Item 1.01. Entry
into a Material Definitive Agreement.
Securities Purchase Agreement
On November 26, 2012, Arno Therapeutics,
Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain
purchasers identified therein (the “Purchasers”) pursuant to which the Company agreed to sell, and the Purchasers agreed
to purchase, the Company’s 8% Senior Convertible Debentures due November 26, 2015 (the “Debentures”) in the aggregate
principal amount of $12,705,000. In addition to the Debentures, the Company agreed to issue to the Purchasers two series of
warrants representing the right to purchase an aggregate of 84,700,000 shares of the Company’s common stock (the “Warrants”
and together with the Debentures, the “Securities”). The purchase and sale of the Securities was consummated on November
26, 2012, and resulted in gross proceeds to the Company of $12,705,000 million, before deducting agent fees and other transaction-related
expenses of approximately $1.0 million.
The Purchase Agreement contains customary
representations, warranties and covenants by each of the Company and the Purchasers. In addition, the Purchase Agreement provides
that each Purchaser has a right, subject to certain exceptions described in the agreement, to participate in future issuances of
equity and debt securities by the Company for a period of 18 months following the effective date of the Registration Statement
(defined below under “—Registration Rights Agreement”). Further, subject to certain exceptions described in the
Purchase Agreement, during such 18-month period, the Company may not issue or propose to issue any equity securities without the
consent of the holders of two-thirds of the outstanding Securities.
The foregoing summary of the Purchase Agreement
is qualified in its entirety by reference to the complete form of agreement, a copy of which is attached hereto as Exhibit 10.1
and incorporated herein by reference. On November 27, 2012, the Company issued a press release announcing the issuance and sale
of the Debentures and Warrants, a copy of which is attached hereto as Exhibit 99.1 and incorporated herein by reference.
Terms of
Debentures.
The Debentures are
unsecured obligations, have a term of three years and are convertible into shares of the Company’s common stock at
the holder’s election at an initial conversion price of $0.30, subject to adjustment for stock splits,
combinations, recapitalization events and certain dilutive issuances (as described below). The Company may also force
conversion of the Debentures if, for each day during the 10 trading days prior to such conversion the Company’s common
stock trades at or above $1.50 per share and has an average daily volume of at least 100,000 shares (in
each case, subject to adjustment for stock splits, combinations and similar recapitalization events). The outstanding
principal amount under the Debentures accrues interest at the rate of 8% per annum, payable quarterly in arrears commencing
January 1, 2013. The Company may elect to pay such interest in kind by issuing shares of its common stock valued at a price
per share equal to 85% of the trailing 20-day volume weighted average price of the Company’s common stock
(“VWAP”), provided it has satisfied certain conditions, including that such shares are registered under the
Securities Act and that the average daily trading volume of the Company’s common stock is at least 25,000 shares.
The conversion price of the Debentures
is subject to a “full-ratchet” anti-dilution provision, such that in the event the Company makes an issuance of common
stock (subject to customary exceptions) at a price per share less than the applicable exercise price of the Debentures, the applicable
conversion price will be reduced to the price per share applicable to such new issuance. However, after such time as the Company
has raised at least $12 million in subsequent equity financings, the conversion price of the Debentures will be subject to a customary
weighted-average price adjustment with respect to new issuances.
Upon an “Event of
Default,” the holders of the Debentures are entitled to receive a “Mandatory Default Amount,” defined as an
amount equal to the sum of (a) the greater of (i) the outstanding principal amount, plus accrued and unpaid
interest thereon, divided by the conversion price, or (ii) 115% of the outstanding principal amount owing under the
Debentures, plus accrued and unpaid interest, and (b) all other costs, expenses and liquidated damages owing under the
Debentures. For purposes of the Debentures, an “Event of Default” includes (1) any default in the payment of
amounts due under the Debentures, (2) the Company’s failure to observe or perform its other obligations under the
Debentures after written notice and a customary cure period, (3) the Company’s material default of its obligations
under the Purchase Agreement and other transaction documents or certain other material agreements, and (4) the Company
effecting a “change of control” transaction.
The foregoing summary of the Debentures
is qualified in its entirety by reference to the complete form of Debenture, a copy of which is attached hereto as Exhibit 4.1
and incorporated herein by reference.
Terms of the Warrants.
In addition to the Debentures, the Company
issued to the purchasers “Series A Warrants” to purchase, for a period of 5 years from the date of issuance, 42,350,000
shares of its common stock at an initial exercise price of $0.50 per share, subject to adjustment for stock splits, combinations,
recapitalization events and certain dilutive issuances (as described below). The Company also issued to the purchasers “Series
B Warrants” to purchase, for a period of 18 months from the date of issuance, an additional 42,350,000 shares of common stock
at an initial exercise price of $0.30 per share, subject to adjustment for stock splits, combinations, recapitalization events
and certain dilutive issuances (as described below). The Warrants are required to be exercised for cash, provided that if during
the term of the Warrants there is not an effective registration statement under the Securities Act covering the resale of the shares
issuable upon exercise of the Warrants, then the Warrants may be exercised on a cashless (net exercise) basis. The applicable exercise
price of each series of Warrant is subject to a “full-ratchet” anti-dilution provision, such that in the event the
Company makes an issuance of common stock (subject to customary exceptions) at a price per share less than the applicable exercise
price of the Warrants, the applicable Warrant exercise price will be reduced to the price per share applicable to such new issuance.
However, after such time as the Company has raised at least $12 million in subsequent equity financings, the exercise price of
the Warrants will be subject to a customary weighted-average price adjustment. In addition to the foregoing adjustments, the exercise
price applicable to the Series B Warrants may be increased to $0.40, $0.50 and $0.75 per share on each of the 6, 12 and 18-month
anniversaries, respectively, if the VWAP exceeds $0.30, $0.50 and $0.75, respectively, and the daily volume exceeds 100,000 shares
during the 10 trading days prior to each applicable anniversary (in each case, subject to adjustment for stock splits, combinations
and similar recapitalization events). The Series A Warrants may be redeemed by the Company at a price of $0.01 per Warrant share
if, in addition to certain other conditions specified in the Warrants, for a period of 10 consecutive trading days following the
effective date of a Securities Act registration statement covering the resale of the Warrant shares, the VWAP is at least $1.50
and the average daily trading volume of the common stock is at least 100,000 shares on each day during such 10-day period (in each
case, subject to adjustment for stock splits, combinations and similar recapitalization events).
The foregoing summary of the Warrants is
qualified in its entirety by reference to the complete form of Warrant, a copy of which is attached hereto as Exhibit 4.2 and incorporated
herein by reference.
Registration Rights Agreement
In connection with the entry into the Purchase
Agreement, and as contemplated thereby, on November 26, 2012, the Company entered into a Registration Rights Agreement with each
Purchaser. Pursuant to the terms of the Registration Rights Agreement, the Company agreed to file, on or before December 26, 2012
(the “Filing Date”), a registration statement under the Securities Act covering the resale of the shares issuable upon
conversion of the Debentures and upon exercise of the Warrants (the “Registration Statement”), and to cause such Registration
Statement to be declared effective by the Commission as soon as practicable thereafter, but not later than 60 days following the
date of the Registration Rights Agreement or, if the Registration Statement is subject to review by the Commission staff, not later
than 120 days following the date of such agreement (the “Effectiveness Date”). If the Company does not file the Registration
Statement by the Filing Date or obtain its effectiveness by the Effectiveness Date, then the Company is required to pay liquidated
damages to the Purchasers in an amount equal to 2% of the aggregate purchase price paid by such Purchaser for the Securities per
month until the Registration Statement is filed or declared effective, as applicable. The Company is required to maintain the effectiveness
of the Registration Statement until all of the shares covered thereby are sold or may be sold pursuant to Rule 144 under the Securities
Act without volume or manner-of-sale restrictions and without the requirement that the Company be in compliance with the current
public information requirements of Rule 144.
The foregoing summary of the Registration
Rights Agreement is qualified in its entirety by reference to the complete form of such agreement, a copy of which is attached
hereto as Exhibit 10.2 and incorporated herein by reference.