Document:

exv10w6

Exhibit
10.6

IDERA PHARMACEUTICALS, INC.

1995 EMPLOYEE STOCK PURCHASE PLAN

     The purpose of this Plan is to provide eligible employees of Idera Pharmaceuticals, Inc. (the
“Company”) and certain of its subsidiaries with opportunities to purchase shares of the Company’s
Common Stock (the “Common Stock”). Two Hundred Fifty
Thousand (250,000) shares of Common
Stock in the aggregate have been approved for this purpose.

     1. Administration. The Plan will be administered by the Company’s Board of Directors
(the “Board”) or by a Committee appointed by the Board (the “Committee”). The Board or the
Committee has authority to make rules and regulations for the administration of the Plan and its
interpretation and decisions with regard thereto shall be final and conclusive.

     2. Eligibility. Participation in the Plan will neither be permitted nor denied
contrary to the requirements of Section 423 of the Internal Revenue Code of 1986, as amended (the
“Code”), and regulations promulgated thereunder. All employees of the Company, including directors
who are employees, and all employees of any subsidiary of the Company (as defined in Section 424(f)
of the Code) designated by the Board or the Committee from time to time (a “Designated
Subsidiary”), are eligible to participate in any one or more of the offerings of Options (as
defined below) to purchase Common Stock under the Plan, provided that:

     (a) they are regularly employed by the Company or a Designated Subsidiary for more than
20 hours a week and for more than five months in a calendar year; and

     (b) they have been employed by the Company or a Designated Subsidiary for at least
three months prior to enrolling in the Plan; and

     (c) they are employees of the Company or a Designated Subsidiary on the first day of
the applicable Plan Period (as defined below).

     No employee may be granted an option hereunder if such employee, immediately after the option
is granted, owns 5% or more of the total combined voting power or value of the stock of the Company
or any subsidiary. For purposes of the preceding sentence, the attribution rules of Section 424(d)
of the Code shall apply in determining the stock ownership of an employee, and all stock which the
employee has a contractual right to purchase shall be treated as stock owned by the employee.

     3. Offerings. The Company will make one or more offerings (“Offerings”) to employees
to purchase Common Stock under this Plan. The Board or the Committee shall determine the
commencement dates of each of the Offerings (the “Offering Commencement Dates”). Each Offering
Commencement Date will begin a period (a “Plan Period”) during which payroll deductions will be
made and held for the purchase of Common Stock at the end of the Plan Period. The Board or the
Committee shall choose a Plan Period of twelve (12) months or less for each of the Offerings and
may, at its discretion, choose a different Plan Period for each Offering.

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     4. Participation. An employee eligible on the Offering Commencement Date of any
Offering may participate in such Offering by completing and forwarding a payroll deduction
authorization form to the Controller of the Company at least 14 days prior to the applicable
Offering Commencement Date. The form will authorize a regular payroll deduction from the
Compensation received by the employee during the Plan Period. Unless an employee files a new form
or withdraws from the Plan, his deductions and purchases will continue at the same rate for future
Offerings under the Plan as long as the Plan remains in effect. The term “Compensation” means the
amount of money reportable on the employee’s Federal Income Tax Withholding Statement, excluding
overtime, shift premium, incentive or bonus awards, allowances and reimbursements for expenses such
as relocation allowances for travel expenses, income or gains on the exercise of Company stock
options or stock appreciation rights, and similar items, whether or not shown on the employee’s
Federal Income Tax Withholding Statement, but including, in the case of salespersons, sales
commissions to the extent determined by the Board or the Committee.

     5. Deductions.

          (a) The Company will maintain payroll deduction accounts for all participating employees.
With respect to any Offering made under this Plan, an employee may authorize a payroll deduction in
any dollar amount up to a maximum of 10% of the Compensation he or she receives during the Plan
Period or such shorter period during which deductions from payroll are made. Payroll deductions
may be at the rate of 1%, 2%, 3%, 4%, 5%, 6%, 7%, 8%, 9% or 10% of Compensation.

          (b) No employee may be granted an Option which permits his rights to purchase Common Stock
under this Plan and any other stock purchase plan of the Company and its subsidiaries, to accrue at
a rate which exceeds $25,000 of the fair market value of such Common Stock (determined at the
Offering Commencement Date of the Plan Period) for each calendar year in which the Option is
outstanding at any time.

     6. Deduction Changes. An employee may decrease or discontinue his payroll deduction
once during any Plan Period by filing a new payroll deduction authorization form. However, an
employee may not increase his payroll deduction during a Plan Period. If an employee elects to
discontinue his payroll deductions during a Plan Period, but does not elect to withdraw his funds
pursuant to Section 8 hereof, funds deducted prior to his election to discontinue will be applied
to the purchase of Common Stock on the Exercise Date (as defined below).

     7. Interest. Interest will not be paid on any employee payroll deduction accounts,
except to the extent that the Board or its Committee, in its sole discretion, elects to credit such
accounts with interest at such per annum rate as it may from time to time determine.

     8. Withdrawal of Funds. An employee may on any one occasion during a Plan Period and
for any reason withdraw all or part of the balance accumulated in the employee’s payroll deduction
account. Any such withdrawal must be effected prior to the close of business on the last day of
the Plan Period. If the employee withdraws all of such balance, the employee shall thereby
withdraw from participation in the Offering and may not begin participation again

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during the remainder of the Plan Period. Any employee withdrawing all or part of such balance
may participate in any subsequent Offering in accordance with terms and conditions established by
the Board or the Committee, except that, unless otherwise permitted under Section 16 of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules promulgated
thereunder, any employee who is also a director and/or officer of the Company within the meaning of
Section 16 of the Exchange Act may not (a) withdraw less than all of the balance accumulated in
such employee’s payroll deduction account or (b) participate again for a period of at least six
months as provided in Rule 16b-3(d)(2)(i) or any successor provision under the Exchange Act.

     9. Purchase of Shares.

          (a) On the Offering Commencement Date of each Plan Period, the Company will grant to each
eligible employee who is then a participant in the Plan an option (an “Option”) to purchase on the
last business day of such Plan Period (the “Exercise Date”), at the Option Price hereinafter
provided for, such number of whole shares of Common Stock of the Company reserved for the purposes
of the Plan as does not exceed the number of shares determined by dividing 15% of such employee’s
annualized Compensation for the immediately prior six-month period by the price determined in
accordance with the formula set forth in the following paragraph but using the closing price on the
Offering Commencement Date of such Plan Period.

          (b) The Option Price for each share purchased will be 85% of the closing price of the Common
Stock on (i) the first business day of such Plan Period or (ii) the Exercise Date, whichever
closing price shall be less. Such closing price shall be (A) the closing price of the Common Stock
on any national securities exchange on which the Common Stock is listed, or (B) the closing price
of the Common Stock on the Nasdaq National Market (“Nasdaq”) or (C) the average of the closing bid
and asked prices in the over-the-counter market, whichever is applicable, as published in The
Wall Street Journal. If no sales of Common Stock were made on such a day, the price of the
Common Stock for purposes of clauses (A) and (B) above shall be the reported price for the next
preceding day on which sales were made.

          (c) Each employee who continues to be a participant in the Plan on the Exercise Date shall be
deemed to have exercised his Option at the Option Price on such date and shall be deemed to have
purchased from the Company the number of full shares of Common Stock reserved for the purpose of
the Plan that his accumulated payroll deductions on such date will pay for pursuant to the formula
set forth above (but not in excess of the maximum number determined in the manner set forth above).

          (d) Any balance remaining in an employee’s payroll deduction account at the end of a Plan
Period will be automatically refunded to the employee, except that any balance which is less than
the purchase price of one share of Common Stock will be carried forward into the employee’s payroll
deduction account for the following Offering, unless the employee elects not to participate in the
following Offering under the Plan, in which case the balance in the employee’s account shall be
refunded.

     10. Issuance of Certificates. Certificates representing shares of Common Stock
purchased under the Plan may be issued only in the name of the employee, in the name of the

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employee and another person of legal age as joint tenants with rights of survivorship, or (in
the Company’s sole discretion) in the street name of a brokerage firm, bank or other nominee holder
designated by the employee.

     11. Rights on Retirement, Death or Termination of Employment. In the event of a
participating employee’s termination of employment prior to the last business day of a Plan Period
(whether as a result of the employee’s voluntary or involuntary termination, retirement, death or
otherwise), no payroll deduction shall be taken from any pay due and owing to the employee and the
balance in the employee’s payroll deduction account shall be paid to the employee or, in the event
of the employee’s death, (a) to a beneficiary previously designated in a revocable notice signed by
the employee (with any spousal consent required under state law) or (b) in the absence of such a
designated beneficiary, to the executor or administrator of the employee’s estate or (c) if no such
executor or administrator has been appointed to the knowledge of the Company, to such other
person(s) as the Company may, in its discretion, designate. If, prior to the last business day of
the Plan Period, the Designated Subsidiary by which an employee is employed shall cease to be a
subsidiary of the Company, or if the employee is transferred to a subsidiary of the Company that is
not a Designated Subsidiary, the employee shall be deemed to have terminated employment for the
purposes of this Plan.

     12. Optionees Not Stockholders. Neither the granting of an Option to an employee nor
the deductions from his pay shall constitute such employee a stockholder of the shares of Common
Stock covered by an Option under this Plan until such shares have been purchased by and issued to
him.

     13. Rights Not Transferable. Rights under this Plan are not transferable by a
participating employee other than by will or the laws of descent and distribution, and are
exercisable during the employee’s lifetime only by the employee.

     14. Application of Funds. All funds received or held by the Company under this Plan
may be combined with other corporate funds and may be used for any corporate purpose.

     15. Adjustment in Case of Changes Affecting Common Stock. In the event of a
subdivision of outstanding shares of Common Stock, or the payment of a dividend in Common Stock,
the number of shares approved for this Plan, and the share limitation set forth in Section 9, shall
be increased proportionately, and such other adjustment shall be made as may be deemed equitable by
the Board or the Committee. In the event of any other change affecting the Common Stock, such
adjustment shall be made as may be deemed equitable by the Board or the Committee to give proper
effect to such event.

     16. Merger.

          (a) If the Company shall at any time merge or consolidate with another corporation and the
holders of the capital stock of the Company immediately prior to such merger or consolidation
continue to hold at least 80% by voting power of the capital stock of the surviving corporation
(“Continuity of Control”), the holder of each Option then outstanding will thereafter be entitled
to receive at the next Exercise Date upon the exercise of such Option for each share as to which
such Option shall be exercised the securities or property which a holder of

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one share of the Common Stock was entitled to upon and at the time of such merger, and the
Board or the Committee shall take such steps in connection with such merger as the Board or the
Committee shall deem necessary to assure that the provisions of Section 15 shall thereafter be
applicable, as nearly as reasonably may be, in relation to the said securities or property as to
which such holder of such Option might thereafter be entitled to receive thereunder.

          (b) In the event of a merger or consolidation of the Company with or into another corporation
which does not involve Continuity of Control, or of a sale of all or substantially all of the
assets of the Company while unexercised Options remain outstanding under the Plan, (i) subject to
the provisions of clauses (ii) and (iii), after the effective date of such transaction, each holder
of an outstanding Option shall be entitled, upon exercise of such Option, to receive in lieu of
shares of Common Stock, shares of such stock or other securities as the holders of shares of Common
Stock received pursuant to the terms of such transaction; or (ii) all outstanding Options may be
cancelled by the Board or the Committee as of a date prior to the effective date of any such
transaction and all payroll deductions shall be paid out to the participating employees; or (iii)
all outstanding Options may be cancelled by the Board or the Committee as of the effective date of
any such transaction, provided that notice of such cancellation shall be given to each holder of an
Option, and each holder of an Option shall have the right to exercise such Option in full based on
payroll deductions then credited to his account as of a date determined by the Board or the
Committee, which date shall not be less than ten (10) days preceding the effective date of such
transaction.

     17. Amendment of the Plan. The Board may at any time, and from time to time, amend
this Plan in any respect, except that (a) if the approval of any such amendment by the stockholders
of the Company is required by Section 423 of the Code or by Rule 16b-3 under the Exchange Act, such
amendment shall not be effected without such approval, and (b) in no event may any amendment be
made which would cause the Plan to fail to comply with Section 16 of the Exchange Act and the rules
promulgated thereunder, as in effect from time to time, or Section 423 of the Code.

     18. Insufficient Shares. In the event that the total number of shares of Common Stock
specified in elections to be purchased under any Offering plus the number of shares purchased under
previous Offerings under this Plan exceeds the maximum number of shares issuable under this Plan,
the Board or the Committee will allot the shares then available on a pro rata basis.

     19. Termination of the Plan. This Plan may be terminated at any time by the Board.
Upon termination of this Plan all amounts in the payroll deduction accounts of participating
employees shall be promptly refunded.

     20. Governmental Regulations.

          (a) The Company’s obligation to sell and deliver Common Stock under this Plan is subject to
listing on a national stock exchange or quotation on Nasdaq and the approval of all governmental
authorities required in connection with the authorization, issuance or sale of such stock.

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          (b) The Plan shall be governed by the laws of the State of Delaware except to the extent that
such law is preempted by federal law.

          (c) The Plan is intended to comply with the provisions of Rule 16b-3 promulgated under the
Exchange Act. Any provision inconsistent with such Rule shall to that extent be inoperative and
shall not affect the validity of the Plan.

     21. Issuance of Shares. Shares may be issued upon exercise of an Option from
authorized but unissued Common Stock, from shares held in the treasury of the Company, or from any
other proper source.

     22. Notification upon Sale of Shares. Each employee agrees, by entering the Plan, to
promptly give the Company notice of any disposition of shares purchased under the Plan where such
disposition occurs within two years after the date of grant of the Option pursuant to which such
shares were purchased.

     23. Effective Date and Approval of Stockholders. The Plan shall take effect upon the
closing of the Company’s initial public offering of Common Stock pursuant to an effective
registration statement under the Securities Act of 1933, as amended, subject to approval by the
stockholders of the Company as required by Rule 16b-3 under the Exchange Act and by Section 423 of
the Code, which approval must occur within twelve months of the adoption of the Plan by the Board.

6THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS.
GENTA INCORPORATED

Form of Senior Secured Convertible Promissory Note

due June ____, 2010

 

	
                        No. _____
 	
                         
 	
                        $___________
 
	
                        Dated: June __, 2008 
 	
                         
 	
                         
 

For value received, GENTA INCORPORATED, a Delaware corporation (the “Maker”), hereby promises to pay to the order of _______________________ (together with its successors and representatives, the “Holder”), in accordance with the terms hereinafter provided, the principal amount of ________________________ ($______________), together with interest thereon. Pursuant to the Purchase Agreement (as defined in Section 1.1 hereof), the Maker has issued, is issuing or may in the future issue separate senior secured convertible promissory notes in substantially the same form as this Note (the “Other Notes” and collectively
with this Note, the “Notes”) to separate purchasers (“Other Holders” and collectively with the Holder, the “Holders”).

All payments under or pursuant to this Note shall be made in United States Dollars in immediately available funds to the Holder at the address of the Holder first set forth above or at such other place as the Holder may designate from time to time in writing to the Maker or by wire transfer of funds to the Holder’s account, instructions for which are attached hereto as Exhibit A. The outstanding principal balance of this Note shall be due and payable on June __, 2010 (the “Maturity Date”) or at such earlier time as provided herein.

ARTICLE 1

1.1 Purchase Agreement. This Note has been executed and delivered pursuant to the Securities Purchase Agreement, dated as of June __, 2008 (the “Purchase Agreement”), by and among the Maker and the purchasers listed therein. Capitalized terms used and not otherwise defined herein shall have the meanings set forth for such terms in the Purchase Agreement.

1.2 Interest. Beginning on the issuance date of this Note (the “Issuance Date”), the outstanding principal balance of this Note shall bear interest, in arrears, at a rate per annum equal to fifteen percent (15%), payable quarterly on September _, December _, March _ and June _ of each year (each, an “Interest Payment Date”) commencing September _, 2008, or earlier upon conversion, redemption or prepayment of this Note, at the option of the Maker in (A) cash or (B) in Tradable shares of the Maker’s common stock, par value $0.001 per share (the “Common Stock”); provided, however, (i) payment of interest in shares of Common Stock may only occur if during the 20 Trading Days immediately prior to the applicable Interest Payment Date and through and including the date such shares of Common Stock are issued to the Holder all of the Equity Conditions, unless waived by the Holder in writing, have been met and the Maker shall have given the Holder notice in accordance with the notice requirements set forth below and (ii) as to such Interest Payment Date, on or prior to the such Interest Payment Date, the Maker shall have delivered to the Holder’s account with the Depository Trust Company (“DTC”) a number of shares of Common Stock to be applied against such interest payment equal to the quotient of (x) the applicable interest payment divided by (y)
90% of the Daily VWAP calculated in the Trading Day immediately prior to the Interest Payment Date. Interest shall be computed on the basis of a 360-day year of twelve (12) 30-day months and shall accrue commencing on the Issuance Date. Furthermore, upon the occurrence of an Event of Default (as defined in Section 2.1 hereof), the Maker will pay interest to the Holder, payable on demand, on the outstanding principal balance of and unpaid interest on the Note from the date of the Event of Default until such Event of Default is cured at the rate of the lesser of twenty percent (20%) and the maximum applicable legal rate per annum. Maker shall issue and deliver any shares of Common Stock to be issued pursuant to this paragraph to be issued and delivered to the DTC account on the Holder’s behalf via the Deposit Withdrawal Agent Commission System (“DWAC”), registered in the name of the Holder or its designee, the number of shares of Common Stock to which the Holder is entitled.

 

 

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1.3 Payment of Principal; No Prepayment. The principal amount hereof shall be paid in full on the Maturity Date or, if earlier, upon acceleration or redemption of this Note in accordance with the terms hereof. Any amount of principal repaid hereunder may not be reborrowed. Except as set forth in Section 3.6, the Maker may not prepay any portion of the principal amount of this Note without the prior written consent of the Holder, which may be withheld in the Holder’s sole and absolute discretion.

1.4 Security Agreement; IP Security Agreement. The obligations of the Maker hereunder are secured by a continuing security interest in all assets of the Maker pursuant to the terms of a General Security Agreement dated as of June __, 2008 by and among the Maker and the Maker’s subsidiaries, on the one hand, and the Agent (as defined therein), on the other hand (the “Security Agreement”) and a related Intellectual Property Security Agreement dated as of June __, 2008 by and among the Maker and the Maker’s subsidiaries, on the one hand, and the Agent, on the other hand (the “IP Security Agreement”). 

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

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

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

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

1.9 Senior Status of Note. The obligations of the Maker under the Notes shall rank senior to all other Indebtedness of the Maker, whether now or hereinafter existing. Upon any Liquidation Event, the Holder will be entitled to receive, before any distribution or payment is made upon, or set apart with respect to, any other Indebtedness of the Maker or any class of capital stock or the Maker, an amount equal to the principal amount plus all accrued and unpaid interest thereon. For purposes of this Note, “Liquidation Event” means a liquidation pursuant to a filing of a petition for bankruptcy under applicable law or any other insolvency or debtor’s relief, an assignment for the benefit of creditors, or a
voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Maker.

ARTICLE 2

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

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

(b) the Maker shall fail to observe or perform any other covenant, condition or agreement contained in this Note or any Other Note which failure is not cured, if possible to cure, within 3 business days after notice of such default sent by the Holder or by any Other Holder; or

 

 

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(c) the failure of the Common Stock to be listed on at least one of the OTC Bulletin Board, the American Stock Exchange, the Nasdaq National Market, the Nasdaq SmallCap Market or The New York Stock Exchange, Inc. for a period of five (5) consecutive Trading Days; or

(d) the Maker’s notice to the Holder, including by way of public announcement, at any time, of its inability to comply (including for any of the reasons described in Section 3.7(a) hereof) or its intention not to comply with proper requests for conversion of this Note into shares of Common Stock; or

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

(f) default shall be made in the performance or observance of any material covenant, condition or agreement contained in the Purchase Agreement or any other Transaction Document that is not covered by any other provisions of this Section 2.1 and such default is not fully cured within seven (7) business days after the Maker receives notice from the Holder of the occurrence thereof; or

(g) at any time following the Amendment Date the Maker shall fail to have a sufficient number of shares of Common Stock authorized, reserved and available for issuance to satisfy the potential conversion in full (disregarding for this purpose any and all limitations of any kind on such conversion) of this Note and each Other Note; or

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

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

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

(ii) the sale, transfer disposition or exclusive license of more than fifty percent (50%) of the Maker’s intellectual property or assets (based on the fair market value as determined in good faith by the Holders) other than inventory in the ordinary course of business in one or a related series of transactions; except for any such transaction described in this clause (ii) that has been approved in writing by the holders of 55% of the then outstanding principal amount of the Notes; or

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

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

 

 

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

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

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

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

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

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

(q) the security interest in favor of the Agent pursuant to the Security Agreement or the IP Security Agreement or any of the security provided for therein shall, at any time, cease to be in full force and effect for any reason other than the satisfaction in full of all obligations under the Note and the Other Notes and discharge of the Note and the Other Notes or any security interest created thereunder shall be declared invalid or unenforceable or the Maker or any of its Subsidiaries or affiliates shall assert, in any pleading in any court of competent jurisdiction, that any such security interest is invalid or unenforceable; or

(r) at any time following December __, 2008 the Maker shall be unable for any reason to deliver Tradable shares of Common Stock upon conversion of this Note at the election of Holder; or

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

(t) the Maker shall agree to or consummate any debt or equity financing or any other capital raising transaction or transaction with any Person other than Permitted Financings; or

 

 

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

2.2 Remedies Upon An Event of Default. If an Event of Default shall have occurred and shall be continuing, the Holder of this Note may at any time at its option declare the entire unpaid principal balance of this Note, together with all interest accrued hereon, due and payable, and thereupon, the same shall be accelerated and so due and payable, without presentment, demand, protest, or notice, all of which are hereby expressly unconditionally and irrevocably waived by the Maker; provided, however, that upon the occurrence of an Event of Default described above, the Holder, in its sole and absolute discretion, may (a) demand the redemption of this Note pursuant to Section 3.6(a) hereof (to the extent permitted by
Section 3.6(a) hereof), (b) demand that the principal amount of this Note then outstanding and all accrued and unpaid interest thereon shall be converted into shares of Common Stock at the Conversion Price per share on the Trading Day immediately preceding the date the Holder demands conversion pursuant to this clause, or (c) exercise or otherwise enforce any one or more of the Holder’s rights, powers, privileges, remedies and interests under this Note, the Purchase Agreement, the other Transaction Documents or applicable law; provided further, however, that upon the occurrence of an Event of Default described in clauses (k) or (l), the entire unpaid principal balance of this Note, together with all interest accrued hereon, shall automatically become due and payable, and thereupon, the same shall be accelerated and so due and payable, without presentment, demand, protest, or notice, all of which are hereby expressly unconditionally and irrevocably waived by the Maker. No course
of delay on the part of the Holder shall operate as a waiver thereof or otherwise prejudice the right of the Holder. No remedy conferred hereby shall be exclusive of any other remedy referred to herein or now or hereafter available at law, in equity, by statute or otherwise.

ARTICLE 3

3.1 Conversion.

(a) Voluntary Conversion. At any time and from time to time on or after the Amendment Date, this Note shall be convertible (in whole or in part), at the option of the Holder, into such number of fully paid and non-assessable shares of Common Stock as is determined by dividing (x) that portion of the outstanding principal balance that the Holder elects to convert by (y) the Conversion Price (as defined in Section 3.2 hereof) then in effect on the date on which the Holder faxes a notice of conversion (the “Conversion Notice”), duly executed, to the Maker (facsimile number (908) 464-1705, Attn.: Raymond P. Warrell, Jr., M.D.) (the “Voluntary Conversion
Date”). The Holder shall deliver this Note to the Maker at the address designated in the Purchase Agreement at such time that this Note is fully converted. With respect to partial conversions of this Note, the Maker shall keep written records of the amount of this Note converted as of each Conversion Date. On any such Voluntary Conversion Date, Maker shall also pay Holder an amount in cash equal to the then accrued and unpaid interest on the portion of the outstanding principal balance that the Holder has elected to convert.

(b) Mandatory Conversion. On the Mandatory Conversion Date (as defined below), the Maker may cause the principal amount all or a portion of the Notes to convert into a number of fully paid and nonassessable shares of Common Stock equal to the quotient of (i) the principal amount of the Notes divided by (ii) the Conversion Price in effect on the Mandatory Conversion Date by providing five business (5) days prior written notice of such Mandatory Conversion Date. Any such conversion shall be made pro-rata amongst all Holders of Notes. As used herein, a “Mandatory Conversion Date” shall be a date on which the Daily VWAP has exceeded $0.50 (as appropriately adjusted for stock splits, stock dividends,
reorganizations, recapitalizations, stock combinations and the like) for each of the twenty (20) consecutive prior Trading Days ending on the Trading Day immediately prior to such date; provided, that the Equity Conditions shall have been satisfied and the Common Stock shall have been Tradable on each Trading Day during the period beginning on the first day of such 20-day period and ending on the date of the delivery of such shares of Common Stock pursuant to the mandatory conversion. The Mandatory Conversion Date and the Voluntary Conversion Date collectively are referred to in this Note as the “Conversion Date.”  On any such Mandatory Conversion Date, Maker shall also pay Holder an amount in cash equal to the then accrued and unpaid interest on the outstanding principal balance of the Notes.

3.2 Conversion Price. The term “Conversion Price” shall mean $0.01, subject to adjustment under Section 3.5 hereof.

 

 

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3.3 Mechanics of Conversion.

(a) Not later than three (3) Trading Days after any Conversion Date (the “Delivery Date”), the Maker or its designated transfer agent, as applicable, shall issue and deliver to the DTC account on the Holder’s behalf via the Deposit Withdrawal Agent Commission System (“DWAC”) as specified in the Conversion Notice, registered in the name of the Holder or its designee, the number of shares of Common Stock to which the Holder is entitled, free from any restrictive legend. If in the case of any Conversion Notice such shares are not delivered to or as directed by the applicable Holder by the Delivery Date, the Holder shall be entitled by written notice to the
Maker at any time on or before its receipt of such shares, to rescind such conversion, in which event the Maker shall immediately return this Note tendered for conversion, whereupon the Maker and the Holder shall each be restored to their respective positions immediately prior to the delivery of such notice of revocation, except that any amounts described in Sections 3.3(b) and (c) shall be payable through the date notice of rescission is given to the Maker.

(b) The Maker understands that a delay in the delivery of the shares of Common Stock upon conversion of this Note beyond the Delivery Date could result in economic loss to the Holder. If the Maker fails to deliver to the Holder such shares via DWAC by the Delivery Date, the Maker shall pay to such Holder, in cash, an amount per Trading Day for each Trading Day until such shares are delivered via DWAC, together with interest on such amount at a rate of 15% per annum, accruing until such amount and any accrued interest thereon is paid in full, equal to the greater of (A) (i) 1% of the aggregate principal amount of the Notes requested to be converted for each of the first five (5) Trading Days after the Delivery Date and (ii) 2% of the aggregate principal amount of the Notes requested to be converted for each Trading Day thereafter and
(B) $2,000 per day (which amount shall be paid as liquidated damages and not as a penalty). Nothing herein shall limit a Holder’s right to pursue actual damages for the Maker’s failure to deliver certificates representing shares of Common Stock upon conversion within the period specified herein and such Holder shall have the right to pursue all remedies available to it at law or in equity (including, without limitation, a decree of specific performance and/or injunctive relief). Notwithstanding anything to the contrary contained herein, the Holder shall be entitled to withdraw a Conversion Notice, and upon such withdrawal the Maker shall only be obligated to pay the liquidated damages accrued in accordance with this Section 3.3(b) through the date the Conversion Notice is withdrawn.

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

 

 

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3.4 Ownership Cap.

(a) Notwithstanding anything to the contrary set forth in Section 3 of this Note, at no time may the Company issue to Holder shares of Common Stock or the Holder convert all or a portion of this Note into

shares of Common Stock if the number of shares of Common Stock to be issued pursuant to such issuance or conversion would exceed, when aggregated with all other shares of Common Stock owned by the Holder at such time and all shares of Common Stock that the Holder is then the beneficial owner of (as determined in accordance with Section 13(d) of the Exchange Act and the rules thereunder), the number of shares of Common Stock that would result in the Holder beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules thereunder) more than 4.999% of all of the Common Stock outstanding at such time; provided, however, that upon the Holder providing the Maker with sixty-one (61) days notice (pursuant to Section 5.1 hereof) (the “Waiver
Notice”) that the Holder would like to waive this Section 3.4(a) with regard to any or all shares of Common Stock issuable in respect of this Note, this Section 3.4(a) will be of no force or effect with regard to all or a portion of the Note referenced in the Waiver Notice.

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

3.5 Adjustment of Conversion Price.

(a) Until the Note has been paid in full or converted in full, the Conversion Price shall be subject to adjustment from time to time as follows (but shall not be increased, other than pursuant to Section 3.5(a)(i) hereof):

(i) Adjustments for Stock Splits and Combinations. If the Maker shall at any time or from time to time after the Issuance Date effect a stock split of the outstanding Common Stock, the applicable Conversion Price in effect immediately prior to the stock split shall be proportionately decreased. If the Maker shall at any time or from time to time after the Issuance Date, combine the outstanding shares of Common Stock, the applicable Conversion Price in effect immediately prior to the combination shall be proportionately increased. Any adjustments under this Section 3.5(a)(i) shall be effective at the close of business on the date the stock split or combination occurs.

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

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

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

(iii) Adjustment for Other Dividends and Distributions. If the Maker shall at any time or from time to time after the Issuance Date make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in other than shares of Common Stock, then, and in each event, an appropriate revision to the applicable Conversion Price shall be made and provision shall be made (by adjustments of the Conversion Price or otherwise) so that the holders of this Note shall receive upon conversions thereof, in addition to the number of shares of Common Stock receivable thereon, the number of securities of the Maker or other issuer (as applicable) or other property that they would have received had this Note

 

 

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been converted into Common Stock on the date of such event and had thereafter, during the period from the date of such event to and including the Conversion Date, retained such securities (together with any distributions payable thereon during such period) or assets, giving application to all adjustments called for during such period under this Section 3.5(a)(iii) with respect to the rights of the holders of this Note and the Other Notes; provided, however, that if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be adjusted pursuant to this paragraph as of the time of actual payment of such dividends or distributions.

(iv) Adjustments for Reclassification, Exchange or Substitution. If the Common Stock at any time or from time to time after the Issuance Date shall be changed to the same or different number of shares or other securities of any class or classes of stock or other property, whether by reclassification, exchange, substitution or otherwise (other than by way of a stock split or combination of shares or stock dividends provided for in Sections 3.5(a)(i), (ii) and (iii), or a reorganization, merger, consolidation, or sale of assets provided for in Section 3.5(a)(v)), then, and in each event, an appropriate revision to the Conversion Price shall be made and provisions shall be made (by adjustments of the Conversion Price or otherwise) so that the Holder shall have the right thereafter to convert this
Note into the kind and amount of shares of stock or other securities or other property receivable upon reclassification, exchange, substitution or other change, by holders of the number of shares of Common Stock into which such Note might have been converted immediately prior to such reclassification, exchange, substitution or other change, all subject to further adjustment as provided herein.

(v) Adjustments for Reorganization, Merger, Consolidation or Sales of Assets. If at any time or from time to time after the Issuance Date there shall be a Change of Control, then as a part of such Change of Control the Holder shall have the right to demand prepayment pursuant to Section 3.6(b) hereof.

(vi) Adjustments for Issuance of Additional Shares of Common Stock. In the event the Maker shall at any time or from time to time issue or sell any additional shares of Common Stock (otherwise than as provided in the foregoing subsections (i) through (v) of this Section 3.5(a) or pursuant to Common Stock Equivalents (hereafter defined) granted or issued prior to the Issuance Date) (“Additional Shares of Common Stock”), at an effective price per share less than the Conversion Price then in effect or without consideration, then the Conversion Price upon each such issuance shall be reduced to a price equal to the effective consideration per share paid for such Additional Shares of Common Stock.

(vii) Issuance of Common Stock Equivalents. The provisions of this Section 3.5 shall apply if (a) the Maker, at any time after the Issuance Date, shall issue any securities convertible into or exchangeable for, directly or indirectly, Common Stock (“Convertible Securities”), other than the Notes, the Other Notes, or (b) any rights or warrants or options to purchase any such Common Stock or Convertible Securities (collectively, the “Common Stock Equivalents”) shall be issued or sold. If the price per share for which Additional Shares of Common Stock may be issuable pursuant to any such Common Stock Equivalent shall be
less than the applicable Conversion Price then in effect, or if, after any such issuance of Common Stock Equivalents, the price per share for which Additional Shares of Common Stock may be issuable thereafter is amended or adjusted, and such price as so amended shall be less than the applicable Conversion Price in effect at the time of such amendment or adjustment, then the applicable Conversion Price upon each such issuance or amendment shall be adjusted as provided in subsection (vi) of this Section 3.5(a).

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

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

 

 

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(2) in the event of any consolidation or merger of the Maker in which the Maker is not the surviving corporation or in which the previously outstanding shares of Common Stock of the Maker shall be changed into or exchanged for the stock or other securities of another corporation, or in the event of any sale of all or substantially all of the assets of the Maker for stock or other securities of any corporation, the Maker shall be deemed to have issued a number of shares of its Common Stock for stock or securities or other property of the other corporation computed on the basis of the actual exchange ratio on which the transaction was predicated, and for a consideration equal to the fair market value on the date of such transaction of all such stock or securities or other property of the other corporation. If any such calculation results
in adjustment of the applicable Conversion Price, or the number of shares of Common Stock issuable upon conversion of the Notes, the determination of the applicable Conversion Price or the number of shares of Common Stock issuable upon conversion of the Notes immediately prior to such merger, consolidation or sale, shall be made after giving effect to such adjustment of the number of shares of Common Stock issuable upon conversion of the Notes. In the event Common Stock is issued with other shares or securities or other assets of the Maker for consideration which covers both, the consideration computed as provided in this Section 3.5(a)(viii) shall be allocated among such securities and assets as determined in good faith by the Board of Directors of the Maker.

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

(c) Certain Issues Excepted. Anything herein to the contrary notwithstanding, the Maker shall not be required to make any adjustment to the Conversion Price in connection with any of the transactions described in clauses (1) through (3) of the definition of Permitted Financings (as set forth in the Purchase Agreement).

(d) No Impairment. The Maker shall not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Maker, but will at all times in good faith assist in the carrying out of all the provisions of this Section 3.5 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the Holder against impairment. In the event a Holder shall elect to convert any Notes as provided herein, the Maker cannot refuse conversion based on any claim that such Holder or any one associated or affiliated with such
Holder has been engaged in any violation of law, violation of an agreement to which such Holder is a party or for any reason whatsoever, unless, an injunction from a court, or notice, restraining and or adjoining conversion of all or of said Notes shall have issued and the Maker posts a surety bond for the benefit of such Holder in an amount equal to one hundred fifty percent (150%) of the amount of the Notes the Holder has elected to convert, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such Holder (as liquidated damages) in the event it obtains judgment.

(e) Certificates as to Adjustments. Upon occurrence of each adjustment or readjustment of the Conversion Price or number of shares of Common Stock issuable upon conversion of this Note pursuant to this Section 3.5, the Maker at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to the Holder a certificate setting forth such adjustment and readjustment, showing in detail the facts upon which such adjustment or readjustment is based. The Maker shall, upon written request of the Holder, at any time, furnish or cause to be furnished to the Holder a like certificate setting forth such adjustments and readjustments, the applicable Conversion Price in effect at the time, and the number of shares of Common Stock and the amount, if any, of
other securities or property which at the time would be received upon the conversion of this Note. Notwithstanding the foregoing, the Maker shall not be obligated to deliver a certificate unless such certificate would reflect an increase or decrease of at least one percent (1%) of such adjusted amount.

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

 

 

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(g) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of this Note. In lieu of any fractional shares to which the Holder would otherwise be entitled, the Maker shall pay cash equal to the product of such fraction multiplied by the Daily VWAP of the Common Stock for the five (5) consecutive Trading Days immediately preceding the Conversion Date.

(h) Reservation of Common Stock. On and after the Amendment Date (as defined in the Purchase Agreement), the Maker shall at all times when this Note shall be outstanding, reserve and keep available out of its authorized but unissued Common Stock, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of this Note and all interest accrued thereon; provided that the number of shares of Common Stock so reserved shall at no time be after the Amendment Date less than one hundred twenty five percent (125%) of the number of shares of Common Stock for which this Note and all interest accrued thereon are at any time convertible (disregarding for this purpose any and all
limitations of any kind on such conversion). The Maker shall, from time to time in accordance with the Delaware General Corporation Law, increase the authorized number of shares of Common Stock or take other effective action if at any time the unissued number of authorized shares shall not be sufficient to satisfy the Maker’s obligations under this Section 3.5(h).

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

3.6 Prepayment.

(a) Prepayment Upon an Event of Default. Notwithstanding anything to the contrary contained herein, upon the occurrence of an Event of Default the Holder shall have the right, at the Holder’s option, to require the Maker to prepay all or a portion of this Note in cash at a price equal to the sum of (i) the greater of (A) one hundred fifty percent (150%) of the aggregate principal amount of this Note plus all accrued and unpaid interest and (B) the aggregate principal amount of this Note plus all accrued but unpaid interest hereon, divided by the Conversion Price on (x) the date the Prepayment Price (as defined below) is demanded or otherwise due or (y) the date the Prepayment Price is paid in full, whichever is less, multiplied by the Daily VWAP on (x) the date the Prepayment Price is
demanded or otherwise due, and (y) the date the Prepayment Price is paid in full, whichever is greater, and (ii) all other amounts, costs, expenses and liquidated damages due in respect of this Note and the other Transaction Documents (the “Prepayment Price”).

(b) Mechanics of Prepayment at Option of Holder in Connection with a Change of Control. No sooner than fifteen (15) days nor later than ten (10) days prior to the consummation of a Change of Control, but not prior to the public announcement of such Change of Control, the Maker shall deliver written notice thereof via facsimile and overnight courier (“Notice of Change of Control”) to the Holder of this Note and to each Other Holder of the Other Notes. At any time after receipt of a Notice of Change of Control (or, in the event a Notice of Change of Control is not delivered at least ten (10) days prior to a Change of Control, at any time within ten (10) days prior to a Change of Control), any holder of the
Notes then outstanding may require the Maker to prepay, effective immediately prior to the consummation of such Change of Control, all of the holder’s Notes then outstanding by delivering written notice thereof via facsimile and overnight courier (“Notice of Prepayment at Option of Holder Upon Change of Control”) to the Maker, which Notice of Prepayment at Option of Holder Upon Change of Control shall indicate (i) the principal amount of the Notes that such holder is electing to have prepaid and (ii) the applicable Prepayment Price, as calculated pursuant to Section 3.6(a) above. In the event the Maker receives a Notice of Prepayment at Option of Holder Upon Change of Control from more than one Holder of the Notes and the Maker can prepay some, but not all, of the Notes pursuant to this Section 3.6, the Maker shall prepay from each Holder of the Notes electing to have its Notes prepaid at
such time an amount equal to such Holder’s pro-rata amount (based on the principal amount of the Notes held by such Holder relative to the principal amount of the Notes outstanding) of all the Notes being prepaid at such time.

 

 

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(c) Mechanics of Prepayment at Option of Holder Upon Other Event of Default. Within one (1) business day after the occurrence of an Event of Default other than a Change of Control, the Maker shall deliver
written notice thereof via facsimile and overnight courier (“Notice of Event of Default”) to each Holder of the Notes. At any time after the earlier of a Holder’s receipt of a Notice of Event of Default and such Holder becoming aware of an Event of Default, any Holder of this Note may require the Maker to prepay all (but not less than all) of the Notes held by such Holder by delivering written notice thereof via facsimile and overnight courier (“Notice of Prepayment at Option of Holder Upon Event of Default”) to the Maker, which Notice of Prepayment at Option of Holder Upon Event of Default shall indicate the applicable Prepayment Price, as calculated pursuant to Section 3.6(a) above. In the event the Maker
receives a Notice of Prepayment at Option of Holder Upon Event of Default from more than one Holder of the Notes and the Maker can prepay some, but not all, of the Notes pursuant to this Section 3.6, the Maker shall prepay from each Holder of the Notes electing to have its Notes prepaid at such time an amount equal to such Holder’s pro-rata amount (based on the principal amount of the Notes held by such Holder relative to the principal amount of the Notes outstanding) of all the Notes being prepaid at such time.

(d) Payment of Prepayment Price. Upon the Maker’s receipt of a Notice(s) of Prepayment at Option of Holder Upon Event of Default or a Notice(s) of Prepayment at Option of Holder Upon Change of Control from any Holder of the Notes, the Maker shall immediately notify each holder of the Notes by facsimile of the Maker’s receipt of such Notice(s) of Prepayment at Option of Holder Upon Event of Default or Notice(s) of Prepayment at Option of Holder Upon Change of Control and each holder which has sent such a notice shall promptly submit to the Maker such holder’s original Notes that are to be prepaid. The Maker shall deliver the applicable Prepayment Price, in the case of a prepayment pursuant to Section 3.6(c), to such holder within five (5) business days after the Maker’s
receipt of a Notice of Prepayment at Option of Holder Upon Event of Default and, in the case of a prepayment pursuant to Section 3.6(b), the Maker shall deliver the applicable Prepayment Price immediately prior to the consummation of the Change of Control; provided that a holder’s original Note shall have been so delivered to the Maker; provided further that if the Maker is unable to prepay all of the Notes to be prepaid, the Maker shall prepay an amount from each holder of the Notes being prepaid equal to such holder’s pro-rata amount (based on the number of Notes held by such holder relative to the number of Notes outstanding) of all Notes being prepaid. If the Maker shall fail to prepay all of the Notes submitted for prepayment (including as a result of a dispute as to the calculation of the Prepayment Price), in addition to any remedy such holder of the Notes may have under this Note and the Purchase Agreement, the applicable Prepayment Price payable in respect of such
Notes not prepaid shall bear interest at the rate of two percent (2%) per month (prorated for partial months) until paid in full. Until the Maker pays such unpaid applicable Prepayment Price in full to a holder of the Notes submitted for prepayment, such holder shall have the option to, in lieu of prepayment, require the Maker to promptly return to such holder(s) all of the Notes that were submitted for prepayment by such holder(s) under this Section 3.6 and for which the applicable Prepayment Price has not been paid, by sending written notice thereof to the Maker via facsimile (the “Void Optional Prepayment Notice”). Maker shall promptly send a copy of such Void Optional Prepayment Notice to each of the Other Holders. Upon the Maker’s receipt of such Void Optional Prepayment Notice(s) and prior to payment of the full applicable Prepayment Price to such holder, (i) the Notice(s) of Prepayment
at Option of Holder Upon Event of Default or the Notice(s) of Prepayment at Option of Holder Upon Change of Control, as the case may be, shall be null and void with respect to those Notes submitted for prepayment and for which the applicable Prepayment Price has not been paid, (ii) the Maker shall immediately return any Notes submitted to the Maker by each holder for prepayment under this Section 3.6(d) and for which the applicable Prepayment Price has not been paid and (iii) the Conversion Price of such returned Notes shall be adjusted to the lesser of (A) the Conversion Price as in effect on the date on which the Void Optional Prepayment Notice(s) is delivered to the Maker and (B) the lowest Closing Price during the period beginning on the date on which the Notice(s) of Prepayment of Option of Holder Upon Change of Control or the Notice(s) of Prepayment at Option of Holder Upon Event of Default, as the case may be, is delivered to the Maker and ending on the date on which the Void
Optional Prepayment Notice(s) is delivered to the Maker; provided that no adjustment shall be made if such adjustment would result in an increase of the Conversion Price then in effect. A holder’s delivery of a Void Optional Prepayment Notice and exercise of its rights following such notice shall not affect the Maker’s obligations to make any payments which have accrued prior to the date of such notice. Payments provided for in this Section 3.6 shall have priority to payments to other creditors and stockholders in connection with a Change of Control.

3.7 Inability to Fully Convert.

(a) Holder’s Option if Maker Cannot Fully Convert. If, upon the Maker’s receipt of a Conversion Notice, the Maker cannot issue shares of Common Stock for any reason, including, without limitation, because the Maker (x) does not have a sufficient number of shares of Common Stock authorized and available or (y)

 

 

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is otherwise prohibited by applicable law or by the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Maker or any of its securities from issuing all of the Common Stock which is to be issued to the Holder pursuant to a Conversion Notice, then the Maker shall issue as many shares of Common Stock as it is able to issue in accordance with the Holder’s Conversion Notice and, with respect to the unconverted portion of this Note, the Holder, solely at Holder’s option, can elect to:

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

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

(iii) exercise its Buy-In rights pursuant to and in accordance with the terms and provisions of Section 3.3(c) of this Note.

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

(c) Payment of Prepayment Price. If the Holder shall elect to have its Notes prepaid pursuant to Section 3.7(a)(i) above, the Maker shall pay the Mandatory Prepayment Price to the Holder within thirty (30) days of the Maker’s receipt of the Holder’s Notice in Response to Inability to Convert; provided that prior to the Maker’s receipt of the Holder’s Notice in Response to Inability to Convert the Maker has not delivered a notice to the Holder stating, to the satisfaction of the Holder, that the event or condition resulting in the Mandatory Prepayment has been cured and all Conversion Shares issuable to the Holder can and will be delivered to the Holder in accordance with the terms of this Note.
If the Maker shall fail to pay the applicable Mandatory Prepayment Price to the Holder on the date that is one (1) business day following the Maker’s receipt of the Holder’s Notice in Response to Inability to Convert (including as a result of a dispute as to the determination of the calculation of the Prepayment Price), in addition to any remedy the Holder may have under this Note and the Purchase Agreement, such unpaid amount shall bear interest at the rate of two percent (2%) per month (prorated for partial months) until paid in full. Until the full Mandatory Prepayment Price is paid in full to the Holder, the Holder may (i) void the Mandatory Prepayment with respect to that portion of the Note for which the full Mandatory Prepayment Price has not been paid, (ii) receive back such Note, and (iii) require that the Conversion Price of such returned Note be adjusted to the lesser of (A) the Conversion Price as in effect on the date on which the Holder voided the Mandatory
Prepayment and (B) the lowest Closing Price during the period beginning on the Conversion Date and ending on the date the Holder voided the Mandatory Prepayment.

(d) Pro-rata Conversion and Prepayment. In the event the Maker receives a Conversion Notice from more than one holder of the Notes on the same day and the Maker can convert and prepay some, but not all, of the Notes pursuant to this Section 3.7, the Maker shall convert and prepay from each holder of the Notes electing to have its Notes converted and prepaid at such time an amount equal to such holder’s pro-rata amount (based on the principal amount of the Notes held by such holder relative to the principal amount of the Notes and Other Notes outstanding) of all the Notes being converted and prepaid at such time.

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

 

 

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ARTICLE 4

4.1 Covenants. For so long as any Note or any Purchase Option is outstanding, without the prior written consent of the holders of at least two thirds in the then outstanding principal amount of the Notes (together, as one class):

(a) No Liens. Other than Permitted Liens, Maker shall not, and shall not permit its Subsidiaries to, enter into, create, incur, assume or suffer to exist any Liens (as defined in the Security Agreement) on or with respect to any of its assets now owned or hereafter acquired or any interest therein or any income or profits therefrom.

(b) No Indebtedness. The Maker shall not, and shall not permit any Subsidiary to, enter into, create, incur, assume or suffer to exist any Indebtedness, other than Indebtedness existing on the date hereof and disclosed in the Transaction Documents.

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

(d) Compliance with Law. The Maker shall, and shall cause each of its Subsidiaries to, comply with law and duly observe and conform in all material respects to all valid requirements of governmental authorities relating to the conduct of its business or to its properties or assets.

(e) Transactions with Affiliates. The Maker shall not, and shall not permit its Subsidiaries to, engage in any transactions with any officer, director, employee or any Affiliate of the Maker, including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Maker, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $50,000, other than (i) for payment of reasonable salary for services actually rendered, as approved by the Board of Directors of the Maker as fair in all
respects to the Maker, (ii) reimbursement for expenses incurred on behalf of the Maker and (iii) as otherwise contemplated by this Agreement.

(f) No Dividends. The Maker shall not, and shall not permit any Subsidiary to, (i) declare or pay any dividends or make any distributions to any holder(s) of Common Stock or other equity security of the Maker or such Subsidiaries (other than dividend and distributions from a Subsidiary to the Maker), (ii) purchase or otherwise acquire for value, directly or indirectly, any shares or other equity security of the Maker, (iii) form or create any subsidiary become a partner in any partnership or joint venture, or make any acquisition of any interest in any Person or acquire substantially all of the assets of any Person, or (iv) transfer, assign, pledge, issue or otherwise permit any equity or other ownership interests in the Subsidiaries to be beneficially owned or held by any Person other than the Maker.

(g) No Merger or Sale of Assets. The Maker shall not, and shall not permit any Subsidiary to, (i) merge or consolidate or sell or dispose of all its assets or any substantial portion thereof or (ii) in any way or manner alter its organizational structure or effect a change of entity or (iii) effect a Change of Control.

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

 

 

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

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

(k) Maintenance of Assets. The Maker shall, and shall cause its Subsidiaries to, keep its properties in good repair, working order and condition, reasonable wear and tear excepted, and from time to time make all necessary and proper repairs, renewals, replacements, additions and improvements thereto.

(l) Indebtedness to Affiliates. The Maker shall not, and shall not permit any Subsidiary to, make any payment on any Indebtedness owed to officers, directors or Affiliates.

(m) Restriction on Dividends. The Maker shall not, and shall not permit any Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Subsidiary to pay dividends or distributions to the Maker, pay any Indebtedness owed to the Maker or transfer any properties or assets to the Maker.

(n) No Lien on IP. Unless approved in writing in advance by Holders of 55% of the then outstanding principal amount of the Notes, the Maker shall not, and the Maker shall not permit any of its Subsidiaries to, directly or indirectly, to encumber or allow any Liens on, any of its copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work, whether published or unpublished, any patents, patent applications and like protections, including improvements, divisions, continuations, renewals, reissues, extensions, and continuations-in-part of the same, trademarks, service marks and, to the extent permitted under applicable law, any applications therefor, whether registered or not, and the goodwill of the business of the Maker
and its Subsidiaries connected with and symbolized thereby, know-how, operating manuals, trade secret rights, rights to unpatented inventions, and any claims for damage by way of any past, present, or future infringement of any of the foregoing, other than Permitted Liens.

(o) No Material Change in Management. The Maker shall not permit or suffer to exist a change in the personnel in any material management position, other than any change resulting from death or disability. The Maker shall not permit or suffer to exist a change in more than two directors comprising the Board of Directors, not including any change resulting from the death or disability of a director.

(p) Charter Documents. The Maker shall not modify, alter, repeal or amend the charter documents of the Maker or any Subsidiary of the Maker.

(q) Equity Interests. Except for Permitted Financings or as otherwise expressly contemplated in the Transaction Documents, the Maker shall not authorize, reclassify, recapitalize, issue, offer or exchange any securities or other equity interests of the Maker or any of its Subsidiaries, including, without limitation, any and all shares of capital stock, securities convertible into, or exchangeable or exercisable for, such shares, and options, warrants or other rights to acquire such shares and any securities that represent the right to receive any of the foregoing.

(r) Benefit Plans. The Maker shall not adopt, amend or terminate any equity incentive plan or employee benefit plan or arrangement for the benefit of officers or directors of the Maker or any Subsidiary of the Maker; provided that the foregoing shall not apply to the amendment or termination any medical, dental or vision plan broadly available on the same terms to all employees of Maker.

 

 

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(s) Expenditures. The Maker shall not (i) make any capital expenditure for an amount greater than US$200,000, (ii) dispose of any asset for an amount greater than US$200,000 or less than the book value of such asset (other than the sale of inventory in the ordinary course of business), (iii) acquire or purchase any interest in any real property for an amount greater than US$200,000.

(t) Public Offering; Registration. The Maker shall not make any public offering of securities of Maker or any Subsidiary of Maker and, without the prior written approval of the Holders of at least 55% of the then outstanding Notes, Maker shall not register any securities of Maker or any Subsidiary of Maker.

(u) Material Agreements. The Maker shall not enter into, extend, terminate or otherwise materially modify or amend:  (i) any Material Agreement and (ii) any other agreement with an Affiliate, officer, director or stockholder of Maker or any Subsidiary of Maker.

(v) Financing. The Maker shall not enter or agree to any debt or equity financing or any other capital raising transaction or transactions with any Person, other than Permitted Financings.

(w) Investments, Partnerships and Joint Ventures. The Maker shall not (i) subscribe, purchase or acquire any securities of, or any interest in, or the making of any contribution to, any Person (other than contributions by Maker or any Subsidiary of Maker to Maker or any Subsidiary of Maker), (ii) create or cause to be formed any new Subsidiary, (iii) enter into any partnerships, joint ventures or consortiums, or (iv) otherwise transfer all or any part of the businesses of the Maker or any Subsidiary of Maker to another Person.

(x) Compensation. Except as approved in writing by the Holders of at least 55% of the then outstanding principal amount of the Notes, the Maker shall not (i) materially increase or change the compensation package (including salary, bonus and equity incentives, if any) of any member of the management team of Maker or any Subsidiary of Maker if the total compensation package, as increased or changed, would exceed US$100,000 or (ii) make any payments to any member of the management team or board of directors of Maker in respect of any deferred or foregone compensation.

(y) Litigation. The Maker shall not commence or settle of any litigation or claim involving a monetary payment greater than US$250,000 or which imposes restrictions on Maker or any Subsidiary of Maker or the conduct of its businesses, except collection actions against third parties in the ordinary course of business.

(z) Tax and Accounting Practices. The Maker shall not adoption any position for purposes of any financial statements that, in the reasonable judgment of the Holder, shall have a Material Adverse Effect on Maker or any Subsidiary of Maker, taken as a whole, or on the Holder, unless the taking of such position is expressly contemplated by the Transaction Documents.

(aa) Other Businesses. The Maker shall not engage, directly or indirectly, in any business other than the business currently conducted by Maker.

4.2 Equal Treatment of Holders. No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents or in consideration of the exchange, redemption or repurchase of any Securities the same consideration is also offered to all of the parties to the Transaction Documents. For clarification purposes, this provision constitutes a separate right granted to each Holder by Maker and negotiated separately by each Holder, and is intended for Maker to treat the Holders as a class and shall not in any way be construed as the Holders acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise. This provision shall not restrict any individual Holder from exercising
it’s rights under the Transaction Documents independently of any other Holder.

ARTICLE 5

5.1 Notices. Any notice, demand, request, waiver or other communication required or permitted to be given hereunder shall be in writing and shall be effective (a) upon hand delivery, telecopy or facsimile at the address or number designated in the Purchase Agreement (if delivered on a business day during normal business hours

 

 

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 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 Maker will give written notice to the Holder at least ten (10) days prior to the date on which the Maker takes a record (x) with respect to any dividend or distribution upon the Common Stock, (y) with respect to any pro rata subscription offer to holders of Common Stock or (z) for determining rights to vote with respect to any Change of Control, dissolution, liquidation or winding-up and in no event shall such notice be provided to such holder prior to such information being made known to the
public. The Maker will also give written notice to the Holder at least ten (10) days prior to the date on which any Change of Control, dissolution, liquidation or winding-up will take place and in no event shall such notice be provided to the Holder prior to such information being made known to the public. The Maker shall promptly notify the Holder of this Note of any notices sent or received, or any actions taken with respect to the Other Notes.

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

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

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

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

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

5.7 Amendments. This Note may not be modified or amended in any manner except in writing executed by the Maker and the Holder.

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

“THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR APPLICABLE STATE SECURITIES 

 

 

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LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS.”

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

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

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

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

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

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

(c) In the case of a dispute as to the determination of the Closing Price or the Daily VWAP or the arithmetic calculation of the Conversion Price, any adjustment to the Conversion Price, liquidated damages amount, interest or dividend calculation, or any redemption price, redemption amount, adjusted Conversion Price, or similar calculation, or as to whether a subsequent issuance of securities is prohibited hereunder or would lead to an adjustment to the Conversion Price, the Maker shall submit the disputed determinations or arithmetic calculations via facsimile within two (2) business days of receipt, or deemed receipt, of the Conversion Notice, any redemption notice, default notice or other event giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Maker are unable to agree upon such determination or
calculation within two (2) business days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Maker shall, within two (2) business days submit via facsimile (a) the disputed determination of the Closing Price or the Daily VWAP to an independent, reputable investment bank selected by the Maker and approved by the Holder, which approval shall not be unreasonably withheld, (b) the disputed arithmetic calculation of the Conversion Price, adjusted Conversion Price or 

 

 

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any redemption price, redemption amount or default amount to the Maker’s independent, outside accountant or (c) the disputed facts regarding whether a subsequent issuance of securities is prohibited hereunder or would lead to an adjustment to the Conversion Price (or any of the other above described facts not expressly designated to the investment bank or accountant), to an expert attorney from a nationally recognized outside law firm (having at least 100 attorneys and having with no prior relationship with the Maker) selected by the Maker and approved by the Lead Purchaser as defined in the Purchase Agreement). The Maker, at the Maker’s expense, shall cause the investment bank, the accountant, the law firm, or other expert, as the case may be, to perform the determinations or calculations and notify the Maker and the Holder of the results no later than five (5) business days from the time it receives the disputed determinations or calculations. Such investment bank’s, accountant’s or attorney’s determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.

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

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

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

(c) “Daily VWAP” means, for any date, (i) the daily volume weighted average price of the Common Stock for such date on the principal Trading Market for the Common Stock as reported by Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (ii) if the Common Stock is not then listed or quoted on a Trading Market and if prices for the Common Stock are then reported in the “Pink Sheets” published by the Pink Sheets, LLC (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (iii) in all other cases, the fair market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Holder and reasonably acceptable to the Maker.

(d) “Equity Conditions” shall mean, during the period in question, (i) the Maker shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Conversion Notices of the Holder, if any, (ii) all liquidated damages and other amounts owing to the Holder in respect of this Note shall have been paid; (iii) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed for trading on a Trading Market (and the Maker believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (iv) there is a sufficient number of authorized but unissued and otherwise unreserved shares
of Common Stock for the issuance of all of the shares then issuable pursuant to the Transaction Documents (disregarding any limitations on issuance or conversion contained in such documents), (v) there is then existing no Event of Default or event which, with the passage of time or the giving of notice, would constitute an Event of Default, (vi) the issuance of the shares in question to the Holder would not violate the limitations set forth in Section 3.4 hereof, and (vii) no public announcement of a pending or proposed Change of Control has occurred.

 

 

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

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

(g) “Permitted Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Maker) have been established in accordance with GAAP; (b) Liens imposed by law which were incurred in the ordinary course of the Maker’s business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of the Maker’s business, and which (x) do not individually or in the aggregate materially
detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Maker and its consolidated subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien; and (c) encumbrances consisting of licenses of the Grantors’ intellectual property that are created in connection with joint ventures, collaborations, or partnership activities of Grantors and are approved in advance in writing by the holders of 55% of the then outstanding principal amount of the Notes.

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

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

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

(k) “Trading Market” means the OTC Bulletin Board, the New York Stock Exchange, the Nasdaq Capital Markets, the Nasdaq Global Markets, the Nasdaq Global Select Market or the American Stock Exchange.

 

 

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

 

	
                         
 	
                         
 	
                        GENTA INCORPORATED
 
	
                        
 Date:
 	
                         
 	
                        By: 
 	
                        
 /s/ 
 
	
                         
 	
                         
 	
                         
 	
                        Title
 

 

 

 

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EXHIBIT A

WIRE INSTRUCTIONS

Payee: ________________________________________________________

Bank: ________________________________________________________

Address: ______________________________________________________

	
                         
 	
                        ______________________________________________________
 

Bank No.: _____________________________________________________

Account No.: ___________________________________________________

Account Name: _________________________________________________

 

 

FORM OF

NOTICE OF CONVERSION

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

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

Date of Conversion _________________________________________________________

Applicable Conversion Price __________________________________________________

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

Signature___________________________________________________________________

	
                         
 	
                        [Name]
 

Address:__________________________________________________________________

	
                         
 	
                        __________________________________________________________________

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00143-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00143-of-00352.parquet"}]]