AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 9, 2002
REGISTRATION NO. 333-75806
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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STEMCELLS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other Jurisdiction 2836 94-3078125
of Incorporation or (Primary Standard Industrial (I.R.S. Employer
Organization) Classification Code Number) Identification No.)
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3155 PORTER DRIVE
PALO ALTO, CA 94304
(650) 475-3100
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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IRIS BREST, ESQ.
STEMCELLS, INC.
3155 PORTER DRIVE
PALO ALTO, CA 94304
(650) 475-3100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:
GEOFFREY B. DAVIS, ESQ.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
(617) 951-7000
(617) 951-7050 (fax)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED SHARE(1) PRICE(1) REGISTRATION FEE
Common Stock, par value $.01 per share...... 3,997,201 shares $3.65 $14,589,783 $ 3,487(2)
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Securities Act of 1933, based on the average
of the high and low prices as reported on the Nasdaq National Market on
December 14, 2001.
(2) Paid as of December 21, 2001
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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PROSPECTUS
STEMCELLS, INC.
3,997,201 SHARES OF COMMON STOCK
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The selling stockholders listed on page 7 of this prospectus or in an
accompanying supplement to this prospectus are offering to sell up to 3,997,201
shares of our common stock.
Our common stock is listed on the Nasdaq National Market under the symbol
"STEM." The last reported sale price for our common stock on the Nasdaq National
Market on January 8, 2002 was $3.80 per share.
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THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 1.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JANUARY 10, 2002.
TABLE OF CONTENTS
PAGE
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Executive Office....................... 1
Risk Factors........................... 1
Use of Proceeds........................ 6
Selling Stockholders................... 7
Plan of Distribution................... 9
PAGE
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Legal Matters.......................... 10
Experts................................ 10
Where You Can Find More Information.... 10
Incorporation of Documents by
Reference............................ 10
i
EXECUTIVE OFFICE
Our principal executive office is located at 3155 Porter Drive, Palo Alto,
California 94304 and our telephone number is (650) 475-3100. We maintain a
website on the Internet at WWW.STEMCELLSINC.COM. Our website, and the
information contained therein, is not a part of this prospectus.
RISK FACTORS
THE OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE RISKS DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS PROSPECTUS BEFORE
MAKING AN INVESTMENT DECISION REGARDING STEMCELLS, INC. OUR BUSINESS, FINANCIAL
CONDITION OR RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED IF ANY
OF THESE RISKS ACTUALLY OCCUR. CONSEQUENTIALLY, THE TRADING PRICE OF OUR COMMON
STOCK COULD DECLINE, RESULTING IN THE LOSS OF ALL OR PART OF YOUR INVESTMENT.
OUR TECHNOLOGY IS AT AN EARLY STAGE OF DISCOVERY AND DEVELOPMENT, AND WE MAY
FAIL TO DEVELOP ANY COMMERCIALLY ACCEPTABLE PRODUCTS.
Our stem cell technology is at the early pre-clinical stage for the brain
stem cell and at the discovery phase for the liver and pancreas stem cells and
has not yet led to the development of any product. We may fail to discover the
stem cells we are seeking, to develop any products, to obtain regulatory
approvals, to enter clinical trials, or to commercialize any products. Any
product using stem cell technology may fail to:
- survive and persist in the desired location;
- provide the intended therapeutic benefits;
- properly integrate into existing tissue in the desired manner; or
- achieve therapeutic benefits equal to or better than the standard of
treatment at the time of testing.
In addition, our products may cause undesirable side effects. Results of early
pre-clinical research may not be indicative of the results that will be obtained
in later stages of pre-clinical or clinical research. If regulatory authorities
do not approve our products, or if we fail to maintain regulatory compliance, we
would have limited ability to commercialize our products, and our business and
results of operations would be harmed. Furthermore, because stem cells are a new
form of therapy, the marketplace may not accept any products we may develop.
If we do succeed in developing products, we will face many potential
obstacles such as the need to obtain regulatory approvals, and to develop or
obtain manufacturing, marketing and distribution capabilities. In addition, we
will face substantial additional risks such as product liability.
WE HAVE PAYMENT OBLIGATIONS RESULTING FROM REAL PROPERTY OWNED OR LEASED BY
US IN RHODE ISLAND, WHICH DIVERTS FUNDING FROM OUR STEM CELL RESEARCH AND
DEVELOPMENT.
Prior to our reorganization in 1999 and the consolidation of our business in
California, we carried out our encapsulated cell therapy programs in Lincoln,
Rhode Island, where we also had our administrative offices. Although we have
vacated the Rhode Island facilities, we remain obligated to make lease payments
and payments for operating costs of approximately $1,200,000 per year for our
former science and administrative facility, which we have leased through June
30, 2013, and debt service payments and payments for operating costs of
approximately $1,000,000 per year for our former encapsulated cell therapy pilot
manufacturing facility, which we own. We have currently subleased a portion of
the science and administrative facility, but cannot be sure that we will be able
to do so for the entire duration of our obligation. We are seeking to sublease
the remaining portion of the science
1
and administrative facility. We have currently subleased the entire pilot
manufacturing facility, but may not be able to sublease or sell the facility in
the future once the current sublease agreements expire. These continuing costs
significantly reduce our cash resources and adversely affect our ability to fund
further development of our stem cell technology.
WE MAY NEED BUT FAIL TO OBTAIN PARTNERS TO SUPPORT OUR STEM CELL DEVELOPMENT
EFFORTS AND TO COMMERCIALIZE OUR TECHNOLOGY.
Equity and debt financings alone may not be sufficient to fund the cost of
developing our stem cell technologies, and we may need to rely on our ability to
reach partnering arrangements to provide financial support for our stem cell
discovery and development efforts. In addition, in order to successfully develop
and commercialize our technology, we may need to enter into a wide variety of
arrangements with corporate sponsors, pharmaceutical companies, universities,
research groups and others. While we have engaged, and expect to continue to
engage, in discussions regarding such arrangements, we have not reached any
agreement, and we may fail to obtain any such agreement on terms acceptable to
us. Even if we enter into these arrangements, we may not be able to satisfy our
obligations under them or renew or replace them after their original terms
expire. Furthermore, these arrangements may require us to grant certain rights
to third parties, including exclusive marketing rights to one or more products,
may require us to issue securities to our collaborators or may contain other
terms that are burdensome to us. If any of our collaborators terminates its
relationship with us or fails to perform its obligations in a timely manner, the
development or commercialization of our technology and potential products may be
adversely affected.
WE HAVE A HISTORY OF OPERATING LOSSES AND WE MAY FAIL TO OBTAIN REVENUES OR
BECOME PROFITABLE.
We expect to continue to incur substantial operating losses in the future in
order to conduct our research and development activities, and, if those
activities are successful, to fund clinical trials and other expenses. These
expenses include the cost of acquiring technology, product testing, acquiring
regulatory approvals, establishing production, marketing, sales and distribution
programs and administrative expenses. We have not earned any revenues from sales
of any product. All of our past revenues have been derived from, and any
revenues we may obtain for the foreseeable future are expected to be derived
from, cooperative agreements, research grants, investments and interest on
invested capital. We currently have no cooperative agreements and we have
received only two research grants for our stem cell technology, and we may not
obtain any such agreements or additional grants in the future or receive any
revenues from them.
IF WE ARE UNABLE TO PROTECT OUR PATENTS AND PROPRIETARY RIGHTS, OUR
BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATION WILL BE HARMED.
We own or license a number of patents and pending patent applications
covering human nerve stem cell cultures, central nervous system stem cell
cultures, neuroblast cultures, peripheral nervous system stem cell cultures, and
an animal model for liver failure. Patent protection for products such as those
we propose to develop is highly uncertain and involves complex and continually
evolving factual and legal questions. The governmental authorities that consider
patent applications can deny or significantly reduce the patent coverage
requested in an application before or after issuing the patent. Consequently, we
do not know whether any of our pending applications will result in the issuance
of patents, or if any existing or future patents will provide sufficient
protection or significant commercial advantage or if others will circumvent
these patents. We cannot be certain that we were the first to make the
inventions covered by each of our pending patent applications or that we were
the first to file patent applications for such inventions because patent
applications are secret until patents are issued in the United States or until
the applications are published in foreign countries, and because publication of
discoveries in the scientific or patent literature often lags behind actual
discoveries. Patents may not
2
issue from our pending or future patent applications or, if issued, may not be
of commercial benefit to us, or may not afford us adequate protection from
competing products. In addition, third parties may challenge our patents or
governmental authorities may declare them invalid. In the event that a third
party has also filed a patent application relating to inventions claimed in our
patent applications, we may have to participate in proceedings to determine
priority of invention. This could result in substantial uncertainties and cost
for us, even if the eventual outcome is favorable to us, and the outcome might
not be favorable to us. Even if a patent issues, a court could decide that the
patent was issued invalidly.
Proprietary trade secrets and unpatented know-how are also important to our
research and development activities. We cannot be certain that others will not
independently develop the same or similar technologies on their own or gain
access to our trade secrets or disclose such technology, or that we will be able
to meaningfully protect our trade secrets and unpatented know-how and keep them
secret. We require our employees, consultants, and significant scientific
collaborators and sponsored researchers to execute confidentiality agreements
upon the commencement of an employment or consulting relationship with us. These
agreements may, however, fail to provide meaningful protection or adequate
remedies for us in the event of unauthorized use, transfer or disclosure of such
information or inventions.
IF OTHERS ARE FIRST TO DISCOVER AND PATENT THE STEM CELLS WE ARE SEEKING TO
DISCOVER, WE COULD BE BLOCKED FROM FURTHER WORK ON THOSE STEM CELLS.
Because the first person or entity to discover and obtain a valid patent to
a particular stem or progenitor cell may effectively block all others, it will
be important for us or our collaborators to be the first to discover any stem
cell that we are seeking to discover. Failure to be the first could prevent us
from commercializing all of our research and development affected by that
patent.
WE MAY BE UNABLE TO OBTAIN NECESSARY LICENSES TO THIRD PARTY PATENTS AND
OTHER RIGHTS.
A number of pharmaceutical, biotechnology and other companies, universities
and research institutions have filed patent applications or have received
patents relating to cell therapy, stem cells and other technologies potentially
relevant to or necessary for our expected products. We cannot predict which, if
any, of the applications will issue as patents. If third party patents or patent
applications contain claims infringed by our technology and these claims are
valid, we may be unable to obtain licenses to these patents at a reasonable
cost, if at all, and may also be unable to develop or obtain alternative
technology. If we are unable to obtain such licenses at a reasonable cost, our
business could be significantly harmed.
We have obtained rights from universities and research institutions to
technologies, processes and compounds that we believe may be important to the
development of our products. Licensors may cancel our licenses or convert them
to non-exclusive licenses if we fail to use the relevant technology or otherwise
breach these agreements. Loss of these licenses could expose us to the risks of
third party patents and/or technology. We can give no assurance that any of
these licenses will provide effective protection against our competitors.
WE COMPETE WITH COMPANIES THAT HAVE SIGNIFICANT ADVANTAGES OVER US.
The market for therapeutic products that address degenerative diseases is
large and competition is intense. We expect competition to increase. We believe
that our most significant competitors will be fully integrated pharmaceutical
companies and more established biotechnology companies, such as Biogen, Inc. and
Genzyme, an Elan Corporation. These companies already produce or are developing
treatments for degenerative diseases that are not stem cell-based, and they have
significantly greater capital resources and expertise in research and
development, manufacturing, testing, obtaining
3
regulatory approvals and marketing than we do. Many of these potential
competitors have significant products approved or in development that could be
competitive with our potential products, and also operate large, well-funded
research and development programs. In addition, we expect to compete with
smaller companies such as NeuralStem and Layton Bioscience and with universities
and other research institutions who are developing treatments for degenerative
diseases that are stem cell-based.
Our competitors may succeed in developing technologies and products that are
more effective than the ones we are developing, or that would render our
technology obsolete or non-competitive.
The relative speed with which we and our competitors can develop products,
complete the clinical testing and approval processes, and supply commercial
quantities of a product to market will affect our ability to gather market
acceptance and market share. With respect to clinical testing, competition may
delay progress by limiting the number of clinical investigators and patients
available to test our potential products.
DEVELOPMENT OF OUR TECHNOLOGY IS SUBJECT TO AND RESTRICTED BY EXTENSIVE
GOVERNMENT REGULATION.
Our research and development efforts, as well as any future clinical trials,
and the manufacturing and marketing of any products we may develop, will be
subject to and restricted by extensive regulation by governmental authorities in
the United States and other countries. The process of obtaining U.S. Food and
Drug Administration and other necessary regulatory approvals is lengthy,
expensive and uncertain. We or our collaborators may fail to obtain the
necessary approvals to commence or continue clinical testing or to manufacture
or market our potential products in reasonable time frames, if at all. In
addition, the U.S. Congress and other legislative bodies may enact regulatory
reforms or restrictions on the development of new therapies that could adversely
affect the regulatory environment in which we operate or the development of any
products we may develop.
We base our research and development on the use of human stem and progenitor
cells obtained from fetal tissue. The federal and state governments and other
jurisdictions impose restrictions on the use of fetal tissue. These restrictions
change from time to time and may become more onerous. Additionally, we may not
be able to identify or develop reliable sources for the cells necessary for our
potential products--that is, sources that follow all state and federal
guidelines for cell procurement. Further, we may not be able to obtain such
cells in the quantity or quality sufficient to satisfy the commercial
requirements of our potential products. As a result, we may be unable to develop
or produce our products in a profitable manner.
We may apply for status under the Orphan Drug Act for some of our therapies
to gain a seven year period of marketing exclusivity for those therapies. The
U.S. Congress in the past has considered, and in the future again may consider,
legislation that would restrict the extent and duration of the market
exclusivity of an orphan drug. If enacted, such legislation could prevent us
from obtaining some or all of the benefits of the existing statute even if we
were to apply for and be granted orphan drug status with respect to a potential
product.
WE DEPEND ON A LIMITED NUMBER OF KEY PERSONNEL.
We are highly dependent on the principal members of our management and
scientific staff and some of our outside consultants, including the members of
our scientific advisory board, our chief executive officer, our vice president
and the directors of our neural stem cell and liver stem cell programs. Although
we have entered into employment agreements with some of these individuals, they
may terminate their agreements at any time. We currently have outside
consultants and interim personnel, rather than permanent employees, in key
management and scientific positions. Loss of services of any of these
individuals could have a material adverse effect on our operations because these
individuals possess management experience or specialized scientific skills that
we do not otherwise have and that we may not be able to replace. In addition,
our operations are dependent upon
4
our ability to attract and retain additional qualified scientific and management
personnel. We may not be able to attract and retain the personnel we need on
acceptable terms given the competition for experienced personnel among
pharmaceutical, biotechnology and health care companies, universities and
research institutions. If we lose the services of these key personnel or are
unable to attract and retain additional qualified personnel, we may have to
delay, reduce or eliminate some or all of our research and development programs.
HEALTH CARE INSURERS AND OTHER ORGANIZATIONS MAY NOT PAY FOR OUR PRODUCTS OR
MAY IMPOSE LIMITS ON REIMBURSEMENTS.
In both domestic and foreign markets, sales of potential products are likely
to depend in part upon the availability and amounts of reimbursement from third
party health care payor organizations, including government agencies, private
health care insurers and other health care payors, such as health maintenance
organizations and self-insured employee plans. There is considerable pressure to
reduce the cost of therapeutic products, and government and other third party
payors are increasingly attempting to contain health care costs by limiting both
coverage and the level of reimbursement for new therapeutic products, and by
refusing, in some cases, to provide any coverage for uses of approved products
for disease indications for which the U.S. Food and Drug Administration has not
granted marketing approval. Significant uncertainty exists as to the
reimbursement status of newly approved health care products. We can give no
assurance that reimbursement will be provided by such payors at all or without
substantial delay, or, if such reimbursement is provided, that the approved
reimbursement amounts will be sufficient to enable us to sell products we
develop on a profitable basis. Changes in reimbursement policy could also
adversely affect the willingness of pharmaceutical companies to collaborate with
us on the development of our stem cell technology.
In certain foreign markets, pricing or profitability of prescription
pharmaceuticals is subject to government control. We also expect that there will
continue to be a number of federal and state proposals to implement government
control over health care costs. Efforts at health care reform are likely to
continue in future legislative sessions. We do not know what legislative
proposals federal or state governments will adopt or what actions federal, state
or private payers for health care goods and services may take in response to
health care reform proposals or legislation. We cannot predict the effect
government control and other health care reforms may have on our business.
WE HAVE LIMITED LIQUIDITY AND CAPITAL RESOURCES AND MAY NOT OBTAIN THE
SIGNIFICANT CAPITAL RESOURCES WE WILL NEED TO SUSTAIN OUR RESEARCH AND
DEVELOPMENT EFFORTS.
We have limited liquidity and capital resources and must obtain substantial
additional capital to support our research and development programs, for
acquisition of technology and intellectual property rights, and, to the extent
we decide to undertake these activities ourselves, for pre-clinical and clinical
testing of our anticipated products, pursuit of regulatory approvals,
establishment of production capabilities, establishment of marketing and sales
capabilities and distribution channels, and general administrative expenses. If
we do not obtain the necessary capital resources, we may have to delay, reduce
or eliminate some or all of our research and development programs or license our
technology or any potential products to third parties rather than
commercializing them ourselves.
If we are unable to draw down on our existing equity line or choose not to
do so, we intend to pursue our needed capital resources through equity and debt
financings, corporate alliances, grants and collaborative research arrangements.
We may fail to obtain the necessary capital resources from any such sources when
needed or on terms acceptable to us. Our ability to complete any such
arrangements successfully will depend upon market conditions and, more
specifically, on continued progress in our research and development efforts. We
are prohibited from entering into other stand-by equity based credit facilities
during the term of the common stock purchase agreement that governs our existing
equity line.
5
IF OUR COMMON STOCK PRICE DROPS SIGNIFICANTLY, WE MAY BE DELISTED FROM THE
NASDAQ NATIONAL MARKET, WHICH COULD ELIMINATE THE TRADING MARKET FOR OUR COMMON
STOCK.
Our common stock is quoted on the Nasdaq National Market. In order to
continue to be included in the Nasdaq National Market, a company must meet
Nasdaq's maintenance criteria. The maintenance criteria most applicable to us
requires a minimum bid price of $1.00 per share and $5,000,000 market value of
publicly held shares. Additionally, we must maintain either $10 million in
stockholders' equity or $4 million in net tangible assets. After November 1,
2002, the net tangible asset maintenance criterion will no longer apply and we
must satisfy the stockholders' equity maintenance criterion. Failure to meet
these maintenance criteria may result in the delisting of our common stock from
the Nasdaq National Market. If our common stock were delisted, in order to have
our common stock relisted on the Nasdaq National Market we would be required to
meet the criteria for initial listing, which are more stringent than the
maintenance criteria. Accordingly, we cannot assure you that if we were delisted
we would be able to have our common stock relisted on the Nasdaq National
Market.
If our common stock were delisted from the Nasdaq National Market, we would
not be able to draw down any additional funds on our existing equity line, and
we also may be required to pay damages to holders of our common stock under
agreements we previously entered into with them in connection with equity
financings. Finally, if our common stock were removed from listing on the Nasdaq
National Market, it might become more difficult for us to raise funds through
the sale of our common stock or securities convertible into our common stock.
USE OF PROCEEDS
We will not receive any of the proceeds from the resale of shares offered by
the selling stockholders under this prospectus.
6
SELLING STOCKHOLDERS
Riverview Group, L.L.C., a wholly owned subsidiary of Millennium Partners,
L.P., will be selling shares in this offering. On December 4, 2001, we issued
5,000 shares of 3% Cumulative Convertible Preferred Stock to Riverview Group.
This preferred stock is convertible into shares of our common stock at a
conversion price of $2.00 per share of common stock. The conversion price is
subject to adjustment for stock splits, dividends, distributions,
reclassifications and similar events. The conversion price may be below the
trading market price of the stock at the time of conversion. We also issued to
Riverview Group a warrant to purchase 350,877 shares of our common stock at a
price of $3.42 per share. The warrant expires on December 4, 2005. The final
closing price on the NASDAQ National Market of our common stock on December 4,
2001 was $2.90 per share. For accounting purposes, the value of the conversion
feature of the preferred stock and the warrant will be treated as a deemed
dividend to holders as of December 4, 2001, and we will reflect the deemed
dividend as an adjustment to net income (loss) applicable to common
stockholders. We entered into a registration rights agreement with Riverview
Group in which we agreed to register the resale of the shares of our common
stock issuable upon conversion of the preferred stock and exercise of the
warrant.
On December 4, 2001, we also entered into an agreement with Millennium under
which we issued 176,101 shares of our common stock as a final cashless exercise
of the two outstanding adjustable warrants that were previously issued to
Millennium. Immediately following delivery of these shares, any further right to
acquire common stock under these adjustable warrants was cancelled by the
agreement. The resale of those shares of common stock was registered pursuant to
an earlier registration statement and prospectus and those shares are not being
sold as part of this offering.
Cantor Fitzgerald & Co. will also be selling shares in this offering. On
December 4, 2001 we issued to Cantor Fitzgerald a warrant to purchase 146,199
shares of our common stock at a price of $3.42 per share. The warrant expires on
December 4, 2006. The warrant was issued as part of an agreement between Cantor
Fitzgerald and us pursuant to which they served as financial advisor to us in
connection with the transactions described above.
The following table shows information regarding the beneficial ownership of
our capital stock for the selling stockholders prior to and after this offering.
We have determined beneficial ownership in the table in accordance with the
rules of the Securities Exchange Commission as more specifically described in
the notes below. In computing the number of shares beneficially owned by the
selling stockholders, we have deemed to be outstanding shares of common stock
issuable under warrants held by the selling stockholders which are currently
exercisable or will become exercisable within 60 days of the date of this
prospectus. In addition, when calculating the number of shares beneficially
owned by Riverview Group, we have included shares of common stock issuable
following conversion of the 3% Cumulative Convertible Preferred Stock where such
conversion is currently permissible or will become permissible within 60 days of
the date of this prospectus. To our knowledge, the selling stockholders possess
sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by them.
SHARES OF COMMON STOCK
BENEFICIALLY OWNED AFTER
SHARES OF COMMON STOCK NUMBER OF THIS OFFERING (5)
BENEFICIALLY OWNED SHARES OF -------------------------
BEFORE THIS OFFERING COMMON
---------------------- STOCK NUMBER OF
SELLING STOCKHOLDERS NUMBER OF SHARES OFFERED SHARES PERCENTAGE
- ------------------------------------------- ---------------------- --------- ----------- -----------
Riverview Group, L.L.C. (1)................ 2,863,835(3) 3,851,002(4) -- --
Cantor Fitzgerald
& Co. (2)................................ * 146,199 -- --
- --------------------------
* Indicates beneficial ownership of less than 1% of the class.
7
(1) The address of Riverview Group, L.L.C. is 666 Fifth Avenue, New York, New
York 10103. Riverview Group is a wholly owned subsidiary of Millennium
Partners, L.P. We previously entered into agreements with Millennium
pursuant to which we issued common stock, callable warrants and adjustable
warrants. Those transactions are described in our annual report on
Form 10-K for the year ended December 31, 2000 and our quarterly report on
Form 10-Q for the quarter ended June 30, 2001.
(2) The address of Cantor Fitzgerald & Co. is 299 Park Avenue, 29th Floor, New
York, New York, 10171.
(3) Includes 350,877 shares of common stock issuable upon exercise of the
warrant issued to Riverview Group on December 4, 2001; plus 500,125 shares
of outstanding common stock issued upon conversion of 1,000 shares of 3%
Cumulative Convertible Preferred Stock on December 7, 2001; plus 2,012,833
shares of common stock issuable upon conversion of the 3% Cumulative
Convertible Preferred Stock. Millennium owns 882,728 shares of outstanding
common stock according to information provided to us by Millennium as of
December 19, 2001, and is the holder of three callable warrants exercisable
for at least 171,839 shares of common stock. In determining how many shares
of common stock are issuable upon conversion of the outstanding 3%
Cumulative Convertible Preferred Stock and upon exercise of all of the
outstanding warrants, we have not taken into consideration the application
of the 9.99% limitations contained in such securities, which prevents
Riverview Group and Millennium from exercising warrants or converting such
preferred stock if such exercise or conversion would result in Millennium
and/or Riverview Group having aggregate beneficial ownership in excess of
9.99%. Millennium and Riverview Group expressly disclaim beneficial
ownership of any number of shares exceeding 9.99% of the outstanding shares
of common stock for purposes of Rule 13d-3 of the Securities Exchange Act of
1934.
(4) Includes 2,012,833 shares of common stock issuable upon conversion of the 3%
Cumulative Convertible Preferred Stock; plus 500,125 shares of common stock
issued upon conversion of 1,000 shares of 3% Cumulative Convertible
Preferred Stock on December 7, 2001; plus 350,877 shares of common stock
issuable upon exercise of the warrant issued to Riverview Group on
December 4, 2001. The remaining 987,167 shares are included based on an
agreement between us and Riverview Group which requires us to register 150%
of the number of common shares issuable upon conversion of the Preferred
Stock at the current conversion price of $2.00.
(5) The table assumes that the selling stockholders sell all of the shares
offered by this prospectus.
8
PLAN OF DISTRIBUTION
We will not receive any of the proceeds from the sale by the selling
stockholders of the common stock offered hereby.
The shares of the common stock offered hereby may be sold from time to time
by the selling stockholders, or by pledgees, donees, transferees or other
successors in interest:
- to or through underwriters or dealers;
- directly to one or more other purchasers;
- through agents on a best-efforts basis;
- through a combination of any such methods of sale; or
- any other manner permitted by law.
Such sales may be made on one or more exchanges or in the over-the-counter
market, or otherwise at prices and at terms then prevailing or at prices related
to the then current market price, or in privately negotiated transactions. The
shares may be sold by one or more of the following:
- a block trade in which the broker or dealer so engaged will attempt to
sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
- purchases by a broker or dealer as principal and resale by such broker or
dealer for its account pursuant to this prospectus;
- an exchange distribution in accordance with the rules of such exchange;
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
- privately negotiated transactions without a broker or dealer; and
- any other manner permitted by law.
In effecting sales, brokers or dealers engaged by the selling stockholders
may arrange for other brokers or dealers to participate. Brokers or dealers will
receive commissions or discounts from the selling stockholders in amounts to be
negotiated prior to the sale. In addition, any securities covered by this
prospectus which qualify for sale pursuant to Rule 144 under the Securities Act
of 1933 may be sold under Rule 144 rather than pursuant to this prospectus.
In addition, the selling stockholders may engage in short sales and other
transactions in the common stock or derivatives thereof, and may pledge, sell,
deliver or otherwise transfer the common stock offered under this prospectus in
connection with such transactions.
If we are notified by a selling stockholder that a material arrangement has
been entered into with a broker-dealer for the sale of shares through a block
trade, special offering, exchange distribution or secondary distribution, or a
purchase by a broker-dealer as a principal, a supplemental prospectus will be
filed listing:
- the name of each selling stockholder and of the participating
broker-dealer(s);
- the number of shares involved;
- the price at which such shares were sold;
- the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable; and
- other facts material to the transaction.
We have agreed to pay the cost of registering the shares covered by this
prospectus and the costs of preparing this prospectus and the registration
statement under which it is filed.
We and the selling stockholders have agreed to indemnify one another against
certain liabilities, including liabilities arising under the Securities Act.
9
LEGAL MATTERS
The validity of the shares of our common stock offered hereby will be passed
upon for us by Ropes & Gray, Boston, Massachusetts.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements included in our Annual Report on Form 10-K for the year
ended December 31, 2000, as set forth in their report, which is incorporated by
reference in this prospectus and elsewhere in the registration statement. Our
financial statements are incorporated by reference in reliance on Ernst & Young
LLP's report, given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-3 under the
Securities Act with respect to the common stock to be sold in this offering.
This prospectus does not contain all the information included in the
registration statement and the related exhibits and schedules. You will find
additional information about us and our common stock in the registration
statement. The registration statement and the related exhibits and schedules may
be inspected and copied at the public reference facilities maintained by the SEC
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the public reference facilities of the SEC's Regional Offices: New York
Regional Office, Seven World Trade Center, Suite 1300, New York, New York 10048;
and Chicago Regional Office, Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661. Copies of this material may also be obtained from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549
at prescribed rates. You can obtain information on the operation of the public
reference facilities by calling 1-800-SEC-0330. The SEC also maintains a site on
the World Wide Web (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants, including
us, that file electronically with the SEC. Statements made in this prospectus
about legal documents may not necessarily be complete and you should read the
documents which are filed as exhibits or schedules to the registration statement
or otherwise filed with the SEC.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference the information we file with
it, which means that we can disclose information important to you by referring
you to those documents. The information incorporated by reference is considered
to be a part of this prospectus, and information that we later file with the SEC
will automatically update and supersede this information. Accordingly, we
incorporate by reference the following documents we filed with the SEC pursuant
to Section 13 of the Securities Exchange Act of 1934:
- our Annual Report on Form 10-K for the year ended December 31, 2000 (filed
April 2, 2001, as amended April 30, 2001);
- our Quarterly Report on Form 10-Q for the quarters ended September 30,
2001 (filed November 7, 2001), June 30, 2001 (filed August 10, 2001) and
March 31, 2001 (filed May 9, 2001);
- our Proxy Statement for the Annual Meeting of Stockholders held on
May 31, 2001 (filed April 30, 2001);
- our Current Reports on Form 8-K dated May 8, 2001 (filed May 8, 2001),
May 14, 2001 (dated May 14, 2001) and December 4, 2001 (filed December 7,
2001);
10
- the description of our common stock contained in the registration
statement on Form 8-A filed with the SEC pursuant to Section 12 of the
Securities Exchange Act of 1934 and all amendments thereto and reports
filed for the purpose of updating such description; and
- all documents filed by us with the SEC pursuant to the Securities Exchange
Act of 1934 after the date of this prospectus and before the offering of
common stock is completed (other than portions of such documents described
in paragraphs (i), (k) and (l) of Item 402 of Regulation S-K promulgated
by the SEC).
These documents are or will be available for inspection or copying at the
locations identified above under the caption "Where You Can Find More
Information." We will provide without charge to each person to whom this
prospectus is delivered, upon written or oral request, a copy of any and all of
the documents that have been incorporated by reference in this prospectus (other
than exhibits to those documents). You should direct requests for documents to:
StemCells, Inc.
3155 Porter Drive
Palo Alto, CA 94304
Attention: Investor Relations
Telephone number: (650) 475-3100
11
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses payable by the
Registrant in connection with the sale of the securities being registered. All
amounts shown are estimates except the SEC registration fee.
SEC registration fee........................................ $ 3,487
Printing and engraving expenses............................. $ 2,000
Legal fees and expenses..................................... $ 5,000
Accounting fees and expenses................................ $10,000
Miscellaneous............................................... $ 2,000
-------
Total....................................................... $22,487
=======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, other than
an action by or in the right of the corporation, by reason of the fact that the
person is or was a director, officer, employee or agent of the corporation or is
or was serving at the corporation's request as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by the person in
connection with the action, suit or proceeding if the person acted in good faith
and in a manner the person reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the person's conduct was
unlawful. The power to indemnify applies to actions brought by or in the right
of the corporation as well, but only to the extent of expenses, including
attorneys' fees but excluding judgments, fines and amounts paid in settlement,
actually and reasonably incurred by the person in connection with the defense or
settlement of the action or suit and with the further limitation that in these
actions no indemnification shall be made in the event of any adjudication of
negligence or misconduct in the performance of his duties to the corporation,
unless a court believes that in light of all the circumstances indemnification
should apply.
Section Ten of our Restated Certificate of Incorporation provides that we
shall, to the maximum extent legally permitted, indemnify and upon request
advance expenses to each person who is or was a party or is threatened to be
made a party to any threatened, pending or completed action, suit proceeding, or
claim (civil, criminal, administrative or investigative) by reason of the fact
that he is or was, or has agreed to become, a director or officer of the
Company, or is or was serving, or has agreed to serve, at the request of the
Company, as a director, officer, partner, employee, agent or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprises, provided, however, that the Company is not required to
indemnify or advance expenses to any person in connection with any action, suit,
proceeding, claim or counterclaim initiated by or on behalf of such person. The
indemnification provided for in Section Ten is expressly not exclusive of any
other rights to which those seeking indemnification may be entitled under any
by-law, agreement or vote of directors or stockholders or otherwise, and shall
inure to the benefit of the heirs and legal representatives of such persons.
Section 145(g) of the Delaware General Corporation Law provides that the
Company shall have the power to purchase and maintain insurance on behalf of its
officers, directors, employees and agents, against any liability asserted
against and incurred by such persons in any such capacity.
II-1
We have obtained insurance covering our directors and officers against
certain liabilities.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a corporation may eliminate or limit the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provisions shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit. No such provision shall eliminate or limit
the liability of a director for any act or omission occurring prior to the date
when such provision becomes effective.
Pursuant to the Delaware General Corporation Law, Section Nine of the
Company's Restated Certificate of Incorporation eliminates a director's personal
liability for monetary damages for breach of fiduciary duty as a director,
except in circumstances involving a breach of the director's duty of loyalty to
StemCells, Inc. or its shareholders, acts or omissions not in good faith,
intentional misconduct, knowing violations of the law, self-dealing or the
unlawful payment of dividends or repurchase of stock.
II-2
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS. The following exhibits are filed as part of this registration
statement:
NUMBER DESCRIPTION
- ------------------------------------------ ------------------------------------------------------------
3.1* Restated Certificate of Incorporation of the Registrant
3.2++ Amended and Restated By-Laws of the Registrant.
4.1* Specimen Common Stock Certificate.
4.2++++ Form of Warrant Certificate issued to a certain purchaser of
the Registrant's Common Stock in April 1995.
4.3X Warrant to Purchase Common Stock--Mark Angelo.
4.4X Warrant to Purchase Common Stock--Robert Farrell.
4.5X Warrant to Purchase Common Stock--Joseph Donahue.
4.6X Warrant to Purchase Common Stock--Hunter Singer.
4.7X Warrant to Purchase Common Stock--May Davis.
4.8X Common Stock Purchase Warrant.
4.9X Callable Warrant, dated July 31, 2000, issued to Millennium
Partners, L.P.
4.10XXX Registration Rights Agreement dated as of May 10, 2001
between the Company and Sativum Investments Limited.
4.11XXX Warrant, dated May 10, 2001, to Purchase Common Stock issued
to Sativum Investments Limited.
4.12XXX Warrant, dated May 10, 2001, to Purchase Common Stock issued
to Pacific Crest Securities, Inc.
4.13XXX Warrant dated May 10, 2001, to Purchase Common Stock issued
to Granite Financial Group, Inc.
4.14XXX Callable Warrant, dated June 21, 2001, issued to Millennium
Partners, L.P.
4.15XXX Common Stock Purchase Warrant, Class A, dated June 21, 2001,
issued to Millennium Partners, L.P.
4.16[**] Certificate of Designations of the Powers, Preferences and
Relative, Participating, Optional and Other Special Rights
of Preferred Stock and Qualifications, Limitations and
Restrictions Thereof of 3% Cumulative Convertible Preferred
Stock for StemCells, Inc.
4.17[**] Warrant to Purchase Common Stock--Riverview Group, L.L.C.
4.18 Warrant to Purchase Common Stock--Cantor Fitzgerald & Co.
5.1XXXX Opinion of Ropes & Gray.
10.1* Amendment to Registration Rights dated as of February 14,
1992 among the Registrant and certain of its stockholders.
10.2* Form of at-will Employment Agreement between the Registrant
and most of its employees.
10.3* Form of Agreement for Consulting Services between the
Registrant and members of its Scientific Advisory Board.
10.4* Form of Nondisclosure Agreement between the Registrant and
its Contractors.
II-3
NUMBER DESCRIPTION
- ------------------------------------------ ------------------------------------------------------------
10.5* Master Lease and Warrant Agreement dated April 23, 1991
between the Registrant and PacifiCorp Credit, Inc.
10.6* 1988 Stock Option Plan.
10.7* 1992 Equity Incentive Plan.
10.8* 1992 Stock Option Plan for Non-Employee Directors.
10.9**!!!! 1992 Employee Stock Purchase Plan.
10.12++ Research Agreement dated as of March 16, 1994 between
NeuroSpheres, Ltd. and Registrant.
10.13++ Term Loan Agreement dated as of September 30, 1994 between
The First National Bank of Boston and Registrant.
10.14++ Lease Agreement between the Registrant and Rhode Island
Industrial Facilities Corporation, dated as of August 1,
1992.
10.15++ First Amendment to Lease Agreement between Registrant and
The Rhode Island Industrial Facilities Corporation dated as
of September 15, 1994.
10.17**++++ Development, Marketing and License Agreement, dated as of
March 30, 1995 between Registrant and Astra AB.
10.18++++ Form of Unit Purchase Agreement to be executed by the
purchasers of the Common Stock and Warrants offered in April
1995.
10.19+++ Form of Common Stock Purchase Agreement to be executed among
the Registrant and certain purchasers of the Registrant's
Common Stock.
10.22### Lease Agreement dated as of November 21, 1997 by and between
Hub RI Properties Trust, as Landlord, and CytoTherapeutics,
Inc., as Tenant.
10.24!! CTI individual stockholders option agreement dated as of
July 10, 1996 among the Company and the individuals listed
therein.
10.25!! CTI Valoria option agreement dated of July 10, 1996 between
the Company and the Societe Financiere Valoria SA.
10.26!!! Term Loan Agreement dated as of October 22, 1996 between The
First National Bank of Boston and the Registrant.
10.27*** Agreement and Plan of Merger dated as of August 13, 1997
among StemCells, Inc., the Registrant and CTI Acquisition
Corp.
10.28*** Consulting Agreement dated as of September 25, 1997 between
Dr. Irving Weissman and the Registrant.
10.29### Letter Agreement among each of Dr. Irving Weissman and Dr.
Fred H. Gage and the Registrant.
10.32**** StemCells, Inc. 1996 Stock Option Plan.
10.33**** 1997 StemCells Research Stock Option Plan (the "1997 Plan").
10.34**** Form of Performance-Based Incentive Option Agreement issued
under the 1997 Plan.
10.35### Employment Agreement dated as of September 25, 1997 between
Dr. Richard M. Rose and the Registrant.
10.38[*] Rights Agreement, dated as of July 27, 1998 between Bank
Boston, N.A. as Rights Agent and the Registrant.
II-4
NUMBER DESCRIPTION
- ------------------------------------------ ------------------------------------------------------------
10.40%** Consulting Services Agreement dated as of July 27, 1998, as
amended December 19, 1998 between Dr. John J. Schwartz and
the Registrant.
10.41%** Letter Agreement dated as of December 19, 1998 between John
J. Schwartz and the Registrant.
10.42%** License Agreement dated as of October 27, 1998 between The
Scripps Research Institute and the Registrant.
10.43%** License Agreement dated as of October 27, 1998 between The
Scripps Research Institute and the Registrant.
10.44%** License Agreement dated as of November 20, 1998 between The
Scripps Research Institute and the Registrant.
10.45%%** Purchase Agreement and License Agreement dated as of
December 29, 1999 between Neurotech S.A. and the Registrant.
10.46** License Agreement, dated as of June 1999, between The
Scripps Research Institute and the Registrant.
10.47** License Agreement, dated as of June 1999, between The
Scripps Research Institute and the Registrant.
10.48X Form of Registration Rights Agreement, dated as of July 31,
2000, between StemCells, Inc. and investors.
10.49X Subscription Agreement, dated as of July 31, 2000, between
StemCells, Inc. and Millennium Partners, L.P.
10.50XXX Common Stock Purchase Agreement, dated as of May 10, 2001,
between the Company and Sativum Investments Limited.
10.51XXX Esrow Agreement, dated as of May 10, 2001, among the
Company, Sativum Investments Limited and Epstein, Becker &
Green, P.C.
10.52XX License Agreement, dated as of October 30, 2000, between the
Company and Neuro Spheres Ltd.
10.53XX Letter Agreement, dated January 2, 2001, between the Company
and Martin McGlynn.
10.54XX Lease, dated February 1, 2001, between the Board of Trustees
of Stanford University and the Company.
10.55XXX Registration Rights Agreement, dated as of June 21, 2001, by
and between the Company and Millennium Partners, L.P.
10.56XXX Subscription Agreement, dated as of June 21, 2001, by and
between the Company and Millennium Partners, L.P.
10.57%%% 2001 Equity Incentive Plan.
10.58[**] Subscription Agreement dated as of December 4, 2001 between
StemCells, Inc. and Riverview Group, L.L.C.
10.59[**] Registration Rights Agreement dated as of December 4, 2001
between StemCells, Inc. and Riverview Group, L.L.C.
10.60[**] Agreement dated as of December 4, 2001 between StemCells,
Inc. and Millennium Partners, L.P.
10.61[**] Agreement dated as of December 4, 2001 among StemCells,
Inc., Millennium Partners, L.P. and Riverview Group, L.L.C.
II-5
NUMBER DESCRIPTION
- ------------------------------------------ ------------------------------------------------------------
21.1X Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2XXXX Consent of Ropes & Gray (included in the form of opinion
filed as Exhibit 5.1).
24.1 Power of Attorney pursuant to which amendments to this
registration statement may be filed (contained on page II-9
hereto).
99.2XX Side Letter, dated March 17, 2001, between the Company and
Oleh S. Hnatiuk regarding NeuroSpheres License Agreement,
dated October 30, 2000.
- ------------------------
++ Previously filed with the Commission as Exhibits to, and incorporated
herein by reference to, the Registrant's Registration Statement on
Form S-1, File No. 333-85494.
+++ Previously filed with the Commission as Exhibits to, and incorporated
herein by reference to, the Registrant's Registration Statement on
Form S-3, File No. 333-97272.
++++ Previously filed with the Commission as Exhibits to, and incorporated
herein by reference to, the Registrant's Registration Statement on
Form S-1, File No. 333-91228.
* Previously filed with the Commission as Exhibits to, and
incorporated herein by reference to, Registration Statement on
Form S-1, File No. 333-45739.
# Previously filed with the Commission as Exhibits to, and incorporated
herein by reference to, the Registrant's Annual Report on Form 10-K
for fiscal year ended December 31, 1992 and filed March 30, 1993.
** Confidential treatment requested as to certain portions. The term
"confidential treatment" and the mark "**" as used throughout the
indicated Exhibits mean that material has been omitted and separately
filed with the Commission.
## Previously filed with the Commission as Exhibits to, and incorporated
herein by reference to, the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1994 and filed on May 14,
1994.
+ Previously filed with the Commission as Exhibits to, and incorporated
herein by reference to, the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993 and filed on March 30,
1994.
! Previously filed with the Commission as an Exhibit to and
incorporated by reference to, the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996.
!! Previously filed with the Commission as an Exhibit to and
incorporated by reference to, the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996.
!!! Previously filed with the Commission as an Exhibit to, and
incorporated herein by reference to, the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996 and filed on
March 31, 1997.
!!!! Previously filed with the Commission as an Exhibit to, and
incorporated herein by reference to, the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995.
*** Previously filed with the Commission as Exhibits to, and
incorporated herein by reference to, the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997 and
filed on November 14, 1997.
**** Previously filed with the Commission as Exhibits to, and
incorporated herein by reference to, the Registrant's Registration
Statement on Form S-8, File No. 333-37313.
II-6
### Previously filed with the Commission as an Exhibit to, and
incorporated herein by reference to, the Registrant's annual report
on Form 10-K for the fiscal year ended December 31, 1997 and filed on
March 30, 1998.
[*] Previously filed with the Commission as an Exhibit to, and
incorporated herein by reference to, the Registrant's current report
on Form 8-K filed on August 3, 1998.
[**] Previously filed with the Commission as an Exhibit to, and
incorporated herein by reference to, the Registrant's current report
on Form 8-K filed on December 7, 2001.
% Previously filed with the Commission as an Exhibit to, and
incorporated herein by reference to, the Registrant's annual report
on Form 10-K for the fiscal year ended December 31, 1998 and filed on
March 31, 1999.
%% Previously filed with the Commission as an Exhibit to, and
incorporated herein by reference to, the Registrant's current report
on Form 8-K on January 14, 2000.
%%% Previously filed with the Commission as an Exhibit to, and incorporated
herein by reference to, the Registrant's definitive proxy statement
filed May 1, 2001.
X Previously filed with the Commission as an Exhibit to, and
incorporated herein by reference to, the Registrant's Registration
Statement on Form S-1, File No. 333-45496.
XX Previously filed with the Commission as an Exhibit to, and
incorporated herein by reference to, the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 2000 and filed on
April 2, 2001.
XXX Previously filed with the Commission as an Exhibit to, and incorporated
herein by reference to, the Registrant's Registration Statement filed
on Form S-1 as amended to Form S-3, File No. 333-61726.
XXXX Previously filed with the Commission as a Exhibit to, and incorporated
herein by reference to, the Registrant's Registration Statement filed
on Form S-3, File No. 333-75806.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered
II-7
would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
(4) To file a post-effective amendment to the Registration Statement to
include any financial statements required by section 10(a)(3) of the
Securities Act.
(c) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the registrant's annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in
the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial BONA FIDE
offering thereof.
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Pre-Effective Amendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Palo Alto, State of California, on the 9th day of January, 2002.
STEMCELLS, INC.
BY: *
-----------------------------------------
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to the Registration Statement has been signed by
the following persons in the capacities indicated on January 9, 2002.
SIGNATURE TITLE
--------- -----
Martin M. McGlynn,
President, Chief Executive Officer
* (Principal Executive Officer), Director
-------------------------------------------
George Koshy,
Controller and Acting Chief Financial
Officer (Principal Financial Officer and
* Principal Accounting Officer)
-------------------------------------------
Mark J. Levin
* Director
-------------------------------------------
Roger M. Perlmutter, M.D., Ph.D.
* Director
-------------------------------------------
John J. Schwartz, Ph.D.
* Director
-------------------------------------------
Irving Weissman, M.D.
* Director
-------------------------------------------
Ricardo B. Levy, Ph.D.
* Director
-------------------------------------------
* By executing her name hereto, Iris Brest is signing the document on behalf
of the persons indicated above pursuant to the power of attorney duly
executed by such persons and filed with the Securities and Exchange
Commission.
* By: /s/ IRIS BREST
------------------------------
Iris Brest
ATTORNEY-IN-FACT
II-9
EXHIBIT INDEX
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
3.1* Restated Certificate of Incorporation of the Registrant
3.2++ Amended and Restated By-Laws of the Registrant.
4.1* Specimen Common Stock Certificate.
4.2++++ Form of Warrant Certificate issued to a certain purchaser of
the Registrant's Common Stock in April 1995.
4.3X Warrant to Purchase Common Stock--Mark Angelo.
4.4X Warrant to Purchase Common Stock--Robert Farrell.
4.5X Warrant to Purchase Common Stock--Joseph Donahue.
4.6X Warrant to Purchase Common Stock--Hunter Singer.
4.7X Warrant to Purchase Common Stock--May Davis.
4.8X Common Stock Purchase Warrant.
4.9X Callable Warrant, dated July 31, 2000, issued to Millennium
Partners, L.P.
4.10XXX Registration Rights Agreement dated as of May 10, 2001
between the Company and Sativum Investments Limited.
4.11XXX Warrant, dated May 10, 2001, to Purchase Common Stock issued
to Sativum Investments Limited.
4.12XXX Warrant, dated May 10, 2001, to Purchase Common Stock issued
to Pacific Crest Securities, Inc.
4.13XXX Warrant dated May 10, 2001, to Purchase Common Stock issued
to Granite Financial Group, Inc.
4.14XXX Callable Warrant, dated June 21, 2001, issued to Millennium
Partners, L.P.
4.15XXX Common Stock Purchase Warrant, Class A, dated June 21, 2001,
issued to Millennium Partners, L.P.
4.16[**] Certificate of Designations of the Powers, Preferences and
Relative, Participating, Optional and Other Special Rights
of Preferred Stock and Qualifications, Limitations and
Restrictions Thereof of 3% Cumulative Convertible Preferred
Stock for StemCells, Inc.
4.17[**] Warrant to Purchase Common Stock--Riverview Group, L.L.C.
4.18 Warrant to Purchase Common Stock--Cantor Fitzgerald & Co.
5.1XXXX Opinion of Ropes & Gray.
10.1* Amendment to Registration Rights dated as of February 14,
1992 among the Registrant and certain of its stockholders.
10.2* Form of at-will Employment Agreement between the Registrant
and most of its employees.
10.3* Form of Agreement for Consulting Services between the
Registrant and members of its Scientific Advisory Board.
10.4* Form of Nondisclosure Agreement between the Registrant and
its Contractors.
10.5* Master Lease and Warrant Agreement dated April 23, 1991
between the Registrant and PacifiCorp Credit, Inc.
10.6* 1988 Stock Option Plan.
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
10.7* 1992 Equity Incentive Plan.
10.8* 1992 Stock Option Plan for Non-Employee Directors.
10.9**!!!! 1992 Employee Stock Purchase Plan.
10.12++ Research Agreement dated as of March 16, 1994 between
NeuroSpheres, Ltd. and Registrant.
10.13++ Term Loan Agreement dated as of September 30, 1994 between
The First National Bank of Boston and Registrant.
10.14++ Lease Agreement between the Registrant and Rhode Island
Industrial Facilities Corporation, dated as of August 1,
1992.
10.15++ First Amendment to Lease Agreement between Registrant and
The Rhode Island Industrial Facilities Corporation dated as
of September 15, 1994.
10.17**++++ Development, Marketing and License Agreement, dated as of
March 30, 1995 between Registrant and Astra AB.
10.18++++ Form of Unit Purchase Agreement to be executed by the
purchasers of the Common Stock and Warrants offered in April
1995.
10.19+++ Form of Common Stock Purchase Agreement to be executed among
the Registrant and certain purchasers of the Registrant's
Common Stock.
10.22### Lease Agreement dated as of November 21, 1997 by and between
Hub RI Properties Trust, as Landlord, and CytoTherapeutics,
Inc., as Tenant.
10.24!! CTI individual stockholders option agreement dated as of
July 10, 1996 among the Company and the individuals listed
therein.
10.25!! CTI Valoria option agreement dated of July 10, 1996 between
the Company and the Societe Financiere Valoria SA.
10.26!!! Term Loan Agreement dated as of October 22, 1996 between The
First National Bank of Boston and the Registrant.
10.27*** Agreement and Plan of Merger dated as of August 13, 1997
among StemCells, Inc., the Registrant and CTI Acquisition
Corp.
10.28*** Consulting Agreement dated as of September 25, 1997 between
Dr. Irving Weissman and the Registrant.
10.29### Letter Agreement among each of Dr. Irving Weissman and Dr.
Fred H. Gage and the Registrant.
10.32**** StemCells, Inc. 1996 Stock Option Plan.
10.33**** 1997 StemCells Research Stock Option Plan (the "1997 Plan").
10.34**** Form of Performance-Based Incentive Option Agreement issued
under the 1997 Plan.
10.35### Employment Agreement dated as of September 25, 1997 between
Dr. Richard M. Rose and the Registrant.
10.38[*] Rights Agreement, dated as of July 27, 1998 between Bank
Boston, N.A. as Rights Agent and the Registrant.
10.40%** Consulting Services Agreement dated as of July 27, 1998, as
amended December 19, 1998 between Dr. John J. Schwartz and
the Registrant.
10.41%** Letter Agreement dated as of December 19, 1998 between John
J. Schwartz and the Registrant.
10.42%** License Agreement dated as of October 27, 1998 between The
Scripps Research Institute and the Registrant.
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
10.43%** License Agreement dated as of October 27, 1998 between The
Scripps Research Institute and the Registrant.
10.44%** License Agreement dated as of November 20, 1998 between The
Scripps Research Institute and the Registrant.
10.45%%** Purchase Agreement and License Agreement dated as of
December 29, 1999 between Neurotech S.A. and the Registrant.
10.46** License Agreement, dated as of June 1999, between The
Scripps Research Institute and the Registrant.
10.47** License Agreement, dated as of June 1999, between The
Scripps Research Institute and the Registrant.
10.48X Form of Registration Rights Agreement, dated as of July 31,
2000, between StemCells, Inc. and investors.
10.49X Subscription Agreement, dated as of July 31, 2000, between
StemCells, Inc. and Millennium Partners, L.P.
10.50XXX Common Stock Purchase Agreement, dated as of May 10, 2001,
between the Company and Sativum Investments Limited.
10.51XXX Esrow Agreement, dated as of May 10, 2001, among the
Company, Sativum Investments Limited and Epstein, Becker &
Green, P.C.
10.52XX License Agreement, dated as of October 30, 2000, between the
Company and Neuro Spheres Ltd.
10.53XX Letter Agreement, dated January 2, 2001, between the Company
and Martin McGlynn.
10.54XX Lease, dated February 1, 2001, between the Board of Trustees
of Stanford University and the Company.
10.55XXX Registration Rights Agreement, dated as of June 21, 2001, by
and between the Company and Millennium Partners, L.P.
10.56XXX Subscription Agreement, dated as of June 21, 2001, by and
between the Company and Millennium Partners, L.P.
10.57%%% 2001 Equity Incentive Plan.
10.58[**] Subscription Agreement dated as of December 4, 2001 between
StemCells, Inc. and Riverview Group, L.L.C.
10.59[**] Registration Rights Agreement dated as of December 4, 2001
between StemCells, Inc. and Riverview Group, L.L.C.
10.60[**] Agreement dated as of December 4, 2001 between StemCells,
Inc. and Millennium Partners, L.P.
10.61[**] Agreement dated as of December 4, 2001 among StemCells,
Inc., Millennium Partners, L.P. and Riverview Group, L.L.C.
21.1X Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2XXXX Consent of Ropes & Gray (included in the form of opinion
filed as Exhibit 5.1).
24.1 Power of Attorney pursuant to which amendments to this
registration statement may be filed (contained on page II-9
hereto).
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
99.2XX Side Letter, dated March 17, 2001, between the Company and
Oleh S. Hnatiuk regarding NeuroSpheres License Agreement,
dated October 30, 2000.
- ------------------------
++ Previously filed with the Commission as Exhibits to, and incorporated
herein by reference to, the Registrant's Registration Statement on
Form S-1, File No. 333-85494.
+++ Previously filed with the Commission as Exhibits to, and incorporated
herein by reference to, the Registrant's Registration Statement on
Form S-3, File No. 333-97272.
++++ Previously filed with the Commission as Exhibits to, and incorporated
herein by reference to, the Registrant's Registration Statement on
Form S-1, File No. 333-91228.
* Previously filed with the Commission as Exhibits to, and
incorporated herein by reference to, Registration Statement on
Form S-1, File No. 333-45739.
# Previously filed with the Commission as Exhibits to, and incorporated
herein by reference to, the Registrant's Annual Report on Form 10-K
for fiscal year ended December 31, 1992 and filed March 30, 1993.
** Confidential treatment requested as to certain portions. The term
"confidential treatment" and the mark "**" as used throughout the
indicated Exhibits mean that material has been omitted and separately
filed with the Commission.
## Previously filed with the Commission as Exhibits to, and incorporated
herein by reference to, the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1994 and filed on May 14,
1994.
+ Previously filed with the Commission as Exhibits to, and incorporated
herein by reference to, the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993 and filed on March 30,
1994.
! Previously filed with the Commission as an Exhibit to and
incorporated by reference to, the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996.
!! Previously filed with the Commission as an Exhibit to and
incorporated by reference to, the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996.
!!! Previously filed with the Commission as an Exhibit to, and
incorporated herein by reference to, the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996 and filed on
March 31, 1997.
!!!! Previously filed with the Commission as an Exhibit to, and
incorporated herein by reference to, the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995.
*** Previously filed with the Commission as Exhibits to, and
incorporated herein by reference to, the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997 and
filed on November 14, 1997.
**** Previously filed with the Commission as Exhibits to, and
incorporated herein by reference to, the Registrant's Registration
Statement on Form S-8, File No. 333-37313.
### Previously filed with the Commission as an Exhibit to, and
incorporated herein by reference to, the Registrant's annual report
on Form 10-K for the fiscal year ended December 31, 1997 and filed on
March 30, 1998.
[*] Previously filed with the Commission as an Exhibit to, and
incorporated herein by reference to, the Registrant's current report
on Form 8-K filed on August 3, 1998.
[**] Previously filed with the Commission as an Exhibit to, and
incorporated herein by reference to, the Registrant's current report
on Form 8-K filed on December 7, 2001.
% Previously filed with the Commission as an Exhibit to, and
incorporated herein by reference to, the Registrant's annual report
on Form 10-K for the fiscal year ended December 31, 1998 and filed on
March 31, 1999.
%% Previously filed with the Commission as an Exhibit to, and
incorporated herein by reference to, the Registrant's current report
on Form 8-K on January 14, 2000.
%%% Previously filed with the Commission as an Exhibit to, and incorporated
herein by reference to, the Registrant's definitive proxy statement
filed May 1, 2001.
X Previously filed with the Commission as an Exhibit to, and
incorporated herein by reference to, the Registrant's Registration
Statement on Form S-1, File No. 333-45496.
XX Previously filed with the Commission as an Exhibit to, and
incorporated herein by reference to, the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 2000 and filed on
April 2, 2001.
XXX Previously filed with the Commission as an Exhibit to, and incorporated
herein by reference to, the Registrant's Registration Statement filed
on Form S-1 as amended to Form S-3, File No. 333-61726.
XXXX Previously filed with the Commission as a Exhibit to, and incorporated
herein by reference to, the Registrant's Registration Statement filed
on Form S-3, File No. 333-75806.
Exhibit 4.18
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES
ONLY AND NOT WITH A VIEW TOWARD RESALE OR DISTRIBUTION. THIS WARRANT AND ANY
SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT MAY NOT BE OFFERED FOR
SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE
AND SCOPE REASONABLY ACCEPTABLE TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT, OR AS OTHERWISE PROVIDED FOR IN THIS WARRANT. IN ADDITION, THE
HOLDER OF THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS
WARRANT IS ENTITLED TO CERTAIN REGISTRATION RIGHTS AS SET FORTH IN THIS WARRANT.
STEMCELLS, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: CF-1 Number of Shares Issuable:
146,199
Date of Issuance: December 4, 2001
StemCells, Inc., a Delaware corporation (the "COMPANY"), hereby
certifies that, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Cantor Fitzgerald & Co., the registered holder
hereof or its permitted assigns (the "HOLDER"), is entitled, subject to the
terms set forth below, to purchase from the Company upon surrender of this
Warrant, at any time or times on or after the date hereof, but not after 5:00
P.M. Eastern Standard Time on the Expiration Date (as defined herein) 146,199
fully paid, nonassessable shares of Common Stock (as defined herein) of the
Company (the "WARRANT SHARES") at the Warrant Exercise Price per share provided
in Section l(a) below. This Warrant (the "WARRANT") is issued pursuant to
Section 4(b) of the letter agreement between the Company and Cantor Fitzgerald &
Co., dated as of December 3, 2001 (the "ENGAGEMENT AGREEMENT").
1. DEFINITIONS AND INTERPRETATION.
(a) DEFINITIONS. The following words and terms as used in this Warrant
shall have the following meanings:
(i) "BUSINESS DAY" means any day on which commercial banks in
New York City are required or permitted to be open for business.
(ii) "COMMON STOCK" means (i) the Company's common stock, par
value .01 per share, and (ii) any capital stock into which such Common
Stock shall have been changed or any capital stock resulting from a
reclassification of such Common Stock.
(iii) "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
(iv) "EXPIRATION DATE" means the date four (4) years from the
date of the issuance of the Warrant set forth above (unless otherwise
extended by the Company) or, if such date falls on a Saturday, Sunday
or other day on which banks are required or authorized to be closed in
the City of New York or the State of New York (a "Holiday"), the next
preceding date that is not a Holiday.
(v) "MARKET PRICE" shall mean, on any date specified herein,
the amount per share of the Common Stock, equal to (a) if such Common
Stock is then listed or admitted for trading on any national securities
exchange, the last reported sale price of such Common Stock, regular
way, on such date or, in case no such sale takes place on such date,
the average of the closing bid and asked prices thereof, regular way,
on such date, in either case as officially reported on the principal
national securities exchange on which such Common Stock is then listed
or admitted for trading, or (b) if such Common Stock is not then listed
or admitted for trading on any national securities exchange but is
designated as a national market system security by the NASD, the last
reported trading price of the Common Stock on such date, or (c) if such
Common Stock is not then listed or admitted for trading on any national
securities exchange and (i) the Common Stock is not designated as a
national market system security by the NASD or (ii) there shall have
been no trading on such date, the average of the closing bid and asked
prices of the Common Stock on such date as shown by the NASD automated
quotation system or the Nasdaq SmallCap Market, or (d) if such Common
Stock is not then listed or admitted for trading on any national
exchange or quoted in the over-the-counter market, the fair value
thereof (as of a date which is within 20 days of the date as of which
the determination is to be made) determined in good faith by the Board
of Directors of the Company.
(vi) "PERSON" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or
agency thereof.
(vii) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(viii) "WARRANT" shall mean this warrant and all warrants
issued in exchange, transfer or replacement of any thereof.
(ix) "WARRANT EXERCISE PRICE" shall be equal to $3.42 per
share of Common Stock, subject to adjustment as hereinafter provided.
(x) "WARRANT SHARES" means the shares of Common Stock issuable
upon exercise of this Warrant.
2
(b) OTHER DEFINITIONAL PROVISIONS.
(i) Except as otherwise specified herein, all references
herein (A) to the Company shall be deemed to include the Company's
successors and (B) to any applicable law defined or referred to herein,
shall be deemed references to such applicable law as the same may have
been or may be amended or supplemented from time to time.
(ii) Unless the context of this Warrant otherwise requires:
(1) the words "hereof", "herein" and "hereunder" and words of similar
import when used in this Warrant shall refer to this Warrant as a whole
and not to any particular provision of this Warrant, and Section and
paragraph references are to the Sections and paragraphs of this Warrant
unless otherwise specified; and (2) the word "including" and words of
similar import when used in this Warrant shall mean "including, without
limitation," unless otherwise specified.
(iii) Whenever the context so requires, the neuter gender
includes the masculine or feminine, and the singular number includes
the plural, and vice versa.
2. EXERCISE OF WARRANT.
(a) Subject to the terms and conditions hereof, this Warrant may be
exercised by the holder hereof then registered on the books of the Company, in
whole or in part, at any time on any Business Day after the opening of business
on the date hereof and prior to 5:00 P.M. Eastern Standard Time on the
Expiration Date by:
(i) delivery of a written notice, in the form of the exercise
notice attached as Exhibit A hereto (a "EXERCISE NOTICE"), of such
holder's election to exercise this Warrant, which notice shall specify
the number of Warrant Shares to be purchased;
(ii) payment to the Company (X) of an amount equal to the
Warrant Exercise Price multiplied by the number of Warrant Shares as to
which the Warrant is being exercised (plus any applicable issue or
transfer taxes) (the "AGGREGATE WARRANT EXERCISE PRICE") in cash or by
check or wire transfer, or (Y) by means of direction to the Company to
cancel such number of the shares of Common Stock otherwise issuable to
the holder upon such exercise equal to the number of shares specified
in the Exercise Notice MULTIPLIED BY the Warrant Exercise Price DIVIDED
BY the Market Price on the date of exercise, or (Z) by surrender to the
Company for cancellation certificates representing shares of Common
Stock of the Company owned by the Holder (properly endorsed for
transfer in blank) having an aggregate Market Price on the date of the
exercise of the Warrant equal to some or all of the Aggregate Warrant
Exercise Price (either subclause (Y) or (Z) immediately preceding, a
"CASHLESS EXERCISE"); and
(iii) the surrender of this Warrant, to a common carrier for
delivery to the Company as soon as practicable following such date (but
in any case prior to 5:00 P.M. Eastern Standard Time on the Expiration
Date), this Warrant
3
(or an indemnification undertaking with respect to this Warrant in the
case of its loss, theft, or destruction); PROVIDED that if such Warrant
Shares are to be issued in any name other than that of the registered
holder of this Warrant, such issuance shall be deemed a transfer and
the provisions of Section 7 shall be applicable.
In the event of any exercise of the rights represented by this Warrant in
compliance with this Section 2, a certificate or certificates for the Warrant
Shares so purchased, in such denominations as may be requested by the holder
hereof and registered in the name of, or as directed by, the Holder, shall be
delivered at the Company's expense to, or as directed by, such holder as soon as
practicable after such rights shall have been so exercised, and in any event no
later than three (3) Business Days after the Company's receipt of the materials
and payments specified above in this Section 2(a). Upon the Company's receipt of
the materials and payments specified above in this Section 2(a), the Holder
shall be deemed for all corporate purposes to have become the holder of record
of the Warrant Shares with respect to which this Warrant has been exercised,
irrespective of the date of delivery of the certificates evidencing such Warrant
Shares. In the case of a dispute as to the determination of the Warrant Exercise
Price or the Market Price or the arithmetic calculation of the Warrant Shares,
the Company shall promptly issue to the Holder the number of shares of Common
Stock that is not disputed and shall submit the disputed determinations or
arithmetic calculations to the Holder via facsimile within three (3) Business
Days of receipt of the Holder's Exercise Notice. If the Holder and the Company
are unable to agree upon the determination of the Warrant Exercise Price or
Market Price or arithmetic calculation of the Warrant Shares within three (3)
Business Days of such disputed determination or arithmetic calculation being
submitted to the holder, then the Company shall immediately submit via facsimile
(i) the disputed determination of the Warrant Exercise Price or the Market Price
to an independent, reputable investment banking firm which has not (and whose
affiliates have not) performed any investment banking services for, or had any
other material relationship with, the Company during the immediately preceding
two (2) year period, or (ii) the disputed arithmetic calculation of the Warrant
Shares to an independent, national public accounting firm which has not (and
whose affiliates have not) performed any accounting or consulting services for,
or had any other material relationship with, the Company during the immediately
preceding two (2) year period. The Company shall cause the investment banking
firm, or the accounting firm, as the case may be, to perform the determinations
or calculations and notify the Company and the Holder of the results no later
than five Business Days from the time it receives the disputed determinations or
calculations. Such investment bank's or accounting firm's determination or
calculation, as the case may be, shall be deemed conclusive absent manifest
error and the Company shall be liable for the costs and expenses related to such
determination or calculation.
(b) Unless the rights represented by this Warrant shall have expired or
shall have been fully exercised, the Company shall, as soon as practicable and
in any event no later than three (3) Business Days after any exercise and at its
own expense, issue a new Warrant identical in all respects to the Warrant
exercised except it shall represent rights to purchase the number of Warrant
Shares purchasable immediately prior to such exercise under the Warrant
exercised, less the number of Warrant Shares with respect to which such Warrant
is exercised. Upon presentation of a duly executed Exercise Notice, the Holder
shall be entitled to exercise this Warrant in whole or in part, if the Holder
shall have previously exercised and surrendered
4
this Warrant and the Company shall not have issued a new Warrant representing
the number of shares issuable following such prior exercise.
(c) No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock issued
upon exercise of this Warrant shall be rounded down to the nearest whole number
and the Company shall pay to the Holder in lieu of such fractional share cash in
an amount in proportion to the Market Price of a share of Common Stock on the
date of exercise.
(d) If the Company shall have failed for any reason (other than
pursuant to a dispute as described in Section 2(a)) or for no reason to issue to
Holder, on or before the day which is five (5) Business Days after the Company's
receipt of the materials and payments described in Section 2(a) hereof, a
certificate for the number of shares of Common Stock to which the Holder is
entitled upon the Holder's exercise of this Warrant, the Company shall, upon
notice from the Holder and in lieu of any other remedies under this Agreement or
otherwise available to such Holder pay as liquidated damages, in cash, to such
holder, for each day after such fifth Business Day until the date of delivery,
an amount equal to one-quarter of one percent (0.25%) of the product of (A) the
number of shares of Common Stock not issued to the Holder on a timely basis and
to which the Holder is entitled, and (B) the difference between (1) the Warrant
Exercise Price then in effect and (2) the Market Price of the Common Stock on
the date on which the holder exercised the Warrant with respect to which the
Company has failed to make timely delivery hereunder. Any sums due to holder
pursuant to this Section 2(d) shall be paid by certified funds or wire transfer
simultaneously upon and no later than the delivery to holder of the shares of
Common Stock which have not been delivered to holder on a timely basis and which
gives rise to the Company's obligation to make the payments required by this
Section 2(d).
3. COVENANTS AS TO COMMON STOCK. As of the date of this Warrant as set
forth in Section 12 below, the Company and, where applicable, the Holder, hereby
represents, warrants, covenants and agrees as follows:
(a) This Warrant has been duly and validly authorized, executed and
delivered by the Company and constitutes a valid and legally binding agreement
of the Company, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general equity
principles. The execution and delivery by the Company of this Warrant does not,
and the delivery of any Warrant Shares upon the valid exercise of this Warrant
will not, except as would not have a material adverse effect on the business of
the Company: (i) violate any provision of the Certificate of Incorporation or
By-Laws of the Company; (ii) violate any provision of, or result in the
termination or acceleration of, or default under, or entitle any party to
accelerate (whether after the filing of notice or lapse of time or both) any
obligation under, or result in the creation or imposition of any lien, charge,
pledge, security interest or other encumbrance upon any of the assets of the
Company pursuant to any provision of any mortgage, lien, lease, agreement,
license, or instrument, or violate any law, regulation, order, arbitration
award, judgment or decree to which the Company is a party or by which its
property is bound; or (iii) require any governmental consent, authorization,
filing, approval, or exemption.
5
(b) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. The Company has the
power to own its property and to carry on its business as it is now being
conducted. The Company is duly qualified to do business and is in good standing
in the jurisdictions in which the character or location of the properties owned
or leased by the Company or the nature of the business conducted by the Company
makes such qualification necessary, except where the failure to qualify
individually or in the aggregate will not have a material adverse effect on the
business of the Company.
(c) When issued upon exercise, each Warrant Share will be duly and
validly issued, fully paid, non-assessable and free of preemptive rights. Based
in part upon the representations of the Holder in this Warrant, this Warrant and
any Warrant Shares will be issued in compliance with all applicable federal and
state securities laws, rules and regulations, and the offer, sale and issuance
of this Warrant and the Warrant Shares will constitute transactions exempt from
the registration requirements of Section 5 of the Securities Act.
(d) A Warrant issued in substitution for or replacement of this Warrant
will upon issuance be duly authorized and validly issued.
(e) All Warrant Shares which may be issued upon the exercise as set
forth herein of the rights represented by this Warrant will, upon issuance, be
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue thereof.
(f) During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved at least the number of shares of Common Stock needed to provide for the
exercise of the rights then represented by this Warrant and the par value of
said shares will at all times be less than or equal to the applicable Warrant
Exercise Price.
(g) The Warrant Shares have been listed upon each national securities
exchange or automated quotation system, if any, or over-the-counter-bulletin
board upon which shares of the Company's Common Stock are currently listed or
quoted (subject to official notice of the over-the-counter bulletin board of
issuance upon exercise of this Warrant) and the Company shall maintain, so long
as any other shares of Common Stock shall be so listed or quoted, such listing
or quotation of all shares of Common Stock from time to time issuable upon the
exercise of this Warrant; and the Company shall so list or obtain quotation on
each such national securities exchange, automated quotation system or
over-the-counter bulletin board, as the case may be, and shall maintain such
listing in quotation of, any other shares of capital stock of the Company
issuable upon the exercise of this Warrant if and so long as any shares of the
same class shall be listed on such national securities exchange, automated
quotation system or over-the-counter bulletin board.
(h) The Company will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such
6
action as may reasonably be requested by the holder of this Warrant in order to
protect the exercise privilege of the holder of this Warrant against dilution or
other impairment, consistent with the tenor and purpose of this Warrant. Without
limiting the generality of the foregoing, the Company (i) will not increase the
par value of any shares of Common Stock receivable upon the exercise of this
Warrant above the Warrant Exercise Price then in effect, and (ii) will take all
such actions as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant.
(i) This Warrant will be binding upon any entity succeeding to the
Company by merger, consolidation or acquisition of all or substantially all of
the Company's assets.
(j) The Warrant Shares shall be registered with the Securities and
Exchange Commission ("SEC") by their inclusion, and the inclusion of the Holder
as a selling stockholder, in the registration statement on Form S-3 to be filed
with the SEC by the Company with respect to the shares issued on or about the
date hereof to the Riverview Group, L.L.C. The Company and the Holder further
agree as follows:
(i) If at any time the number of shares of Common Stock
included in such registration statement shall be insufficient to cover
all of the Warrant Shares issuable upon exercise of the unexercised
portion of the Warrant, then promptly, but in no event later than 30
days after such insufficiency shall occur, the Company shall file with
the SEC an additional registration statement on Form S-3 (or, if the
Company is not eligible to use such form at the time of filing with the
SEC, Form S-1) (together with the initial registration statement, the
"REGISTRATION STATEMENTS"), covering such number of shares of Common
Stock as shall be sufficient to permit such exercise.
(ii) The Company shall use its best efforts to cause the
Registration Statements to become effective as soon as possible after
the filing of each, and to keep the Registration Statements effective
pursuant to Rule 415 under the Securities Act at all times until the
earliest of (A) the date on which all Warrant Shares have been sold by
the Holder, (B) the date on which all Warrant Shares can be sold (other
than by a Cashless Exercise) without restriction under Rule 144 under
the Securities Act, or (C) December 4, 2006 or, if the Holder shall
have been prohibited from disposing of Warrant Shares pursuant to
Section 3(j)(xi) hereof, the date which is the number of days such
prohibition applied after December 4, 2006 (the period beginning on the
date hereof and ending on the earliest of such dates, the "REGISTRATION
PERIOD").
(iii) The Company shall notify the Holder of the effectiveness
of the Registration Statements on the date each Registration Statement
is declared effective. The Company shall prepare and file with the SEC
such amendments (including post-effective amendments) and supplements
to the Registration Statements and the prospectus used in connection
with the Registration Statements as may be necessary to keep the
Registration Statements effective at all times during the Registration
Period, and, during the Registration Period,
7
comply with the provisions of the Securities Act with respect to the
disposition of all Warrant Shares until such time as all of such
Warrant Shares have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof as set forth in
the Registration Statement.
(iv) The Company shall furnish to each Holder whose Warrant
Shares are included in any Registration Statement and its legal
counsel, (i) promptly after the same is prepared and publicly
distributed, filed with the SEC or received by the Company, one copy of
the Registration Statement and any amendment thereto, each preliminary
prospectus and prospectus and each amendment or supplement thereto,
each letter written by or on behalf of the Company to the SEC or the
staff of the SEC and each item of correspondence from the SEC or the
staff of the SEC relating to such Registration Statement, and (ii) such
number of copies of a prospectus, including a preliminary prospectus,
and all amendments and supplements thereto and such other documents, as
such Holder may reasonably request in order to facilitate the
disposition of the Warrant Shares registered on behalf of the Holder.
(v) The Company shall notify the Holder of the existence of
any event or circumstance of which the Company has knowledge, as
promptly as practicable after becoming aware of such event or
circumstance, as a result of which the prospectus included in a
Registration Statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, and use
its commercially reasonable efforts promptly to prepare a supplement or
amendment to such Registration Statement to correct such untrue
statement or omission, file such supplement or amendment with the SEC
at such time as shall permit the Holder to sell Warrant Shares pursuant
to such Registration Statement as promptly as practicable, and deliver
a number of copies of such supplement or amendment to the Holder as the
Holder may reasonably request.
(vi) As promptly as practicable after becoming aware of such
event, the Company shall notify the Holder of the issuance by the SEC
of any stop order or other suspension of effectiveness of a
Registration Statement at the earliest possible time.
(vii) The Company shall use its commercially reasonable
efforts (i) to cause all the Warrant Shares covered by the Registration
Statements to be listed on the Nasdaq National Market or such other
principal securities market on which securities of the same class or
series issued by the Company are then listed or traded or (ii) if
securities of the same class or series as the Warrant Shares are not
then listed on the Nasdaq National Market or any such other securities
market, to cause all of the Warrant Shares covered by the Registration
Statements to be listed on the New York Stock Exchange, the American
Stock Exchange or the Nasdaq SmallCap Market.
8
(viii) As of the date hereof, the Company is eligible to file
the Registration Statement on Form S-3. The Company shall file all
reports required to be filed by the Company with the SEC in a timely
manner so as to obtain and/or maintain eligibility for the use of Form
S-3.
(ix) It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Warrant with
respect to the Shares that the Holder shall furnish to the Company such
information regarding itself, the Warrant Shares held by it or to which
it is entitled to receive upon exercise of the Warrant and the intended
method of disposition of the Warrant Shares held by it as shall be
reasonably required to effect the registration of such Warrant
Shares.
(x) The Holder, by its acceptance of the Warrant, agrees to
cooperate with the Company as reasonably requested by the Company in
connection with the preparation and filing of the Registration
Statements hereunder, unless the Holder has notified the Company in
writing of its election to exclude all of its Warrant Shares from the
Registration Statement.
(xi) The Holder agrees that, upon receipt of any notice from
the Company of the existence of any event of the kind described in
clauses (v) or (vi) above, the Holder will immediately discontinue
disposition of Warrant Shares pursuant to the Registration Statement
covering such Warrant Shares until the Holder's receipt of the copies
of the supplemented or amended prospectus contemplated by clauses (v)
or (vi) above and, if so directed by the Company, the Holder shall
deliver to the Company (at the expense of the Company) or destroy (and
deliver to the Company a certificate of destruction) all copies in such
Holder's possession of the prospectus covering such Warrant Shares
current at the time of receipt of such notice.
(xii) The Holder agrees to take all reasonable actions
necessary to comply with the prospectus delivery requirements of the
Securities Act applicable to its sales of Warrant Shares and to assist
the Company in carrying out its obligations hereunder.
(xiii) All reasonable expenses (other than underwriting
discounts and commissions and other fees and expenses of investment
bankers engaged by the Holder and other than brokerage commissions),
incurred in connection with registrations, filings or qualifications
pursuant to this Section 3(j), including, without limitation, all
registration, listing and qualifications fees, printers and accounting
fees and the fees and disbursements of counsel for the Company, shall
be borne by the Company.
(xiv) The provisions of this Section 3(j) shall survive the
exercise of the Warrant by the Holder.
4. TAXES. The Company shall not be required to pay any tax or taxes
attributable to the initial issuance of the Warrant Shares or any permitted
transfer involved in the issue or
9
delivery of any certificates for Warrant Shares in a name other than that of the
registered holder hereof or upon any permitted transfer of this Warrant.
5. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise
specifically provided herein, no Holder, as such, of this Warrant shall be
entitled to vote or receive dividends or be deemed the holder of shares of the
Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the Holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
issuance to the holder of this Warrant of the Warrant Shares which he or she is
then entitled to receive upon the due exercise of this Warrant.
In addition, nothing contained in this Warrant shall be construed as
imposing any liabilities on such Holder to purchase any securities or as a
stockholder of the Company, whether such liabilities are asserted by the Company
or by creditors of the Company. Notwithstanding this Section 5, the Company will
provide the Holder of this Warrant with copies of the same notices and other
information given to the stockholders of the Company generally,
contemporaneously with the giving thereof to the stockholders.
6. REPRESENTATIONS OF HOLDER. The Holder of this Warrant, by the
acceptance hereof, represents (and any assignor shall represent) that it is
acquiring this Warrant and the Warrant Shares for its own account for investment
purposes and not with a view to, or for sale in connection with, any
distribution hereof, and not with any present intention of distributing any of
the same. The Holder of this Warrant further represents (and any assignor shall
represent), by acceptance hereof, that, as of this date, such holder is an
"accredited investor" as such term is defined in Rule 501(a)(1) of Regulation D
promulgated by the Securities and Exchange Commission under the Securities Act
(an "ACCREDITED INVESTOR"). Upon exercise of this Warrant, the Holder shall, if
requested by the Company, confirm in writing, in a form reasonably satisfactory
to the Company, that the Warrant Shares so purchased are being acquired solely
for the Holder's own account and not as a nominee for any other party, for
investment, and not with a view toward distribution or resale and that such
Holder is an Accredited Investor. If such Holder cannot make such
representations because they would be factually incorrect, it shall be a
condition to such Holder's exercise of the Warrant that the Company receive such
other representations as the Company considers reasonably necessary to assure
the Company that the issuance of its securities upon exercise of the Warrant
shall not violate any United States Federal or state securities laws.
7. OWNERSHIP AND TRANSFER.
(a) The Company shall maintain at its principal executive offices (or
such other office or agency of the Company as it may designate by notice to the
holder hereof), a register for this Warrant, in which the Company shall record
the name and address of the person in whose name this Warrant has been issued,
as well as the name and address of each permissible transferee. The Company may
treat the person in whose name any Warrant is registered on the register as the
owner and holder thereof for all purposes, notwithstanding any notice to the
10
contrary, but in all events recognizing any transfers made in accordance with
the terms of this Warrant.
(b) This Warrant and the rights granted to the Holder hereof are
transferable, in whole or in part, upon surrender of this Warrant, together with
a properly executed warrant power in the form of EXHIBIT B attached hereto;
provided, however, that any transfer or assignment shall subject to the
conditions set forth in Sections 3(j) and 6 above and Sections 7(c) and 11
below.
(c) Except as set forth in Section 3(j), the Holder of this Warrant
understands that this Warrant and the Warrant Shares have not been and are
not expected to be, registered under the Securities Act or any state
securities laws, and may not be offered for sale, sold, assigned or
transferred unless (a) subsequently registered thereunder, or (b) such Holder
shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that
the securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration. Notwithstanding
anything set forth herein to the contrary, the Company shall not require an
opinion of counsel with respect to any and all transfers, assignments or
sales by and between Cantor Fitzgerald & Co. ("CANTOR"), on the one hand, and
any affiliate or affiliated person (as such terms are defined in Rule 405
under the Securities Act) of Cantor, on the other hand (it being expressly
understood and agreed that such transfers, assignments or sales shall be
conducted in accordance with applicable federal and state securities laws),
and, upon due notice from Cantor or any affiliate of Cantor of any such
transfer, sale or assignment, and delivery to the Company of the duly
executed warrant power in the form of EXHIBIT B attached hereto, the Company
shall immediately direct its transfer agent effect any such transfer, sale or
assignment, provided that in no event shall the legend required by this
Section 7(c) be removed as a result of such a transfer without opinion of
counsel reasonably acceptable to the Company. Any sale of such securities
made in reliance on Rule 144 promulgated under the Securities Act may be made
only in accordance with the terms of said Rule and further, if said Rule is
not applicable, any resale of such securities under circumstances in which
the seller (or the person through whom the sale is made) may be deemed to be
an underwriter (as that term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the rules
and regulations of the Securities and Exchange Commission thereunder; and
neither the Company nor any other person is under any obligation to register
this Warrant and the Warrant Shares under the Securities Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder except as set forth in Section 3(j) hereof. All Warrants and
Warrant Shares shall bear a legend in substantially the form set forth below:
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TOWARD RESALE
OR DISTRIBUTION. THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE
EXERCISE OF THIS WARRANT MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL
11
IN FORM, SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO THE ISSUER THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT, OR AS OTHERWISE PROVIDED
FOR IN THIS WARRANT. IN ADDITION, THE HOLDER OF THIS WARRANT AND ANY
SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT IS ENTITLED TO
CERTAIN REGISTRATION RIGHTS AS SET FORTH IN THIS WARRANT.
8. ADJUSTMENT OF WARRANT EXERCISE PRICE. The Warrant Exercise Price
shall be adjusted from time to time as follows:
(a) ADJUSTMENT OF WARRANT EXERCISE PRICE UPON SUBDIVISION OR
COMBINATION OF COMMON STOCK. If the Company at any time after the date of
issuance of this Warrant, subdivides (by any stock split, stock dividend,
re-capitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Warrant Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced and
the number of shares of Common Stock obtainable upon exercise of this Warrant
will be proportionately increased. If the Company at any time after the date of
issuance of this Warrant combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Warrant Exercise Price in effect immediately prior
to such combination will be proportionately increased and the number of shares
of Common Stock obtainable upon exercise of this Warrant will be proportionately
decreased.
(b) DE MINIMIS ADJUSTMENTS. If the amount of any adjustment of the
Warrant Exercise Price per share required pursuant to Section 8(a) would be less
than one tenth of one percent (0.1%) of the Warrant Exercise Price, such amount
shall be carried forward and adjustment with respect thereto made at the time of
and together with any subsequent adjustment which, together with such amount and
any other amount or amounts so carried forward, shall aggregate a change in the
Warrant Exercise Price of at least one tenth of one percent (0.1%) of such
Purchase Price. All calculations under this Warrant shall be made to the nearest
0.1 of a cent or to the nearest one-tenth of a share, as the case may be.
(c) ABANDONED DIVIDEND OR DISTRIBUTION. If the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or other distribution (which results in an adjustment to the
Warrant Exercise Price under the terms of this Warrant) and shall, thereafter,
and before such dividend or distribution is paid or delivered to shareholders
entitled thereto, legally abandon its plan to pay or deliver such dividend or
distribution, then any adjustment made to the Warrant Exercise Price and number
of shares of Common Stock purchasable upon Warrant exercise by reason of the
taking of such record shall be reversed, and any subsequent adjustments, based
thereon, shall be recomputed.
(d) ADJUSTMENTS FOR CONSOLIDATION, MERGER, SALE OF ASSETS,
REORGANIZATION, ETC. In case the Company, on one or more occasions, (i) shall
consolidate with or merge into any other Person and shall not be the continuing
or surviving corporation of such consolidation or merger, or (ii) shall permit
any other Person to consolidate with or merge into the Company and the Company
shall be the continuing or surviving Person but, in connection with such
consolidation or merger, the Common Stock shall be changed into or exchanged for
stock or
12
other securities of any other Person or cash or any other property, or (iii)
shall transfer all or substantially all of its properties or assets to any other
Person, or (iv) shall effect a capital reorganization or reclassification of the
Common Stock, then, and in the case of each such transaction, proper provision
shall be made so that, upon the basis and the terms and in the manner provided
in this Warrant, the Holder of this Warrant, upon the exercise hereof at any
time after the consummation of such transaction, shall be entitled to receive
(at the Aggregate Warrant Exercise Price in effect at the time of such
consummation for all Common Stock issuable upon such exercise immediately prior
to such consummation), in lieu of the Common Stock issuable upon such exercise
prior to such consummation, the highest amount of securities, cash or other
property to which such Holder would actually have been entitled as a shareholder
upon such consummation if such holder had exercised this Warrant immediately
prior thereto, subject to adjustments (subsequent to such consummation) as
nearly equivalent as possible to the adjustments provided for in this Section 8,
PROVIDED that if a purchase, tender or exchange offer shall have been made to
and accepted by the holders of more than 50% of the outstanding shares of the
Company's Common Stock, and if the Holder of this Warrant so designates in a
notice given to the Company on or before the date immediately preceding the date
of the consummation of such transaction, the Holder of this Warrant shall be
entitled to receive the highest amount of securities, cash or other property to
which it would actually have been entitled as a shareholder if the Holder of
this Warrant had exercised such Warrants prior to the expiration of such
purchase, tender or exchange offer and accepted such offer, subject to
adjustments (from and after the consummation of such purchase, tender or
exchange offer) as nearly equivalent as possible to the adjustments provided for
elsewhere in this Section 8. Notwithstanding anything contained in this Warrant
to the contrary, the Company shall not effect any of the transactions described
in subclauses (i) through (iv) of this Section 8(d) unless, prior to the
consummation thereof, each Person (other than the Company) which may be required
to deliver any stock, securities, cash or property upon the exercise of this
Warrant as provided herein shall assume, by written instrument delivered to the
holder of this Warrant, (x) the obligations of the Company under this Warrant,
and (y) the obligation to deliver to the Holder of this Warrant such shares of
stock, securities, cash or property as, in accordance with the foregoing
provisions of this Section 8, the Holder may be entitled to receive.
(e) NOTICES.
(i) In each case of any adjustment or readjustment in the
shares of Common Stock issuable upon the exercise of this Warrant, the
Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms of this Warrant and prepare a
certificate, signed by the Chairman of the Board, President or one of
the Vice Presidents of the Company setting forth such adjustment or
readjustment and showing in reasonable detail the method of calculation
thereof and the facts upon which such adjustment or readjustment is
based, including a statement of (a) the consideration received or to be
received by the Company for any additional shares of Common Stock
issued or sold or deemed to have been issued, (b) the number of shares
of Common Stock outstanding or deemed to be outstanding, and (c) the
Warrant Exercise Price in effect immediately prior to such adjustment
and as adjusted and readjusted (if required by Section 8) on account
thereof. The Company shall forthwith mail a copy of each such
certificate to each Holder of a Warrant and shall, upon the
13
written request at any time of any Holder of a Warrant, furnish to such
Holder a like certificate setting forth the Warrant Exercise Price at
the time in effect and showing in reasonable detail how it was
calculated. The Company shall also keep copies of all such certificates
at its principal office and shall cause the same to be available for
inspection at such office during normal business hours by any Holder of
a Warrant or any prospective purchaser of a Warrant designated by the
Holder thereof. The Company shall, upon the request in writing of the
Holder (at the Company's expense) retain independent public accountants
of recognized national standing in accordance with the provisions of
Section 2(a) above, and a certificate signed by such accounting firm
shall be conclusive evidence of the correctness of such adjustment,
which shall be binding on the Holder and the Company.
(ii) The Company shall provide notice at least five (5)
Business Days prior to each Holder of a Warrant specifying the date or
expected date on which any of the events described in subclauses (i)
through (iv) of Section 8(d) hereof is to take place and the time, if
any such time is to be fixed, as of which the holders of record of
Common Stock shall be entitled to exchange their shares of Common Stock
for the securities or other property deliverable upon event.
9. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant is
lost, stolen, mutilated or destroyed, the Company shall, on receipt of an
indemnification undertaking, issue a new Warrant of like denomination and tenor
as the Warrant so lost, stolen, mutilated or destroyed.
10. NOTICE. Any notices, consents, waivers, or other communications
required or permitted to be given under the terms of this Warrant must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile, provided a copy
is mailed by U.S. certified mail, return receipt requested; (iii) three (3) days
after being sent by U.S. certified mail, return receipt requested; or (iv) one
(1) day after deposit with a nationally recognized overnight delivery service,
in each case properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall be:
If to the Company: StemCells, Inc.
3155 Porter Drive
Palo Alto, CA 94304
Attention: Martin McGlynn, President & CEO
Telephone: (650) 475-3100
Facsimile: (650) 475-3101
14
With a copy simultaneously by like means to:
Ropes & Gray
One International Place
Boston, MA 02110
Attention: Geoffrey B. Davis, Esq.
Telephone: (617) 951-7000
Facsimile: (617) 951-7050
If to a holder of this Warrant, to it at the address set forth below such
holder's signature on the signature page hereof, with a copy simultaneously by
like means to each of: (i) Cantor Fitzgerald & Co., 299 Park Avenue, New York,
NY 10171, Attention: Stephen Merkel, Esq., Telephone: (212) 281-6969, Facsimile:
(212) 751-7050, and (ii) Zukerman Gore & Brandeis, LLP, 900 Third Avenue, New
York, NY 10022, Attention: Clifford A. Brandeis, Esq., Telephone: (212)
223-6700, Facsimile: (212) 223-6433. Each party shall provide written notice to
the other party of any change in address or facsimile number.
11. INDEMNIFICATION AND CONTRIBUTION WITH RESPECT TO REGISTRATION
RIGHTS. If any Warrant Shares are included in any Registration Statement under
the Securities Act pursuant to this Warrant:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder, the directors, officers and partners, if any, of such
Holder, each person, if any, who controls any Holder within the meaning of the
Securities Act or the Exchange Act, any underwriter (as defined in the
Securities Act) for the Holders, the directors, officers and partners, if any,
of such underwriter, and each person, if any, who controls any such underwriter
within the meaning of the Securities Act or the Exchange Act, against any
losses, claims, damages, liabilities or expenses (joint or several) incurred
(collectively, "CLAIMS") to which any of them may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any of the following: (i) any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement or any post-effective amendment thereof or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation under the Securities Act, the Exchange
Act or any state securities law (the matters in the foregoing clauses (i)
through (iii) being, collectively, "VIOLATIONS"). Notwithstanding anything to
the contrary contained herein, the indemnification agreement contained in this
Section 11(a): (I) shall not apply to a Claim arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by any person indemnified under this Section
11(a) or expressly for use in connection with the
15
preparation of any Registration Statement, the prospectus or any such amendment
thereof or supplement thereto; (II) with respect to any preliminary prospectus
shall not inure to the benefit of any person indemnified under this Section
11(a) if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected in the prospectus, as then amended or
supplemented; and (III) shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of the
Company, which consent shall not be unreasonably withheld. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified person referred to in this Section 11(a).
(b) In connection with any Registration Statement in which a Holder is
participating, each such Holder agrees to indemnify and hold harmless, to the
same extent and in the same manner set forth in Section 11(a), the Company, each
of its directors, officers and partners who signs the Registration Statement,
each person, if any, who controls the Company within the meaning of the
Securities Act or the Exchange Act, any underwriter and any other stockholder
selling securities pursuant to the Registration Statement or any of its
directors, officers, partners or any person who controls such stockholder or
underwriter within the meaning of the Securities Act or the Exchange Act,
against any Claim to which any of them may become subject, under the Securities
Act, the Exchange Act or otherwise, insofar as such Claim arises out of or is
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Holder expressly for use in
connection with such Registration Statement or any post-effective amendment
thereof, or any prospectus included therein; and such Holder will reimburse any
legal or other expenses reasonably incurred by any indemnified person under this
Section 11(b), promptly as such expenses are incurred and are due and payable,
in connection with investigating or defending any such Claim; provided, however,
that the indemnity agreement contained in this Section 11(b) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of such Holder, which consent shall not be
unreasonably withheld; provided, further, however, that each Holder shall be
liable under this Section 11(b) for only that amount of a Claim as does not
exceed the amount of the proceeds to such Holder from the sale of the
Registrable Securities pursuant to such Registration Statement that resulted in
such Claim. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of any indemnified person under this
Section 11(b) and shall survive the transfer of the Registrable Securities by
the Holders pursuant to Section 7. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this Section 11(b)
with respect to any preliminary prospectus shall not inure to the benefit of any
indemnified person under this Section 11(b) if the untrue statement or omission
of material fact contained in the preliminary prospectus was corrected on a
timely basis in the prospectus, as then amended or supplemented.
(c) The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information so furnished in writing by such persons
expressly for inclusion in any Registration Statement.
16
(d) Each party entitled to indemnification under this Section 11 (the
"INDEMNIFIED PARTY") shall give notice to the party required to provide
indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party
has actual knowledge of any such Claim as to which indemnity may be sought and
the Indemnifying Party shall have the right to participate in, and, to the
extent the Indemnifying Party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
selected by the Indemnifying Party but reasonably acceptable to the Indemnified
Party; provided, however, that an Indemnified Party shall have the right to
retain its own counsel with the fees and expenses to be paid by the Indemnifying
Party, if, in the reasonable opinion of counsel retained by the Indemnifying
Party, the representation by such counsel of the Indemnified Party and the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between such Indemnified Party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
Indemnifying Party within a reasonable time of the commencement of any such
action shall not relieve such Indemnifying Party of any liability to the
Indemnified Party under this Section 11, except to the extent that the
Indemnifying Party is prejudiced in its ability to defend such action. The
indemnification required by this Section 11 shall be made by periodic payments
of the amount thereof during the course of the investigation or defense, as such
expense, loss, damage or liability is incurred and is due and payable.
(e) To the extent any indemnification by an Indemnifying Party is
prohibited or limited by law, the Indemnifying Party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under this Section 11 to the fullest extent permitted by law; provided, however,
that (i) no contribution shall be made under circumstances where the maker would
not have been liable for indemnification under the fault standards set forth in
Section 11, (ii) no seller of Warrant Shares guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any seller of Warrant Shares who was not
guilty of such fraudulent misrepresentation and (iii) contribution by any Holder
shall be limited in amount to the amount by which the net amount of proceeds
received by such Holder (if any) from the sale of such Warrant Shares that
resulted in such Claim exceeds the purchase price paid by such Holder for such
Warrant Shares.
17
12. DATE. This Warrant, in all events, shall be wholly void and of no
effect after 5:00 P.M. Eastern Standard Time on the Expiration Date, except that
notwithstanding any other provisions hereof, the provisions of Sections 3(j), 7
and 11 shall continue in full force and effect after such date as to any Warrant
Shares or other securities issued upon the exercise of this Warrant.
13. AMENDMENT AND WAIVER. Except as otherwise provided herein, the
provisions of the Warrants may be amended and the Company may take any action
herein prohibited, or omitted to perform any act herein required to be performed
by it, only if the Company has obtained the written consent of the Holders of
Warrants representing a majority of the shares of Common Stock obtainable upon
exercise of the Warrants then outstanding, provided that no such action may
increase the Warrant Exercise Price of the Warrants or decrease the number of
shares or class of stock obtainable upon exercise of any warrants with out the
written consent of the Holder of such warrant.
14. DESCRIPTIVE HEADINGS; GOVERNING LAW. The descriptive headings of
the several sections of this Warrant are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof. This Warrant shall be
governed by and interpreted under the laws of the State of New York, without
giving effect to any choice of law or conflict of laws principles thereof.
15. JUDICIAL PROCEEDINGS. Any legal action, suit or proceeding brought
against the Company or the Holder with respect to this Warrant may be brought in
any federal court of the Southern District of New York or any state court
located in New York County, State of New York, and by execution and delivery of
this Warrant, the Company and the Holder hereby irrevocably and unconditionally
waives any claim (by way of motion, as a defense or otherwise) of improper
venue, that it is not subject personally to the jurisdiction of such court, that
such courts are an inconvenient forum or that this Warrant or the subject matter
may not be enforced in or by such court. Each of the Company and the Holder
hereby irrevocably and unconditionally consents to the process of any of the
aforementioned courts in any such action, suit or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, at its address
set forth or provided for in Section 10 hereof, such service to become effective
10 days after such mailing. Nothing herein contained shall be deemed to affect
the right of any party to serve process in any manner permitted by law or
commence legal proceedings or otherwise proceed against any other party in any
other jurisdiction to enforce judgment obtained in any action, suit or
proceeding brought pursuant to this Section.
16. WAIVER OF TRIAL BY JURY. EACH OF THE COMPANY AND THE HOLDER WAIVES
ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
CONCERNING ANY RIGHTS UNDER THIS WARRANT OR UNDER ANY AMENDMENT, WAIVER,
CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN THE
FUTURE MAY BE DELIVERED IN CONNECTION WITH THIS WARRANT, AND AGREES THAT ANY
SUCH ACTION, PROCEEDING OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT
BEFORE A JURY.
18
This Warrant has been duly executed by the Company and the Holder as of
the date first set forth above.
StemCells, Inc.
By: /s/ Iris Brest
------------------------------------
Name: Iris Brest
Title: General Counsel and Secretary
Cantor Fitzgerald & Co.
By: /s/ Phil Marber
-------------------------------------------------
Name: Phil Marber
-------------------------------------------
Title: President
------------------------------------------
19
EXHIBIT A
FORM OF EXERCISE NOTICE
(Complete and sign only exercise of the Warrant in whole or in part.)
TO: StemCells, Inc.
The undersigned, the holder of the attached Warrant to which this
Exercise Notice applies, hereby irrevocably elects to exercise the purchase
rights represented by such warrant for and to purchase thereunder _______ shares
of Common Stock, par value $.01 per share (the "Shares"), from StemCells, Inc.
(or such other securities issuable pursuant to the terms of the Warrant) and:
_______ (i) herewith makes payment of $_______ therefor (equal to the
Aggregate Warrant Exercise Price) in cash or by certified or official bank
check; or
_______ (ii) elects to make payment upon a Cashless Exercise pursuant
to Section 2(a)(Y) of the Warrant and authorizes the Company to cancel such
number of shares as calculated in accordance with such Section 2(a)(Y) of the
Warrant; or
________ (iii) elects to make payment upon a Cashless Exercise pursuant
to Section 2(a)(Z) of the Warrant and surrenders herewith certificates
representing the number of shares of Common Stock of the Company as calculated
pursuant to Section 2(a)(Z) of the Warrant.
The undersigned hereby requests that the certificate(s) representing
such securities be issued in the name(s) and delivered to the address(es) as
follows:
Name:
-------------------------------------------------------------------
Address:
-------------------------------------------------------------------
Social Security Number (if applicable):
-------------------------------------------------------------------
Deliver to:
-------------------------------------------------------------------
Address:
-------------------------------------------------------------------
If the foregoing exercise notice evidences an exercise of the Warrant
to purchase fewer than all of the Shares (or other securities issuable pursuant
to the terms of the Warrant) to which the undersigned is entitled under such
warrant, please issue a new warrant, of like tenor, relating to the remaining
portion of the securities issuable upon exercise of such warrant (or other
securities issuable pursuant to the terms of such warrant) in the name(s), and
deliver the same to the address(es), as follow:
Name:
-------------------------------------------------------------------
Address:
-------------------------------------------------------------------
-------------------------------------------------------------------
Dated:
-------------------------------------------------------------------
- ---------------- -------------------------------------------
(Name of holder) (Social Security or Taxpayer Identification
Number of holder, if applicable)
20
- ----------------------------------
(Signature of holder or Authorized
Signatory)
Signature Guaranteed:
----------------------------
21
EXHIBIT B
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
____________________________________________ Federal Identification No.______, a
warrant to purchase shares of the capital stock of StemCells, Inc. a Delaware
corporation, represented by warrant certificate No._________, standing in the
name of the undersigned on the books of said corporation. The undersigned does
hereby irrevocably constitute and appoint ____________________________, attorney
to transfer the warrants of said corporation, with full power of substitution in
the premises.
Dated:
-----------------------
By:
--------------------------------------
Its:
--------------------------------------
22
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 333-75806) and related Prospectus of
StemCells, Inc. for the registration of 3,997,201 shares of its common stock and
to the incorporation by reference therein of our report dated February 23, 2001,
with respect to the consolidated financial statements of StemCells, Inc.
included in its Annual Report (Form 10-K) for the year ended December 31, 2000,
filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Palo Alto, California
January 9, 2002
