Securities Purchase Agreement - StemCells Inc.
STEMCELLS, INC.
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "AGREEMENT") is made and entered
into as of June 16, 2004, by and among StemCells, Inc., a Delaware corporation
(the "COMPANY"), and each of the purchasers listed on Exhibit A attached hereto
(collectively, the "PURCHASERS" and individually, a "PURCHASER").
RECITALS
WHEREAS, the Company desires to issue and sell to the Purchasers, and the
Purchasers desire to purchase from the Company, up to 3,500,000 units (each, a
"UNIT"), each unit consisting of four shares of common stock, par value $0.01
per share, of the Company (the "COMMON STOCK") and one five-year warrant to
purchase one share of Common Stock, on the terms and conditions set forth in
this Agreement;
WHEREAS, the Company and each Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("REGULATION D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "SECURITIES ACT").
NOW, THEREFORE, in consideration of the foregoing, the mutual promises
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. AGREEMENT TO PURCHASE AND SELL STOCK.
(a) Authorization. The Company's Board of Directors has authorized
the issuance and sale, pursuant to the terms and conditions of this Agreement,
of up to 3,500,000 Units, each Unit to consist of (i) four shares of Common
Stock (the "PURCHASED SHARES") and (ii) one five-year warrant exercisable to
purchase one share of Common Stock at $1.90 per share, substantially in the form
attached hereto as Exhibit B (the "PURCHASED WARRANTS" and together with the
Purchased Shares, the "PURCHASED SECURITIES").
(b) Agreement to Purchase and Sell Securities. Subject to the terms
and conditions of this Agreement, each Purchaser severally agrees to purchase,
and the Company agrees to sell and issue to each Purchaser, at the Closing (as
defined below), that number of Units set forth opposite such Purchaser's name on
Exhibit A attached hereto. The purchase price of each Unit (the "PER UNIT
PRICE") shall be $6.08.
(c) Use of Proceeds. The Company intends to apply the net proceeds
from the sale of the Purchased Securities for working capital and general
corporate purposes, as well as in connection with selected acquisitions that may
be considered in the future to expand its product and service offerings or for
other strategic purposes.
(d) Obligations Several Not Joint. The obligations of each Purchaser
under this Agreement are several and not joint with the obligations of any other
Purchaser, and no
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Purchaser shall be responsible in any way for the performance of the obligations
of any other Purchaser under this Agreement. Nothing contained herein, and no
action taken by any Purchaser pursuant hereto, shall be deemed to constitute the
Purchasers as a partnership, an association, a joint venture or any other kind
of entity, or create a presumption that the Purchasers are in any way acting in
concert or as a group with respect to such obligations or the transactions
contemplated by this Agreement. Each Purchaser shall be entitled to
independently protect and enforce its rights, including without limitation the
rights arising out of this Agreement, and it shall not be necessary for any
other Purchaser to be joined as an additional party in any proceeding for such
purpose.
2. CLOSING. The purchase and sale of the Purchased Securities shall take
place at the offices of Ropes & Gray LLP, One California Street, Suite 2200, San
Francisco, California 94111, at 11 a.m. pacific time, on June 17, 2004, or at
such other time and place as the Company and Purchasers representing a majority
of the Units to be purchased, mutually agree upon (which time and place are
referred to in this Agreement as the "CLOSING"). At the Closing, the Company
shall, against delivery of payment for the Purchased Securities by wire transfer
of immediately available funds in accordance with the Company's instructions,
(i) authorize its transfer agent to issue to each Purchaser one or more stock
certificates (the "CERTIFICATES") registered in the name of each Purchaser (or
in such nominee name(s) as designated by such Purchaser in the Stock Certificate
Questionnaire (attached hereto as Appendix I) (the "STOCK CERTIFICATE
QUESTIONNAIRE"), representing the number of Purchased Shares set forth opposite
the appropriate Purchaser's name on Exhibit A hereto, and bearing the legend set
forth in Section 4(j) herein and (ii) issue the number of Purchased Warrants set
forth across such Purchaser's name on Exhibit A hereto. Closing documents may be
delivered by facsimile with original signature pages sent by overnight courier.
The date of the Closing is referred to herein as the Closing Date.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth in
the SEC Documents (as defined below) or the Disclosure Letter attached hereto as
Exhibit B, the Company hereby represents and warrants to each Purchaser that:
(a) Organization Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all corporate power and authority required to
(i) carry on its business as presently conducted and (ii) enter into this
Agreement and the other agreements, instruments and documents contemplated
hereby, and to consummate the transactions contemplated hereby and thereby. The
Company is qualified to do business and is in good standing in each jurisdiction
in which the failure to so qualify would have a Material Adverse Effect. As used
in this Agreement, "MATERIAL ADVERSE EFFECT" means a material adverse effect on,
or a material adverse change in, or a group of such effects on or changes in,
the business, operations, financial condition, results of operations, assets or
liabilities of the Company and its subsidiaries, taken as a whole.
(b) Capitalization. The capitalization of the Company, without
listing the Purchased Shares to be purchased pursuant to this Agreement, is as
follows:
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(i) The authorized capital stock of the Company consists of
125,000,000 shares of Common Stock, $0.01 par value per share ("COMMON STOCK")
and 1,000,000 shares of preferred stock, $.01 par value per share ("PREFERRED
STOCK").
(ii) As of June 14, 2004, the issued and outstanding capital
stock of the Company consisted of 41,042,651 shares of Common Stock. The shares
of issued and outstanding capital stock of the Company have been duly authorized
and validly issued, are fully paid and nonassessable and have not been issued in
violation of or are not otherwise subject to any preemptive or other similar
rights.
(iii) As of June 14, 2004, there were no issued and
outstanding shares of Preferred Stock.
(iv) As of June 14, 2004, the Company had (1) 5,035,203 shares
of Common Stock reserved for issuance upon exercise of outstanding options
granted under the StemCells Acquisition Plan, the Company's 1992 Equity
Incentive Plan, the Company's 2001 Equity Incentive Plan and the Company's 2004
Equity Incentive Plan (collectively, the "OPTION PLANS") and (2) 2,249,187
shares of Common Stock reserved for issuance upon exercise of outstanding
warrants.
(v) As of June 14, 2004, the Company had 3,853,133 shares of
Common Stock available for future grant under the Option Plans.
(vi) As of June 14, 2004, the Company had no Employee Stock
Purchase Plan.
With the exception of the foregoing in this Section 3(b), there are no
outstanding subscriptions, options, warrants, convertible or exchangeable
securities or other rights granted to or by the Company to purchase shares of
Common Stock or other securities of the Company and there are no commitments,
plans or arrangements to issue any shares of Common Stock or any security
convertible into or exchangeable for Common Stock.
(c) Subsidiaries. Except for StemCells California, Inc. (the
"SUBSIDIARY"), the Company does not have any subsidiaries and the Company does
not own any capital stock of, assets comprising the business of, obligations of,
or any other interest (including any equity or partnership interest) in, any
person or entity.
(d) Due Authorization. All corporate actions on the part of the
Company necessary for the authorization, execution, delivery of, and the
performance of all obligations of the Company under this Agreement and the
authorization, issuance, reservation for issuance and delivery of all of the
Purchased Securities being sold under this Agreement have been taken, no further
consent or authorization of the Company or the Board of Directors or its
stockholders is required (including with respect to NASD Marketplace Rule
4350(i)(1)(D)), and this Agreement constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except (i) as may be limited by (1) applicable bankruptcy,
insolvency, reorganization or others laws of general application relating to or
affecting the enforcement of creditors' rights generally and (2) the effect of
rules of law
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governing the availability of equitable remedies and (ii) as rights to indemnity
or contribution may be limited under federal or state securities laws or by
principles of public policy thereunder.
(e) Valid Issuance of Purchased Securities.
(i) Purchased Securities. The Purchased Shares will be, upon
payment therefor by the Purchasers in accordance with this Agreement, duly
authorized, validly issued, fully paid and non-assessable, free from all taxes,
liens and charges with respect to the issue thereof.
(ii) Purchased Warrants. The warrants to be issued pursuant to
this Agreement will be, upon payment therefor by the Purchasers in accordance
with this Agreement, duly authorized and validly issued, free from all taxes,
liens and charges with respect to the issue thereof.
(iii) Underlying Shares of Common Stock. The issuance of the
shares of Common Stock issued or issuable from time to time upon the exercise of
the Purchased Warrants (the "UNDERLYING SHARES") will be, and at all times prior
to such exercise, will have been, duly authorized, duly reserved for issuance
upon such exercise and payment of the exercise price of the Purchased Warrants,
and will be, upon such exercise and payment, validly issued, fully-paid and
non-assessable free from all taxes, liens and charges with respect to the issue
thereof.
(iv) Compliance with Securities Laws. Subject to the accuracy
of the representations made by the Purchasers in Section 4 hereof, the Purchased
Securities (assuming no change in applicable law and no unlawful distribution of
the Purchased Securities by the Purchasers or other parties) will be issued to
the Purchasers in compliance with applicable exemptions from (1) the
registration and prospectus delivery requirements of the Securities Act and (2)
the registration and qualification requirements of all applicable securities
laws of the states of the United States.
(f) Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, or notice to, any federal, state or local governmental authority or
self regulatory agency on the part of the Company is required in connection with
the issuance of the Purchased Securities to the Purchasers, or the consummation
of the other transactions contemplated by this Agreement, except (i) such
filings as have been made prior to the date hereof, (ii) the filing of a
notification form with The Nasdaq SmallCap Market ("NASDAQ") and (iii) such
additional post-Closing filings as may be required to comply with applicable
state and federal securities laws and the listing requirements of Nasdaq.
(g) Non-Contravention. Assuming the accuracy of the representations
and warranties made by the Purchasers in Section 4 hereof, the execution,
delivery and performance of this Agreement by the Company, and the consummation
by the Company of the transactions contemplated hereby (including issuance of
the Purchased Securities), do not (i) contravene or conflict with the
Certificate of Incorporation (the "CERTIFICATE OF INCORPORATION") or Bylaws (the
"BYLAWS") of the Company; (ii) constitute a violation of any provision of any
federal, state, local or foreign law, rule, regulation, order or decree
applicable to the Company; or (iii) constitute a
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default or require any consent under, give rise to any right of termination,
cancellation or acceleration of, or to a loss of any material benefit to which
the Company is entitled under, or result in the creation or imposition of any
lien, claim or encumbrance on any assets of the Company under, any material
contract to which the Company is a party or any material permit, license or
similar right relating to the Company or by which the Company may be bound or
affected, except in the case of clauses (ii) and (iii), for such violations,
breaches or defaults as would not be reasonably likely to have a Material
Adverse Effect.
(h) Litigation. There is no action, suit, proceeding, claim,
arbitration or investigation ("ACTION") pending or, to the Company's knowledge,
threatened in writing: (i) against the Company, its activities, properties or
assets, or any officer, director or employee of the Company in connection with
such officer's, director's or employee's relationship with, or actions taken on
behalf of, the Company, that is reasonably likely to have a Material Adverse
Effect on the Company, or (ii) that seeks to prevent, enjoin, alter, challenge
or delay the transactions contemplated by this Agreement (including the issuance
of the Purchased Securities). The Company is not a party to or subject to the
provisions of, any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality that is reasonably likely to have a
Material Adverse Effect. The Company does not intend to initiate any Action that
is reasonably likely to have a Material Adverse Effect on the Company.
(i) Compliance with Law and Charter Documents. The Company is not in
violation or default of any provisions of the Certificate of Incorporation or
the Bylaws. The Company has complied and is currently in compliance with all
applicable statutes, laws, rules, regulations and orders of the United States of
America and all states thereof, foreign countries and other governmental bodies
and agencies having jurisdiction over the Company's business or properties,
except for any instance of non-compliance that has not had, and would not
reasonably be expected to have, a Material Adverse Effect.
(j) Material Non-Public Information. The Company has not provided to
the Purchasers any material non-public information other than information
related to the transactions contemplated by this Agreement, all of which
information related to the transactions contemplated hereby shall be disclosed
by the Company pursuant to Section 9(m) hereof.
(k) SEC Documents.
(1) Reports. The Company has filed in a timely manner
all reports, schedules, forms, statements and other documents required to be
filed by it with the SEC pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and the rules
and regulations promulgated thereunder, except for where the failure to do so
would not be reasonably likely to have a Material Adverse Effect. The Company
has made available to the Purchasers through its website (www.stemcellsinc.com)
prior to the date hereof copies of its Annual Report on Form 10-K and 10-K/A for
the fiscal year ended December 31, 2003 (the "FORM 10-K"), its quarterly report
on Form 10-Q for the fiscal quarter ended March 31, 2004 (the "FORM 10-Q"), its
Proxy Statement for its Annual Meeting of Stockholders held on May 11, 2004 (the
"PROXY STATEMENT"), and any Current Report on Form 8-K for events occurring
since March 31, 2004 ("FORM 8-KS") filed by the Company with the SEC (the Form
10-K, the Form 10-Q, the Proxy Statement and the Form 8-Ks (together with all
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exhibits, schedules and other attachments that are filed with such documents)
are collectively referred to herein as the "SEC DOCUMENTS"). Each of the SEC
Documents, as of the respective dates thereof (or, if amended or superseded by a
filing prior to the Closing Date, then on the date of such filing), did not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. Each SEC Document, as
it may have been subsequently amended by filings made by the Company with the
SEC prior to the date hereof, complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder applicable to such SEC Document.
(2) Sarbanes-Oxley. The Chief Executive Officer and the
acting Chief Financial Officer of the Company have signed, and the Company has
furnished to the SEC, all certifications required by Sections 302 and 906 of the
Sarbanes-Oxley Act of 2002. Such certifications contain no qualifications or
exceptions to the matters certified therein and have not been modified or
withdrawn; and neither the Company nor any of its officers has received notice
from any governmental entity questioning or challenging the accuracy,
completeness, form or manner of filing or submission of such certifications. The
Company is otherwise in compliance with all applicable effective provisions of
the Sarbanes-Oxley Act of 2002 and the rules and regulations issued thereunder
by the SEC, except where such non-compliance would not be reasonably likely to
have a Material Adverse Effect.
(3) Financial Statements. The financial statements of
the Company in the SEC Documents present fairly, in accordance with United
States generally accepted accounting principles ("GAAP"), consistently applied,
the financial position of the Company as of the dates indicated, and the results
of its operations and cash flows for the periods therein specified, subject, in
the case of unaudited financial statements for interim periods, to normal
year-end audit adjustments.
(l) Absence of Certain Changes Since the Balance Sheet Date. Since
March 31, 2004, the business and operations of the Company have been conducted
in the ordinary course consistent with past practice, and there has not been:
(i) any declaration, setting aside or payment of any dividend
or other distribution of the assets of the Company with respect to any shares of
capital stock of the Company or any repurchase, redemption or other acquisition
by the Company or any subsidiary of the Company of any outstanding shares of the
Company's capital stock;
(ii) any damage, destruction or loss, whether or not covered
by insurance, except for such occurrences, individually and collectively, that
have not had, and would not reasonably be expected to have, a Material Adverse
Effect;
(iii) any waiver by the Company of a valuable right or of a
material debt owed to it, except for such waivers, individually and
collectively, that have not had, and would not reasonably be expected to have, a
Material Adverse Effect;
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(iv) any material change or amendment to, or any waiver of any
material right under a material contract or arrangement by which the Company or
any of its assets or properties is bound or subject;
(v) any change by the Company in its accounting principles,
methods or practices or in the manner in which it keeps its accounting books and
records, except any such change required by a change in GAAP or by the SEC; or
(vi) any other event or condition of any character, except for
such events and conditions that have not resulted, and are not expected to
result, either individually or collectively, in a Material Adverse Effect.
(m) Intellectual Property. The Company owns or possesses sufficient
rights to use all patents, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names, copyrights or other intellectual
property (collectively, "INTELLECTUAL PROPERTY"), which are necessary to conduct
its businesses as currently conducted, except where the failure to currently own
or possess would not reasonably be expected to result, either individually or in
the aggregate, in a Material Adverse Effect. The Company has not received any
written notice of, and has no actual knowledge of, any infringement of or
conflict with asserted rights of others with respect to any Intellectual
Property which, either individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect, and to the Company's knowledge, none
of the patent rights owned or licensed by the Company are unenforceable or
invalid.
(n) Registration Rights. Except as provided in Section 5 herein,
effective upon the Closing, the Company is not currently subject to any
agreement providing any person or entity any rights (including piggyback
registration rights) to have any securities of the Company registered with the
SEC or registered or qualified with any other governmental authority.
(o) Title to Property and Assets. The properties and assets of the
Company are owned by the Company free and clear of all mortgages, deeds of
trust, liens, charges, encumbrances and security interests except for (i)
statutory liens for the payment of current taxes that are not yet delinquent and
(ii) liens, encumbrances and security interests that arise in the ordinary
course of business and do not in any material respect affect the properties and
assets of the Company. With respect to the property and assets it leases, the
Company is in compliance with such leases in all material respects.
(p) Taxes. The Company has filed or has valid extensions of the time
to file all necessary federal, state, and foreign income and franchise tax
returns due prior to the date hereof and has paid or accrued all taxes shown as
due thereon, and the Company has no knowledge of any material tax deficiency
which has been or might be asserted or threatened against it.
(q) Insurance. The Company maintains insurance of the types and in
the amounts that the Company reasonably believes is prudent and adequate for its
business, all of which insurance is in full force and effect.
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(r) Labor Relations. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company.
(s) Internal Accounting Controls. The Company and the Subsidiary
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management's general or specific authorization, and (iv)
the recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(t) Transactions With Officers and Directors. None of the officers
or directors of the Company has entered into any transaction with the Company or
any Subsidiary that would be required to be disclosed pursuant to Item 404(a),
(b) or (c) of Regulation S-K of the SEC.
(u) General Solicitation. Neither the Company nor any other person
or entity authorized by the Company to act on its behalf has engaged in a
general solicitation or general advertising (within the meaning of Regulation D
of the Securities Act) of investors with respect to offers or sales of the
Purchased Securities.
(v) Registration Statement Matters. The Company meets the
eligibility requirements for use of a registration statement on Form S-3 for the
resale of the Purchased Shares by the Purchasers. Assuming the completion and
timely delivery of the Registration Statement/Suitability Questionnaire
(attached hereto as Appendix II) (the "REGISTRATION STATEMENT QUESTIONNAIRE") by
each Purchaser to the Company, the Company is not aware of any facts or
circumstances that would prohibit or delay the preparation and filing of a
registration statement with respect to the Registrable Shares (as defined
below).
(w) No Integrated Offering. Neither the Company, nor any Affiliate
(as hereafter defined) of the Company, nor any person acting on its or their
behalf has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would cause
this offering of the Purchased Securities to be integrated with prior offerings
by the Company for purposes of the Securities Act, any applicable state
securities laws or any applicable stockholder approval provisions, including,
without limitation, under the rules and regulations of any national securities
exchange or automated quotation system on which any of the securities of the
Company are listed or designated, nor will the Company take any action or steps
that would cause the offering of the Purchased Shares to be integrated with
other offerings.
(x) Nasdaq Listing Matters. The Common Stock of the Company is
registered and listed on Nasdaq under the ticker symbol "STEM." The Company has
not received any notice that it is not in compliance with the listing or
maintenance requirements of Nasdaq. The issuance and sale of the Purchased
Shares under this Agreement does not contravene the rules and regulations of
Nasdaq.
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(y) Investment Company. The Company is not now, and after the sale
of the Purchased Shares under this Agreement and the application of the net
proceeds from the sale of the Purchased Shares described in Section 1(c) herein
will not be, an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
4. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF THE PURCHASERS.
Each Purchaser hereby represents and warrants to the Company, severally and not
jointly, and agrees that:
(a) Organization Good Standing and Qualification. The Purchaser has
all corporate, membership or partnership power and authority required to enter
into this Agreement and the other agreements, instruments and documents
contemplated hereby, and to consummate the transactions contemplated hereby and
thereby.
(b) Authorization. The execution of this Agreement has been duly
authorized by all necessary corporate, membership or partnership action on the
part of the Purchaser. This Agreement constitutes the Purchaser's legal, valid
and binding obligation, enforceable in accordance with its terms, except (i) as
may be limited by (1) applicable bankruptcy, insolvency, reorganization or other
laws of general application relating to or affecting the enforcement of
creditors' rights generally and (2) the effect of rules of law governing the
availability of equitable remedies and (ii) as rights to indemnity or
contribution may be limited under federal or state securities laws or by
principles of public policy thereunder.
(c) Litigation. There is no Action pending, or to its knowledge
threatened, to which such Purchaser is a party that is reasonably likely to
prevent, enjoin, alter or delay the transactions contemplated by this Agreement.
(d) Purchase for Own Account. The Purchased Securities are being
acquired for investment for the Purchaser's own account, not as a nominee or
agent, and not with a view to the public resale or distribution thereof within
the meaning of the Securities Act, without prejudice, however, to such
Purchaser's right at all times to sell or otherwise dispose of all or any part
of such securities in compliance with applicable federal and state securities
laws and as otherwise contemplated by this Agreement. The Purchaser also
represents that it has not been formed for the specific purpose of acquiring the
Purchased Securities.
(e) Investment Experience. The Purchaser understands that the
purchase of the Purchased Securities involves substantial risk. The Purchaser
has experience as an investor in securities of companies and acknowledges that
it can bear the economic risk of its investment in the Purchased Securities and
has such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of this investment in the Purchased
Securities and protecting its own interests in connection with this investment.
(f) Accredited Investor Status. The Purchaser is an "accredited
investor" within the meaning of Regulation D promulgated under the Securities
Act.
(g) Reliance Upon Purchaser's Representations. The Purchaser
understands that the issuance and sale of the Purchased Securities to it will
not be registered under the Securities Act on the ground that such issuance and
sale will be exempt from registration under
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the Securities Act pursuant to Section 4(2) thereof, and that the Company's
reliance on such exemption is based on each Purchaser's representations set
forth herein.
(h) Receipt of Information. The Purchaser has had an opportunity to
ask questions and receive answers from the Company regarding the terms and
conditions of the issuance and sale of the Purchased Securities and the
business, properties, prospects and financial condition of the Company and to
obtain any additional information requested and has received and considered all
information it deems relevant to make an informed decision to purchase the
Purchased Securities. Neither such inquiries nor any other investigation
conducted by or on behalf of such Purchaser or its representatives or counsel
shall modify, amend or affect such Purchaser's right to rely on the truth,
accuracy and completeness of such information and the Company's representations
and warranties contained in this Agreement.
(i) Restricted Securities. The Purchaser understands that the
Purchased Securities have not been registered under the Securities Act and will
not sell, offer to sell, assign, pledge, hypothecate or otherwise transfer any
of the Purchased Securities unless (i) pursuant to an effective registration
statement under the Securities Act, (ii) such holder provides the Company with
an opinion of counsel, in form and substance reasonably acceptable to the
Company and its counsel, to the effect that a sale, assignment or transfer of
the Purchased Securities may be made without registration under the Securities
Act and the transferee agrees to be bound by the terms and conditions of this
Agreement, (iii) such holder provides the Company with reasonable assurances (in
the form of seller and broker representation letters) that the Purchased Shares
or the Underlying Shares, as the case may be, can be sold pursuant to Rule 144
promulgated under the Securities Act ("RULE 144") or (iv) pursuant to Rule
144(k) promulgated under the Securities Act following the applicable holding
period. Notwithstanding anything to the contrary contained in this Agreement,
including but not limited to in Section 5(c)(i) below, the Purchaser may
transfer (without restriction and without the need for an opinion of counsel)
the Purchased Shares or the Underlying Shares to its Affiliates (as defined
below) provided that each such Affiliate is an "accredited investor" under
Regulation D, and such Affiliate agrees to be bound by the terms and conditions
of this Agreement.
For the purposes of this Agreement, an "AFFILIATE" of any specified
Purchaser means any other person or entity directly or indirectly controlling,
controlled by or under direct or indirect common control with such specified
Purchaser. For purposes of this definition, "CONTROL" means the power to direct
the management and policies of such person or firm, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise.
(j) Legends.
(i) Purchased Shares and Underlying Shares. The Purchaser
agrees that the Certificates for the Purchased Shares and Underlying Shares
shall bear the following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
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ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE
OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A
FINANCIAL INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN
RULE 501(a) UNDER THE SECURITIES ACT.
The Company acknowledges and agrees that a Purchaser may from time to time
pledge pursuant to a bona fide margin agreement with a registered broker-dealer
or grant a security interest in some or all of the Securities to a financial
institution that is an "accredited investor" as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and, if required under the terms of such arrangement, such Purchaser may
transfer pledged or secured Securities to the pledgees or secured parties. Such
a pledge or transfer would not be subject to approval of the Company and no
legal opinion of legal counsel of the pledgee, secured party or pledgor shall be
required in connection therewith. Further, no notice shall be required of such
pledge. At the appropriate Purchaser's expense, the Company will execute and
deliver such reasonable documentation as a pledgee or secured party of
Securities may reasonably request in connection with a pledge or transfer of the
Securities, the preparation and filing of any required prospectus supplement
under Rule 424(b)(3) under the Securities Act or other applicable provision of
the Securities Act to appropriately amend the list of selling stockholders
thereunder.
Certificates evidencing the Shares and Underlying Shares shall not contain
any legend, (i) while a registration statement (including the Registration
Statement) covering the resale of such security is effective under the
Securities Act, or (ii) following any sale of such Shares or Underlying Shares
pursuant to Rule 144, or (iii) if such Shares or Underlying Shares are eligible
for sale under Rule 144(k), or (iv) if such legend is not required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the Staff of the Commission). The
Company shall cause its counsel to issue a legal opinion to the Company's
transfer agent promptly after the date on which the Registration Statement is
declared effective (the "EFFECTIVE DATE") if required by the Company's transfer
agent to effect the removal of the legend hereunder. If all or any portion of a
Warrant is exercised at a time when there is an effective registration statement
to cover the resale of the Underlying Shares, such Underlying Shares shall be
issued free of all legends. The Company agrees that following the Effective Date
or at such time as such legend is no longer required under this Section 4(j), it
will, no later than five business days following the delivery by a Purchaser to
the Company or the Company's transfer agent of a certificate representing Shares
or Underlying Shares, as the case may be,
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issued with a restrictive legend, deliver or cause to be delivered to such
Purchaser a certificate representing such Securities that is free from all
restrictive and other legends. The Company may not make any notation on its
records or give instructions to any transfer agent of the Company that enlarge
the restrictions on transfer set forth in this Section 4(j).
Each Purchaser, severally and not jointly with the other Purchasers,
agrees that the removal of the restrictive legend from certificates representing
Securities as set forth in this Section 4(j) is predicated upon the Purchaser's
covenant that the Purchaser will sell any Securities pursuant to either the
registration requirements of the Securities Act, including any applicable
prospectus delivery requirements, or an exemption therefrom.
In addition, the Purchaser agrees that the Company may place stop transfer
orders with its transfer agent with respect to such Certificates in order to
implement the restrictions on transfer set forth in this Agreement. The
appropriate portion of the legend and the stop transfer orders will be removed
promptly upon delivery to the Company of such satisfactory evidence as
reasonably may be required by the Company that such legend or stop orders are
not required to ensure compliance with the Securities Act.
(ii) Warrant. The Purchaser agrees that Warrants shall bear
the following legend:
"THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT") OR WITH ANY STATE SECURITIES COMMISSION, AND MAY NOT BE
TRANSFERRED OR DISPOSED OF BY THE HOLDER IN THE ABSENCE OF A
REGISTRATION STATEMENT WHICH IS EFFECTIVE UNDER THE SECURITIES ACT
AND APPLICABLE STATE LAWS AND RULES, OR, UNLESS, IMMEDIATELY PRIOR
TO THE TIME SET FOR TRANSFER, SUCH TRANSFER MAY BE EFFECTED WITHOUT
VIOLATION OF THE SECURITIES ACT AND OTHER APPLICABLE STATE LAWS AND
RULES."
(k) Questionnaires. The Purchaser has completed or caused to be
completed the Stock Certificate Questionnaire and the Registration Statement
Questionnaire for use in preparation of the Registration Statement (as defined
in Section 5(a)(ii) below), and the answers to such questionnaires are true and
correct as of the date of this Agreement; provided, that the Purchasers shall be
entitled to update such information by providing written notice thereof to the
Company before the effective date of the Registration Statement.
(l) Restrictions on Short Sales. The Purchaser represents, warrants
and covenants that neither the Purchaser nor any Affiliate of such Purchaser
which (x) had knowledge of the transactions contemplated hereby, (y) has or
shares discretion relating to such Purchaser's investments or trading or
information concerning such Purchaser's investments, including in respect of the
Purchased Securities, or (z) is subject to such Purchaser's review or input
concerning such Affiliate's investments or trading, has or will, directly or
indirectly, during the period beginning on the date on which the Company or C.E.
Unterberg, Towbin, a financial
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advisor to the Company, first contacted such Purchaser regarding the
transactions contemplated by this Agreement (and involving the Company) and
ending at the time of the filing of the Form 8-K pursuant to Section 9(m),
engage in (i) any "short sales" (as such term is defined in Rule 3b-3
promulgated under the Exchange Act) of the Common Stock, including, without
limitation, the maintaining of any short position with respect to, establishing
or maintaining a "put equivalent position" (within the meaning of Rule 16a-1(h)
under the Exchange Act) with respect to, entering into any swap, derivative
transaction or other arrangement (whether any such transaction is to be settled
by delivery of Common Stock, other securities, cash or other consideration) that
transfers to another, in whole or in part, any economic consequences or
ownership, or otherwise dispose of, any of the Purchased Securities by the
Purchaser or (ii) any hedging transaction which establishes a net short position
with respect to the Purchased Securities (clauses (i) and (ii) together, a
"SHORT SALE"); except for (1) Short Sales by the Purchaser or Affiliate of such
Purchaser which was, prior to the date on which such Purchaser was first
contacted by the Company or C.E. Unterberg, Towbin regarding the transactions
contemplated by this Agreement, a market maker for the Common Stock, provided
that such Short Sales are in the ordinary course of business of such Purchaser
or Affiliate of such Purchaser and are in compliance with the Securities Act,
the rules and regulations of the Securities Act and such other securities laws
as may be applicable, (2) Short Sales by the Purchaser or an Affiliate of such
Purchaser which by virtue of the procedures of such Purchaser are made without
knowledge of the transactions contemplated by this Agreement or (3) Short Sales
by the Purchaser or an Affiliate of such Purchaser to the extent that such
Purchaser or Affiliate of such Purchaser is acting in the capacity of a
broker-dealer executing unsolicited third-party transactions.
5. FORM D FILING; REGISTRATION; COMPLIANCE WITH THE SECURITIES ACT.
(a) Form D Filing; Registration of the Purchased Shares and the
Underlying Shares. The Company hereby agrees that it shall:
(i) file in a timely manner a Form D relating to the sale of
the Purchased Securities under this Agreement, pursuant to Regulation D
promulgated under the Securities Act;
(ii) prepare and file with the SEC as soon as practicable and
in no event later than thirty (30) days following the Closing, a registration
statement on Form S-3 (the "REGISTRATION STATEMENT"), to enable the resale of
the Purchased Shares and the sale of the Underlying Shares (together with any
shares of Common Stock issued as a dividend or other distribution with respect
to, or in exchange for, or in replacement of, the Purchased Shares or the
Underlying Shares, the "REGISTRABLE SHARES") by the Purchasers from time to time
on Nasdaq and use all commercially reasonable efforts to cause such Registration
Statement to be declared effective as promptly as possible after filing, but in
any event, within ninety (90) days following the Closing Date or, in the event
of a review of the Registration Statement by the SEC, within one hundred twenty
(120) days following the Closing Date, and to remain continuously effective
until the earlier of (1) the second anniversary of the effective date of the
Registration Statement, (2) the date on which all Registrable Shares purchased
by the Purchasers pursuant to this Agreement have been sold thereunder or (3)
the date on which the Registrable Shares can be sold
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by nonaffiliates of the Company pursuant to Rule 144(k) promulgated under the
Securities Act (the "REGISTRATION PERIOD"). In the event that the Company does
not meet the requirements for the use of Form S-3, the Company shall use such
other form as is available for such a registration, and shall convert such other
form to Form S-3, or file a replacement registration statement on Form S-3,
promptly after the first date on which it meets such requirements;
(iii) prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
Prospectus (as defined below) used in connection therewith as may be necessary
to keep the Registration Statement effective at all times until the end of the
Registration Period;
(iv) furnish to the Purchasers with respect to the Registrable
Shares registered under the Registration Statement such reasonable number of
copies of any Prospectus (as defined below) in conformity with the requirements
of the Securities Act and such other documents as the Purchaser may reasonably
request, in order to facilitate the public sale or other disposition of all or
any of the Registrable Shares by the Purchasers;
(v) use its commercially reasonable efforts to file documents
required of the Company for normal blue sky clearance in states specified in
writing by the Purchasers; provided, however, that the Company shall not be
required to qualify to do business or consent to service of process in any
jurisdiction in which it is not now so qualified or has not so consented;
(vi) take all such action as is required of it to cause the
Registrable Shares to be listed on Nasdaq on the Closing Date;
(vii) promptly notify the Purchasers in writing when the
Registration Statement has been declared effective;
(viii) promptly notify the Purchasers in writing of the
existence of any fact or the happening of any event, during the Registration
Period (but not as to the substance of any such fact or event), that makes any
statement of a material fact made in the Registration Statement, the Prospectus,
any amendment or supplement thereto, or any document incorporated by reference
therein untrue, or that requires the making of any additions to or changes in
the Registration Statement or the Prospectus in order to make the statements
therein not misleading (provided, however, that no notice by the Company shall
be required pursuant to this subsection (viii) in the event that the Company
either contemporaneously files a prospectus supplement to update the Prospectus
or a Form 8-K or other appropriate Exchange Act report that is incorporated by
reference into the Registration Statement, which, in either case, contains the
requisite information with respect to such material event that results in such
Registration Statement no longer containing any such untrue or misleading
statements);
(ix) furnish to each Purchaser upon written request, from the
date of this Agreement until the end of the Registration Period, one copy of its
periodic reports filed with the SEC pursuant to the Exchange Act and the rules
and regulations promulgated thereunder; and
(x) bear all expenses in connection with the procedures
described in paragraphs (i) through (ix) of this Section 5(a) and the
registration of the Registrable Shares
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pursuant to the Registration Statement other than fees and expenses, if any, of
legal counsel or other advisers to the Purchasers or underwriting discounts,
brokerage fees and commissions incurred by the Purchasers, if any.
It shall be a condition precedent to the obligations of the Company to
take any action pursuant to this Section 5(a) with respect to Registrable Shares
held by a Purchaser that such Purchaser shall timely furnish to the Company a
completed Registration Statement Questionnaire on or before the Closing Date and
such other written information regarding itself, the Registrable Shares to be
sold by such Purchaser, and the intended method of disposition of the
Registrable Shares as shall be required to effect the registration of the
Registrable Shares. The Purchasers shall update such information as and when
necessary by written notice to the Company.
(b) Liquidated Damages.
(i) Delay in Filing or Effectiveness of Registration
Statement. In the event that the Registration Statement is not (A) filed with
the SEC within thirty (30) days following the Closing Date or (B) declared
effective within ninety (90) days following the Closing Date or, in the event of
a review of the Registration Statement by the SEC, within one hundred twenty
(120) days following the Closing Date, the Company shall pay to each Purchaser
liquidated damages (in addition to the rights and remedies available to each
Purchaser under applicable law and this Agreement), at a rate equal to one
percent (1%) per month (pro rata on a 30 day basis) of the total purchase price
of the Purchased Securities purchased by such Purchaser pursuant to this
Agreement. Such liquidated damages shall be payable within ten (10) days of the
end of each one (1) month anniversary of the applicable filing or effectiveness
deadline set forth in this section 5(b)(i).
(ii) Lapse in Effectiveness of Registration Statement. In the
event that the Registration Statement is filed and declared effective but,
during the Registration Period, shall thereafter cease to be effective or
useable or the prospectus included in the Registration Statement (the
"PROSPECTUS", as amended or supplemented by any prospectus supplement and by all
other amendments thereto and all material incorporated by reference in such
Prospectus) ceases to be usable, in either case, in connection with resales of
Registrable Shares, without such lapse being cured within ten (10) business days
(the "CURE PERIOD") by a post-effective amendment to the Registration Statement,
a supplement to the Prospectus or a report filed with the SEC pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act that cures such lapse,
then the Company shall pay to each Purchaser, liquidated damages (in addition to
the rights and remedies available to each Purchaser under applicable law and
this Agreement), for the period from and including the first day following the
expiration of the Cure Period until, but excluding, the earlier of (1) the date
on which such failure is cured and (2) the date on which the Registration Period
expires, at a rate equal to one percent (1%) per month (pro rata on a 30 day
basis) of the total purchase price of the Purchased Shares purchased by such
Purchaser pursuant to this Agreement. Such liquidated damages shall be payable
within ten (10) days of the end of each one (1) month anniversary of the
expiration of the Cure Period.
(c) Transfer of Registrable Shares After Registration; Suspension.
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(i) The Purchasers agree that they will not offer to sell or
make any sale, assignment, pledge, hypothecation or other transfer with respect
to the Registrable Shares that would constitute a sale within the meaning of the
Securities Act except pursuant to either (1) the Registration Statement, (2)
Rule 144 of the Securities Act or (3) any other exemption from registration
under the Securities Act, and that they will promptly notify the Company of any
changes in the information set forth in the Registration Statement after it is
prepared regarding the Purchaser or its plan of distribution to the extent
required by applicable law.
(ii) In addition to any suspension rights under paragraph
(iii) below, upon the happening of any pending corporate development, public
filing with the SEC or similar event, that, in the judgment of Company's Board
of Directors, renders it advisable to suspend use of the Prospectus or upon the
request by an underwriter in connection with an underwritten public offering of
the Company's securities, the Company may, on not more than two (2)
non-consecutive occasions for not more than forty-five (45) days on each such
occasion, suspend use of the Prospectus, on written notice to each Purchaser
(which notice will not disclose the content of any material non-public
information and will indicate the date of the beginning and end of the intended
period of suspension, if known), in which case each Purchaser shall discontinue
disposition of Registrable Shares covered by the Registration Statement or
Prospectus until copies of a supplemented or amended Prospectus are distributed
to the Purchasers or until the Purchasers are advised in writing by the Company
that sales of Registrable Shares under the applicable Prospectus may be resumed
and have received copies of any additional or supplemental filings that are
incorporated or deemed incorporated by reference in any such Prospectus. The
suspension and notice thereof described in this Section 5(c)(ii) shall be held
in strictest confidence and shall not be disclosed by the Purchasers.
(iii) Subject to paragraph (iv) below, in the event of: (1)
any request by the SEC or any other federal or state governmental authority
during the period of effectiveness of the Registration Statement for amendments
or supplements to a Registration Statement or related prospectus or for
additional information, (2) the issuance by the SEC or any other federal or
state governmental authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that purpose,
(3) the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Registrable Shares for sale in any jurisdiction or the initiation of any
proceeding for such purpose, or (4) any event or circumstance which necessitates
the making of any changes in the Registration Statement or Prospectus, or any
document incorporated or deemed to be incorporated therein by reference, so
that, in the case of the Registration Statement, it will not contain any untrue
statement of a material fact or any omission to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and that in the case of the Prospectus, it will not contain any untrue statement
of a material fact or any omission to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, then the Company shall
deliver a certificate in writing to the Purchasers (the "SUSPENSION NOTICE") to
the effect of the foregoing (which notice will not disclose the content of any
material non-public information and will indicate the date of the beginning and
end of the intended period of suspension, if known), and, upon receipt of such
Suspension Notice, the Purchasers will discontinue disposition of Registrable
Shares covered by to the Registration Statement or Prospectus (a "SUSPENSION")
until the Purchasers' receipt of copies of a supplemented or
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amended Prospectus prepared and filed by the Company, or until the Purchasers
are advised in writing by the Company that the current Prospectus may be used,
and have received copies of any additional or supplemental filings that are
incorporated or deemed incorporated by reference in any such prospectus. In the
event of any Suspension, the Company will use its commercially reasonable
efforts to cause the use of the Prospectus so suspended to be resumed as soon as
possible after delivery of a Suspension Notice to the Purchasers.
(iv) Provided that a suspension is not then in effect, the
Purchasers may sell Registrable Shares under the Registration Statement,
provided that the selling Purchaser arranges for delivery of a current
Prospectus to the transferee of such Registrable Shares to the extent such
delivery is required by applicable law.
(v) In the event of a sale of Registrable Shares by a
Purchaser, such Purchaser must also deliver to the Company's transfer agent,
with a copy to the Company, a certificate of subsequent sale reasonably
satisfactory to the Company, so that ownership of the Registrable Shares may be
properly transferred. The Company will cooperate to facilitate the timely
preparation and delivery of certificates (unless otherwise required by
applicable law) representing Registrable Shares sold.
(d) Indemnification. For the purpose of this Section 5(d), the term
"REGISTRATION STATEMENT" shall include any preliminary or final Prospectus,
exhibit, supplement or amendment included in or relating to the Registration
Statement referred to in Section 5(a).
(i) Indemnification by the Company. The Company agrees to
indemnify and hold harmless each of the Purchasers and each person, if any, who
controls any Purchaser within the meaning of the Securities Act, to the fullest
extent permitted by law, against any and all losses, claims, damages,
liabilities or expenses, joint or several, to which such Purchasers or such
controlling person may become subject, under the Securities Act, the Exchange
Act or any other federal or state statutory law or regulation, or at common law
or otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of the Company, which consent shall not be
unreasonably withheld), insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof as contemplated below) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, the Prospectus, or any amendment
or supplement thereto, or arise out of or are based upon the omission or alleged
omission to state in any of them a material fact required to be stated therein
or necessary to make the statements in any of them, in light of the
circumstances under which they were made, not misleading, and will reimburse
each Purchaser and each such controlling person for any reasonable legal and
other expenses as such reasonable expenses are incurred by such Purchaser or
such controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action; provided, however, that the Company will not be liable in any such case
to the extent that any such loss, claim, damage, liability, expense or action
arises out of or is based upon (1) an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
the Prospectus or any amendment to or supplement of the Registration Statement
or Prospectus made in reliance upon and in conformity with written information
furnished to the Company by or on behalf of the Purchaser expressly for use in
the Registration Statement or the Prospectus, (2) the failure of such Purchaser
to
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comply with the covenants and agreements contained in this Agreement respecting
resale of the Purchased Shares or the sale of the Underlying Shares, or (3) any
untrue statement or omission of a material fact required to make such statement
not misleading in any Prospectus that is corrected in any subsequent Prospectus
that was delivered to the Purchaser before the pertinent sale or sales by the
Purchaser.
(ii) Indemnification by the Purchaser. Each Purchaser will
severally and not jointly indemnify and hold harmless the Company, each of its
directors, each of its officers who signed the Registration Statement and each
person, if any, who controls the Company within the meaning of the Securities
Act, against any losses, claims, damages, liabilities or expenses to which the
Company, its directors, its officers who signed the Registration Statement and
any controlling persons may become subject, under the Securities Act, the
Exchange Act, or any other federal or state statutory law or regulation, or at
common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Purchaser, which consent
shall not be unreasonably withheld) insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof as contemplated below)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, the Prospectus, or
any amendment or supplement to the Registration Statement or Prospectus, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in the Registration Statement, the Prospectus, or any
amendment or supplement thereto, in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Purchaser expressly
for use therein, and the Purchaser will reimburse the Company, each of its
directors, each of its officers who signed the Registration Statement, and any
controlling persons for any reasonable legal and other expense incurred by the
Company, its directors, its officers who signed the Registration Statement, and
any controlling persons, in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action; provided, however, that the Purchaser shall not be liable for any such
untrue statement or alleged untrue statement or omission or alleged omission
with respect to which the Purchaser has delivered to the Company in writing a
correction before the occurrence of the event from which such loss was incurred.
Notwithstanding the provisions of this Section 5(d), the Purchaser shall not be
liable for any indemnification obligation under this Agreement in excess of the
aggregate amount of net proceeds received by the Purchaser from the sale of the
Registrable Shares pursuant to the Registration Statement.
(iii) Indemnification Procedure.
(1) Promptly after receipt by an indemnified party under
this Section 5(d) of notice of the threat or commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party under this Section 5(d), promptly notify the indemnifying
party in writing of the claim; but the omission so to notify the indemnifying
party will not relieve it from any liability which it may have to any
indemnified party for contribution or otherwise under the indemnity agreement
contained in this Section 5(d) or otherwise, to the extent it is not prejudiced
as a result of such failure.
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(2) In case any such action is brought against any
indemnified party and such indemnified party seeks or intends to seek indemnity
from an indemnifying party, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish, jointly with all other
indemnifying parties similarly notified, to assume the defense thereof with
counsel reasonably satisfactory to such indemnified party; provided, however, if
the defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be a conflict between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it or other indemnified parties that are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of its election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 5(d) for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless:
a) the indemnified party shall have employed such
counsel in connection with the assumption of legal defenses in accordance with
the proviso to the preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel, approved by such indemnifying party, representing all of the
indemnified parties who are parties to such action); or
b) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement of the
action against the indemnified party, in each of which cases the reasonable fees
and expenses of counsel for the indemnified party shall be at the expense of the
indemnifying party.
(iv) Contribution. If the indemnification provided for in this
Section 5(d) is required by its terms but is for any reason held to be
unavailable to, or is otherwise insufficient to hold harmless, an indemnified
party under this Section 5(d) with respect to any losses, claims, damages,
liabilities or expenses referred to in this Agreement, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of any losses, claims, damages, liabilities or expenses referred to
in this Agreement:
(1) in such proportion as is appropriate to reflect the
relative faults of the Company and the Purchaser in connection with the
statements or omissions or inaccuracies in the representations and warranties in
this Agreement that resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations, or
(2) if the allocation provided by clause (1) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative faults referred to in clause (1) above but the relative
benefits received by the Company and the Purchaser from the sale of the
Purchased Securities.
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The respective relative benefits received by the Company on the one hand
and each Purchaser on the other shall be deemed to be in the same proportion as
the amount to which the consideration paid by such Purchaser to the Company
pursuant to this Agreement for the Purchased Securities purchased by such
Purchaser that were sold pursuant to the Registration Statement bears to the
difference (the "DIFFERENCE") between the amount such Purchaser paid for the
Purchased Securities that were sold pursuant to the Registration Statement and
the amount received by such Purchaser from such sale. The relative fault of the
Company and each Purchaser shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact or the inaccurate or the
alleged inaccurate material fact relates to information supplied by the Company
or by such Purchaser and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in Section 5(d)(iii), any reasonable legal
or other fees or expenses incurred by such party in connection with
investigating or defending any such action or claim. The provisions set forth in
Section 5(d)(iii) with respect to the notice of the threat or commencement of
any threat or action shall apply if a claim for contribution is to be made under
this Section 5(d)(iv); provided, however, that no additional notice shall be
required with respect to any threat or action for which notice has been given
under Section 5(d)(iii) for purposes of indemnification. The Company and each
Purchaser agree that it would not be just and equitable if contribution pursuant
to this Section 5(d)(iv) were determined solely by pro rata allocation (even if
the Purchasers were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to in this paragraph. Notwithstanding the provisions of this Section
5(d)(iv), no Purchaser shall be required to contribute any amount in excess of
the amount by which the Difference exceeds the amount of any damages that such
Purchaser has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. The Purchasers' obligations to contribute pursuant
to this Section 5(d)(iv) are several and not joint.
(e) Rule 144 Information. For two (2) years after the date of this
Agreement, the Company shall file in a timely manner all reports required to be
filed by it under the Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder and shall take such further action to the
extent required to enable the Purchasers to sell the Purchased Shares and the
Underlying Shares pursuant to Rule 144 under the Securities Act (as such rule
may be amended from time to time).
6. ADVISORY FEE. The Purchasers acknowledge that the Company intends to
pay to C.E. Unterberg, Towbin, as financial advisor, a fee in respect of the
sale of the Purchased Securities. Each of the parties to this Agreement hereby
represents that, on the basis of any actions and agreements by it, there are no
other brokers or finders entitled to compensation in connection with the sale of
the Purchased Securities to the Purchasers. The Company shall indemnify and hold
harmless the Purchasers from and against all fees, commissions or other payments
owing by the Company to C.E. Unterberg, Towbin or any other person or firm
acting on behalf of the Company hereunder.
20.
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7. CONDITIONS TO THE PURCHASER'S OBLIGATIONS AT CLOSING. The obligations
of the Purchasers under Section 1(b) of this Agreement are subject to the
fulfillment or waiver, on or before the Closing, of each of the following
conditions:
(a) Representations and Warranties True. Each of the representations
and warranties of the Company contained in Section 3 shall be true and correct
in all material respects on and as of the date hereof (provided, however, that
such qualification shall only apply to representations or warranties not
otherwise qualified by materiality) and on and as of the date of the Closing
with the same effect as though such representations and warranties had been made
as of the Closing (except for representations and warranties that speak as of a
specific date).
(b) Performance. The Company shall have performed and complied in
all material respects with all agreements, obligations and conditions contained
in this Agreement that are required to be performed or complied with by it on or
before the Closing and shall have obtained all approvals, consents and
qualifications necessary to complete the purchase and sale described herein;
provided, however, that the Company may furnish to each Purchaser a facsimile
copy of the warrant representing the Purchased Warrants and of the stock
certificate representing the Purchased Shares, with the original warrant and
original stock certificate held in trust by counsel for the Company until
delivery thereof on the next business day.
(c) Compliance Certificate. The Company will have delivered to the
Purchasers a certificate signed on its behalf by its Chief Executive Officer or
Chief Financial Officer certifying that the conditions specified in Sections
7(a) and 7(b) hereof have been fulfilled.
(d) Agreement. The Company shall have executed and delivered to the
Purchasers this Agreement.
(e) Securities Exemptions. The offer and sale of the Purchased
Shares to the Purchasers pursuant to this Agreement shall be exempt from the
registration requirements of the Securities Act and the registration and/or
qualification requirements of all applicable state securities laws.
(f) No Suspension of Trading or Listing of Common Stock. The Common
Stock of the Company (i) shall be designated for quotation or listed on Nasdaq
and (ii) shall not have been suspended from trading on Nasdaq.
(g) Good Standing Certificates. The Company shall have delivered to
the Purchasers a certificate of the Secretary of State of the State of Delaware,
dated as of a date within five days of the date of the Closing, with respect to
the good standing of the Company.
(h) Secretary's Certificate. The Company shall have delivered to the
Purchasers a certificate of the Company executed by the Company's Secretary
attaching and certifying to the truth and correctness of (1) the Certificate of
Incorporation, (2) the Bylaws and (3) the resolutions adopted by the Company's
Board of Directors in connection with the transactions contemplated by this
Agreement.
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(i) Opinion of Company Counsel. The Purchasers will have received an
opinion on behalf of the Company, dated as of the date of the Closing, from
Ropes & Gray LLP, counsel to the Company, in the form attached as Exhibit C.
(j) No Statute or Rule Challenging Transaction. No statute, rule,
regulation, executive order, decree, ruling, injunction, action, proceeding or
interpretation shall have been enacted, entered, promulgated, endorsed or
adopted by any court or governmental authority of competent jurisdiction or any
self-regulatory organization or the staff of any of the foregoing, having
authority over the matters contemplated hereby which questions the validity of,
or challenges or prohibits the consummation of, any of the transactions
contemplated by this Agreement.
(k) Amount Invested. The Purchasers under this Agreement shall have
tendered at closing no less than $20,000,000 in the aggregate for the Purchased
Securities.
(l) Other Actions. The Company shall have executed such
certificates, agreements, instruments and other documents, and taken such other
actions as shall be customary or reasonably requested by the Purchasers in
connection with the transactions contemplated hereby.
(m) Closing. The Closing shall occur by no later than June 18, 2004.
8. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of
the Company to the Purchasers under this Agreement are subject to the
fulfillment or waiver, on or before the Closing, of each of the following
conditions:
(a) Representations and Warranties True. The representations and
warranties of the Purchasers contained in Section 4 shall be true and correct in
all material respects on and as of the date hereof (provided, however, that such
qualification shall only apply to representations and warranties not otherwise
qualified by materiality) and on and as of the date of the Closing with the same
effect as though such representations and warranties had been made as of the
Closing.
(b) Performance. The Purchasers shall have performed and complied in
all material respects with all agreements, obligations and conditions contained
in this Agreement that are required to be performed or complied with by it on or
before the Closing and shall have obtained all approvals, consents and
qualifications necessary to complete the purchase and sale described herein.
(c) Agreement. The Purchasers shall have executed and delivered to
the Company this Agreement (and Appendix I and II hereto).
(d) Securities Exemptions. The offer and sale of the Purchased
Securities to the Purchasers pursuant to this Agreement shall be exempt from the
registration requirements of the Securities Act and the registration and/or
qualification requirements of all applicable state securities laws.
22.
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(e) Payment of Purchase Price. The Purchasers shall have delivered
to the Company by wire transfer of immediately available funds, full payment of
the purchase price for the Purchased Securities as specified in Section 1(b).
(f) Other Actions. The Purchasers shall have executed such
certificates, agreements, instruments and other documents, and taken such other
actions as shall be customary or reasonably requested by the Company in
connection with the transactions contemplated hereby.
(g) No Statute or Rule Challenging Transaction. No statute, rule,
regulation, executive order, decree, ruling, injunction, action, proceeding or
interpretation shall have been enacted, entered, promulgated, endorsed or
adopted by any court or governmental authority of competent jurisdiction or any
self-regulatory organization or the staff of any of the foregoing, having
authority over the matters contemplated hereby which questions the validity of,
or challenges or prohibits the consummation of, any of the transactions
contemplated by this Agreement.
9. MISCELLANEOUS.
(a) Successors and Assigns. The terms and conditions of this
Agreement will inure to the benefit of and be binding upon the respective
successors and permitted assigns of the parties. The Company shall not assign
this Agreement or any rights or obligations hereunder without the prior written
consent of the Purchasers holding at least a majority of the total aggregate
number of Purchased Shares and Underlying Shares then outstanding (excluding any
shares sold to the public pursuant to Rule 144 or otherwise). Any Purchaser may
assign its rights under this Agreement to any person to whom the Purchaser
assigns or transfers any Purchased Securities, provided that such transferee
agrees in writing to be bound by the terms and provisions of this Agreement, and
such transfer is in compliance with the terms and provisions of this Agreement
and permitted by federal and state securities laws.
(b) Governing Law. This Agreement will be governed by and construed
and enforced under the internal laws of the State of New York, without reference
to principles of conflict of laws or choice of laws. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
(c) Survival. The representations and warranties of the Company and
the Purchasers contained in Sections 3 and 4 of this Agreement shall survive
until the second (2nd) anniversary of the Closing Date.
(d) Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
(e) Headings. The headings and captions used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement. All
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references in this Agreement to sections, paragraphs, exhibits and schedules
will, unless otherwise provided, refer to sections and paragraphs hereof and
exhibits and schedules attached hereto, all of which exhibits and schedules are
incorporated herein by reference.
(f) Notices. Any notices and other communications required or
permitted under this Agreement shall be in writing and shall be delivered (i)
personally by hand or by courier, (ii) mailed by United States first-class mail,
postage prepaid or (iii) sent by facsimile directed (1) if to the Purchaser, at
the Purchaser's address or facsimile number set forth on Exhibit A to this
Agreement, or at such address or facsimile number as the Purchaser may designate
by giving at least ten (10) days' advance written notice to the Company or (2)
if to the Company, to its address or facsimile number set forth below, or at
such other address or facsimile number as the Company may designate by giving at
least ten (10) days' advance written notice to the Purchaser. All such notices
and other communications shall be deemed given upon (i) receipt or refusal of
receipt, if delivered personally, (ii) three days after being placed in the
mail, if mailed, or (iii) confirmation of facsimile transfer, if faxed.
The address of the Company for the purpose of this Section 9(f) is as
follows:
StemCells, Inc
3155 Porter Drive
Palo Alto, California 94304
Tel: 650.475.3100
Fax: 650.475.3101
Attention: Martin McGlynn, President and CEO
with a copy to:
Ropes & Gray LLP
One International Place
Boston, Massachusetts 02110
Tel: 617.951.7000
Fax: 617.951.7050
Attention: Geoffrey B. Davis, Esq.
(g) Amendments and Waivers. This Agreement may be amended and the
observance of any term of this Agreement may be waived only with the written
consent of the Company and the Purchasers holding at least a majority of the
total aggregate number of Purchased Shares and Underlying Shares then
outstanding (excluding any shares sold to the public pursuant to Rule 144 or
otherwise). Any amendment effected in accordance with this Section 9(g) will be
binding upon the Purchasers, the Company and their respective successors and
permitted assigns.
(h) Severability. If any provision of this Agreement is held to be
unenforceable under applicable law, such provision will be excluded from this
Agreement and the balance of the Agreement will be interpreted as if such
provision were so excluded and will be enforceable in accordance with its terms.
24.
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(i) Entire Agreement. This Agreement, together with all exhibits and
schedules hereto and thereto constitutes the entire agreement and understanding
of the parties with respect to the subject matter hereof and supersedes any and
all prior negotiations, correspondence, agreements, understandings, duties or
obligations between the parties with respect to the subject matter hereof.
(j) Further Assurances. From and after the date of this Agreement,
upon the request of the Company or the Purchasers, the Company and the
Purchasers will execute and deliver such instruments, documents or other
writings, and take such other actions, as may be reasonably necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement.
(k) Meaning of Include and Including. Whenever in this Agreement the
word "include" or "including" is used, it shall be deemed to mean "include,
without limitation" or "including, without limitation," as the case may be, and
the language following "include" or "including" shall not be deemed to set forth
an exhaustive list.
(l) Fees, Costs and Expenses. Except as otherwise provided for in
this Agreement, all fees, costs and expenses (including attorneys' fees and
expenses) incurred by any party hereto in connection with the preparation,
negotiation and execution of this Agreement and the exhibits and schedules
hereto and the consummation of the transactions contemplated hereby and thereby
(including the costs associated with any filings with, or compliance with any of
the requirements of any governmental authorities), shall be the sole and
exclusive responsibility of such party.
(m) 8-K Filing and Publicity. As soon as practicable following the
execution of this Agreement but in no event later than 8:30 a.m. EST on the day
following the execution of this Agreement, the Company shall file a Current
Report on Form 8-K with the SEC describing the material terms of the
transactions contemplated by this Agreement and attaching this Agreement and the
press release referred to below as exhibits to such filing (the "8-K FILING"
including all attachments). Neither the Company nor any Purchaser shall issue
any press releases or any other public statements with respect to the
transactions contemplated by this Agreement; provided, however, that the Company
shall be entitled, without the prior approval of any Purchaser, to issue any
press release or make any other public disclosure (including a press release
(concerning the offering of the Purchased Securities) pursuant to Rule 135(c)
under the Securities Act) with respect to such transactions (i) in substantial
conformity with the 8-K Filing and (ii) as is required by applicable law,
regulations, and Nasdaq rules; and, provided further, that no such release may
identify a Purchaser unless such Purchaser has consented thereto in writing, or
as required by law.
(n) Stock Splits, Dividends and other Similar Events. The provisions
of this Agreement shall be appropriately adjusted to reflect any stock split,
stock dividend, reorganization or other similar event that may occur with
respect to the Company after the date hereof.
(o) Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each Purchaser
and the Company will
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be entitled to specific performance under this Agreement. The parties agree that
monetary damages may not be adequate compensation for any loss incurred by
reason of any breach of obligations described in the foregoing sentence and
hereby agrees to waive in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate.
[Remainder of page intentionally left blank.]
* * *
26.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
STEMCELLS, INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
[PURCHASER SIGNATURE PAGES TO FOLLOW]
<PAGE>
SIGNATURE PAGE TO
SECURITIES PURCHASE AGREEMENT
DATED AS OF JUNE 16, 2004
BY AND AMONG
STEMCELLS, INC.
AND EACH PURCHASER NAMED THEREIN
The undersigned hereby executes and delivers to StemCells, Inc., the
Purchase Agreement (the "AGREEMENT") to which this signature page is attached
effective as of the date of the Agreement, which Agreement and signature page,
together with all counterparts of such Agreement and signature pages of the
other Purchasers named in such Agreement, shall constitute one and the same
document in accordance with the terms of such Agreement.
Number of Units:
----------
[PURCHASER]
Signature:
---------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
Address:
-----------------------------------
-----------------------------------
-----------------------------------
Tel:
-----------------------------------
Fax:
-----------------------------------
Tax ID Number:
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<PAGE>
EXHIBIT A
SCHEDULE OF PURCHASERS
Number of
Number of Purchased Number of Purchase
Name and Address Units Shares Warrants Price
---------------- ----- ------ -------- -----