EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
AMONG
STEMCELLS, INC.
IRVING WEISSMAN
AND
MARK LEVIN
APRIL 13, 2000
INDEX OF DEFINED TERMS
AS DEFINED IN
-------------
"APPROVED MARKETS"..................................................................................Section 2.1(bb)
"BY-LAWS"............................................................................................Section 2.1(c)
"CERTIFICATE OF INCORPORATION".......................................................................Section 2.1(c)
"CERTIFICATE"..............................................................................................Preamble
"CLOSING"...............................................................................................Section 1.3
"CLOSING DATE"..........................................................................................Section 1.3
"COMMON SHARES"............................................................................................Preamble
"COMMON STOCK".............................................................................................Preamble
"COMPANY"..................................................................................................Preamble
"ENVIRONMENTAL LAWS".................................................................................Section 2.1(o)
"INDEMNITEES"..........................................................................................Article VIII
"INDEMNIFIED LIABILITIES"..............................................................................Article VIII
"INVESTORS"................................................................................................Preamble
"IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"................................................................Article IV
"MATERIAL ADVERSE EFFECT"............................................................................Section 2.1(a)
"MAXIMUM COMMON STOCK ISSUANCE"........................................................................Section 3.15
"OPTION CLOSING"....................................................................................Section 3.14(c)
"OPTION PERIOD".....................................................................................Section 3.14(b)
"CO-INVESTMENT PERIOD"..............................................................................Section 3.14(a)
"PERMITTED ASSIGNEE"....................................................................................Section 9.7
"PURCHASE".................................................................................................Preamble
"PURCHASE PRICE"........................................................................................Section 1.2
"PREFERRED SHARES".........................................................................................Preamble
"PRINCIPAL MARKET"...................................................................................Section 2.1(e)
"REGISTRATION RIGHTS AGREEMENT"............................................................................Preamble
"SEC DOCUMENTS"......................................................................................Section 2.1(f)
"SECURITIES ACT"or "1933 ACT"........................................................................Section 2.1(c)
"SECURITIES FINANCING TRANSACTION".................................................................Section 3.14(ii)
"SUBSIDIARY".........................................................................................Section 2.1(a)
"TRANSACTION DOCUMENTS"..............................................................................Section 2.1(b)
"WARRANTS".................................................................................................Preamble
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SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT ("AGREEMENT") dated as of April 13, 2000
among StemCells, Inc., a Delaware corporation (the "COMPANY"), Irving Weissman
and Mark Levin (the "INVESTORS").
W I T N E S S E T H:
WHEREAS, the Company desires to sell and issue to the Investors, and
the Investors wish to purchase from the Company, an aggregate of 1,500 shares of
the Company's 6% Convertible Preferred Stock, liquidation preference $1,000 per
share (all of such shares being the "PREFERRED SHARES"), having the rights,
designations and preferences set forth in the Certificate of Designations (the
"CERTIFICATE" ) in the form of EXHIBIT A attached hereto, on the terms and
conditions set forth herein and 75,000 Warrants (the "WARRANTS"), in the form of
EXHIBIT B attached hereto to purchase Common Shares (as defined below); and
WHEREAS, the Preferred Shares will be convertible into shares ("COMMON
SHARES") of common stock, par value $0.01, of the Company ("COMMON STOCK"),
pursuant to the terms of the Certificate, and the Investors will have
registration rights with respect to the Common Shares issuable upon conversion
of the Preferred Shares and exercise of the Warrants, pursuant to the terms of
that certain Registration Rights Agreement to be entered into between the
Company and the Investors substantially in the form of EXHIBIT C hereto
("REGISTRATION RIGHTS AGREEMENT");
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED SHARES
Section 1.1 ISSUANCE OF PREFERRED SHARES AND WARRANTS. Upon the following
terms and conditions, the Company shall issue and sell to each Investor, and
each Investor shall purchase from the Company, 750 Preferred Shares and 37,500
Warrants.
Section 1.2 PURCHASE PRICE. The purchase price for the Preferred Shares
and Warrants to be acquired by each Investor shall be $750,000 (the "PURCHASE
PRICE").
Section 1.3 THE CLOSING.
Subject to the fulfillment or waiver of the conditions set forth in
Article V hereof, the purchase and sale of the Preferred Shares and Warrants
shall take place at a closing (the "CLOSING"), on or about April 13, 2000 or
such other date as the Investors and the Company may agree upon (the "CLOSING
DATE").
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby makes the following representations and warranties to the Investors as of
the date hereof, the Closing Date and the date of any Option Closing (as defined
below):
(a) ORGANIZATION AND QUALIFICATION; MATERIAL ADVERSE EFFECT. The
Company is a corporation duly incorporated and existing in good standing under
the laws of the State of Delaware and has the requisite corporate power to own
its properties and to carry on its business as now being conducted. The Company
does not have any Subsidiary other than StemCells California, Inc. (the
"SUBSIDIARY"). Except where specifically indicated to the contrary, all
references in this Agreement to Subsidiary shall be deemed to refer to the
Subsidiary of the Company. The Company is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary other than those in which the failure so to qualify
would not have a Material Adverse Effect. "MATERIAL ADVERSE EFFECT" means any
adverse effect on the business, operations, properties, prospects or financial
condition of the Company and its Subsidiary, which is (either alone or together
with all other adverse effects) material to the Company and its Subsidiary,
taken as a whole, and any material adverse effect on the transactions
contemplated under this Agreement, the Certificate and the Registration Rights
Agreement, or any other agreement or document contemplated hereby or thereby.
(b) AUTHORIZATION; ENFORCEMENT. (i) The Company has all requisite
corporate power and authority to enter into and perform this Agreement, the
Certificate, the Registration Rights Agreement and the Warrants ("TRANSACTION
DOCUMENTS") and to issue the Preferred Shares, the Additional Preferred Shares
(as defined below) and the Warrants in accordance with the terms hereof, (ii)
the execution and delivery of this Agreement, the Registration Rights Agreement
and the Warrants by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including the issuance of the Preferred Shares,
the Additional Preferred Shares and the Warrants and the resolutions contained
in the Certificate, have been duly authorized by all necessary corporate action,
and no further consent or authorization of the Company or its Board of Directors
(or any committee or subcommittee thereof) or stockholders is required, (iii)
the Transaction Documents have been duly executed and delivered by the Company,
(iv) this Agreement, the Certificate, the Registration Rights Agreement and the
Warrants constitute valid and binding obligations of the Company enforceable
against the Company in accordance with their terms, except (A) as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating
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to, or affecting generally the enforcement of creditors' rights and remedies or
by other equitable principles of general application, and (B) to the extent the
indemnification provisions contained in this Agreement and the Registration
Rights Agreement may be limited by applicable federal or state securities laws
and (v) the Preferred Shares, the Additional Preferred Shares, the Warrants, and
the Common Shares issuable upon the conversion and/or exercise thereof have been
duly authorized and, upon issuance thereof and payment therefor in accordance
with the terms of this Agreement, the Preferred Shares, the Additional Preferred
Shares, the Warrants, the Common Shares issuable upon the conversion and/or
exercise thereof will be validly issued, fully paid and non-assessable, free and
clear of any and all liens, claims and encumbrances.
(c) CAPITALIZATION. As of the date hereof, the authorized capital
stock of the Company consists of (i) 46,000,000 shares of Common Stock, of which
as of March 20, 2000, 19,506,565 shares are issued and outstanding, 2,446,501
shares are issuable and reserved for issuance pursuant to the Company's stock
option and purchase plans and committed pursuant to pending acquisitions, and no
shares are issuable and reserved for issuance pursuant to securities exercisable
or exchangeable for, or convertible into, shares of Common Stock, and (ii)
1,000,000 shares of preferred stock, of which as of the date hereof, 450,000
shares are currently designated as Junior Preferred Shares. All of such
outstanding shares have been, or upon issuance will be, validly issued, fully
paid and nonassessable. As of the date hereof, except as disclosed in SCHEDULE
2.1(c), (i) no shares of the Company's capital stock are subject to preemptive
rights or any other similar rights or any liens or encumbrances suffered or
permitted by the Company, (ii) there are no outstanding debt securities, (iii)
there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or its Subsidiary,
or contracts, commitments, understandings or arrangements by which the Company
or its Subsidiary is or may become bound to issue additional shares of capital
stock of the Company or its Subsidiary or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or its Subsidiary, (iv) there are no agreements or arrangements under
which the Company or its Subsidiary is obligated to register the sale of any of
their securities under the Securities Act of 1933, as amended ("SECURITIES ACT"
or "1933 ACT") (except the Registration Rights Agreement and except as set forth
on SCHEDULE 2.1(c)), (v) there are no outstanding securities of the Company or
its Subsidiary which contain any redemption or similar provisions, and there are
no contracts, commitments, understandings or arrangements by which the Company
or its Subsidiary is or may become bound to redeem a security of the Company or
its Subsidiary, (vi) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Preferred Shares, the Additional Preferred Shares or the Warrants as
described in this Agreement, the Certificate or the Warrants and (vii) the
Company does not have any stock appreciation rights or "phantom stock" plans or
agreements or any similar plan or agreement. The Company has furnished to the
Investors true and correct copies of the Company's Certificate of Incorporation,
as amended and as in effect on the date hereof (the "CERTIFICATE OF
INCORPORATION"), and the Company's By-laws, as in effect on the date hereof (the
"BY-LAWS").
(d) [INTENTIONALLY OMITTED].
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(e) NO CONFLICTS. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby and issuance of the Preferred
Shares, the Additional Preferred Shares, the Warrants, and the Common Shares
underlying the Preferred Shares, the Additional Preferred Shares or the Warrants
will not (i) result in a violation of the Certificate of Incorporation, any
certificate of designations, preferences and rights of any outstanding series of
preferred stock of the Company or the By-laws; (ii) conflict with, or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or its Subsidiary is a party, or (iii) result in a violation of any
law, rule, regulation, order, judgment or decree (including United States
federal and state securities laws and regulations and the rules and regulations
of the Nasdaq National Market (the "PRINCIPAL MARKET") or principal securities
exchange or trading market on which the Common Stock is traded or listed)
applicable to the Company or its Subsidiary or by which any property or asset of
the Company or its Subsidiary is bound or affected. Neither the Company nor its
Subsidiary is in violation of any term of, or in default under, (x) its
certificate of incorporation, any certificate of designations, preferences and
rights of any outstanding series of preferred stock or By-laws or their
organizational charter or by-laws, respectively, (y) any material contract,
agreement, mortgage, indebtedness, indenture, instrument, or (z) any judgment,
decree or order or any statute, rule or regulation applicable to the Company or
its Subsidiary, the non-compliance with which (in the cases of (y) and (z))
would cause a Material Adverse Effect. Except as specifically contemplated by
this Agreement and as required under the 1933 Act or state "blue sky" laws, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court, governmental agency or any
regulatory or self-regulatory agency in order for it to execute, deliver or
perform any of its obligations under, or contemplated by, the Transaction
Documents or the issuance of the Preferred Shares, the Additional Preferred
Shares and the Warrants in accordance with the terms hereof or thereof. All
consents, authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the date hereof, or in the case of post-sale filings,
will be made promptly after the date hereof. The Company complies with and is
not in violation of the listing requirements of the Principal Market as in
effect on the date hereof in all material respects and on each of the Closing
Dates and is not aware of any existing facts which provide a basis for delisting
or suspension of the Common Stock by the Principal Market.
(f) SEC DOCUMENTS; FINANCIAL STATEMENTS. Since December 31, 1998, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the "SEC DOCUMENTS"). As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
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stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Neither the Company
nor its Subsidiary or any of their officers, directors, employees or agents have
provided the Investors with any material, nonpublic information which was not
publicly disclosed prior to the date hereof.
(g) ABSENCE OF CERTAIN CHANGES. Except as set forth in the SEC
Documents since December 31, 1998 there has been no adverse change or adverse
development in the business, properties, assets, operations, financial
condition, prospects, liabilities or results of operations of the Company or its
Subsidiary which has had or, to the knowledge of the Company or its Subsidiary,
is reasonably likely to have a Material Adverse Effect. The Company has not
taken any steps, and does not currently expect to take any steps, to seek
protection pursuant to any bankruptcy law nor does the Company or its Subsidiary
have any knowledge or reason to believe that its creditors intend to initiate
involuntary bankruptcy proceedings.
(h) ABSENCE OF LITIGATION. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or its Subsidiary, threatened against or affecting the Company, the
Common Stock or any of the Company's Subsidiary or any of the Company's or the
Company's Subsidiary' officers or directors in their capacities as such, which
individually and in the aggregate, respectively, would be reasonably likely to
result in liability to the Company in excess of $50,000 and $100,000,
respectively. The Company is not subject to any order, writ, judgment, decree or
injunction that would be reasonably expected to have a Material Adverse Effect.
(i) ACKNOWLEDGMENT REGARDING INVESTORS' PURCHASE OF SHARES. The
Company acknowledges and agrees that the Investors are acting solely in the
capacity of arm's length purchasers with respect to the Transaction Documents
and the transactions contemplated hereby and thereby. The Company further
acknowledges that the Investors are not acting as financial advisors or
fiduciaries of the Company (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated hereby and thereby, and
any advice given by the Investors or any of their respective representatives or
agents in connection with the Transaction Documents and the transactions
contemplated hereby and thereby is merely incidental to the Investors' purchase
of the Preferred Shares. The Company further represents to the Investors that
the Company's decision to enter into the Transaction Documents has been based
solely on the independent evaluation by the Directors of the Company and its
representatives who are independent of this transaction.
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(j) NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR CIRCUMSTANCES.
No event, liability, development or circumstance has occurred or exists with
respect to the Company or its Subsidiary or their respective business,
properties, prospects, operations or financial condition, that would be required
to be disclosed by the Company under applicable securities laws on a
registration statement filed with the SEC relating to an issuance and sale by
the Company of its Common Stock and which has not been publicly disclosed.
(k) [Reserved]
(l) No Securities Act Registration. The sale and issuance of the
Preferred Shares, Additional Preferred Shares and Warrants in accordance with
terms of this Agreement and the issuance of Common Shares upon conversion of the
Preferred Shares and Additional Preferred Shares and upon exercise of the
Warrants are exempt from registration under the 1933 Act.
(m) EMPLOYEE RELATIONS. Neither the Company nor its Subsidiary is
involved in any labor dispute nor, to the knowledge of the Company or its
Subsidiary, is any such dispute threatened, the effect of which would be
reasonably likely to result in a Material Adverse Effect. Neither the Company
nor its Subsidiary is a party to a collective bargaining agreement. The Company
and its Subsidiary believe that relations between the Company and its Subsidiary
and their respective employees are good. No executive officer (as defined in
Rule 501(f) of the 1933 Act) whose departure would be adverse to the Company has
notified the Company that such officer intends to leave the Company or otherwise
terminate such officer's employment with the Company.
(n) INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiary own
or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted and as proposed to be conducted in the future. None
of the Company's trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, government authorizations, trade secrets or other
intellectual property rights have expired or terminated, or are expected to
expire or terminate within two (2) years from the date of this Agreement except
as would not have a Material Adverse Effect. The Company and its Subsidiary do
not have any knowledge of any infringement by the Company or its Subsidiary of
trademark, trade name rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service mark registrations, trade secret
or other similar rights of others, or of any such development of similar or
identical trade secrets or technical information by others, and no claim, action
or proceeding has been made or brought against, or to the Company's or the
Subidiary's knowledge, is threatened against, the Company or its Subsidiary
regarding trademarks, trade name rights, patents, patent rights, inventions,
copyrights, licenses, service names, service marks, service mark registrations,
trade secrets or other infringement. The Company and its Subsidiary have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their intellectual properties.
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(o) ENVIRONMENTAL LAWS. The Company and its Subsidiary (i) are in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval where such noncompliance or
failure to receive permits, licenses or approvals referred to in clauses (i),
(ii) or (iii) above could have, individually or in the aggregate, a Material
Adverse Effect.
(p) TITLE. The Company and its Subsidiary have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its Subsidiary, in each case free and clear of all liens, encumbrances and
defects except such as are described in SCHEDULE 2.1(p) or such as do not
materially and adversely affect the value of such property and do not interfere
with the use made and proposed to be made of such property by the Company or its
Subsidiary. Any real property and facilities held under lease by the Company or
its Subsidiary are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
Subsidiary.
(q) INSURANCE. The Company and its Subsidiary are insured by insurers
of recognized financial responsibility against such losses and risks and in such
amounts as management of the Company believes to be prudent and customary in the
businesses in which the Company and its Subsidiary are engaged. Neither the
Company nor any such Subsidiary has been refused any insurance coverage sought
or applied for and neither the Company nor any such Subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not materially
and adversely affect the condition, financial or otherwise, or the earnings,
business or operations of the Company and its Subsidiary taken as a whole.
(r) REGULATORY PERMITS. The Company and its Subsidiary possess all
material certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities, necessary to conduct their
respective businesses, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.
(s) INTERNAL ACCOUNTING CONTROLS. The Company and its 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
generally accepted accounting principles 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.
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(t) FOREIGN CORRUPT PRACTICES ACT. Neither the Company, nor any
director, officer, agent, employee or other person acting on behalf of the
Company or any Subsidiary has, in the course of acting for, or on behalf of, the
Company, directly or indirectly used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; directly or indirectly made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended, or any similar treaties of
the United States; or directly or indirectly made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government or party official or employee.
(u) TAX STATUS. The Company and its Subsidiary has made or filed all
United States federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject and (i) has
paid all taxes and other governmental assessments and charges, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and (ii) has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes claimed to be due by the taxing authority of any jurisdiction, and
the Company is not aware of any basis for any such claim.
(v) CERTAIN TRANSACTIONS. Except as set forth in the SEC Documents
filed on EDGAR at least thirty (30) Trading Days prior to the date hereof and
except for arm's length transactions pursuant to which the Company makes
payments in the ordinary course of business upon terms no less favorable than
the Company could obtain from third parties and other than the grant of stock
options disclosed on SCHEDULE 2.1(c), none of the officers, directors or
employees of the Company is presently a party to any transaction with the
Company or its Subsidiary (other than for services as employees, consultants,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
(w) DILUTIVE EFFECT. The Company understands and acknowledges that the
number of Common Shares issuable upon conversion of Preferred Shares and
Additional Preferred Shares and exercise of the Warrants purchased pursuant to
this Agreement will increase in certain circumstances. The Company further
acknowledges that, subject to such limitations as are expressly set forth in the
Transaction Documents, its obligation issue Common Shares upon conversion of
Preferred Shares and Additional Preferred Shares and exercise of the Warrants
purchased pursuant to this Agreement, is absolute and unconditional regardless
of the dilutive effect that such issuance may have on the ownership interests of
other stockholders of the Company.
(x) APPLICATION OF TAKEOVER PROTECTIONS. There are no anti-takeover
provisions contained in the Company's Certificate of Incorporation or otherwise
which will be triggered as a
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result of the transactions contemplated by this Agreement, including, without
limitation, the Company's issuance of the Common Shares and the Investors'
ownership of the Common Shares.
(y) RIGHTS PLAN. The Company confirms that no provision of the
Company's rights plan will, under any present or future circumstances, delay,
prevent or interfere with the performance of any of the Company's obligations
under the Transaction Documents and such plan will not be "triggered" by such
performance.
(z) OBLIGATIONS ABSOLUTE. Each of the Company and the Investors agrees
that, subject only to the conditions, qualifications and exceptions (if any)
specifically set forth in the Transaction Documents, its obligations under the
Transaction Documents are unconditional and absolute. Except to the extent (if
any) specifically set forth in the Transaction Documents, each party's
obligations thereunder are not subject to any right of set off, counterclaim,
delay or reduction.
(aa) ISSUANCE OF COMMON SHARES. The Common Shares are duly authorized
and reserved for issuance and, upon conversion of Preferred Shares or Additional
Preferred Shares in accordance with the Certificate, or exercise of the Warrants
in accordance with the terms thereof, such Common Shares will be validly issued,
fully paid and non-assessable, free and clear of any and all liens, claims and
encumbrances, and entitled to be traded on the Principal Market or the New York
Stock Exchange or the American Stock Exchange, or the Nasdaq small cap market
(collectively with the Principal Market, the "APPROVED MARKETS"), and the
holders of such Common Shares shall be entitled to all rights and preferences
accorded to a holder of Common Stock. As of the date of this Agreement, the
outstanding shares of Common Stock are currently listed on the Principal Market.
(bb) BROKERS. The Company has taken no action which would give rise to
any claim by any person for brokerage commissions, finder's fees or similar
payments by the Investors relating to this Agreement or the transactions
contemplated hereby.
Section 2.2 REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each
Investor, severally and not jointly, hereby makes the following representations
and warranties to the Company as of the date hereof, the Closing Date and the
date of any Option Closing:
(a) ACCREDITED INVESTOR STATUS; SOPHISTICATED INVESTOR. Each Investor
is an "accredited investor" as that term is defined in Rule 501(a) of Regulation
D under the 1933 Act. Each Investor has such knowledge and experience in
financial and business matters that he is capable of evaluating the merits and
risks of investment in the Preferred Shares, Additional Preferred Shares, the
Warrants and Common Shares.
(b) INFORMATION. The Investors and their advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company which have been requested and materials relating to the offer and
sale of the Preferred Shares, Additional Preferred Shares, the Warrants and
Common Shares which have been requested by the Investors. The Investors and
their advisors, if any, have been afforded the opportunity to ask questions of
the Company. Neither such inquiries nor any other due diligence investigations
conducted by the
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Investors or their advisors, if any, or its representatives shall modify, amend
or affect the Investors' right to rely on the Company's representations and
warranties contained in Section 2.1 above. The Investors understand that their
investment in the Preferred Shares, the Additional Preferred Shares, the
Warrants and Common Shares involves a high degree of risk. The Investors have
sought such accounting, legal and tax advice as they have considered necessary
to make an informed investment decision with respect to their acquisition of the
Preferred Shares, the Additional Preferred Shares, the Warrants and Common
Shares.
(c) LEGENDS. The Company shall issue certificates for the Preferred
Shares, Additional Preferred Shares, the Warrants and Common Shares to the
Investors without any legend except as described in Article VI below. The
Investors covenant that, in connection with any transfer of Common Shares by the
Investors pursuant to the registration statement contemplated by the
Registration Rights Agreement, each of them will comply with the applicable
prospectus delivery requirements of the 1933 Act, provided that copies of a
current prospectus relating to such effective registration statement are or have
been supplied to the Investors.
(d) [Reserved]
(e) INVESTMENT REPRESENTATION. Each Investor is purchasing the
Preferred Shares (and, if applicable, the Additional Preferred Shares) and the
Warrants for his own account and not with a view to distribution in violation of
any securities laws. The Investors have been advised and understand that neither
the Preferred Shares, the Additional Preferred Shares, the Warrants nor the
shares of Common Stock issuable upon conversion or exercise thereof have been
registered under the 1933 Act or under the "blue sky" laws of any jurisdiction
and may be resold only if registered pursuant to the provisions of the 1933 Act
or if an exemption from registration is available, except under circumstances
where neither such registration nor such an exemption is required by law. The
Investors have been advised and understand that the Company, in issuing the
Preferred Shares, the Additional Preferred Shares and the Warrants, is relying
upon, among other things, the representations and warranties of the Investors
contained in this Section 2.2 in concluding that such issuance is a "private
offering" and is exempt from the registration provisions of the 1933 Act.
(f) RULE 144. The Investors understand that there is no public trading
market for the Preferred Shares, the Additional Preferred Shares or the
Warrants, and that none is expected to develop. The Investors understand that
the Preferred Shares, Additional Preferred Shares, Warrants and the Common
Shares received upon conversion or exercise thereof must be held indefinitely
unless and until registered under the 1933 Act or an exemption from registration
is available. The Investors are aware of the provisions of Rule 144 promulgated
under the 1933 Act.
(g) RELIANCE BY THE COMPANY. The Investors understand that the
Preferred Shares, the Additional Preferred Shares and the Warrants are being
offered and sold in reliance on a transactional exemption from the registration
requirements of Federal and state securities laws and that the Company is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of the Investors set forth herein
in order to
10
determine the applicability of such exemptions and the suitability of the
Investors to acquire the Preferred Shares, the Additional Preferred Shares and
the Warrants.
ARTICLE III
COVENANTS
Section 3.1 REGISTRATION AND LISTING; EFFECTIVE REGISTRATION. Until such
time as no Preferred Shares, Additional Preferred Shares or Warrants are
outstanding and the Preferred Share Option (as defined below) shall have
expired, the Company will cause the Common Stock to continue at all times to be
registered under Sections 12(b) or (g) of the 1934 Act, will comply in all
material respects with its reporting and filing obligations under the 1934 Act,
and will not take any action or file any document (whether or not permitted by
the 1934 Act or the rules thereunder) to terminate or suspend such reporting and
filing obligations. Until such time as no Preferred Shares, Additional Preferred
Shares or Warrants are outstanding and the Preferred Share Option (as defined
below) shall have expired, the Company shall continue the listing or trading of
the Common Stock on the Principal Market or one of the other Approved Markets
and comply in all material respects with the Company's reporting, filing and
other obligations under the bylaws or rules of the Approved Market on which the
Common Stock is listed. The Company shall cause the Common Shares to be listed
on the Principal Market or one of the other Approved Markets no later than the
effectiveness of the registration of the Common Shares under the Act, and shall
continue such listing(s) on one of the Approved Markets, for so long as any
Preferred Shares, Additional Preferred Shares or Warrants are outstanding and
the Preferred Share Option has not expired.
Section 3.2 CERTIFICATES ON CONVERSION. Upon any conversion by the
Investors (or then holder of Preferred Shares or Additional Preferred Shares) of
the Preferred Shares or Additional Preferred Shares pursuant to the Certificate,
the Company shall issue and deliver to the Investors (or such holder) within
three (3) trading days after the conversion date a new certificate or
certificates for the number of Preferred Shares or Additional Preferred Shares
which the Investors (or such holder) has not yet elected to convert but which
are evidenced in part by the certificate(s) submitted to the Company in
connection with such conversion (with the denominations of such new
certificate(s) designated by the Investors or holder), if any.
Section 3.3 REPLACEMENT CERTIFICATES. The certificate(s) representing the
Preferred Shares or Additional Preferred Shares held by any Investor (or then
holder) may be exchanged by such Investor (or such holder) at any time and from
time to time for certificates with different denominations representing an equal
aggregate number of Preferred Shares, as requested by such Investor (or such
holder) upon surrendering the same. No service charge will be made for such
registration or transfer or exchange.
Section 3.4 SECURITIES COMPLIANCE. The Company shall notify the SEC and
the Principal Market, in accordance with their requirements, of the transactions
contemplated by this Agreement, the Certificate, the Warrants and the
Registration Rights Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule
11
and regulation, for the legal and valid issuance of the Preferred Shares,
Additional Preferred Shares hereunder and the Common Shares issuable upon
conversion or exercise thereof.
Section 3.5 NOTICES. The Company agrees to provide all holders of
Preferred Shares and Additional Preferred Shares with copies of all notices and
information, including without limitation notices and proxy statements in
connection with any meetings, that are provided to the holders of shares of
Common Stock, contemporaneously with the delivery of such notices or information
to such Common Stock holders.
Section 3.6 USE OF PROCEEDS. The Company agrees that the net proceeds
received by the Company from the sale of the Preferred Shares or Additional
Preferred Shares hereunder and payment of the exercise price of the Warrants
shall be used for legally permitted corporate purposes.
Section 3.7 RESERVATION OF SHARES; STOCK ISSUABLE UPON CONVERSION.
(a) The Company shall reserve all authorized but unissued 6%
Convertible Preferred Stock for issuance to the Investors pursuant to the terms
of this Agreement.
(i) The Company shall at all times reserve and keep available
out of its authorized but unissued shares of Common Stock, solely for
the purpose of effecting the conversion of the Preferred Shares and
Additional Preferred Shares and the exercise of all Warrants, such
number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all Preferred Shares and
Additional Preferred Shares and the exercise of all Warrants, and if
at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all the then
outstanding Preferred Shares and Additional Preferred Shares and the
exercise of all Warrants, the Company will take such corporate action
as may be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such
purpose, including without limitation engaging in best efforts to
obtain the requisite shareholder approval and taking the actions
described in the Certificate. Without in any way limiting the
foregoing, the Company agrees to reserve and at all times keep
available solely for purposes of conversion of Preferred Shares,
Additional Preferred Shares and the exercise of all Warrants, such
number of authorized but unissued shares of Common Stock that is at
least equal to 200% of the number of Common Shares issuable upon
conversion of all Preferred Shares and Additional Preferred Shares,
and the exercise of all Warrants computed as if all Preferred Shares
and Additional Preferred Shares are convertible at the then Conversion
Price (as defined in the Certificate) and all Warrants are exercisable
at the then Exercise Price (as defined in the Warrants). If at any
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time the number of authorized but unissued shares of Common Stock is
not sufficient to effect such issuance, conversion, or exercise,
respectively, up to the Maximum Common Stock Issuance (as defined in
Section 3.15 below), all the then outstanding Preferred Shares and
Additional Preferred Shares and the Warrants, the Investors shall be
entitled to, INTER ALIA, the redemption rights provided in the
Registration Rights Agreement.
Section 3.8 BEST EFFORTS. The parties shall use their best efforts to
satisfy timely each of the conditions described in Article V of this Agreement.
Section 3.9 FORM D; BLUE SKY LAWS. The Company agrees to file a Form D
and any corresponding post-sale filings under "blue sky" laws with respect to
the Preferred Shares, the Additional Preferred Shares, the Warrants and Common
Shares, as required under Regulation D and to provide a copy thereof to each of
the Investors promptly after such filing. With the exception of the Form D and
such post-sale filings to be made after the Closing Date, the Company shall, on
or before the Closing Date, take such action as the Company shall have
reasonably determined is necessary to qualify the Preferred Shares, the
Additional Preferred Shares, the Warrants and Common Shares for sale to the
Investors under applicable securities or "blue sky" laws of the states of the
United States (or to obtain an exemption from such qualification), and shall
provide evidence of any such action so taken to the Investors on or prior to the
Closing Date; provided, however, that the Company shall not be required in
connection therewith to register or qualify as a foreign corporation in any
jurisdiction where it is not now so qualified or to take any action that would
subject it to service of process in suits or taxation, in each case, in any
jurisdiction where it is not now so subject.
Section 3.10 PUBLICITY. The Company shall, as soon as practicable
following the Closing or any Option Closing, file with the Securities and
Exchange Commission a report on Form 8-K or Form 10-K disclosing the material
terms of the transactions consummated in the Closing or Option Closing.
Section 3.11 SHAREHOLDER RIGHTS PLAN. None of the acquisitions of
Preferred Shares, Additional Preferred Shares, Warrants or Common Shares nor the
deemed beneficial ownership of shares of Common Stock prior to, or the
acquisition of such shares pursuant to, the conversion of Preferred Shares or
Additional Preferred Shares or exercise of the Warrants will in any event under
any circumstances trigger the poison pill provisions of any stockholders' rights
or similar agreements, or a substantially similar occurrence under any successor
or similar plan.
Section 3.12 FINANCIAL INFORMATION. The Company agrees to send copies of
any notices and other information made available or given to the shareholders of
the Company generally, contemporaneously with the making available or giving
thereof to the shareholders to the Investors for so long as any Preferred
Shares, Additional Preferred Shares or Warrants are outstanding or the Preferred
Share Option has not expired.
Section 3.13 TRANSACTIONS WITH AFFILIATES. The Company agrees that any
transaction or arrangement between it or its Subsidiary and any affiliate or
employee of the Company shall be
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effected on an arms' length basis in accordance with customary commercial
practice and, except with respect to grants of options and stock to service
providers, including employees, shall be approved by a majority of the Company's
outside directors.
Section 3.14 RIGHT TO CO-INVEST; OPTION TO PURCHASE ADDITIONAL SHARES OF
PREFERRED STOCK.
(a) (i) The Company agrees that for a period of six months following
the Closing Date (the "CO-INVESTMENT PERIOD"), the Investors shall have the
right to co-invest, on the same terms as the other investors in such
transactions, in any future offerings of the Company's securities (other than
securities issued in connection with strategic investments or bank financings),
for up to 12.5% for each Investor (an aggregate of up to 25%) of the principal
amount of such offerings.
(ii) During the Co-Investment Period, the Company shall give
written notice to the Investors upon the closing of a sale of its securities
("SECURITIES FINANCING TRANSACTION"). Each Investor shall have ten (10) business
days from receipt of such notice to deliver a written notice to the Company that
such Investor elects to exercise his right to co-invest in such Securities
Financing Transaction, which notice shall indicate the percentage (up to 12.5%)
of the Securities Financing Transaction with respect to which such Investor is
co-investing. In the event that any of the consideration to be issued to the
Company in a Securities Financing Transaction consists of consideration other
than cash, the Investors shall have the right to provide the cash equivalent.
This right of co-invest shall continue even if the Investors elect not to
co-invest in one or more Securities Financing Transactions.
(b) In the event that prior to the expiration of the Co-Investment
Period, the Company shall not have consummated Securities Financing Transactions
in the aggregate principal amount of at least $6 million, then each Investor
shall have the option (the "PREFERRED SHARE OPTION"), exercisable for a period
of 90 days commencing on the expiration of the Co-Investment Period, (the
"OPTION PERIOD") to purchase from the Company, up to an additional 563 Preferred
Shares (the "ADDITIONAL PREFERRED SHARES").
(c) The Preferred Share Option may be exercised in whole or in part,
from time to time during the Option Period. Upon delivery of a notice by an
Investor exercising his option hereunder, the Company shall be obligated to sell
and deliver to such Investor, and such Investor shall be obligated to purchase,
the Additional Preferred Shares specified in the option exercise notice. Closing
of such purchase and sale ("OPTION CLOSING") shall take place at the office of
the Company within 10 business days of the delivery of the option exercise
notice. At the Closing, the Company shall deliver certificates evidencing the
Additional Preferred Shares being purchased against the payment of the purchase
price therefor.
(d) For the avoidance of doubt:
(i) The Mandatory Conversion Date of the Additional Preferred
Shares shall be two (2) years after the date of the first Option
Closing.
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(ii) The Conversion Price of the Additional
Preferred Shares shall be the Fixed Price (as defined
in the Certificate), subject to adjustment as set forth
in the Certificate.
(iii) The Registration Rights Agreement shall
apply to the Common Shares underlying the Additional
Preferred Shares, MUTATIS MUTANDIS, with the time
periods for filing and effectiveness of the
registration statement covering such Common Shares
running from the date of the Option Closing.
Section 3.15 OVERALL LIMIT ON COMMON STOCK ISSUABLE. Notwithstanding
anything contained herein to the contrary, the number of Common Shares issuable
by the Company and acquirable by the Investors collectively hereunder pursuant
to conversion of the Preferred Shares and Additional Preferred Shares shall not
exceed 3,901,313 shares of Common Stock outstanding as of the date hereof,
subject to appropriate adjustment for stock splits, stock dividends,
combinations or other similar recapitalization affecting the Common Stock (the
"MAXIMUM COMMON STOCK ISSUANCE"), unless the issuance of shares hereunder in
excess of the Maximum Common Stock Issuance shall first be approved by the
Company's shareholders in accordance with applicable law and the By-laws and
Articles of Incorporation of the Company. Without limiting the generality of the
foregoing, such stockholders' approval must duly authorize the issuance by the
Company of shares of Common Stock outstanding on the date hereof. The parties
understand and agree that the Company's failure to seek or obtain such
shareholder approval shall in no way adversely affect the validity and due
authorization of the issuance and sale of Preferred Shares or Additional
Preferred Shares hereunder, and that such approval pertains only to the
applicability of the Maximum Common Stock Issuance limitation provided in this
Section.
Section 3.16 LIMITATION ON OTHER TRANSACTIONS. The Company shall not, for
a period of 30 days from the date hereof, enter into, or propose proposals
relating to any convertible securities transaction for an excess of $3,000,000,
with any other person.
Section 3.17 OPTION TO CONVERT TRANSACTION. With respect to any
transactions in convertible securities in respect of which the Company has
commenced negotiations or is in the process of negotiating within 30 days of the
Closing Date (a "Subsequent Convertible Transaction"), the Investors shall have
the option, exercisable by written notice within 30 days of the closing of the
Subsequent Convertible Transaction, to convert the terms of the Transaction
Documents (other than the amounts invested) into a transaction on the same terms
as such Subsequent Convertible Transaction and to enter into new Transaction
Documents identical with the documents of the Subsequent Convertible Transaction
except in amount and parties thereto. In such event the Company shall execute
such documentation and take such further action as shall be required to effect
the foregoing as soon as practicable following receipt of such notice.
ARTICLE IV
TRANSFER AGENT INSTRUCTIONS.
15
The Company shall issue irrevocable instructions to its transfer
agent, and any subsequent transfer agent, to issue certificates, registered in
the name of the respective Investor or his respective nominee(s), for the Common
Shares in such amounts as specified from time to time by such Investor to the
Company upon delivery of a conversion or exercise notice (the "IRREVOCABLE
TRANSFER AGENT INSTRUCTIONS"). The Company warrants that no instruction relating
to the Common Shares other than the Irrevocable Transfer Agent Instructions
referred to in this Article IV will be given by the Company to its transfer
agent and that the Common Shares shall be freely transferable on the books and
records of the Company as contemplated by Article VI below when the legend
referred to therein may be removed. Nothing in this Article IV shall affect in
any way the Investors' obligations and agreements set forth in Section 2.2(d) to
comply with all applicable prospectus delivery requirements, if any, upon resale
of the Common Shares. The Company shall instruct its transfer agent to issue one
or more certificates in such names and in such denominations as specified by the
Investors and without any restrictive legends. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to the
Investors by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section will be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions of
this Section, that the Investors shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.
ARTICLE V
CONDITIONS TO CLOSINGS
Section 5.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO SELL
THE PREFERRED SHARES AND WARRANTS. The obligation hereunder of the Company to
issue and/or sell the Preferred Shares and the Warrants to the Investors at the
Closing and to issue and/or sell the Additional Preferred Shares to the
Investors at an Option Closing is subject to the satisfaction, at or before the
Closing, or Option Closing, as the case may be, of each of the applicable
conditions set forth below. These conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion.
(a) ACCURACY OF THE INVESTORS' REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Investors will be true and correct in all
material respects as of the date when made and as of the Closing Date, or the
date of the Option Closing, as the case may be, as though made at that time.
(b) PERFORMANCE BY THE INVESTORS. The Investors shall have performed
all agreements and satisfied all conditions required to be performed or
satisfied by the Investors at or prior to the Closing, or Option Closing, as the
case may be, including payment of the Purchase Price in the case of the Closing
and payment of the applicable consideration, in the case of an Option Closing.
16
(c) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement or the Registration Rights Agreement or the Certificate.
(d) CERTIFICATE. The Investors shall have delivered a certificate to
the Company certifying that the representations and warranties of the Investors
contained in Section 2.2 are true and correct in all material respects as of the
Closing Date in the case of a Closing, and as of the date of the Option Closing,
in the case of an Option Closing.
Section 5.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE INVESTORS TO
PURCHASE THE PREFERRED SHARES. The obligation hereunder of the Investors to
acquire and pay for the Preferred Shares and Warrants at the Closing is subject
to the satisfaction, at or before the Closing, of each of the applicable
conditions set forth below. These conditions are for the Investors' benefit and
may be waived by the Investors at any time in its sole discretion.
(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties as of an earlier
date, which shall be true and correct in all material respects as of such date).
(b) PERFORMANCE BY THE COMPANY. The Company shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
the Company at or prior to the Closing, including, without limitation, delivery
of certificates representing the Preferred Shares and Warrants issued to
Investors.
(c) NASDAQ TRADING. From the date hereof to the Closing Date, trading
in the Company's Common Stock shall not have been suspended by the SEC and
trading in securities generally as reported by the Principal Market (or other
Approved Market) shall not have been suspended or limited, and the Common Stock
shall be listed on the Principal Market or another Approved Market.
(d) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement, the Warrants, the Registration Rights Agreement or the Certificate.
The NASD shall not have objected or indicated that it may object to the
consummation of any of the transactions contemplated by this Agreement.
(e) OPINION OF COUNSEL. At the Closing, the Investors shall have
received an opinion of counsel to the Company in the form attached hereto as
EXHIBIT D and such other opinions, certificates and documents as the Investors
or their counsel shall reasonably require incident to the Closing.
17
(f) REGISTRATION RIGHTS AGREEMENT. The Company shall have executed and
delivered the Registration Rights Agreement in the form and substance of EXHIBIT
C attached hereto.
(g) SECRETARY'S CERTIFICATE. The Company shall have delivered to the
Investors a certificate in form and substance satisfactory to the Investors and
the Investors' counsel, executed by the Secretary of the Company, certifying as
to satisfaction of closing conditions, incumbency of signing officers, and the
true, correct and complete nature of the Certificate of Incorporation, By-Laws,
good standing and authorizing resolutions of the Company.
(h) CERTIFICATE. The Certificate shall have been accepted for filing
by the Secretary of State of the State of Delaware and a facsimile copy of the
stamped copy thereof shall have been provided to the Investors' counsel.
(i) MISCELLANEOUS. The Company shall have delivered to the Investors
such other documents relating to the transactions contemplated by this Agreement
or the Investors or its counsel may reasonably request.
(j) FEES AND EXPENSES. The Company shall have reimbursed the Investors
for the fees and expenses required pursuant to Section 8.1A.
Section 5.3 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE INVESTORS TO
PURCHASE THE ADDITIONAL PREFERRED SHARES. The obligation of the Investors to
acquire and pay for the Additional Preferred Shares at an Option Closing is
subject to the satisfaction, at or before each Option Closing, of each of the
applicable conditions set forth below. The conditions are for the Investors'
benefit and may be waived by the Investors at any time in its sole discretion.
(a) CONDITIONS IN SECTION 5.2. The Company shall have complied with
the conditions set forth in Section 5.2(a),(b),(c),(d),(e),(g), (i) and (j) with
respect to the Additional Preferred Shares, the Option Closing, the date of such
Option Closing and the closing conditions for the Option Closing.
(b) COMPLIANCE WITH TRANSACTION DOCUMENTS. The Company shall be in
compliance with all of its obligations under the Transaction Documents.
ARTICLE VI
LEGEND AND STOCK
Upon payment therefor as provided in this Agreement, the Company will
issue one or more certificates representing the Preferred Shares, the Additional
Preferred Shares and the Warrants in the name of the Investors or their
designees and in such denominations to be specified by the Investors prior to
(or from time to time subsequent to) Closing or Option Closing. Each certificate
representing the Preferred Shares, Additional Shares or Warrants, and any Common
Shares issued upon conversion or exercise thereof, prior to such Common Shares
being registered
18
under the 1933 Act for resale or available for resale under Rule 144 under the
1933 Act, shall be stamped or otherwise imprinted with a legend substantially in
substantially the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED FOR OFFER OR SALE UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR
OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE EXEMPTION FROM
SUCH REGISTRATION REQUIREMENTS.
The Company agrees to reissue Preferred Shares, Additional Preferred
Shares or Warrants without the legend set forth above at such time as (i) the
holder thereof is permitted to dispose of such Preferred Shares, Additional
Preferred Shares or Warrants and/or Common Shares issuable upon conversion of
the Preferred Shares or Additional Preferred Shares or exercise of the Warrants
pursuant to Rule 144 under the Act, or (ii) such securities are sold to a
purchaser or purchasers who (in the opinion of counsel to the seller or such
purchaser(s), in form and substance reasonably satisfactory to the Company and
its counsel) are able to dispose of such shares publicly without registration
under the Act, or (iii) such securities have been registered under the 1933 Act.
Prior to the Registration Statement (as defined in the Registration
Rights Agreement) being declared effective, any Common Shares issued pursuant to
conversion of Preferred Shares or Additional Preferred Shares or exercise of the
Warrants shall bear a legend in the same form as the legend indicated above;
provided that such legend shall be removed from the Common Shares and the
Company shall issue new certificates without such legend if (i) the holder has
sold or disposed of such Common Shares pursuant to Rule 144 under the 1933 Act,
or the holder is permitted to dispose of such Common Shares pursuant to Rule
144(k) under the 1933 Act, (ii) such Common Shares are registered for resale
under the 1933 Act, or (iii) such Common Shares are sold to a purchaser or
purchasers who (in the opinion of counsel to the seller or such purchaser(s), in
form and substance reasonably satisfactory to the Company and its counsel) are
able to dispose of such shares publicly without registration under the 1933 Act.
Upon such Registration Statement becoming effective, the Company agrees to
promptly, but no later than three (3) business days thereafter, issue new
certificates representing such Common Shares without such legend. Any Common
Shares issued after the Registration Statement has become effective shall be
free and clear of any legends, transfer restrictions and stop orders.
Notwithstanding the removal of such legend, the Investors agree to sell the
Common Shares represented by the new certificates in accordance with the
applicable prospectus delivery requirements (if copies of a current prospectus
are provided to the Investors by the Company) or in accordance with an exemption
from the registration requirements of the 1933 Act.
Nothing herein shall limit the right of any holder to pledge these
securities pursuant to a bona fide margin account or lending arrangement entered
into in compliance with law, including applicable securities laws.
19
ARTICLE VII
INDEMNIFICATION
In consideration of the Investors' execution and delivery of this
Agreement and the Registration Rights Agreement and acquiring the Preferred
Shares and Warrants hereunder and in addition to all of the Company's other
obligations under the Transaction Documents, the Company shall defend, protect,
indemnify and hold harmless the Investors and any of their agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"INDEMNITEES") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "INDEMNIFIED Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in the Transaction Documents or any other
certificate or document contemplated hereby or thereby, (c) any cause of action,
suit or claim brought or made against such Indemnitee by a third party and
arising out of or resulting from (i) the execution, delivery, performance,
breach by the Company or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Preferred Shares,
Additional Preferred Shares or Warrants or (iii) the status of the Investors or
holder of the Preferred Shares, Additional Preferred Shares or Warrants as an
investor in the Company and (d) the enforcement of this Article. Notwithstanding
the foregoing, Indemnified Liabilities shall not include any liability of any
Indemnitee arising solely out of such Indemnitee's gross negligence, willful
misconduct or fraudulent action(s). To the extent that the foregoing undertaking
by the Company may be unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. Except as otherwise set
forth herein, the mechanics and procedures with respect to the rights and
obligations under this Article VII shall be the same as those set forth in
Section 6 (other than Section 6(b)) of the Registration Rights Agreement,
including, without limitation, those procedures with respect to the settlement
of claims and Company's right to assume the defense of claims.
ARTICLE VIII
GOVERNING LAW, MISCELLANEOUS.
Section 8.1 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. EACH PARTY HEREBY IRREVOCABLY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN
THE NORTHERN
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DISTRICT OF CALIFORNIA, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED
HEREIN, AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT,
ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT
IN AN INCONVENIENT FORUM OR THAT THE VENUE OF SUCH SUIT, ACTION OR PROCEEDING IS
IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND
CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY
MAILING A COPY THEREOF TO SUCH PARTY AT THE ADDRESS FOR SUCH NOTICES TO IT UNDER
THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT
SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED
TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.
IF ANY PROVISION OF THIS AGREEMENT SHALL BE INVALID OR UNENFORCEABLE IN ANY
JURISDICTION, SUCH INVALIDITY OR UNENFORCEABILITY SHALL NOT AFFECT THE VALIDITY
OR ENFORCEABILITY OF THE REMAINDER OF THIS AGREEMENT IN THAT JURISDICTION OR THE
VALIDITY OR ENFORCEABILITY OF ANY PROVISION OF THIS AGREEMENT IN ANY OTHER
JURISDICTION. EACH PARTY HERETO IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY.
Section 8.1A FEES. At the Closing, and at each Option Closing, the
Company shall reimburse the Investors collectively for all reasonable fees and
expenses (including, without limitation, legal fees and disbursements and due
diligence expenses), not to exceed $25,000, incurred in connection with the
transactions relating to such Closing or Option Closing.
Section 8.2 COUNTERPARTS. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
Section 8.3 HEADINGS. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Agreement.
Section 8.4 SEVERABILITY. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
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Section 8.5 ENTIRE AGREEMENT; AMENDMENTS; WAIVERS.
(a) This Agreement supersedes all other prior oral or written
agreements between the Investors, the Company, their affiliates and persons
acting on their behalf with respect to the matters discussed herein, and this
Agreement and the instruments referenced herein (including the other Transaction
Documents) contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor the Investors makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be amended other than by an instrument in writing signed by
the Company and the Investors, and no provision hereof may be waived other than
by an instrument in writing signed by the party against whom enforcement is
sought.
(b) The Investors may at any time elect, by notice to the Company, to
waive (whether permanently or temporarily, and subject to such conditions, if
any, as the Investors may specify in such notice) any of its rights under any of
the Transaction Documents to acquire shares of Common Stock from the Company, in
which event such waiver shall be binding against the Investors in accordance
with its terms; PROVIDED, HOWEVER, that the voluntary waiver contemplated by
this sentence may not reduce the Investors' obligations to the Company under the
Transaction Documents.
Section 8.6 NOTICES. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing, must be delivered by (i) courier, mail or hand
delivery OR (ii) facsimile, and will be deemed to have been delivered upon
receipt. The addresses and facsimile numbers for such communications shall be:
If to the Company:
StemCells, Inc..
525 Del Rey Avenue, Suite C
Sunnyvale, CA 94086
Telephone: (408) 731-8670
Facsimile: (408) 731-8674
Attention: President
With a copy to:
Ropes & Gray
One International Place
Boston, MA 02110
Telephone: (617) 951-7000
Facsimile: (617) 951-7050
Attention: Geoffrey B. Davis, Esq.
22
If to the Transfer Agent:
Boston Equiserve LLP
150 Royall Street
Canton, MA 02021
Telephone: (781) 575-4028
Facsimile: 781-575-2549
Attention: Rob Walsh
If to the Investors:
Irving Weissman
[Address & Phone]
Mark Levin
[Address & Phone]
Each party shall provide five (5) days prior written notice to the other
party of any change in address, telephone number or facsimile number. Written
confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated by
the sender's facsimile machine containing the time, date, recipient facsimile
number and an image of the first page of such transmission or (C) provided by a
nationally recognized overnight delivery service, shall be rebuttable evidence
of personal service, receipt by facsimile or receipt from a nationally
recognized overnight delivery service in accordance with clause (i), (ii) or
(iii) above, respectively.
Section 8.7 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
this Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns, including any Permitted Assignee (as
defined below). The Company shall not assign this Agreement, any other
Transaction Document, or any of its rights or obligations hereunder or
thereunder without the prior written consent of the Investors (except for
assignments by operation of law pursuant to merger or consolidation). The
Investors may assign some or all of their rights hereunder to any assignee of
the Preferred Shares, Warrants, Additional Preferred Shares or Common Shares who
is an Accredited Investor, as defined in Rule 501(a) under the 1933 Act (in each
case, a "PERMITTED ASSIGNEE"); PROVIDED, however, that any such assignment shall
not release the Investors from their obligations hereunder unless such
obligations are assumed by such assignee and the Company has consented to such
assignment and assumption. Notwithstanding anything to the contrary contained in
the Transaction Documents, the Investors shall be entitled to pledge the
Preferred Shares, Additional Preferred Shares, Warrants or Common Shares in
connection with a bona fide margin account.
Section 8.8 NO THIRD PARTY BENEFICIARIES. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
23
Section 8.9 SURVIVAL. The representations, warranties and agreements of
the Company and the Investors contained in the Agreement shall survive the
Closing and each Option Closing.
Section 8.10 FURTHER ASSURANCES. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
Section 8.11 PLACEMENT AGENT. The Investors and the Company each
acknowledge and warrant that he or it has not engaged any placement agent in
connection with the sale of the Preferred Shares, the Additional Preferred
Shares and the Warrants. The Company and the Investors each shall pay, and hold
the other party harmless against, any liability, loss or expense (including,
without limitation, reasonable attorneys' fees and out-of-pocket expenses)
arising in connection with any such claim.
Section 8.12 NO STRICT CONSTRUCTION. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
Section 8.13 REMEDIES. The Investors and each Permitted Assignee shall
have all rights and remedies set forth in this Agreement and the Registration
Rights Agreement and all rights and remedies which such holders have been
granted at any time under any other agreement or contract and all of the rights
which such holders have under any law. Any person having any rights under any
provision of this Agreement or the Registration Rights Agreement shall be
entitled to enforce such rights specifically (without posting a bond or other
security), to recover damages by reason of any breach of any provision of this
Agreement or the Registration Rights Agreement and to exercise all other rights
granted by law. The Investors and each Permitted Assignee without prejudice may
withdraw, revoke or suspend its pursuit of any remedy at any time prior to its
complete recovery as a result of such remedy.
Section 8.14 PAYMENT SET ASIDE. To the extent that the Company makes a
payment or payments to the Investors hereunder or under the Registration Rights
Agreement or the Investors enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other person under any law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable cause of action),
then to the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full force
and effect as if such payment had not been made or such enforcement or setoff
had not occurred.
Section 8.15 DAYS. Unless the context refers to "business days" or
"Trading Days" all references herein to "days" shall mean calendar days. ----
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Section 8.16 RESCISSION AND WITHDRAWAL RIGHT. Notwithstanding anything to
the contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, wherever the Investors exercise a right, election, demand
or option under a Transaction Document and the Company does not fully perform
its related obligations within the periods therein provided, then the Investors
in their sole discretion may rescind or withdraw from time to time any relevant
notice, demand or election in whole or in part prior to and up to and including,
the first full business day following full performance by the Company of its
obligations, without prejudice to its future actions and rights.
* * * * *
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed as of the date and year first above written.
COMPANY: INVESTORS:
STEMCELLS, INC.
By:
------------------------------ ------------------------------
Name: George W. Dunbar, Jr. Irving Weissman
Title: Acting President and CEO
------------------------------
Mark Levin
26
LIST OF SCHEDULES
- -----------------
Schedule 2.1(c) Capitalization
Schedule 2.1(p) Title
LIST OF EXHIBITS
EXHIBIT A Certificate of Designation
EXHIBIT B Warrants
EXHIBIT C Registration Rights Agreement
EXHIBIT D Opinion of Counsel