NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
Right to Purchase the Specified Number of
Shares of Common Stock of StemCells, Inc
STEMCELLS, INC.
COMMON STOCK PURCHASE WARRANT, CLASS A
NO. A-1
STEMCELLS, INC., a Delaware corporation (the "Company"), hereby
certifies that, for value received, Millennium Partners, L.P. or its registered
assigns (the "Holder"), is entitled, subject to the terms set forth below, to
purchase from the Company at any time or from time to time during the Exercise
Period (such capitalized term and all other capitalized terms used herein having
the respective meanings provided herein), the Specified Number of fully paid and
nonassessable shares of Common Stock at a purchase price per share equal to the
Purchase Price. The number of such shares of Common Stock is subject to
adjustment as provided in this Warrant.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
"Adjustment Date" means any of the First Adjustment Date and each
date which occurs every 90 days after the First Adjustment Date through and
including the date which is 810 days after the Issuance Date.
"Adjustment Factor" means 1.015.
"Adjustment Shares" means the number of shares of Common Stock,
determined on each Adjustment Date in accordance with Section 1.3(a), to be
added to the Specified Number on each Adjustment Date in accordance with Section
1.3(b).
"Auditors" means Ernst & Young LLP or such other firm of
independent public accountants of recognized national standing as shall have
been engaged by the Company to audit its financial statements.
"Average Market Price" means the arithmetic average of the ten
(10) lowest Market Prices during the applicable Measurement Period.
"Cash and Cash Equivalent Balances" of any person on any date
shall be determined from such person's books maintained in accordance with
Generally Accepted Accounting Principles, and means, without duplication, the
sum of (1) the cash accrued by such person and its subsidiaries on a
consolidated basis on such date and available for use by such person and its
subsidiaries on such date and (2) all assets which would, on a consolidated
balance sheet of such person and its subsidiaries prepared as of such date in
accordance with Generally Accepted Accounting Principles, be classified as cash
or cash equivalents, less the amount thereof which secures any outstanding
indebtedness of such person or its subsidiaries.
"Callable Warrant" means the Callable Warrant, issued by the
Company pursuant to the Subscription Agreement.
"Class A Warrant Shares" means those shares of Common Stock
issued upon exercise of this Warrant (subject to equitable adjustment from time
to time on terms reasonably acceptable to the Holder for stock splits, stock
dividends, combinations, recapitalizations, reclassifications, distributions,
Tender Offers and similar events occurring after the Issuance Date).
"Commission" means the Securities and Exchange Commission.
"Common Shares Held" as of any date means the sum of (1) the
number of Initial Shares which are then held by the Holder plus (2) the number
of Class A Warrant Shares which are then held by the Holder plus (3) the number
of shares of Common Stock which are issuable upon exercise of this Warrant
immediately prior to the determination of the number of Adjustment Shares
pursuant to Section 1.3(a).
"Common Stock" means the Company's Common Stock, $.01 par value
per share, as authorized on the date hereof, and any other securities into which
or for which the Common Stock may be converted or exchanged pursuant to a plan
of recapitalization, reorganization, merger, sale of assets or otherwise.
"Company" shall include StemCells, Inc., a Delaware corporation,
and any corporation that shall succeed to or assume the obligations of
StemCells, Inc. hereunder in accordance with the terms hereof.
"Control Notice" means a notice given by the Company to the
Holder, in accordance with Section 1.5(b), (i) stating that a Share Limitation
Event has occurred by reason of events which are not solely within the control
of the Company and (ii) enclosing an executed copy of an Auditors'
Determination.
"Exercise Period" means the period commencing on the First
Adjustment Date and ending thirty (30) days following the Last Adjustment Date.
"First Adjustment Date" means the date which is 180 days after
the Issuance Date.
2
"Generally Accepted Accounting Principles" for any person means
the generally accepted accounting principles and practices applied by such
person from time to time in the preparation of its audited financial statements.
"Holder Repurchase Price" means, for each share of Common Stock
which may not be issued upon exercise of this Warrant by reason of the
Shareholder Approval Rule in accordance with Section 1.4 (c), 120% of the
greater of: (x) the arithmetic average of the Market Price on each of the five
consecutive Trading Days immediately prior to and including the expiration of
the 75-day period referred to in Section 1.4(c) or the Repurchase Date referred
to in Section 1.4(b), as the case may be, (y) the arithmetic average of the
Market Price on each of the five consecutive Trading Days immediately prior to
the repurchase date pursuant to Section 1.4(c) or Section 1.4(b) and (z) if
determined prior to the First Adjustment Date, the price per share paid by the
Holder for the shares of Common Stock purchased on the Issuance Date pursuant to
the Subscription Agreement or, if determined on or after the First Adjustment
Date, the most recent Adjustment Price (subject to equitable adjustment from
time to time on terms reasonably acceptable to the Holder for stock splits,
stock dividends, combinations, recapitalizations, reclassifications,
distributions, Tender Offers and similar events occurring after the Issuance
Date).
"Initial Shares" means those shares of Common Stock purchased by
the Holder on the Issuance Date pursuant to the Subscription Agreement (subject
to equitable adjustment from time to time on terms reasonably acceptable to the
Holder for stock splits, stock dividends, combinations, recapitalizations,
reclassifications, distributions, Tender Offers and similar events occurring
after the Issuance Date), excluding shares issuable pursuant to the Callable
Warrant, minus 289,086 (subject to equitable adjustment from time to time on
terms reasonably acceptable to the Holder for stock splits, stock dividends,
combinations, recapitalizations, reclassifications, distributions, Tender Offers
and similar events occurring after the Issuance Date).
"Issuance Date" means the first date of original issuance of this
Warrant.
"Market Price" of the Common Stock on any date means the closing
bid price for one share of Common Stock on such date on the first applicable
among the following: (a) the national securities exchange on which the shares of
Common Stock are listed which constitutes the principal securities market for
the Common Stock, (b) the Nasdaq, if the Nasdaq constitutes the principal market
for the Common Stock on such date, or (c) the Nasdaq SmallCap, if the Nasdaq
SmallCap constitutes the principal securities market for the Common Stock on
such date, in any such case as reported by Bloomberg, LP.; provided, however,
that if during any Measurement Period or other period during which the Market
Price is being determined:
(i) The Company shall declare or pay a dividend or make
a distribution to all holders of the outstanding Common Stock in
shares of Common Stock or fix any record date for any such
action, then the Market Price for each day in such Measurement
Period or such other period which day is prior to the earlier of
(1) the date fixed for the determination of stockholders entitled
to receive such dividend or other distribution and (2) the date
on which ex-dividend trading in the Common Stock with respect to
such dividend or distribution begins shall be reduced by
multiplying the Market Price (determined without regard to
3
this proviso) for each such day in such Measurement Period or
such other period by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding at the close of
business on the earlier of (1) the record date fixed for such
determination and (2) the date on which ex-dividend trading in
the Common Stock with respect to such dividend or distribution
begins and the denominator of which shall be the sum of such
number of shares and the total number of shares constituting such
dividend or other distribution;
(ii) The Company shall issue rights or warrants to all
holders of its outstanding shares of Common Stock, or fix a
record date for such issuance, which rights or warrants entitle
such holders (for a period expiring within forty-five (45) days
after the date fixed for the determination of stockholders
entitled to receive such rights or warrants) to subscribe for or
purchase shares of Common Stock at a price per share less than
the Market Price (determined without regard to this proviso) for
any day in such Measurement Period or such other period which day
is prior to the end of such 45-day period, then the Market Price
for each such day shall be reduced so that the same shall equal
the price determined by multiplying the Market Price (determined
without regard to this proviso) by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding
at the close of business on the record date fixed for the
determination of stockholders entitled to receive such rights or
warrants plus the number of shares which the aggregate offering
price of the total number of shares so offered would purchase at
such Market Price, and the denominator of which shall be the
number of shares of Common Stock outstanding on the close of
business on such record date plus the total number of additional
shares of Common Stock so offered for subscription or purchase.
In determining whether any rights or warrants entitle the holders
to subscribe for or purchase shares of Common Stock at less than
the Market Price (determined without regard to this proviso), and
in determining the aggregate offering price of such shares of
Common Stock, there shall be taken into account any consideration
received for such rights or warrants, the value of such
consideration, if other than cash, to be determined in good faith
by a resolution of the Board of Directors of the Company;
(iii) The outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock or a
record date for any such subdivision shall be fixed, then the
Market Price of the Common Stock for each day in such Measurement
Period or such other period which day is prior to the earlier of
(1) the day upon which such subdivision becomes effective and (2)
the date on which ex-dividend trading in the Common Stock with
respect to such subdivision begins shall be proportionately
reduced, and conversely, in case the outstanding shares of Common
Stock shall be combined into a smaller number of shares of Common
Stock, the Market Price for each day in such Measurement Period
or such other period which day is prior to the earlier of (1) the
date on which such combination becomes effective and (2) the date
on which trading in the Common Stock on a basis which gives
effect to such combination begins, shall be proportionately
increased;
4
(iv) The Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock shares of any class
of capital stock of the Company (other than any dividends or
distributions to which clause (i) of this proviso applies) or
evidences of its indebtedness, cash or other assets (including
securities, but excluding any rights or warrants referred to in
clause (ii) of this proviso and dividends and distributions paid
exclusively in cash and excluding any capital stock, evidences of
indebtedness, cash or assets distributed upon a merger or
consolidation) (the foregoing hereinafter in this clause (iv) of
this proviso called the "Securities"), or fix a record date for
any such distribution, then, in each such case, the Market Price
for each day in such Measurement Period or such other period
which day is prior to the earlier of (1) the record date for such
distribution and (2) the date on which ex-dividend trading in the
Common Stock with respect to such distribution begins shall be
reduced so that the same shall be equal to the price determined
by multiplying the Market Price (determined without regard to
this proviso) by a fraction, the numerator of which shall be the
Market Price (determined without regard to this proviso) for such
date less the fair market value (as determined in good faith by
resolution of the Board of Directors of the Company) on such date
of the portion of the Securities so distributed or to be
distributed applicable to one share of Common Stock and the
denominator of which shall be the Market Price (determined
without regard to this proviso) for such date. If the Board of
Directors of the Company determines the fair market value of any
distribution for purposes of this clause (iv) by reference to the
actual or when issued trading market for any Securities
comprising all or part of such distribution, it must in doing so
consider the prices in such market on the same day for which an
adjustment in the Market Price is being determined.
For purposes of this clause (iv) and clauses (i) and (ii)
of this proviso, any dividend or distribution to which this
clause (iv) is applicable that also includes shares of Common
Stock, or rights or warrants to subscribe for or purchase shares
of Common Stock to which clause (i) or (ii) of this proviso
applies (or both), shall be deemed instead to be (1) a dividend
or distribution of the evidences of indebtedness, assets, shares
of capital stock, rights or warrants other than such shares of
Common Stock or rights or warrants to which clause (i) or (ii) of
this proviso applies (and any Market Price reduction required by
this clause (iv) with respect to such dividend or distribution
shall then be made) immediately followed by (2) a dividend or
distribution of such shares of Common Stock or such rights or
warrants (and any further Market Price reduction required by
clauses (i) and (ii) of this proviso with respect to such
dividend or distribution shall then be made), except that any
shares of Common Stock included in such dividend or distribution
shall not be deemed "outstanding at the close of business on the
date fixed for such determination" within the meaning of clause
(i) of this proviso;
(v) The Company or any subsidiary of the Company shall
(x) by dividend or otherwise, distribute to all holders of its
Common Stock cash in (or fix any record date for any such
distribution), or (y) repurchase or reacquire
5
shares of its Common Stock for, in either case, an aggregate
amount that, combined with (1) the aggregate amount of any other
such distributions to all holders of its Common Stock made
exclusively in cash after the Issuance Date and within the 12
months preceding the date of payment of such distribution, and in
respect of which no adjustment pursuant to this clause (v) has
been made, (2) the aggregate amount of any cash plus the fair
market value (as determined in good faith by a resolution of the
Board of Directors of the Company) of consideration paid in
respect of any repurchase or other reacquisition by the Company
or any subsidiary of the Company of any shares of Common Stock
made after the Issuance Date and within the 12 months preceding
the date of payment of such distribution or making of such
repurchase or reacquisition, as the case may be, and in respect
of which no adjustment pursuant to this clause (v) has been made,
and (3) the aggregate of any cash plus the fair market value (as
determined in good faith by a resolution of the Board of
Directors of the Company) of consideration payable in respect of
any Tender Offer by the Company or any of its subsidiaries for
all or any portion of the Common Stock concluded within the 12
months preceding the date of payment of such distribution or
completion of such repurchase or reacquisition, as the case may
be, and in respect of which no adjustment pursuant to clause (vi)
of this proviso has been made (such aggregate amount combined
with the amounts in clauses (1), (2) and (3) above being the
"Combined Amount"), exceeds 10% of the product of the Market
Price (determined without regard to this proviso) for any day in
such Measurement Period or such other period which day is prior
to the earlier of (A) the record date with respect to such
distribution and (B) the date on which ex-dividend trading in the
Common Stock with respect to such distribution begins or the date
of such repurchase or reacquisition, as the case may be, times
the number of shares of Common Stock outstanding on such date,
then, and in each such case, the Market Price for each such day
shall be reduced so that the same shall equal the price
determined by multiplying the Market Price (determined without
regard to this proviso) for such day by a fraction (i) the
numerator of which shall be equal to the Market Price (determined
without regard to this proviso) for such day less an amount equal
to the quotient of (x) the excess of such Combined Amount over
such 10% and (y) the number of shares of Common Stock outstanding
on such day and (ii) the denominator of which shall be equal to
the Market Price (determined without regard to this proviso) for
such day; or
(vi) A Tender Offer made by the Company or any of its
subsidiaries for all or any portion of the Common Stock shall
expire and such Tender Offer (as amended upon the expiration
thereof) shall require the payment to stockholders (based on the
acceptance (up to any maximum specified in the terms of the
Tender Offer) of Purchased Shares (as defined below)) of an
aggregate consideration having a fair market value (as determined
in good faith by resolution of the Board of Directors of the
Company) that combined together with (1) the aggregate of the
cash plus the fair market value (as determined in good faith by a
resolution of the Board of Directors of the Company), as of the
expiration of such Tender Offer, of consideration payable in
respect of any other
6
Tender Offers, by the Company or any of its subsidiaries for all
or any portion of the Common Stock expiring within the 12 months
preceding the expiration of such Tender Offer and in respect of
which no adjustment pursuant to this clause (vi) has been made,
(2) the aggregate amount of any cash plus the fair market value
(as determined in good faith by a resolution of the Board of
Directors of the Company) of consideration paid in respect of any
repurchase or other reacquisition by the Company or any
subsidiary of the Company of any shares of Common Stock made
after the Issuance Date and within the 12 months preceding the
expiration of such Tender Offer and in respect of which no
adjustment pursuant to clause (v) of this proviso has been made,
and (3) the aggregate amount of any distributions to all holders
of Common Stock made exclusively in cash within 12 months
preceding the expiration of such Tender Offer and in respect of
which no adjustment pursuant to clause (v) of this proviso has
been made, exceeds 10% of the product of the Market Price
(determined without regard to this proviso) for any day in such
period times the number of shares of Common Stock outstanding on
such day, then, and in each such case, the Market Price for such
day shall be reduced so that the same shall equal the price
determined by multiplying the Market Price (determined without
regard to this proviso) for such day by a fraction, the numerator
of which shall be the number of shares of Common Stock
outstanding on such day multiplied by the Market Price
(determined without regard to this proviso) for such day and the
denominator of which shall be the sum of (x) the fair market
value (determined as aforesaid) of the aggregate consideration
payable to stockholders based on the acceptance (up to any
maximum specified in the terms of the Tender Offer) of all shares
validly tendered and not withdrawn as of the last time tenders
could have been made pursuant to such Tender Offer (the
"Expiration Time") (the shares deemed so accepted, up to any such
maximum, being referred to as the "Purchased Shares") and (y) the
product of the number of shares of Common Stock outstanding (less
any Purchased Shares) on such day times the Market Price
(determined without regard to this proviso) of the Common Stock
on the Trading Day next succeeding the Expiration Time. If the
application of this clause (vi) to any Tender Offer would result
in an increase in the Market Price (determined without regard to
this proviso) for any trade, no adjustment shall be made for such
Tender Offer under this clause (vi) for such day.
"Measurement Period" means, with respect to any Adjustment Date,
the period of 30 consecutive Trading Days ending on the Trading Day prior to
such Adjustment Date.
"Nasdaq" means the Nasdaq National Market.
"Nasdaq SmallCap" means the Nasdaq SmallCap Market.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
7
"Other Securities" refers to any stock (other than Common Stock)
and other securities of the Company or any other person (corporate or otherwise)
which the Holder at any time shall be entitled to receive, or shall have
received, on the exercise of this Warrant, in lieu of or in addition to Common
Stock, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities pursuant to
Section 4.
"Purchase Price" means the greater of (x) $.01 per share or (y)
the par value per share of the Common Stock.
"Purchased Securities" as of any date means (1) the Initial
Shares which are then held by the Holder, (2) the Class A Warrant Shares which
are then held by the Holder and (3) this Warrant.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date hereof, by and between the Company and the
original Holder of this Warrant, as amended from time to time in accordance with
its terms.
"Registration Statement" shall have the meaning provided in the
Registration Rights Agreement.
"Repurchase Date" means the date of repurchase by the Company of
the Securities pursuant to Section 1.4.
"Repurchase Notice" means a notice given by the Company to the
Holder pursuant to Section 1.4(b) exercising the Company's right to repurchase
all of the Securities pursuant to Section 1.4(b) which states (1) the number of
shares of Common Stock (including shares issuable upon exercise of this Warrant)
which are to be repurchased, (2) the Repurchase Price and the formula for
determining the same, determined in accordance herewith and (3) the Repurchase
Date.
"Repurchase Price" means, for each share of Common Stock
repurchased pursuant to Section 1.4, the product of (x) the arithmetic average
of the Market Price on each of the five consecutive Trading Days ending on and
including the Adjustment Date following which the Repurchase Notice is given
times (y) the Adjustment Factor.
"Share Limit" means 3,902,081 shares of Common Stock (subject to
equitable adjustment from time to time on terms reasonably acceptable to the
Holder for stock splits, stock dividends, combinations, recapitalizations,
reclassifications, distributions, Tender Offers and similar events occurring
after the Issuance Date).
"Share Limitation Event" means a time at which the Company is
unable to issue all shares of Common Stock otherwise required to be issued upon
exercise of this Warrant by reason of the restrictions set forth in the
Shareholder Approval Rule and the Company has not obtained a waiver thereof.
"Shareholder Approval" shall mean the approval by a majority of
the votes cast by the holders of shares of Common Stock (in person or by proxy)
at a meeting of the stockholders of the Company (duly convened at which a quorum
was present), or a unanimous
8
written consent of holders of shares of Common Stock given without a meeting, of
the issuance by the Company of 20% or more of the Common Stock of the Company
outstanding on the Issuance Date for less than the greater of the book or market
value of such Common Stock, as and to the extent required under the Shareholder
Approval Rule.
"Shareholder Approval Rule" means Rule 4460(i)(1)(D) of Nasdaq as
in effect from time to time or any successor, replacement or similar rule or
regulation of Nasdaq or any other principal securities market on which the
Common Stock is listed for trading.
"Specified Number" means the number of shares of Common Stock for
which this Warrant is exercisable from time to time as determined in accordance
with Section 1.3.
"Subscription Agreement" means the Subscription Agreement, dated
as of July [ ], 2000, by and between the Company and the original Holder of this
Warrant, as amended from time to time in accordance with its terms.
"Tender Offer" means a tender offer or exchange offer.
"Total Common Shares" as of any date means the sum of (1) the
number of Initial Shares plus (2) the number of Class A Warrant Shares plus (3)
the number of shares of Common Stock issued pursuant to the Callable Warrant.
"Trading Day" means a day on which the principal securities
market for the Common Stock is open for general trading of securities.
1. EXERCISE OF WARRANT.
1.1 EXERCISE. Subject to the limitations on exercises in
Sections 1.2 and 1.4(a), this Warrant may be exercised by the Holder hereof at
any time or from time to time during the Exercise Period by delivery of the
subscription form annexed hereto (duly executed by the Holder) to the Company
and by making payment, in cash or by certified or official bank check payable to
the order of the Company, in the amount obtained by multiplying (i) the number
of shares of Common Stock designated by the Holder in the subscription form by
(ii) the Purchase Price. If at the request of the Company the subscription form
is delivered to the Company's transfer agent for the Common Stock, the Holder
shall provide a copy of the subscription form to the Company at the time of
exercise and the Company will confirm the exercise instructions given therein by
notice to the Company's transfer agent within one Trading Day after receiving
such subscription form. Upon each exercise of this Warrant, whether by cash or
cashless exercise, the Holder shall not be required to surrender this Warrant to
the Company unless the Holder has no further rights to purchase shares of Common
Stock hereunder. The Holder and the Company shall maintain records showing the
number of shares purchased in connection with each exercise of this Warrant and
the dates of such exercises or shall use such other method, satisfactory to the
Holder and the Company, so as to not require physical surrender of this Warrant
upon each such exercise.
(a) CASHLESS EXERCISE. Subject to the limitations on exercises in
Sections 1.2 and 1.4(a), during the Exercise Period and at any time after the
earlier to occur of the SEC Effective Date (as defined in the Registration
Rights Agreement) and the date the initial registration
9
statement filed pursuant to the Registration Rights Agreement is declared
effective by the Commission, when a registration statement covering the resale
of the Common Stock issuable hereunder and naming the Holder as a selling
stockholder thereunder is not then effective, the Holder may surrender this
Warrant to the Company together with a notice of cashless exercise, in which
event the Company shall issue to the Holder the number of shares of Common Stock
determined as follows:
X = Y [(A-B)/A]
where:
X = the number of shares of Common Stock to be issued to
the Holder.
Y = the number of shares of Common Stock with respect to
which this Warrant is being exercised.
A = the average of the closing sale prices of the Common
Stock for the five (5) trading days immediately prior to
(but not including) the date of exercise.
B = the Purchase Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the shares of Common Stock issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for such shares shall be deemed to have been commenced, on
the issue date of this Warrant.
(b) In lieu of delivering physical certificates representing the
shares of Common Stock issuable upon exercise of this Warrant, provided the
Company's transfer agent is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer ("FAST") program, upon request of the
Holder, the Company shall use its best efforts to cause its transfer agent to
electronically transmit the shares of Common Stock issuable upon exercise to the
Holder, by crediting the account of the Holder's prime broker with DTC through
its Deposit Withdrawal Agent Commission ("DWAC") system. The time periods for
delivery described above shall apply to the electronic transmittals through the
DWAC system. The Company agrees to coordinate with DTC to accomplish this
objective.
1.2 CERTAIN EXERCISE RESTRICTIONS.
(b) Notwithstanding anything to the contrary contained herein,
the number of shares of Common Stock that may be acquired by the Holder upon
exercise pursuant to the terms hereof shall not exceed a number that, when added
to the total number of shares of Common Stock deemed beneficially owned by such
Holder (other than by virtue of the ownership of securities or rights to acquire
securities that have limitations on the Holder's right to convert, exercise or
purchase similar to the limitation set forth herein), together with all shares
of Common Stock deemed beneficially owned (other than by virtue of the ownership
of securities or rights to acquire securities that have limitations on the
Holder's right to convert, exercise or
10
purchase similar to the limitation set forth herein) by the Holder's
"Affiliates" (as defined in Rule 144 of the Securities Act) ("Aggregation
Parties") that would be aggregated for purposes of determining whether a group
under Section 13(d) of the Securities Exchange Act of 1934, as amended, exists,
would exceed 9.99% of the total issued and outstanding shares of Common Stock
(the "Restricted Ownership Percentage"). Each Holder shall have the right (w) at
any time and from time to time to reduce its Restricted Ownership Percentage
immediately upon notice to the Company and (x) (subject to waiver) at any time
and from time to time, to increase its Restricted Ownership percentage
immediately in the event of the announcement as pending or planned, of a merger
or consolidation of the Company, a sale of all or substantially all of the
assets of the Company, or the acquisition by any third party (and/or such
party's Aggregation Parties) of at least 50% of the Company's outstanding Common
Stock.
(c) The Holder covenants at all times on each day (each such day
being referred to as a "Covenant Day") as follows: during the balance of such
Covenant Day and the succeeding sixty-one (61) days (the balance of such
Covenant Day and the succeeding 61 days being referred to as the "Covenant
Period") such Holder will not acquire shares of Common Stock pursuant to any
right (including exercise of this Warrant) existing at the commencement of the
Covenant Period to the extent the number of shares so acquired by such Holder
and its Aggregation Parties (ignoring all dispositions) would exceed:
(x) the Restricted Ownership Percentage of the total number of
shares of Common Stock outstanding at the commencement of
the Covenant Period,
MINUS
(y) the number of shares of Common Stock owned by such Holder
and its Aggregation Parties at the commencement of the
Covenant Period.
A new and independent covenant will be deemed to be given by the
Holder as of each moment of each Covenant Day. No covenant will terminate,
diminish or modify any other covenant. The Holder agrees to comply with each
such covenant.
The Company's obligation to issue shares of Common Stock which
would exceed such limits shall be suspended to the extent necessary until such
time, if any, as shares of Common Stock may be issued in compliance with such
restrictions.
11
1.3 DETERMINATION OF SPECIFIED NUMBER. (a) On each Adjustment
Date, the number of Adjustment Shares shall be computed as follows:
IF CP LESS THAN OR EQUAL TO ICP, and
IF CP < $2.25 and
IF CP GREATER THAN OR EQUAL TO MPP, then
CS = PPSH x 1.015, and
BSH = CS - FSH, and
if the Company elects to pay Holder B$ = BSH x CP,
AS = CS - BSH - PPSH
or else AS = CS - PPSH
but IF CP < MPP, then
CS = (MPP x PPSH x (1.015)/CP
BSH = CS - FSH, and
if the Company elects to pay Holder B$ = BSH x CP,
AS = CS - BSH - PPSH
or else AS = CS -PPSH.
IF CP < ICP and IF CP GREATER THAN OR EQUAL TO $2.25 and
IF CP GREATER THAN OR EQUAL TO MPP, then
AS = PPSH x .015
or else AS = [(MPP x PPSH x 1.015)/CP] - PPSH
IF CP > ICP, then AS=0
12
where:
AS = Adjustment Shares
CS = Initially calculated Adjustment Shares
I$ = $4,000,000
ICP = $4.33125
BSH = Buyout Shares: The number of shares for which the
Company may, in lieu of having the Specified Number
increase by the applicable number of Adjustment
Shares, elect to pay cash to the Holder in the
amount of the Buyout.
FSH = Floor Shares (the number of shares that are not
subject to the Company's election to buyout). The
initial value of FSH shall be set to FSH =
1,777,778. FSH shall be recalculated at each
Adjustment Date by multiplying the value of FSH as
of the immediately preceding Adjustment Date by
(1 - (SHX/PPSH))
B$ = Buyout Amount.
SHX = the number of Warrant shares exercised during the
current Adjustment Period.
CP = the Average Market Price as of the then-current
Adjustment Date.
PPSH = the number of Common Shares Held as of the
immediately preceding Adjustment Date.
MPP = the lesser of ICP or the lowest Average Market
Price as of any prior Adjustment Date (or ICP on
the first Adjustment Date).
As indicated above, if as of any Adjustment Date the Average
Market Price is below $2.25 (as such number shall be appropriately adjusted for
any stock splits, recapitalizations or similar events), the Company may, in lieu
of having the increase in the Specified Number include the number of Buyout
Shares, elect to pay cash to the Holder in an amount equal to the Buyout Amount
(B$). Such election must be made by written notice to the holders within five
(5) business days after the applicable Adjustment Date and the Company must make
payment therefor in cash (i) within sixty (60) days after the first Adjustment
Date, if applicable and (ii) within five (5) business days after any subsequent
applicable Adjustment Date.
13
(b) Prior to the First Adjustment Date, the Specified Number
shall equal zero. For each Adjustment Date on which the number of Adjustment
Shares determined in accordance with Section 1.3(a) is a positive number,
(1) on the First Adjustment Date, the Specified Number shall
equal the number of Adjustment Shares; and
(2) on each subsequent Adjustment Date, the Specified Number
shall equal (x) the Specified Number determined on the immediately
preceding Adjustment Date plus (y) the number of Adjustment Shares
determined on the current Adjustment Date less (z) the number of shares of
Common Stock for which this Warrant was exercised during the most recently
completed Quarterly Period.
(c) The number of Adjustment Shares may not be a negative
number. For each Adjustment Date on which the number of Adjustment Shares
determined in accordance with Section 1.2(a) is zero or would otherwise be a
negative number, the Holder shall not be obligated to transfer any shares of
Common Stock to the Company.
(d) On each Adjustment Date or within three Trading Days
thereafter, the Holder shall give an Adjustment Notice in the form attached
hereto to the Company accompanied by the spreadsheet referred to Section 1.3(e)
used to calculate the Adjustment Shares. If the Holder fails to give an
Adjustment Notice within three Trading Days after any Adjustment Date, the
Company may notify the Holder of such failure and, if the Holder does not
deliver such Adjustment Notice within three Trading Days after such notice of
failure is given to the Holder, the Company shall give such Adjustment Notice to
the Holder. Absent manifest error, the Adjustment Notice and such spreadsheet
shall be binding on the Company and the Holder for purposes of making the
determinations required by this Section 1.3. The Company and the Holder shall
use their best efforts to promptly correct any error in any Adjustment Notice.
(e) A spreadsheet illustrating the application of the forgoing
is annexed hereto and made a part hereof; such spreadsheet shall be used in
calculating Adjustment Shares pursuant to this Section 1.3.
1.4 MAXIMUM SHARE LIMITATION; REPURCHASE RIGHTS. Provided that
the Common Stock is listed for trading on Nasdaq or another market having the
Shareholder Approval Rule or an equivalent rule, and provided that Shareholder
Approval or the equivalent has not been obtained, this Warrant may not be
exercised to purchase shares of Common Stock to the extent, and only to the
extent, such exercise would cause the Total Common Shares of the Holder to
exceed the Share Limit. If such conditions obtain and if an exercise in full of
this Warrant and/or the Callable Warrant would, but for the preceding sentence
and the other limitations contained in Sections 1.1 and 1.2 above, cause the
Total Common Shares to exceed the Share Limit:
(a) If (i) (at the time of the Company's exercise of its right in
this sentence) the Company shall be in compliance in all material respects with
its obligations to the Holder (including, without limitation, its obligations
under this Warrant, the Callable Warrant, the
14
Subscription Agreement and the Registration Rights Agreement), (ii) on the date
the Repurchase Notice is given and at all times until the Repurchase Date, the
Registration Statement is effective and available for use by the Holder for the
resale of all of its Shares of Common Stock previously issued or issuable and
(iii) on the date the Repurchase Notice is given and on the Repurchase Date, the
Company has available unrestricted Cash and Cash Equivalent Balances not less
than the aggregate amount to be paid to repurchase shares of Common Stock
pursuant to Section 1.4 of this Warrant and the Other Class A Warrants, then the
Company shall have the right to repurchase the shares of Common Stock issuable
pursuant to the Warrant and/or the Callable Warrant held by the Holder in
accordance with Section 1.4(b).
(b) To exercise its repurchase right, the Company shall give a
Repurchase Notice, not more frequently than once in any period of 180
consecutive days, on the Trading Day immediately following an Adjustment Date.
If the Repurchase Notice is timely given, the Company shall be obligated to
repurchase such portion of the shares issuable pursuant to this Warrant and/or
the Callable Warrant (in proportions designated by the Holder) which exceed the
Share Limit on a Repurchase Date which is not less than 20 Trading Days or more
than 30 Trading Days after the date of the Repurchase Notice, if this Warrant
and/or the Callable Warrant is to be repurchased pursuant to this Section 1.4,
the Company shall repurchase such Warrants as if such Warrants had been
exercised, to the extent of the portion of the Warrants being repurchased, on
the Repurchase Date and the shares of Common Stock issuable upon such exercise
were held directly by the Holder and were being repurchased. On the Repurchase
Date, the Company shall make payment to the Holder of the applicable Repurchase
Price multiplied by the number of shares of Common Stock to be repurchased in
immediately available funds to such account as specified by the Holder in
writing to the Company at least one Trading Day prior to the Repurchase Date,
provided that if such payment is not so made on the Repurchase Date, the Company
shall be obligated to repurchase such number of shares at a purchase price equal
to the Holder Repurchase Price per share. Notwithstanding anything to the
contrary in the foregoing provisions of this Section 1.4, prior to the
Repurchase Date, or such later date on which the Repurchase Price is paid, the
Holder shall be free to exercise this Warrant as long as such exercise does not
violate the first sentence of this Section 1.4.
(c) If the Company does not timely give a Repurchase Notice
pursuant to subsection (b) above, the Company shall have the option by written
notice to the Holder, and the Holder shall have the right to require the Company
by written notice, to seek the Shareholder Approval applicable to an issuance of
shares in excess of the Share Limit ("Excess Shares") as soon as possible, but
in any event, not later than the 75th day after such election or the Holder's
demand, and if the Company shall have failed to receive Shareholder Approval
within five (5) Business Days of such 75th day, the Company shall, on such fifth
Business Day, pay cash to such Holder in an amount equal to the Holder
Repurchase Price multiplied by the number of Excess Shares. If the Company fails
to pay the Holder Repurchase Price in full pursuant to this Section 1.4 within
seven days after the date payable, the Company will pay interest thereon at a
rate of 18% per annum or such lesser maximum amount that is permitted to be paid
by applicable law, to the Holder, accruing daily from such fifth Business Day
until such amount, plus all such interest thereon, is paid in full.
2. DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE. (a) As
soon as practicable after the exercise of this Warrant, and in any event within
three Trading Days
15
thereafter, the Company at its expense (including the payment by it of any
applicable issue or stamp taxes) will cause to be issued in the name of and
delivered to the Holder hereof, or as the Holder (upon payment by the Holder of
any applicable transfer taxes) may direct, a certificate or certificates for the
number of fully paid and nonassessable shares of Common Stock (or Other
Securities) to which the Holder shall be entitled on such exercise, in such
denominations as may be requested by the Holder, plus, in lieu of any fractional
share to which the Holder would otherwise be entitled, cash equal to such
fraction multiplied by the then current fair market value (as reasonably
determined by the Company) of one full share, together with any other stock or
other securities and property (including cash, where applicable) to which the
Holder is entitled upon such exercise pursuant to Section 1 or otherwise. Upon
exercise of this Warrant as provided herein, the Company's obligation to issue
and deliver the certificates for Common Stock shall be absolute and
unconditional, irrespective of the absence of any action by the Holder to
enforce the same, any waiver or consent with respect to any provision thereof,
the recovery of any judgment against any person or any action to enforce the
same, any failure or delay in the enforcement of any other obligation of the
Company to the Holder, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by the Holder or any other person
of any obligation to the Company, and irrespective of any other circumstance
which might otherwise limit such obligation of the Company to the Holder in
connection with such exercise. If the Company fails to issue and deliver the
certificates for the Common Stock to the Holder pursuant to the first sentence
of this paragraph as and when required to do so, in addition to any other
liabilities the Company may have hereunder and under applicable law, the Company
shall pay or reimburse the Holder on demand for all out-of-pocket expenses
including, without limitation, reasonable fees and expenses of legal counsel
incurred by the Holder as a result of such failure.
(b) If the Company fails to deliver to the Holder a certificate
or certificates representing the shares of Common Stock pursuant to Section 2(a)
by the third Trading Day after each date of exercise of this Warrant, the
Company shall pay to the Holder, in cash, as liquidated damages and not as a
penalty, $5,000 for each day after such third Trading Day until such
certificates are delivered. The payment and acceptance of any cash penalty shall
not preclude the Holder from proceeding under the next paragraph 2(c); provided
that any amounts actually paid to the Holder under this paragraph 2(b) herein
shall be deducted (but not below zero) from the amount otherwise recoverable
under paragraph 2(c) below.
(c) In addition to any other rights available to the Holder, but
subject to paragraph 2(b) above, if the Company fails to deliver to the Holder a
certificate or certificates representing shares of Common Stock pursuant to
Section 2(a) by the third Trading Day after the date of exercise of this
Warrant, and if after such third Trading Day the Holder purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the shares of Common Stock which the
Holder anticipated receiving upon such exercise (a "Buy-In"), then the Company
shall pay (1) in cash to the Holder the amount by which (x) the Holder's total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the
number of shares of Common Stock that the Company was required to deliver
pursuant to Section 2(a) to deliver to the Holder in connection with the
exercise at issue by (B) the Market Price at the time of the sale giving rise to
such purchase obligation and (2) deliver to the Holder the number of shares of
Common Stock that would have been issued had the Company timely complied with
its
16
exercise and delivery obligations under Section 2(a). For example, if the Holder
purchases Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted exercise of shares of Common Stock with a
Market Price on the date of exercise totaled $10,000, under clause (A) of the
immediately preceding sentence the Company shall be required to pay the Holder
$1,000. The Holder shall provide the Company written notice and appropriate
documentation indicating the amounts payable to the Holder in respect of the
Buy-In.
3. ADJUSTMENT FOR DIVIDENDS IN OTHER STOCK, PROPERTY, ETC.;
RECLASSIFICATION, ETC. In case at any time or from time to time after the
Issuance Date, all the holders of Common Stock (or Other Securities) shall have
received, or (on or after the record date fixed for the determination of
stockholders eligible to receive) shall have become entitled to receive, without
payment therefor,
(b) other or additional stock or other securities or property
(other than cash) by way of dividend, or
(c) any cash (excluding cash dividends payable solely out of
earnings or earned surplus of the Company), or
(d) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate rearrangement,
other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock-split (adjustments in respect of which are provided
for in Section 5), then and in each such case the Holder shall be entitled to
receive, at the same time as holders of Common Stock, the amount of stock and
other securities and property (including cash in the cases referred to in
subdivisions (b) and (c) of this Section 3) which the Holder would have received
if on the date thereof the Holder had been the holder of record of the Specified
Number, after giving effect to all adjustments called for during such period by
Section 4. Notwithstanding anything in this Section 3 to the contrary, no
adjustments pursuant to this Section 3 shall actually be made until the
cumulative effect of the adjustments called for by this Section 3 since the date
of the last adjustment actually made would change the amount of stock or other
securities and property which the Holder would hold by more than 1%.
4. EXERCISE UPON REORGANIZATION, CONSOLIDATION, MERGER, ETC. In
case of any (1) merger or consolidation of the Company with or into another
person, or (2) sale by the Company of more than one-half of the assets of the
Company (on a book value basis) in one or a series of related transactions, or
(3) tender or other offer or exchange (whether by the Company or another person)
pursuant to which holders of Common Stock are permitted to tender or exchange
their shares for other securities, stock, cash or property of the Company or
another Person; then the Holder shall have the right thereafter to (A) exercise
this Warrant for the shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of Common Stock following such
merger, consolidation or sale, and the Holder shall be entitled upon such event
or series of related events to receive such amount of securities, cash and
property as the Common Stock for which this Warrant could have been exercised
immediately prior to such merger, consolidation or sale would have been
entitled, (B) in the case of a merger
17
or consolidation, (x) require the surviving entity to issue to the Holder a
warrant entitling the Holder to acquire shares of such entity's common stock,
which warrant shall have terms identical (including with respect to exercise) to
the terms of this Warrant and shall be entitled to all of the rights and
privileges set forth herein and the agreements pursuant to which this Warrant
was issued (including, without limitation, as such rights relate to the
acquisition, transferability, registration and listing of such shares of stock
other securities issuable upon exercise thereof), or (C) in the event of an
exchange or tender offer or other transaction contemplated by clause (3) of this
Section, tender or exchange this Warrant for such securities, stock, cash and
other property receivable upon or deemed to be held by holders of Common Stock
that have tendered or exchanged their shares of Common Stock following such
tender or exchange, and the Holder shall be entitled upon such exchange or
tender to receive such amount of securities, cash and property as the shares of
Common Stock for which this Warrant could have been exercised immediately prior
to such tender or exchange would have been entitled as would have been issued.
In the case of clause (B), the exercise price applicable for the newly issued
warrant shall be based upon the amount of securities, cash and property that
each share of Common Stock would receive in such transaction and the Purchase
Price immediately prior to the effectiveness or closing date for such
transaction. The terms of any such merger, sale, consolidation, tender or
exchange shall include such terms so as continue to give the Holder the right to
receive the securities, cash and property set forth in this Section upon any
conversion or redemption following such event. This provision shall similarly
apply to successive such events.
5. ADJUSTMENT FOR EXTRAORDINARY EVENTS. In the event that after
the Issuance Date the Company shall (i) issue additional shares of Common Stock
as a dividend or other distribution on outstanding Common Stock, (ii) subdivide
or reclassify its outstanding share of Common Stock, or (iii) combine its
outstanding share of Common Stock into a smaller number of shares of Common
Stock, then, in each event, the Specified Number shall, simultaneously with the
happening of such event, be adjusted by multiplying the Specified Number in
effect immediately prior to such event by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding immediately after such
event and the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such event, and the product so obtained shall
thereafter be the Specified Number then in effect. The Specified Number, as so
adjusted, shall be readjusted in the same manner upon the happening of any
successive event or events described in this Section 5.
6. FURTHER ASSURANCES. Subject to the terms hereof, the Company
will take all action that may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
stock, free from all taxes, liens and charges with respect to the issue thereof,
on the exercise of all or any portion of this Warrant from time to time
outstanding.
7. NOTICES OF RECORD DATE, ETC. In the event of
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend on, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
18
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
transfer of all or substantially all of the assets of the Company to or
consolidation or merger of the Company with or into any other person (other than
a wholly-owned subsidiary of the Company), or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
Holder, at least ten days prior to such record date, a notice specifying (i) the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of Common Stock (or Other
Securities) shall be entitled to exchange their shares of Common Stock (or Other
Securities) for securities or other property deliverable on such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up, and (iii) the amount and character of
any stock or other securities, or rights or options with respect thereto,
proposed to be issued or granted, the date of such proposed issue or grant and
the persons or class of persons to whom such proposed issue or grant is to be
offered or made. Such notice shall also state that the action in question or the
record date is subject to the effectiveness of a registration statement under
the 1933 Act, or a favorable vote of stockholders, if either is required. Such
notice shall be mailed at least ten days prior to the date specified in such
notice on which any such action is to be taken or the record date, whichever is
earlier.
8. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF
WARRANTS. The Company will at all times reserve and keep available out of its
authorized but unissued shares of capital stock, solely for issuance and
delivery on the exercise of this Warrant, a sufficient number of shares of
Common Stock (or Other Securities) to effect the full exercise of this Warrant
and the exercise, conversion or exchange of any other warrant or security of the
Company exercisable for, convertible into, exchangeable for or otherwise
entitling the holder to acquire shares of Common Stock (or Other Securities),
and if at any time the number of authorized but unissued shares of Common Stock
(or Other Securities) shall not be sufficient to effect such exercise,
conversion or exchange, the Company shall take such action as may be necessary
to increase its authorized but unissued shares of Common Stock (or Other
Securities) to such number as shall be sufficient for such purposes.
9. TRANSFER OF WARRANT. This Warrant shall inure to the benefit
of the successors to and assigns of the Holder. This Warrant and all rights
hereunder, in whole or in part, are registrable at the office or agency of the
Company referred to below by the Holder hereof in person or by his duly
authorized attorney, upon surrender of this Warrant properly endorsed.
10. REGISTER OF WARRANTS. The Company shall maintain, at the
principal office of the Company (or such other office as it may designate by
notice to the Holder hereof), a register 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 successor and prior owner
19
of such Warrant. The Company shall be entitled to treat the person in whose name
this Warrant is so registered as the sole and absolute owner of this Warrant for
all purposes.
11. EXCHANGE OF WARRANT. This Warrant is exchangeable, upon the
surrender hereof by the Holder hereof at the office or agency of the Company
referred to in Section 10, for one or more new Warrants of like tenor
representing in the aggregate the right to subscribe for and purchase the number
of shares of Common Stock which may be subscribed for and purchased hereunder,
each of such new Warrants to represent the right to subscribe for and purchase
such number of shares as shall be designated by said Holder hereof at the time
of such surrender.
12. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
13. WARRANT AGENT. The Company may, by written notice to the
Holder, appoint the transfer agent and registrar for the Common Stock as the
Company's agent for the purpose of issuing shares of Common Stock (or Other
Securities) on the exercise of this Warrant pursuant to Section 1, and the
Company may, by notice to the Holder, appoint an agent having an office in the
United States of America for the purpose of exchanging this Warrant pursuant to
Section 11 and replacing this Warrant pursuant to Section 12, or either of the
foregoing, and thereafter any such exchange or replacement, as the case may be,
shall be made at such office by such agent.
14. REMEDIES. The Company stipulates that the remedies at law of
the Holder in the event of any default or threatened default by the Company in
the performance of or compliance with any of the terms of this Warrant are not
and will not be adequate, and that such terms may be specifically enforced by a
decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
15. NO RIGHTS OR LIABILITIES AS A STOCKHOLDER. This Warrant
shall not entitle the Holder hereof to any voting rights or other rights as a
stockholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the Holder hereof to purchase Common Stock, and no mere
enumeration herein of the rights or privileges of the Holder hereof, shall give
rise to any liability of the Holder for the Purchase Price or as a stockholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
16. NOTICES, ETC. All notices and other communications from the
Company to the registered Holder or from the registered Holder to the Company
shall be delivered personally (which shall include telephone line facsimile
transmission with answer back confirmation) or by courier and shall be effective
upon receipt, addressed to each party at the address or telephone line facsimile
transmission number for each party set forth in the Subscription Agreement or at
such other address or telephone line facsimile transmission number as a party
shall have provided to the other party in accordance with this provision.
20
17. TRANSFER RESTRICTIONS. By acceptance of this Warrant, the
Holder represents to the Company that this Warrant is being acquired for the
Holder's own account and for the purpose of investment and not with a view to,
or for sale in connection with, the distribution thereof, nor with any present
intention of distributing or selling this Warrant or the Common Stock issuable
upon exercise of this Warrant. The Holder acknowledges and agrees that this
Warrant and, except as otherwise provided in the Registration Rights Agreement,
the shares of Common Stock issuable upon exercise of this Warrant (if any) have
not been (and at the time of acquisition by the Holder, will not have been or
will not be), registered under the 1933 Act or under the securities laws of any
state, in reliance upon certain exemptive provisions of such statutes. The
Holder further recognizes and acknowledges that (a) because this Warrant and,
except as provided in the Registration Rights Agreement, the Common Stock
issuable upon exercise of this Warrant (if any) are unregistered, they may not
be eligible for resale, and may only be resold in the future pursuant to an
effective registration statement under the 1933 Act and any applicable state
securities laws, or pursuant to a valid exemption from such registration
requirements and (b) this Warrant and the Common Stock issuable upon the
exercise hereof are subject to the transfer restrictions and other terms,
conditions and obligations set forth in the Registration Rights Agreement and in
the Subscription Agreement. Unless the shares of Common Stock issuable upon
exercise of this Warrant have theretofore been registered for resale under the
1933 Act, the Company may require, as a condition to the issuance of Common
Stock upon the exercise of this Warrant a confirmation as of the date of
exercise of the Holder's representations pursuant to this Section 17.
18. LEGEND. Except to the extent required by the Subscription
Agreement, each certificate for shares issued upon exercise of this Warrant
shall be free of any restrictive legend.
19. ATTORNEYS' FEES. In any litigation, arbitration or court
proceeding between the Company and Holder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant; provided that the prevailing party may only
recover attorney's fees and expenses aggregating up to 35% of the amount sought
in good faith to be recovered.
20. AMENDMENT; WAIVER. This Warrant and any terms hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought.
21. MISCELLANEOUS. The corporate laws of the State of Delaware
shall govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Warrant shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. The Company
and the Holder hereby irrevocably submit to the exclusive jurisdiction of the
state and federal courts sitting in the City of New York, borough of Manhattan,
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, or that
such suit, action or proceeding is improper. Each of the Company and the Holder
hereby irrevocably waives
21
personal service of process and consents to process being served in any such
suit, action or proceeding by certified mail, return receipt requested, and
agrees that such service shall constitute good and sufficient service of process
and notice thereof. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any manner permitted by law.
22
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed on its behalf by one of its officers thereunto duly authorized.
Dated: July 31, 2000 STEMCELLS, INC.
By:
-----------------------------
Title:
--------------------------
23
FORM OF SUBSCRIPTION
STEMCELLS, INC.
(To be signed only on exercise of Warrant)
TO: STEMCELLS, INC.
000 Xxx Xxx Xxxxxx
Xxxxx X
Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Chief Financial Officer
1. The undersigned Holder of the attached original, executed
Warrant hereby elects to exercise its purchase right under such Warrant with
respect to ______________ shares of Common Stock, as defined in the Warrant, of
StemCells, Inc., a Delaware corporation (the "Company").
2. The undersigned Holder elects to pay the aggregate purchase
price for such shares of Common Stock (the "Exercise Shares") (i) by lawful
money of the United States or the enclosed certified or official bank check
payable in United States dollars to the order of the Company in the amount of
$___________, or (ii) by wire transfer of United States funds to the account of
the Company in the amount of $____________, which transfer has been made before
or simultaneously with the delivery of this Form of Subscription pursuant to the
instructions of the Company.
3. The undersigned Holder represents and warrants that it is an
accredited investor as defined under Rule 501(a) promulgated under the
Securities Act of 1933, as amended.
4. Please issue a stock certificate or certificates
representing the appropriate number of shares of Common Stock in the name of the
undersigned or in such other name as is specified below:
Name:
------------------------------------
Address:
---------------------------------
---------------------------------
24
5. The undersigned Holder hereby represents to the Company that
the exercise of the Warrant elected hereby does not violate Section 1.2 of the
Warrant.
Dated: , HOLDER:
----------------- -----
-------------------------------------
By:
----------------------------------
(Signature must conform to name
of Holder as specified on the
face of the Warrant)
Name:
Title:
Address:
-----------------------------
-------------------------------------
25
ADJUSTMENT NOTICE
TO: STEMCELLS, INC.
000 Xxx Xxx Xxxxxx
Xxxxx X
Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Chief Financial Officer
Facsimile No: 000-000-0000
This Adjustment Notice is given pursuant to the terms of the
Common Stock Purchase Warrant, Class A, dated July 31, 2000, issued by
STEMCELLS, INC., a Delaware corporation (the "Warrant"). Capitalized terms used
herein and not otherwise defined herein have the respective meanings provided in
the Warrant. Attached hereto is a copy of the spreadsheet used pursuant to
Section 1.3(e) of the Warrant to prepare this notice. The undersigned Holder
hereby notifies the Company as follows:
(1) Adjustment Date:
-------------------------
(2) Computation of number of Adjustment Shares ("AS")
pursuant to Section 1.3(a):
(a) Common Shares Held as of prior Adjustment Date:
(b) To determine the Average Market Price, the ten
lowest Market Prices during the 30 Trading Days
during the Measurement Period were as follows:
Date Price ($) Date Price ($)
---- --------- ---- ---------
(c) Lowest Average Market Price as of any previous
Adjustment Date: $ .
---------
(d) Adjustment Shares:
------------
(3) Specified Number on preceding Adjustment
Date:
------------
(4) Shares issued upon exercises during last Quarterly
Period:
-----------
(5) Specified Number on Adjustment Date:
-------------
26
NAME OF XXXXXX:
Date:
---------------------- ----------------------------------
By:
-------------------------------
Name:
Title:
