SECURITY AGREEMENT
This
Security Agreement dated as of March [ ], 2010 (the “Agreement”)
between Genta
Incorporated, a Delaware corporation (the “Grantor”)
and Tang
Capital Partners, L.P., as agent (together with any successor agent, the
“Agent”)
for the Purchasers (as defined in the Securities Purchase
Agreement). Terms used herein and not otherwise defined herein are
used in this Agreement as defined in the Securities Purchase Agreement and the
Notes. Further, unless otherwise defined in this Agreement or in the
Securities Purchase Agreement, terms defined in the UCC (as defined below) are
used in this Agreement as such terms are defined in the UCC.
Preliminary
Statements
A. The
Grantor has entered into a Securities Purchase Agreement dated as of March [
], 2010 (as amended, amended and restated, supplemented or otherwise
modified from time to time, being the “Securities
Purchase Agreement”) with the Purchasers pursuant to which, subject to
the terms and conditions set forth therein, the Purchasers have agreed to
purchase from the Grantor, and the Grantor has agreed to sell to the Purchasers,
units, in an aggregate amount of up to $25,000,000, consisting of: (i) 12.00%
senior unsecured convertible promissory notes due March [ ], 2013 in
the aggregate principal amount of $10,000,000, convertible into shares of the
Grantor’s common stock, par value $0.001 per share (the “Common
Stock”) (the “B Notes”);
(ii) 12.00% senior unsecured convertible promissory notes due March
[ ], 2013 in the aggregate principal amount of $10,000,000,
convertible into Common Stock (the “C Notes”);
(iii) 12% senior secured convertible promissory notes due March [ ],
2013 in the aggregate principal amount of $5,000,000, convertible into Common
Stock (the “D Notes”)
and (iv) a warrant to purchase up to an aggregate principal amount of
$10,000,000 of 12.00% senior unsecured convertible promissory notes due March
[ ], 2013 (the “E Notes”)
in the aggregate principal amount of up to $10,000,000, convertible into Common
Stock (the “Debt
Warrants”). The B Notes, C Notes, D Notes and E Notes shall be
collectively referred to herein as the “Notes”.
B. The
Grantor is entering into this Agreement in order to grant to the Agent for the
ratable benefit of the Purchasers a security interest in all of its right, title
and interest in and to the Collateral (as defined herein).
C. It
is a condition precedent to the purchase of the D Notes by the Purchasers
pursuant to the Securities Purchase Agreement that the Grantor shall have
granted the security interest contemplated by this Agreement.
D. The
Grantor will derive substantial direct and indirect benefit from the
transactions contemplated by the Securities Purchase Agreement.
Now,
Therefore, in consideration of the premises and in order to induce the
Purchasers to purchase the D Notes from the Grantor as set forth in the
Securities Purchase Agreement and for other good and valuable consideration, the
Grantor hereby agrees with the Agent for the ratable benefit of the Purchasers
as follows:
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SECTION
1. Secured Note.
(a) As
collateral security for the full, prompt, complete and final payment and
performance when due (whether at stated maturity, by acceleration or otherwise)
of the entire outstanding principal balance of and all unpaid accrued interest
on the D Notes (including any interest that accrues after the commencement of
bankruptcy), and the obligation of Grantor to pay any fees, costs or expenses of
the holders of the D Notes (the “D
Holders”) and the Agent under the D Notes (collectively, the “Secured
Obligations”), Grantor hereby assigns, conveys, mortgages, pledges,
hypothecates and transfers to the Agent, on behalf of and for the benefit of the
D Holders, and hereby grants to the Agent, on behalf of and for the benefit of
the D Holders, a security interest in and to all of Grantor’s right, title, and
interest in, to and under the following, whether now owned or hereafter acquired
(all of which being collectively referred to herein as the “Collateral”):
that certain Deposit Account No. [__________] (the “Deposit
Account”) held in the name of Grantor at [______________] (“Depositary
Bank”) and any cash or other monies, funds or amounts therein, whether or
not restricted or designated for a particular purpose, and all Proceeds (as
defined in the UCC) thereof. “UCC” means
the Uniform Commercial Code as the same may from time to time be in effect in
the State of New York (and each reference in this Agreement to an Article
thereof shall refer to that Article as from time to time in effect; provided,
however, in the event that, by reason of mandatory provisions of law, any or all
of the attachment, perfection or priority of the Agent’s security interest in
any Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of New York, the term “UCC” shall mean the
Uniform Commercial Code (including the Articles thereof) as in effect at such
time in such other jurisdiction for purposes of the provisions hereof relating
to such attachment, perfection or priority and for purposes of definitions
related to such provisions.
(b) Upon
the occurrence and during the continuance of an Event of Default under the D
Notes (as defined in Section 2.1 therein), the Agent, on behalf of and for the
benefit of all the D Holders, may exercise, in addition to all other rights and
remedies granted to it under the D Notes or at law or in equity, all rights and
remedies of a secured party under the UCC. In taking actions pursuant
to this Agreement, the Agent shall act in good faith and in a manner that it
reasonably believes treats all holders of D Notes proportionately.
(c) Grantor
shall, at the sole expense of Grantor, execute and deliver and cause the
Depositary Bank to execute and deliver a control agreement, in form and
substance acceptable to the Agent, with respect to the Deposit Account in order
to perfect the security interest created hereunder in favor of the Agent on
behalf of and for the benefit of the D Holders (including giving the Agent
“control” over the Deposit Account within the meaning of the applicable
provisions of Article 9 of the UCC).
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(d) The
security interest granted pursuant to this Agreement shall terminate if, at any
time after six months and ten weeks following the Closing: (A) the Grantor files
a Form 8-K with the United States Securities and Exchange Commission (the “Security Release
Filing”) showing that the daily trading volume of the Grantor’s Common
Stock, as reported by the Trading Market, for each of the 10 Trading Days prior
to the date on which such Security Release Filing is filed equals or exceeds
one-tenth (1/10) of the number of shares underlying the D Notes on the date of
such Security Release Filing; and (B) the Daily Closing Price (as defined in the
B Note) on each Trading Day (each such Trading Day, a “Test Date”) during
the 10 Trading Day period prior to the date on which such Security Release
Filing is made is greater than the Conversion Price in effect on such Test Date
by an amount equal to or greater than 200% of the Conversion Price on such Test
Date. Such release of the security interest shall occur on the date
that is thirty (30) calendar days following the date of the Security Release
Filing. The security interest shall also be released (x) dollar for
dollar upon any conversion of any part of the D Notes or (y) in its entirety
upon the approval of the holders of two-thirds (2/3) in principal amount of the
then outstanding D Notes.
(e) The
Proceeds of any sale, disposition or other realization upon all or any part of
the Collateral shall be promptly distributed by the Agent in the following order
of priorities:
First, to the Agent and any D
Holder in an amount sufficient to pay in full the out-of-pocket reasonable costs
of the Agent or such D Holder in connection with such sale, disposition or other
realization, including all reasonable out-of-pocket fees, costs, expenses,
liabilities and advances incurred or made by the Agent or any D Holder in
connection therewith, including, without limitation, reasonable out-of-pocket
attorneys’ fees;
Second, to the D Holders in
amounts proportional to the Pro Rata (as defined below) share of the then unpaid
Secured Obligations of each D Holder; and
Finally, upon payment in full
of the Secured Obligations, to Grantor or its representatives, in accordance
with the UCC or as a court of competent jurisdiction may direct.
“Pro Rata”
means, as to any D Holder at any time, the percentage equivalent at such time of
such D Holder’s aggregate unpaid principal amount of D Notes, divided by the
combined aggregate unpaid principal amount of all D Notes of all D
Holders.
(f) Until
the full release of the security interest in the Collateral, Grantor hereby
irrevocably constitutes and appoints Agent, and any officer or agent of Agent,
with full power of substitution, as its true and lawful attorney-in-fact with
full, irrevocable power and authority in the place and stead of Grantor and in
the name of Grantor or in its own name, from time to time at Agent’s discretion,
for the purpose of carrying out the terms of this Agreement, to take any and all
appropriate action and to execute and deliver any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
this Agreement. Agent agrees that, except upon the occurrence and
during the continuation of an Event of Default, it shall not exercise the power
of attorney or any rights granted to Agent pursuant to this Section
1(f). Grantor hereby ratifies, to the extent permitted by law, all
that said attorney shall lawfully do or cause to be done by virtue
hereof. The power of attorney granted pursuant to this Section 1(f)
is a power coupled with an interest and shall be irrevocable until the Secured
Obligations are completely and indefeasibly paid and performed in
full.
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(g) If
Grantor fails to perform any agreement contained herein or in the D Notes, the
Agent may, as the Agent deems necessary to protect the security interest granted
in the Collateral or to protect the value thereof, but without any obligation to
do so and without notice, itself perform, or cause performance of, such
agreement, and the expenses of the Agent incurred in connection therewith shall
be payable by Grantor under Section 5.5 of the D Note and shall constitute
Secured Obligations secured hereby.
SECTION
2. Representations and Warranties; Covenants.
(a) All
filings and other actions (including the execution and delivery of deposit
account control agreements) necessary or reasonably desirable to perfect and
protect the security interest in the Collateral of Grantor created under this
Agreement have been or are concurrently herewith being duly made or taken and
are in full force and effect, and this Agreement creates in favor of the Agent
for the benefit of the Purchasers a valid and, together with such filings and
other actions, perfected first priority security interest in the Collateral of
Grantor, securing the payment of the Secured Obligations.
(b) Except
for the security interest granted to the Agent under this Agreement, Grantor is
the sole legal and equitable owner of the Collateral in which it purports to
grant a security interest hereunder, having good and marketable title thereto,
free and clear of any and all liens, security interests or other
encumbrances.
(c) From
the date hereof until the full release of the security interest in the
Collateral, (i) Grantor shall not sell, lease, transfer or otherwise dispose of
any of the Collateral, or attempt or contract to do so, and (ii) Grantor shall
not, directly or indirectly, create, permit or suffer to exist, and shall defend
the Collateral against and take such other action as is necessary to remove, any
lien, security interest or other encumbrance on the Collateral.
SECTION 3. Amendments;
Waivers. No amendment or waiver of any provision of this
Agreement, and no consent to any departure herefrom, shall in any event be
effective unless the same shall be in writing and signed by the Agent, acting
with the approval of the holders of at least 66 2/3% of the combined principal
amount of all D Notes then outstanding, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. No failure on the part of the Agent or any other Purchaser to
exercise, and no delay in exercising any right hereunder, shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right
preclude any other or further exercise thereof or the exercise of any other
right.
SECTION 4. Notices; Etc. All
notices and other communications provided for hereunder shall be in writing and
mailed, telecopied, e-mailed, or delivered to its address, telecopier number or
e-mail address set forth opposite the Grantor’s or the Agent’s name on the
signature pages hereto or, as to any party, at such other address, telecopier
number or e-mail address as shall be designated by such party in a written
notice to the other party. All such notices and other communications
shall, when mailed, telecopied, e-mailed, or delivered, be effective when
deposited in the mails or telecopied, sent by e-mail, or delivered,
respectively, addressed as aforesaid; except that notices and other
communications to the Agent shall not be effective until received by the
Agent. Delivery by telecopier or by e-mail of an executed counterpart
of any amendment or waiver of any provision of this Agreement shall be effective
as delivery of an original executed counterpart thereof.
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SECTION 5. Continuing Security Interest;
Assignments under the Securities Purchase Agreement. This
Agreement shall create a continuing security interest in the Collateral and
shall (a) remain in full force and effect until the payment in full of the
Secured Obligations, (b) be binding upon the Grantor, its successors and assigns
and (c) inure, together with the rights and remedies of the Agent hereunder, to
the benefit of the Purchasers and their respective successors, transferees and
assigns. Without limiting the generality of the foregoing clause (c),
any Purchaser may assign or otherwise transfer all or any portion of its rights
and obligations under the Securities Purchase Agreement as permitted thereunder
to any other Person, and such other Person shall thereupon become vested with
all the benefits in respect thereof granted to such Purchaser herein or
otherwise, in each case as provided in the Securities Purchase
Agreement.
SECTION 6. Termination. Upon the payment
in full of the Secured Obligations, the pledge, assignment and security interest
granted hereby shall terminate and all rights to the Collateral shall revert to
the Grantor. Upon any such termination, the Agent will, at the
Grantor’s expense, execute and deliver to Grantor such documents as Grantor
shall reasonably request to evidence such
termination. Notwithstanding the foregoing, this Agreement shall
remain in full force and effect and continue to be effective should any petition
be filed by or against Grantor for liquidation or reorganization, should Grantor
become insolvent or make an assignment for the benefit of creditors or should a
receiver or trustee be appointed for all or any significant part of Grantor’s
property and assets, and shall continue to be effective or be reinstated, as the
case may be, if at any time payment and performance of the Secured Obligations,
or any part thereof, is, pursuant to applicable law, rescinded or reduced in
amount, or must otherwise be restored or returned by any obligee of the Secured
Obligations, whether as a “voidable preference,” “fraudulent conveyance,” or
otherwise, all as though such payment or performance had not been
made. In the event that any payment, or any part thereof, is
rescinded, reduced, restored or returned, the Secured Obligations shall be
reinstated and deemed reduced only by such amount paid and not so rescinded,
reduced, restored or returned.
SECTION 7. Execution in
Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to
this Agreement by telecopier shall be effective as delivery of an original
executed counterpart of this Agreement.
SECTION
8. Governing Law. This
Agreement shall be governed by, and construed in accordance with, the law of the
State of New York without regard to principles thereof regarding conflict of
laws, except to the extent that the UCC provides for the application of the law
of a different jurisdiction.
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In Witness
Whereof, the Grantor has caused this Agreement to be duly executed and
delivered by its officer thereunto duly authorized as of the date first above
written.
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Genta
Incorporated,
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a
Delaware corporation
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By
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Name:
Xxxxxxx X. Xxxxxxx, Xx., M.D.
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Title:
Chairman and Chief Executive
Officer
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Address
for Notices:
Genta
Incorporated
000
Xxxxxxx Xxxxx
Xxxxxxxx
Xxxxxxx, XX 00000
Attention:
Xxxxxxx X. Xxxxxxx, Xx., M.D.
Telephone
No.: (000) 000-0000
In Witness
Whereof, the Agent has caused this Agreement to be duly executed and
delivered by its officer thereunto duly authorized as of the date first above
written.
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Tang
Capital Partners, L.P.,
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as
Agent
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By
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Name:
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Title:
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Address
for Notices:
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