Exhibit 10.50
COMMON STOCK PURCHASE AGREEMENT
This COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is
dated as of May 10, 2001 by and between StemCells, Inc., a Delaware
corporation (the "Company") and Sativum Investments Limited (the
"Purchaser"), a British Virgin Islands corporation.
WHEREAS, the parties desire that, upon the terms and
subject to the conditions contained herein, the Company shall issue and sell
to Purchaser from time to time as provided herein, and Purchaser shall
purchase, up to $30,000,000 of Common Stock and the Warrant; and
WHEREAS, such investments will be made by the Purchaser as
statutory underwriter of a registered indirect primary offering of such
Common Stock by the Company.
NOW, THEREFORE, in consideration of the foregoing premises,
and the promises and covenants herein contained, the receipt and sufficiency
of which are hereby acknowledged by the parties hereto, the parties,
intending to be legally bound, hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF COMMON STOCK
Section 1.1. PURCHASE AND SALE OF STOCK. Subject to the
terms and conditions of this Agreement, the Company may sell and issue to the
Purchaser and the Purchaser shall be obligated to purchase from the Company,
up to an aggregate of $30,000,000 of Common Stock (the "Commitment Amount")
and the Warrant, subject to the terms herein.
Section 1.2. PURCHASE PRICE AND INITIAL CLOSING. The
Company agrees to issue and sell to the Purchaser and, in consideration of
and in express reliance upon the representations, warranties, covenants,
terms and conditions of this Agreement, the Purchaser agrees to purchase that
number of the Shares to be issued in connection with each Draw Down. The
delivery of executed documents under this Agreement and the other agreements
referred to herein and the payment of the fees set forth in Article I of the
Escrow Agreement, attached as EXHIBIT B hereto, (the "Initial Closing") shall
take place at the offices of Epstein Becker & Green, P.C., 250 Park Avenue,
New York, New York 10177 (i) within five (5) days from the date hereof, or
(ii) such other time and place or on such date as the Purchaser and the
Company may agree upon (the "Initial Closing Date"). Each party shall deliver
all documents, instruments and writings required to be delivered by such
party pursuant to this Agreement at or prior to the Initial Closing.
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Section 1.3. LIQUIDATED DAMAGES. The parties hereto
acknowledge and agree that the sums payable pursuant to this Agreement for
late delivery of the Draw Down Shares and the Registration Rights Agreement
for a suspension of the Registration Statement or the Purchaser's right to
resell the Draw Down Shares thereunder shall constitute liquidated damages
and not penalties. The parties further acknowledge that (a) the amount of
loss or damages likely to be incurred is incapable or is difficult to
precisely estimate, (b) the amount specified in such provisions bear a
reasonable proportion and are not plainly or grossly disproportionate to the
probable loss likely to be incurred by the Purchaser in connection with the
failure of the Company to deliver the Draw Down Shares in a timely manner or
the suspension of the Purchaser's rights to resell the Draw Down Shares under
the Registration Statement, and (c) the parties are sophisticated businesses
and have been represented by sophisticated and able legal and financial
counsel and negotiated this Agreement at arm's length.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Section 2.1. REPRESENTATION AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Purchaser as follows,
except as set forth in the SEC Documents or on the Disclosure Schedule
prepared by the Company and attached hereto, or as contemplated by this
Agreement:
(a) ORGANIZATION, GOOD STANDING AND POWER. The
Company is a corporation duly incorporated validly existing and in good
standing under the laws of Delaware and has all requisite corporate
authority to own, lease and operate its properties and assets and to
carry on its business as now being conducted. The Company does not have
any subsidiaries and does not own more than fifty percent (50%) of or
control any other business entity except as set forth in the SEC
Documents. The Company is duly qualified to do business and is in good
standing as a foreign corporation 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.
(b) AUTHORIZATION, ENFORCEMENT. (i) The Company has
the requisite corporate power and corporate authority to enter into and
perform its obligations under the Transaction Documents and to issue
the Draw Down Shares pursuant to their respective terms, (ii) the
execution and delivery of the Transaction Documents by the Company and
the consummation by it of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action and
no further consent or authorization of the Company or its Board of
Directors or stockholders is required, and (iii) the Transaction
Documents have been duly executed and delivered by the Company and at
the Initial Closing shall constitute valid and binding obligations of
the Company enforceable against the Company in accordance with their
terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or
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affecting generally the enforcement of, creditors' rights and
remedies or by other equitable principles of general application.
(c) CAPITALIZATION. As of the date hereof, the
authorized capital stock of the Company consists of 45,000,000 shares
of Common Stock of which 21,470,385 shares are issued and outstanding
and 1,000,000 shares of Convertible Preferred Stock of which 1,500 are
issued and outstanding. All of the outstanding shares of the Company's
Common Stock have been duly and validly authorized and are fully paid
and non-assessable except as set forth in the SEC Documents. No shares
of Common Stock are entitled to preemptive rights or registration
rights and 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. There are no contracts, commitments,
understandings, or arrangements by which the Company is or may become
bound to issue additional shares of the capital stock of the Company or
options, securities or rights convertible into shares of capital stock
of the Company. The Company is not a party to any agreement granting
registration rights to any person with respect to any of its equity or
debt securities. The Company is not a party to, and it has no knowledge
of, any agreement restricting the voting or transfer of any shares of
the capital stock of the Company. The Company has made available to the
Purchaser true and correct copies of the Company's articles or
certificate of incorporation as in effect on the date hereof (the
"Charter"), and the Company's bylaws as in effect on the date hereof
(the "Bylaws"). The Company has not received any notice from the
Principal Market questioning or threatening the continued inclusion of
the Common Stock on such market.
(d) ISSUANCE OF SHARES. The Warrant Shares to be
issued under this Agreement have been duly authorized by all necessary
corporate action and, when paid for and issued in accordance with the
terms hereof and the Warrant, the Warrant Shares shall be validly
issued and outstanding, fully paid and non-assessable, and the
Purchaser shall be entitled to all rights accorded to a holder of
Common Stock.
(e) NO CONFLICTS. The execution, delivery and
performance of this Agreement by the Company and the consummation by
the Company of the transactions contemplated herein do not and will not
(i) violate any provision of the Company's Charter or Bylaws, (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, mortgage, deed of trust, indenture,
note, bond, license, lease agreement, instrument or obligation to which
the Company is a party, (iii) create or impose a lien, charge or
encumbrance on any property of the Company under any agreement or any
commitment to which the Company is a party or by which the Company is
bound or by which any of its respective properties or assets are bound,
or (iv) result in a violation of any federal, state, local or other
foreign statute, rule, regulation, order, judgment or decree (including
any federal or state securities laws and regulations) applicable to the
Company or any of its subsidiaries or by which any property or asset of
the Company or any of its subsidiaries are bound or affected, except,
in all cases, for such conflicts, defaults, termination, amendments,
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accelerations, cancellations and violations as would not reasonably be
expected, individually or in the aggregate, to have a Material Adverse
Effect. The business of the Company and its subsidiaries is not being
conducted in violation of any laws, ordinances or regulations of any
governmental entity, except for violations which singularly or in the
aggregate do not and will not have a Material Adverse Effect. The
Company is not required under any federal, state or local law, rule or
regulation to obtain any consent, authorization or order of, or make
any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations
under this Agreement, or issue and sell the Shares in accordance with
the terms hereof (other than any filings which may be required to be
made by the Company with the SEC or state securities administrators and
any registration statement which may be filed pursuant hereto);
PROVIDED, HOWEVER, that for purpose of the representations made in this
sentence, the Company is assuming and relying upon the accuracy of the
relevant representations and agreements of the Purchaser herein.
(f) SEC DOCUMENTS, FINANCIAL STATEMENTS. The Common
Stock of the Company is registered pursuant to Section 12(g) of the
Exchange Act, and, the Company is current with all reports, schedules,
forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Exchange Act,
including material filed pursuant to Section 13(a) or 15(d) of the
Exchange Act. The Company has delivered or made available to the
Purchaser, through the EDGAR system or otherwise, true and complete
copies of the SEC Documents filed with the SEC since December 31, 1998.
The Company has not provided to the Purchaser any information which,
according to applicable law, rule or regulation, should have been
disclosed publicly by the Company but which has not been so disclosed,
other than with respect to the transactions contemplated by this
Agreement. As of their respective filing dates, the SEC Documents
complied in all material respects with the requirements of the Exchange
Act or the Securities Act, as applicable, and the rules and regulations
of the SEC promulgated thereunder applicable to such documents, and, as
of their respective filing dates, none of the SEC Documents contained
any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company included
in the SEC Documents comply as to form in all material respects with
applicable accounting requirements under GAAP and the published rules
and regulations of the SEC or other applicable rules and regulations
with respect thereto. Such financial statements have been prepared in
accordance with GAAP applied on a consistent basis 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 not include footnotes or may
be condensed or summary statements), and fairly present in all material
respects the financial position of the Company and its subsidiaries as
of the dates thereof and the results of operations and cash flows for
the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments).
(g) SUBSIDIARIES. The SEC Documents or the Disclosure
Schedule attached hereto sets forth each subsidiary of the Company,
showing the jurisdiction of its
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incorporation or organization and showing the percentage of
the Company's ownership of the outstanding stock or other interests
of such subsidiary. For the purposes of this Agreement, "subsidiary"
shall mean any corporation or other entity of which at least a
majority of the securities or other ownership interests having
ordinary voting power (absolutely or contingently) for the election
of directors or other persons performing similar functions are at
the time owned directly or indirectly by the Company and/or any of
its other subsidiaries. All of the issued and outstanding shares of
capital stock of each subsidiary have been duly authorized and
validly issued, and are fully paid and non-assessable. There are no
outstanding preemptive, conversion or other rights, options,
warrants or agreements granted or issued by or binding upon any
subsidiary for the purchase or acquisition of any shares of capital
stock of any subsidiary or any other securities convertible into,
exchangeable for or evidencing the rights to subscribe for any
shares of such capital stock. Neither the Company nor any subsidiary
is subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of the capital stock of
any subsidiary or any convertible securities, rights, warrants or
options of the type described in the preceding sentence. Neither the
Company nor any subsidiary is a party to, nor has any knowledge of,
any agreement restricting the voting or transfer of any shares of
the capital stock of any subsidiary.
(h) NO MATERIAL ADVERSE EFFECT. Since the date of the
financial statement contained in the most recently filed Form 10-Q (or
10-QSB) or Form 10-K (or 10-KSB), whichever is most current, no
Material Adverse Effect has occurred or exists with respect to the
Company, except as disclosed in the SEC Documents or on the Disclosure
Schedule attached hereto.
(i) NO UNDISCLOSED LIABILITIES. Neither the Company
nor any of its subsidiaries has any liabilities, obligations, claims or
losses (whether liquidated or unliquidated, secured or unsecured,
absolute, accrued, contingent or otherwise) that would be required to
be disclosed on a balance sheet of the Company or any subsidiary
(including the notes thereto) in conformity with GAAP which are not
disclosed in the SEC Documents, other than those incurred in the
ordinary course of the Company's or its subsidiaries' respective
businesses since such date or which, individually or in the aggregate,
do not or would not have a Material Adverse Effect on the Company or
its subsidiaries.
(j) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since the
date of the financial statement contained in the most recently filed
Form 10- Q (or 10-QSB) or Form 10-K (or 10-KSB), whichever is most
current, no event or circumstance has occurred or exists with respect
to the Company or its businesses, properties, prospects, operations or
financial condition, that, under applicable law, rule or regulation,
requires public disclosure or announcement prior to the date hereof by
the Company but which has not been so publicly announced or disclosed
in the SEC Documents.
(k) INDEBTEDNESS. The SEC Documents (including the
financial statements included therein) or the Disclosure Schedule
attached hereto sets forth as of the date hereof all outstanding
secured and unsecured Indebtedness of the Company or
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any subsidiary, or for which the Company or any subsidiary
has commitments. For the purposes of this Agreement, "Indebtedness"
shall mean (A) any liabilities for borrowed money in excess of
$500,000 (other than trade accounts payable incurred in the ordinary
course of business), (B) all guaranties, endorsements and contingent
obligations in respect of Indebtedness of others, whether or not the
same are or should be reflected in the Company's balance sheet (or
the notes thereto), except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the
ordinary course of business; and (C) any lease payments with a
present value in excess of $500,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any
subsidiary is in default with respect to any Indebtedness.
(l) TITLE TO ASSETS. Each of the Company and the
subsidiaries has good and marketable title to all of its real and
personal property reflected in the SEC Documents, free of any
mortgages, pledges, charges, liens, security interests or other
encumbrances, except such that do not cause a Material Adverse Effect.
All real property leases of the Company and each of its subsidiaries
are valid and subsisting and in full force and effect.
(m) ACTIONS PENDING. There is no action, suit, claim,
investigation or proceeding pending or, to the knowledge of the
Company, threatened against the Company or any subsidiary which
questions the validity of this Agreement or the transactions
contemplated hereby or any action taken or to be taken pursuant hereto
or thereto. There is no action, suit, claim, investigation or
proceeding pending or, to the knowledge of the Company, threatened,
against or involving the Company, any subsidiary or any of their
respective properties or assets, which action, suit, claim,
investigation or proceeding would reasonably be expected to have a
Material Adverse Effect. There are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental
or regulatory body against the Company or any subsidiary except those
orders, judgments, injunctions, awards or decrees which would not
reasonably be expected to have a Material Adverse Effect.
(n) COMPLIANCE WITH LAW. The Company and each of its
subsidiaries have all franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals necessary for
the conduct of their respective businesses as now being conducted by
them unless the failure to possess such franchises, permits, licenses,
consents and other governmental or regulatory authorizations and
approvals, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
(o) TAXES. The Company and each subsidiary has filed
all Tax Returns which it is required to file under applicable laws;
except as set forth in the SEC Documents the Company and each
subsidiary have paid, or had paid on its or their behalf, all Taxes
shown as due on such Tax Returns and has withheld and paid over to the
appropriate taxing authorities all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder,
creditor or other third parties; and since December 31, 1999, the
charges, accruals and reserves for Taxes with respect to the
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Company (including any provisions for deferred income taxes)
reflected on the books of the Company are to its knowledge adequate
to cover any Tax liabilities of the Company if its current tax year
were treated as ending on the date hereof.
No claim has been made by a taxing authority in a
jurisdiction where the Company does not file tax returns that the
Company or any subsidiary is or may be subject to taxation by that
jurisdiction. Except as set forth in the SEC Documents, there are no
foreign, federal, state or local tax audits or administrative or
judicial proceedings pending or being conducted with respect to the
Company or any subsidiary.
The Company has not made an election under Section
341 (f) of the Internal Revenue Code. The Company is not liable for
the Taxes of another person that is not a subsidiary of the Company
under (A) Treas. Reg. Section 1.1502-6 (or comparable provisions of
state, local or foreign law), (B) as a transferee or successor, (C)
by contract or indemnity or (D) otherwise.
For purposes of this Section 2.1(o):
"IRS" means the United States Internal Revenue
Service.
"TAX" or "TAXES" means federal, state, county, local,
foreign, or other income, gross receipts, ad valorem,
franchise, profits, sales or use, transfer,
registration, excise, utility, environmental,
communications, real or personal property, capital
stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp,
occupation, alternative or add-on minimum, estimated
and similar taxes (including, without limitation,
deficiencies, penalties, additions to tax, and
interest attributable thereto) whether disputed or
not.
"TAX RETURN" means any return, information report or
filing with respect to Taxes, including any schedules
attached thereto and including any amendment thereof.
(p) CERTAIN FEES. Except for the fees paid to
Pacific Crest Securities Inc. pursuant to the Engagement Letter, no
brokers, finders or financial advisory fees or commissions will be
payable by the Company or any subsidiary with respect to the
transactions contemplated by this Agreement.
(q) OPERATION OF BUSINESS. The Company and each of
the subsidiaries owns or possesses all patents, trademarks, service
marks, trade names, copyrights, licenses and authorizations as set
forth in the SEC Documents or the Disclosure Schedule attached hereto,
and all rights with respect to the foregoing, which to its knowledge
would be reasonably necessary for the conduct of its business as now
conducted without any conflict with the rights of others.
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(r) BOOKS AND RECORDS. The records and documents of
the Company and its subsidiaries accurately reflect in all material
respects the information relating to the business of the Company and
the subsidiaries contained therein.
(s) MATERIAL AGREEMENTS. The Company and each of its
subsidiaries has in all material respects performed all the obligations
required to be performed by them to date under the foregoing
agreements, have received no notice of default and, to the best of the
Company's knowledge are not in default under any Material Agreement now
in effect, the result of which would cause a Material Adverse Effect.
No written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement of the Company or of any subsidiary
limits or shall limit the payment of dividends on the Company's Common
Stock.
(t) TRANSACTIONS WITH AFFILIATES. There are no loans,
leases, agreements, contracts, royalty agreements, management contracts
or arrangements or other continuing transactions exceeding $100,000
between (A) the Company, any subsidiary or any of their respective
customers or suppliers on the one hand, and (B) on the other hand, any
officer, employee, consultant or director of the Company, or any of its
subsidiaries, or any person owning 5% or more of the capital stock of
the Company or any subsidiary or any member of the immediate family of
such officer, employee, consultant, director or stockholder or any
corporation or other entity controlled by such officer, employee,
consultant, director or stockholder, or a member of the immediate
family of such officer, employee, consultant, director or stockholder.
(u) SECURITIES LAWS. The Company has complied and
will comply with all applicable federal and state securities laws in
connection with the offer, issuance and sale of the Shares hereunder.
Neither the Company nor anyone acting on its behalf, directly or
indirectly, has or will sell, offer to sell or solicit offers to buy
the Shares or similar securities to, or solicit offers with respect
thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any person (other than the
Purchaser), so as to bring the issuance and sale of the Shares under
the registration provisions of the Securities Act and applicable state
securities laws. Neither the Company nor any of its affiliates, nor any
person acting on its or their behalf, has engaged in any form of
general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or
sale of the Shares.
(v) EMPLOYEES. Neither the Company nor any subsidiary
has any collective bargaining arrangements or agreements covering any
of its employees. Neither the Company nor any subsidiary is in breach
of any employment contract, agreement regarding proprietary
information, noncompetition agreement, nonsolicitation agreement,
confidentiality agreement, or any other similar contract or restrictive
covenant, relating to the right of any officer to be employed or
engaged by the Company or such subsidiary. Since the date of the
December 31, 2000 Form 10-K (or 10-KSB), no officer, consultant or key
employee of the Company or any subsidiary whose termination, either
individually or in the aggregate, could have a Material Adverse Effect,
has terminated or, to the
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knowledge of the Company, has any present intention of terminating
his or her employment or engagement with the Company or any
subsidiary.
(w) ABSENCE OF CERTAIN DEVELOPMENTS. Since the date
of the financial statement contained in the most recently filed Form
10-Q (or 10-QSB) or Form 10-K (or 10KSB), whichever is most current,
neither the Company nor any subsidiary has done any of the following,
if such occurrences could reasonably be expected to have a Material
Adverse Effect:
(i) issued any stock, bonds or other
corporate securities or any rights, options or warrants with
respect thereto, except for issuances of shares of stock
pursuant to options or warrants outstanding on the date hereof
or issuance of stock options pursuant to a stock option plan;
(ii) borrowed any amount or incurred or
become subject to any liabilities (absolute or contingent)
except amounts borrowed or liabilities incurred in the
ordinary course of business;
(iii) discharged or satisfied any lien or
encumbrance or paid any obligation or liability (absolute or
contingent), other than liabilities paid in the ordinary
course of business;
(iv) declared or made any payment or
distribution of cash or other property to stockholders with
respect to its stock, or purchased or redeemed, or made any
agreements so to purchase or redeem, any shares of its capital
stock;
(v) sold, assigned or transferred any other
tangible assets, or canceled any debts or claims, except in
the ordinary course of business;
(vi) sold, assigned or transferred any
patent rights, trademarks, trade names, copyrights, trade
secrets or other intangible assets or intellectual property
rights, or disclosed any proprietary confidential information
to any person except to customers in the ordinary course of
business, to persons bound by agreements restricting
disclosure of such proprietary confidential information or to
the Purchaser or its representatives;
(vii) made any changes in employee
compensation except in the ordinary course of business and
consistent with past practices;
(viii) made capital expenditures or
commitments therefor that aggregate in excess of $500,000;
(ix) entered into any other material
transaction required to be disclosed in the SEC Documents,
whether or not in the ordinary course of business;
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(x) suffered any material damage,
destruction or casualty loss, whether or not covered by
insurance;
(xi) experienced any material problems with
labor or management in connection with the terms and
conditions of their employment; or
(xii) effected any two or more events of the
foregoing kind which in the aggregate would be material to the
Company or its subsidiaries.
(x) GOVERNMENTAL APPROVALS. Except for the filing of
any notice prior or subsequent to any Settlement Date that may be
required under applicable federal or state securities laws (which if
required, shall be filed on a timely basis), including the filing of a
registration statement or post-effective amendment pursuant to this
Agreement, no authorization, consent, approval, license, exemption of,
filing or registration with any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or
foreign, is or will be necessary for, or in connection with, the
delivery of the Shares, or for the performance by the Company of its
obligations under this Agreement.
(aa) ACKNOWLEDGMENT REGARDING PURCHASER'S PURCHASE OF
SHARES. Company acknowledges and agrees that Purchaser is acting solely
in the capacity of arm's length purchaser with respect to this
Agreement and the transactions contemplated hereunder. The Company
further acknowledges that the Purchaser is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with
respect to this Agreement and the transactions contemplated hereunder.
The Company further represents to the Purchaser that the Company's
decision to enter into this Agreement has been based solely on (a) the
Purchaser's representations and warranties in Section 2.2, and (b) the
independent evaluation by the Company and its own representatives and
counsel.
Section 2.2. REPRESENTATIONS AND WARRANTIES OF THE
PURCHASER. The Purchaser hereby makes the following representations and
warranties to the Company:
(a) ORGANIZATION AND STANDING OF THE PURCHASER.
The Purchaser is a corporation duly incorporated, validly existing
and in good standing under the laws of the British Virgin Islands.
(b) AUTHORIZATION AND POWER. The Purchaser has the
requisite power and authority to enter into and perform the Transaction
Documents and to purchase the Shares. The execution, delivery and
performance of the Transaction Documents by Purchaser and the
consummation by it of the transactions contemplated hereby have been
duly authorized by all necessary corporate action and at the Initial
Closing shall constitute valid and binding obligations of the Purchaser
enforceable against the Purchaser in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation, conservatorship,
receivership or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable
principles of general application
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(c) NO CONFLICTS. The execution, delivery and
performance of this Agreement and the consummation by the Purchaser of
the transactions contemplated hereby or relating hereto do not and will
not (i) result in a violation of the Purchaser's charter documents or
bylaws or (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 Purchaser is a party, or result in a violation of any law,
rule, or regulation, or any order, judgment or decree of any court or
governmental agency applicable to the Purchaser or its properties
(except for such conflicts, defaults and violations as would not,
individually or in the aggregate, have a Material Adverse Effect on
Purchaser). The Purchaser is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or
perform any of its obligations under this Agreement or to purchase the
Shares in accordance with the terms hereof.
(d) FINANCIAL RISKS. The Purchaser acknowledges that
it is able to bear the financial risks associated with an investment in
the Shares and that it has been given full access to such records of
the Company and the subsidiaries and to the officers of the Company and
the subsidiaries as it has deemed necessary or appropriate to conduct
its due diligence investigation. The Purchaser is capable of evaluating
the risks and merits of an investment in the Shares by virtue of its
experience as an investor and its knowledge, experience, and
sophistication in financial and business matters and the Purchaser is
capable of bearing the entire loss of its investment in the Shares.
(e) ACCREDITED INVESTOR. The Purchaser is an
"accredited investor" as defined in Rule 501 of Regulation D
promulgated under the Securities Act.
(f) GENERAL. The Purchaser understands that the
Company is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of the
Purchaser set forth herein in order to determine the suitability of the
Purchaser to acquire the Shares.
ARTICLE 3
COVENANTS
The Company covenants with the Purchaser as follows:
Section 3.1. THE SHARES. As of the date of each applicable
Draw Down, the Company will have authorized and reserved, free of preemptive
rights, a sufficient number of authorized but unissued shares of its Common
Stock to cover the Draw Down Shares to be issued in connection with such Draw
Down requested under this Agreement. The Draw Down Shares to be issued under
this Agreement, when paid for and issued in accordance with the terms hereof,
shall be duly and validly issued and outstanding, fully paid and
non-assessable, and the
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Purchaser shall be entitled to all rights accorded to a holder of Common
Stock. Anything in this Agreement to the contrary notwithstanding, (i) at no
time will the Company request a Draw Down which would result in the issuance
of an aggregate number of shares of Common Stock pursuant to this Agreement
which exceeds 19.9% of the number of shares of Common Stock issued and
outstanding on the Initial Closing Date without obtaining stockholder
approval of such excess issuance, or such other amount as would require
stockholder approval under rules of the Principal Market or otherwise without
obtaining stockholder approval of such excess issuance, and (ii) the Company
may not make a Draw Down to the extent that, after such purchase by the
Purchaser, the sum of the number of shares of Common Stock beneficially owned
by the Purchaser and its affiliates would result in beneficial ownership by
the Purchaser and its affiliates of more than 9.9% of the then outstanding
shares of Common Stock. For purposes of the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of
the Exchange Act.
Section 3.2. SECURITIES COMPLIANCE. If applicable, the
Company shall notify the Principal Market, in accordance with its rules and
regulations, of the transactions contemplated by this Agreement, and shall
take all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Shares and the Warrant to the Purchaser or subsequent holders.
Section 3.3. REGISTRATION AND LISTING. The Company will
cause its Common Stock to continue to be registered under Sections 12(b) or
12(g) of the Exchange Act, will comply in all material respects with its
reporting and filing obligations under the Exchange Act, will comply with all
requirements related to any registration statement filed pursuant to this
Agreement, and will not take any action or file any document (whether or not
permitted by the Securities Act or the Exchange Act or the rules promulgated
thereunder) to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under the Exchange Act or
Securities Act, except as permitted herein. The Company will take all action
necessary to continue the listing or trading of its Common Stock on the
Principal Market and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
Principal Market and shall provide the Purchaser with copies of any
correspondence to or from such Principal Market which questions or threatens
delisting of the Common Stock, within three (3) Trading Days of the Company's
receipt thereof, until the Purchaser has disposed of all of the Shares.
Section 3.4. ESCROW ARRANGEMENT. The Company and the
Purchaser shall enter into an escrow arrangement with Epstein Becker & Green,
P.C. (the "Escrow Agent") in the form of EXHIBIT B hereto respecting payment
against delivery of the Shares.
Section 3.5. REGISTRATION RIGHTS AGREEMENT. The Company and
the Purchaser shall enter into the Registration Rights Agreement in the Form
of EXHIBIT A hereto. Before the Purchaser shall be obligated to accept a Draw
Down request from the Company, the Company shall have caused a sufficient
number of shares of Common Stock to be registered to cover the Shares to be
issued in connection with such Draw Down.
12
Section 3.6. ACCURACY OF REGISTRATION STATEMENT.On each
Settlement Date, the Registration Statement and the prospectus therein (a)
shall not contain any untrue statement of a material fact or omit to state
any material fact to be required to be stated therein or necessary in order
to make the statements therein not misleading in light of the circumstances
under which they were made; and (b) on such Settlement Date or date of filing
of the Registration Statement and the prospectus therein will not include any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; PROVIDED, HOWEVER,
the Company makes no representations or warranties as to the information
contained in or omitted from the Registration Statement and the prospectus
therein in reliance upon and in conformity with the information furnished in
writing to the Company by the Purchaser specifically for inclusion in the
Registration Statement and the prospectus therein.
Section 3.7. COMPLIANCE WITH LAWS. The Company shall
materially comply, and cause each subsidiary to materially comply, with all
applicable state, federal and Principal Market laws, rules, regulations and
orders, noncompliance with which could have a Material Adverse Effect.
Section 3.8. OTHER AGREEMENTS. The Company shall not enter
into any agreement the terms of which would restrict the ability of the
Company to perform its obligations under this Agreement.
Section 3.9. NOTICE OF CERTAIN EVENTS AFFECTING
REGISTRATION; SUSPENSION OF RIGHT TO REQUEST A DRAW DOWN. SUBJECT TO
APPLICABLE LAWS, RULES, REGULATIONS AND ORDERS, THE COMPANY WILL PROMPTLY
NOTIFY THE PURCHASER IN WRITING UPON THE OCCURRENCE OF ANY OF THE FOLLOWING
EVENTS IN RESPECT OF THE REGISTRATION STATEMENT OR RELATED PROSPECTUS IN
RESPECT OF THE SHARES: (i) receipt of any request for additional information
from the SEC or any other federal or state governmental authority during the
period of effectiveness of the Registration Statement the response to which
would require any amendments or supplements to the Registration Statement or
related prospectus; (ii) the issuance by the SEC or any other federal or
state governmental authority of any stop order suspending the effectiveness
of the Registration Statement or the initiation of any proceedings for that
purpose; (iii) receipt of any notification with respect to the suspension of
the qualification or exemption from qualification of any of the Shares for
sale in any jurisdiction or the initiation or threatening of any proceeding
for such purpose; (iv) the happening of any event that makes any statement
made in the Registration Statement or related prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires the making of any changes in the
Registration Statement, related prospectus or documents so that, in the case
of the Registration Statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and that
in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any 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; and (v) the
Company's reasonable determination that filing of a post-effective amendment
or withdrawal of the Registration Statement would be appropriate. The Company
shall not deliver to the Purchaser any Draw Down Notice during the
continuation of any of the
13
foregoing events. The Company shall promptly make available to the Purchaser
any such supplements or amendments to the related prospectus, at which time,
provided that the registration statement and any supplements and amendments
thereto are then effective, the Company may recommence the delivery of Draw
Down Notices.
Section 3.10. CONSOLIDATION; MERGER. The Company shall not,
at any time after the date hereof, effect any merger or consolidation of the
Company with or into, or a transfer of all or substantially all of the assets
of the Company to, another entity (a "Consolidation Event") unless the
resulting successor or acquiring entity (if not the Company) assumes by
written instrument or by operation of law the obligation to deliver to the
Purchaser such shares of stock and/or securities as the Purchaser is entitled
to receive pursuant to this Agreement.
Section 3.11. LIMITATION ON FUTURE FINANCING. Other than as
required by the Millenium Agreement, the Company shall not enter into any
other stand-by equity based credit facility until the earlier of (a) the date
on which an aggregate of $30,000,000 shall have been drawn pursuant hereto by
the Company and (b) termination of this Agreement in accordance with Article
6 hereof.
Section 3.12. USE OF PROCEEDS. The proceeds from the sale
of the Shares will be used by the Company and its subsidiaries for general
corporate purposes.
Section 3.13. STATEMENT OF COMPANY'S COUNSEL. Within ten
(10) Trading Days after the Effective Date, the Company shall furnish to the
Purchaser the following written statement by the Company's outside counsel,
addressed to the Purchaser and dated such Settlement Date:
"In the course of the preparation by the Company of the Registration
Statement and the Prospectus, we have participated in discussions with
the Purchaser's representatives and those of the Company and its
independent accountants, in which the business and affairs of the
Company and the contents of the Registration Statement and the
Prospectus were discussed. On the basis of information that we have
gained in the course of our representation of the Company in connection
with its preparation of the Registration Statement and the Prospectus
and our participation in the discussions referred to above, we believe
that the Registration Statement, as of its effective date, and the
Prospectus, as of its effective date, complied as to form in all
material respects with the requirements of the Act and the published
rules and regulations of the SEC thereunder, and we do not know of any
legal or governmental proceeding to which the Company or any of its
subsidiaries is a party or to which any of its property is subject
required to be described in the Prospectus which is not so described.
Further, based on such information and participation, nothing that has
come to our attention has caused us to believe that the Registration
Statement at the time the Registration Statement became effective
contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make
the statements therein not misleading, or that the Prospectus as of
their date and as of the date of this opinion contained or contains any
untrue statement of material fact or omitted or omit to state any
material fact necessary to
14
make the statements therein, in light of the circumstances under
which they were made, not misleading. We express no opinion,
however, with respect to the financial statements, including the
notes and the schedules thereto, or any other financial, accounting
or statistical information set forth or referred to in the
Registration Statement or the Prospectus. The limitations inherent
in the independent verification of factual matters and the character
of the determinations involved in our review are such that we do not
assume any responsibility for the accuracy, completeness or fairness
of the statements made or the information contained in the
Registration Statement or Prospectuses except for those made under
the captions "Description of Capital Stock" and "Shares Eligible for
Future Sale," which accurately and fairly summarize in all material
respects the provisions of the laws and documents referred to
therein."
The Purchaser covenants with the Company as follows:
Section 3.14. COMPLIANCE WITH LAW. The Purchaser agrees
that its trading activities with respect to shares of the Company's Common
Stock will be in compliance with all applicable state and federal securities
laws, rules and regulations and rules and regulations of the Principal Market
on which the Company's Common Stock is listed. Without limiting the
generality of the foregoing, the Purchaser agrees that it will, whenever
required by federal securities laws, deliver the prospectus included in the
Registration Statement to any purchaser of Shares from the Purchaser.
Section 3.15. NO SHORT SALES. The Purchaser and its
affiliates shall not engage in short sales of the Company's Common Stock (as
defined in applicable SEC rules and the Principal Market rules) during the
term of this Agreement.
ARTICLE 4
CONDITIONS TO INITIAL CLOSING AND DRAW DOWNS
Section 4.1. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE
COMPANY TO SELL THE SHARES. The obligation hereunder of the Company to
proceed to close this Agreement and to issue and sell the Shares to the
Purchaser pursuant to a Draw Down Notice delivered hereunder is subject to
the satisfaction or waiver, at or before the Initial Closing, and as of each
Settlement Date, of each of the 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 PURCHASER'S REPRESENTATIONS AND
WARRANTIES. The representations and warranties of the Purchaser shall
be true and correct in all material respects as of the date when made
and as of the Initial Closing and as of each Settlement Date as though
made at that time, except for representations and warranties that speak
as of a particular date.
15
(b) PERFORMANCE BY THE PURCHASER. The Purchaser shall
have performed, satisfied and complied in all material respects with
all material covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Purchaser
at or prior to the Initial Closing and as of each Settlement Date.
(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.
Section 4.2. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE
PURCHASER TO CLOSE. The obligation hereunder of the Purchaser to perform its
obligations under this Agreement and to purchase the Shares is subject to the
satisfaction or waiver, at or before the Initial Closing, of each of the
conditions set forth below. These conditions are for the Purchaser's sole
benefit and may be waived by the Purchaser at any time in its sole discretion.
(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND
WARRANTIES. Each of 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 Initial Closing as though made at that time (except
for representations and warranties that speak as of a particular date).
(b) PERFORMANCE BY THE COMPANY. The Company shall
have performed, satisfied and complied in all respects with all
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the
Initial Closing.
(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.
(d) NO PROCEEDINGS OR LITIGATION. No action, suit or
proceeding before any arbitrator or any governmental authority shall
have been commenced, and no investigation by any governmental authority
shall have been threatened, against the Purchaser or the Company or any
subsidiary, or any of the officers, directors or affiliates of the
Company or any subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in
connection with such transactions.
(e) OPINION OF COUNSEL, ETC. At the Initial
Closing, the Purchaser shall have received an opinion of counsel to
the Company, dated as of the Initial Closing Date, in the form of
EXHIBIT C hereto.
(f) WARRANT. On the Initial Closing Date, the Company
shall issue to the Purchaser a warrant to purchase up to 250,000 shares
of Common Stock. The
16
Warrant shall have a term from its initial date of exercise of 3
years. The exercise price of the Warrant shall be 115% of the
average of the closing bid prices of the Common Stock (as reported
by Bloomberg Financial L.P. at 4:02 p.m. ET on the Principal Market)
during the 15 Trading Days immediately prior to the Initial Closing
Date. The Common Stock underlying the Warrant will be registered in
the Registration Statement referred to in Section 4.3 hereof. The
Warrant shall be in the form of EXHIBIT E hereto.
Section 4.3. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE
PURCHASER TO ACCEPT A DRAW DOWN AND PURCHASE THE DRAW DOWN SHARES. The
obligation hereunder of the Purchaser to accept a Draw Down request and to
acquire and pay for the Draw Down Shares is subject to the satisfaction at or
before each Settlement Date, of each of the conditions set forth below.
(a) SATISFACTION OF CONDITIONS TO INITIAL CLOSING.
The Company shall have satisfied at the Initial Closing, or the
Purchaser shall have waived at the Initial Closing, the conditions set
forth in Section 4.2 hereof
(b) EFFECTIVE REGISTRATION STATEMENT. The
Registration Statement registering the Shares shall have been declared
effective by the SEC and shall remain effective on each Settlement
Date.
(c) NO SUSPENSION. Trading in the Company's Common
Stock shall not have been suspended by the SEC or the Principal Market
(except for any suspension of trading of limited duration agreed to by
the Company, which suspension shall be terminated prior to the delivery
of each Draw Down Notice), and, at any time prior to such Draw Down
Notice, trading in securities generally as reported on the Principal
Market shall not have been suspended or limited, or minimum prices
shall not have been established on securities whose trades are reported
on the Principal Market unless the general suspension or limitation
shall have been terminated prior to the delivery of such Draw Down
Notice.
(d) MATERIAL ADVERSE EFFECT. No Material Adverse
Effect and no Consolidation Event where the successor entity has not
agreed to perform the Company's obligations hereunder shall have
occurred since the later of the Initial Closing or the Settlement of
the immediately preceding Draw Down, such occurrences to be determined
in accordance with Section 8.9 herein.
(e) OPINION OF COUNSEL. The Purchaser shall have
received (i) a "down-to-date" letter from the Company's counsel,
confirming that there is no change from the counsel's previously
delivered opinion, or else specifying with particularity the reason for
any change and an opinion as to the additional items specified in
EXHIBIT C hereto, (ii) a Form 424(b)(3) supplemental prospectus, if
required by applicable law and (iii) any other items set forth in the
Escrow Agreement (not including the escrow fee if the Escrow Agent is
not used for such Draw Down).
17
ARTICLE 5
DRAW DOWN TERMS
Section 5.1. DRAW DOWN TERMS. Subject to the satisfaction of the
conditions set forth in this Agreement, the parties agree as follows:
(a) The Company may, in its sole discretion, issue
and exercise draw downs against the Commitment Amount (each a "Draw
Down") during the Commitment Period, which Draw Downs the Purchaser
shall be obligated to accept, subject to the terms and conditions
herein.
(b) Only one Draw Down shall be allowed in each Draw
Down Pricing Period. There shall be a minimum of one (1) Trading Day
between Draw Down Pricing Periods. The number of shares of Common Stock
purchased by the Purchaser with respect to each Draw Down shall be
determined as set forth in Section 5.1(e) herein and settled on:
(i) as to the 1st through the 10th Trading
Day during the Draw Down Pricing Period, on or before the 12th
Trading Day after such Draw Down Pricing Period commences; and
(ii) as to the 11th through the 20th Trading
Day during the Draw Down Pricing Period, on or before the 22nd
Trading Day after such Draw Down Pricing Period commences
(such settlement periods and such settlement dates in
subsection (i) and this subsection (ii) each referred to as a
"Settlement Period" and a "Settlement Date", respectively).
(c) In connection with each Draw Down Pricing Period,
the Company may set the Threshold Price in the Draw Down Notice.
(d) The minimum Investment Amount for any Draw Down
shall be $250,000 and the maximum Investment Amount as to each Draw
Down shall be 6% of the EQY weighted average price field (as reported
on Bloomberg Financial L.P. using the BLPH function) for the 60
calendar days immediately prior to the applicable Commencement Date
(defined below) multiplied by the total trading volume in respect of
the Common Stock for such period. Notwithstanding anything herein to
the contrary, in the event the minimum Investment Amount is greater
than the maximum Investment Amount, as to such Draw Down only, the
minimum Investment Amount shall equal the maximum Investment Amount,
but in no event shall the minimum Investment Amount be less than
$100,000, such that if the maximum Investment Amount is less than
$100,000, then the Company shall be precluded from exercising a Draw
Down at such time.
(e) The number of Shares of Common Stock to be issued
on each Settlement Date shall be a number of shares equal to the sum of
the quotients (for each trading day within the Settlement Period) of
(x) 1/20th of the Investment Amount, and
18
(y) the Purchase Price on each Trading Day within the Settlement
Period, subject to the following adjustments:
(i) if the VWAP on a given Trading Day is
less than the Threshold Price, then that portion of the
Investment Amount to be paid on the immediately pending
Settlement Date shall be reduced by 1/20th of the Investment
Amount and such Trading Day shall be withdrawn from the
Settlement Period;
(ii) if during any Trading Day during the
Settlement Period trading of the Common Stock on the Principal
Market is suspended for more than three (3) hours, in the
aggregate, or if any Trading Day during the Settlement Period
is shortened because of a public holiday, then that portion of
the Investment Amount to be paid on the immediately pending
Settlement Date shall be reduced by 1/20th of the Investment
Amount and such Trading Day shall be withdrawn from the
Settlement Period; and
(iii) if during any Trading Day during the
Settlement Period sales of Draw Down Shares pursuant to the
Registration Statement are suspended by the Company in
accordance with Sections 3(j) or 5(e) of the Registration
Rights Agreement for more than three (3) hours, in the
aggregate, during the Settlement Period, then that portion of
the Investment Amount to be paid on the immediately pending
Settlement Date shall be reduced by 1/20th of the Investment
Amount and such Trading Day shall be withdrawn from the
Settlement Period.
(f) The Company must inform the Purchaser by
delivering a draw down notice, in the form of EXHIBIT D hereto (the
"Draw Down Notice"), via facsimile transmission in accordance with
Section 8.4 as to the amount of the Draw Down (the "Investment Amount")
the Company wishes to exercise, before the first day of the Draw Down
Pricing Period (the "Commencement Date"). If the Commencement Date is
to be the date of the Draw Down Notice, the Draw Down Notice must be
delivered to and receipt confirmed by the Purchaser at least one (1)
hour before trading commences on such date. At no time shall the
Purchaser be required to purchase more than the maximum Investment
Amount for a given Draw Down Pricing Period; in other words, if the
Company chooses not to exercise the maximum Investment Amount in a
given Draw Down Pricing Period the Purchaser is not obligated to and
shall not purchase more than the scheduled maximum Investment Amount in
a subsequent Draw Down Pricing Period.
(g) On each Settlement Date, the Shares purchased by
the Purchaser during the immediately preceding Settlement Period shall
be delivered to The Depository Trust Company ("DTC") on the Purchaser's
behalf. Upon the Company electronically delivering whole shares of
Common Stock to the Purchaser or its designees via DTC through its
Deposit Withdrawal Agent Commission ("DWAC") system by 1:00 p.m. New
York time, the Purchaser shall wire transfer immediately available
funds to the Company's designated account on such day, less any fees as
set forth in the Escrow Agreement, which fees shall be wired as
directed in the Escrow Agreement. Upon the
19
Company electronically delivering whole shares of Common
Stock to the Purchaser or its designees DTC account via DWAC after
1:00 p.m. New York time, the Purchaser shall wire transfer next day
available funds to the Company's designated account on such day,
less any fees as set forth in the Escrow Agreement, which fees shall
be wired as directed in the Escrow Agreement. In the event that
either party elects to use the Escrow Agent, the Shares shall be
credited by the Company to the DTC account designated by the
Purchaser via DWAC upon receipt by the Escrow Agent of payment for
the Draw Down Shares into the Escrow Agent's master escrow account,
as further set forth in the Escrow Agreement, and the Escrow Agent
shall be directed to pay the purchase price to the Company, net of
$1,000 per Settlement as escrow expenses to the Escrow Agent and any
additional fees as set forth in the Escrow Agreement. The Company
understands that a delay in the delivery of the Draw Down Shares
into the Purchaser's DTC account beyond 5 Trading Days after the
dates set forth herein or in the Escrow Agreement, as the case may
be, could result in economic loss to the Purchaser. Notwithstanding
anything herein to the contrary, as compensation to the Purchaser
for such loss, the Company agrees to pay late payments to the
Purchaser for late delivery after 5 Trading Days from such dates in
accordance with the following schedule (where "No. Trading Days
Late" is defined as the number of Trading Days beyond three 5
Trading Days from the dates set forth herein or in the Escrow
Agreement, as the case may be, on which such Draw Down Shares are to
be delivered into the Purchaser's DTC account via the DWAC system):
- ------------------------------------------------------------ ---------------------------------------------------------
No. Trading Days Late Late Payment for Each
$5,000 of Draw Down Shares
Being Purchased
- ------------------------------------------------------------ ---------------------------------------------------------
1 $100
- ------------------------------------------------------------ ---------------------------------------------------------
2 $200
- ------------------------------------------------------------ ---------------------------------------------------------
3 $300
- ------------------------------------------------------------ ---------------------------------------------------------
4 $400
- ------------------------------------------------------------ ---------------------------------------------------------
5 $500
- ------------------------------------------------------------ ---------------------------------------------------------
6 $600
- ------------------------------------------------------------ ---------------------------------------------------------
7 $700
- ------------------------------------------------------------ ---------------------------------------------------------
8 $800
- ------------------------------------------------------------ ---------------------------------------------------------
9 $900
- ------------------------------------------------------------ ---------------------------------------------------------
10 $1,000
- ------------------------------------------------------------ ---------------------------------------------------------
More than 10 $1,00 +$200 for each Trading
Day Late beyond 10 Trading
Days.
- ------------------------------------------------------------ ---------------------------------------------------------
The Company shall pay any payments incurred under
this Section 5.1(g) in immediately available funds upon demand. Nothing
herein shall limit the Purchaser's right to pursue injunctive relief
and/or actual damages (in lieu of the liquidated damages set forth
above) for the Company's failure to issue and deliver the Draw Down
Shares to the Company, including, without limitation, the Purchaser's
actual losses occasioned by any "buy-in" of Common Stock necessitated
by such late delivery.
20
ARTICLE 6
TERMINATION
Section 6.1. TERM. The term of this Agreement shall begin
on the date hereof and shall end 30 months from the Effective Date or as
otherwise set forth in Section 6.2.
Section 6.2. OTHER TERMINATION.
(a) This Agreement shall terminate upon one (1)
Trading Day's notice if (i) an event resulting in a Material Adverse
Effect has occurred and has not been cured for a period of 30 days
after written notice thereof, (ii) the Common Stock is de-listed from
the Principal Market for a period exceeding 3 consecutive days unless
such de-listing is in connection with the Company's subsequent listing
of the Common Stock on the Nasdaq National Market, Nasdaq SmallCap
Market, the American Stock Exchange or the New York Stock Exchange, or
(iii) the Company files for protection from creditors under any
applicable law.
(b) The Company may terminate this Agreement upon one
(1) Trading Day's notice if the Purchaser shall fail to fund more than
one properly noticed Draw Down within 4 Trading Days of the end of the
applicable Settlement Period.
Section 6.3. EFFECT OF TERMINATION. In the event of
termination of this Agreement pursuant to Section 6.2 herein, written notice
thereof shall forthwith be given to the other party and the transactions
contemplated by this Agreement shall be terminated without further action by
either party. If this Agreement is terminated as provided in Section 6.1 or
6.2 herein, this Agreement shall become void and of no further force and
effect, except for Sections 8.1, 8.2 and 8.9, and Article 7 herein. Nothing
in this Section 6.3 shall be deemed to release the Company or the Purchaser
from any liability for any breach under this Agreement, or to impair the
rights of the Company or the Purchaser to compel specific performance by the
other party of its obligations under this Agreement.
ARTICLE 7
INDEMNIFICATION
Section 7.1. General Indemnity.
(a) The Company agrees to indemnify and hold harmless
the Purchaser (and its directors, officers, affiliates, agents,
successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including,
without limitation, reasonable attorneys' fees, charges and
disbursements) incurred by the Purchaser as a result of any material
inaccuracy in or breach of the representations, warranties or covenants
made by the Company herein.
21
(b) The Purchaser agrees to indemnify and hold
harmless the Company and its directors, officers, affiliates, agents,
successors and assigns from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including,
without limitation, reasonable attorneys' fees, charges and
disbursements) incurred by the Company as result of any material
inaccuracy in or breach of the representations, warranties or covenants
made by the Purchaser herein.
Section 7.2. INDEMNIFICATION PROCEDURE. Any party entitled
to indemnification under this Article 7 (an "Indemnified Party") will give
written notice to the indemnifying party of any matters giving rise to a
claim for indemnification; provided, that the failure of any party entitled
to indemnification hereunder to give notice as provided herein shall not
relieve the indemnifying party of its obligations under this Article 7 except
to the extent that the indemnifying party is actually prejudiced by such
failure to give notice. In case any action, proceeding or claim is brought
against an Indemnified Party in respect of which indemnification is sought
hereunder, the indemnifying party shall be entitled to participate in and,
unless in the reasonable judgment of counsel to the Indemnified Party a
conflict of interest between it and the indemnifying party may exist with
respect of such action, proceeding or claim, to assume the defense thereof
with counsel reasonably satisfactory to the Indemnified Party. In the event
that the indemnifying party advises an Indemnified Party that it will contest
such a claim for indemnification hereunder, or fails, within thirty (30) days
of receipt of any indemnification notice to notify, in writing, such person
of its election to defend, settle or compromise, at its sole cost and
expense, any action, proceeding or claim (or discontinues its defense at any
time after it commences such defense), then the Indemnified Party may, at its
option, defend, settle or otherwise compromise or pay such action or claim.
In any event, unless and until the indemnifying party elects in writing to
assume and does so assume the defense of any such claim, proceeding or
action, the Indemnified Party's costs (including reasonable attorneys' fees,
charges and disbursements) and expenses arising out of the defense,
settlement or compromise of any such action, claim or proceeding shall be
losses subject to indemnification hereunder. The Indemnified Party shall
cooperate fully with the indemnifying party in connection with any settlement
negotiations or defense of any such action or claim by the indemnifying party
and shall furnish to the indemnifying party all information reasonably
available to the Indemnified Party, which relates to such action or claim.
The indemnifying party shall keep the Indemnified Party fully apprised at all
times as to the status of the defense or any settlement negotiations with
respect thereto. If the indemnifying party elects to defend any such action
or claim, then the Indemnified Party shall be entitled to participate in such
defense with counsel of its choice at its sole cost and expense. The
indemnifying party shall not be liable for any settlement of any action,
claim or proceeding effected without its prior written consent.
Notwithstanding anything in this Article 7 to the contrary, the indemnifying
party shall not, without the Indemnified Party's prior written consent (which
consent shall not be unreasonably withheld), settle or compromise any claim
or consent to entry of any judgment in respect thereof which imposes any
future obligation on the Indemnified Party or which does not include, as an
unconditional term thereof, the giving by the claimant or the plaintiff to
the Indemnified Party of a release from all liability in respect of such
claim. The indemnity agreements contained herein shall be in addition to (a)
any cause of action or similar rights of the Indemnified Party against the
indemnifying party or
22
others, and (b) any liabilities to which the indemnifying party may be
subject in each case pursuant to applicable law, rules or regulations.
ARTICLE 8
MISCELLANEOUS
Section 8.1. FEES AND EXPENSES. Each of the parties to this
Agreement shall pay its own fees and expenses related to the transactions
contemplated by this Agreement; except that, the Company shall pay, at the
Initial Closing, a non-accountable expense allowance of $25,000 for the
Purchaser's legal, administrative and due diligence costs and expenses and
any other additional fees as set forth in the Escrow Agreement. The Company
shall pay all stamp or other similar taxes and duties levied in connection
with issuance of the Shares pursuant hereto.
Section 8.2. SPECIFIC ENFORCEMENT. The Company and the
Purchaser acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement
and to enforce specifically the terms and provisions hereof or thereof, this
being in addition to any other remedy to which any of them may be entitled by
law or equity.
Section 8.3. ENTIRE AGREEMENT; AMENDMENT. The Transaction
Documents contain the entire understanding of the parties with respect to the
matters covered in the Transaction Documents. No provision of this Agreement
may be waived or amended other than by a written instrument signed by the
party against whom enforcement of any such amendment or waiver is sought and
no condition to closing any Draw Down in favor of the Purchaser may be waived
by the Purchaser.
Section 8.4. NOTICES. Any notice, demand, request, waiver
or other communication required or permitted to be given hereunder shall be
in writing and shall be effective (a) upon hand delivery or facsimile at the
address or number designated below (if delivered on a business day during
normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business
day during normal business hours where such notice is to be received) or (b)
on the second business day following the date of mailing by express courier
service, fully prepaid, addressed to such address, or upon actual receipt of
such mailing, whichever shall first occur. The addresses for such
communications shall be:
If to the Company: 3155 Porter Drive
23
Palo Alto, CA 94304
Attn: Martin McGlynn, Chief Executive Officer
Iris Brest, General Counsel
Tel: (650) 475-3100
Fax: (650) 475-3101
with copies to: Ropes & Gray
(which shall not constitute One International Place
notice) Boston, MA 02110
Attn: Geoffrey B. Davis
Tel: (617) 951-7000
Fax: (617) 951-7050
If to Purchaser: c/o Beacon Capital Management
Harbour House, 2nd Floor
Waterfront Drive, Road Town
Tortola, British Virgin Islands
Attn: David Sims
Fax: (284) 494-4090
with copies to: Epstein Becker & Green P.C.
(which shall not constitute 250 Park Avenue
notice) New York, NY 10177-1211
Tel: (212) 351-3771
Fax: (212) 661-0989
Attn: Robert F. Charron
Any party hereto may from time to time change its address
for notices by giving written notice of such changed address to the other
party hereto in accordance herewith.
Section 8.5. WAIVERS. No waiver by either party of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver
of any other provisions, condition or requirement hereof, nor shall any delay
or omission of any party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
Section 8.6. HEADINGS. The article, section and subsection
headings in this Agreement are for convenience only and shall not constitute
a part of this Agreement for any other purpose and shall not be deemed to
limit or affect any of the provisions hereof.
Section 8.7. SUCCESSORS AND ASSIGNS. This Agreement and the
rights and obligations thereunder may not be assigned by either party without
the written consent of the other party. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns. The
parties hereto may not amend this Agreement or any rights or obligations
hereunder without the prior written consent of the Company and the Purchaser.
24
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, including without limitation, any
assignee of some or all of the rights to purchase the Warrant Shares pursuant
to the Warrant.
Section 8.9. GOVERNING LAW/ARBITRATION. This Agreement
shall be governed by and construed in accordance with the internal laws of
the State of New York, without giving effect to the choice of law provisions.
The Company and the Purchaser agree to submit themselves to the IN PERSONAM
jurisdiction of the state and federal courts situated within the Southern
District of the State of New York with regard to any dispute or controversy
arising out of or relating to this Agreement. Any dispute or controversy
under this Agreement or any Exhibit attached hereto shall be submitted to
arbitration under the American Arbitration Association (the "AAA") in New
York City, New York, and shall be finally and conclusively determined by the
decision of a board of arbitration consisting of three (3) members
(hereinafter referred to as the "Board of Arbitration") selected as according
to the rules governing the AAA. The Board of Arbitration shall meet on
consecutive business days in New York City, New York, and shall reach and
render a decision in writing (concurred in by a majority of the members of
the Board of Arbitration) with respect to the amount, if any, which the
losing party is required to pay to the other party in respect of a claim
filed. In connection with rendering its decisions, the Board of Arbitration
shall adopt and follow the laws of the State of New York. To the extent
practical, decisions of the Board of Arbitration shall be rendered no more
than thirty (30) calendar days following commencement of proceedings with
respect thereto. The Board of Arbitration shall cause its written decision to
be delivered to all parties involved in the dispute. The Board of Arbitration
shall be authorized and is directed to enter a default judgment against any
party refusing to participate in the arbitration proceeding within thirty
days of any deadline for such participation. Any decision made by the Board
of Arbitration (either prior to or after the expiration of such thirty (30)
calendar day period) shall be final, binding and conclusive on the parties to
the dispute, and entitled to be enforced to the fullest extent permitted by
law and entered in any court of competent jurisdiction. The prevailing party
shall be awarded its costs, including reasonable attorneys' fees, from the
non-prevailing party as part of the arbitration award. Any party shall have
the right to seek injunctive relief, including without limitation as set
forth in Section 8.2, from any court of competent jurisdiction in any case
where such relief is available. The prevailing party in such injunctive
action shall be awarded its costs, including reasonable attorneys' fees, from
the non-prevailing party.
Section 8.10. COUNTERPARTS. This Agreement may be executed
in any number of counterparts, all of which taken together shall constitute
one and the same instrument and shall become effective when counterparts have
been signed by each party and delivered to the other parties hereto, it being
understood that all parties need not sign the same counterpart. Execution may
be made by delivery by facsimile.
Section 8.11. PUBLICITY. Except as required by law or
regulations or the rules of the Principal Market, neither the Company nor the
Purchaser shall issue any press release or otherwise make any public
statement or announcement with respect to this Agreement or the transactions
contemplated hereby or the existence of this Agreement, without the prior
written
25
consent of the other party. In connection with the Initial Closing, if the
Company deems it necessary or desirable, the Company may issue a press
release or file an appropriate report with the SEC regarding the transactions
contemplated hereby; PROVIDED, HOWEVER, that prior to issuing any such press
release, making any such public statement or announcement, the Company
obtains the prior consent of the Purchaser, which consent shall not be
unreasonably withheld or delayed.
Section 8.12. SEVERABILITY. The provisions of this
Agreement are severable and, in the event that The Board of Arbitration or
any court or officials of any regulatory agency of competent jurisdiction
shall determine that any one or more of the provisions or part of the
provisions contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provision or part of a
provision of this Agreement and this Agreement shall be reformed and
construed as if such invalid or illegal or unenforceable provision, or part
of such provision, had never been contained herein, so that such provisions
would be valid, legal and enforceable to the maximum extent possible, so long
as such construction does not materially adversely affect the economic rights
of either party hereto.
Section 8.13. FURTHER ASSURANCES. From and after the date
of this Agreement, upon the request of the Purchaser or the Company, each of
the Company and the Purchaser shall execute and deliver such instruments,
documents and other writings as may be reasonably necessary or desirable to
confirm and carry out and to effectuate fully the intent and purposes of this
Agreement.
Section 8.14. EFFECTIVENESS OF AGREEMENT. This Agreement
shall become effective only upon satisfaction of the conditions precedent to
the Initial Closing set forth in Article I of the Escrow Agreement.
Section 8.15. CONFIDENTIALITY. The Purchaser understands
that the CPI has been developed or obtained by the Company by the investment
of significant time, effort and expense and that such CPI provides the
Company with significant competitive advantages in its businesses. The
Purchaser therefore agrees (i) to maintain all CPI in confidence and take all
necessary precautions to protect said CPI, including without limitation, all
precautions the Purchaser normally employs with respect to its own
confidential materials but in no event less than a reasonable degree of care;
(ii) not to divulge CPI or any information derived therefrom outside of
Purchaser; and (iii) not to utilize said CPI for any purpose other than as
necessary for purposes of performance under this Agreement. The foregoing
sentence shall not apply with respect to information the Purchaser can
establish (i) is in the public domain at the time of disclosure or which
thereafter enters the public domain, through no improper action or inaction
by the Purchaser; or (ii) was known to or independently developed by or in
the possession of Purchaser prior to receipt of such CPI from the Company, as
evidenced by written records; or (iii) was lawfully disclosed to the
Purchaser by a third party without restriction; or (iv) is required to be
disclosed by a government agency or court order or pursuant to applicable
laws and regulations PROVIDED that within five days of notification of such a
requirement and prior to complying with such requirement the Purchaser shall
notify the Company of such requirement pursuant to clause (iv) and shall
limit the disclosure to that portion of the CPI which is legally
26
required in the written opinion of counsel and shall use best efforts to
ensure such CPI is treated confidentially.
ARTICLE 9
DEFINITIONS
Section 9.1. Certain Definitions.
(a) "COMMENCEMENT DATE" shall have the meaning
assigned to such term in Section 5.1(f) hereof.
(b) "COMMITMENT AMOUNT" shall have the meaning
assigned to such term in Section 1.1 hereof.
(c) "COMMITMENT PERIOD" shall mean the period
commencing on the Effective Date and expiring on the earliest to occur
of (i) the date on which the Purchaser shall have exercised an
aggregate amount of Draw Downs equal to the Commitment Amount, (ii) the
date this Agreement is terminated in accordance with the terms hereof,
or (iii) the date occurring 30 months after the Effective Date.
(d) "COMMON STOCK" shall mean the Company's common
stock, $0.01 par value per share.
(e) "CPI" shall mean all oral and written information
concerning the Company which is non-public, confidential or proprietary
in nature and shall include, but not be limited to, existing,
future-developed or acquired products, processes, techniques, methods,
agents, computer programs, trade secrets, and other information
regarding the business of the Company, know-how, ideas (including
patentable ideas), inventions, unpublished patent applications,
improvements, copyrightable materials, schematics, product development
plans, forecasts, strategies, customers, suppliers, regulatory
strategies and other technical, business, financial, marketing and
merchandising information of the Company.
(f) "DISCLOSURE SCHEDULE" shall mean the
schedules prepared by the Company and attached hereto.
(g) "DRAW DOWN" shall have the meaning assigned to
such term in Section 5.1(a) hereof.
(h) "DRAW DOWN NOTICE" shall have the meaning
assigned to such term in Section 5.1(f) hereof.
(i) "DRAW DOWN PRICING PERIOD" shall mean a period of
twenty (20) consecutive Trading Days beginning on the date specified in
the Draw Down Notice (as defined in Section 5.1(f) herein); PROVIDED,
HOWEVER, the Draw Down Pricing Period shall not begin before the day on
which receipt of such notice is confirmed by the Purchaser.
27
(j) "DTC" shall have the meaning assigned to such
term in Section 5.1(g).
(k) "DWAC" shall have the meaning assigned to such
term in Section 5.1(g).
(l) "EFFECTIVE DATE" shall mean the date the
Registration Statement of the Company covering the Shares being
subscribed for hereby is declared effective by the SEC.
(m) "ENGAGEMENT LETTER" shall mean the letter
agreement dated as of April 24, 2001, between the Company and Pacific
Crest Securities, Inc.
(n) "EXCHANGE ACT" shall mean the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated
thereunder.
(o) "GAAP" shall mean the United States Generally
Accepted Accounting Principles as those conventions, rules and
procedures are determined by the Financial Accounting Standards Board
and its predecessor agencies.
(p) "INITIAL CLOSING" shall have the meaning assigned
to such term in Section 1.2 hereof.
(q) "INITIAL CLOSING DATE" shall have the meaning
assigned to such term in Section 1.2 hereof.
(r) "INVESTMENT AMOUNT" shall have the meaning
assigned to such term in Section 5.1(f) hereof.
(s) "MATERIAL ADVERSE EFFECT" shall mean any adverse
effect on the business, operations, properties or financial condition
of the Company that is material and adverse to the Company and its
subsidiaries and affiliates, taken as a whole and/or any condition,
circumstance, or situation that would prohibit or otherwise materially
interfere with the ability of the Company to perform any of its
material obligations under this Agreement or the Registration Rights
Agreement.
(t) "MATERIAL AGREEMENT" shall mean any written or
oral contract, instrument, agreement, commitment, obligation, plan or
arrangement, a copy of which is required to be filed with the SEC as an
exhibit to any of the SEC Documents.
(u) "MILLENNIUM AGREEMENT" shall mean the
Subscription Agreement dated as of July 31, 2000, between the Company
and Millennium Partners, L.P. and the other agreements entered into in
connection therewith.
(v) "PRINCIPAL MARKET" shall mean initially the
Nasdaq National market and shall include the American Stock Exchange,
the Nasdaq Small-Cap Market and the
28
New York Stock Exchange if the Company becomes listed and trades on
such market or exchange after the date hereof.
(w) "PURCHASE PRICE" shall mean, with respect to
Shares purchased during each applicable Settlement Period, 94% (the
"Purchase Price Percentage") of the VWAP on the date in question;
EXCEPT THAT, the Purchase Price Percentage shall increase by 0.5% for
each $50,000,000 increase in the Company's market cap (calculated by
multiplying the number of shares of Common Stock issued and outstanding
by the VWAP of the Common Stock on any date in question (the "Market
Cap")) over $50,000,000 during the applicable Market Cap Period (as
defined below); PROVIDED, that in no event shall the Purchase Price
Percentage be more than 96%; PROVIDED, FURTHER, that such increases in
the Purchase Price Percentage shall only occur if the increase in the
Market Cap is maintained for at least twenty (20) consecutive Trading
Days immediately prior to the date the applicable Draw Down Pricing
Period commences (the "Market Cap Period"). By way of example, if the
Market Cap as to a Market Cap Period is $99,999,999, the Purchase Price
Percentage is 94% as to the applicable Draw Down. If the Market Cap as
to a Market Cap Period is $101,000,000, the Purchase Price Percentage
is 94.5% as to the applicable Draw Down. If the Market Cap as to a
subsequent Market Cap Period is less than $100,000,000, the Purchase
Price Percentage shall be 94% as to such Draw Down.
(x) "REGISTRATION STATEMENT" shall mean the
registration statement under the Securities Act, to be filed with the
Securities and Exchange Commission for the registration of the Shares
pursuant to the Registration Rights Agreement attached hereto as
EXHIBIT A (the "Registration Rights Agreement).
(y) "SEC" shall mean the Securities and Exchange
Commission.
(z) "SEC DOCUMENTS" shall mean the Company's latest
Form 10-K or Form 10-KSB as of the time in question, all Forms 10-Q or
10-QSB and 8-K filed thereafter until the time in question, the Proxy
Statement for its latest fiscal year as of the time in question, and
any exhibits to the aforementioned documents, until such time as the
Company no longer has an obligation to maintain the effectiveness of a
Registration Statement as set forth in the Registration Rights
Agreement.
(aa)"SECURITIES ACT" shall mean the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder.
(bb)"SETTLEMENT" shall mean the delivery of the Draw
Down Shares into the Purchaser's DTC account via DTC's DWAC System in
exchange for payment therefor.
(cc)"SETTLEMENT DATE" shall have the meaning assigned
to such term in Section 5.1(b).
29
(dd)"SETTLEMENT PERIOD" shall have the meaning
assigned to such term in Section 5.1(b).
(ee)"SHARES" shall mean, collectively, the shares of
Common Stock of the Company being subscribed for hereunder (the "Draw
Down Shares") and the shares of Common Stock issuable upon exercise of
the Warrant (the "Warrant Shares").
(ff) "THRESHOLD PRICE" shall mean the price per Share
designated by the Company as the lowest VWAP during any Draw Down
Pricing Period at which the Company shall sell its Common Stock in
accordance with this Agreement.
(gg)"TRADING DAY" shall mean any day on which the
Principal Market is open for business.
(hh)"TRANSACTION DOCUMENTS" shall mean this
Agreement, the Registration Rights Agreement and the Escrow Agreement.
(ii) "VWAP" shall mean the daily volume weighted
average price of the Company's Common Stock on the Principal Market as
reported by Bloomberg Financial L.P. (based on a trading day from 9:30
a.m. Eastern Time to 4:02 p.m. Eastern Time) using the VAP function on
the date in question.
(jj) "WARRANT" shall mean the warrant issued to the
Purchaser pursuant to Section 4.2(f) hereof.
[SIGNATURE PAGE FOLLOWS]
30
[SIGNATURE PAGE TO EQUITY LINE PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officer as of
this 10th day of May, 2001.
STEMCELLS INC.,
By: /s/ Martin McGlynn
--------------------------------------
Martin McGlynn, President & CEO
SATIVUM INVESTMENTS LIMITED
By: /s/ David Sims
--------------------------------------
David Sims, Director
31