shall limit an individual holder’s right to waive or amend any provision of any Warrant on its own behalf.  The Holder acknowledges that any amendment or waiver effected in accordance with this Section 4(k) shall be binding upon the Holder (and its permitted assigns) and the Company, including, without limitation, an amendment or waiver that is not agreed to by the Holder or that has an adverse effect on any or all Holders.

 

(l)            Severability.  Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

 

(m)           Headings.  The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

 

  

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

 

GENTA INCORPORATED

 

By:                                                                        

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

Title:  Chief Executive Officer

 

  

  

  

EXHIBIT A

FORM OF NOTE

 

  

  

  

NOTICE OF EXERCISE

 

TO:           [_______________________]

 

1.           [  ] (Check if applicable)  The undersigned hereby elects to purchase ________ in principal amount of Senior Secured Convertible Promissory Notes (“Notes”) of the Company pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price related to such principal amount in full, together with all applicable transfer taxes, if any, in lawful money of the United States.

 

Or

1.           [  ] (Check if applicable)  The undersigned hereby elects to purchase Senior Secured Convertible Promissory Notes (“Notes”) of the Company as a cashless exercise of _________ of the total Exercise Price of this Warrant.

2.           Please issue a Note in the name of the undersigned or in such other name as is specified below:

 

_______________________________

 

The Notes shall be delivered by physical delivery to:

 

_______________________________

 

_______________________________

 

_______________________________

 

3.           Accredited Investor.  The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

 

[SIGNATURE OF HOLDER]

 

Name of Investing Entity:                                                                                                                                        

 

Signature of Authorized Signatory of Investing Entity:                                                                                                                                         

 

Name of Authorized Signatory:                                                                                                                                          

 

Title of Authorized Signatory:                                                                                                                                

Date:                                                                                                                                        

 

 

  

  

  

ASSIGNMENT FORM

 

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

 

FOR VALUE RECEIVED, [____] all of or [_______] of the principal amount of the Senior Secured Convertible Promissory Notes issuable upon exercise of the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

_______________________________________________ whose address is

 

_______________________________________________________________.

 

_______________________________________________________________

 

Dated:  ______________, _______

 

Holder’s Signature:                                                                                     

 

Holder’s Address:                                                                                     

 

 

Signature Guaranteed:  ___________________________________________

 

NOTE:  The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company.  Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.ex10-1.htm

 

Exhibit 10.1

SECURITIES PURCHASE

 

AGREEMENT

 

Dated as of September 2, 2011

 

by and among

 

GENTA INCORPORATED

 

and

 

THE PURCHASERS LISTED ON EXHIBIT A

  

  

  

SECURITIES PURCHASE AGREEMENT

 

This SECURITIES PURCHASE AGREEMENT (this “Agreement”) dated as of September 2, 2011 (the “Effective Date”)  by and among Genta Incorporated, a Delaware corporation (the “Company”), and each of the purchasers of the senior secured convertible promissory notes, senior secured cash collateralized convertible promissory notes and warrants to purchase 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 and Debt Warrants.  Upon the following terms and conditions, the Company shall issue and sell to the Purchasers, and the Purchasers shall purchase from the Company, units (each, a “Unit”), in an aggregate amount of $12,700,000 at the Closing (as defined in Section 1.2(b)), consisting of: (i) 12.00% senior secured convertible promissory notes due September 9, 2021 in the aggregate principal amount of $4,233,333.33, 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 “G Notes”); (ii) 12.00% senior secured cash collateralized convertible promissory notes due September 9, 2021 in the aggregate principal amount of $8,466,666.67, convertible into Common Stock, in substantially the form attached hereto as Exhibit C (the “H Notes”); (iii) senior secured convertible promissory note warrants, in substantially the form attached hereto as Exhibit D (the “Senior Secured Warrants”), to purchase up to an aggregate principal amount of $4,200,000 of the G Notes; and (iv) senior secured convertible promissory note warrants, in substantially the form attached hereto as Exhibit E (the “Cash Collateralized Warrants”, and together with the Senior Secured Warrants, the “Debt Warrants”), to purchase up to an aggregate principal amount of $8,400,000 of the G Notes.  The G Notes and H Notes issued at the Closing shall be collectively referred to herein as the “Closing Notes,” any additional G Notes issued upon exercise of the Debt Warrants shall be collectively referred to  herein as the “Conversion Notes” and the Closing Notes together with Conversion Notes, as well as additional notes issued thereon as payment in kind, shall be collectively referred to herein as the “Notes.”  Any shares of Common Stock issuable upon conversion or otherwise in respect of the Notes are herein referred to as the “Conversion Shares”.  The Notes, the Debt Warrants and the Conversion Shares are sometimes collectively referred to herein as the “Securities.”  At the Closing, the Company shall deliver to each Purchaser: (i) a G Note in the principal amount equal to thirty-three percent (33%) of the portion of the purchase price paid by such Purchaser for such Unit; (ii) an H Note in the principal amount equal to sixty-seven percent (67%) of the portion of the purchase price paid by such Purchaser for such Unit; (iii) a Senior Secured Warrant to purchase up to an aggregate principal amount of G Notes equal to thirty-three percent (33%) of the portion of the purchase price paid by such Purchaser for such Unit; and (iv) a Cash Collateralized Warrant to purchase up to an aggregate principal amount of G Notes equal to sixty-seven percent (67%) of the portion of the purchase price paid by such Purchaser for such Unit.  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.

 

  

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1.2           Purchase Price and Closing.

 

(a)           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 and not jointly, agree to purchase the Closing Notes and Debt Warrants for an aggregate purchase price of $$12,600,000 (the “Purchase Price”).  At the Closing, each Purchaser shall deliver the applicable portion of the Purchase Price as indicated on Exhibit A hereto by wire transfer of immediately available funds to the Company.

 

(b)           The closing under this Agreement (the “Closing”) shall take place on or before September 9, 2011 (the “Closing Date”), provided, that all of the conditions set forth in Article 4 hereof and applicable to the Closing have been fulfilled or waived in accordance herewith.  The Closing shall take place at the offices of Tang Capital Partners, LP (the “Lead Purchaser”), 4401 Eastgate Mall, First Floor, San Diego, CA 92121 at 10:00 a.m. Pacific Standard Time, or at such other time and place as the parties may agree.  Subject to the terms and conditions of this Agreement, at the Closing, each Purchaser shall purchase and the Company shall issue and deliver or cause to be delivered to each Purchaser Closing Notes in the principal amounts set forth opposite the name of such Purchaser on Exhibit A hereto and related Debt Warrants to purchase up to the aggregate principal amount of G Notes set forth opposite the name of such Purchaser on Exhibit A hereto.

 

1.3           Conversion Shares; Reverse Stock Split.

 

(a)           No later than the date that is one Trading Day (as defined below) prior to the first day of the period during which the First 3-Day VWCP (as defined in the G Note) is being calculated, the Company shall take all action necessary to reserve (and hereby covenants to continue to reserve), free of preemptive rights and other similar contractual rights, a number of its authorized but unissued shares of Common Stock equal to 100% of the aggregate number of shares of Common Stock then issuable upon conversion or otherwise in respect of the Notes issued or issuable under this Agreement (including any Conversion Notes issuable upon exercise of the Debt Warrants or any Notes issued by way of payment of interest in kind).

 

(b)           The Company shall effect a reverse stock split of the Company’s outstanding shares of Common Stock in a ratio of one-hundred to one (100:1) (the “Reverse Split”).  The Company shall take all necessary steps to ensure that the Reverse Split is effective on the date that is three weeks following the Closing; provided that if the Company is unable to effect the Reverse Split on the date that is three weeks following the Closing due to any required regulatory review and approval, the Company shall ensure that the Reverse Split is effective within four weeks following the Closing.

 

  

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(c)           The Company shall take all necessary steps to call a meeting and shall hold a special meeting of the stockholders of the Company within forty-five (45) days of the Closing Date for the purpose of authorizing the board of directors of the Company (the “Board of Directors”) to effect up to two reverse stock splits of the Company’s Common Stock and approving a new equity compensation plan; provided, however, the Company is not liable for Securities Exchange Commission (“SEC”) review.

 

ARTICLE 2

 

REPRESENTATIONS AND WARRANTIES

 

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

 

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

 

 

(b)           Authorization; Enforcement.  Each of the Company and its Subsidiaries (as applicable) has the requisite corporate power and authority to enter into and perform all required actions necessary under this Agreement, the Notes, the Debt Warrants, the Officer’s Certificate to be delivered by the Company, dated as of the Closing Date, substantially in the form of Exhibit F attached hereto (the “Officer’s Certificate”), the Amendment Agreement to be executed as of the Closing Date, substantially in the form of Exhibit G attached hereto (the “Amendment Agreement”), the Security Agreement to be executed as of the Closing Date, substantially in the form of Exhibit H attached hereto (the “Security Agreement”) and the pledged collateral account control agreement with restricted access substantially in the form of Exhibit I attached hereto (the “Control Agreement” and collectively with the Agreement, the Notes, the Debt Warrants, the Officer’s Certificate, the Amendment Agreement and the Security Agreement, 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.

 

  

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

 

(d)           Issuance of Securities.  The Notes and Debt Warrants to be issued at the Closing have been duly authorized by all necessary corporate action and, when paid for or issued in accordance with the terms hereof, the Notes and Debt Warrants 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.

 

  

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(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 Debt Warrants, and the consummation by the Company and its Subsidiaries of the transactions contemplated hereby and thereby, and the issuance of the Securities as contemplated hereby, do not and will not (i) violate or conflict with any provision of the Company’s Certificate of Incorporation (the “Certificate”) or Bylaws (the “Bylaws”), each as amended to date, or any Subsidiary’s comparable charter documents, subject to the filing of an amendment to the Certificate to increase the authorized shares; (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond, license, lease agreement, instrument or obligation to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries’ respective properties or assets are bound; (iii) result in a violation of any federal, state, local or foreign statute, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries are bound or affected; or (iv) create or impose a lien, mortgage, security interest, charge or encumbrance of any nature on any property or asset of the Company or its Subsidiaries under any agreement or any commitment to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound or by which any of their respective properties or assets are bound, except, in the case of clause (ii), for such conflicts, defaults, terminations, amendments, acceleration, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect.  Neither the Company nor any of its Subsidiaries is required under federal, state, foreign or local law, rule or regulation to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under the Transaction Documents, issue and sell the Securities in accordance with the terms hereof (other than the filing of a Form D pursuant to Regulation D and counterpart filings under applicable state securities laws, rules or regulations).  The business of the Company and its Subsidiaries is not being conducted in violation of any laws, ordinances or regulations of any governmental entity.

 

(f)           Commission Documents, Financial Statements.  The Common Stock of the Company is registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Exchange Act (all of the foregoing including filings incorporated by reference therein being referred to herein as the “Commission Documents”).  At the times of their respective filings, the Form 10-K for the fiscal year ended December 31, 2010 (the “Form 10-K”, and together with any other report, schedule, form, statement or other document filed by the Company with the SEC pursuant to the reporting requirements of the Exchange Act subsequent to the filing of the Form 10-K and prior to the Closing Date, the “Public Filings”) complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder and other federal, state and local laws, rules and regulations applicable to such documents, and the 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).

 

  

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(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, 2010, the Company has not experienced or suffered any Material Adverse Effect, except as disclosed on Schedule 2.1(h) hereto.

 

(i)           No Undisclosed Liabilities.  Since December 31, 2010, except as disclosed on Schedule 2.1(i) hereto, neither the Company nor any of its Subsidiaries has incurred any liabilities, obligations, claims or losses (whether liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent or otherwise) other than those incurred in the ordinary course of the Company’s or its Subsidiaries’ respective businesses or which, individually or in the aggregate, are not reasonably likely to have a Material Adverse Effect.  The Company’s deferred compensation balance as of July 31, 2011 is disclosed on Schedule 2.1(i).

 

(j)           No Undisclosed Events or Circumstances.  Since December 31, 2010, 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.

 

  

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(k)           Indebtedness.  Schedule 2.1(k) hereto sets forth as of the 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) all leases required to be capitalized in accordance with GAAP.  Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.

 

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

 

(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.

 

  

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(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.

 

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

 

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

 

  

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

 

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

 

  

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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.

 

  

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(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, 2010, neither the Company nor any Subsidiary has:

 

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

 

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

 

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

 

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

 

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

 

(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;

 

  

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

 

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

 

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

 

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

 

  

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(bb)         No Integrated Offering.  Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would cause the offering of the Notes and the Debt Warrants pursuant to this Agreement to be integrated with prior offerings by the Company for purposes of the Securities Act which would prevent the Company from selling the Securities pursuant to Regulation D and Rule 506 thereof under the Securities Act nor will the Company or any of its affiliates or subsidiaries take any action or steps that would cause the offering of the Securities to be integrated with other offerings if to do so would prevent the Company from selling Securities pursuant to Regulation D and Rule 506 thereof under the Securities Act or otherwise prevent a completed offering of Securities hereunder.  Except as set forth on Schedule 2.1(bb) hereto, the Company does not have any registration statement pending before the SEC or currently under the SEC’s review and since December 31, 2010, 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 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.

 

  

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

 

2.2           Representations and Warranties of the Purchasers.  Each of the Purchasers hereby represents and warrants to the Company with respect solely to itself and not with respect to any other Purchaser as follows as of the date hereof and as of the 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 this Agreement, the Amendment Agreement and the Security Agreement and to purchase the Securities being sold to it hereunder.  The execution, delivery and performance of this Agreement, the Amendment Agreement and the Security Agreement by each Purchaser and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate or partnership action, and no further consent or authorization of such Purchaser or its Board of Directors, stockholders, or partners, as the case may be, is required.  When executed and delivered by the Purchasers, this Agreement, the Amendment Agreement and the Security Agreement shall constitute valid and binding obligations of each Purchaser enforceable against such Purchaser in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, conservatorship, receivership or similar laws relating to, or affecting generally the enforcement of, creditor’s rights and remedies or by other equitable principles of general application.

 

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

 

  

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

 

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

 

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

 

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

 

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

 

  

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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.

 

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

 

ARTICLE 3

 

COVENANTS

 

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

 

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

 

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

 

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

 

  

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

 

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

 

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

 

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

 

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

 

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

 

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

 

3.8           Use of Proceeds.  The proceeds from the sale of the Securities hereunder shall be used by the Company for general corporate purposes.  In no event shall the proceeds be used to redeem any Common Stock or securities convertible, exercisable or exchangeable into Common Stock, other than the repayment of debt pursuant to its terms, or to settle any outstanding litigation in excess of $100,000 per occurrence.

 

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.

 

  

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3.10         Disclosure of Transaction.  The Company shall issue a press release describing the material terms of the transactions contemplated hereby (the “Press Release”) no later than 9:00 A.M. Eastern Time on the first Trading Day following the effective date of this Agreement.  The Company shall also file with the SEC, concurrently with the Press Release, a Current Report on Form 8-K (the “Form 8-K”) describing the material terms of the transactions contemplated hereby, which Press Release and Form 8-K shall be subject to prior review and comment by the Purchasers.  “Trading Day” means any day during which the principal exchange on which the Common Stock is traded shall be open for trading.

 

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

 

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

 

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

 

  

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

 

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

 

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

 

3.17         Subsequent Financings.

 

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

 

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

 

3.18         Lock-Up Agreement.  If, during the Lockup Period (as defined below), the Company hires or appoints any new officer or director who is required to comply with the reporting obligations under Section 16 of the Exchange Act and who has not executed a Lock-Up Agreement (as defined below), the Company shall cause each such executive officer and director to execute and deliver to the Purchasers a Lock-Up Agreement in connection with the commencement of such officer’s or director’s services to the Company.  “Lockup Period” shall mean the earlier of (a) the date that is six (6) months following the Closing and (b) the date the Company enters into a strategic alliance or partnership with an unaffiliated Major Pharma Entity whereby the Company receives an upfront cash payment of at least $15,000,000.  “Major Pharma Entity” shall mean any pharmaceutical or biotechnology company (including, for purposes of this Section, its direct and indirect majority-owned subsidiaries or a group of companies acting in concert) (1) whose total market capitalization is at least $2 billion or (2) with more than $500 million in revenue related to sales of pharmaceutical products or services.

 

  

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3.19           The Company covenants and agrees that so long any Notes or Debt Warrants remain outstanding, without the written consent of the Requisite Purchasers, the Company shall not effect a reverse stock split other than the Reverse Split as contemplated by Section 1.3 of this Agreement.  The consent of the Requisite Purchasers shall be required for both the timing of and ratio for such reverse stock split; provided that no such consent shall be required to allow the Company to effect a reverse stock split beginning on the date that is one day following the one year anniversary of the Closing Date.

 

ARTICLE 4

 

CONDITIONS

 

4.1           Conditions Precedent to the Obligation of the Company to Close and to Sell the Closing Notes and Debt Warrants.  The obligation hereunder of the Company to close and issue and sell the Closing Notes and Debt Warrants to the Purchasers at the 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.

 

 (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 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 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 Notes shall have been delivered to the Company on or before the Closing Date.

 

 (e)           Delivery of Transaction Documents.  This Agreement, the Amendment Agreement and the Security Agreement 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 Closing Notes and the Debt Warrants.  The obligation hereunder of the Purchasers to purchase the Closing Notes and Debt Warrants and consummate the transactions contemplated by this Agreement is subject to the satisfaction or waiver, at or before the 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.

 

  

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 (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 the 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 the 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 the Closing Date, by the SEC or the Principal Market from trading on the Principal Market nor shall suspension by the SEC or the Principal Market have been threatened, as of the 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.

 

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

 

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

 

 (h)           Secretary’s Certificate.  The Company shall have delivered to the Purchasers a secretary’s certificate, dated as of the Closing Date, as to: (i) the resolutions adopted by its Board of Directors and the Board of Directors of each Subsidiary approving the transactions contemplated hereby; (ii) its certificate of incorporation; (iii) its bylaws, each as in effect at 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.

 

  

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(i)            Officer’s Certificate.  On the Closing Date, the Company shall have delivered to the Purchasers a certificate signed by an executive officer on behalf of the Company and each Subsidiary, dated as of the Closing Date, confirming the accuracy of the Company’s and each Subsidiary’s representations, warranties and covenants as of the Closing Date and confirming the compliance by the Company with the conditions precedent set forth in paragraphs (a)-(e) and (j) of this Section 4.2 as of the 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)           Change in Purchasers.  There shall have been no changes to Exhibit A (List of Purchasers) since the execution of this Agreement.

 

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

 

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

 

ARTICLE 5

 

CERTIFICATE LEGEND

 

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

 

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

 

ARTICLE 6

 

INDEMNIFICATION

 

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

 

  

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

 

  

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ARTICLE 7

 

MISCELLANEOUS

 

7.1           Purchasers’ Agent.

 

(a)           Appointment.  The Purchasers hereby appoint Tang Capital Partners, LP, as the “Agent” for the Purchasers under the Security Agreement and the Collateral Agreement and Agent agrees to act as Agent in accordance with the terms and conditions of this Agreement, the Security Agreement and the Collateral Agreement.  Notwithstanding anything to the contrary herein, the Agent may be removed or replaced with the written consent of the Requisite Purchasers (as defined in the Security Agreement).  “Collateral”, as used herein, shall mean all of the collateral over which the Purchasers are granted a security interest pursuant to Security Agreement and the Collateral Agreement, collectively.

 

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

 

(i)            Until the full release of the security interest in the Collateral,  the Purchasers hereby authorize Agent to take all actions, to make all decisions and to exercise all powers and remedies on their behalf under the provisions of the H Notes and G Notes, including without limitation all such actions, decisions and powers as are reasonably incidental thereto.  The Agent may execute any of its duties hereunder by or through agents, designees or employees.  The powers conferred on the Agent hereunder are solely to ratably protect the interests in the Collateral of the holders of the H Notes and G Notes and shall not impose any duty upon it to exercise any such powers, provided that the Agent shall take (or refrain from taking) any action upon the written direction of the holders of 66 2/3% of the then outstanding principal amount of the either of the H Notes or G Notes, and shall act on behalf of, and for the ratable benefit of, the holders of the H Notes and G Notes in good faith and in a manner that it reasonably believes treats all holders of H Notes and G Notes proportionally, with respect to each series of notes.  Except for the safe custody of any Collateral in its possession or control and the accounting for moneys actually received by it, the Agent shall have no duty as to any Collateral, as to ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not the Agent has or is deemed to have knowledge of such matters, or as to the taking of any necessary steps to preserve rights against any parties or any other rights pertaining to any Collateral.  The Agent shall be deemed to have exercised reasonable care in the custody and preservation of any Collateral in its possession or control if such Collateral is accorded treatment substantially equal to that which it accords its own property.  The Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects with reasonable care.

 

  

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

 

(iii)          To the extent not paid by Company, each Purchaser agrees to pay to the Agent, promptly on demand, such Purchaser’s Pro Rata (as defined in the Security Agreement) share of the amount of any and all reasonable expenses, including, without limitation, the reasonable fees and expenses of the Agent’s counsel and of any experts and agents, that the Agent may incur in connection with: (i) the administration of the Security Agreement or Collateral Agreement or any other Transaction Document; (ii) the custody or preservation of, or the collection from or other realization upon, any of the Collateral; (iii) the exercise or enforcement of any of the rights of the Agent or the holders of H Notes or G Notes; or (iv) the failure by Company to perform or observe any of the provisions hereof.  To the extent not indemnified by Company, each Purchaser hereby agrees to hold the Agent harmless, and to indemnify the Indemnified Persons from and against its Pro Rata share of any and all claims, losses, damages, taxes, expenses or liabilities (including without limitation reasonable attorneys fees and expenses) that may be incurred by such Indemnified Persons and that arise out of or are related to the performance by Agent of its services as Agent hereunder, unless such liability shall be caused by the willful misconduct or gross negligence of such Indemnified Persons.  The undertakings in this Section shall survive the payment of all Secured Obligations (as defined in the Security Agreement), with respect to the H Notes, and the Security Interest Filing (as defined in the Collateral Agreement), with respect to the G Notes, and the resignation or replacement of the 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 made its own decision to accept the Notes and to extend credit to the Company independently based on such documents and information as it has deemed appropriate and without reliance upon the Agent or any of its partners, directors, members, officers, agents, designees or employees.  Each Purchaser agrees that the Agent shall not have any duty or responsibility to provide such Purchaser with any credit or other information concerning the business, prospects, operations, property, financial and other condition or credit worthiness of the Company.

 

  

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

 

7.2           Fees and Expenses.  Except as provided in Section 7.1(b)(iii), each party shall pay the fees and expenses of its advisors, counsel, accountants and other experts, if any, and all other expenses, incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement and the transactions contemplated hereby; provided, however, that the Company shall pay all documented, actual attorneys’ fees and expenses (including disbursements and out-of-pocket expenses) incurred by the Lead Purchaser or the Agent 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 Closing (which payment may be withheld from the amount delivered to the Company by the Lead Purchaser at the Closing); and (ii) any amendments, modifications or waivers of this Agreement or any of the other Transaction Documents, including the transactions contemplated hereunder and thereunder.  In addition, the Company shall pay all reasonable fees and expenses incurred by the Purchasers or the Agent 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 or the Agent was not entitled to the enforcement of the Agreement sought, then the Purchasers or the Agent, as the case may be, seeking enforcement shall reimburse the Company for all fees and expenses paid pursuant to this sentence.

 

7.3           Specific Performance; Consent to Jurisdiction; Venue.

 

(a)           The Company and the Purchasers acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement or the other Transaction Documents were not performed in accordance with their specific terms or were otherwise breached.  It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement or the other Transaction Documents and to enforce specifically the terms and provisions hereof or thereof without the requirement of posting a bond or providing any other security, this being in addition to any other remedy to which any of them may be entitled 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 7.2 shall affect or limit any right to serve process in any other manner permitted by law.  The parties hereby waive all rights to a trial by jury.

 

  

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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 on behalf of all Purchasers other than by a written instrument signed by the Company and the Purchasers holding at least 66 2/3% of the combined principal amount of the then outstanding Notes, including the Notes that have been issued by way of payment of interest in kind and the Conversion Notes potentially issuable upon exercise of the Debt Warrants (for clarity, even if the Debt Warrants have not been exercised, the underlying Conversion Notes will still be considered Notes for this purpose) (the “Requisite Purchasers”); provided that if any of the rights under this Agreement of any Purchaser then holding Securities are materially diminished or the obligations under this Agreement of any Purchaser then holding Securities are materially increased by such waiver or amendment, in each case in a manner that is not similar in all material respects to the effect on the rights or obligations of other Purchasers, then such waiver or amendment shall not be effective with respect to such adversely affected Purchaser without the written consent of such adversely affected Purchaser.  Notwithstanding the foregoing, (a) nothing provided in this Section 7.4 shall limit an individual Purchaser’s right to waive or amend any provision of this Agreement on its own behalf and (b) no provision of this Agreement may be modified or amended that would affect the rights or duties of the Agent hereunder unless the same is in writing and signed by the Agent.  The Purchasers acknowledge that any amendment or waiver effected in accordance with this Section 7.4 shall be binding upon each Purchaser (and their permitted assigns) and the Company, including, without limitation, an amendment or waiver that has an adverse effect on any or all Purchasers.

 

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

 

  

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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

	
  

	
Email:Warrell@genta.com

 

	
with copies to:

	
Morgan, Lewis & Bockius LLP

	
  

	
502 Carnegie Center

	
  

	
Princeton, NJ 08540

	
  

	
Attention: Emilio Ragosa

	
  

	
Telephone No.: (609) 919-6633

	
  

	
Telecopy No.: (609) 919-6701

	
  

	
Email: eragosa@morganlewis.com

	
If to any Purchaser:

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

 

	
With a copy to:

	
Ropes & Gray LLP

	
  

	
Three Embarcadero Center

	
  

	
San Francisco, CA 94111

	
  

	
Attention: Ryan Murr

	
  

	
Telephone No.: (415) 315-6395

	
  

	
Telecopy No.: (415) 315-6365

	
  

	
Email: ryan.murr@ropesgray.com

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

 

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

 

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

 

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

 

  

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

  

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

 

  

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

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

  

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

 

	 	
GENTA INCORPORATED

 

	 	By:    	 
	 	Name:   	 
	 	itle:     	 
	 	 	 
	 	 	 

 

 

[SIGNATURE PAGES CONTINUE]

 

 

 

  

32

  

[PURCHASER SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]

 

 

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

 

Name of Purchaser:                                                                                                                                         

 

Signature of Authorized Signatory of Purchaser:                                                                                                                                        

 

Name of Authorized Signatory:                                                                                                                                           

 

Title of Authorized Signatory:                                                                                                                                         

 

Email Address of Purchaser:                                                                                                                                            

 

Fax Number of Purchaser:                                                                                                                                         

 

Address for Notice of Purchaser:                                                 

 

 

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

 

 

 

Principal Amount and Type of Company Securities Currently Held:

 

	 	 	 	 
	
 

 

	 	 	 
	
 

 

	 	 	 
	
 

 

	 	 	 
	
 

 

	 	 	 
	
 

 

	 	 	 

 

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

 

[SIGNATURE PAGES CONTINUE]

 

 

  

33

  

SCHEDULE I

SCHEDULE OF EXCEPTIONS

  

  

  

SCHEDULE II

OFFICERS & DIRECTORS

 

  

  

  

EXHIBIT A

LIST OF PURCHASERS

 

	
Purchaser Name

	
Applicable 

Portion of  

Purchase

 Price

	
Principal Amount 

of G Note

	
Principal Amount 

of H Note

	
Exercise Price of 

Senior Secured Debt 

Warrant

	
Exercise 

Price of Cash 

Collateralized Debt 

Warrant

 

  

  

  

EXHIBIT B

FORM OF G NOTE

 

 

  

  

  

EXHIBIT C

FORM OF H NOTE

 

 

  

  

  

EXHIBIT D

FORM OF SENIOR SECURED WARRANT

 

 

  

  

  

EXHIBIT E

FORM OF CASH COLLATERALIZED WARRANT

 

 

  

  

  

EXHIBIT F

OFFICER’S CERTIFICATE

 

  

  

  

EXHIBIT G

NOTE AMENDMENT AGREEMENT

 

 

  

  

  

EXHIBIT H

SECURITY AGREEMENT

 

  

  

  

EXHIBIT I

PLEDGED COLLATERAL ACCOUNT CONTROL AGREEMENT

 

  

  

  

EXHIBIT J

OPINION OF COMPANY COUNSEL

 

 

  

  

  

EXHIBIT K

FORM OF LOCK-UP AGREEMENT

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