UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Date of
Report (Date of earliest event reported): November 16,
2010
NeoStem,
Inc.
(Exact
Name of Registrant as Specified in Charter)
|
Delaware
(State
or Other Jurisdiction of Incorporation)
|
0-10909
(Commission
File
Number)
|
22-2343568
(IRS
Employer Identification
No.)
|
420 Lexington Avenue, Suite
450, New York, New York 10170
(Address
of Principal Executive Offices)(Zip Code)
(212)
584-4180
Registrant's
Telephone Number
Check
the appropriate box below if the Form 8-K filing is
intended to simultaneously satisfy the filing obligation of the registrant under
any of the following provisions (see General Instruction A.2.
below):
x
Written communications pursuant to Rule 425 under
the Securities Act (17 CFR 230.425)
o Soliciting material
pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule
14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule
13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item
1.01. Entry into a Material Definitive Agreement.
Underwritten
Offering
On
November 16, 2010, NeoStem, Inc. (the “Company”) entered into an Underwriting
Agreement (the “Underwriting Agreement”) with Cowen and Company, LLC, as
representative of the underwriters named in the Underwriting Agreement (the
“Underwriters”), relating to a public offering (the “Underwritten Offering”) by
the Company underwritten on a firm commitment basis of 6,337,980 units (the
“Underwritten Units”), with each Underwritten Unit consisting of one share of
the Company’s common stock, par value $0.001 per share (“Common Stock”) and a
warrant (each, an “Underwritten Warrant”) to purchase 0.50 of a share of Common
Stock. The public offering price for each Underwritten Unit is $1.45
($1.34125 per Underwritten Unit, net of underwriting discount). In
connection with the Underwriting Agreement, the Company has agreed to pay
LifeTech Capital (a division of Aurora Capital, LLC) financial advisory fees
equal to $161,353, which amount will reduce the total underwriting discounts to
be paid to the Underwriters. Each Underwritten Warrant will have an
exercise price of $1.85 per share, will be exercisable six months after issuance
and will expire five years from the date of issuance. Underwritten
Units will not be issued or certificated. The shares of Common Stock
and the Underwritten Warrants are immediately separable and will be issued
separately, but will be purchased together in the Underwritten
Offering.
The
Underwritten Offering is expected to close on November 19, 2010, contingent upon
the satisfaction of a number of closing conditions, including, but not limited
to, the completion of the concurrent Preferred Offering (as hereinafter defined
and described).
The
shares of Common Stock and the Underwritten Warrants, in each case included in
the Underwritten Units (and the shares of Common Stock issuable from time to
time upon exercise of the Underwritten Warrants) will be issued pursuant to a
prospectus supplement (the “Underwritten Offering Prospectus Supplement”), to be
dated as of November 16, 2010, which is being filed with the Securities and
Exchange Commission (the “Commission”) in connection with a takedown from the
Company’s shelf registration statement on Form S-3 (File No. 333-166169), which
became effective on May 11, 2010, and the base prospectus dated May 19,
2010.
The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters have agreed,
severally and not jointly, to purchase all of the Underwritten Units sold under
the Underwriting Agreement if any of the Underwritten Units are
purchased. If an Underwriter defaults, the Underwriting Agreement
provides that the purchase commitments of the non-defaulting Underwriters may be
increased or the Underwriting Agreement may be
terminated. Additionally, the Underwriting Agreement contains
customary representations, warranties, and agreements by the Company, customary
conditions to closing, indemnification obligations of the Company and the
Underwriters, including for liabilities under the Securities Act of 1933, as
amended, other obligations of the parties and termination
provisions.
The
foregoing descriptions of the terms of the Underwriting Agreement and the
Underwritten Warrants do not purport to be complete and are subject to, and
qualified in their entirety by reference to, the Underwriting Agreement and the
form of Underwritten Warrant, which are filed herewith as Exhibits 1.1 and 4.1,
respectively, and are incorporated herein by reference. The
provisions of the Underwriting Agreement, including the representations and
warranties contained therein, are not for the benefit of any party other than
the parties to such agreement and are not intended as a document for investors
and the public to obtain factual information about the current state of affairs
of the parties to that document. Rather, investors and the public
should look to other disclosures contained in the Company’s filings with the
Commission.
-2-
Preferred
Offering
On
November 16, 2010, the Company entered into a placement agency agreement (the
“Placement Agent Agreement”) with Cowen and Company, LLC and LifeTech Capital (a
division of Aurora Capital, LLC) (the “Placement Agents”), pursuant to which the
Placement Agents agreed to use their reasonable best efforts to arrange for a
sale (the “Preferred Offering”) (to be conducted concurrently with the
Underwritten Offering) of up to 10,582,011 units (the “Preferred Offering
Units”), with each Preferred Offering Unit consisting of (i) one share
(collectively, the “Preferred Shares”) of Series E 7% Senior Convertible
Preferred Stock, par value $0.01 per share, of the Company (“Series E Preferred
Stock”), (ii) a warrant (collectively, the “Preferred Offering Warrants”) to
purchase 0.25 of a share of Common Stock (or an aggregate of 1,322,486 warrants)
and (iii) 0.0155 of a share of Common Stock (an aggregate of 164,418
shares). Each Preferred Offering Unit was priced at $0.945, or gross
proceeds of $10 million. Each Preferred Offering Warrant will have a
strike price of $2.0874, will become exercisable after six months and will
expire three years after the initial exercise date. Preferred
Offering Units will not be issued or certificated. The Preferred
Shares, Preferred Offering Warrants and the Common Stock are immediately
separable and will be issued separately, but will be purchased together in the
Preferred Offering. The securities included in the Preferred Offering Units
will be issued without restrictive legends.
The
Company has agreed to pay the Placement Agents a commission equal to 7.5% of the
gross proceeds of the sale of Preferred Offering Units in the Preferred
Offering. The Company will also reimburse the Placement Agents for
certain legal and other expenses incurred by them. The Placement
Agents will not receive any commission with respect to the shares of Common
Stock issuable upon conversion or redemption of the Preferred Shares and
exercise of the Preferred Offering Warrants. In no event will the
total amount of compensation paid to the Placement Agents and other securities
brokers and dealers upon completion of the Preferred Offering exceed 8.0% of the
maximum gross proceeds of the Preferred Offering.
On
November 16, 2010, the Company entered into definitive Securities Purchase
Agreements (the “Securities Purchase Agreements”) with each of the investors in
the Preferred Offering (each, a “Purchaser”), pursuant to which such Purchasers
agreed to purchase, and the Company agreed to sell, an aggregate of 10,582,011
Preferred Offering Units. The Stock Purchase Agreement contains
certain covenants applicable to the Company, including limitations on its
ability to incur debt and a negative pledge with respect to its
assets (other than the assets of its Erye Pharmaceutical
subsidiary).
The terms
and conditions of the Series E Preferred Stock are governed by the Certificate
of Designations for the Series E Preferred Stock (the “Certificate of
Designations”), as described in Item 5.03 below.
The
Preferred Offering is expected to close on November 19, 2010, contingent upon
the satisfaction of a number of closing conditions, including, but not limited
to, the completion of the concurrent Underwritten Offering (as described
above).
The
Preferred Shares, the Preferred Offering Warrants and the shares of Common
Stock, in each case included in the Preferred Offering Units (and the shares of Common Stock
issuable upon conversion or redemption of the Preferred Shares and the
Common Stock issuable from time to time upon exercise of the Preferred Offering
Warrants) will be issued pursuant to a prospectus supplement (the “Preferred
Offering Prospectus Supplement”), to be dated as of November 16, 2010, which is
being filed with the Commission in connection with a takedown from the Company’s
shelf registration statement on Form S-3 (File No. 333-166169), which became
effective on May 11, 2010, and the base prospectus dated May 19,
2010.
The
Placement Agent Agreement provides that the obligations of the Placement Agents
and the Purchasers are subject to certain conditions precedent, including the
absence of any material adverse change in the Company’s business and the receipt
of customary legal opinions, letters and certificates. Additionally,
the Placement Agent Agreement contains customary representations, warranties,
and agreements by the Company, customary conditions to closing, indemnification
obligations of the Company and the Placement Agent, including for liabilities
under the Securities Act of 1933, as amended, other obligations of the parties
and termination provisions.
-3-
The
foregoing descriptions of the terms of the Placement Agent Agreement, the
Securities Purchase Agreement and the Preferred Offering Warrants, do not
purport to be complete and are subject to, and qualified in their entirety by
reference to, the Placement Agent Agreement, the Securities Purchase Agreement
and the form of Preferred Offering Warrant, which are filed herewith as Exhibits
1.2, 10.1 and 4.2, respectively, and are incorporated herein by
reference. The provisions of the Placement Agent Agreement and the
Securities Purchase Agreement, including the representations and warranties
contained therein, are not for the benefit of any party other than the parties
to such agreements and are not intended as documents for investors and the
public to obtain factual information about the current state of affairs of the
parties to those documents and agreements. Rather, investors and the
public should look to other disclosures contained in the Company’s filings with
the Commission.
Use of
Proceeds
The Company estimates that the net
proceeds from the concurrent Underwritten Offering and Preferred Offering,
excluding the proceeds, if any, from the exercise of the Underwritten Warrants
and the Preferred Offering Warrants, will be approximately $16.7 million, after
deducting the estimated underwriting discount, placement agent fees, financial
advisory fees and estimated offering expenses payable by the
Company. An aggregate of $2.5 million of the proceeds from the
Preferred Offering will be placed in escrow for a maximum of two and one half (2
1/2) years as security for the Company's obligations under the Certificate of
Designations pertaining to the Preferred Shares.
The Company currently intends to use
the net proceeds of the concurrent Underwritten Offering and Preferred Offering
in connection with the PCT Merger (as defined below), including a $3 million
repayment of indebtedness owed by PCT, associated costs for the growth of the
cord blood and adult stem cell banking, manufacturing and therapeutic business,
expansion of the Company’s business in Asia and completion of the Company’s
Beijing lab, development and acquisition of proprietary stem cell intellectual
property and new technology and expansion of the Company’s business into other
countries. The Company intends to use the remaining net proceeds from
the concurrent Underwritten Offering and Preferred Offering for marketing,
working capital and other general corporate purposes.
Opinion of
Counsel
A copy of
the opinion of Lowenstein Sandler PC relating to the legality of the issuance
and sale of the securities of the Company in each of the Underwritten Offering
and the Preferred Offering is attached as Exhibit 5.1 hereto.
Item
3.03. Material Modification to Rights of Security
Holders.
The
information set forth under Item 5.03 below is incorporated herein by
reference.
Item
5.03. Amendments to Articles of Incorporation or Bylaws; Change in
Fiscal Year.
In
connection with the offering of the Preferred Shares, as described in Item 1.01
above, on November 16, 2010, the Company approved the Certificate of
Designations to designate up to 10,582,011 Preferred Shares. The
following is a summary of the material terms of the Preferred Shares set forth
in the Certificate of Designations.
Each
Preferred Share is entitled to a dividend on the liquidation preference (as
described below) of 7% per annum, payable monthly in cash or in Common Stock
subject to certain conditions. Each Preferred Share enjoys a
liquidation preference of $1.00 per share plus accrued and unpaid
dividends. The Series E Preferred Stock has a maturity date of 30
months after the closing date. Monthly dividend and principal
payments begin on the fourth month after closing, and can be made in stock or
cash at the Company’s option, provided the “Equity Conditions” (described below)
are satisfied or holders of the Preferred Shares agree to waive the Equity
Conditions for that payment period. If the Equity Conditions are not
satisfied, the Company must make payments in cash. All payments made
in stock will be at the VWAP Price (defined below). Payments of
principal or dividends which are made in stock will be made in shares which are
freely tradable (“Payment Shares”). The price of the shares will be
calculated based on 92% of the average of the lowest five VWAPs of the 20
trading days prior to the payment date (the “VWAP Price”). Between 22
and 25 trading days prior to each payment date, the Company will inform holders
what percentage of the upcoming amortization and dividend payment will be made
in cash. Twenty-one trading days prior to each payment date, the
Company will provide holders with freely trading shares valued at the dollar
amount of the stock payment divided by 92% of the prior day’s
VWAP. Eleven trading days prior to each payment date, the Company
will deliver an additional number of shares equal to the positive difference (if
any) between such number of shares previously delivered and the number of shares
valued at the dollar amount of the stock payment divided by the average of 92%
of the five lowest Daily VWAPs during the immediately preceding ten trading
days. The Company and the holders will “true up” the number of shares
based on the five lowest VWAP prices during the previous 20 trading
days.
-4-
The
Company, at its option, may pre-pay the outstanding balance of the Preferred
Shares in full or in part (in increments of no less than $1,000,000) at 115% of
the then outstanding balance, reducing to 110% after twelve months, with notice
of not less than thirty days and adequate opportunity to convert. The
Company may pre-pay a portion of the Preferred Shares in equity provided the
“Equity Conditions” (described below) apply. The Company can pay in
equity no more than 15% multiplied by the total dollar trading volume (using the
daily VWAP) of the Common Stock for the 22 trading days prior to the
notification date for any given amortization and dividend payment or any
pre-payment, so long as the Equity Conditions are satisfied. The
“Equity Conditions” will be satisfied if, on each day of the pricing period, (i)
the Payment Shares are eligible for resale by the holders without restriction,
(ii) the Company’s Common Stock is not suspended from trading on the AMEX Market
or other trading market, (iii) the Payment Shares may be issued in full without
violating any rules of the AMEX Market, (iv) there is no event of default or
Trigger Event (as defined in the Certificate of Designations), (v) the Company
has not provided the holders with material non-public information, (vi) there is
an effective registration statement with respect to the Payment Shares which
complies with all applicable securities laws, (vii) the Company’s transfer agent
is participating in the DTC Fast Automated Securities Transfer Program and
(viii) the Payment Shares will be duly authorized, fully paid and
non-assessable.
The
Preferred Shares will be convertible at an initial conversion price of
$2.0004. The conversion price is subject to adjustment as provided in
the Certificate of Designations. The Preferred Shares and the
associated warrants will have “weighted average” anti-dilution protection, and
will not have voting rights except in certain limited circumstances (as
described in the Certificate of Designations).
The Certificate of
Designations further provides that the total number of shares of Common
Stock issued or issuable to the holders of any Preferred Shares shall not (when
aggregated with any shares of Common Stock already issued in respect of all of
the Preferred Shares) exceed the maximum number of shares of Common Stock which
the Company can so issue pursuant to any rule or regulation of the NYSE Amex (or
any other national securities exchange on which the Company's Common Stock
trades), subject to equitable adjustments from time to time for stock splits,
stock dividends, combinations, capital reorganizations and similar events
relating to shares of the Company's Common Stock occurring after the closing of
the Preferred Offering. In accordance with the provisions of
the Certificate of Designations no shares of Common Stock in excess of 19.9% of
NBS outstanding common stock less the common stock issued in the concurrent
Preferred Offering and Underwritten Offering shall be issued by the Company (x)
under the Preferred Warrants and (y) under the Preferred Shares, whether by
reason of conversion, redemption or otherwise, and no voting rights may be
exercised, until after approval of the Company's stockholders.
-5-
In addition, the
Certificate of
Designations limits the number of shares of the Company's Common
Stock that may be issued to each individual holder of the Preferred Shares such
that the Company may not at any time issue to an individual holder shares
of the Company's Common Stock if the number of shares of Common Stock to be
issued pursuant to such issuance would exceed, when aggregated with all other
shares of the Company's Common Stock beneficially owned by such holder at such
time (as determined in accordance with relevant Exchange Act rules), the number
of shares of Common Stock that would result in the holder beneficially owning
(as determined in accordance with relevant Exchange Act rules) more than 4.9%
(the ‘‘Beneficial Ownership Limitation’’) of the then issued and outstanding
Common Stock. Each holder shall have the right (with respect to itself only) to
(i) waive such ownership cap upon not less than sixty-five (65) days’
prior notice to us; (ii) at any time and from time to time
immediately reduce the Beneficial Ownership Limitation; and (iii) (subject to
waiver) at any time and from time to time, increase the Beneficial Ownership
Limitation immediately in the event of the announcement as pending or planned of
a Change in Control Transaction (as defined in the Certificate of
Designations).
The
Preferred Shares are subject to mandatory repurchase in cash at a premium
depending on the date of repurchase upon certain events, including certain
change in control transactions, payment defaults, and certain breaches of
representations, warranties and covenants.
The
foregoing description of the terms of the Certificate of Designations, does not
purport to be complete and are subject to, and qualified by its entirety by
reference to, the Certificate of Designations, which is filed herewith as
Exhibit 3.1 and is incorporated herein by reference.
Item
8.01. Other Events.
On November 16, 2010, the Company
issued a press release announcing the pricing of the offerings described
above. A copy of the press release is attached hereto as Exhibit 99.1
and is incorporated herein by reference.
Forward-Looking
Statements
Certain statements in this Current
Report on Form 8-K are forward-looking statements that involve a number of risks
and uncertainties. Such forward-looking statements include statements
about the expected settlement of the sale and purchase of securities described
herein and the Company’s receipt of net proceeds therefrom. For such
statements, the Company claims the protection of the Private Securities
Litigation Reform Act of 1995. Actual events or results may differ
materially from the Company’s expectations. Factors that could cause
actual results to differ materially from the forward-looking statements include,
but are not limited to, the Company’s ability to satisfy applicable closing
conditions under the Underwriting Agreement, the Placement Agent Agreement and
the Securities Purchase Agreement. Additional factors that could
cause actual results to differ materially from those stated or implied by the
Company’s forward-looking statements are disclosed in the Preferred Offering
Prospectus Supplement, the Underwritten Offering Prospectus Supplement and the
Company’s reports filed with the Securities and Exchange
Commission.
This
Current Report on Form 8-K may be deemed to be solicitation material in respect
of the proposed Merger with Progenitor Cell Therapy, LLC. The
directors and executive officers of each of NeoStem and PCT may be deemed to be
participants in the solicitation of proxies from the holders of NeoStem Common
Stock in respect of the proposed transaction. Information about the
directors and executive officers of NeoStem is set forth in NeoStem’s Definitive
Proxy Statement on Schedule 14A filed with the SEC on April 30, 2010 in
connection with its June 2010 Annual Meeting of Stockholders. Investors may
obtain additional information regarding NeoStem and its directors and executive
officers, and PCT and its Board of Managers and executive officers, in
connection with the proposed Merger by reading the S-4 and the prospectus/joint
proxy statement contained therein, when it becomes available. The S-4
will contain a prospectus/joint proxy statement pertaining to (a) the special
meeting of stockholders of NeoStem at which NeoStem’s stockholders will be asked
to approve the NeoStem securities issuable in the Merger and (b) the special
meeting of Members of PCT at which PCT's Members will be asked to approve the
Merger Agreement and Merger.
-6-
Item
9.01. Financial Statements and Exhibits.
(d) Exhibits.
The
following exhibits are filed with this Current Report on Form 8-K:
|
Exhibit
No.
|
Description
|
|
|
1.1
|
Underwriting
Agreement, dated November 16, 2010, by and between NeoStem, Inc. and Cowen
and Company, LLC
|
|
|
1.2
|
Placement
Agent Agreement, dated November 16, 2010, by and between NeoStem, Inc. and
Cowen and Company, LLC (as representative for the placement
agents)
|
|
|
3.1
|
Certificate
of Designations for the Series E 7% Senior Convertible Preferred
Stock
|
|
|
4.1
|
Form
of Underwritten Warrant
|
|
|
4.2
|
Form
of Preferred Offering Warrant
|
|
|
5.1
|
Opinion
of Lowenstein Sandler PC
|
|
|
10.1
|
Securities
Purchase Agreement, dated November 16, 2010, by and among NeoStem, Inc.,
JGB Management Inc. and certain Purchasers
|
|
|
10.2
|
Escrow
Agreement with Wells Fargo Bank, National Association, to be executed at
closing
|
|
|
23.1
|
Consent
of Lowenstein Sandler PC (included in Opinion of Lowenstein Sandler PC
filed as Exhibit 5.1)
|
|
|
99.1
|
Press
release of NeoStem, Inc., dated November 16,
2010
|
-7-
SIGNATURE
Pursuant to the requirements of the
Securities Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
| NEOSTEM, INC. | |||
|
|
By:
|
/s/ Catherine M. Vaczy | |
| Name: Catherine M. Vaczy | |||
| Title: Vice President and General Counsel | |||
Dated: November
16, 2010
-8-
EXECUTION COPY
6,337,980
Shares
Warrants
to Purchase 3,168,990 Shares
NEOSTEM,
INC.
UNDERWRITING
AGREEMENT
November
16, 2010
COWEN AND
COMPANY, LLC
As
Representative of the several Underwriters
1221
Avenue of the Americas
New York,
New York 10020
Dear
Sirs:
1.
INTRODUCTORY. NeoStem, Inc.,
a Delaware corporation (the “Company”), proposes
to sell, pursuant to the terms of this Agreement, to the several underwriters
named in Schedule
I hereto (the “Underwriters,” or,
each, an “Underwriter”),
(i) an aggregate of 6,337,980 shares of common stock, $0.001 par value (the
“Common
Stock”), of the Company (the “Stock”) and
(ii) warrants to purchase an aggregate of 3,168,990 shares of Common Stock
(the “Warrants”) in the
form attached hereto as Exhibit H. The shares
of Common Stock underlying the Warrants are hereinafter referred to as the
“Warrant
Shares”. Cowen and Company, LLC (“Cowen”) is acting as
representative of the several Underwriters and in such capacity is hereinafter
referred to as the “Representative.”
2.
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY. The Company represents and warrants to the
several Underwriters, as of the date hereof and as of the Closing Date (as
defined below), and agrees with the several Underwriters, that:
(a) A
registration statement of the Company on Form S-3 (File No. 333-166169)
(including all pre-effective amendments thereto and all post-effective
amendments thereto filed before execution of this Agreement, the “Initial Registration
Statement”) in respect of the Stock and Warrants has been filed with the
Securities and Exchange Commission (the “Commission”) pursuant
to Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”). The
Company meets the requirements for use of Form S-3 under the Securities Act and
the rules and regulations of the Commission thereunder (the “Rules and
Regulations”). The Initial Registration Statement and any post-effective
amendment thereto, each in the form heretofore made available to you, and,
excluding exhibits thereto, to you for each of the other Underwriters, have been
declared effective by the Commission. The proposed offering of the
Stock and Warrants may be made pursuant to General Instruction I.B.1. of Form
S-3. Other than (i) a registration statement, if any, increasing the size
of the offering filed pursuant to Rule 462(b) under the Securities Act and the
Rules and Regulations (a “Rule 462(b) Registration
Statement”) and (ii) the Prospectus (as defined below) contemplated
by this Agreement to be filed pursuant to Rule 424(b) of the Rules and
Regulations in accordance with Section 4(a)
hereof and (iii) any Issuer Free Writing Prospectus (as defined below), no
other document with respect to the offer and sale of the Stock and Warrants has
heretofore been filed with the Commission. No stop order suspending
the effectiveness of the Initial Registration Statement, any post-effective
amendment thereto or the Rule 462(b) Registration Statement, if any, has been
issued and no proceeding for that purpose or pursuant to Section 8A of the
Securities Act has been initiated or threatened by the Commission (any
preliminary prospectus included in the Initial Registration Statement or filed
with the Commission pursuant to Rule 424(a) of the Rules and Regulations is
hereinafter called a “Preliminary
Prospectus”). The various parts of the Initial Registration Statement and
the Rule 462(b) Registration Statement, if any, in each case including all
exhibits thereto and including (i) the information contained in the
Prospectus filed with the Commission pursuant to Rule 424(b) of the Rules and
Regulations and deemed by virtue of Rules 430A, 430B and 430C under the
Securities Act to be part of the Initial Registration Statement at the time it
became effective and (ii) the documents incorporated by reference in the
Rule 462(b) Registration Statement at the time the Rule 462(b) Registration
Statement became effective, are hereinafter collectively called the “Registration
Statements.” The base prospectus included in the Initial Registration
Statement at the time of effectiveness thereof (the “Base Prospectus”), as
supplemented by the final prospectus supplement relating to the offer and sale
of the Stock and Warrants, in the form filed pursuant to and within the time
limits described in Rule 424(b) under the Rules and Regulations, is
hereinafter called the “Prospectus.”
1
Any
reference herein to any Registration Statement, Base Prospectus, Preliminary
Prospectus or the Prospectus shall be deemed to refer to and include the
documents incorporated by reference therein. Any reference to any amendment or
supplement to any Preliminary Prospectus or the Prospectus shall be deemed to
refer to and include any documents filed after the date of such Preliminary
Prospectus or the Prospectus under the Securities Exchange Act of 1934, as
amended (the “Exchange
Act”), and incorporated by reference in such Preliminary Prospectus or
Prospectus, as the case may be. Any reference to any amendment to the
Registration Statements shall be deemed to refer to and include any annual
report of the Company filed pursuant to Section 13(a) or 15(d) of the
Exchange Act after the date of this Agreement that is incorporated by reference
in the Registration Statements.
(b) As
of the Applicable Time (as defined below) and as of the Closing Date, neither
(i) the General Use Free Writing Prospectus(es) (as defined below) issued
at or prior to the Applicable Time, the Pricing Prospectus (as defined below)
and the information included on Schedule III hereto,
if any, all considered together (collectively, the “General Disclosure
Package”), (ii) any individual Limited Use Free Writing Prospectus
(as defined below), nor (iii) any bona fide electronic road show (as
defined in Rule 433(h)(5) of the Rules and Regulations that has been made
available without restriction to any person), when considered together with the
General Disclosure Package, included or will include any untrue statement of a
material fact or omitted or will omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that the
Company makes no representations or warranties as to information contained in or
omitted from the Pricing Prospectus, in reliance upon, and in conformity with,
written information furnished to the Company through the Representative by or on
behalf of any Underwriter specifically for inclusion therein, which information
the parties hereto agree is limited to the Underwriter’s Information as defined
in Section 17. As
used in this paragraph (b) and elsewhere in this Agreement:
2
“Applicable Time”
means 9:00 a.m., New York time, on the date of this Agreement or such other time
as agreed to by the Company and the Representative.
“Pricing Prospectus”
means the Preliminary Prospectus, if any, and the Base Prospectus, each as
amended and supplemented immediately prior to the Applicable Time, including any
document incorporated by reference therein and any prospectus supplement deemed
to be a part thereof.
“Issuer Free Writing
Prospectus” means any “issuer free writing prospectus,” as defined in
Rule 433 of the Rules and Regulations relating to the Stock and Warrants in the
form filed or required to be filed with the Commission or, if not required to be
filed, in the form retained in the Company’s records pursuant to Rule 433(g) of
the Rules and Regulations.
“General Use Free Writing
Prospectus” means any Issuer Free Writing Prospectus that is identified
on Schedule II
to this Agreement.
“Limited Use Free Writing
Prospectuses” means any Issuer Free Writing Prospectus that is not a
General Use Free Writing Prospectus.
(c) No
order preventing or suspending the use of any Preliminary Prospectus, any Issuer
Free Writing Prospectus or the Prospectus relating to the proposed offering of
the Stock and Warrants has been issued by the Commission, and no proceeding for
that purpose or pursuant to Section 8A of the Securities Act has been
instituted or, to the Company's Knowledge, threatened by the Commission, and
each Preliminary Prospectus, at the time of filing thereof, conformed in all
material respects to the requirements of the Securities Act and the Rules and
Regulations, and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the
Company makes no representations or warranties as to information contained in or
omitted from any Preliminary Prospectus, in reliance upon, and in conformity
with, written information furnished to the Company through the Representative by
or on behalf of any Underwriter specifically for inclusion therein, which
information the parties hereto agree is limited to the Underwriter’s Information
as defined in Section 17.
(d) At
the respective times the Registration Statements and any amendments thereto
became or become effective, at the date of this Agreement and at the Closing
Date, each Registration Statement and any amendments thereto conformed and will
conform in all material respects to the requirements of the Securities Act and
the Rules and Regulations and did not and will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; and the
Prospectus and any amendments or supplements thereto, at the time the Prospectus
or any amendment or supplement thereto was issued and at the Closing Date,
conformed and will conform in all material respects to the requirements of the
Securities Act and the Rules and Regulations and did not and will not contain an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that the foregoing
representations and warranties in this paragraph (d) shall not apply to
information contained in or omitted from the Registration Statements or the
Prospectus, or any amendment or supplement thereto, in reliance upon, and in
conformity with, written information furnished to the Company through the
Representative by or on behalf of any Underwriter specifically for inclusion
therein, which information the parties hereto agree is limited to the
Underwriter’s Information (as defined in Section 17).
3
(e) Each
Issuer Free Writing Prospectus, as of its issue date and at all subsequent times
through the completion of the public offer and sale of the Stock and Warrants or
until any earlier date that the Company notified or notifies the Representative
as described in Section 4(f),
did not, does not and will not include any information that conflicted,
conflicts or will conflict with the information contained in the Registration
Statement, Pricing Prospectus or the Prospectus, including any document
incorporated by reference therein and any prospectus supplement deemed to be a
part thereof that has not been superseded or modified, or included or would
include an untrue statement of a material fact or omitted or would omit to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances prevailing at the
subsequent time, not misleading.
(f) The
documents incorporated by reference in the Prospectus, when they were filed with
the Commission conformed in all material respects to the requirements of the
Securities Act or the Exchange Act, as applicable, and the rules and regulations
of the Commission thereunder and none of such documents contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and any further
documents so filed and incorporated by reference in the Prospectus, when such
documents are filed with Commission will conform in all material respects to the
requirements of the Securities Act or the Exchange Act, as applicable, and the
rules and regulations of the Commission thereunder and will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(g) The
Company has not, directly or indirectly, distributed and will not distribute any
offering material in connection with the offering and sale of the Stock and
Warrants other than any Preliminary Prospectus, the General Disclosure Package,
the Prospectus and other materials, if any, permitted under the Securities Act
and consistent with Section 4(b)
below. The Company will file with the Commission all Issuer Free Writing
Prospectuses (other than a “road show,” as described in Rule 433(d)(8) of the
Rules and Regulations) in the time and manner required under Rules 163(b)(2) and
433(d) of the Rules and Regulations.
4
(h) At
the time of filing the Initial Registration Statement, any 462(b) Registration
Statement and any post-effective amendments thereto, and at the date hereof, the
Company was not, and the Company currently is not, an “ineligible issuer,” as
defined in Rule 405 of the Rules and Regulations.
(i) The
Company and each of its subsidiaries (as defined in Section 15),
including the PRC Entities (as defined below), have been duly organized and are
validly existing as corporations or other legal entities in good standing (or
the foreign equivalent thereof) under the laws of their respective jurisdictions
of organization. The Company and each of its subsidiaries are duly
qualified to do business and are in good standing as foreign corporations or
other legal entities in each jurisdiction in which their respective ownership or
lease of property or the conduct of their respective businesses requires such
qualification and have all power and authority (corporate or other) necessary to
own or hold their respective properties and to conduct the businesses in which
they are engaged, except where the failure to so qualify or have such power or
authority would not (i) have, singularly or in the aggregate, a
material adverse effect on the condition (financial or otherwise), results of
operations, assets, business or prospects of the Company and its subsidiaries
taken as a whole, or (ii) impair in any material respect the ability of the
Company to perform its obligations under this Agreement or to consummate any
transactions contemplated by this Agreement, the General Disclosure Package or
the Prospectus (any such effect as described in clauses (i) or (ii), a “Material Adverse
Effect”). The Company owns or controls, directly or
indirectly, only the following corporations, partnerships, limited liability
partnerships, limited liability companies, associations or other
entities: NeoStem (China), Inc., China Biopharmaceutical Holdings,
Inc., Stem Cell Technologies, Inc., NeoStem Therapies, Inc., Qingdao Niao
Bio-Technology Ltd., Beijing Ruijieao Bio-Technology Ltd. and Suzhou Erye
Pharmaceuticals Ltd.
(j) This
Agreement has been duly authorized, executed and delivered by the
Company.
(k) The
Stock to be issued and sold by the Company to the Underwriters hereunder has
been duly and validly authorized and, when issued and delivered against payment
therefor as provided herein, will be duly and validly issued, fully paid and
nonassessable and free of any preemptive or similar rights and will conform in
all material respects to the description thereof contained in the General
Disclosure Package and the Prospectus. The Warrants have been duly authorized,
and when executed and delivered by the Company, will constitute valid and
binding obligations of the Company enforceable in accordance with their terms,
except that such enforcement may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws, now or hereafter
in effect, affecting creditors’ rights generally. The Warrant Shares have been
duly authorized and reserved for issuance pursuant to the terms of the Warrants,
and when issued by the Company upon valid exercise of the Warrants and payment
of the exercise price, will be duly and validly issued, fully paid and
nonassessable and free of any preemptive or similar rights and will conform in
all material respects to the description thereof contained in the General
Disclosure Package and the Prospectus.
5
(l) The
Company has an authorized capitalization as set forth under the heading
“Description of Capital Stock” in the Pricing Prospectus, and all of the issued
shares of capital stock of the Company have been duly and validly authorized and
issued, are fully paid and non-assessable, have been issued in compliance with
federal and state securities laws, and conform to the description thereof
contained in the General Disclosure Package and the Prospectus. As of the date
of this Agreement, there were 57,613,794 shares of Common Stock issued and
outstanding and 10,000 shares of preferred stock of the Company issued and
outstanding and 30,940,242 shares of Common Stock were issuable upon the
exercise of all options, warrants and convertible securities outstanding as of
such date. All of the Company’s options, warrants and other rights to purchase
or exchange any securities for shares of the Company’s capital stock have been
duly authorized and validly issued and were issued in compliance with federal
and state securities laws. None of the outstanding shares of Common Stock was
issued in violation of any preemptive rights, rights of first refusal or other
similar rights to subscribe for or purchase securities of the Company. There are
no authorized or outstanding shares of capital stock, options, warrants,
preemptive rights, rights of first refusal or other rights to purchase, or
equity or debt securities convertible into or exchangeable or exercisable for,
any capital stock of the Company or any of its subsidiaries other than those
described above or accurately described in the General Disclosure Package. The
description of the Company’s stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted thereunder, as described
in the General Disclosure Package and the Prospectus, accurately and fairly
present the information required to be shown with respect to such plans,
arrangements, options and rights.
(m) All
the outstanding shares of capital stock (if any) of each subsidiary of the
Company have been duly authorized and validly issued, are fully paid and
nonassessable and, except to the extent set forth in the General Disclosure
Package or the Prospectus, are owned by the Company directly or indirectly
through one or more wholly-owned subsidiaries, free and clear of any claim,
lien, encumbrance, security interest, restriction upon voting or transfer or any
other claim of any third party.
(n) The
execution, delivery and performance of this Agreement by the Company, the issue and sale of
the Stock and Warrants by the Company and the consummation of the transactions
contemplated hereby will not (with or without notice or lapse of time or both)
(i) conflict with or result in a breach or violation of any of the terms or
provisions of, constitute a default or a Debt Repayment Triggering Event (as
defined below) under, give rise to any right of termination or other right or
the cancellation or acceleration of any right or obligation or loss of a benefit
under, or give rise to the creation or imposition of any lien, encumbrance,
security interest, claim or charge upon any property or assets of the Company or
any subsidiary pursuant to, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries is
bound or to which any of the property or assets of the Company or any of its
subsidiaries is subject, (ii) result in any violation of the provisions of the
charter or by-laws (or analogous governing instruments, as applicable) of the
Company or any of its subsidiaries or (iii) result in any violation of any law,
statute, rule, regulation, judgment, order or decree of any court or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or any of their properties or assets; except
in the cases of clauses (i) and (iii), to the extent that any such conflict,
breach, violation or default would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. A “Debt Repayment Triggering
Event” means any event or condition that gives, or with the giving of
notice or lapse of time would give the holder of any note, debenture or other
evidence of indebtedness (or any person acting on such holder’s behalf) the
right to require the repurchase, redemption or repayment of all or a portion of
such indebtedness by the Company of any of its subsidiaries.
6
(o) Except
for the registration of the Stock and Warrants under the Securities Act,
Exchange Act and applicable state securities laws, the Financial Industry
Regulatory Authority (“FINRA”) and the NYSE
Amex in connection with the purchase and distribution of the Stock and Warrants
by the Underwriters and the listing of the Stock and Warrant Shares on the NYSE
Amex, no consent, approval, authorization or order of, or filing, qualification
or registration (each an “Authorization”) with,
any court, governmental or non-governmental agency or body, foreign or domestic
having jurisdiction over the Company or any of its properties or assets which
has not been made, obtained or taken and is not in full force and effect, is
required for the execution, delivery and performance of this Agreement by the
Company, the offer or sale of the Stock and Warrants or the consummation of the
transactions contemplated hereby. All corporate approvals (including those of
stockholders) necessary for the Company to consummate the transactions
contemplated by this Agreement have been obtained and are in
effect.
(p) Each
of (i) Holtz Rubenstein Reminick LLP, who have audited certain financial
statements included or incorporated by reference in the Registration Statements,
the General Disclosure Package and the Prospectus, (ii) Deloitte & Touche
LLP, and (iii) EisnerAmper LLP, who have audited certain financial statements
included or incorporated by reference in the Registration Statements, the
General Disclosure Package and the Prospectus, is an independent registered
public accounting firm with respect to the entity to which such accounting firm
has provided an audit within the meaning of Article 2-01 of Regulation S-X and
the Public Company Accounting Oversight Board (United States) (the “PCAOB”).
(q) The
financial statements, together with the related notes and schedules, included or
incorporated by reference in the General Disclosure Package, the Prospectus and
in each Registration Statement fairly present the financial position and the
results of operations and changes in financial position of the Company and its
consolidated subsidiaries and other consolidated entities at the respective
dates or for the respective periods therein specified. Such statements and
related notes and schedules have been prepared in accordance with the generally
accepted accounting principles in the United States (“GAAP”) applied on a
consistent basis throughout the periods involved except as may be set forth in
the related notes included or incorporated by reference in the General
Disclosure Package. The financial statements, together with the related notes
and schedules, included or incorporated by reference in the General Disclosure
Package and the Prospectus comply as to form in all material respects with
Regulation S-X. No other financial statements or supporting schedules or
exhibits are required by Regulation S-X to be described, included or
incorporated by reference in the Registration Statements, the General Disclosure
Package or the Prospectus. The pro forma financial statements and
other pro forma financial information included or incorporated by reference in
the Registration Statement, the General Disclosure Package and the Prospectus
present fairly the information shown therein, have been prepared in accordance
with the Commission’s rules and guidelines with respect to pro forma financial
statements, have been properly compiled on the pro forma bases described
therein, and, in the opinion of the Company, the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred to
therein. The summary and selected financial data included or
incorporated by reference in the General Disclosure Package, the Prospectus and
each Registration Statement fairly present the information shown therein as at
the respective dates and for the respective periods specified and are derived
from the consolidated financial statements set forth or incorporated by
reference in the Registration Statement, the Pricing Prospectus and the
Prospectus and other financial information. All information contained in the
Registration Statement, the General Disclosure Package and the Prospectus
regarding “non-GAAP financial measures” (as defined in Regulation G) complies
with Regulation G and Item 10 of Regulations S-K, to the extent
applicable.
7
(r) Neither
the Company nor any of its subsidiaries has sustained, since the date of the
latest audited financial statements included or incorporated by reference in the
General Disclosure Package, any material loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order or
decree, otherwise than as set forth or contemplated in the General Disclosure
Package; and, since such date, there has not been any change in the capital
stock or long-term debt of the Company or any of its subsidiaries, or any
material adverse changes, or any development involving a prospective material
adverse change, in or affecting the business, assets, general affairs,
management, financial position, prospects, stockholders’ equity or results of
operations of the Company and its subsidiaries taken as a whole, otherwise than
as set forth or contemplated in the General Disclosure Package.
(s) Except
as forth in the General Disclosure Package, there is no legal or governmental
proceeding to which the Company or any of its subsidiaries is a party or of
which any property or assets of the Company or any of its subsidiaries is the
subject, including any proceeding before the United States Food and Drug
Administration of the U.S. Department of Health and Human Services (“FDA”) or comparable
federal, state, local or foreign governmental bodies, including but not limited
to the State Food and Drug Administration of China (it being understood that the
interaction between the Company and the FDA and such comparable governmental
bodies relating to the clinical development and product approval process shall
not be deemed proceedings for purposes of this representation), which is
required to be described in the Registration Statement, the General Disclosure
Package or the Prospectus or a document incorporated by reference therein and is
not described therein, or which, singularly or in the aggregate, if determined
adversely to the Company or any of its subsidiaries, could reasonably be
expected to have a Material Adverse Effect; and to the best of the Company’s
knowledge (“Knowledge”), no such
proceedings are threatened or contemplated by governmental authorities or
threatened by others. The Company is in compliance with all
applicable federal, state, local and foreign laws, regulations, orders and
decrees governing its business as prescribed by the FDA, or any other federal,
state or foreign agencies or bodies engaged in the regulation of pharmaceuticals
or biohazardous substances or materials, except where noncompliance would not,
singly or in the aggregate, have a Material Adverse Effect. All
preclinical and clinical studies conducted by or on behalf of the Company to
support approval for commercialization of the Company’s products have been
conducted by the Company, or to the Company’s knowledge by third parties, in
compliance with all applicable federal, state or foreign laws, rules, orders and
regulations, except for such failure or failures to be in compliance as could
not reasonably be expected to have, singly or in the aggregate, a Material
Adverse Effect.
8
(t) Neither
the Company nor any of its subsidiaries (i) is in violation of its charter or
by-laws (or analogous governing instrument, as applicable), (ii) is in default
in any respect, and no event has occurred which, with notice or lapse of time or
both, would constitute such a default, in the due performance or observance of
any term, covenant or condition contained in any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which it is a
party or by which it is bound or to which any of its property or assets is
subject (including, without limitation, those administered by the FDA or by any
foreign, federal, state or local governmental or regulatory authority performing
functions similar to those performed by the FDA) or (iii) is in violation in any
respect of any law, ordinance, governmental rule, regulation or court order,
decree or judgment to which it or its property or assets may be subject except,
in the case of clauses (ii) and (iii) of this paragraph (t), for any violations
or defaults which, singularly or in the aggregate, would not have a Material
Adverse Effect.
(u) The
Company possess all licenses, certificates, authorizations and permits issued
by, and have made all declarations and filings with, the appropriate local,
state, federal or foreign regulatory agencies or bodies (including, without
limitation, those administered by the FDA or by any foreign, federal, state or
local governmental or regulatory authority performing functions similar to those
performed by the FDA) which are necessary or desirable for the ownership of
their respective properties or the conduct of their respective businesses as
described in the General Disclosure Package and the Prospectus (collectively,
the “Governmental
Permits”), except where any failures to possess or make the same,
singularly or in the aggregate, would not have a Material Adverse Effect. The
Company is in compliance with all such Governmental Permits and all such
Governmental Permits are valid and in full force and effect, except, in either
case, where the validity or failure to be in full force and effect would not,
singularly or in the aggregate, have a Material Adverse Effect. The Company has
not received notification of any revocation, modification, suspension,
termination or invalidation (or proceedings related thereto) of any such
Governmental Permit and to the Knowledge of the Company, no event has occurred
that allows or results in, or after notice or lapse of time or both would allow
or result in, revocation, modification, suspension, termination or invalidation
(or proceedings related thereto ) of any such Governmental Permit. The studies,
tests and preclinical or clinical trials conducted by or on behalf of the
Company that are described in the General Disclosure Package and the Prospectus
(the “Company Studies
and Trials”) were and, if still pending, are being, conducted in all
material respects in accordance with experimental protocols, procedures and
controls pursuant to, where applicable, accepted professional scientific
standards; the descriptions of the results of the Company Studies and Trials
contained in the General Disclosure Package and Prospectus are accurate in all
material respects; and the Company has not received any notices or
correspondence from the FDA or any foreign, state or local governmental body
exercising comparable authority requiring the termination, suspension or
material modification of any Company Studies or Trials which termination,
suspension or material modification would reasonably be expected to have a
Material Adverse Effect.
9
(v) Neither
the Company nor any of its subsidiaries is, and after giving effect to the
offering of the Stock and Warrants and the application of the proceeds thereof
as described in the General Disclosure Package and the Prospectus, will not
become an “investment company” within the meaning of the Investment Company Act
of 1940, as amended, and the rules and regulations of the Commission
thereunder.
(w) Neither
the Company nor, to the Company's Knowledge, any of its officers, directors or
affiliates has taken or will take, directly or indirectly, any action designed
or intended to stabilize or manipulate the price of any security of the Company,
or which caused or resulted in, or which might in the future reasonably be
expected to cause or result in, stabilization or manipulation of the price of
any security of the Company.
(x) The
Company and its subsidiaries own or possess the valid right to use all (i) valid
and enforceable patents, patent applications, trademarks, trademark
registrations, service marks, service mark registrations, Internet domain name
registrations, copyrights, copyright registrations, licenses, trade
secret rights (“Intellectual Property
Rights”) and (ii) inventions, software, works of authorships, trade
marks, service marks, trade names, databases, formulae, know how, Internet
domain names and other intellectual property (including trade secrets and other
unpatented and/or unpatentable proprietary confidential information, systems, or
procedures) (collectively, "Intellectual Property
Assets") necessary to conduct their respective businesses as currently
conducted, and as proposed to be conducted and described in the General
Disclosure Package and the Prospectus. The Company and its
subsidiaries have not received any opinion from their legal counsel concluding
that any activities of their respective businesses infringe, misappropriate, or
otherwise violate, valid and enforceable Intellectual Property Rights of any
other person, and, except as set forth in the General Disclosure Package and the
Prospectus, have not received written notice of any challenge, which is to their
Knowledge still pending, by any other person to the rights of the Company and
its subsidiaries with respect to any Intellectual Property Rights or
Intellectual Property Assets owned or used by the Company or its
subsidiaries. To the Knowledge of the Company, except as described in
the Registration Statement, the General Disclosure Package and the Prospectus,
the Company and its subsidiaries’ respective businesses as now conducted do not
give rise to any infringement of, any misappropriation of, or other violation
of, any valid and enforceable Intellectual Property Rights of any other
person. All licenses for the use of the Intellectual Property Rights
described in the General Disclosure Package and the Prospectus are valid,
binding upon, and enforceable by or against the parties thereto in accordance to
its terms. The Company has complied in all material respects with,
and is not in breach nor has received any asserted or threatened claim of breach
of any Intellectual Property license that has not been resolved, and to the
Knowledge of the Company there has been no unresolved breach or anticipated
breach by any other person to any Intellectual Property license, except where
such breach, singularly or in the aggregate, would not have a Material Adverse
Effect. Except as described in the General Disclosure Package, to the
Knowledge of the Company there are no unresolved claims against the Company
alleging the infringement by the Company of any patent, trademark, service mark,
trade name, copyright, trade secret, license in or other intellectual property
right or franchise right of any person, except to the extent that any such claim
does not have a Material Adverse Effect. The Company has taken
reasonable steps to protect, maintain and safeguard its Intellectual Property
Rights, including the execution of appropriate nondisclosure and confidentiality
agreements. The consummation of the transactions contemplated by this
Agreement will not result in the loss or impairment of or payment of any
additional amounts with respect to, nor require the consent of any other person
in respect of, the Company's right to own, use, or hold for use any of the
Intellectual Property Rights as owned, used or held for use in the conduct of
the business as currently conducted. The Company has taken the
necessary actions to obtain ownership of all works of authorship and inventions
made by its employees, consultants and contractors during the time they were
employed by or under contract with the Company and which relate to the Company’s
business. All key employees have signed confidentiality and invention assignment
agreements with the Company.
10
(y) The
Company and each of its subsidiaries have good and marketable title in fee
simple to, or have valid rights to lease or otherwise use, all items of real or
personal property which are material to the business of the Company and its
subsidiaries taken as a whole, in each case free and clear of all liens,
encumbrances, security interests, claims and defects that do not, singularly or
in the aggregate, materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company or any of its subsidiaries; and all of the leases and subleases material
to the business of the Company and its subsidiaries, considered as one
enterprise, and under which the Company or any of its subsidiaries holds
properties described in the General Disclosure Package and the Prospectus, are
in full force and effect, and neither the Company nor any subsidiary has any
notice of any material claim of any sort that has been asserted by anyone
adverse to the rights of the Company or any subsidiary under any of the leases
or subleases mentioned above, or affecting or questioning the rights of the
Company or such subsidiary to the continued possession of the leased or
subleased premises under any such lease or sublease.
(z) There
is (A) no significant unfair labor practice complaint pending against the
Company, or any of its subsidiaries, nor to the Knowledge of the Company,
threatened against it or any of its subsidiaries, before the National Labor
Relations Board, any state or local labor relation board or any foreign labor
relations board, and no significant grievance or significant arbitration
proceeding arising out of or under any collective bargaining agreement is so
pending against the Company or any of its subsidiaries, or, to the Knowledge of
the Company, threatened against it and (B) no labor disturbance by the employees
of the Company or any of its subsidiaries exists or, to the Company’s Knowledge,
is imminent, and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its or its subsidiaries principal
suppliers, manufacturers, customers or contractors, that could reasonably be
expected, singularly or in the aggregate, to have a Material Adverse
Effect. The Company is not aware that any key employee or significant
group of employees of the Company or any subsidiary plans to terminate
employment with the Company or any such subsidiary.
11
(aa) No
“prohibited transaction” (as defined in Section 406 of the Employee Retirement
Income Security Act of 1974, as amended, including the regulations and published
interpretations thereunder (“ERISA”), or Section
4975 of the Internal Revenue Code of 1986, as amended from time to time (the
“Code”)) or
“accumulated funding deficiency” (as defined in Section 302 of ERISA) or any of
the events set forth in Section 4043(b) of ERISA (other than events with respect
to which the thirty (30)-day notice requirement under Section 4043 of ERISA has
been waived) has occurred or could reasonably be expected to occur with respect
to any employee benefit plan of the Company or any of its subsidiaries which
could, singularly or in the aggregate, have a Material Adverse
Effect. Each employee benefit plan of the Company or any of its
subsidiaries is in compliance in all material respects with applicable law,
including ERISA and the Code. The Company and its subsidiaries have not incurred
and could not reasonably be expected to incur liability under Title IV of ERISA
with respect to the termination of, or withdrawal from, any pension plan (as
defined in ERISA). Each pension plan for which the Company or any of
its subsidiaries would have any liability that is intended to be qualified under
Section 401(a) of the Code is so qualified, and nothing has occurred, whether by
action or by failure to act, which could, singularly or in the aggregate, cause
the loss of such qualification.
(bb) The
Company and its subsidiaries are in compliance with all foreign, federal, state
and local rules, laws and regulations relating to the use, treatment, storage
and disposal of hazardous or toxic substances or waste and protection of health
and safety or the environment which are applicable to their businesses (“Environmental Laws”),
except where such non-compliance with Environmental Laws would not, individually
or in the aggregate, result in a Material Adverse Effect. There has
been no storage, generation, transportation, handling, treatment, disposal,
discharge, emission, or other release of any kind of toxic or other wastes or
other hazardous substances by, due to, or caused by the Company or any of its
subsidiaries (or, to the Company’s Knowledge, any other entity for whose acts or
omissions the Company or any of its subsidiaries is or may otherwise be liable)
upon any of the property now or previously owned or leased by the Company or any
of its subsidiaries, or upon any other property, in violation of any law,
statute, ordinance, rule, regulation, order, judgment, decree or permit or which
would, under any law, statute, ordinance, rule (including rule of common law),
regulation, order, judgment, decree or permit, give rise to any liability,
except where such non-compliance with such laws, failure to receive required
permits, licenses or other approvals or failure to comply with the terms of such
permits, licenses or approvals would not, individually or in the aggregate,
result in a Material Adverse Effect; and there has been no disposal, discharge,
emission or other release of any kind onto such property or into the environment
surrounding such property of any toxic or other wastes or other hazardous
substances with respect to which the Company or any of its subsidiaries has
knowledge. In the ordinary course of business, the Company and its
subsidiaries conduct periodic reviews of the effect of Environmental Laws on
their business and assets, in the course of which they identify and evaluate
associated costs and liabilities (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or Governmental Permits issued thereunder,
any related constraints on operating activities and any potential liabilities to
third parties). On the basis of such reviews, the Company has
reasonably concluded that such associated costs and liabilities would not have,
singularly or in the aggregate, a Material Adverse Effect.
12
(cc) The
Company and its subsidiaries (other than the PRC Entities) each (i) have timely
filed all necessary federal, state, local and foreign tax returns, and all such
returns were true, complete and correct, (ii) have paid all federal, state,
local and foreign taxes, assessments, governmental or other charges due and
payable for which it is liable, including, without limitation, all sales and use
taxes and all taxes which the Company or any of its subsidiaries is obligated to
withhold from amounts owing to employees, creditors and third parties, and (iii)
do not have any tax deficiency or claims outstanding or assessed or, to its
Knowledge, proposed against any of them, except those, in each of the cases
described in clauses (i), (ii) and (iii) of this paragraph (cc), that would not,
singularly or in the aggregate, have a Material Adverse Effect. The
Company and its subsidiaries have not engaged in any transaction which is a
corporate tax shelter or which could be characterized as such by the Internal
Revenue Service or any other taxing authority. The accruals and
reserves on the books and records of the Company and its subsidiaries in respect
of tax liabilities for any taxable period not yet finally determined are
adequate to meet any assessments and related liabilities for any such period,
and since December 31, 2009 the Company and its subsidiaries have not incurred
any liability for taxes other than in the ordinary course.
(dd) The
Company and each of its subsidiaries carry, or are covered by, insurance in such
amounts and covering such risks as is customary for companies engaged in similar
businesses in similar industries. Neither the Company nor any of its
subsidiaries has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect. All
policies of insurance owned by the Company or any of its subsidiaries are, to
the Company’s Knowledge, in full force and effect and the Company and its
subsidiaries are in compliance with the terms of such
policies. Neither the Company nor any of its subsidiaries has
received written notice from any insurer, agent of such insurer or the broker of
the Company or any of its subsidiaries that any material capital improvements or
any other material expenditures (other than premium payments) are required or
necessary to be made in order to continue such insurance. None of the
Company or any of its subsidiaries insures risk of loss through any captive
insurance, risk retention group, reciprocal group or by means of any fund or
pool of assets specifically set aside for contingent liabilities other than as
described in the General Disclosure Package.
13
(ee) The
Company and, except as set forth in the General Disclosure Package and the
Prospectus, each of its subsidiaries maintains a system of internal control over
financial reporting (as such term is defined in Rule 13a-15 of the General Rules
and Regulations under the Exchange Act (the “Exchange Act Rules”))
that complies with the requirements of the Exchange Act and has been designed by
the Company’s principal executive officer and principal financial officer, or
under their supervision, to provide reasonable assurances that
(i) transactions are executed in accordance with management’s general or
specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP and to
maintain accountability for assets; (iii) access to assets is permitted
only in accordance with management’s general or specific authorization; and
(iv) the recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken with respect to
any differences. Except as described in the General Disclosure Package, since
the end of the Company’s most recent audited fiscal year, there has been
(A) no material weakness in the Company’s internal control over financial
reporting (whether or not remediated) and (B) no change in the Company’s
internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting. The Company’s internal control over financial reporting is,
or upon consummation of the offering of the Stock and Warrants will be, overseen
by the Audit Committee of the Board of Directors of the Company (the “Audit Committee”) in
accordance with the Exchange Act Rules.
(ff) [Intentionally
Omitted.]
(gg) The
Company and each of its subsidiaries have made and keep books, records and
accounts, which, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company and its subsidiaries
in all material respects.
(hh) The
Company maintains disclosure controls and procedures (as such is defined in Rule
13a-15 of the Exchange Act Rules) that comply with the requirements of the
Exchange Act; such disclosure controls and procedures have been designed to
ensure that information required to be disclosed by the Company is accumulated
and communicated to the Company’s management, including the Company’s principal
executive officer and principal financial officer by others within those
entities, such disclosure controls and procedures are effective in all material
respects to perform the functions for which they were established.
(ii) The
minute books of the Company have been made available to the Underwriters and
counsel for the Underwriters, and such books (i) contain or will contain as of
the Closing Date a complete summary of all meetings and actions of the board of
directors (including each board committee) and shareholders of the Company (or
analogous governing bodies and interest holders, as applicable), since January
1, 2007 through the date of the latest meeting and action, and (ii) accurately
in all material respects reflect all transactions referred to in such
minutes.
14
(jj) There
is no franchise agreement, lease, contract, or other agreement or document
required by the Securities Act or by the Rules and Regulations to be described
in the General Disclosure Package and in the Prospectus or a document
incorporated by reference therein or to be filed as an exhibit to the
Registration Statements or a document incorporated by reference therein which is
not so described or filed therein as required; and all descriptions of any such
franchise agreements, leases, contracts, or other agreements or documents
contained in the General Disclosure Package and in the Prospectus or in a
document incorporated by reference therein are accurate and complete
descriptions of such documents in all material respects. Other than as described
in the General Disclosure Package, no such franchise agreement, lease, contract
or other agreement has been suspended or terminated for convenience or default
by the Company or any of the other parties thereto, and neither the Company nor
any of its subsidiaries has received notice of and the Company does not have
Knowledge of any such pending or threatened suspension or termination except for
such suspensions or terminations or pending or threatened suspensions or
terminations that would not reasonably be expected to, singularly or in the
aggregate, have a Material Adverse Effect.
(kk) No
relationship, direct or indirect, exists between or among the Company on the one
hand, and the directors, officers, stockholders (or analogous interest holders),
customers or suppliers of the Company or any of its affiliates on the other
hand, which is required to be described in the General Disclosure Package and
the Prospectus or a document incorporated by reference therein and which is not
so described.
(ll) Except
as set forth in the General Disclosure Package and the Prospectus, no person or
entity has the right to require registration of shares of Common Stock or other
securities of the Company or any of its subsidiaries because of the filing or
effectiveness of the Registration Statements or otherwise, except for persons
and entities who have expressly waived such right in writing or who have been
given timely and proper written notice and have failed to exercise such right
within the time or times required under the terms and conditions of such
right. There are no persons with registration rights or similar
rights to have any securities registered by the Company or any of its
subsidiaries under the Securities Act, except where the failure to so register
would not be expected to, singularly or in the aggregate, have a Material
Adverse Effect.
(mm) Neither
the Company nor any of its subsidiaries own any “margin securities” as that term
is defined in Regulation U of the Board of Governors of the Federal Reserve
System (the “Federal
Reserve Board”), and none of the proceeds of the sale of the Stock and
Warrants will be used, directly or indirectly, for the purpose of purchasing or
carrying any margin security, for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase or carry any margin
security or for any other purpose which might cause any of the Stock or Warrants
to be considered a “purpose credit” within the meanings of Regulation T, U or X
of the Federal Reserve Board.
15
(nn) Neither
the Company nor any of its subsidiaries is a party to any contract, agreement or
understanding with any person that would give rise to a valid claim against the
Company or the Underwriters for a brokerage commission, finder’s fee or like
payment in connection with the offering and sale of the Stock and Warrants or
any transaction contemplated by this Agreement, the Registration Statements, the
General Disclosure Package or the Prospectus.
(oo) All
grants of options were validly issued and properly approved by the board of
directors of the Company (or a duly authorized committee thereof) in material
compliance with all applicable laws and regulations and recorded in the
Company’s financial statements in accordance with GAAP.
(pp) Except
as described in the General Disclosure Package and the Prospectus, no subsidiary
of the Company is currently prohibited, directly or indirectly, under any
agreement or other instrument to which it is a party or is subject, from paying
any dividends to the Company, from making any other distribution on such
subsidiary’s capital stock, from repaying to the Company any loans or advances
to such subsidiary from the Company or from transferring any of such
subsidiary’s properties or assets to the Company or any other subsidiary of the
Company.
(qq) Since
the date as of which information is given in the General Disclosure Package and
the Prospectus through the date hereof, and except as set forth in the Pricing
Prospectus, neither the Company nor any of its subsidiaries has (i) issued
or granted any securities other than options to purchase common stock pursuant
to the Company’s stock option plan or securities issued upon exercise of stock
options in the ordinary course of business, (ii) incurred any material
liability or obligation, direct or contingent, other than liabilities and
obligations which were incurred in the ordinary course of business,
(iii) entered into any material transaction other than in the ordinary
course of business or (iv) declared or paid any dividend on its capital
stock.
(rr)
If applicable, all of the information
provided to the Underwriters or to counsel for the Underwriters by the Company,
its officers and directors and the holders of any securities (debt or equity) or
options to acquire any securities of the Company in connection with letters,
filings or other supplemental information provided to FINRA pursuant to FINRA
Rule 5110 is true, correct and complete in all material respects.
(ss) The
Company is not a Passive Foreign Investment Company (“PFIC”) within the meaning
of Section 1296 of the United States Internal Revenue Code of 1966, and the
Company is not likely to become a PFIC.
(tt)
No forward-looking statement (within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act)
contained in either the General Disclosure Package or the Prospectus has been
made or reaffirmed without a reasonable basis or has been disclosed other than
in good faith.
(uu) The
Company is subject to and in compliance in all material respects with the
reporting requirements of Section 13 or Section 15(d) of the Exchange
Act. The Common Stock is registered pursuant to Section 12(b) or 12(g) of
the Exchange Act and is listed on the NYSE Amex (the “Exchange”), and
except as described in the General Disclosure Package, the Company has taken no
action designed to, or reasonably likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or delisting the Common
Stock from the Exchange, nor has the Company received any notification that the
Commission or the Financial Industry Regulatory Authority (“FINRA”) is
contemplating terminating such registration or listing. The Company has filed a
notification of the listing of the Stock and Warrant Shares on the NYSE
Amex.
16
(vv) Except
as disclosed in the Registration Statements, the General Disclosure Package and
the Prospectus, the Company is in compliance in all material respects with all
applicable provisions of the Sarbanes-Oxley Act of 2002 and all rules and
regulations promulgated thereunder or implementing the provisions thereof (the
“Sarbanes-Oxley
Act”) that are in effect.
(ww) The
Company is in compliance in all material respects with all applicable corporate
governance requirements set forth in the rules of the Exchange that are in
effect.
(xx) Neither
the Company nor any of its subsidiaries nor, to the Company’s
Knowledge, any employee or agent of the Company or any subsidiary, has (i) used
any corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, (ii) made any unlawful payment
to foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns from corporate funds, (iii) violated any
provision of the Foreign Corrupt Practices Act of 1977, as amended or (iv) made
any other unlawful payment.
(yy) There
are no transactions, arrangements or other relationships between and/or among
the Company, any of its affiliates (as such term is defined in Rule 405 of the
Rules and Regulations) and any unconsolidated entity, including, but not limited
to, any structured finance, special purpose or limited purpose entity that could
reasonably be expected to materially affect the Company’s liquidity or the
availability of or requirements for its capital resources required to be
described in the General Disclosure Package and the Prospectus or a document
incorporated by reference therein which have not been described as
required.
(zz) There
are no outstanding loans, advances (except normal advances for business expenses
in the ordinary course of business) or guarantees of indebtedness by the Company
or any of its subsidiaries to or for the benefit of any of the officers or
directors of the Company, any of its subsidiaries or any of their respective
family members, except as disclosed in the Registration Statements, the General
Disclosure Package and the Prospectus. All transactions by the
Company with office holders or control persons of the Company have been duly
approved by the board of directors of the Company, or duly appointed committees
or officers thereof, if and to the extent required under U.S. law.
17
(aaa) The
statistical and market related data included in the Registration Statement, the
General Disclosure Package and the Prospectus are based on or derived from
sources that the Company believes to be reliable and accurate in all material
respects, and such data agree in all material respects with the sources from
which they are derived.
(bbb) The
operations of the Company and its subsidiaries are and have been conducted at
all times in compliance with applicable financial recordkeeping and reporting
requirements of the Currency and Foreign Transactions Reporting Act of 1970, as
amended, applicable money laundering statutes and applicable rules and
regulations thereunder (collectively, the “Money Laundering
Laws”), and no action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the Company
or any of its subsidiaries with respect to the Money Laundering Laws is pending,
or to the Company’s Knowledge, threatened.
(ccc)
Neither the Company nor any of its subsidiaries nor, to the Company’s Knowledge,
any director, officer, agent, employee or affiliate of the Company or any of its
subsidiaries is currently subject to any U.S. sanctions administered by the
Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”); and the
Company will not directly or indirectly use the proceeds of the offering, or
lend, contribute or otherwise make available such proceeds to any subsidiary,
joint venture partner or other person or entity, for the purpose of financing
the activities of any person currently subject to any U.S. sanctions
administered by OFAC.
(ddd) Neither
the Company nor, to the Company’s Knowledge, any of its affiliates (within the
meaning of NASD Conduct Rule 2720(b)(1)(a)) directly or indirectly controls, is
controlled by, or is under common control with, or is an associated person
(within the meaning of Article I, Section 1(ee) of the By-laws of FINRA)
of, any member firm of FINRA.
(eee) The
Company conducts a substantial portion of its operations and generates
substantially all of its revenue through (i) NeoStem (China), Inc., a wholly
foreign-owned enterprise formed under the laws of the People’s Republic of China
(the “PRC”)
(“NeoStem
China”), (ii) Qingdao Niao Bio-Technology Ltd., a company formed under
the laws of the PRC (“Qingdao”), (iii)
Beijing Ruijieao Bio-Technology Ltd., a company formed under the laws of the PRC
(“Beijing” and
together with Qingdao, the “PRC VIEs”), and (iv)
Suzhou Erye Pharmaceuticals Ltd., a joint venture formed under the laws of the
PRC (the “JV”).
The NeoStem China, the PRC VIEs and the JV are collectively referred to
hereinafter as the “PRC
Entities.”
(fff) Each
PRC Entity has applied for and obtained all requisite business licenses,
clearance and permits required under PRC law as necessary for the conduct of its
businesses in all material respects, and each PRC Entity has complied in all
material respects with all PRC Laws in connection with foreign exchange,
including without limitation, carrying out all relevant filings, registrations
and applications for relevant permits with the PRC State Administration of
Foreign Exchange and any other relevant authorities, and all such permits are
validly subsisting. Except as set forth on Schedule 2(fff), the
registered capital of each PRC Entity has been fully paid up in accordance with
the schedule of payment stipulated in its respective articles of association,
approval document, certificate of approval and legal person business license
(hereinafter referred to as the “Establishment
Documents”) and in compliance in all material respects with PRC laws and
regulations, and there is no outstanding capital contribution commitment for any
PRC Entity. The Establishment Documents of the PRC Entities have been duly
approved in accordance with the laws of the PRC and are valid and enforceable.
The business scope specified in the Establishment Documents of each PRC Entity
complies in all material respects with the requirements of all relevant PRC laws
and regulations. The outstanding equity interests of each PRC Entity is owned by
the respective entities or individuals identified as the registered holders
thereof in the Registration Statement, the General Disclosure Package and the
Prospectus.
18
(ggg) Except
as disclosed in the Registration Statement, the General Disclosure Package and
the Prospectus, no consents, approvals, authorizations, orders, registrations,
clearances, certificates, franchises, licenses, permits or qualifications of or
with any PRC governmental agency are required for the Company’s or its
affiliates’ or subsidiaries’ contractual arrangements and agreements with the
PRC VIEs and their registered equity holders (the “VIE Structure”) or
the execution, delivery and performance of such contractual arrangements and
agreements (the “VIE
Structuring Documents”) except where the failure to obtain such consents,
approvals, authorizations, orders, registrations, clearances, certificates,
franchises, licenses, permits or qualifications would not, singularly or in the
aggregate, have a Material Adverse Effect. None of the VIE
Structuring Documents has been revoked and no such revocation is pending or, to
the Company’s Knowledge, threatened. Except as set forth in the General
Disclosure Package and the Prospectus, each of the VIE Structuring Documents has
been entered into prior to the date thereof in compliance in all material
respects with all applicable laws and regulations and constitutes a valid and
legally binding agreement, enforceable in accordance with its
terms.
(hhh) Except
as disclosed in the Registration Statement, the General Disclosure Package and
the Prospectus, the VIE Structure and the execution, delivery and performance of
the VIE Structuring Documents and the consummation of the transactions
contemplated thereby did not and do not (i) conflict with, or result in a breach
or violation of any of the terms and provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which any PRC Entity is a party or by which any PRC Entity is
bound or by which any of the properties or assets of any PRC Entity is subject,
(ii) violate or conflict with the Establishment Documents of any PRC Entity, or
(iii) violate or conflict with any applicable laws, regulations, rules, orders,
decrees, guidelines, notices or other legislation of the PRC, except, in the
case of clauses (i) and (iii) of this paragraph (hhh), for any violations or
defaults which, singularly or in the aggregate, would not have a Material
Adverse Effect.
(iii) Except
as set forth in the General Disclosure Package and the Prospectus, the VIE
Structure complies, and immediately following the consummation of the offering
and sale of the Stock and Warrants will comply, in all material respects with
all applicable laws, regulations, rules, orders, decrees, guidelines, notices or
other legislation of the PRC; the VIE Structure has not been challenged by any
PRC governmental agency and there are no legal, arbitration, governmental or
other proceedings (including, without limitation, governmental investigations or
inquiries) pending before or, to the Company’s knowledge, threatened or
contemplated by any PRC governmental agency in respect of the VIE Structure; and
the Company reasonably believes that after the consummation of the offering and
sale of the Stock and Warrants, the VIE Structure will not be challenged by any
PRC governmental agency.
19
(jjj) The
Company possesses, directly or indirectly, the power to direct, or cause the
direction of, the management and policies of the PRC VIEs.
(kkk) Except
as set forth in the Registration Statement, the General Disclosure Package and
the Prospectus, no PRC Entity is currently prohibited, directly or indirectly,
from paying any dividends to the Company (or the Company’s subsidiary that holds
the outstanding equity interest of such PRC Entity), and no PRC VIE is currently
prohibited, directly or indirectly, from paying any of its obligations set forth
in the VIE Structuring Documents. No PRC Entity is prohibited, directly or
indirectly, from making any other distribution on such PRC Entity’s equity
capital, from repaying to the Company any loans or advances to such PRC Entity
from the Company or any of the Company’s subsidiaries.
(lll) None
of the PRC Entities nor any of their properties, assets or revenues are entitled
to any right of immunity on the grounds of sovereignty from any legal action,
suit or proceeding, from set-off or counterclaim, from the jurisdiction of any
court, from services of process, from attachment prior to or in aid of execution
of judgment, or from any other legal process or proceeding for the giving of any
relief or for the enforcement of any judgment.
(mmm) In
connection with the offering contemplated by this Agreement, it is not necessary
that this Agreement, the Registration Statement, the General Disclosure Package,
the Prospectus or any other document be filed or recorded with any governmental
agency, court or other authority in the PRC.
(nnn) No
transaction, stamp, capital or other issuance, registration, transaction,
transfer or withholding taxes or duties are payable in the PRC by or on behalf
of the Underwriters to any PRC taxing authority in connection with (i) the
issuance, sale and delivery of the Stock and Warrants by the Company and the
delivery of the Stock and Warrants to or for the account of the Underwriters,
(ii) the purchase from the Company and the initial sale and delivery by the
Underwriters of the Stock and Warrants to purchasers thereof, or (iii) the
execution and delivery of this Agreement.
(ooo) Except
as disclosed in the Registration Statement, the General Disclosure Package and
the Prospectus, the Company has taken all steps reasonably necessary to comply
with any applicable rules and regulations of the PRC State Administration of
Foreign Exchange of the PRC (the “SAFE Rules and
Regulations”).
(ppp) The
Company is aware of, and has been advised as to, the content of the Rules on
Mergers and Acquisitions of Domestic Enterprises by Foreign Investors jointly
promulgated on August 8, 2006 by the PRC Ministry of Commerce, the PRC State
Assets Supervision and Administration Commission, the PRC State Administration
of Taxation, the PRC State Administration of Industry and Commerce, the China
Securities Regulatory Commission (“CSRC”) and the PRC
State Administration of Foreign Exchange of the PRC (the “M&A Rules”), in
particular the relevant provisions thereof that purport to require offshore
special purpose vehicles controlled directly or indirectly by PRC-incorporated
companies or PRC residents and established for the purpose of obtaining a stock
exchange listing outside of the PRC to obtain the approval of the CSRC prior to
the listing and trading of their securities on any stock exchange located
outside of the PRC. The Company has received legal advice specifically with
respect to the M&A Rules from its PRC counsel and the Company understands
such legal advice. In addition, the Company has communicated such legal advice
in full to each of its directors that signed the Registration Statement and each
such director has confirmed that he or she understands such legal
advice.
20
(qqq) The
issuance and sale of the Stock and Warrants, the listing and trading of the
Stock and Warrant Shares on NYSE Amex and the consummation of the
transactions contemplated by this Agreement, the Registration Statement, the
General Disclosure Package and the Prospectus are not and will not be, as of the
date hereof and on the Closing Date, affected by the M&A Rules or any
official clarifications, guidance, interpretations or implementation rules in
connection with or related to the M&A Rules, including the guidance and
notices issued by the CSRC on September 8 and September 21, 2006 (together with
the M&A Rules, the “M&A Rules and Related
Clarifications”).
(rrr) The
Company has taken all necessary steps to ensure compliance by each of its
stockholders, option holders, directors, officers and employees that is, or is
directly or indirectly owned or controlled by, a PRC resident or citizen with
any applicable rules and regulations of the relevant PRC government agencies
(including but not limited to the PRC Ministry of Commerce, the PRC National
Development and Reform Commission and the PRC State Administration of Foreign
Exchange) relating to overseas investment by PRC residents and citizens (the
“PRC Overseas
Investment and Listing Regulations”), including, requesting each
stockholder, option holder, director, officer, employee and participant that is,
or is directly or indirectly owned or controlled by, a PRC resident or citizen
to complete any registration and other procedures required under applicable PRC
Overseas Investment and Listing Regulations.
(sss) As
of the date hereof, the M&A Rules and Related Clarifications do not require
the Company to obtain the approval of the CSRC prior to the issuance and sale of
the Stock and Warrants, the listing and trading of the Stock and Warrant Shares
on the NYSE Amex, or the consummation of the transactions contemplated by this
Agreement, the Registration Statement, the General Disclosure Package or the
Prospectus.
(ttt) Each
of the PRC Entities is in compliance with all requirements under all applicable
PRC laws and regulations to qualify in all material respects for their
exemptions from enterprise income tax or other income tax benefits (the “Tax Benefits”) as
described in the Registration Statement, the General Disclosure Package and the
Prospectus, and the actual operations and business activities of each such PRC
Entity are sufficient to meet the qualifications for the Tax Benefits. No
submissions made to any PRC government authority in connection with obtaining
the Tax Benefits contained any misstatement or omission that would have affected
the granting of the Tax Benefits. No PRC Entity has received notice of any
deficiency in its respective applications for the Tax Benefits, and the Company
is not aware of any reason why any such PRC Entity might not qualify for, or be
in compliance with the requirements for, the Tax Benefits.
21
(uuu) Except
as disclosed in the Registration Statement, the General Disclosure Package and
the Prospectus, all local and national PRC governmental tax holidays,
exemptions, waivers, financial subsidies, and other local and national PRC tax
relief, concessions and preferential treatment enjoyed by any PRC Entity as
described in the Registration Statement, the General Disclosure Package and the
Prospectus are valid, binding and enforceable and do not violate any laws,
regulations, rules, orders, decrees, guidelines, judicial interpretations,
notices or other legislation of the PRC.
(vvv) The
Underwriters will not be deemed to be resident, domiciled, carrying on business
or subject to taxation in the PRC solely by reason of their execution, delivery,
performance or enforcement of, or the consummation of any transaction
contemplated by, this Agreement, the Registration Statement, the General
Disclosure Package or the Final Prospectus.
Any
certificate signed by or on behalf of the Company and delivered to the
Representative or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
covered thereby.
3. PURCHASE, SALE AND DELIVERY OF
OFFERED SECURITIES. On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to the Underwriters, and the Underwriters
agree, severally and not jointly, to purchase from the Company the respective
numbers of shares of Stock and Warrants set forth opposite the names of the
Underwriters in Schedule I
hereto. The purchase price per unit to be paid by the Underwriters to
the Company for the Stock and Warrants will be $1.34125 per unit (the “Purchase
Price”).
The
Company will deliver to the Representative for the respective accounts of the
several Underwriters (i) the Stock through the facilities of The Depository
Trust Company and (ii) the Warrants in physical, certificated form, issued
in such names and in such denominations as the Representative may direct by
notice in writing to the Company given at or prior to 12:00 Noon, New York time,
on the second (2nd) full business day preceding the Closing Date against
payment of the aggregate Purchase Price therefor by wire transfer in federal
(same day) funds to an account at a bank acceptable to Cowen payable to the
order of the Company at the offices of Goodwin Procter LLP, The New York Times
Building, 620 Eighth Avenue, New York, New York. Time shall be of the essence,
and delivery at the time and place specified pursuant to this Agreement is a
further condition of the obligations of each Underwriter hereunder. The time and
date of the delivery and closing shall be at 10:00 a.m., New York time, on
November 19, 2010, in accordance with Rule 15c6-1 of the Exchange Act. The time
and date of such payment and delivery are herein referred to as the “Closing Date”. The
Closing Date and the location of delivery of, and the form of payment for, the
Stock and Warrants may be varied by agreement between the Company and
Cowen.
22
The
several Underwriters propose to offer the Stock and Warrants for sale upon the
terms and conditions set forth in the Prospectus.
4.
FURTHER AGREEMENTS OF THE
COMPANY. The Company agrees with the several Underwriters:
(a) To
prepare the Rule 462(b) Registration Statement, if necessary, in a form approved
by the Representative and file such Rule 462(b) Registration Statement with the
Commission by 10:00 p.m., New York time, on the date hereof, and the Company
shall at the time of filing either pay to the Commission the filing fee for the
Rule 462(b) Registration Statement or give irrevocable instructions for the
payment of such fee pursuant to Rule 111(b) under the Rules and Regulations; to
prepare the Prospectus in a form approved by the Representative containing
information previously omitted at the time of effectiveness of the Registration
Statement in reliance on Rules 430A, 430B or 430C of the Rules and Regulations
and to file such Prospectus pursuant to Rule 424(b) of the Rules and Regulations
not later than the second business (2nd) day following the execution and
delivery of this Agreement or, if applicable, such earlier time as may be
required by Rule 430A of the Rules and Regulations; prior to the expiration of
the Prospectus Delivery Period (as defined below), to notify the Representative
immediately of the Company’s intention to file or prepare any supplement or
amendment to any Registration Statement or to the Prospectus and to make no
amendment or supplement to the Registration Statements, the General Disclosure
Package or to the Prospectus to which the Representative shall reasonably object
by notice to the Company after a reasonable period to review; prior to the
expiration of the Prospectus Delivery Period, to advise the Representative,
promptly after it receives notice thereof, of the time when any amendment to any
Registration Statement has been filed or becomes effective or any supplement to
the General Disclosure Package or the Prospectus or any amended Prospectus has
been filed and to furnish the Underwriters with copies thereof; to file promptly
all material required to be filed by the Company with the Commission pursuant to
Rules 433(d) or 163(b)(2) of the Rules and Regulations, as the case may be; to
file promptly all reports and any definitive proxy or information statements
required to be filed by the Company with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the
date of the Prospectus and for so long as the delivery of a prospectus (or in
lieu thereof, the notice referred to in Rule 173(a) of the Rules and
Regulations) is required in connection with the offering or sale of the Stock
and Warrants (the “Prospectus Delivery
Period”); prior to the expiration of the Prospectus Delivery Period, to
advise the Representative, promptly after it receives notice thereof, of the
issuance by the Commission of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus, any Issuer Free Writing
Prospectus or the Prospectus, of the suspension of the qualification of the
Stock and Warrants for offering or sale in any jurisdiction, of the initiation
or threatening of any proceeding for any such purpose, or of any request by the
Commission for the amending or supplementing of the Registration Statements, the
General Disclosure Package or the Prospectus or for additional information; and,
in the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus, any Issuer Free Writing
Prospectus or the Prospectus or suspending any such qualification, and promptly
to use its reasonable best efforts to obtain the withdrawal of such
order.
23
(b) The
Company represents and agrees that, unless it obtains the prior consent of the
Representative, and each Underwriter represents and agrees that, unless it
obtains the prior consent of the Company and the Representative, it has not made
and will not, other than the Final Term Sheet (defined below), if any, prepared
and filed pursuant to Section 4(c)
hereof, make any offer relating to the Stock and Warrants that would constitute
a “free writing prospectus” as defined in Rule 405 of the Rules and Regulations
unless the prior written consent of the Representative has been received (each,
a “Permitted Free
Writing Prospectus”); provided that the prior
written consent of the Representative hereto shall be deemed to have been given
in respect of the Issuer Free Writing Prospectuses included in Schedule II hereto.
The Company represents that it has treated and agrees that it will treat each
Permitted Free Writing Prospectus as an Issuer Free Writing Prospectus, comply
with the requirements of Rules 164 and 433 of the Rules and Regulations
applicable to any Issuer Free Writing Prospectus, including the requirements
relating to timely filing with the Commission, legending and record keeping and
will not take any action that would result in an Underwriter or the Company
being required to file with the Commission pursuant to Rule 433(d) of the Rules
and Regulations a free writing prospectus prepared by or on behalf of such
Underwriter that such Underwriter otherwise would not have been required to file
thereunder. The Company consents to the use by any Underwriter of a free writing
prospectus that (a) is not an “issuer free writing prospectus” as defined
in Rule 433 of the Rules and Regulations, and (b) contains only
(i) information describing the preliminary terms of the Stock and Warrants
or their offering and (ii) information that described the final terms of
the Stock and Warrants or their offering and that is included in the Final Term
Sheet, if any, contemplated in Section 4(c)
below.
(c) At
the request of the Representative, the Company will prepare a final term sheet
(the “Final Term
Sheet”) reflecting the final terms of the Stock and Warrants, in form and
substance satisfactory to the Representative, and shall file such Final Term
Sheet as an Issuer Free Writing Prospectus pursuant to Rule 433 of the Rules and
Regulations prior to the close of business two (2) business days after the
date hereof; provided
that the Company shall provide the Representative with copies on any such Final
Term Sheet within a reasonable amount of time prior to such proposed filing and
will not use or file any such document to which the Representative or counsel to
the Underwriters shall reasonably object.
(d) If
at any time prior to the expiration of nine (9) months after the later of
(i) the latest effective date of the Registration Statement or
(ii) the date of the Prospectus, when a prospectus relating to the Stock
and Warrants is required to be delivered (or in lieu thereof, the notice
referred to in Rule 173(a) of the Rules and Regulations) any event occurs or
condition exists as a result of which the Prospectus as then amended or
supplemented would include any untrue statement of a material fact, or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made when the Prospectus is delivered
(or in lieu thereof, the notice referred to in Rule 173(a) of the Rules and
Regulations), not misleading, or if it is necessary at any time to amend or
supplement any Registration Statement or the Prospectus or to file under the
Exchange Act any document incorporated by reference in the Prospectus to comply
with the Securities Act or the Exchange Act, that the Company will promptly
notify the Representative thereof and upon its request will prepare an
appropriate amendment or supplement or upon its request make an appropriate
filing pursuant to Section 13 or 14 of the Exchange Act in form and
substance satisfactory to the Representative which will correct such statement
or omission or effect such compliance and will use its reasonable best efforts
to have any amendment to any Registration Statement declared effective as soon
as possible. The Company will furnish without charge to each Underwriter and to
any dealer in securities as many copies as the Representative may from time to
time reasonably request of such amendment or supplement. In case any Underwriter
is required to deliver a prospectus (or in lieu thereof, the notice referred to
in Rule 173(a) of the Rules and Regulations) relating to the Stock and Warrants
nine (9) months or more after the later of (i) the latest effective
date of the Registration Statement or (ii) the date of the Prospectus, the
Company upon the request of the Representative will prepare promptly an amended
or supplemented Prospectus as may be necessary to permit compliance with the
requirements of Section 10(a)(3) of the Securities Act and deliver to such
Underwriter as many copies as such Underwriter may reasonably request of such
amended or supplemented Prospectus complying with Section 10(a)(3) of the
Securities Act.
24
(e) If
the General Disclosure Package is being used to solicit offers to buy the Stock
and Warrants at a time when the Prospectus is not yet available to prospective
purchasers and any event shall occur as a result of which, in the judgment of
the Company or in the reasonable opinion of the Underwriters, it becomes
necessary to amend or supplement the General Disclosure Package in order to make
the statements therein, in the light of the circumstances then prevailing, not
misleading, or to make the statements therein not conflict with the information
contained or incorporated by reference in the Registration Statement then on
file and not superseded or modified, or if it is necessary at any time to amend
or supplement the General Disclosure Package to comply with any law, the Company
promptly will either (i) prepare, file with the Commission (if required)
and furnish to the Underwriters and any dealers an appropriate amendment or
supplement to the General Disclosure Package or (ii) prepare and file with
the Commission an appropriate filing under the Exchange Act which shall be
incorporated by reference in the General Disclosure Package so that the General
Disclosure Package as so amended or supplemented will not, in the light of the
circumstances then prevailing, be misleading or conflict with the Registration
Statement then on file, or so that the General Disclosure Package will comply
with law.
(f) If
at any time following issuance of an Issuer Free Writing Prospectus there
occurred or occurs an event or development as a result of which such Issuer Free
Writing Prospectus conflicted or will conflict with the information contained in
the Registration Statement, Pricing Prospectus or Prospectus, including any
document incorporated by reference therein and any prospectus supplement deemed
to be a part thereof and not superseded or modified or included or would include
an untrue statement of a material fact or omitted or would omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances prevailing at the
subsequent time, not misleading, the Company has promptly notified or will
promptly notify the Representative so that any use of the Issuer Free Writing
Prospectus may cease until it is amended or supplemented and has promptly
amended or will promptly amend or supplement, at its own expense, such Issuer
Free Writing Prospectus to eliminate or correct such conflict, untrue statement
or omission. The foregoing sentence does not apply to statements in or omissions
from any Issuer Free Writing Prospectus in reliance upon, and in conformity
with, written information furnished to the Company through the Representative by
or on behalf of any Underwriter specifically for inclusion therein, which
information the parties hereto agree is limited to the Underwriter’s Information
(as defined in Section 17).
25
(g) Upon
request of the Representative, to furnish promptly to the Representative and to
counsel for the Underwriters a signed copy of each of the Registration
Statements as originally filed with the Commission, and of each amendment
thereto filed with the Commission, including all consents and exhibits filed
therewith.
(h) To
deliver promptly to the Representative in New York City such number of the
following documents as the Representative shall reasonably request:
(i) conformed copies of the Registration Statements as originally filed
with the Commission (in each case excluding exhibits), (ii) each
Preliminary Prospectus, (iii) any Issuer Free Writing Prospectus,
(iv) the Prospectus (the delivery of the documents referred to in clauses
(i), (ii), (iii) and (iv) of this paragraph (h) to be made not
later than 10:00 a.m., New York time, on the business day following the
execution and delivery of this Agreement), (v) conformed copies of any
amendment to the Registration Statement (excluding exhibits), (vi) any
amendment or supplement to the General Disclosure Package or the Prospectus
after the date hereof (the delivery of the documents referred to in clauses
(v) and (vi) of this paragraph (h) to be made not later than
10:00 a.m., New York City time, on the business day following the date of such
amendment or supplement) and (vii) any document incorporated by reference
in the General Disclosure Package or the Prospectus (excluding exhibits thereto)
(the delivery of the documents referred to in clause (vii) of this
paragraph (h) to be made not later than 10:00 a.m., New York City time, on
the business day following the date of such document); provided, however, that filing
with the Commission on EDGAR (as defined below) of any document specified in
clause (vii) of this paragraph (h) shall constitute delivery to the
Representative.
(i)
To make generally available to its shareholders as soon as
practicable, but in any event not later than sixteen (16) months after the
effective date of each Registration Statement (as defined in Rule 158(c) of the
Rules and Regulations), an earnings statement of the Company (which need not be
audited) complying with Section 11(a) of the Securities Act and the Rules
and Regulations (including, at the option of the Company, Rule
158).
(j)
To take promptly from time to time such actions as the
Representative may reasonably request to qualify the Stock and Warrants for
offering and sale under the securities or Blue Sky laws of such jurisdictions
(domestic or foreign) as the Representative may designate and to continue such
qualifications in effect, and to comply with such laws, for so long as required
to permit the offer and sale of Stock and Warrants in such jurisdictions; provided that the Company
shall not be obligated to qualify as foreign corporations in any jurisdiction in
which they are not so qualified or to file a general consent to service of
process in any jurisdiction.
26
(k) Upon
request, during the period of five (5) years from the date hereof, to
deliver to each of the Underwriters, (i) as soon as they are available,
copies of all reports or other communications furnished to shareholders
generally, and (ii) as soon as they are available, copies of any reports
and financial statements furnished or filed with the Commission or any national
securities exchange on which the Common Stock is listed. However, so long as the
Company is subject to the reporting requirements of either Section 13 or
Section 15(d) of the Exchange Act and is timely filing reports with the
Commission on its Electronic Data Gathering, Analysis and Retrieval system
(“EDGAR”), it
is not required to furnish such reports or statements to the
Underwriters.
(l) That
the Company will not, for a period of ninety (90) days from the date of this
Agreement, (the “Lock-Up Period”)
without the prior written consent of Cowen, directly or indirectly offer, sell,
assign, transfer, pledge, contract to sell, or otherwise dispose of, any shares
of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, other than (1) the Company’s sale of the Stock
and Warrants hereunder, (2) the issuance of Common Stock, options to acquire
Common Stock or other equity awards pursuant to the Company’s employee benefit
plans, qualified stock option plans, employee stock purchase plans or other
employee compensation plans as such plans are in existence on the date hereof
and described in the Prospectus and as such plans may be amended in a separate
proposal at the Company's special meeting of shareholders to be held to, inter
alia, approve the issuance of shares to the equity holders of Progenitor Cell
Therapy ("PCT"), (3) the
issuance of Common Stock pursuant to the valid exercises, vesting or settlements
of options, warrants or rights outstanding on the date hereof, (4) the issuance
of Common Stock or securities convertible or exercisable into shares of Common
Stock in connection with the Company's transaction with PCT, (5) the issuance of
units consisting of convertible preferred stock, Common Stock and warrants to
purchase Common Stock pursuant to that certain Placement Agency Agreement dated
of even date herewith by and among the Company and the
placement agents named therein (the “Concurrent Preferred
Offering”), (6) the issuance of shares of Common Stock or securities
convertible or exercisable into shares of Common Stock to consultants (including
in connection with investor relations activities) or (7) the issuance of shares
of Common Stock or securities convertible or exercisable into shares of Common
Stock in connection with any acquisition, strategic partnership, joint venture
or collaboration to which the Company is a party, or the acquisition or license
of any products or technology by the Company, but shall not include any such
transaction in which the Company is issuing securities primarily for the purpose
of raising capital or to an entity whose primary business is investing in
securities; provided that the number of shares of Common Stock issued or
underlying securities convertible or exercisable for Common Stock issued
pursuant to clause (7) shall not exceed 3.7 million shares in the aggregate and
provided further that, prior to the issuance of any such securities pursuant to
clause (6) or (7), the Company shall cause the recipients of such securities to
execute and deliver to the Representative letter agreements, each substantially
in the form of Exhibit
A hereto. The Company will cause each person and entity listed
in Exhibit B to
furnish to the Representative, prior to the Closing Date, a letter,
substantially in the form of Exhibit A hereto. The
Company also agrees that during such period, other than for the sale of the
Stock and Warrants hereunder, the Company will not file any registration
statement, preliminary prospectus or prospectus, or any amendment or supplement
thereto, under the Securities Act for any such transaction or which registers,
or offers for sale, Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, except (i) for the filing of a
registration statement at anytime on Form S-8 relating to employee benefit plans
and Form S-4 relating to the transaction with PCT and (ii) for the filing of a
registration statement at anytime after the 30th day following the date of this
Agreement on Form S-3 related to the resale of the Company's Common Stock on
behalf of selling stockholders who have registration rights outstanding as of
the date of this Agreement. The Company hereby agrees that (i) if it issues an
earnings release or material news, or if a material event relating to the
Company occurs, during the last seventeen (17) days of the Lock-Up Period, or
(ii) if prior to the expiration of the Lock-Up Period, the Company announces
that it will release earnings results during the sixteen (16)-day period
beginning on the last day of the Lock-Up Period, the restrictions imposed by
this paragraph (l) or the letter shall continue to apply until the expiration of
the eighteen (18)-day period beginning on the issuance of the earnings release
or the occurrence of the material news or material event. The Company will
provide the Representative with prior notice (in accordance with Section 14 herein) of
any such announcement that gives rise to an extension of the Lock-Up Period,
subject to the Representative’s agreement to hold such information in confidence
prior to public disclosure of the same.
27
(m) To
supply the Representative with copies of all correspondence to and from, and all
documents issued to and by, the Commission in connection with the registration
of the Stock and Warrants under the Securities Act or any of the Registration
Statements, any Preliminary Prospectus or the Prospectus, or any amendment or
supplement thereto or document incorporated by reference therein.
(n) Prior
to the Closing Date, to furnish to the Representative, as soon as they have been
prepared, copies of any unaudited interim consolidated financial statements of
the Company and its subsidiaries for any periods subsequent to the periods
covered by the financial statements appearing in the Registration Statements and
the Prospectus.
(o) Prior
to the Closing Date, not to issue any press release or other communication
directly or indirectly or hold any press conference with respect to the Company,
its condition, financial or otherwise, or earnings, business affairs or business
prospects (except for routine oral marketing communications in the ordinary
course of business and consistent with the past practices of the Company and of
which the Representative is notified), without the prior written consent of the
Representative, which consent shall not be unreasonably delayed, withheld or
conditioned, unless in the judgment of the Company and its counsel, and after
notification to the Representative, such press release or communication is
required by law.
(p) Until
Cowen shall have notified the Company of the completion of the resale of the
Stock and Warrants, that the Company will not, and will use its reasonable best
efforts to cause its affiliated purchasers (as defined in Regulation M under the
Exchange Act) not to, either alone or with one or more other persons, bid for or
purchase, for any account in which it or any of its affiliated purchasers has a
beneficial interest, any Stock and Warrants, or attempt to induce any person to
purchase any Stock and Warrants; and not to, and to use its reasonable best
efforts to cause its affiliated purchasers not to, make bids or purchase for the
purpose of creating actual, or apparent, active trading in or of raising the
price of the Stock and Warrants.
28
(q) To
use its reasonable best efforts not to take any action prior the Closing Date
which would require the Prospectus to be amended or supplemented pursuant to
Section 4(d).
(r) To
at all times comply in all material respects with all applicable provisions of
the Sarbanes-Oxley Act in effect from time to time and to file with the
Commission such information on Form 10-Q or Form 10-K as may be required by Rule
463 of the Rules and Regulations.
(s) To
maintain, at its expense, a registrar and transfer agent for the Stock and
Warrants.
(t) To
apply the net proceeds from the sale of the Stock and Warrants as set forth in
the Registration Statement, the General Disclosure Package and the Prospectus
under the heading “Use of Proceeds,” and except as disclosed in the General
Disclosure Package, the Company does not intend to use any of the proceeds from
the sale of the Stock and Warrants hereunder to repay any outstanding debt owed
to any affiliate of any Underwriter. The Company shall manage its affairs and
investments in such a manner as not to be or become an “investment company”
within the meaning of the Investment Company Act and the rules and regulations
thereunder.
(u) To
use its best efforts to list, subject to notice of issuance, and to maintain the
listing of the Stock and Warrant Shares on the Exchange.
(v) To
use its best efforts to do and perform all things required to be done or
performed under this Agreement by the Company prior to the Closing Date and to
satisfy all conditions precedent to the delivery of the Stock and
Warrants.
(w) To
reserve and keep available at all times a sufficient number of shares of Common
Stock for the purpose of enabling the Company to issue the Warrant
Shares.
(x) Upon
request of any Underwriter, to furnish, or cause to be furnished, to such
Underwriter an electronic version of the Company’s corporate logo for use on the
website, if any, operated by such Underwriter for the purpose of facilitating
the on-line offering of the Stock and Warrants (the “License”); provided, however that the
License shall be used solely for the purpose described above, is granted without
any fee and may not be assigned or transferred.
29
5. PAYMENT OF EXPENSES. The
Company agrees to pay, or reimburse if paid by any Underwriter, whether or not
the transactions contemplated hereby are consummated or this Agreement is
terminated: (a) the costs incident to the authorization, issuance, sale,
preparation and delivery of the Stock and Warrants and any taxes payable in that
connection; (b) the costs incident to the registration of the Stock and
Warrants under the Securities Act; (c) the costs incident to the
preparation, printing and distribution of the Registration Statements, the Base
Prospectus, any Preliminary Prospectus, any Issuer Free Writing Prospectus, the
General Disclosure Package, the Prospectus, any amendments, supplements and
exhibits thereto or any document incorporated by reference therein and the costs
of printing, reproducing and distributing, the “Agreement Among Underwriters”
between the Representative and the Underwriters, the Master Selected Dealers’
Agreement, the Underwriters’ Questionnaire, this Agreement and any closing
documents by mail, telex or other means of communications; (d) the fees and
expenses (including related fees and expenses of counsel for the Underwriters)
incurred in connection with securing any required review by FINRA of the terms
of the sale of the Stock and Warrants and any filings made with FINRA;
(e) any applicable listing or other fees; (f) the fees and expenses
(including related fees and expenses of counsel to the Underwriters) of
qualifying the Stock and Warrants under the securities laws of the several
jurisdictions as provided in Section 4(j) and
of preparing, printing and distributing wrappers, Blue Sky Memoranda and Legal
Investment Surveys; (g) the cost of preparing and printing stock
certificates and Warrants; (h) all fees and expenses of the registrar and
transfer agent of the Stock and Warrants; (i) the fees, disbursements and
expenses of counsel to the Underwriters; (j) the costs and expenses of the
Company relating to investor presentations on any “road show” undertaken in
connection with the marketing of the offering of the Stock and Warrants,
including, without limitation, expenses associated with the preparation or
dissemination of any electronic road show, expenses associated with the
production of road show slides and graphics, fees and expenses of any
consultants engaged in connection with the road show presentations with the
prior approval of the Company, travel and lodging expenses of the officers of
the Company and such consultants, including the cost of any aircraft chartered
in connection with the road show, and (k) all other costs and expenses
incident to the offering of the Stock and Warrants or the performance of the
obligations of the Company under this Agreement (including, without limitation,
the fees and expenses of the Company’s counsel and the Company’s independent
accountants); provided
that the Company shall not be liable for and shall not be obligated to pay any
such fees, costs, expenses or disbursements to the Underwriters for
out-of-pocket expenses (including fees, costs, expenses or disbursements for the
Underwriters’ counsel) in excess of $45,950 in the aggregate; and provided further that, except
to the extent otherwise provided in this Section 5 and in
Sections 9 and
10, the
Underwriters shall pay their own costs and expenses, including the fees and
expenses of their counsel, any transfer taxes on the resale of any Stock and
Warrants by them and the expenses of advertising any offering of the Stock and
Warrants made by the Underwriters
6. CONDITIONS OF UNDERWRITERS’
OBLIGATIONS. The respective obligations of the several Underwriters
hereunder are subject to the accuracy, when made and as of the Applicable Time
and on the Closing Date, of the representations and warranties of the Company
contained herein, to the accuracy of the statements of the Company made in any
certificates pursuant to the provisions hereof, to the performance by the
Company of its obligations hereunder, and to each of the following additional
terms and conditions:
(a) The
Registration Statements have become effective under the Securities Act, and no
stop order suspending the effectiveness of any Registration Statement or any
part thereof, preventing or suspending the use of any Base Prospectus, any
Preliminary Prospectus, the Prospectus or any Permitted Free Writing Prospectus
or any part thereof shall have been issued and no proceedings for that purpose
or pursuant to Section 8A under the Securities Act shall have been
initiated or threatened by the Commission, and all requests for additional
information on the part of the Commission (to be included or incorporated by
reference in the Registration Statements or the Prospectus or otherwise) shall
have been complied with to the reasonable satisfaction of the Representative;
the Rule 462(b) Registration Statement, if any, each Issuer Free Writing
Prospectus and the Prospectus shall have been filed with, the Commission within
the applicable time period prescribed for such filing by, and in compliance
with, the Rules and Regulations and in accordance with Section 4(a),
and the Rule 462(b) Registration Statement, if any, shall have become effective
immediately upon its filing with the Commission; and FINRA shall have raised no
objection to the fairness and reasonableness of the terms of this Agreement or
the transactions contemplated hereby.
30
(b) None
of the Underwriters shall have discovered and disclosed to the Company on or
prior to the Closing Date that any Registration Statement or any amendment or
supplement thereto contains an untrue statement of a fact which, in the opinion
of counsel for the Underwriters, is material or omits to state any fact which,
in the opinion of such counsel, is material and is required to be stated therein
or is necessary to make the statements therein not misleading, or that the
General Disclosure Package, any Issuer Free Writing Prospectus or the Prospectus
or any amendment or supplement thereto contains an untrue statement of fact
which, in the opinion of such counsel, is material or omits to state any fact
which, in the opinion of such counsel, is material and is necessary in order to
make the statements, in the light of the circumstances in which they were made,
not misleading.
(c) All
corporate proceedings incident to the authorization, form and validity of each
of this Agreement, the Stock, the Warrants, the Registration Statements, the
General Disclosure Package, each Issuer Free Writing Prospectus and the
Prospectus and the transactions contemplated hereby shall be reasonably
satisfactory in all material respects to counsel for the Underwriters, and the
Company shall have furnished to such counsel all documents and information that
they may reasonably request to enable them to pass upon such
matters.
(d) Lowenstein
Sandler PC shall have furnished to the Representative such counsel’s written
opinion and negative assurance statement, as counsel to the Company, addressed
to the Underwriters and dated the Closing Date, in form and substance reasonably
satisfactory to the Representative and set forth on Exhibit C
hereto.
(e) Jun
He Law Offices LLC shall have furnished to the Representative such counsel’s
written opinion and negative assurance statement, as PRC counsel to the Company,
addressed to the Underwriters and dated the Closing Date, in form and substance
reasonably satisfactory to the Representative and set forth on Exhibit D
hereto.
(f) Fuerst
Ittleman, PL shall have furnished to the Representative such counsel’s written
opinion and negative assurance statement, as FDA counsel to the Company,
addressed to the Underwriters and dated the Closing Date, in form and substance
reasonably satisfactory to the Representative and set forth on Exhibit E
hereto.
31
(g) Kenyon
& Kenyon LLP shall have furnished to the Representative such counsel’s
written opinion and negative assurance statement, as Intellectual Property
counsel to the Company, addressed to the Underwriters and dated the Closing
Date, in form and substance reasonably satisfactory to the Representative and
set forth on Exhibit
F hereto.
(h) Epstein
Becker & Green, P.C. shall have furnished to the Representative such
counsel’s written opinion and negative assurance statement, as special counsel
to PCT, addressed to the Underwriters and dated the Closing Date, in form and
substance reasonably satisfactory to the Representative and set forth on Exhibit G
hereto.
(i) The
Representative shall have received from Goodwin Procter LLP, counsel for the
Underwriters, such counsel’s written opinion and negative assurance statement,
dated the Closing Date, with respect to such matters as the Underwriters may
reasonably require, and the Company shall have furnished to such counsel such
documents as they request for enabling them to pass upon such
matters.
(j) At
the time of the execution of this Agreement, the Representative shall have
received from each of (i) Holtz Rubenstein Reminick LLP, (ii) Deloitte &
Touche LLP, and (iii) EisnerAmper LLP, a letter, addressed to the Underwriters,
executed and dated such date, in form and substance satisfactory to the
Representative (i) confirming that they are an independent registered
accounting firm with respect to the Company or PCT, as applicable, within the
meaning of the Securities Act and the Rules and Regulations and PCAOB and
(ii) stating the conclusions and findings of such firm, of the type
ordinarily included in accountants’ “comfort letters” to underwriters, with
respect to the financial statements and certain financial information contained
or incorporated by reference in the Registration Statements, the General
Disclosure Package and the Prospectus.
(k) On
the effective date of any post-effective amendment to any Registration Statement
and on the Closing Date, the Representative shall have received a letter (the
“bring-down
letter”) from each of (i) Holtz Rubenstein Reminick LLP, (ii) Deloitte
& Touche LLP, and (iii) EisnerAmper LLP addressed to the Underwriters and
dated the Closing Date confirming, as of the date of the bring-down letter (or,
with respect to matters involving changes or developments since the respective
dates as of which specified financial information is given in the General
Disclosure Package and the Prospectus, as the case may be, as of a date not more
than three (3) business days prior to the date of the bring-down letter),
the conclusions and findings of such firm, of the type ordinarily included in
accountants’ “comfort letters” to underwriters, with respect to the financial
information and other matters covered by its letter delivered to the
Representative concurrently with the execution of this Agreement pursuant to
paragraph (j) of this Section 6.
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(l)
The Company shall have furnished to the Representative a
certificate, dated the Closing Date, of its Chief Executive Officer and its
Chief Financial Officer stating that (i) such officers have carefully
examined the Registration Statement, the General Disclosure Package, any
Permitted Free Writing Prospectus and the Prospectus and, in their opinion, the
Registration Statements and each amendment thereto, at the Applicable Time, as
of the date of this Agreement and as of the Closing Date did not include any
untrue statement of a material fact and did not omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and the General Disclosure Package, as of the Applicable Time and as
of the Closing Date, any Permitted Free Writing Prospectus as of its date and as
of the Closing Date, the Prospectus and each amendment or supplement thereto, as
of the respective date thereof and as of the Closing Date, did not include any
untrue statement of a material fact and did not omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances in which they were made, not misleading, (ii) since the
effective date of the Initial Registration Statement, no event has occurred
which should have been set forth in a supplement or amendment to the
Registration Statements, the General Disclosure Package or the Prospectus,
(iii) to the best of their knowledge after reasonable investigation, as of
the Closing Date, the representations and warranties of the Company in this
Agreement are true and correct and the Company has complied with all agreements
and satisfied all conditions on its part to be performed or satisfied hereunder
at or prior to the Closing Date, and (iv) there has not been, subsequent to
the date of the most recent audited financial statements included or
incorporated by reference in the General Disclosure Package, any material
adverse change in the financial position or results of operations of the Company
and its subsidiaries, or any change or development that, singularly or in the
aggregate, would involve a material adverse change or a prospective material
adverse change, in or affecting the condition (financial or otherwise), results
of operations, business, assets or prospects of the Company and its
subsidiaries, except as set forth in the General Disclosure Package or the
Prospectus.
(m) Since
the date of the latest audited financial statements included in the General
Disclosure Package or incorporated by reference in the General Disclosure
Package as of the date hereof, (i) neither the Company nor any of its
subsidiaries shall have sustained any loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order or
decree, otherwise than as set forth in the General Disclosure Package, and
(ii) there shall not have been any change in the capital stock (other than
stock option and warrant exercises and stock repurchases in the ordinary course
of business) or long-term debt of the Company or any of its subsidiaries, or any
change, or any development involving a prospective change, in or affecting the
business, general affairs, management, financial position, stockholders’ equity
or results of operations of the Company and its subsidiaries, otherwise than as
set forth in the General Disclosure Package, the effect of which, in any such
case described in clause (i) or (ii) of this paragraph (i) is, in
the judgment of the Representative, so material and adverse as to make it
impracticable or inadvisable to proceed with the sale or delivery of the Stock
and Warrants on the terms and in the manner contemplated in the General
Disclosure Package.
33
(n) No
action shall have been taken and no law, statute, rule, regulation or order
shall have been enacted, adopted or issued by any governmental agency or body
which would prevent the issuance or sale of the Stock and Warrants or materially
and adversely affect or potentially materially and adversely affect the business
or operations of the Company; and no injunction, restraining order or order of
any other nature by any federal or state court of competent jurisdiction shall
have been issued which would prevent the issuance or sale of the Stock and
Warrants or materially and adversely affect or potentially materially and
adversely affect the business or operations of the Company.
(o) The
Concurrent Preferred Offering shall have been completed on the Closing Date in
accordance with its terms.
(p) Subsequent
to the execution and delivery of this Agreement there shall not have occurred
any of the following: (i) trading in securities generally on the New York
Stock Exchange, Nasdaq Global Market or the NYSE Amex or in the over-the-counter
market, or trading in any securities of the Company on any exchange or in the
over-the-counter market, shall have been suspended or materially limited, or
minimum or maximum prices or maximum range for prices shall have been
established on any such exchange or such market by the Commission, by such
exchange or market or by any other regulatory body or governmental authority
having jurisdiction, (ii) a banking moratorium shall have been declared by
Federal or state or PRC authorities or a material disruption has occurred in
commercial banking or securities settlement or clearance services in the United
States or the PRC, (iii) the United States or the PRC shall have become
engaged in hostilities, or the subject of an act of terrorism, or there shall
have been an outbreak of or escalation in hostilities involving the United
States or the PRC, or there shall have been a declaration of a national
emergency or war by the United States or the PRC or (iv) there shall have
occurred such a material adverse change in general economic, political or
financial conditions (or the effect of international conditions on the financial
markets in the United States or the PRC shall be such) as to make it, in the
judgment of the Representative, impracticable or inadvisable to proceed with the
sale or delivery of the Stock and Warrants on the terms and in the manner
contemplated in the General Disclosure Package and the Prospectus.
(q) The
Exchange shall have approved the Stock and Warrant Shares for listing therein,
subject only to official notice of issuance.
(r)
Cowen shall have received on and as of the Closing Date satisfactory
evidence of the good standing of the Company and its subsidiaries in their
respective jurisdictions of organization and their good standing as foreign
entities in such other jurisdictions as Cowen may reasonably request, in each
case in writing or any standard form of telecommunication from the appropriate
Governmental Authorities of such jurisdictions.
(s)
Cowen shall have received the written agreements, substantially in
the form of Exhibit A
hereto, of the persons and entities listed in Exhibit B to this
Agreement.
(t)
The Company shall have furnished to the Underwriters a
Certificate of the Chief Financial Officer of the Company, in form and substance
reasonably satisfactory to counsel for the Underwriters.
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(u) The
Company shall have furnished to the Underwriters a Certificate of the Chief
Financial Officer of PCT, in form and substance reasonably satisfactory to
counsel for the Underwriters.
(v) The
Company shall have furnished to the Underwriters a Secretary’s Certificate of
the Company, in form and substance reasonably satisfactory to counsel for the
Underwriters.
(w) On
or prior to the Closing Date, the Company shall have furnished to Cowen such
further certificates and documents as Cowen may reasonably request.
All
opinions, letters, evidence and certificates mentioned above or elsewhere in
this Agreement shall be deemed to be in compliance with the provisions hereof
only if they are in form and substance reasonably satisfactory to counsel for
the Underwriters.
7. INDEMNIFICATION AND
CONTRIBUTION.
(a) The
Company shall indemnify and hold harmless each Underwriter, its directors,
officers, managers, members, employees, representatives and agents and each
person, if any, who controls any Underwriter within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act
(collectively the “Underwriter Indemnified
Parties,” and each an “Underwriter Indemnified
Party”) against any loss, claim, damage, expense or liability whatsoever
(or any action, investigation or proceeding in respect thereof), joint or
several, to which such Underwriter Indemnified Party may become subject, under
the Securities Act or otherwise, insofar as such loss, claim, damage, expense,
liability, action, investigation or proceeding arises out of or is based upon
(A) any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, any Issuer Free Writing Prospectus, any
“issuer information” that is used in connection with the offering and sale of
the Stock and Warrants by, or with the approval of, the Company filed or
required to be filed pursuant to Rule 433(d) of the Rules and Regulations, any
Registration Statement or the Prospectus, or in any amendment or supplement
thereto or document incorporated by reference therein, or (B) the omission
or alleged omission to state in any Preliminary Prospectus, any Issuer Free
Writing Prospectus, any “issuer information” that is used in connection with the
offering and sale of the Stock and Warrants by, or with the approval of, the
Company filed or required to be filed pursuant to Rule 433(d) of the Rules and
Regulations, any Registration Statement or the Prospectus, or in any amendment
or supplement thereto or document incorporated by reference therein, a material
fact required to be stated therein or necessary to make the statements therein
in light of (other than in the case of any Registration Statement) the
circumstances under which they are made not misleading, and shall reimburse each
Underwriter Indemnified Party promptly upon demand for any legal fees or other
expenses reasonably incurred by that Underwriter Indemnified Party in connection
with investigating, or preparing to defend, or defending against, or appearing
as a third party witness in respect of, or otherwise incurred in connection
with, any such loss, claim, damage, expense, liability, action, investigation or
proceeding, as such fees and expenses are incurred; provided, however, that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage, expense or liability arises out of or is based upon an untrue statement
or alleged untrue statement in, or omission or alleged omission from any
Preliminary Prospectus, any Registration Statement or the Prospectus, or any
such amendment or supplement thereto, or any Issuer Free Writing Prospectus made
in reliance upon and in conformity with written information furnished to the
Company through the Representative by or on behalf of any Underwriter
specifically for use therein, which information the parties hereto agree is
limited to the Underwriter’s Information (as defined in Section 17).
35
The
indemnity agreement in this Section 7(a) is
not exclusive and is in addition to each other liability which the Company might
have under this Agreement or otherwise, and shall not limit any rights or
remedies which may otherwise be available under this Agreement, at law or in
equity to any Underwriter Indemnified Party.
(b) Each
Underwriter, severally and not jointly, shall indemnify and hold harmless the
Company and its directors, its officers who signed the Registration Statement
and each person, if any, who controls the Company within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act
(collectively the “Company Indemnified
Parties” and each a “Company Indemnified
Party”) against any loss, claim, damage, expense or liability whatsoever
(or any action, investigation or proceeding in respect thereof), joint or
several, to which such Company Indemnified Party may become subject, under the
Securities Act or otherwise, insofar as such loss, claim, damage, expense,
liability, action, investigation or proceeding arises out of or is based upon
(i) any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, any Issuer Free Writing Prospectus, any
“issuer information” filed or required to be filed pursuant to Rule 433(d) of
the Rules and Regulations, any Registration Statement or the Prospectus, or in
any amendment or supplement thereto, or (ii) the omission or alleged
omission to state in any Preliminary Prospectus, any Issuer Free Writing
Prospectus, any “issuer information” filed or required to be filed pursuant to
Rule 433(d) of the Rules and Regulations, any Registration Statement or the
Prospectus, or in any amendment or supplement thereto, a material fact required
to be stated therein or necessary to make the statements therein in light of
(other than in the case of any Registration Statement) the circumstances under
which they are made not misleading, but in each case only to the extent that the
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
the Company through the Representative by or on behalf of that Underwriter
specifically for use therein, which information the parties hereto agree is
limited to the Underwriter’s Information as defined in Section 17, and
shall reimburse the Company Indemnified Parties promptly on demand for any legal
or other expenses reasonably incurred by such party in connection with
investigating or preparing to defend or defending against or appearing as third
party witness in connection with any such loss, claim, damage, liability,
action, investigation or proceeding, as such fees and expenses are incurred.
This indemnity agreement is not exclusive and will be in addition to any
liability which the Underwriters might otherwise have and shall not limit any
rights or remedies which may otherwise be available under this Agreement, at law
or in equity to the Company Indemnified Parties.
36
(c) Promptly
after receipt by an indemnified party under this Section 7 of
notice of the commencement of any action, the indemnified party shall, if a
claim in respect thereof is to be made against an indemnifying party under this
Section 7,
notify such indemnifying party in writing of the commencement of that action;
provided, however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 7 except
to the extent it has been materially prejudiced by such failure; and, provided, further, that the
failure to notify an indemnifying party shall not relieve it from any liability
which it may have to an indemnified party otherwise than under this Section 7. If
any such action shall be brought against an indemnified party, and it shall
notify the indemnifying party thereof, the indemnifying party shall be entitled
to participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense of such action with
counsel reasonably satisfactory to the indemnified party (which counsel shall
not, except with the written consent of the indemnified party, be counsel to the
indemnifying party). After notice from the indemnifying party to the indemnified
party of its election to assume the defense of such action, except as provided
herein, the indemnifying party shall not be liable to the indemnified party
under Section 7 for
any legal or other expenses subsequently incurred by the indemnified party in
connection with the defense of such action other than reasonable costs of
investigation; provided,
however, that any indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense of such
action but the fees and expenses of such counsel (other than reasonable costs of
investigation) shall be at the expense of such indemnified party unless
(i) the employment thereof has been specifically authorized in writing by
the Company in the case of a claim for indemnification under Section 7(a) or
Cowen in the case of a claim for indemnification under Section 7(b),
(ii) such indemnified party shall have been advised by its counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the indemnifying party, or (iii) the
indemnifying party has failed to assume the defense of such action and employ
counsel reasonably satisfactory to the indemnified party within a reasonable
period of time after notice of the commencement of the action or the
indemnifying party does not diligently defend the action after assumption of the
defense, in which case, if such indemnified party notifies the indemnifying
party in writing that it elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume
the defense of (or, in the case of a failure to diligently defend the action
after assumption of the defense, to continue to defend) such action on behalf of
such indemnified party and the indemnifying party shall be responsible for legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense of such action; provided, however, that the
indemnifying party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at any
time for all such indemnified parties (in addition to any local counsel), which
firm shall be designated in writing by Cowen if the indemnified parties under
this Section 7
consist of any Underwriter Indemnified Party or by the Company if the
indemnified parties under this Section 7
consist of any Company Indemnified Parties. Subject to this Section 7(c),
the amount payable by an indemnifying party under Section 7 shall
include, but not be limited to, (x) reasonable legal fees and expenses of
counsel to the indemnified party and any other expenses in investigating, or
preparing to defend or defending against, or appearing as a third party witness
in respect of, or otherwise incurred in connection with, any action,
investigation, proceeding or claim, and (y) all amounts paid in settlement
of any of the foregoing. No indemnifying party shall, without the prior written
consent of the indemnified parties, settle or compromise or consent to the entry
of judgment with respect to any pending or threatened action or any claim
whatsoever, in respect of which indemnification or contribution could be sought
under this Section 7
(whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party in form and substance reasonably
satisfactory to such indemnified party from all liability arising out of such
action or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act by or on behalf of any indemnified
party. Subject to the provisions of the following sentence, no indemnifying
party shall be liable for settlement of any pending or threatened action or any
claim whatsoever that is effected without its written consent (which consent
shall not be unreasonably withheld or delayed), but if settled with its written
consent, if its consent has been unreasonably withheld or delayed or if there be
a judgment for the plaintiff in any such matter, the indemnifying party agrees
to indemnify and hold harmless any indemnified party from and against any loss
or liability by reason of such settlement or judgment. In addition, if at any
time an indemnified party shall have requested that an indemnifying party
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Sections 7(a) or
7(b) effected
without its written consent if (i) such settlement is entered into more
than forty-five (45) days after receipt by such indemnifying party of the
request for reimbursement, (ii) such indemnifying party shall have received
notice of the terms of such settlement at least thirty (30) days prior to
such settlement being entered into and (iii) such indemnifying party shall
not have reimbursed such indemnified party in accordance with such request prior
to the date of such settlement.
37
(d) If
the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under Section 7(a) or
7(b), then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid, payable or otherwise incurred by such indemnified
party as a result of such loss, claim, damage, expense or liability (or any
action, investigation or proceeding in respect thereof), as incurred,
(i) in such proportion as shall be appropriate to reflect the relative
benefits received by the Company on the one hand and the Underwriters on the
other from the offering of the Stock and Warrants, or (ii) if the
allocation provided by clause (i) of this Section 7(d) is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) of this Section 7(d) but
also the relative fault of the Company on the one hand and the Underwriters on
the other with respect to the statements, omissions, acts or failures to act
which resulted in such loss, claim, damage, expense or liability (or any action,
investigation or proceeding in respect thereof) as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other with respect to such offering shall
be deemed to be in the same proportion as the total net proceeds from the
offering of the Stock and Warrants purchased under this Agreement (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters with respect to the Stock
and Warrants purchased under this Agreement, in each case as set forth in the
table on the cover page of the Prospectus. The relative fault of the Company on
the one hand and the Underwriters on the other shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or the
Underwriters on the other, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
untrue statement, omission, act or failure to act; provided that the parties
hereto agree that the written information furnished to the Company through the
Representative by or on behalf of the Underwriters for use in the Preliminary
Prospectus, any Registration Statement or the Prospectus, or in any amendment or
supplement thereto, consists solely of the Underwriter’s Information as defined
in Section 17.
38
(e) The
Company and the Underwriters agree that it would not be just and equitable if
contributions pursuant to Section 7(d)
above were to be determined by pro rata allocation or by any other method of
allocation which does not take into account the equitable considerations
referred to Section 7(d)
above. The amount paid or payable by an indemnified party as a result of the
loss, claim, damage, expense, liability, action, investigation or proceeding
referred to in Section 7(d)
above shall be deemed to include, subject to the limitations set forth above,
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating, preparing to defend or defending against or
appearing as a third party witness in respect of, or otherwise incurred in
connection with, any such loss, claim, damage, expense, liability, action,
investigation or proceeding. Notwithstanding the provisions of this Section 7, no
Underwriters shall be required to contribute any amount in excess of the total
underwriting discounts and commissions received by such Underwriter with respect
to the offering of the Stock and Warrants exceeds the amount of any damages
which the Underwriter has otherwise paid or become liable to pay by reason of
any untrue or alleged untrue statement, omission or alleged omission, act or
alleged act or failure to act or alleged failure to act. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. The Underwriters’ obligations to
contribute as provided in this Section 7 are
several in proportion to their respective underwriting obligations and not
joint.
8. TERMINATION. The obligations
of the Underwriters hereunder may be terminated by Cowen, in its absolute
discretion by notice given to the Company prior to delivery of and payment for
the Stock and Warrants if, prior to that time, any of the events described in
Sections 6(m)
or 6(p) have
occurred, or if the Underwriters shall decline to purchase the Stock and
Warrants for any reason permitted under this Agreement (other than as a result
of a termination pursuant to Section 10).
39
9. REIMBURSEMENT OF UNDERWRITERS’
EXPENSES. Notwithstanding anything to the contrary in this Agreement, if
(a) this Agreement shall have been terminated pursuant to Section 8 or
10,
(b) the Company shall fail to tender the Stock and Warrants for delivery to
the Underwriters for any reason not permitted under this Agreement, (c) the
Underwriters shall decline to purchase the Stock and Warrants for any reason
permitted under this Agreement, (d) the sale of the Stock and Warrants is
not consummated because any condition to the obligations of the Underwriters set
forth herein is not satisfied or (e) the sale of the Stock and Warrants is
not consummated because of the refusal, inability or failure on the part of the
Company to perform any agreement herein or to satisfy any condition or to comply
with the provisions hereof, then in addition to the payment of amounts in
accordance with Section 5, the
Company shall reimburse the Underwriters for the fees and expenses of
Underwriters’ counsel and for such other out-of-pocket expenses as shall have
been reasonably incurred by them in connection with this Agreement and the
proposed purchase of the Stock and Warrants, including, without limitation,
travel and lodging expenses of the Underwriters, and upon demand the Company
shall pay the full amount thereof to Cowen; provided that in no event shall the
Company be obligated to reimburse the Underwriters pursuant to clauses (a), (c)
or (d) in an amount in excess of $125,000 in the aggregate. If this
Agreement is terminated pursuant to Section 10 by
reason of the default of one or more Underwriters, the Company shall not be
obligated to reimburse any defaulting Underwriter on account of expenses to the
extent incurred by such defaulting Underwriter provided that the foregoing
shall not limit any reimbursement obligation of the Company to any
non-defaulting Underwriter under this Section 9.
10. SUBSTITUTION OF UNDERWRITERS.
If any Underwriter or Underwriters shall default in its or their obligations to
purchase shares of Stock and Warrants hereunder on the Closing Date and the
aggregate number of shares which such defaulting Underwriter or Underwriters
agreed but failed to purchase does not exceed ten percent (10%) of the
total number of shares to be purchased by all Underwriters on the Closing Date,
the other Underwriters shall be obligated severally, in proportion to their
respective commitments hereunder, to purchase the shares which such defaulting
Underwriter or Underwriters agreed but failed to purchase on the Closing Date.
If any Underwriter or Underwriters shall so default and the aggregate number of
shares with respect to which such default or defaults occur is more than ten
percent (10%) of the total number of shares to be purchased by all
Underwriters on the Closing Date and arrangements satisfactory to the
Representative and the Company for the purchase of such shares by other persons
are not made within forty-eight (48) hours after such default, this
Agreement shall terminate.
If the
remaining Underwriters or substituted Underwriters are required hereby or agree
to take up all or part of the shares of Stock and Warrants of a defaulting
Underwriter or Underwriters on the Closing Date as provided in this Section 10,
(i) the Company shall have the right to postpone the Closing Date for a
period of not more than five (5) full business days in order that the
Company may effect whatever changes may thereby be made necessary in the
Registration Statements or the Prospectus, or in any other documents or
arrangements, and the Company agrees promptly to file any amendments to the
Registration Statements or supplements to the Prospectus which may thereby be
made necessary, and (ii) the respective numbers of shares to be purchased
by the remaining Underwriters or substituted Underwriters shall be taken as the
basis of their underwriting obligation for all purposes of this Agreement.
Nothing herein contained shall relieve any defaulting Underwriter of its
liability to the Company or the other Underwriters for damages occasioned by its
default hereunder. Any termination of this Agreement pursuant to this Section 10 shall
be without liability on the part of any non-defaulting Underwriter or the
Company, except that the representations, warranties, covenants, indemnities,
agreements and other statements set forth in Section 2, the
obligations with respect to expenses to be paid or reimbursed pursuant to Sections 5 and 9 and the provisions
of Section 7 and
Sections 11
through 21,
inclusive, shall not terminate and shall remain in full force and
effect.
40
11. ABSENCE OF FIDUCIARY RELATIONSHIP.
The Company acknowledges and agrees that:
(a) each
Underwriter’s responsibility to the Company is solely contractual in nature, the
Representative have been retained solely to act as underwriters in connection
with the sale of the Stock and Warrants and no fiduciary, advisory or agency
relationship between the Company and the Representative has been created in
respect of any of the transactions contemplated by this Agreement, irrespective
of whether the Representative has advised or is advising the Company on other
matters;
(b) the
price of the Stock and Warrants set forth in this Agreement was established by
the Company following discussions and arms-length negotiations with the
Representative, and the Company is capable of evaluating and understanding, and
understands and accepts, the terms, risks and conditions of the transactions
contemplated by this Agreement;
(c) it
has been advised that the Representative and its affiliates are engaged in a
broad range of transactions which may involve interests that differ from those
of the Company and that the Representative has no obligation to disclose such
interests and transactions to the Company by virtue of any fiduciary, advisory
or agency relationship; and
(d) it
waives, to the fullest extent permitted by law, any claims it may have against
the Representative for breach of fiduciary duty or alleged breach of fiduciary
duty and agrees that the Representative shall have no liability (whether direct
or indirect) to the Company in respect of such a fiduciary duty claim or to any
person asserting a fiduciary duty claim on behalf of or in right of the Company,
including stockholders, employees or creditors of the Company.
12. SUCCESSORS; PERSONS ENTITLED TO
BENEFIT OF AGREEMENT. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters, the Company and their respective
successors and assigns. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, other than the persons
mentioned in the preceding sentence, any legal or equitable right, remedy or
claim under or in respect of this Agreement, or any provisions herein contained,
this Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit of
no other person; except that the representations, warranties, covenants,
agreements and indemnities of the Company contained in this Agreement shall also
be for the benefit of the Underwriter Indemnified Parties, and the indemnities
of the several Underwriters shall be for the benefit of the Company Indemnified
Parties. It is understood that each Underwriter’s responsibility to the Company
is solely contractual in nature and the Underwriters do not owe the Company, or
any other party, any fiduciary duty as a result of this Agreement. No purchaser
of any of the Stock and Warrants from any Underwriter shall be deemed to be a
successor or assign by reason merely of such purchase.
41
13. SURVIVAL OF INDEMNITIES,
REPRESENTATIONS, WARRANTIES, ETC. The respective indemnities, covenants,
agreements, representations, warranties and other statements of the Company and
the several Underwriters, as set forth in this Agreement or made by them
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation made by or on behalf of any Underwriter, the
Company or any person controlling any of them and shall survive delivery of and
payment for the Stock and Warrants. Notwithstanding any termination of this
Agreement, including without limitation any termination pursuant to Section 8 or
Section 10, the
indemnities, covenants, agreements, representations, warranties and other
statements forth in Sections 2, 5, 7 and 9 and Sections 11 through
21, inclusive,
of this Agreement shall not terminate and shall remain in full force and effect
at all times.
14. NOTICES. All statements,
requests, notices and agreements hereunder shall be in writing,
and:
(a) if
to the Underwriters, shall be delivered or sent by mail, telex, or facsimile
transmission to Cowen and Company, LLC, 1221 Avenue of the Americas, New York,
New York 10020, Attention: Head of Equity Capital Markets, Fax: 646-562-1249
with a copy to the General Counsel, Fax: 646-562-1861, with a copy (which shall
not constitute notice hereunder) to Goodwin Procter LLP, The New York Times
Building, 620 Eighth Avenue, New York, New York 10018, Attention: Michael D.
Maline, Esq., Fax: 212-355-3333; and
(b) if
to the Company, shall be delivered or sent by mail, telex, or facsimile
transmission to NeoStem, Inc., 420 Lexington Avenue, Suite 450, New York, New
York 10170, Attention: General Counsel, Fax: 646-514-7787, with a copy (which
shall not constitute notice hereunder) to Lowenstein Sandler PC, 65 Livingston
Avenue, Roseland, New Jersey 07068, Attention: Alan Wovsaniker, Esq., Fax:
973-597-2400;
provided, however, that any
notice to an Underwriter pursuant to Section 7 shall
be delivered or sent by mail, or facsimile transmission to such Underwriter at
its address set forth in its acceptance telex to the Representative, which
address will be supplied to any other party hereto by the Representative upon
request. Any such statements, requests, notices or agreements shall take effect
at the time of receipt thereof.
15. DEFINITION OF CERTAIN TERMS.
For purposes of this Agreement, (a) ”business day” means
any day on which the New York Stock Exchange, Inc. is open for trading and
(b) ”subsidiary” has the
meaning set forth in Rule 405 of the Rules and Regulations.
16. GOVERNING LAW AND
JURISDICTION. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, including
without limitation Section 5-1401 of the New York General Obligations.
The Company irrevocably (a) submits to the non-exclusive
jurisdiction of the Federal and state courts in the Borough of Manhattan in The
City of New York for the purpose of any suit, action or other proceeding arising
out of this Agreement or the transactions contemplated by this Agreement, the
Registration Statements and any Preliminary Prospectus or the Prospectus,
(b) agrees that all claims in respect of any such suit, action or
proceeding may be heard and determined by any such court, (c) waives to the
fullest extent permitted by applicable law, any immunity from the jurisdiction
of any such court or from any legal process, (d) agrees not to commence any
such suit, action or proceeding other than in such courts, and (e) waives,
to the fullest extent permitted by applicable law, any claim that any such suit,
action or proceeding is brought in an inconvenient forum.
42
17. UNDERWRITERS’ INFORMATION.
The parties hereto acknowledge and agree that, for all purposes of this
Agreement, the Underwriters’ Information consists solely of the statements
concerning the Underwriters contained in the ninth, tenth, eleventh
and fifteenth paragraphs under the heading “Underwriting” in the
Prospectus.
18. AUTHORITY OF THE
REPRESENTATIVE. In connection with this Agreement, you will act for and
on behalf of the several Underwriters, and any action taken under this Agreement
by the Representative, will be binding on all the Underwriters.
19. PARTIAL UNENFORCEABILITY. The
invalidity or unenforceability of any section, paragraph, clause or provision of
this Agreement shall not affect the validity or enforceability of any other
section, paragraph, clause or provision hereof. If any section, paragraph,
clause or provision of this Agreement is for any reason determined to be invalid
or unenforceable, there shall be deemed to be made such minor changes (and only
such minor changes) as are necessary to make it valid and
enforceable.
20. GENERAL. This Agreement
constitutes the entire agreement of the parties to this Agreement and supersedes
all prior written or oral and all contemporaneous oral agreements,
understandings and negotiations with respect to the subject matter hereof,
including, without limitation the letter agreement dated as of October 20, 2010
between the Company and Cowen and Company, LLC. In this Agreement, the
masculine, feminine and neuter genders and the singular and the plural include
one another. The section headings in this Agreement are for the convenience of
the parties only and will not affect the construction or interpretation of this
Agreement. This Agreement may be amended or modified, and the observance of any
term of this Agreement may be waived, only by a writing signed by the Company
and the Representative.
21. COUNTERPARTS. This Agreement
may be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument.
43
If the
foregoing is in accordance with your understanding of the agreement between the
Company and the several Underwriters, kindly indicate your acceptance in the
space provided for that purpose below.
Very
truly yours,
NEOSTEM,
INC.
By: /s/ Robin L.
Smith
Name:
Robin L. Smith
Title:
Chief Executive Officer
Accepted
as of the
date
first above written:
COWEN
AND COMPANY, LLC
Acting on
its own behalf and as Representative
of the
several Underwriters referred to in the foregoing Agreement.
By: /s/ Kevin J.
Raidy
Name:
Kevin J. Raidy
Title:
Managing Director
44
SCHEDULE
I
Underwriters
|
Name
|
Number of Shares of
Stock to be Purchased
|
Number of Warrants to
be
Purchased
|
|
Cowen
and Company, LLC
|
2,933,724
|
1,466,862
|
|
Maxim
Group LLC
|
1,702,128
|
851,064
|
|
National
Securities Corporation
|
1,702,128
|
851,064
|
|
Total
|
6,337,980
|
3,168,990
|
45
SCHEDULE
II
General Use Free Writing
Prospectuses
None.
46
SCHEDULE
III
Pricing
Information
Number of
Shares Sold: 6,337,980
Number of
Warrants Sold: 3,168,990
Purchase
Price Per Unit: $1.45
Net
Proceeds to the Company: $8.5 million (excluding reimbursable
expenses)
47
Schedule
2(fff)
The
Company’s
Erye subsidiary has approved the conversion of some of Erye’s reserve capital
into registered capital. The formal process for making that conversion has not
been completed. Therefore Erye’s registered
capital has not yet been fully paid to such extent.
48
EXHIBIT
A
Form of Lock-Up
Agreement
49
EXHIBIT
B
Officers, Directors, and
Shareholders Executing Lock-Up Agreements
Drew
Bernstein
Eric H.C.
Wei
Robin L.
Smith, M.D.,
MBA
Richard
Berman
Steven S.
Myers
Edward C.
Geehr,
M.D.
Larry A.
May
Catherine
M.
Vaczy
Alan G.
Harris, M.D.,
Ph.D.
Anthony
Salerno
Teresa
Lepore
Christopher
Duignan
Madam
Zhang
Jian
Shi
Mingsheng
Peter
Sun
Daisy
Dai
Ian
Zhang
Shari
Pine
Wayne
Marasco
Jian Qian
Cai Mao
Chris
Peng Mao
Fulbright
Finance Limited
RimAsia
50
EXHIBIT
C
Form of Legal Opinion and
Negative Assurance Statement of Lowenstein Sandler PC
51
EXHIBIT
D
Form of Legal Opinion and
Negative Assurance Statement of Jun He Law Offices LLC
52
EXHIBIT
E
Form of Legal Opinion and
Negative Assurance Statement of Fuerst Ittleman PL
53
EXHIBIT
F
Form of Legal Opinion and
Negative Assurance Statement of Kenyon & Kenyon LLP
54
EXHIBIT
G
Form of Legal Opinion and
Negative Assurance Statement of Epstein Becker & Green
P.C.
55
EXHIBIT
H
Form of
Warrant
56
EXECUTION COPY
10,582,011
Convertible Preferred Shares
Warrants
to Purchase 1,322,486 Shares
164,418
Common Shares
NEOSTEM,
INC.
PLACEMENT AGENCY
AGREEMENT
November
16, 2010
COWEN AND
COMPANY, LLC
As
Representative of the several Placement Agents
1221
Avenue of the Americas
New York,
New York 10020
Dear
Sirs:
NeoStem,
Inc., a Delaware corporation (the “Company”), proposes
to sell to certain purchasers (each a “Purchaser” and
collectively, the “Purchasers”),
pursuant to the terms of this Agreement and that certain securities purchase
agreement in the form of Exhibit I attached
hereto (the “Subscription
Agreement”), (i) an aggregate of 10,582,011 shares of convertible
preferred stock, $0.01 par value (the “Preferred Stock”), of
the Company, (ii) an aggregate of 164,418 shares of common stock, $0.001
par value (the “Common
Stock”), of the Company (the “Stock”) and
(iii) warrants to purchase an aggregate of 1,322,486 shares of Common Stock
(the “Warrants”) in the
form attached hereto as Exhibit H. The shares
of Common Stock underlying the Preferred Stock are hereinafter referred to as
the “Conversion
Shares” and the shares of Common Stock underlying the Warrants are
hereinafter referred to as the “Warrant
Shares”. The Company hereby confirms that Cowen and Company,
LLC (“Cowen”)
and LifeTech Capital, a division of Aurora Capital, LLC (“LifeTech” and
together with Cowen, the “Placement Agents”)
acted as Placement Agents in the sale of the Preferred Stock, Stock and Warrants
in accordance with the terms and conditions of this Placement Agent Agreement
(this “Agreement”) and the
Subscription Agreement. Cowen is acting as representative of the
several Placement Agents and in such capacity is hereinafter referred to as the
“Representative.”
1. AGREEMENT TO ACT AS PLACEMENT
AGENTS; PLACEMENT OF SECURITIES. On
the basis of the representations, warranties and agreements of the Company
contained herein, and subject to all the terms and conditions of this
Agreement:
(a) The
Company hereby acknowledges that the Placement Agents acted as its agents to
solicit offers for the purchase of all or part of the Preferred Stock, Stock and
Warrants from the Company in connection with the proposed offering of the
Preferred Stock, Stock and Warrants (the “Offering”). Until
the Closing Date (as defined hereof), the Company shall not, without the prior
written consent of the Representative, solicit or accept offers to purchase the
Preferred Stock, Stock and Warrants otherwise than through the Placement
Agents.
1
(b) The
Company hereby acknowledges that the Placement Agents, as agents of the Company,
used its reasonable best efforts to solicit offers to purchase the Preferred
Stock, Stock and Warrants from the Company on the terms and subject to the
conditions set forth in the Prospectus (as defined below). The
Placement Agents shall use reasonable best efforts to assist the Company in
obtaining performance by each Purchaser whose offer to purchase the Preferred
Stock, Stock and Warrants was solicited by the Placement Agents and accepted by
the Company, but the Placement Agents shall not, except as otherwise provided in
this Agreement, be obligated to disclose the identity of any potential purchaser
or have any liability to the Company in the event any such purchase is not
consummated for any reason. Under no circumstances will the Placement
Agents be obligated to underwrite or purchase any Preferred Stock, Stock and
Warrants for its own account and, in soliciting purchases of Preferred Stock,
Stock and Warrants, the Placement Agents acted solely as the Company's agents
and not as principals. Notwithstanding the foregoing and except as
otherwise provided in this Section 2(b), it is
understood and agreed that the Placement Agents (or their affiliates) may,
solely at their discretion and without any obligation to do so, purchase the
Preferred Stock, Stock and Warrants as principals.
(c) Offers
for the purchase of Preferred Stock, Stock and Warrants were solicited by the
Placement Agents as agents for the Company at such times and in such amounts as
the Placement Agents deemed advisable. The Placement Agents
communicated to the Company, orally or in writing, each reasonable offer to
purchase Preferred Stock, Stock and Warrants received by them as agents of the
Company. The Company shall have the sole right to accept offers to
purchase the Preferred Stock, Stock and Warrants and may reject any such offer,
in whole or in part. The Placement Agents have the right, in their
discretion, without notice to the Company, to reject any offer to purchase
Preferred Stock, Stock and Warrants received by them, in whole or in part, and
any such rejection shall not be deemed a breach of this Agreement.
(d) The
Preferred Stock, Stock and Warrants are being sold to the Purchasers at a price
of $0.945 per unit. The purchases of the Preferred Stock, Stock and
Warrants by the Purchasers shall be evidenced by the execution of the
Subscription Agreement by each of the Purchasers and the Company.
(e) As
compensation for services rendered, on the Closing Date, the Company shall pay
or cause to be paid to the Representative on behalf of the Placement Agents by
wire transfer of immediately available funds to an account or accounts
designated by the Representative, an aggregate amount equal to seven and
one-half percent (7.5%) of the gross proceeds of the Offering.
(f) No
Preferred Stock, Stock and Warrants which the Company has agreed to sell
pursuant to this Agreement and the Subscription Agreement shall be deemed to
have been purchased and paid for, or sold by the Company, until such Preferred
Stock, Stock and Warrants shall have been delivered to the Purchaser thereof
against payment by such Purchaser. If the Company shall default in
its obligations to deliver Preferred Stock, Stock and Warrants to a Purchaser
whose offer it has accepted, the Company shall indemnify and hold the Placement
Agents harmless against any loss, claim, damage or expense arising from or as a
result of such default by the Company in accordance with the procedures set
forth herein.
2
2. REPRESENTATIONS AND WARRANTIES OF
THE COMPANY. The Company represents and warrants to the several Placement
Agents, as of the date hereof and as of the Closing Date (as defined below), and
agrees with the several Placement Agents, that:
(a) A
registration statement of the Company on Form S-3 (File No. 333-166169)
(including all pre-effective amendments thereto and all post-effective
amendments thereto filed before execution of this Agreement, the “Initial Registration
Statement”) in respect of the Preferred Stock, Stock and Warrants has
been filed with the Securities and Exchange Commission (the “Commission”) pursuant
to Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”). The
Company meets the requirements for use of Form S-3 under the Securities Act and
the rules and regulations of the Commission thereunder (the “Rules and
Regulations”). The Initial Registration Statement and any post-effective
amendment thereto, each in the form heretofore made available to you, and,
excluding exhibits thereto, to you for each of the other Placement Agents, have
been declared effective by the Commission. The proposed offering of
the Preferred Stock, Stock and Warrants may be made pursuant to General
Instruction I.B.1. of Form S-3. Other than (i) a registration statement, if
any, increasing the size of the offering filed pursuant to Rule 462(b) under the
Securities Act and the Rules and Regulations (a “Rule 462(b) Registration
Statement”) and (ii) the Prospectus (as defined below) contemplated
by this Agreement to be filed pursuant to Rule 424(b) of the Rules and
Regulations in accordance with Section 4(a)
hereof and (iii) any Issuer Free Writing Prospectus (as defined below), no
other document with respect to the offer and sale of the Preferred Stock, Stock
and Warrants has heretofore been filed with the Commission. No stop
order suspending the effectiveness of the Initial Registration Statement, any
post-effective amendment thereto or the Rule 462(b) Registration Statement, if
any, has been issued and no proceeding for that purpose or pursuant to
Section 8A of the Securities Act has been initiated or threatened by the
Commission (any preliminary prospectus included in the Initial Registration
Statement or filed with the Commission pursuant to Rule 424(a) of the Rules and
Regulations is hereinafter called a “Preliminary
Prospectus”). The various parts of the Initial Registration Statement and
the Rule 462(b) Registration Statement, if any, in each case including all
exhibits thereto and including (i) the information contained in the
Prospectus filed with the Commission pursuant to Rule 424(b) of the Rules and
Regulations and deemed by virtue of Rules 430A, 430B and 430C under the
Securities Act to be part of the Initial Registration Statement at the time it
became effective and (ii) the documents incorporated by reference in the
Rule 462(b) Registration Statement at the time the Rule 462(b) Registration
Statement became effective, are hereinafter collectively called the “Registration
Statements.” The base prospectus included in the Initial Registration
Statement at the time of effectiveness thereof (the “Base Prospectus”), as
supplemented by the final prospectus supplement relating to the offer and sale
of the Preferred Stock, Stock and Warrants, in the form filed pursuant to and
within the time limits described in Rule 424(b) under the Rules and
Regulations, is hereinafter called the “Prospectus.”
3
Any
reference herein to any Registration Statement, Base Prospectus, Preliminary
Prospectus or the Prospectus shall be deemed to refer to and include the
documents incorporated by reference therein. Any reference to any amendment or
supplement to any Preliminary Prospectus or the Prospectus shall be deemed to
refer to and include any documents filed after the date of such Preliminary
Prospectus or the Prospectus under the Securities Exchange Act of 1934, as
amended (the “Exchange
Act”), and incorporated by reference in such Preliminary Prospectus or
Prospectus, as the case may be. Any reference to any amendment to the
Registration Statements shall be deemed to refer to and include any annual
report of the Company filed pursuant to Section 13(a) or 15(d) of the
Exchange Act after the date of this Agreement that is incorporated by reference
in the Registration Statements.
(b) As
of the Applicable Time (as defined below) and as of the Closing Date, neither
(i) the General Use Free Writing Prospectus(es) (as defined below) issued
at or prior to the Applicable Time, the Pricing Prospectus (as defined below)
and the information included on Schedule II hereto,
if any, all considered together (collectively, the “General Disclosure
Package”), (ii) any individual Limited Use Free Writing Prospectus
(as defined below), nor (iii) any bona fide electronic road show (as
defined in Rule 433(h)(5) of the Rules and Regulations that has been made
available without restriction to any person), when considered together with the
General Disclosure Package, included or will include any untrue statement of a
material fact or omitted or will omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that the
Company makes no representations or warranties as to information contained in or
omitted from the Pricing Prospectus, in reliance upon, and in conformity with,
written information furnished to the Company through the Representative by or on
behalf of any Placement Agent specifically for inclusion therein, which
information the parties hereto agree is limited to the Placement Agent’s
Information as defined in Section 17. As
used in this paragraph (b) and elsewhere in this Agreement:
“Applicable Time”
means 9:00 a.m., New York time, on the date of this Agreement or such other time
as agreed to by the Company and the Representative.
“Pricing Prospectus”
means the Preliminary Prospectus, if any, and the Base Prospectus, each as
amended and supplemented immediately prior to the Applicable Time, including any
document incorporated by reference therein and any prospectus supplement deemed
to be a part thereof.
“Issuer Free Writing
Prospectus” means any “issuer free writing prospectus,” as defined in
Rule 433 of the Rules and Regulations relating to the Preferred Stock, Stock and
Warrants in the form filed or required to be filed with the Commission or, if
not required to be filed, in the form retained in the Company’s records pursuant
to Rule 433(g) of the Rules and Regulations.
“General Use Free Writing
Prospectus” means any Issuer Free Writing Prospectus that is identified
on Schedule I
to this Agreement.
“Limited Use Free Writing
Prospectuses” means any Issuer Free Writing Prospectus that is not a
General Use Free Writing Prospectus.
4
(c) No
order preventing or suspending the use of any Preliminary Prospectus, any Issuer
Free Writing Prospectus or the Prospectus relating to the proposed offering of
the Preferred Stock, Stock and Warrants has been issued by the Commission, and
no proceeding for that purpose or pursuant to Section 8A of the Securities
Act has been instituted or, to the Company's Knowledge, threatened by the
Commission, and each Preliminary Prospectus, at the time of filing thereof,
conformed in all material respects to the requirements of the Securities Act and
the Rules and Regulations, and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that the
Company makes no representations or warranties as to information contained in or
omitted from any Preliminary Prospectus, in reliance upon, and in conformity
with, written information furnished to the Company through the Representative by
or on behalf of any Placement Agent specifically for inclusion therein, which
information the parties hereto agree is limited to the Placement Agent’s
Information as defined in Section 17.
(d) At
the respective times the Registration Statements and any amendments thereto
became or become effective, at the date of this Agreement and at the Closing
Date, each Registration Statement and any amendments thereto conformed and will
conform in all material respects to the requirements of the Securities Act and
the Rules and Regulations and did not and will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; and the
Prospectus and any amendments or supplements thereto, at the time the Prospectus
or any amendment or supplement thereto was issued and at the Closing Date,
conformed and will conform in all material respects to the requirements of the
Securities Act and the Rules and Regulations and did not and will not contain an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that the foregoing
representations and warranties in this paragraph (d) shall not apply to
information contained in or omitted from the Registration Statements or the
Prospectus, or any amendment or supplement thereto, in reliance upon, and in
conformity with, written information furnished to the Company through the
Representative by or on behalf of any Placement Agent specifically for inclusion
therein, which information the parties hereto agree is limited to the Placement
Agent’s Information (as defined in Section 17).
(e) Each
Issuer Free Writing Prospectus, as of its issue date and at all subsequent times
through the completion of the public offer and sale of the Preferred Stock,
Stock and Warrants or until any earlier date that the Company notified or
notifies the Representative as described in Section 4(f),
did not, does not and will not include any information that conflicted,
conflicts or will conflict with the information contained in the Registration
Statement, Pricing Prospectus or the Prospectus, including any document
incorporated by reference therein and any prospectus supplement deemed to be a
part thereof that has not been superseded or modified, or included or would
include an untrue statement of a material fact or omitted or would omit to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances prevailing at the
subsequent time, not misleading.
5
(f) The
documents incorporated by reference in the Prospectus, when they were filed with
the Commission conformed in all material respects to the requirements of the
Securities Act or the Exchange Act, as applicable, and the rules and regulations
of the Commission thereunder and none of such documents contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and any further
documents so filed and incorporated by reference in the Prospectus, when such
documents are filed with Commission will conform in all material respects to the
requirements of the Securities Act or the Exchange Act, as applicable, and the
rules and regulations of the Commission thereunder and will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(g) The
Company has not, directly or indirectly, distributed and will not distribute any
offering material in connection with the offering and sale of the Preferred
Stock, Stock and Warrants other than any Preliminary Prospectus, the General
Disclosure Package, the Prospectus and other materials, if any, permitted under
the Securities Act and consistent with Section 4(b)
below. The Company will file with the Commission all Issuer Free Writing
Prospectuses (other than a “road show,” as described in Rule 433(d)(8) of the
Rules and Regulations) in the time and manner required under Rules 163(b)(2) and
433(d) of the Rules and Regulations.
(h) At
the time of filing the Initial Registration Statement, any 462(b) Registration
Statement and any post-effective amendments thereto, and at the date hereof, the
Company was not, and the Company currently is not, an “ineligible issuer,” as
defined in Rule 405 of the Rules and Regulations.
(i) The
Company and each of its subsidiaries (as defined in Section 15),
including the PRC Entities (as defined below), have been duly organized and are
validly existing as corporations or other legal entities in good standing (or
the foreign equivalent thereof) under the laws of their respective jurisdictions
of organization. The Company and each of its subsidiaries are duly
qualified to do business and are in good standing as foreign corporations or
other legal entities in each jurisdiction in which their respective ownership or
lease of property or the conduct of their respective businesses requires such
qualification and have all power and authority (corporate or other) necessary to
own or hold their respective properties and to conduct the businesses in which
they are engaged, except where the failure to so qualify or have such power or
authority would not (i) have, singularly or in the aggregate, a
material adverse effect on the condition (financial or otherwise), results of
operations, assets, business or prospects of the Company and its subsidiaries
taken as a whole, or (ii) impair in any material respect the ability of the
Company to perform its obligations under this Agreement or to consummate any
transactions contemplated by this Agreement, the General Disclosure Package or
the Prospectus (any such effect as described in clauses (i) or (ii), a “Material Adverse
Effect”). The Company owns or controls, directly or
indirectly, only the following corporations, partnerships, limited liability
partnerships, limited liability companies, associations or other
entities: NeoStem (China), Inc., China Biopharmaceutical Holdings,
Inc., Stem Cell Technologies, Inc., NeoStem Therapies, Inc., Qingdao Niao
Bio-Technology Ltd., Beijing Ruijieao Bio-Technology Ltd. and Suzhou Erye
Pharmaceuticals Ltd.
6
(j) This
Agreement and the Subscription Agreement have been duly authorized, executed and
delivered by the Company.
(k) The
Preferred Stock to be issued and sold by the Company to the Purchasers has been
duly and validly authorized and, when issued and delivered against payment
therefor as provided in the Subscription Agreement, will be duly and validly
issued, fully paid and nonassessable and free of any preemptive or similar
rights and will conform in all material respects to the description thereof
contained in the General Disclosure Package and the Prospectus. The
Stock to be issued and sold by the Company to the Purchasers has been duly and
validly authorized and, when issued and delivered against payment therefor as
provided in the Subscription Agreement, will be duly and validly issued, fully
paid and nonassessable and free of any preemptive or similar rights and will
conform in all material respects to the description thereof contained in the
General Disclosure Package and the Prospectus. The Warrants have been duly
authorized, and when executed and delivered by the Company, will constitute
valid and binding obligations of the Company enforceable in accordance with
their terms, except that such enforcement may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws, now or
hereafter in effect, affecting creditors’ rights generally. The Conversion
Shares have been duly authorized and reserved for issuance pursuant to the terms
of the Preferred Stock, and when issued by the Company upon valid conversion of
the Preferred Stock and payment of the exercise price, will be duly and validly
issued, fully paid and nonassessable and free of any preemptive or similar
rights and will conform in all material respects to the description thereof
contained in the General Disclosure Package and the Prospectus The
Warrant Shares have been duly authorized and reserved for issuance pursuant to
the terms of the Warrants, and when issued by the Company upon valid exercise of
the Warrants and payment of the exercise price, will be duly and validly issued,
fully paid and nonassessable and free of any preemptive or similar rights and
will conform in all material respects to the description thereof contained in
the General Disclosure Package and the Prospectus.
7
(l) The
Company has an authorized capitalization as set forth under the heading
“Description of Capital Stock” in the Pricing Prospectus, and all of the issued
shares of capital stock of the Company have been duly and validly authorized and
issued, are fully paid and non-assessable, have been issued in compliance with
federal and state securities laws, and conform to the description thereof
contained in the General Disclosure Package and the Prospectus. As of the date
of this Agreement, there were 57,613,794 shares of Common Stock issued and
outstanding and 10,000 shares of preferred stock of the Company issued and
outstanding and 30,940,242 shares of Common Stock were issuable upon the
exercise of all options, warrants and convertible securities outstanding as of
such date. All of the Company’s options, warrants and other rights to purchase
or exchange any securities for shares of the Company’s capital stock have been
duly authorized and validly issued and were issued in compliance with federal
and state securities laws. None of the outstanding shares of Common Stock was
issued in violation of any preemptive rights, rights of first refusal or other
similar rights to subscribe for or purchase securities of the Company. There are
no authorized or outstanding shares of capital stock, options, warrants,
preemptive rights, rights of first refusal or other rights to purchase, or
equity or debt securities convertible into or exchangeable or exercisable for,
any capital stock of the Company or any of its subsidiaries other than those
described above or accurately described in the General Disclosure Package. The
description of the Company’s stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted thereunder, as described
in the General Disclosure Package and the Prospectus, accurately and fairly
present the information required to be shown with respect to such plans,
arrangements, options and rights.
(m) All
the outstanding shares of capital stock (if any) of each subsidiary of the
Company have been duly authorized and validly issued, are fully paid and
nonassessable and, except to the extent set forth in the General Disclosure
Package or the Prospectus, are owned by the Company directly or indirectly
through one or more wholly-owned subsidiaries, free and clear of any claim,
lien, encumbrance, security interest, restriction upon voting or transfer or any
other claim of any third party.
(n) The
execution, delivery and performance of this Agreement by the Company, the issue and sale of
the Preferred Stock, Stock and Warrants by the Company and the consummation of
the transactions contemplated hereby will not (with or without notice or lapse
of time or both) (i) conflict with or result in a breach or violation of any of
the terms or provisions of, constitute a default or a Debt Repayment Triggering
Event (as defined below) under, give rise to any right of termination or other
right or the cancellation or acceleration of any right or obligation or loss of
a benefit under, or give rise to the creation or imposition of any lien,
encumbrance, security interest, claim or charge upon any property or assets of
the Company or any subsidiary pursuant to, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the Company or
any of its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the Company
or any of its subsidiaries is subject, (ii) result in any violation of the
provisions of the charter or by-laws (or analogous governing instruments, as
applicable) of the Company or any of its subsidiaries or (iii) result in any
violation of any law, statute, rule, regulation, judgment, order or decree of
any court or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or any of its subsidiaries or any of their
properties or assets; except in the cases of clauses (i) and (iii), to the
extent that any such conflict, breach, violation or default would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. A “Debt Repayment Triggering
Event” means any event or condition that gives, or with the giving of
notice or lapse of time would give the holder of any note, debenture or other
evidence of indebtedness (or any person acting on such holder’s behalf) the
right to require the repurchase, redemption or repayment of all or a portion of
such indebtedness by the Company of any of its subsidiaries.
8
(o) Except
for the registration of the Preferred Stock, Stock and Warrants under the
Securities Act, Exchange Act and applicable state securities laws, the Financial
Industry Regulatory Authority (“FINRA”) and the NYSE
Amex in connection with the purchase and distribution of the Preferred Stock,
Stock and Warrants by the Purchasers and the listing of the Stock, Conversion
Shares and Warrant Shares on the NYSE Amex, no consent, approval, authorization
or order of, or filing, qualification or registration (each an “Authorization”) with,
any court, governmental or non-governmental agency or body, foreign or domestic
having jurisdiction over the Company or any of its properties or assets which
has not been made, obtained or taken and is not in full force and effect, is
required for the execution, delivery and performance of this Agreement by the
Company, the offer or sale of the Preferred Stock, Stock and Warrants or the
consummation of the transactions contemplated hereby. All corporate approvals
(including those of stockholders) necessary for the Company to consummate the
transactions contemplated by this Agreement have been obtained and are in
effect.
(p) Each
of (i) Holtz Rubenstein Reminick LLP, who have audited certain financial
statements included or incorporated by reference in the Registration Statements,
the General Disclosure Package and the Prospectus, (ii) Deloitte & Touche
LLP, and (iii) EisnerAmper LLP, who have audited certain financial statements
included or incorporated by reference in the Registration Statements, the
General Disclosure Package and the Prospectus, is an independent registered
public accounting firm with respect to the entity to which such accounting firm
has provided an audit within the meaning of Article 2-01 of Regulation S-X and
the Public Company Accounting Oversight Board (United States) (the “PCAOB”).
(q) The
financial statements, together with the related notes and schedules, included or
incorporated by reference in the General Disclosure Package, the Prospectus and
in each Registration Statement fairly present the financial position and the
results of operations and changes in financial position of the Company and its
consolidated subsidiaries and other consolidated entities at the respective
dates or for the respective periods therein specified. Such statements and
related notes and schedules have been prepared in accordance with the generally
accepted accounting principles in the United States (“GAAP”) applied on a
consistent basis throughout the periods involved except as may be set forth in
the related notes included or incorporated by reference in the General
Disclosure Package. The financial statements, together with the related notes
and schedules, included or incorporated by reference in the General Disclosure
Package and the Prospectus comply as to form in all material respects with
Regulation S-X. No other financial statements or supporting schedules or
exhibits are required by Regulation S-X to be described, included or
incorporated by reference in the Registration Statements, the General Disclosure
Package or the Prospectus. The pro forma financial statements and
other pro forma financial information included or incorporated by reference in
the Registration Statement, the General Disclosure Package and the Prospectus
present fairly the information shown therein, have been prepared in accordance
with the Commission’s rules and guidelines with respect to pro forma financial
statements, have been properly compiled on the pro forma bases described
therein, and, in the opinion of the Company, the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred to
therein. The summary and selected financial data included or
incorporated by reference in the General Disclosure Package, the Prospectus and
each Registration Statement fairly present the information shown therein as at
the respective dates and for the respective periods specified and are derived
from the consolidated financial statements set forth or incorporated by
reference in the Registration Statement, the Pricing Prospectus and the
Prospectus and other financial information. All information contained in the
Registration Statement, the General Disclosure Package and the Prospectus
regarding “non-GAAP financial measures” (as defined in Regulation G) complies
with Regulation G and Item 10 of Regulations S-K, to the extent
applicable.
9
(r) Neither
the Company nor any of its subsidiaries has sustained, since the date of the
latest audited financial statements included or incorporated by reference in the
General Disclosure Package, any material loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order or
decree, otherwise than as set forth or contemplated in the General Disclosure
Package; and, since such date, there has not been any change in the capital
stock or long-term debt of the Company or any of its subsidiaries, or any
material adverse changes, or any development involving a prospective material
adverse change, in or affecting the business, assets, general affairs,
management, financial position, prospects, stockholders’ equity or results of
operations of the Company and its subsidiaries taken as a whole, otherwise than
as set forth or contemplated in the General Disclosure Package.
(s) Except
as forth in the General Disclosure Package, there is no legal or governmental
proceeding to which the Company or any of its subsidiaries is a party or of
which any property or assets of the Company or any of its subsidiaries is the
subject, including any proceeding before the United States Food and Drug
Administration of the U.S. Department of Health and Human Services (“FDA”) or comparable
federal, state, local or foreign governmental bodies, including but not limited
to the State Food and Drug Administration of China (it being understood that the
interaction between the Company and the FDA and such comparable governmental
bodies relating to the clinical development and product approval process shall
not be deemed proceedings for purposes of this representation), which is
required to be described in the Registration Statement, the General Disclosure
Package or the Prospectus or a document incorporated by reference therein and is
not described therein, or which, singularly or in the aggregate, if determined
adversely to the Company or any of its subsidiaries, could reasonably be
expected to have a Material Adverse Effect; and to the best of the Company’s
knowledge (“Knowledge”), no such
proceedings are threatened or contemplated by governmental authorities or
threatened by others. The Company is in compliance with all
applicable federal, state, local and foreign laws, regulations, orders and
decrees governing its business as prescribed by the FDA, or any other federal,
state or foreign agencies or bodies engaged in the regulation of pharmaceuticals
or biohazardous substances or materials, except where noncompliance would not,
singly or in the aggregate, have a Material Adverse Effect. All
preclinical and clinical studies conducted by or on behalf of the Company to
support approval for commercialization of the Company’s products have been
conducted by the Company, or to the Company’s knowledge by third parties, in
compliance with all applicable federal, state or foreign laws, rules, orders and
regulations, except for such failure or failures to be in compliance as could
not reasonably be expected to have, singly or in the aggregate, a Material
Adverse Effect.
10
(t) Neither
the Company nor any of its subsidiaries (i) is in violation of its charter or
by-laws (or analogous governing instrument, as applicable), (ii) is in default
in any respect, and no event has occurred which, with notice or lapse of time or
both, would constitute such a default, in the due performance or observance of
any term, covenant or condition contained in any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which it is a
party or by which it is bound or to which any of its property or assets is
subject (including, without limitation, those administered by the FDA or by any
foreign, federal, state or local governmental or regulatory authority performing
functions similar to those performed by the FDA) or (iii) is in violation in any
respect of any law, ordinance, governmental rule, regulation or court order,
decree or judgment to which it or its property or assets may be subject except,
in the case of clauses (ii) and (iii) of this paragraph (t), for any violations
or defaults which, singularly or in the aggregate, would not have a Material
Adverse Effect.
(u) The
Company possess all licenses, certificates, authorizations and permits issued
by, and have made all declarations and filings with, the appropriate local,
state, federal or foreign regulatory agencies or bodies (including, without
limitation, those administered by the FDA or by any foreign, federal, state or
local governmental or regulatory authority performing functions similar to those
performed by the FDA) which are necessary or desirable for the ownership of
their respective properties or the conduct of their respective businesses as
described in the General Disclosure Package and the Prospectus (collectively,
the “Governmental
Permits”), except where any failures to possess or make the same,
singularly or in the aggregate, would not have a Material Adverse Effect. The
Company is in compliance with all such Governmental Permits and all such
Governmental Permits are valid and in full force and effect, except, in either
case, where the validity or failure to be in full force and effect would not,
singularly or in the aggregate, have a Material Adverse Effect. The Company has
not received notification of any revocation, modification, suspension,
termination or invalidation (or proceedings related thereto) of any such
Governmental Permit and to the Knowledge of the Company, no event has occurred
that allows or results in, or after notice or lapse of time or both would allow
or result in, revocation, modification, suspension, termination or invalidation
(or proceedings related thereto ) of any such Governmental Permit. The studies,
tests and preclinical or clinical trials conducted by or on behalf of the
Company that are described in the General Disclosure Package and the Prospectus
(the “Company Studies
and Trials”) were and, if still pending, are being, conducted in all
material respects in accordance with experimental protocols, procedures and
controls pursuant to, where applicable, accepted professional scientific
standards; the descriptions of the results of the Company Studies and Trials
contained in the General Disclosure Package and Prospectus are accurate in all
material respects; and the Company has not received any notices or
correspondence from the FDA or any foreign, state or local governmental body
exercising comparable authority requiring the termination, suspension or
material modification of any Company Studies or Trials which termination,
suspension or material modification would reasonably be expected to have a
Material Adverse Effect.
11
(v) Neither
the Company nor any of its subsidiaries is, and after giving effect to the
offering of the Preferred Stock, Stock and Warrants and the application of the
proceeds thereof as described in the General Disclosure Package and the
Prospectus, will not become an “investment company” within the meaning of the
Investment Company Act of 1940, as amended, and the rules and regulations of the
Commission thereunder.
(w) Neither
the Company nor, to the Company's Knowledge, any of its officers, directors or
affiliates has taken or will take, directly or indirectly, any action designed
or intended to stabilize or manipulate the price of any security of the Company,
or which caused or resulted in, or which might in the future reasonably be
expected to cause or result in, stabilization or manipulation of the price of
any security of the Company.
(x) The
Company and its subsidiaries own or possess the valid right to use all (i) valid
and enforceable patents, patent applications, trademarks, trademark
registrations, service marks, service mark registrations, Internet domain name
registrations, copyrights, copyright registrations, licenses, trade
secret rights (“Intellectual Property
Rights”) and (ii) inventions, software, works of authorships, trade
marks, service marks, trade names, databases, formulae, know how, Internet
domain names and other intellectual property (including trade secrets and other
unpatented and/or unpatentable proprietary confidential information, systems, or
procedures) (collectively, "Intellectual Property
Assets") necessary to conduct their respective businesses as currently
conducted, and as proposed to be conducted and described in the General
Disclosure Package and the Prospectus. The Company and its
subsidiaries have not received any opinion from their legal counsel concluding
that any activities of their respective businesses infringe, misappropriate, or
otherwise violate, valid and enforceable Intellectual Property Rights of any
other person, and, except as set forth in the General Disclosure Package and the
Prospectus, have not received written notice of any challenge, which is to their
Knowledge still pending, by any other person to the rights of the Company and
its subsidiaries with respect to any Intellectual Property Rights or
Intellectual Property Assets owned or used by the Company or its
subsidiaries. To the Knowledge of the Company, except as described in
the Registration Statement, the General Disclosure Package and the Prospectus,
the Company and its subsidiaries’ respective businesses as now conducted do not
give rise to any infringement of, any misappropriation of, or other violation
of, any valid and enforceable Intellectual Property Rights of any other
person. All licenses for the use of the Intellectual Property Rights
described in the General Disclosure Package and the Prospectus are valid,
binding upon, and enforceable by or against the parties thereto in accordance to
its terms. The Company has complied in all material respects with,
and is not in breach nor has received any asserted or threatened claim of breach
of any Intellectual Property license that has not been resolved, and to the
Knowledge of the Company there has been no unresolved breach or anticipated
breach by any other person to any Intellectual Property license, except where
such breach, singularly or in the aggregate, would not have a Material Adverse
Effect. Except as described in the General Disclosure Package, to the
Knowledge of the Company there are no unresolved claims against the Company
alleging the infringement by the Company of any patent, trademark, service mark,
trade name, copyright, trade secret, license in or other intellectual property
right or franchise right of any person, except to the extent that any such claim
does not have a Material Adverse Effect. The Company has taken
reasonable steps to protect, maintain and safeguard its Intellectual Property
Rights, including the execution of appropriate nondisclosure and confidentiality
agreements. The consummation of the transactions contemplated by this
Agreement will not result in the loss or impairment of or payment of any
additional amounts with respect to, nor require the consent of any other person
in respect of, the Company's right to own, use, or hold for use any of the
Intellectual Property Rights as owned, used or held for use in the conduct of
the business as currently conducted. The Company has taken the
necessary actions to obtain ownership of all works of authorship and inventions
made by its employees, consultants and contractors during the time they were
employed by or under contract with the Company and which relate to the Company’s
business. All key employees have signed confidentiality and invention assignment
agreements with the Company.
12
(y) The
Company and each of its subsidiaries have good and marketable title in fee
simple to, or have valid rights to lease or otherwise use, all items of real or
personal property which are material to the business of the Company and its
subsidiaries taken as a whole, in each case free and clear of all liens,
encumbrances, security interests, claims and defects that do not, singularly or
in the aggregate, materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company or any of its subsidiaries; and all of the leases and subleases material
to the business of the Company and its subsidiaries, considered as one
enterprise, and under which the Company or any of its subsidiaries holds
properties described in the General Disclosure Package and the Prospectus, are
in full force and effect, and neither the Company nor any subsidiary has any
notice of any material claim of any sort that has been asserted by anyone
adverse to the rights of the Company or any subsidiary under any of the leases
or subleases mentioned above, or affecting or questioning the rights of the
Company or such subsidiary to the continued possession of the leased or
subleased premises under any such lease or sublease.
(z) There
is (A) no significant unfair labor practice complaint pending against the
Company, or any of its subsidiaries, nor to the Knowledge of the Company,
threatened against it or any of its subsidiaries, before the National Labor
Relations Board, any state or local labor relation board or any foreign labor
relations board, and no significant grievance or significant arbitration
proceeding arising out of or under any collective bargaining agreement is so
pending against the Company or any of its subsidiaries, or, to the Knowledge of
the Company, threatened against it and (B) no labor disturbance by the employees
of the Company or any of its subsidiaries exists or, to the Company’s Knowledge,
is imminent, and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its or its subsidiaries principal
suppliers, manufacturers, customers or contractors, that could reasonably be
expected, singularly or in the aggregate, to have a Material Adverse
Effect. The Company is not aware that any key employee or significant
group of employees of the Company or any subsidiary plans to terminate
employment with the Company or any such subsidiary.
13
(aa) No
“prohibited transaction” (as defined in Section 406 of the Employee Retirement
Income Security Act of 1974, as amended, including the regulations and published
interpretations thereunder (“ERISA”), or Section
4975 of the Internal Revenue Code of 1986, as amended from time to time (the
“Code”)) or
“accumulated funding deficiency” (as defined in Section 302 of ERISA) or any of
the events set forth in Section 4043(b) of ERISA (other than events with respect
to which the thirty (30)-day notice requirement under Section 4043 of ERISA has
been waived) has occurred or could reasonably be expected to occur with respect
to any employee benefit plan of the Company or any of its subsidiaries which
could, singularly or in the aggregate, have a Material Adverse
Effect. Each employee benefit plan of the Company or any of its
subsidiaries is in compliance in all material respects with applicable law,
including ERISA and the Code. The Company and its subsidiaries have not incurred
and could not reasonably be expected to incur liability under Title IV of ERISA
with respect to the termination of, or withdrawal from, any pension plan (as
defined in ERISA). Each pension plan for which the Company or any of
its subsidiaries would have any liability that is intended to be qualified under
Section 401(a) of the Code is so qualified, and nothing has occurred, whether by
action or by failure to act, which could, singularly or in the aggregate, cause
the loss of such qualification.
(bb) The
Company and its subsidiaries are in compliance with all foreign, federal, state
and local rules, laws and regulations relating to the use, treatment, storage
and disposal of hazardous or toxic substances or waste and protection of health
and safety or the environment which are applicable to their businesses (“Environmental Laws”),
except where such non-compliance with Environmental Laws would not, individually
or in the aggregate, result in a Material Adverse Effect. There has
been no storage, generation, transportation, handling, treatment, disposal,
discharge, emission, or other release of any kind of toxic or other wastes or
other hazardous substances by, due to, or caused by the Company or any of its
subsidiaries (or, to the Company’s Knowledge, any other entity for whose acts or
omissions the Company or any of its subsidiaries is or may otherwise be liable)
upon any of the property now or previously owned or leased by the Company or any
of its subsidiaries, or upon any other property, in violation of any law,
statute, ordinance, rule, regulation, order, judgment, decree or permit or which
would, under any law, statute, ordinance, rule (including rule of common law),
regulation, order, judgment, decree or permit, give rise to any liability,
except where such non-compliance with such laws, failure to receive required
permits, licenses or other approvals or failure to comply with the terms of such
permits, licenses or approvals would not, individually or in the aggregate,
result in a Material Adverse Effect; and there has been no disposal, discharge,
emission or other release of any kind onto such property or into the environment
surrounding such property of any toxic or other wastes or other hazardous
substances with respect to which the Company or any of its subsidiaries has
knowledge. In the ordinary course of business, the Company and its
subsidiaries conduct periodic reviews of the effect of Environmental Laws on
their business and assets, in the course of which they identify and evaluate
associated costs and liabilities (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or Governmental Permits issued thereunder,
any related constraints on operating activities and any potential liabilities to
third parties). On the basis of such reviews, the Company has
reasonably concluded that such associated costs and liabilities would not have,
singularly or in the aggregate, a Material Adverse Effect.
14
(cc) The
Company and its subsidiaries (other than the PRC Entities) each (i) have timely
filed all necessary federal, state, local and foreign tax returns, and all such
returns were true, complete and correct, (ii) have paid all federal, state,
local and foreign taxes, assessments, governmental or other charges due and
payable for which it is liable, including, without limitation, all sales and use
taxes and all taxes which the Company or any of its subsidiaries is obligated to
withhold from amounts owing to employees, creditors and third parties, and (iii)
do not have any tax deficiency or claims outstanding or assessed or, to its
Knowledge, proposed against any of them, except those, in each of the cases
described in clauses (i), (ii) and (iii) of this paragraph (cc), that would not,
singularly or in the aggregate, have a Material Adverse Effect. The
Company and its subsidiaries have not engaged in any transaction which is a
corporate tax shelter or which could be characterized as such by the Internal
Revenue Service or any other taxing authority. The accruals and
reserves on the books and records of the Company and its subsidiaries in respect
of tax liabilities for any taxable period not yet finally determined are
adequate to meet any assessments and related liabilities for any such period,
and since December 31, 2009 the Company and its subsidiaries have not incurred
any liability for taxes other than in the ordinary course.
(dd) The
Company and each of its subsidiaries carry, or are covered by, insurance in such
amounts and covering such risks as is customary for companies engaged in similar
businesses in similar industries. Neither the Company nor any of its
subsidiaries has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect. All
policies of insurance owned by the Company or any of its subsidiaries are, to
the Company’s Knowledge, in full force and effect and the Company and its
subsidiaries are in compliance with the terms of such
policies. Neither the Company nor any of its subsidiaries has
received written notice from any insurer, agent of such insurer or the broker of
the Company or any of its subsidiaries that any material capital improvements or
any other material expenditures (other than premium payments) are required or
necessary to be made in order to continue such insurance. None of the
Company or any of its subsidiaries insures risk of loss through any captive
insurance, risk retention group, reciprocal group or by means of any fund or
pool of assets specifically set aside for contingent liabilities other than as
described in the General Disclosure Package.
(ee) The
Company and, except as set forth in the General Disclosure Package and the
Prospectus, each of its subsidiaries maintains a system of internal control over
financial reporting (as such term is defined in Rule 13a-15 of the General Rules
and Regulations under the Exchange Act (the “Exchange Act Rules”))
that complies with the requirements of the Exchange Act and has been designed by
the Company’s principal executive officer and principal financial officer, or
under their supervision, to provide reasonable assurances that
(i) transactions are executed in accordance with management’s general or
specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP and to
maintain accountability for assets; (iii) access to assets is permitted
only in accordance with management’s general or specific authorization; and
(iv) the recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken with respect to
any differences. Except as described in the General Disclosure Package, since
the end of the Company’s most recent audited fiscal year, there has been
(A) no material weakness in the Company’s internal control over financial
reporting (whether or not remediated) and (B) no change in the Company’s
internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting. The Company’s internal control over financial reporting is,
or upon consummation of the offering of the Preferred Stock, Stock and Warrants
will be, overseen by the Audit Committee of the Board of Directors of the
Company (the “Audit
Committee”) in accordance with the Exchange Act Rules.
15
(ff) [Intentionally
Omitted.]
(gg) The
Company and each of its subsidiaries have made and keep books, records and
accounts, which, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company and its subsidiaries
in all material respects.
(hh) The
Company maintains disclosure controls and procedures (as such is defined in Rule
13a-15 of the Exchange Act Rules) that comply with the requirements of the
Exchange Act; such disclosure controls and procedures have been designed to
ensure that information required to be disclosed by the Company is accumulated
and communicated to the Company’s management, including the Company’s principal
executive officer and principal financial officer by others within those
entities, such disclosure controls and procedures are effective in all material
respects to perform the functions for which they were established.
(ii) The
minute books of the Company have been made available to the Placement Agents and
counsel for the Placement Agents, and such books (i) contain or will contain as
of the Closing Date a complete summary of all meetings and actions of the board
of directors (including each board committee) and shareholders of the Company
(or analogous governing bodies and interest holders, as applicable), since
January 1, 2007 through the date of the latest meeting and action, and (ii)
accurately in all material respects reflect all transactions referred to in such
minutes.
(jj) There
is no franchise agreement, lease, contract, or other agreement or document
required by the Securities Act or by the Rules and Regulations to be described
in the General Disclosure Package and in the Prospectus or a document
incorporated by reference therein or to be filed as an exhibit to the
Registration Statements or a document incorporated by reference therein which is
not so described or filed therein as required; and all descriptions of any such
franchise agreements, leases, contracts, or other agreements or documents
contained in the General Disclosure Package and in the Prospectus or in a
document incorporated by reference therein are accurate and complete
descriptions of such documents in all material respects. Other than as described
in the General Disclosure Package, no such franchise agreement, lease, contract
or other agreement has been suspended or terminated for convenience or default
by the Company or any of the other parties thereto, and neither the Company nor
any of its subsidiaries has received notice of and the Company does not have
Knowledge of any such pending or threatened suspension or termination except for
such suspensions or terminations or pending or threatened suspensions or
terminations that would not reasonably be expected to, singularly or in the
aggregate, have a Material Adverse Effect.
16
(kk) No
relationship, direct or indirect, exists between or among the Company on the one
hand, and the directors, officers, stockholders (or analogous interest holders),
customers or suppliers of the Company or any of its affiliates on the other
hand, which is required to be described in the General Disclosure Package and
the Prospectus or a document incorporated by reference therein and which is not
so described.
(ll) Except
as set forth in the General Disclosure Package and the Prospectus, no person or
entity has the right to require registration of shares of Common Stock or other
securities of the Company or any of its subsidiaries because of the filing or
effectiveness of the Registration Statements or otherwise, except for persons
and entities who have expressly waived such right in writing or who have been
given timely and proper written notice and have failed to exercise such right
within the time or times required under the terms and conditions of such
right. There are no persons with registration rights or similar
rights to have any securities registered by the Company or any of its
subsidiaries under the Securities Act, except where the failure to so register
would not be expected to, singularly or in the aggregate, have a Material
Adverse Effect.
(mm) Neither
the Company nor any of its subsidiaries own any “margin securities” as that term
is defined in Regulation U of the Board of Governors of the Federal Reserve
System (the “Federal
Reserve Board”), and none of the proceeds of the sale of the Preferred
Stock, Stock and Warrants will be used, directly or indirectly, for the purpose
of purchasing or carrying any margin security, for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or carry any
margin security or for any other purpose which might cause any of the Preferred
Stock, Stock or Warrants to be considered a “purpose credit” within the meanings
of Regulation T, U or X of the Federal Reserve Board.
(nn) Neither
the Company nor any of its subsidiaries is a party to any contract, agreement or
understanding with any person that would give rise to a valid claim against the
Company or the Placement Agents for a brokerage commission, finder’s fee or like
payment in connection with the offering and sale of the Preferred Stock, Stock
and Warrants or any transaction contemplated by this Agreement, the Registration
Statements, the General Disclosure Package or the Prospectus.
(oo) All
grants of options were validly issued and properly approved by the board of
directors of the Company (or a duly authorized committee thereof) in material
compliance with all applicable laws and regulations and recorded in the
Company’s financial statements in accordance with GAAP.
(pp) Except
as described in the General Disclosure Package and the Prospectus, no subsidiary
of the Company is currently prohibited, directly or indirectly, under any
agreement or other instrument to which it is a party or is subject, from paying
any dividends to the Company, from making any other distribution on such
subsidiary’s capital stock, from repaying to the Company any loans or advances
to such subsidiary from the Company or from transferring any of such
subsidiary’s properties or assets to the Company or any other subsidiary of the
Company.
17
(qq) Since
the date as of which information is given in the General Disclosure Package and
the Prospectus through the date hereof, and except as set forth in the Pricing
Prospectus, neither the Company nor any of its subsidiaries has (i) issued
or granted any securities other than options to purchase common stock pursuant
to the Company’s stock option plan or securities issued upon exercise of stock
options in the ordinary course of business, (ii) incurred any material
liability or obligation, direct or contingent, other than liabilities and
obligations which were incurred in the ordinary course of business,
(iii) entered into any material transaction other than in the ordinary
course of business or (iv) declared or paid any dividend on its capital
stock.
(rr) If
applicable, all of the information provided to the Placement Agents or to
counsel for the Placement Agents by the Company, its officers and directors and
the holders of any securities (debt or equity) or options to acquire any
securities of the Company in connection with letters, filings or other
supplemental information provided to FINRA pursuant to FINRA Rule 5110 is true,
correct and complete in all material respects.
(ss) The
Company is not a Passive Foreign Investment Company (“PFIC”) within the meaning
of Section 1296 of the United States Internal Revenue Code of 1966, and the
Company is not likely to become a PFIC.
(tt) No
forward-looking statement (within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act) contained in either the
General Disclosure Package or the Prospectus has been made or reaffirmed without
a reasonable basis or has been disclosed other than in good faith.
(uu) The
Company is subject to and in compliance in all material respects with the
reporting requirements of Section 13 or Section 15(d) of the Exchange
Act. The Common Stock is registered pursuant to Section 12(b) or 12(g) of
the Exchange Act and is listed on the NYSE Amex (the “Exchange”), and
except as described in the General Disclosure Package, the Company has taken no
action designed to, or reasonably likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or delisting the Common
Stock from the Exchange, nor has the Company received any notification that the
Commission or the Financial Industry Regulatory Authority (“FINRA”) is
contemplating terminating such registration or listing. The Company has filed a
notification of the listing of the Stock, Conversion Shares and Warrant Shares
on the NYSE Amex.
(vv) Except
as disclosed in the Registration Statements, the General Disclosure Package and
the Prospectus, the Company is in compliance in all material respects with all
applicable provisions of the Sarbanes-Oxley Act of 2002 and all rules and
regulations promulgated thereunder or implementing the provisions thereof (the
“Sarbanes-Oxley
Act”) that are in effect.
18
(ww) The
Company is in compliance in all material respects with all applicable corporate
governance requirements set forth in the rules of the Exchange that are in
effect.
(xx) Neither
the Company nor any of its subsidiaries nor, to the Company’s
Knowledge, any employee or agent of the Company or any subsidiary, has (i) used
any corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, (ii) made any unlawful payment
to foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns from corporate funds, (iii) violated any
provision of the Foreign Corrupt Practices Act of 1977, as amended or (iv) made
any other unlawful payment.
(yy) There
are no transactions, arrangements or other relationships between and/or among
the Company, any of its affiliates (as such term is defined in Rule 405 of the
Rules and Regulations) and any unconsolidated entity, including, but not limited
to, any structured finance, special purpose or limited purpose entity that could
reasonably be expected to materially affect the Company’s liquidity or the
availability of or requirements for its capital resources required to be
described in the General Disclosure Package and the Prospectus or a document
incorporated by reference therein which have not been described as
required.
(zz) There
are no outstanding loans, advances (except normal advances for business expenses
in the ordinary course of business) or guarantees of indebtedness by the Company
or any of its subsidiaries to or for the benefit of any of the officers or
directors of the Company, any of its subsidiaries or any of their respective
family members, except as disclosed in the Registration Statements, the General
Disclosure Package and the Prospectus. All transactions by the
Company with office holders or control persons of the Company have been duly
approved by the board of directors of the Company, or duly appointed committees
or officers thereof, if and to the extent required under U.S. law.
(aaa) The
statistical and market related data included in the Registration Statement, the
General Disclosure Package and the Prospectus are based on or derived from
sources that the Company believes to be reliable and accurate in all material
respects, and such data agree in all material respects with the sources from
which they are derived.
(bbb) The
operations of the Company and its subsidiaries are and have been conducted at
all times in compliance with applicable financial recordkeeping and reporting
requirements of the Currency and Foreign Transactions Reporting Act of 1970, as
amended, applicable money laundering statutes and applicable rules and
regulations thereunder (collectively, the “Money Laundering
Laws”), and no action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the Company
or any of its subsidiaries with respect to the Money Laundering Laws is pending,
or to the Company’s Knowledge, threatened.
19
(ccc) Neither
the Company nor any of its subsidiaries nor, to the Company’s Knowledge, any
director, officer, agent, employee or affiliate of the Company or any of its
subsidiaries is currently subject to any U.S. sanctions administered by the
Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”); and the
Company will not directly or indirectly use the proceeds of the offering, or
lend, contribute or otherwise make available such proceeds to any subsidiary,
joint venture partner or other person or entity, for the purpose of financing
the activities of any person currently subject to any U.S. sanctions
administered by OFAC.
(ddd) Neither
the Company nor, to the Company’s Knowledge, any of its affiliates (within the
meaning of NASD Conduct Rule 2720(b)(1)(a)) directly or indirectly controls, is
controlled by, or is under common control with, or is an associated person
(within the meaning of Article I, Section 1(ee) of the By-laws of FINRA)
of, any member firm of FINRA.
(eee) The
Company conducts a substantial portion of its operations and generates
substantially all of its revenue through (i) NeoStem (China), Inc., a wholly
foreign-owned enterprise formed under the laws of the People’s Republic of China
(the “PRC”)
(“NeoStem
China”), (ii) Qingdao Niao Bio-Technology Ltd., a company formed under
the laws of the PRC (“Qingdao”), (iii)
Beijing Ruijieao Bio-Technology Ltd., a company formed under the laws of the PRC
(“Beijing” and
together with Qingdao, the “PRC VIEs”), and (iv)
Suzhou Erye Pharmaceuticals Ltd., a joint venture formed under the laws of the
PRC (the “JV”).
The NeoStem China, the PRC VIEs and the JV are collectively referred to
hereinafter as the “PRC
Entities.”
(fff) Each
PRC Entity has applied for and obtained all requisite business licenses,
clearance and permits required under PRC law as necessary for the conduct of its
businesses in all material respects, and each PRC Entity has complied in all
material respects with all PRC Laws in connection with foreign exchange,
including without limitation, carrying out all relevant filings, registrations
and applications for relevant permits with the PRC State Administration of
Foreign Exchange and any other relevant authorities, and all such permits are
validly subsisting. Except as set forth on Schedule 2(fff), the
registered capital of each PRC Entity has been fully paid up in accordance with
the schedule of payment stipulated in its respective articles of association,
approval document, certificate of approval and legal person business license
(hereinafter referred to as the “Establishment
Documents”) and in compliance in all material respects with PRC laws and
regulations, and there is no outstanding capital contribution commitment for any
PRC Entity. The Establishment Documents of the PRC Entities have been duly
approved in accordance with the laws of the PRC and are valid and enforceable.
The business scope specified in the Establishment Documents of each PRC Entity
complies in all material respects with the requirements of all relevant PRC laws
and regulations. The outstanding equity interests of each PRC Entity is owned by
the respective entities or individuals identified as the registered holders
thereof in the Registration Statement, the General Disclosure Package and the
Prospectus.
20
(ggg) Except
as disclosed in the Registration Statement, the General Disclosure Package and
the Prospectus, no consents, approvals, authorizations, orders, registrations,
clearances, certificates, franchises, licenses, permits or qualifications of or
with any PRC governmental agency are required for the Company’s or its
affiliates’ or subsidiaries’ contractual arrangements and agreements with the
PRC VIEs and their registered equity holders (the “VIE Structure”) or
the execution, delivery and performance of such contractual arrangements and
agreements (the “VIE
Structuring Documents”) except where the failure to obtain such consents,
approvals, authorizations, orders, registrations, clearances, certificates,
franchises, licenses, permits or qualifications would not, singularly or in the
aggregate, have a Material Adverse Effect. None of the VIE
Structuring Documents has been revoked and no such revocation is pending or, to
the Company’s Knowledge, threatened. Except as set forth in the General
Disclosure Package and the Prospectus, each of the VIE Structuring Documents has
been entered into prior to the date thereof in compliance in all material
respects with all applicable laws and regulations and constitutes a valid and
legally binding agreement, enforceable in accordance with its
terms.
(hhh) Except
as disclosed in the Registration Statement, the General Disclosure Package and
the Prospectus, the VIE Structure and the execution, delivery and performance of
the VIE Structuring Documents and the consummation of the transactions
contemplated thereby did not and do not (i) conflict with, or result in a breach
or violation of any of the terms and provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which any PRC Entity is a party or by which any PRC Entity is
bound or by which any of the properties or assets of any PRC Entity is subject,
(ii) violate or conflict with the Establishment Documents of any PRC Entity, or
(iii) violate or conflict with any applicable laws, regulations, rules, orders,
decrees, guidelines, notices or other legislation of the PRC, except, in the
case of clauses (i) and (iii) of this paragraph (hhh), for any violations or
defaults which, singularly or in the aggregate, would not have a Material
Adverse Effect.
(iii) Except
as set forth in the General Disclosure Package and the Prospectus, the VIE
Structure complies, and immediately following the consummation of the offering
and sale of the Preferred Stock, Stock and Warrants will comply, in all material
respects with all applicable laws, regulations, rules, orders, decrees,
guidelines, notices or other legislation of the PRC; the VIE Structure has not
been challenged by any PRC governmental agency and there are no legal,
arbitration, governmental or other proceedings (including, without limitation,
governmental investigations or inquiries) pending before or, to the Company’s
knowledge, threatened or contemplated by any PRC governmental agency in respect
of the VIE Structure; and the Company reasonably believes that after the
consummation of the offering and sale of the Preferred Stock, Stock and
Warrants, the VIE Structure will not be challenged by any PRC governmental
agency.
(jjj) The
Company possesses, directly or indirectly, the power to direct, or cause the
direction of, the management and policies of the PRC VIEs.
(kkk) Except
as set forth in the Registration Statement, the General Disclosure Package and
the Prospectus, no PRC Entity is currently prohibited, directly or indirectly,
from paying any dividends to the Company (or the Company’s subsidiary that holds
the outstanding equity interest of such PRC Entity), and no PRC VIE is currently
prohibited, directly or indirectly, from paying any of its obligations set forth
in the VIE Structuring Documents. No PRC Entity is prohibited, directly or
indirectly, from making any other distribution on such PRC Entity’s equity
capital, from repaying to the Company any loans or advances to such PRC Entity
from the Company or any of the Company’s subsidiaries.
21
(lll) None
of the PRC Entities nor any of their properties, assets or revenues are entitled
to any right of immunity on the grounds of sovereignty from any legal action,
suit or proceeding, from set-off or counterclaim, from the jurisdiction of any
court, from services of process, from attachment prior to or in aid of execution
of judgment, or from any other legal process or proceeding for the giving of any
relief or for the enforcement of any judgment.
(mmm) In
connection with the offering contemplated by this Agreement, it is not necessary
that this Agreement, the Registration Statement, the General Disclosure Package,
the Prospectus or any other document be filed or recorded with any governmental
agency, court or other authority in the PRC.
(nnn) No
transaction, stamp, capital or other issuance, registration, transaction,
transfer or withholding taxes or duties are payable in the PRC by or on behalf
of the Placement Agents to any PRC taxing authority in connection with (i) the
issuance, sale and delivery of the Preferred Stock, Stock and Warrants by the
Company and the delivery of the Preferred Stock, Stock and Warrants to or for
the account of the Placement Agents, (ii) the purchase from the Company and the
initial sale and delivery by the Placement Agents of the Preferred Stock, Stock
and Warrants to purchasers thereof, or (iii) the execution and delivery of this
Agreement.
(ooo) Except
as disclosed in the Registration Statement, the General Disclosure Package and
the Prospectus, the Company has taken all steps reasonably necessary to comply
with any applicable rules and regulations of the PRC State Administration of
Foreign Exchange of the PRC (the “SAFE Rules and
Regulations”).
(ppp) The
Company is aware of, and has been advised as to, the content of the Rules on
Mergers and Acquisitions of Domestic Enterprises by Foreign Investors jointly
promulgated on August 8, 2006 by the PRC Ministry of Commerce, the PRC State
Assets Supervision and Administration Commission, the PRC State Administration
of Taxation, the PRC State Administration of Industry and Commerce, the China
Securities Regulatory Commission (“CSRC”) and the PRC
State Administration of Foreign Exchange of the PRC (the “M&A Rules”), in
particular the relevant provisions thereof that purport to require offshore
special purpose vehicles controlled directly or indirectly by PRC-incorporated
companies or PRC residents and established for the purpose of obtaining a stock
exchange listing outside of the PRC to obtain the approval of the CSRC prior to
the listing and trading of their securities on any stock exchange located
outside of the PRC. The Company has received legal advice specifically with
respect to the M&A Rules from its PRC counsel and the Company understands
such legal advice. In addition, the Company has communicated such legal advice
in full to each of its directors that signed the Registration Statement and each
such director has confirmed that he or she understands such legal
advice.
22
(qqq) The
issuance and sale of the Preferred Stock, Stock and Warrants, the listing and
trading of the Stock, Conversion Shares and Warrant Shares on NYSE
Amex and the consummation of the transactions contemplated by this Agreement,
the Registration Statement, the General Disclosure Package and the Prospectus
are not and will not be, as of the date hereof and on the Closing Date, affected
by the M&A Rules or any official clarifications, guidance, interpretations
or implementation rules in connection with or related to the M&A Rules,
including the guidance and notices issued by the CSRC on September 8 and
September 21, 2006 (together with the M&A Rules, the “M&A Rules and Related
Clarifications”).
(rrr) The
Company has taken all necessary steps to ensure compliance by each of its
stockholders, option holders, directors, officers and employees that is, or is
directly or indirectly owned or controlled by, a PRC resident or citizen with
any applicable rules and regulations of the relevant PRC government agencies
(including but not limited to the PRC Ministry of Commerce, the PRC National
Development and Reform Commission and the PRC State Administration of Foreign
Exchange) relating to overseas investment by PRC residents and citizens (the
“PRC Overseas
Investment and Listing Regulations”), including, requesting each
stockholder, option holder, director, officer, employee and participant that is,
or is directly or indirectly owned or controlled by, a PRC resident or citizen
to complete any registration and other procedures required under applicable PRC
Overseas Investment and Listing Regulations.
(sss) As
of the date hereof, the M&A Rules and Related Clarifications do not require
the Company to obtain the approval of the CSRC prior to the issuance and sale of
the Preferred Stock, Stock and Warrants, the listing and trading of the Stock,
Conversion Shares and Warrant Shares on the NYSE Amex, or the consummation of
the transactions contemplated by this Agreement, the Registration Statement, the
General Disclosure Package or the Prospectus.
(ttt) Each
of the PRC Entities is in compliance with all requirements under all applicable
PRC laws and regulations to qualify in all material respects for their
exemptions from enterprise income tax or other income tax benefits (the “Tax Benefits”) as
described in the Registration Statement, the General Disclosure Package and the
Prospectus, and the actual operations and business activities of each such PRC
Entity are sufficient to meet the qualifications for the Tax Benefits. No
submissions made to any PRC government authority in connection with obtaining
the Tax Benefits contained any misstatement or omission that would have affected
the granting of the Tax Benefits. No PRC Entity has received notice of any
deficiency in its respective applications for the Tax Benefits, and the Company
is not aware of any reason why any such PRC Entity might not qualify for, or be
in compliance with the requirements for, the Tax Benefits.
(uuu) Except
as disclosed in the Registration Statement, the General Disclosure Package and
the Prospectus, all local and national PRC governmental tax holidays,
exemptions, waivers, financial subsidies, and other local and national PRC tax
relief, concessions and preferential treatment enjoyed by any PRC Entity as
described in the Registration Statement, the General Disclosure Package and the
Prospectus are valid, binding and enforceable and do not violate any laws,
regulations, rules, orders, decrees, guidelines, judicial interpretations,
notices or other legislation of the PRC.
23
(vvv) The
Placement Agents will not be deemed to be resident, domiciled, carrying on
business or subject to taxation in the PRC solely by reason of their execution,
delivery, performance or enforcement of, or the consummation of any transaction
contemplated by, this Agreement, the Registration Statement, the General
Disclosure Package or the Final Prospectus.
Any certificate signed by or on behalf of the Company and delivered to the
Representative or to counsel for the Placement Agents shall be deemed to be a
representation and warranty by the Company to each Placement Agent as to the
matters covered thereby.
3. PURCHASE, SALE AND DELIVERY OF
OFFERED SECURITIES. On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to deliver to the Purchasers (i) the Stock through the
facilities of The Depository Trust Company, (ii) the Preferred Stock in
physical, certificated form, and (iii) the Warrants in physical, certificated
form, each issued in such names and in such denominations as the Representative
may direct by notice in writing to the Company given at or prior to 12:00 Noon,
New York time, on the second (2nd) full business day preceding the Closing Date
against payment by the Purchasers of the aggregate purchase price therefor at
the offices of Goodwin Procter LLP, The New York Times Building, 620 Eighth
Avenue, New York, New York. Time shall be of the essence, and delivery at the
time and place specified pursuant to this Agreement is a further condition of
the obligations of each Placement Agent hereunder. The time and date of the
delivery and closing shall be at 10:00 a.m., New York time, on November 19,
2010, in accordance with Rule 15c6-1 of the Exchange Act. The time and date of
such payment and delivery are herein referred to as the “Closing Date”. The
Closing Date and the location of delivery of, and the form of payment for, the
Preferred Stock, Stock and Warrants may be varied by agreement between the
Company and the Representative.
24
4. FURTHER AGREEMENTS OF THE
COMPANY. The Company agrees with the several Placement
Agents:
(a) To
prepare the Rule 462(b) Registration Statement, if necessary, in a form approved
by the Representative and file such Rule 462(b) Registration Statement with the
Commission by 10:00 p.m., New York time, on the date hereof, and the Company
shall at the time of filing either pay to the Commission the filing fee for the
Rule 462(b) Registration Statement or give irrevocable instructions for the
payment of such fee pursuant to Rule 111(b) under the Rules and Regulations; to
prepare the Prospectus in a form approved by the Representative containing
information previously omitted at the time of effectiveness of the Registration
Statement in reliance on Rules 430A, 430B or 430C of the Rules and Regulations
and to file such Prospectus pursuant to Rule 424(b) of the Rules and Regulations
not later than the second business (2nd) day following the execution and
delivery of this Agreement or, if applicable, such earlier time as may be
required by Rule 430A of the Rules and Regulations; prior to the expiration of
the Prospectus Delivery Period (as defined below), to notify the Representative
immediately of the Company’s intention to file or prepare any supplement or
amendment to any Registration Statement or to the Prospectus and to make no
amendment or supplement to the Registration Statements, the General Disclosure
Package or to the Prospectus to which the Representative shall reasonably object
by notice to the Company after a reasonable period to review; prior to the
expiration of the Prospectus Delivery Period, to advise the Representative,
promptly after it receives notice thereof, of the time when any amendment to any
Registration Statement has been filed or becomes effective or any supplement to
the General Disclosure Package or the Prospectus or any amended Prospectus has
been filed and to furnish the Placement Agents with copies thereof; to file
promptly all material required to be filed by the Company with the Commission
pursuant to Rules 433(d) or 163(b)(2) of the Rules and Regulations, as the case
may be; to file promptly all reports and any definitive proxy or information
statements required to be filed by the Company with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the
date of the Prospectus and for so long as the delivery of a prospectus (or in
lieu thereof, the notice referred to in Rule 173(a) of the Rules and
Regulations) is required in connection with the offering or sale of the
Preferred Stock, Stock and Warrants (the “Prospectus Delivery
Period”); prior to the expiration of the Prospectus Delivery Period, to
advise the Representative, promptly after it receives notice thereof, of the
issuance by the Commission of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus, any Issuer Free Writing
Prospectus or the Prospectus, of the suspension of the qualification of the
Preferred Stock, Stock and Warrants for offering or sale in any jurisdiction, of
the initiation or threatening of any proceeding for any such purpose, or of any
request by the Commission for the amending or supplementing of the Registration
Statements, the General Disclosure Package or the Prospectus or for additional
information; and, in the event of the issuance of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus, any Issuer Free
Writing Prospectus or the Prospectus or suspending any such qualification, and
promptly to use its reasonable best efforts to obtain the withdrawal of such
order.
(b) The
Company represents and agrees that, unless it obtains the prior consent of the
Representative, and each Placement Agent represents and agrees that, unless it
obtains the prior consent of the Company and the Representative, it has not made
and will not, other than the Final Term Sheet (defined below), if any, prepared
and filed pursuant to Section 4(c)
hereof, make any offer relating to the Preferred Stock, Stock and Warrants that
would constitute a “free writing prospectus” as defined in Rule 405 of the Rules
and Regulations unless the prior written consent of the Representative has been
received (each, a “Permitted Free Writing
Prospectus”); provided that the prior
written consent of the Representative hereto shall be deemed to have been given
in respect of the Issuer Free Writing Prospectuses included in Schedule I hereto.
The Company represents that it has treated and agrees that it will treat each
Permitted Free Writing Prospectus as an Issuer Free Writing Prospectus, comply
with the requirements of Rules 164 and 433 of the Rules and Regulations
applicable to any Issuer Free Writing Prospectus, including the requirements
relating to timely filing with the Commission, legending and record keeping and
will not take any action that would result in a Placement Agent or the Company
being required to file with the Commission pursuant to Rule 433(d) of the Rules
and Regulations a free writing prospectus prepared by or on behalf of such
Placement Agent that such Placement Agent otherwise would not have been required
to file thereunder. The Company consents to the use by any Placement Agent of a
free writing prospectus that (a) is not an “issuer free writing prospectus”
as defined in Rule 433 of the Rules and Regulations, and (b) contains only
(i) information describing the preliminary terms of the Preferred Stock,
Stock and Warrants or their offering and (ii) information that described
the final terms of the Preferred Stock, Stock and Warrants or their offering and
that is included in the Final Term Sheet, if any, contemplated in Section 4(c)
below.
25
(c) At
the request of the Representative, the Company will prepare a final term sheet
(the “Final Term
Sheet”) reflecting the final terms of the Preferred Stock, Stock and
Warrants, in form and substance satisfactory to the Representative, and shall
file such Final Term Sheet as an Issuer Free Writing Prospectus pursuant to Rule
433 of the Rules and Regulations prior to the close of business two
(2) business days after the date hereof; provided that the Company
shall provide the Representative with copies on any such Final Term Sheet within
a reasonable amount of time prior to such proposed filing and will not use or
file any such document to which the Representative or counsel to the Placement
Agent shall reasonably object.
(d) If
at any time prior to the expiration of nine (9) months after the later of
(i) the latest effective date of the Registration Statement or
(ii) the date of the Prospectus, when a prospectus relating to the
Preferred Stock, Stock and Warrants is required to be delivered (or in lieu
thereof, the notice referred to in Rule 173(a) of the Rules and Regulations) any
event occurs or condition exists as a result of which the Prospectus as then
amended or supplemented would include any untrue statement of a material fact,
or omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made when the Prospectus is
delivered (or in lieu thereof, the notice referred to in Rule 173(a) of the
Rules and Regulations), not misleading, or if it is necessary at any time to
amend or supplement any Registration Statement or the Prospectus or to file
under the Exchange Act any document incorporated by reference in the Prospectus
to comply with the Securities Act or the Exchange Act, that the Company will
promptly notify the Representative thereof and upon its request will prepare an
appropriate amendment or supplement or upon its request make an appropriate
filing pursuant to Section 13 or 14 of the Exchange Act in form and
substance satisfactory to the Representative which will correct such statement
or omission or effect such compliance and will use its reasonable best efforts
to have any amendment to any Registration Statement declared effective as soon
as possible. The Company will furnish without charge to each Placement Agent and
to any dealer in securities as many copies as the Representative may from time
to time reasonably request of such amendment or supplement. In case any
Placement Agent is required to deliver a prospectus (or in lieu thereof, the
notice referred to in Rule 173(a) of the Rules and Regulations) relating to the
Preferred Stock, Stock and Warrants nine (9) months or more after the later
of (i) the latest effective date of the Registration Statement or
(ii) the date of the Prospectus, the Company upon the request of the
Representative will prepare promptly an amended or supplemented Prospectus as
may be necessary to permit compliance with the requirements of
Section 10(a)(3) of the Securities Act and deliver to such Placement Agent
as many copies as such Placement Agent may reasonably request of such amended or
supplemented Prospectus complying with Section 10(a)(3) of the Securities
Act.
26
(e) If
the General Disclosure Package is being used to solicit offers to buy the
Preferred Stock, Stock and Warrants at a time when the Prospectus is not yet
available to prospective purchasers and any event shall occur as a result of
which, in the judgment of the Company or in the reasonable opinion of the
Placement Agents, it becomes necessary to amend or supplement the General
Disclosure Package in order to make the statements therein, in the light of the
circumstances then prevailing, not misleading, or to make the statements therein
not conflict with the information contained or incorporated by reference in the
Registration Statement then on file and not superseded or modified, or if it is
necessary at any time to amend or supplement the General Disclosure Package to
comply with any law, the Company promptly will either (i) prepare, file
with the Commission (if required) and furnish to the Placement Agents and any
dealers an appropriate amendment or supplement to the General Disclosure Package
or (ii) prepare and file with the Commission an appropriate filing under
the Exchange Act which shall be incorporated by reference in the General
Disclosure Package so that the General Disclosure Package as so amended or
supplemented will not, in the light of the circumstances then prevailing, be
misleading or conflict with the Registration Statement then on file, or so that
the General Disclosure Package will comply with law.
(f) If
at any time following issuance of an Issuer Free Writing Prospectus there
occurred or occurs an event or development as a result of which such Issuer Free
Writing Prospectus conflicted or will conflict with the information contained in
the Registration Statement, Pricing Prospectus or Prospectus, including any
document incorporated by reference therein and any prospectus supplement deemed
to be a part thereof and not superseded or modified or included or would include
an untrue statement of a material fact or omitted or would omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances prevailing at the
subsequent time, not misleading, the Company has promptly notified or will
promptly notify the Representative so that any use of the Issuer Free Writing
Prospectus may cease until it is amended or supplemented and has promptly
amended or will promptly amend or supplement, at its own expense, such Issuer
Free Writing Prospectus to eliminate or correct such conflict, untrue statement
or omission. The foregoing sentence does not apply to statements in or omissions
from any Issuer Free Writing Prospectus in reliance upon, and in conformity
with, written information furnished to the Company through the Representative by
or on behalf of any Placement Agent specifically for inclusion therein, which
information the parties hereto agree is limited to the Placement Agent’s
Information (as defined in Section 17).
(g) Upon
request of the Representative, to furnish promptly to the Representative and to
counsel for the Placement Agents a signed copy of each of the Registration
Statements as originally filed with the Commission, and of each amendment
thereto filed with the Commission, including all consents and exhibits filed
therewith.
27
(h) To
deliver promptly to the Representative in New York City such number of the
following documents as the Representative shall reasonably request:
(i) conformed copies of the Registration Statements as originally filed
with the Commission (in each case excluding exhibits), (ii) each
Preliminary Prospectus, (iii) any Issuer Free Writing Prospectus,
(iv) the Prospectus (the delivery of the documents referred to in clauses
(i), (ii), (iii) and (iv) of this paragraph (h) to be made not
later than 10:00 a.m., New York time, on the business day following the
execution and delivery of this Agreement), (v) conformed copies of any
amendment to the Registration Statement (excluding exhibits), (vi) any
amendment or supplement to the General Disclosure Package or the Prospectus
after the date hereof (the delivery of the documents referred to in clauses
(v) and (vi) of this paragraph (h) to be made not later than
10:00 a.m., New York City time, on the business day following the date of such
amendment or supplement) and (vii) any document incorporated by reference
in the General Disclosure Package or the Prospectus (excluding exhibits thereto)
(the delivery of the documents referred to in clause (vii) of this
paragraph (h) to be made not later than 10:00 a.m., New York City time, on
the business day following the date of such document); provided, however, that filing
with the Commission on EDGAR (as defined below) of any document specified in
clause (vii) of this paragraph (h) shall constitute delivery to the
Representative.
(i) To
make generally available to its shareholders as soon as practicable, but in any
event not later than sixteen (16) months after the effective date of each
Registration Statement (as defined in Rule 158(c) of the Rules and Regulations),
an earnings statement of the Company (which need not be audited) complying with
Section 11(a) of the Securities Act and the Rules and Regulations
(including, at the option of the Company, Rule 158).
(j) To
take promptly from time to time such actions as the Representative may
reasonably request to qualify the Preferred Stock, Stock and Warrants for
offering and sale under the securities or Blue Sky laws of such jurisdictions
(domestic or foreign) as the Representative may designate and to continue such
qualifications in effect, and to comply with such laws, for so long as required
to permit the offer and sale of Preferred Stock, Stock and Warrants in such
jurisdictions; provided
that the Company shall not be obligated to qualify as foreign corporations in
any jurisdiction in which they are not so qualified or to file a general consent
to service of process in any jurisdiction.
(k) Upon
request, during the period of five (5) years from the date hereof, to
deliver to each of the Placement Agents, (i) as soon as they are available,
copies of all reports or other communications furnished to shareholders
generally, and (ii) as soon as they are available, copies of any reports
and financial statements furnished or filed with the Commission or any national
securities exchange on which the Common Stock is listed. However, so long as the
Company is subject to the reporting requirements of either Section 13 or
Section 15(d) of the Exchange Act and is timely filing reports with the
Commission on its Electronic Data Gathering, Analysis and Retrieval system
(“EDGAR”), it
is not required to furnish such reports or statements to the Placement
Agents.
28
(l) That
the Company will not, for a period of ninety (90) days from the date of this
Agreement, (the “Lock-Up Period”)
without the prior written consent of Cowen, directly or indirectly offer, sell,
assign, transfer, pledge, contract to sell, or otherwise dispose of, any shares
of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, other than (1) the Company’s sale of the
Preferred Stock, Stock and Warrants hereunder, (2) the issuance of Common Stock,
options to acquire Common Stock or other equity awards pursuant to the Company’s
employee benefit plans, qualified stock option plans, employee stock purchase
plans or other employee compensation plans as such plans are in existence on the
date hereof and described in the Prospectus and as such plans may be amended in
a separate proposal at the Company's special meeting of shareholders to be held
to, inter alia, approve the issuance of shares to the equity holders of
Progenitor Cell Therapy ("PCT"), (3) the
issuance of Common Stock pursuant to the valid exercises, vesting or settlements
of options, warrants or rights outstanding on the date hereof, (4) the issuance
of Common Stock or securities convertible or exercisable into shares of Common
Stock in connection with the Company's transaction with PCT, (5) the issuance of
units consisting of Common Stock and warrants to purchase Common Stock pursuant
to that certain Underwriting Agreement dated of even date herewith by and among
the Company and the underwriters named therein (the “Concurrent Common
Offering”), (6) the issuance of shares of Common Stock or securities
convertible or exercisable into shares of Common Stock to consultants (including
in connection with investor relations activities) or (7) the issuance of shares
of Common Stock or securities convertible or exercisable into shares of Common
Stock in connection with any acquisition, strategic partnership, joint venture
or collaboration to which the Company is a party, or the acquisition or license
of any products or technology by the Company, but shall not include any such
transaction in which the Company is issuing securities primarily for the purpose
of raising capital or to an entity whose primary business is investing in
securities; provided that the number of shares of Common Stock issued or
underlying securities convertible or exercisable for Common Stock issued
pursuant to clause (7) shall not exceed 3.7 million shares in the aggregate and
provided further that, prior to the issuance of any such securities pursuant to
clause (6) or (7), the Company shall cause the recipients of such securities to
execute and deliver to the Representative letter agreements, each substantially
in the form of Exhibit
A hereto. The Company will cause each person and entity listed
in Exhibit B to
furnish to the Representative, prior to the Closing Date, a letter,
substantially in the form of Exhibit A hereto. The
Company also agrees that during such period, other than for the sale of the
Preferred Stock, Stock and Warrants hereunder, the Company will not file any
registration statement, preliminary prospectus or prospectus, or any amendment
or supplement thereto, under the Securities Act for any such transaction or
which registers, or offers for sale, Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock, except (i) for the filing
of a registration statement at anytime on Form S-8 relating to employee benefit
plans and Form S-4 relating to the transaction with PCT and (ii) for the filing
of a registration statement at anytime after the 30th day following the date of
this Agreement on Form S-3 related to the resale of the Company's Common Stock
on behalf of selling stockholders who have registration rights outstanding as of
the date of this Agreement. The Company hereby agrees that (i) if it issues an
earnings release or material news, or if a material event relating to the
Company occurs, during the last seventeen (17) days of the Lock-Up Period, or
(ii) if prior to the expiration of the Lock-Up Period, the Company announces
that it will release earnings results during the sixteen (16)-day period
beginning on the last day of the Lock-Up Period, the restrictions imposed by
this paragraph (l) or the letter shall continue to apply until the expiration of
the eighteen (18)-day period beginning on the issuance of the earnings release
or the occurrence of the material news or material event. The Company will
provide the Representative with prior notice (in accordance with Section 14 herein) of
any such announcement that gives rise to an extension of the Lock-Up Period,
subject to the Representative’s agreement to hold such information in confidence
prior to public disclosure of the same.
29
(m) To
supply the Representative with copies of all correspondence to and from, and all
documents issued to and by, the Commission in connection with the registration
of the Preferred Stock, Stock and Warrants under the Securities Act or any of
the Registration Statements, any Preliminary Prospectus or the Prospectus, or
any amendment or supplement thereto or document incorporated by reference
therein.
(n) Prior
to the Closing Date, to furnish to the Representative, as soon as they have been
prepared, copies of any unaudited interim consolidated financial statements of
the Company and its subsidiaries for any periods subsequent to the periods
covered by the financial statements appearing in the Registration Statements and
the Prospectus.
(o) Prior
to the Closing Date, not to issue any press release or other communication
directly or indirectly or hold any press conference with respect to the Company,
its condition, financial or otherwise, or earnings, business affairs or business
prospects (except for routine oral marketing communications in the ordinary
course of business and consistent with the past practices of the Company and of
which the Representative is notified), without the prior written consent of the
Representative, which consent shall not be unreasonably delayed, withheld or
conditioned, unless in the judgment of the Company and its counsel, and after
notification to the Representative, such press release or communication is
required by law.
(p) Until
Cowen shall have notified the Company of the completion of the distribution of
the Preferred Stock, Stock and Warrants, that the Company will not, and will use
its reasonable best efforts to cause its affiliated purchasers (as defined in
Regulation M under the Exchange Act) not to, either alone or with one or more
other persons, bid for or purchase, for any account in which it or any of its
affiliated purchasers has a beneficial interest, any Preferred Stock, Stock and
Warrants, or attempt to induce any person to purchase any Preferred Stock, Stock
and Warrants; and not to, and to use its reasonable best efforts to cause its
affiliated purchasers not to, make bids or purchase for the purpose of creating
actual, or apparent, active trading in or of raising the price of the Preferred
Stock, Stock and Warrants.
(q) To
use its reasonable best efforts not to take any action prior the Closing Date
which would require the Prospectus to be amended or supplemented pursuant to
Section 4(d).
30
(r) To
at all times comply in all material respects with all applicable provisions of
the Sarbanes-Oxley Act in effect from time to time and to file with the
Commission such information on Form 10-Q or Form 10-K as may be required by Rule
463 of the Rules and Regulations.
(s) [Reserved.]
(t) To
apply the net proceeds from the sale of the Preferred Stock, Stock and Warrants
as set forth in the Registration Statement, the General Disclosure Package and
the Prospectus under the heading “Use of Proceeds,” and except as disclosed in
the General Disclosure Package, the Company does not intend to use any of the
proceeds from the sale of the Preferred Stock, Stock and Warrants hereunder to
repay any outstanding debt owed to any affiliate of any Placement
Agent. The Company shall manage its affairs and investments in such a
manner as not to be or become an “investment company” within the meaning of the
Investment Company Act and the rules and regulations thereunder.
(u) To
use its best efforts to list, subject to notice of issuance, and to maintain the
listing of the Stock, Conversion Shares and Warrant Shares on the
Exchange.
(v) To
use its best efforts to do and perform all things required to be done or
performed under this Agreement by the Company prior to the Closing Date and to
satisfy all conditions precedent to the delivery of the Preferred Stock, Stock
and Warrants.
(w) To
reserve and keep available at all times a sufficient number of shares of Common
Stock for the purpose of enabling the Company to issue the Conversion Shares and
Warrant Shares.
(x) Upon
request of any Placement Agent, to furnish, or cause to be furnished, to such
Placement Agent an electronic version of the Company’s corporate logo for use on
the website, if any, operated by such Placement Agent for the purpose of
facilitating the on-line offering of the Preferred Stock, Stock and Warrants
(the “License”); provided, however that the
License shall be used solely for the purpose described above, is granted without
any fee and may not be assigned or transferred.
31
5. PAYMENT OF EXPENSES. The
Company agrees to pay, or reimburse if paid by any Placement Agent, whether or
not the transactions contemplated hereby are consummated or this Agreement is
terminated: (a) the costs incident to the authorization, issuance, sale,
preparation and delivery of the Preferred Stock, Stock and Warrants and any
taxes payable in that connection; (b) the costs incident to the
registration of the Preferred Stock, Stock and Warrants under the Securities
Act; (c) the costs incident to the preparation, printing and distribution
of the Registration Statements, the Base Prospectus, any Preliminary Prospectus,
any Issuer Free Writing Prospectus, the General Disclosure Package, the
Prospectus, any amendments, supplements and exhibits thereto or any document
incorporated by reference therein and the costs of printing, reproducing and
distributing, this Agreement and any closing documents by mail, telex or other
means of communications; (d) the fees and expenses (including related fees
and expenses of counsel for the Placement Agents) incurred in connection with
securing any required review by FINRA of the terms of the sale of the Preferred
Stock, Stock and Warrants and any filings made with FINRA; (e) any
applicable listing or other fees; (f) the fees and expenses (including
related fees and expenses of counsel to the Placement Agents) of qualifying the
Preferred Stock, Stock and Warrants under the securities laws of the several
jurisdictions as provided in Section 4(j) and
of preparing, printing and distributing wrappers, Blue Sky Memoranda and Legal
Investment Surveys; (g) the cost of preparing and printing stock
certificates and Warrants; (h) all fees and expenses of the registrar and
transfer agent of the Preferred Stock, Stock and Warrants, if any; (i) the
fees, disbursements and expenses of counsel to the Placement Agents;
(j) the costs and expenses of the Company relating to investor
presentations on any “road show” undertaken in connection with the marketing of
the offering of the Preferred Stock, Stock and Warrants, including, without
limitation, expenses associated with the preparation or dissemination of any
electronic road show, expenses associated with the production of road show
slides and graphics, fees and expenses of any consultants engaged in connection
with the road show presentations with the prior approval of the Company, travel
and lodging expenses of the officers of the Company and such consultants,
including the cost of any aircraft chartered in connection with the road show,
and (k) all other costs and expenses incident to the offering of the
Preferred Stock, Stock and Warrants or the performance of the obligations of the
Company under this Agreement (including, without limitation, the fees and
expenses of the Company’s counsel and the Company’s independent accountants);
provided that the
Company shall not be liable for and shall not be obligated to pay any such fees,
costs, expenses or disbursements to the Placement Agents for out-of-pocket
expenses (including fees, costs, expenses or disbursements for the Placement
Agents’ counsel) in excess of $50,000 in the aggregate; and provided further that, except
to the extent otherwise provided in this Section 5 and in
Section 9, the
Placement Agents shall pay their own costs and expenses, including the fees and
expenses of their counsel, any transfer taxes on the resale of any Preferred
Stock, Stock and Warrants by them and the expenses of advertising any offering
of the Preferred Stock, Stock and Warrants made by the Placement
Agents.
6.
CONDITIONS
OF PLACEMENT AGENTS’ OBLIGATIONS. The respective obligations of the
several Placement Agents hereunder are subject to the accuracy, when made and as
of the Applicable Time and on the Closing Date, of the representations and
warranties of the Company contained herein, to the accuracy of the statements of
the Company made in any certificates pursuant to the provisions hereof, to the
performance by the Company of its obligations hereunder, and to each of the
following additional terms and conditions:
(a) The
Registration Statements have become effective under the Securities Act, and no
stop order suspending the effectiveness of any Registration Statement or any
part thereof, preventing or suspending the use of any Base Prospectus, any
Preliminary Prospectus, the Prospectus or any Permitted Free Writing Prospectus
or any part thereof shall have been issued and no proceedings for that purpose
or pursuant to Section 8A under the Securities Act shall have been
initiated or threatened by the Commission, and all requests for additional
information on the part of the Commission (to be included or incorporated by
reference in the Registration Statements or the Prospectus or otherwise) shall
have been complied with to the reasonable satisfaction of the Representative;
the Rule 462(b) Registration Statement, if any, each Issuer Free Writing
Prospectus and the Prospectus shall have been filed with, the Commission within
the applicable time period prescribed for such filing by, and in compliance
with, the Rules and Regulations and in accordance with Section 4(a),
and the Rule 462(b) Registration Statement, if any, shall have become effective
immediately upon its filing with the Commission; and FINRA shall have raised no
objection to the fairness and reasonableness of the terms of this Agreement or
the transactions contemplated hereby.
32
(b) None
of the Placement Agents shall have discovered and disclosed to the Company on or
prior to the Closing Date that any Registration Statement or any amendment or
supplement thereto contains an untrue statement of a fact which, in the opinion
of counsel for the Placement Agents, is material or omits to state any fact
which, in the opinion of such counsel, is material and is required to be stated
therein or is necessary to make the statements therein not misleading, or that
the General Disclosure Package, any Issuer Free Writing Prospectus or the
Prospectus or any amendment or supplement thereto contains an untrue statement
of fact which, in the opinion of such counsel, is material or omits to state any
fact which, in the opinion of such counsel, is material and is necessary in
order to make the statements, in the light of the circumstances in which they
were made, not misleading.
(c) All
corporate proceedings incident to the authorization, form and validity of each
of this Agreement, the Preferred Stock, the Stock, the Warrants, the
Registration Statements, the General Disclosure Package, each Issuer Free
Writing Prospectus and the Prospectus and the transactions contemplated hereby
shall be reasonably satisfactory in all material respects to counsel for the
Placement Agents, and the Company shall have furnished to such counsel all
documents and information that they may reasonably request to enable them to
pass upon such matters.
(d) Lowenstein
Sandler PC shall have furnished to the Representative such counsel’s written
opinion and negative assurance statement, as counsel to the Company, addressed
to the Placement Agents and dated the Closing Date, in form and substance
reasonably satisfactory to the Representative and set forth on Exhibit C
hereto.
(e) Jun
He Law Offices LLC shall have furnished to the Representative such counsel’s
written opinion and negative assurance statement, as PRC counsel to the Company,
addressed to the Placement Agents and dated the Closing Date, in form and
substance reasonably satisfactory to the Representative and set forth on Exhibit D
hereto.
(f) Fuerst
Ittleman, PL shall have furnished to the Representative such counsel’s written
opinion and negative assurance statement, as FDA counsel to the Company,
addressed to the Placement Agents and dated the Closing Date, in form and
substance reasonably satisfactory to the Representative and set forth on Exhibit E
hereto.
(g) Kenyon
& Kenyon LLP shall have furnished to the Representative such counsel’s
written opinion and negative assurance statement, as Intellectual Property
counsel to the Company, addressed to the Placement Agents and dated the Closing
Date, in form and substance reasonably satisfactory to the Representative and
set forth on Exhibit
F hereto.
(h) Epstein
Becker & Green, P.C. shall have furnished to the Representative such
counsel’s written opinion and negative assurance statement, as special counsel
to PCT, addressed to the Placement Agents and dated the Closing Date, in form
and substance reasonably satisfactory to the Representative and set forth on
Exhibit G
hereto.
33
(i) The
Representative shall have received from Goodwin Procter LLP, counsel for the
Placement Agents, such counsel’s written opinion and negative assurance
statement, dated the Closing Date, with respect to such matters as the Placement
Agents may reasonably require, and the Company shall have furnished to such
counsel such documents as they request for enabling them to pass upon such
matters.
(j) At
the time of the execution of this Agreement, the Representative shall have
received from each of (i) Holtz Rubenstein Reminick LLP, (ii) Deloitte &
Touche LLP, and (iii) EisnerAmper LLP, a letter, addressed to the Placement
Agents, executed and dated such date, in form and substance satisfactory to the
Representative (i) confirming that they are an independent registered
accounting firm with respect to the Company or PCT, as applicable, within the
meaning of the Securities Act and the Rules and Regulations and PCAOB and
(ii) stating the conclusions and findings of such firm, of the type
ordinarily included in accountants’ “comfort letters” to underwriters, with
respect to the financial statements and certain financial information contained
or incorporated by reference in the Registration Statements, the General
Disclosure Package and the Prospectus.
(k) On
the effective date of any post-effective amendment to any Registration Statement
and on the Closing Date, the Representative shall have received a letter (the
“bring-down
letter”) from each of (i) Holtz Rubenstein Reminick LLP, (ii) Deloitte
& Touche LLP, and (iii) EisnerAmper LLP addressed to the Placement Agents
and dated the Closing Date confirming, as of the date of the bring-down letter
(or, with respect to matters involving changes or developments since the
respective dates as of which specified financial information is given in the
General Disclosure Package and the Prospectus, as the case may be, as of a date
not more than three (3) business days prior to the date of the bring-down
letter), the conclusions and findings of such firm, of the type ordinarily
included in accountants’ “comfort letters” to underwriters, with respect to the
financial information and other matters covered by its letter delivered to the
Representative concurrently with the execution of this Agreement pursuant to
paragraph (j) of this Section 6.
34
(l) The
Company shall have furnished to the Representative a certificate, dated the
Closing Date, of its Chief Executive Officer and its Chief Financial Officer
stating that (i) such officers have carefully examined the Registration
Statement, the General Disclosure Package, any Permitted Free Writing Prospectus
and the Prospectus and, in their opinion, the Registration Statements and each
amendment thereto, at the Applicable Time, as of the date of this Agreement and
as of the Closing Date did not include any untrue statement of a material fact
and did not omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and the General
Disclosure Package, as of the Applicable Time and as of the Closing Date, any
Permitted Free Writing Prospectus as of its date and as of the Closing Date, the
Prospectus and each amendment or supplement thereto, as of the respective date
thereof and as of the Closing Date, did not include any untrue statement of a
material fact and did not omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances in which they
were made, not misleading, (ii) since the effective date of the Initial
Registration Statement, no event has occurred which should have been set forth
in a supplement or amendment to the Registration Statements, the General
Disclosure Package or the Prospectus, (iii) to the best of their knowledge
after reasonable investigation, as of the Closing Date, the representations and
warranties of the Company in this Agreement are true and correct and the Company
has complied with all agreements and satisfied all conditions on its part to be
performed or satisfied hereunder at or prior to the Closing Date, and
(iv) there has not been, subsequent to the date of the most recent audited
financial statements included or incorporated by reference in the General
Disclosure Package, any material adverse change in the financial position or
results of operations of the Company and its subsidiaries, or any change or
development that, singularly or in the aggregate, would involve a material
adverse change or a prospective material adverse change, in or affecting the
condition (financial or otherwise), results of operations, business, assets or
prospects of the Company and its subsidiaries, except as set forth in the
General Disclosure Package or the Prospectus.
(m) Since
the date of the latest audited financial statements included in the General
Disclosure Package or incorporated by reference in the General Disclosure
Package as of the date hereof, (i) neither the Company nor any of its
subsidiaries shall have sustained any loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order or
decree, otherwise than as set forth in the General Disclosure Package, and
(ii) there shall not have been any change in the capital stock (other than
stock option and warrant exercises and stock repurchases in the ordinary course
of business) or long-term debt of the Company or any of its subsidiaries, or any
change, or any development involving a prospective change, in or affecting the
business, general affairs, management, financial position, stockholders’ equity
or results of operations of the Company and its subsidiaries, otherwise than as
set forth in the General Disclosure Package, the effect of which, in any such
case described in clause (i) or (ii) of this paragraph (i) is, in
the judgment of the Representative, so material and adverse as to make it
impracticable or inadvisable to proceed with the sale or delivery of the
Preferred Stock, Stock and Warrants on the terms and in the manner contemplated
in the General Disclosure Package.
(n) No
action shall have been taken and no law, statute, rule, regulation or order
shall have been enacted, adopted or issued by any governmental agency or body
which would prevent the issuance or sale of the Preferred Stock, Stock and
Warrants or materially and adversely affect or potentially materially and
adversely affect the business or operations of the Company; and no injunction,
restraining order or order of any other nature by any federal or state court of
competent jurisdiction shall have been issued which would prevent the issuance
or sale of the Preferred Stock, Stock and Warrants or materially and adversely
affect or potentially materially and adversely affect the business or operations
of the Company.
(o) The
Concurrent Common Offering shall have been completed on the Closing Date in
accordance with its terms.
35
(p) Subsequent
to the execution and delivery of this Agreement there shall not have occurred
any of the following: (i) trading in securities generally on the New York
Stock Exchange, Nasdaq Global Market or the NYSE Amex or in the over-the-counter
market, or trading in any securities of the Company on any exchange or in the
over-the-counter market, shall have been suspended or materially limited, or
minimum or maximum prices or maximum range for prices shall have been
established on any such exchange or such market by the Commission, by such
exchange or market or by any other regulatory body or governmental authority
having jurisdiction, (ii) a banking moratorium shall have been declared by
Federal or state or PRC authorities or a material disruption has occurred in
commercial banking or securities settlement or clearance services in the United
States or the PRC, (iii) the United States or the PRC shall have become
engaged in hostilities, or the subject of an act of terrorism, or there shall
have been an outbreak of or escalation in hostilities involving the United
States or the PRC, or there shall have been a declaration of a national
emergency or war by the United States or the PRC or (iv) there shall have
occurred such a material adverse change in general economic, political or
financial conditions (or the effect of international conditions on the financial
markets in the United States or the PRC shall be such) as to make it, in the
judgment of the Representative, impracticable or inadvisable to proceed with the
sale or delivery of the Preferred Stock, Stock and Warrants on the terms and in
the manner contemplated in the General Disclosure Package and the
Prospectus.
(q) The
Exchange shall have approved the Stock, Conversion Shares and Warrant Shares for
listing therein, subject only to official notice of issuance.
(r) Cowen
shall have received on and as of the Closing Date satisfactory evidence of the
good standing of the Company and its subsidiaries in their respective
jurisdictions of organization and their good standing as foreign entities in
such other jurisdictions as Cowen may reasonably request, in each case in
writing or any standard form of telecommunication from the appropriate
Governmental Authorities of such jurisdictions.
(s) Cowen
shall have received the written agreements, substantially in the form of Exhibit A
hereto, of the persons and entities listed in Exhibit B to this
Agreement.
(t) The
Company shall have furnished to the Placement Agents a Certificate of the Chief
Financial Officer of the Company, in form and substance reasonably satisfactory
to counsel for the Placement Agents.
(u) The
Company shall have furnished to the Placement Agents a Secretary’s Certificate
of the Company, in form and substance reasonably satisfactory to counsel for the
Placement Agents.
(v) The
Company shall have entered into Subscription Agreement with each of the
Purchasers and such agreement shall be in full force and effect.
(w) On
or prior to the Closing Date, the Company shall have furnished to Cowen such
further certificates and documents as Cowen may reasonably request.
36
All
opinions, letters, evidence and certificates mentioned above or elsewhere in
this Agreement shall be deemed to be in compliance with the provisions hereof
only if they are in form and substance reasonably satisfactory to counsel for
the Placement Agents.
7. INDEMNIFICATION AND
CONTRIBUTION.
(a) The
Company shall indemnify and hold harmless each Placement Agent, its directors,
officers, managers, members, employees, representatives and agents and each
person, if any, who controls any Placement Agent within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act
(collectively the “Placement Agent Indemnified
Parties,” and each a “Placement Agent Indemnified
Party”) against any loss, claim, damage, expense or liability whatsoever
(or any action, investigation or proceeding in respect thereof), joint or
several, to which such Placement Agent Indemnified Party may become subject,
under the Securities Act or otherwise, insofar as such loss, claim, damage,
expense, liability, action, investigation or proceeding arises out of or is
based upon (A) any untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, any Issuer Free Writing
Prospectus, any “issuer information” that is used in connection with the
offering and sale of the Preferred Stock, Stock and Warrants by, or with the
approval of, the Company filed or required to be filed pursuant to Rule 433(d)
of the Rules and Regulations, any Registration Statement or the Prospectus, or
in any amendment or supplement thereto or document incorporated by reference
therein, or (B) the omission or alleged omission to state in any
Preliminary Prospectus, any Issuer Free Writing Prospectus, any “issuer
information” that is used in connection with the offering and sale of the
Preferred Stock, Stock and Warrants by, or with the approval of, the Company
filed or required to be filed pursuant to Rule 433(d) of the Rules and
Regulations, any Registration Statement or the Prospectus, or in any amendment
or supplement thereto or document incorporated by reference therein, a material
fact required to be stated therein or necessary to make the statements therein
in light of (other than in the case of any Registration Statement) the
circumstances under which they are made not misleading, and shall reimburse each
Placement Agent Indemnified Party promptly upon demand for any legal fees or
other expenses reasonably incurred by that Placement Agent Indemnified Party in
connection with investigating, or preparing to defend, or defending against, or
appearing as a third party witness in respect of, or otherwise incurred in
connection with, any such loss, claim, damage, expense, liability, action,
investigation or proceeding, as such fees and expenses are incurred; provided, however, that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage, expense or liability arises out of or is based upon an untrue statement
or alleged untrue statement in, or omission or alleged omission from any
Preliminary Prospectus, any Registration Statement or the Prospectus, or any
such amendment or supplement thereto, or any Issuer Free Writing Prospectus made
in reliance upon and in conformity with written information furnished to the
Company through the Representative by or on behalf of any Placement Agent
specifically for use therein, which information the parties hereto agree is
limited to the Placement Agent’s Information (as defined in Section 17).
The
indemnity agreement in this Section 7(a) is
not exclusive and is in addition to each other liability which the Company might
have under this Agreement or otherwise, and shall not limit any rights or
remedies which may otherwise be available under this Agreement, at law or in
equity to any Placement Agent Indemnified Party.
37
(b) Each
Placement Agent, severally and not jointly, shall indemnify and hold harmless
the Company and its directors, its officers who signed the Registration
Statement and each person, if any, who controls the Company within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act
(collectively the “Company Indemnified
Parties” and each a “Company Indemnified
Party”) against any loss, claim, damage, expense or liability whatsoever
(or any action, investigation or proceeding in respect thereof), joint or
several, to which such Company Indemnified Party may become subject, under the
Securities Act or otherwise, insofar as such loss, claim, damage, expense,
liability, action, investigation or proceeding arises out of or is based upon
(i) any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, any Issuer Free Writing Prospectus, any
“issuer information” filed or required to be filed pursuant to Rule 433(d) of
the Rules and Regulations, any Registration Statement or the Prospectus, or in
any amendment or supplement thereto, or (ii) the omission or alleged
omission to state in any Preliminary Prospectus, any Issuer Free Writing
Prospectus, any “issuer information” filed or required to be filed pursuant to
Rule 433(d) of the Rules and Regulations, any Registration Statement or the
Prospectus, or in any amendment or supplement thereto, a material fact required
to be stated therein or necessary to make the statements therein in light of
(other than in the case of any Registration Statement) the circumstances under
which they are made not misleading, but in each case only to the extent that the
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
the Company through the Representative by or on behalf of that Placement Agent
specifically for use therein, which information the parties hereto agree is
limited to the Placement Agent’s Information as defined in Section 17, and
shall reimburse the Company Indemnified Parties promptly on demand for any legal
or other expenses reasonably incurred by such party in connection with
investigating or preparing to defend or defending against or appearing as third
party witness in connection with any such loss, claim, damage, liability,
action, investigation or proceeding, as such fees and expenses are incurred.
This indemnity agreement is not exclusive and will be in addition to any
liability which the Placement Agents might otherwise have and shall not limit
any rights or remedies which may otherwise be available under this Agreement, at
law or in equity to the Company Indemnified Parties.
38
(c) Promptly
after receipt by an indemnified party under this Section 7 of
notice of the commencement of any action, the indemnified party shall, if a
claim in respect thereof is to be made against an indemnifying party under this
Section 7,
notify such indemnifying party in writing of the commencement of that action;
provided, however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 7 except
to the extent it has been materially prejudiced by such failure; and, provided, further, that the
failure to notify an indemnifying party shall not relieve it from any liability
which it may have to an indemnified party otherwise than under this Section 7. If
any such action shall be brought against an indemnified party, and it shall
notify the indemnifying party thereof, the indemnifying party shall be entitled
to participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense of such action with
counsel reasonably satisfactory to the indemnified party (which counsel shall
not, except with the written consent of the indemnified party, be counsel to the
indemnifying party). After notice from the indemnifying party to the indemnified
party of its election to assume the defense of such action, except as provided
herein, the indemnifying party shall not be liable to the indemnified party
under Section 7 for
any legal or other expenses subsequently incurred by the indemnified party in
connection with the defense of such action other than reasonable costs of
investigation; provided,
however, that any indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense of such
action but the fees and expenses of such counsel (other than reasonable costs of
investigation) shall be at the expense of such indemnified party unless
(i) the employment thereof has been specifically authorized in writing by
the Company in the case of a claim for indemnification under Section 7(a) or
Cowen in the case of a claim for indemnification under Section 7(b),
(ii) such indemnified party shall have been advised by its counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the indemnifying party, or (iii) the
indemnifying party has failed to assume the defense of such action and employ
counsel reasonably satisfactory to the indemnified party within a reasonable
period of time after notice of the commencement of the action or the
indemnifying party does not diligently defend the action after assumption of the
defense, in which case, if such indemnified party notifies the indemnifying
party in writing that it elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume
the defense of (or, in the case of a failure to diligently defend the action
after assumption of the defense, to continue to defend) such action on behalf of
such indemnified party and the indemnifying party shall be responsible for legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense of such action; provided, however, that the
indemnifying party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at any
time for all such indemnified parties (in addition to any local counsel), which
firm shall be designated in writing by Cowen if the indemnified parties under
this Section 7
consist of any Placement Agent Indemnified Party or by the Company if the
indemnified parties under this Section 7
consist of any Company Indemnified Parties. Subject to this Section 7(c),
the amount payable by an indemnifying party under Section 7 shall
include, but not be limited to, (x) reasonable legal fees and expenses of
counsel to the indemnified party and any other expenses in investigating, or
preparing to defend or defending against, or appearing as a third party witness
in respect of, or otherwise incurred in connection with, any action,
investigation, proceeding or claim, and (y) all amounts paid in settlement
of any of the foregoing. No indemnifying party shall, without the prior written
consent of the indemnified parties, settle or compromise or consent to the entry
of judgment with respect to any pending or threatened action or any claim
whatsoever, in respect of which indemnification or contribution could be sought
under this Section 7
(whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party in form and substance reasonably
satisfactory to such indemnified party from all liability arising out of such
action or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act by or on behalf of any indemnified
party. Subject to the provisions of the following sentence, no indemnifying
party shall be liable for settlement of any pending or threatened action or any
claim whatsoever that is effected without its written consent (which consent
shall not be unreasonably withheld or delayed), but if settled with its written
consent, if its consent has been unreasonably withheld or delayed or if there be
a judgment for the plaintiff in any such matter, the indemnifying party agrees
to indemnify and hold harmless any indemnified party from and against any loss
or liability by reason of such settlement or judgment. In addition, if at any
time an indemnified party shall have requested that an indemnifying party
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Sections 7(a) or
7(b) effected
without its written consent if (i) such settlement is entered into more
than forty-five (45) days after receipt by such indemnifying party of the
request for reimbursement, (ii) such indemnifying party shall have received
notice of the terms of such settlement at least thirty (30) days prior to
such settlement being entered into and (iii) such indemnifying party shall
not have reimbursed such indemnified party in accordance with such request prior
to the date of such settlement.
39
(d) If
the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under Section 7(a) or
7(b), then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid, payable or otherwise incurred by such indemnified
party as a result of such loss, claim, damage, expense or liability (or any
action, investigation or proceeding in respect thereof), as incurred,
(i) in such proportion as shall be appropriate to reflect the relative
benefits received by the Company on the one hand and the Placement Agents on the
other from the offering of the Preferred Stock, Stock and Warrants, or
(ii) if the allocation provided by clause (i) of this Section 7(d) is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) of this Section 7(d) but
also the relative fault of the Company on the one hand and the Placement Agents
on the other with respect to the statements, omissions, acts or failures to act
which resulted in such loss, claim, damage, expense or liability (or any action,
investigation or proceeding in respect thereof) as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Placement Agents on the other with respect to such offering
shall be deemed to be in the same proportion as the total net proceeds from the
offering of the Preferred Stock, Stock and Warrants purchased under this
Agreement (before deducting expenses) received by the Company bear to the total
placement agent fees received by the Placement Agents with respect to the
Preferred Stock, Stock and Warrants offered under this Agreement, in each case
as set forth in the table on the cover page of the Prospectus. The relative
fault of the Company on the one hand and the Placement Agents on the other shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the Placement Agents on the other, the intent of the parties and their
relative knowledge, access to information and opportunity to correct or prevent
such untrue statement, omission, act or failure to act; provided that the parties
hereto agree that the written information furnished to the Company through the
Representative by or on behalf of the Placement Agents for use in the
Preliminary Prospectus, any Registration Statement or the Prospectus, or in any
amendment or supplement thereto, consists solely of the Placement Agent’s
Information as defined in Section 17.
40
(e) The
Company and the Placement Agents agree that it would not be just and equitable
if contributions pursuant to Section 7(d)
above were to be determined by pro rata allocation or by any other method of
allocation which does not take into account the equitable considerations
referred to Section 7(d)
above. The amount paid or payable by an indemnified party as a result of the
loss, claim, damage, expense, liability, action, investigation or proceeding
referred to in Section 7(d)
above shall be deemed to include, subject to the limitations set forth above,
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating, preparing to defend or defending against or
appearing as a third party witness in respect of, or otherwise incurred in
connection with, any such loss, claim, damage, expense, liability, action,
investigation or proceeding. Notwithstanding the provisions of this Section 7, no
Placement Agents shall be required to contribute any amount in excess of the
total placement agent fees received by such Placement Agent with respect to the
offering of the Preferred Stock, Stock and Warrants exceeds the amount of any
damages which the Placement Agent has otherwise paid or become liable to pay by
reason of any untrue or alleged untrue statement, omission or alleged omission,
act or alleged act or failure to act or alleged failure to act. No Person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. The Placement Agents’ obligations
to contribute as provided in this Section 7 are
several in proportion to their respective obligations and not
joint.
8.
TERMINATION. The
obligations of the Placement Agents hereunder may be terminated by Cowen, in its
absolute discretion by notice given to the Company prior to delivery of and
payment for the Preferred Stock, Stock and Warrants if, prior to that time, any
of the events described in Sections 6(m) or
6(p) have
occurred, or if the Placement Agents shall decline to place the Preferred Stock,
Stock and Warrants for any reason permitted under this Agreement. In
addition, the obligations of the Placement Agents hereunder may be terminated by
Cowen if the Purchasers shall decline to purchase the Preferred Stock, Stock and
Warrants for any reason permitted under the Subscription
Agreement. The Company hereby acknowledges that in the event that
this Agreement is terminated by the Placement Agents pursuant to the terms
hereof, the Subscription Agreement shall automatically terminate without any
further action on the part of the parties thereto
41
9.
REIMBURSEMENT OF PLACEMENT
AGENTS’ EXPENSES. Notwithstanding anything to the contrary in this
Agreement, if (a) this Agreement shall have been terminated pursuant to
Section 8
or 10,
(b) the Company shall fail to tender the Preferred Stock, Stock and
Warrants for delivery to the Placement Agents for any reason not permitted under
this Agreement, (c) the Placement Agents shall decline to purchase the
Preferred Stock, Stock and Warrants for any reason permitted under this
Agreement, (d) the sale of the Preferred Stock, Stock and Warrants is not
consummated because any condition to the obligations of the Placement Agents set
forth herein is not satisfied or (e) the sale of the Preferred Stock, Stock
and Warrants is not consummated because of the refusal, inability or failure on
the part of the Company to perform any agreement herein or to satisfy any
condition or to comply with the provisions hereof, then in addition to the
payment of amounts in accordance with Section 5, the
Company shall reimburse the Placement Agents for the fees and expenses of
Placement Agents’ counsel and for such other out-of-pocket expenses as shall
have been reasonably incurred by them in connection with this Agreement and the
proposed purchase of the Preferred Stock, Stock and Warrants, including, without
limitation, travel and lodging expenses of the Placement Agents, and upon demand
the Company shall pay the full amount thereof to Cowen; provided that in no
event shall the Company be obligated to reimburse the Placement Agents pursuant
to clauses (a), (c) or (d) in an amount in excess of $125,000 in the aggregate
(which amount shall be reduced by any amount due and payable by the Company
pursuant to Section 9 of that certain underwriting agreement executed in
connection with the Concurrent Common Offering). If this Agreement is
terminated pursuant to Section 10 by
reason of the default of one or more Placement Agents, the Company shall not be
obligated to reimburse any defaulting Placement Agent on account of expenses to
the extent incurred by such defaulting Placement Agent provided that the foregoing
shall not limit any reimbursement obligation of the Company to any
non-defaulting Placement Agent under this Section 9.
10.
[RESERVED.].
11.
ABSENCE OF FIDUCIARY
RELATIONSHIP. The Company acknowledges and agrees that:
(a) each
Placement Agent’s responsibility to the Company is solely contractual in nature,
the Representative have been retained solely to act as placement agent in
connection with the sale of the Preferred Stock, Stock and Warrants and no
fiduciary, advisory or agency relationship between the Company and the
Representative has been created in respect of any of the transactions
contemplated by this Agreement, irrespective of whether the Representative has
advised or is advising the Company on other matters;
(b) the
price of the Preferred Stock, Stock and Warrants set forth in this Agreement was
established by the Company following discussions and arms-length negotiations
with the Representative, and the Company is capable of evaluating and
understanding, and understands and accepts, the terms, risks and conditions of
the transactions contemplated by this Agreement;
(c) it
has been advised that the Representative and its affiliates are engaged in a
broad range of transactions which may involve interests that differ from those
of the Company and that the Representative has no obligation to disclose such
interests and transactions to the Company by virtue of any fiduciary, advisory
or agency relationship; and
42
(d) it
waives, to the fullest extent permitted by law, any claims it may have against
the Representative for breach of fiduciary duty or alleged breach of fiduciary
duty and agrees that the Representative shall have no liability (whether direct
or indirect) to the Company in respect of such a fiduciary duty claim or to any
person asserting a fiduciary duty claim on behalf of or in right of the Company,
including stockholders, employees or creditors of the Company.
12.
SUCCESSORS; PERSONS ENTITLED
TO BENEFIT OF AGREEMENT. This Agreement shall inure to the benefit of and
be binding upon the several Placement Agents, the Company and their respective
successors and assigns. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, other than the persons
mentioned in the preceding sentence, any legal or equitable right, remedy or
claim under or in respect of this Agreement, or any provisions herein contained,
this Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit of
no other person; except that the representations, warranties, covenants,
agreements and indemnities of the Company contained in this Agreement shall also
be for the benefit of the Placement Agent Indemnified Parties, and the
indemnities of the several Placement Agents shall be for the benefit of the
Company Indemnified Parties. It is understood that each Placement Agent’s
responsibility to the Company is solely contractual in nature and the Placement
Agents do not owe the Company, or any other party, any fiduciary duty as a
result of this Agreement. No purchaser of any of the Preferred Stock, Stock and
Warrants from any Placement Agent shall be deemed to be a successor or assign by
reason merely of such purchase.
13.
SURVIVAL OF INDEMNITIES,
REPRESENTATIONS, WARRANTIES, ETC. The respective indemnities, covenants,
agreements, representations, warranties and other statements of the Company and
the several Placement Agents, as set forth in this Agreement or made by them
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation made by or on behalf of any Placement Agent, the
Company or any person controlling any of them and shall survive delivery of and
payment for the Preferred Stock, Stock and Warrants. Notwithstanding any
termination of this Agreement, including without limitation any termination
pursuant to Section 8 or
Section 10, the
indemnities, covenants, agreements, representations, warranties and other
statements forth in Sections 2, 5, 7 and 9 and Sections 11 through
21, inclusive,
of this Agreement shall not terminate and shall remain in full force and effect
at all times.
14. NOTICES. All statements,
requests, notices and agreements hereunder shall be in writing,
and:
(a) if
to the Placement Agents, shall be delivered or sent by mail, telex, or facsimile
transmission to Cowen and Company, LLC, 1221 Avenue of the Americas, New York,
New York 10020, Attention: Head of Equity Capital Markets, Fax: 646-562-1249
with a copy to the General Counsel, Fax: 646-562-1861, with a copy (which shall
not constitute notice hereunder) to Goodwin Procter LLP, The New York Times
Building, 620 Eighth Avenue, New York, New York 10018, Attention: Michael D.
Maline, Esq., Fax: 212-355-3333; and
43
(b) if
to the Company, shall be delivered or sent by mail, telex, or facsimile
transmission to NeoStem, Inc., 420 Lexington Avenue, Suite 450, New York, New
York 10170, Attention: General Counsel, Fax: 646-514-7787, with a copy (which
shall not constitute notice hereunder) to Lowenstein Sandler PC, 65 Livingston
Avenue, Roseland, New Jersey 07068, Attention: Alan Wovsaniker, Esq., Fax:
973-597-2400;
provided, however, that any
notice to a Placement Agent pursuant to Section 7 shall
be delivered or sent by mail, or facsimile transmission to such Placement Agent
at its address set forth in its acceptance telex to the Representative, which
address will be supplied to any other party hereto by the Representative upon
request. Any such statements, requests, notices or agreements shall take effect
at the time of receipt thereof.
15. DEFINITION OF CERTAIN TERMS.
For purposes of this Agreement, (a) “business day” means
any day on which the New York Stock Exchange, Inc. is open for trading and
(b) “subsidiary” has the
meaning set forth in Rule 405 of the Rules and Regulations.
16. GOVERNING LAW AND
JURISDICTION. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, including
without limitation Section 5-1401 of the New York General Obligations.
The Company irrevocably (a) submits to the non-exclusive
jurisdiction of the Federal and state courts in the Borough of Manhattan in The
City of New York for the purpose of any suit, action or other proceeding arising
out of this Agreement or the transactions contemplated by this Agreement, the
Registration Statements and any Preliminary Prospectus or the Prospectus,
(b) agrees that all claims in respect of any such suit, action or
proceeding may be heard and determined by any such court, (c) waives to the
fullest extent permitted by applicable law, any immunity from the jurisdiction
of any such court or from any legal process, (d) agrees not to commence any
such suit, action or proceeding other than in such courts, and (e) waives,
to the fullest extent permitted by applicable law, any claim that any such suit,
action or proceeding is brought in an inconvenient forum.
17. PLACEMENT AGENTS’
INFORMATION. The parties hereto acknowledge and agree that, for all
purposes of this Agreement, the Placement Agents’ Information consists solely of
the statements concerning the Placement Agents contained in the fourth paragraph
under the heading “Plan of Distribution” in the Prospectus.
18. AUTHORITY OF THE
REPRESENTATIVE. In connection with this Agreement, you will act for and
on behalf of the several Placement Agents, and any action taken under this
Agreement by the Representative, will be binding on all the Placement
Agents.
19. PARTIAL UNENFORCEABILITY. The
invalidity or unenforceability of any section, paragraph, clause or provision of
this Agreement shall not affect the validity or enforceability of any other
section, paragraph, clause or provision hereof. If any section, paragraph,
clause or provision of this Agreement is for any reason determined to be invalid
or unenforceable, there shall be deemed to be made such minor changes (and only
such minor changes) as are necessary to make it valid and
enforceable.
44
20. GENERAL. This Agreement
constitutes the entire agreement of the parties to this Agreement and supersedes
all prior written or oral and all contemporaneous oral agreements,
understandings and negotiations with respect to the subject matter hereof,
including, without limitation the letter agreement dated as of October 20, 2010
between the Company and Cowen and Company, LLC. In this Agreement, the
masculine, feminine and neuter genders and the singular and the plural include
one another. The section headings in this Agreement are for the convenience of
the parties only and will not affect the construction or interpretation of this
Agreement. This Agreement may be amended or modified, and the observance of any
term of this Agreement may be waived, only by a writing signed by the Company
and the Representative.
21. COUNTERPARTS. This Agreement
may be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument.
45
If the
foregoing is in accordance with your understanding of the agreement between the
Company and the several Placement Agents, kindly indicate your acceptance in the
space provided for that purpose below.
|
Very
truly yours,
|
|
|
NEOSTEM,
INC.
|
|
|
By:
|
/s/ Robin L. Smith
|
|
Name:
|
Robin L. Smith |
|
Title:
|
Chief Executive Officer |
Accepted
as of the
date
first above written:
COWEN
AND COMPANY, LLC
Acting on
its own behalf and as Representative
of the
several Placement Agents referred to in the foregoing Agreement.
|
By:
|
/s/ Kevin J. Raidy
|
|
Name:
|
Kevin J. Raidy |
|
Title:
|
Managing Director |
46
SCHEDULE
I
General Use Free Writing
Prospectuses
[None.]
47
SCHEDULE
II
Pricing
Information
Number of
Preferred Stock Sold: 10,582,011
Number of
Stock Sold: 164,418
Number of
Warrants Sold: 1,322,486
Purchase
Price Per Unit: $0.945
Net
Proceeds to the Company: $925,000 (excluding reimbursable
expenses)
48
Schedule
2(fff)
The
Company's Erye subsidiary has approved the conversion of some of Erye's reserve
capital into registered capital. The formal process for making that conversion
has not been completed. Therefore Erye's registered capital has not yet been
fully paid to such extent.
49
EXHIBIT
A
Form of Lock-Up
Agreement
50
EXHIBIT
B
Officers, Directors, and
Shareholders Executing Lock-Up Agreements
Drew
Bernstein
Eric H.C.
Wei
Robin L.
Smith, M.D., MBA
Richard
Berman
Steven S.
Myers
Edward C.
Geehr, M.D.
Larry A.
May
Catherine
M. Vaczy
Alan G.
Harris, M.D., Ph.D.
Anthony
Salerno
Teresa
Lepore
Christopher
Duignan
Madam
Zhang Jian
Shi
Mingsheng
Peter
Sun
Daisy
Dai
Ian
Zhang
Shari
Pine
Wayne
Marasco
Jian Qian
Cai Mao
Chris
Peng Mao
Fulbright
Finance Limited
RimAsia
51
EXHIBIT
C
Form of Legal Opinion and
Negative Assurance Statement of Lowenstein Sandler PC
52
EXHIBIT
D
Form of Legal Opinion and
Negative Assurance Statement of Jun He Law Offices LLC
53
EXHIBIT
E
Form of Legal Opinion and
Negative Assurance Statement of Fuerst Ittleman PL
54
EXHIBIT
F
Form of Legal Opinion and
Negative Assurance Statement of Kenyon & Kenyon LLP
55
EXHIBIT
G
Form of Legal Opinion and
Negative Assurance Statement of Epstein Becker & Green
P.C.
56
EXHIBIT
H
Form of
Warrant
57
EXHIBIT
I
Form of Securities Purchase
Agreement
58
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
SERIES
E 7% SENIOR CONVERTIBLE PREFERRED STOCK
for
NEOSTEM,
INC.
NEOSTEM, INC., a Delaware
corporation (the “Corporation”), pursuant to the provisions of Section 151 of
the General Corporation Law of the State of Delaware, does hereby make this
Certificate of Designations and does hereby state and certify that pursuant to
the authority expressly vested in the Board of Directors of the Corporation by
the Certificate of Incorporation of the Corporation, the Board of Directors duly
adopted the following resolutions, which resolutions remain in full force and
effect as of the date hereof:
RESOLVED, that, pursuant to
Article Fourth of the Certificate of Incorporation of the Corporation, the Board
of Directors hereby authorizes the issuance of, and fixes the designation and
preferences and relative, participating, optional and other special rights, and
qualifications, limitations and restrictions, of a series of Preferred Stock
consisting of 10,582,011 shares, par value $0.01
per share, to be designated “Series E 7% Senior
Convertible Preferred Stock” (the “Preferred Shares”).
RESOLVED, that each of the
Preferred Shares shall rank equally in all respects and shall be subject to the
following terms and provisions:
1. Certain
Defined Terms. For purposes of this Certificate of
Designations, the following terms shall have the following
meanings:
(a) “Bloomberg”
means Bloomberg Financial Markets.
(b) “Business
Day” means any day other than Saturday, Sunday or other day on which commercial
banks in the City of New York are authorized or required by law to remain
closed.
(c) “Common
Stock” means the common stock, par value $0.001 per share, of the
Corporation.
(d) “Common
Shares” means fully paid, validly issued and non-assessable shares of Common
Stock.
(e) “Dollar
Volume Limitation” means fifteen percent (15%) of the aggregate dollar trading
volume of the Common Stock on the NYSE Amex Equities (or other applicable
Trading Market) over the twenty-two (22) consecutive Trading Day period ending
on the Trading Day immediately preceding the date of the Mandatory Redemption
Notice (as defined below) or Optional Redemption Notice (as defined below), as
applicable. For the purposes of this section the term “dollar trading
volume” for any Trading Day shall be determined by multiplying the Daily VWAP by
the volume as reported on Bloomberg for such Trading Day.
(f) “Daily
VWAP” means, for any date, (i) the daily volume weighted average price of the
Common Stock for such date on the NYSE Amex Equities as reported by Bloomberg
(based on a Trading Day from 9:30 a.m. New York City Time to 3:59 p.m. New York
City Time); (ii) if the Common Stock is not then listed on the NYSE Amex
Equities, the daily volume weighted average price of the Common Stock for such
date on such other Trading Market where the Common Stock is then listed as
reported by Bloomberg (based on a Trading Day from 9:30 a.m. New York City Time
to 3:59 p.m. New York City Time); (iii) if the foregoing do not apply, the
volume weighted average price of the Common Stock in the over-the-counter market
on the electronic bulletin board for the Common Stock as reported by Bloomberg,
or, if no volume weighted average price is reported for such security by
Bloomberg, the highest bid as reported on the "pink sheets" by Pink Sheets LLC
(formerly the National Quotation Bureau, Inc.) at the close of trading; or (iv)
in all other cases, the fair market value of a share of Common Stock as
determined by an independent appraiser selected in good faith by the Required
Holders and reasonably acceptable to the Corporation.
(g) “Equity
Conditions” means each of the following: (i) on each day during the Equity
Conditions Measuring Period, all Common Shares to be issued on the applicable
Mandatory Redemption Date (or such other date on or event for which the Equity
Conditions are required to be satisfied) shall be eligible for resale by the
Holder without restriction and without need for additional registration under
any applicable federal or state securities laws, and the Corporation shall have
no knowledge of any fact that would cause any Common Shares not to be so
eligible for resale by the Holder without restriction and without need for
additional registration under any applicable federal or state securities laws;
(ii) on each day during the Equity Conditions Measuring Period, the Common
Shares are designated for listing on a Trading Market and shall not have been
suspended from trading on such Trading Market nor shall delisting or suspension
by such exchange or market have been threatened or pending in writing by such
exchange nor shall there be any Securities and Exchange Commission (“SEC”) or
judicial stop trade order or trading suspension stop order; (iii) any Common
Shares to be issued in connection with the applicable Mandatory Redemption Date
(or such other date on or event for which the Equity Conditions are required to
be satisfied) may be issued in full without violating the rules or regulations
of the Trading Market or any applicable laws; (iv) on each day during the Equity
Conditions Measuring Period, there shall not have occurred and be continuing,
unless waived by the Holder, either (A) a Trigger Event (as defined below) or
(B) an event that with the passage of time or giving of notice would constitute
a Trigger Event; (v) on each day during the Equity Conditions Measuring Period,
the Corporation has not provided any Holder with any non-public information in
breach of Section 3.8 of the Purchase Agreement; (vi) on each day during the
Equity Conditions Measuring Period, neither the Registration Statement (as
defined in the Purchase Agreement) nor the Prospectus (as defined in the
Purchase Agreement) nor any Prospectus Supplements (as defined in the Purchase
Agreement) contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading and such
Registration Statement, such Prospectus and such Prospectus Supplements comply
with all applicable securities laws as to form and substance (unless all Common
Shares issuable on the applicable Mandatory Redemption Date (or such other date
requiring payment in Common Shares) may be resold by the Holder pursuant to Rule
144 under the Securities Act of 1933, as amended (the “Securities Act”) without
volume limitations or any public information requirements or such other
exemption from registration that would permit the Holder to resell such Common
Shares without restriction and without need for additional registration under
any securities laws); (vii) the Corporation’s transfer agent for the Common
Shares is participating in the Depository Trust Company (“DTC”) Fast Automated
Securities Transfer Program; and (ix) all Common Shares to be issued in
connection with the applicable Mandatory Redemption Date (or such other date on
or event for which the Equity Conditions are required to be satisfied) are duly
authorized and will be validly issued, fully paid and non-assessable upon
issuance, free and clear of all liens, claims or encumbrances, and the issuance
thereof will not require any further approvals of the Corporation’s Board of
Directors or stockholders. All references to the "Registration
Statement" or "Prospectus" shall include any amendments or supplements thereto,
as filed from time to time, including, without limitation, any Exchange Act (as
defined below) filings incorporated by reference.
2
(h) “Equity
Conditions Measuring Period” means the period beginning twenty (20) Trading Days
prior to the applicable Mandatory Redemption Date (or such other date on or
event for which the Equity Conditions are required to be satisfied) and ending
on and including such Mandatory Redemption Date. For the avoidance of
doubt, the Equity Conditions Measuring Period for each Mandatory Redemption Date
shall include the Stock Payment Pricing Period and such Mandatory Redemption
Date.
(i) “Equity
Line” means (i) the Common Stock Purchase Agreement, dated May 19, 2010, by and
between the Corporation and Commerce Court Small Cap Value Fund, Ltd. and the
transactions contemplated thereby and/or (ii) any other similar agreement,
contract, arrangement or understanding commonly known as an “equity line”
between the Corporation and any person.
(j) “Excluded
Securities” means (a) Common Shares or Common Stock Equivalents issued pursuant
to a stock option plan that has been approved by the Board of Directors and
stockholders of the Corporation, pursuant to which the Corporation's securities
may be issued only to a person eligible for award under such plan, (b) Common
Shares or Common Stock Equivalents issued to employees or consultants (including
in connection with investor relations activities) for compensatory purposes, (c)
Common Shares or Common Stock Equivalents issued upon the exercise or conversion
of Common Stock Equivalents outstanding on the date hereof, (d) Common Shares or
Common Stock Equivalents issued to investors in the common stock and warrant
offering contemplated by Section 4.2(i) of the Purchase Agreement, (e) Common
Shares or Common Stock Equivalents issued in the pending transaction with
Progenitor Cell Therapy, LLC (“Progenitor”) as currently contemplated by that
certain Agreement and Plan of Merger, dated September 23, 2010, by and among the
Corporation, NBS Acquisition Company LLC and Progenitor (the “Merger
Agreement”), (f) Common Shares or Common Stock Equivalents issued in the
transactions contemplated by the Purchase Agreement, including pursuant to the
Certificate of Designations or the Warrants, and (g) Common Shares or Common
Stock Equivalents issued or deemed to be issued in connection with any
acquisition by the Corporation, whether through a merger, an acquisition of
stock or an acquisition of assets, or a license, of any business, product,
assets or technologies, or any strategic partnership, strategic investment or
joint venture involving any technology or product, or any other transaction the
primary purpose of which is not to raise capital; provided however, that the
number of Common Shares which may be issued pursuant to this clause (g) in any
transaction, or series of related transactions, shall not exceed 33% of the
number of Common Shares outstanding immediately prior to any such
transaction.
3
(k) “Holder”
means each holder of the Preferred Shares.
(l) “Initial
Issuance Date” means November 19, 2010.
(m) “Mandatory
Redemption Shares” means, with respect to (a) any Mandatory Redemption Date
(other than the Maturity Date) an amount equal to 1/27th of the
Preferred Shares initially issued pursuant to the Purchase Agreement (regardless
of whether any Holder has converted any shares of Preferred Stock pursuant to
Section 7 or the Corporation has optionally redeemed any shares of Preferred
Stock pursuant to Section 8) and (b) the Maturity Date, all outstanding
Preferred Shares.
(n) “Mandatory
Redemption Date” means March 19,
2011 [date
that is four months after the Closing Date], and the 19th
day of each calendar month thereafter (or the next Trading Day
thereafter) and ending on and including the Maturity
Date. Notwithstanding anything contained herein to the contrary and
for all purposes hereunder, the Maturity Date shall be deemed to be a Mandatory
Redemption Date.
(o) “Maturity
Date” means May 20, 2013.
(p) “Purchase
Agreement” means the Securities Purchase Agreement, of even date herewith, by
and among the Corporation and the initial purchasers of Preferred Shares
thereunder.
(q) “Required
Holders” means the Holders of Preferred Shares representing at least a
majority of the
aggregate Preferred Shares then outstanding.
(r) “Stock
Payment Price” means, with respect to any date when any amount hereunder is due
and payable, that price which shall be computed as 92% of the arithmetic average
of the five lowest Daily VWAPs of the Common Shares during the Stock Payment
Pricing Period. All such determinations will be appropriately
adjusted for any stock split, stock dividend, stock combination or other similar
transaction.
(s) “Stock
Payment Pricing Period” means, with respect to any Mandatory Redemption Date or
any other date when any amount hereunder is due and payable, the twenty (20)
Trading Days immediately prior to such date. For the avoidance of doubt, the
Stock Payment Pricing Period does not include the Mandatory Redemption Date or
such other date when any amount hereunder is due and payable.
(t) “Subsidiaries”
shall have the meaning as set forth in the Purchase Agreement.
4
(u) “Trading
Day” means 9:30AM to 3:59PM on any day on which the Common Shares are traded on
a Trading Market, or, if the Common Shares are not so traded, a Business
Day.
(v) “Trading
Market” means the NYSE Amex Equities, the New York Stock Exchange or the NASDAQ
Global Select Market, the NASDAQ Global Market or the NASDAQ Capital
Market.
(w) “Tax”
means any tax, levy, impost, duty or other charge or withholding of a similar
nature (including any related penalty or interest).
(x) “Tax
Deduction” means a deduction or withholding for or on account of Tax from a
payment under this Certificate of Designations.
(y) “Transfer
Agent” means Continental Stock Transfer or such other person designated by the
Corporation as the transfer agent for the Common Shares.
(z) “Warrants”
shall have the meaning as set forth in the Purchase Agreement.
2. Designation. There
is hereby created out of the authorized and unissued shares of preferred stock
of the Corporation a series of preferred stock designated as the “Series E 7%
Senior Convertible Preferred Stock” (the “Preferred Stock”). The
number of shares constituting such series shall be 10,582,011.
3. Cumulative
Dividends. The Holders of
the Preferred Shares shall be entitled to receive dividends payable in cash (or,
at the Corporation’s option in Common Shares pursuant to Section 6) on the
Liquidation Preference (as defined below) of such Preferred Share at the per
share rate of seven percent (7%) per annum, which shall be
cumulative. Dividends on the Preferred Shares shall commence accruing
on the Initial Issuance Date and shall be computed on the basis of a 360-day
year of twelve 30-day months. Dividends shall be payable in arrears
on each Mandatory Redemption Date.
4. Liquidation
Preference. In the event of
any liquidation, dissolution or winding up of the Corporation, either voluntary
or involuntary (a “Liquidation Event”), the Holders of the Preferred Shares
shall be entitled to receive, out of the assets of the Corporation available for
distribution to stockholders (“Liquidation Funds”), prior and in preference to
any distribution of any assets of the Corporation to the holders of any other
class or series of equity securities, the amount of one dollar ($1.00) per share
plus all accrued but unpaid dividends (the “Liquidation
Preference”). After payment of the full amount of the Liquidation
Preference, in the case of a Liquidation Event, the Holders will not be
entitled to any further participation in any distribution of assets of the
Corporation; provided that the foregoing shall not affect any rights which
Holders may have with respect to any requirement that
the Corporation repurchase the Preferred Shares or for any right to
monetary damages. All the preferential amounts to be paid to the
Holders of the Preferred Shares under this Section 4 shall be paid or set apart
for payment before the payment or setting apart for payment of any amount for,
or the distribution of any Liquidation Funds of the Corporation to the holders
of shares of other classes or series of preferred stock of the Corporation
junior in rank to the Preferred Shares in connection with a Liquidation
Event. A Change of Control (as defined below) shall not, ipso facto, be deemed a
Liquidation Event.
5
5. Issuance
of Preferred Shares. The Preferred
Shares shall be issued by the Corporation pursuant to the Purchase
Agreement.
6. Mandatory
Monthly Redemption.
(a) General. On each
applicable Mandatory Redemption Date, the Corporation shall redeem the Mandatory
Redemption Shares at an aggregate redemption price equal to the sum of (x) the
product of (A) the Liquidation Preference and (B) the number of Mandatory
Redemption Shares required to be redeemed on such Mandatory Redemption Date plus
(y) any and all accrued but unpaid dividends on all of the outstanding Preferred
Shares (the “Mandatory Redemption Price”). Subject to Section 6(g),
the Mandatory Redemption Price shall be payable, at the Corporation’s option, in
cash or Common Shares or any combination of cash and Common Shares, subject to
the provisions of this Section 6; provided, however, that no portion of the
Mandatory Redemption Price may be paid in Common Shares unless the Equity
Conditions are satisfied or waived by the Required Holders in writing prior to
delivery of the applicable Mandatory Redemption Notice (as defined below);
provided, further, however, that the portion of the applicable Mandatory
Redemption Price that the Corporation elects to pay in Common Shares
(if any) shall not exceed the Dollar Volume Limitation (unless waived by the
Required Holders in writing).
(b) Mandatory Redemption
Notice. On a date not less than twenty-two (22) Trading Days,
but in no event more than twenty-five (25) Trading Days, prior to each Mandatory
Redemption Date (the “Mandatory Redemption Notice Date”), the Corporation shall
deliver a written notice (a “Mandatory Redemption Notice”) to the Holders, which
shall either: (i) confirm that the entire applicable Mandatory Redemption Price
shall be paid in cash; or (ii) (A) state that the Corporation elects to pay all
or a portion of the Mandatory Redemption Price in Common Shares, (B) specify the
portion that the Corporation elects to pay in cash (expressed in dollars) (such
amount, the “Cash Payment Amount”) and the portion that the Corporation elects
to pay in Common Shares (expressed in dollars) (such portion a “Stock Payment
Amount”), which amounts when added together must equal the applicable Mandatory
Redemption Price, (C) certify that the Equity Conditions are then satisfied (or
waived by the Required Holders), (D) state the Dollar Volume Limitation
(expressed in dollars) and certify that the Stock Payment Amount does not exceed
such Dollar Volume Limitation and (E) certify that the Maximum Share Amount (as
defined below) has not been exceeded. If (x) the Corporation does not
timely deliver a Mandatory Redemption Notice in accordance with this Section
6(b) or (y) the Equity Conditions are not satisfied (unless waived by the
Required Holders), then the Corporation shall be deemed to have delivered, a
Mandatory Redemption Notice electing to pay the entire Mandatory Redemption
Price in cash. Any Cash Payment Amount shall be paid in accordance with Section
6(c) and any Stock Payment Amount shall be paid in accordance with Section 6(d).
Each Mandatory Redemption Notice, whether actually given or deemed given, shall
be irrevocable.
6
(c) Mechanics of Cash
Payment. On each Mandatory Redemption Date, to the extent that
the Corporation elects to pay all or any portion of the Mandatory Redemption
Price in cash, then the Corporation shall pay all or such portion of the
Mandatory Redemption Price, as applicable, by wire transfer of immediately
available funds in accordance with the wire instructions of each Holder provided
to the Corporation in writing. If the Corporation fails to pay such
portion of the Mandatory Redemption Price (“Cash Payment Failure”) to be paid in
cash on the applicable Mandatory Redemption Date (the “Applicable Cash
Payment”), then the Corporation shall pay damages to the Holder for each day
after such Mandatory Redemption Date in an amount in equal to two percent (2%)
of such Applicable Cash Payment, but in no event in excess of twenty-four
percent (24%) (“Cash Payment Liquidated Damages”). Notwithstanding
the foregoing, the Corporation shall only be liable for Cash Payment Liquidated
Damages to the extent that there is more than one (1) Cash Payment Failure in
any twelve (12) month period. Nothing herein shall limit a Holder’s
right to pursue any other remedies available to it hereunder, at law or in
equity including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Corporation’s failure to timely pay any
Applicable Cash Payment as required pursuant to the terms hereof.
(d) Mechanics of Stock
Payment.
(i) To
the extent that the Corporation elects (or is required pursuant to Section 6(g))
to pay all or any portion of the applicable Mandatory Redemption Price in Common
Shares, the applicable Stock Payment Amount shall be paid as
follows:
(A) twenty-one
(21) Trading Days prior to the applicable Mandatory Redemption Date (the “First
Advance Date”), the Corporation shall deliver to the Holders a number of Common
Shares determined by dividing (x) the Stock Payment Amount for such Mandatory
Redemption Date by (y) ninety-two percent (92%) of the Daily VWAP on the Trading
Day immediately preceding such Advance Date (the “First Advance
Shares”);
(B) eleven
(11) Trading Days prior to the applicable Mandatory Redemption Date (the "Second
Advance Date" and together with the First Advance Date, the "Advance Dates" and
each, an "Advance Date"), the Corporation shall deliver to the Holders a number
of Common Shares equal to the positive difference (if any) between (x) the
quotient of (1) the Stock Payment Amount and (2) ninety-two percent (92%) of the
average of the five lowest Daily VWAPs during the first (10) ten Trading Days of
the applicable Stock Payment Pricing Period and (y) the number of First Advance
Shares delivered to the Holders pursuant to 6(d)(i)(B) in connection with
such Mandatory Redemption Date (the "Second Advance Shares" and together with
the First Advance Shares, the “Advance Shares”). For the avoidance of
doubt, to the extent that the difference between clauses (x) and (y) is a
negative number the Corporation shall not be required to deliver any Common
Shares to the Holders pursuant to this Section 6(d)(i)(C); and
7
(C) not
later than three (3) Trading Days after the applicable Mandatory Redemption
Date, the Corporation shall deliver an additional number of Common Shares (the
“True-Up Shares”), if any, to the Holders equal to the positive difference
between (a) the Stock Payment Amount divided by the Stock Payment Price for such
Mandatory Redemption Date and (b) the Advance Shares; provided; however, that if
clause (b) exceeds clause (a), then each Holder shall return its pro rata
portion of such excess number of Common Shares to the Corporation, and such
excess shares shall immediately be deemed cancelled effective as of the
applicable Mandatory Redemption Date. For the avoidance of doubt, no
Holder shall have any liability to the Corporation to the extent that any
Advance Shares that are returned to the Corporation pursuant to the immediately
preceding sentence decrease in value following the applicable Advance
Date.
(ii) Notwithstanding
any other provision of this Section 6.1(d), to the extent that the Corporation
elects to pay all or any portion of the applicable Mandatory Redemption Price in
Common Shares:
(A) to
the extent that the aggregate number of Advance Shares or True-Up Shares to be
delivered to a Holder pursuant to this Section 6(d) in respect of any individual
Stock Payment Amount would cause such Holder to exceed the Beneficial Ownership
Limitation (as defined below), then, (I) the Holder shall provide written notice
to the Corporation that such delivery of all or a portion of the Advance Shares
or True-Up Shares would cause such Holder to exceed the Beneficial Ownership
Limitation, and (II) in addition to delivery of the number of Advance Shares or
True-Up Shares that would not cause such Holder to exceed the Beneficial
Ownership Limitation, the Corporation shall pay to such Holder in lieu of such
number of Advance Shares or True-Up Shares that would cause such Holder to
exceed the Beneficial Ownership Limitation (such excess number of shares, the
“Excess Shares”), not more than the later of three (3) Trading Days after the
Mandatory Redemption Date or ten (10) Trading Days after the date of such
Holder’s written notice, an amount in cash equal to the portion of the Stock
Payment Amount that would otherwise be payable in respect of the Excess
Shares;
8
(B) to
the extent that such Stock Payment Amount, when aggregated with any Common
Shares already issued in respect of all of the Preferred Stock, would cause the
Maximum Share Amount to be exceeded, then that portion of such Stock Payment
Amount that would not exceed the Maximum Share Amount shall be delivered to the
Holders hereunder in Common Shares as provided above, ratably based on the
Holders’ relative ownership of the outstanding Preferred Shares, and the
Corporation shall pay to the Holders, not more than three (3) Trading Days after
the Mandatory Redemption Date, an amount in cash equal to the Stock Replacement
Payment in lieu of any portion of such Stock Payment Amount that would cause the
Maximum Share Amount to be exceeded;
(C) if
the Equity Conditions are neither (x) satisfied nor (y) waived in accordance
with the terms hereof, as applicable, on the Trading Day immediately preceding
the First Advance Date and/or on the First Advance Date, or if the Daily VWAP
cannot be determined on the Trading Day immediately preceding the First Advance
Date, or if the Corporation fails to deliver the First Advance Shares to the
Holders on the First Advance Date, then the Holder may, at its option upon
written notice to the Corporation, require the Corporation to pay to such
Holder, not later than three (3) Trading Days after the Mandatory Redemption
Date, an amount of cash equal to the Stock Replacement Payment in lieu of such
Stock Payment Amount; or
(D) if
subsequent to the delivery of the First Advance Shares (A) the Equity Conditions
are neither (x) satisfied nor (y) waived in accordance with the terms hereof, as
applicable, on any day of the Stock Payment Pricing Period or (B) if the Daily
VWAP cannot be determined on any day of the Stock Payment Pricing Period, then
each Holder may, at its option, elect in a written notice to the Corporation to
redeliver all or any portion of the Advance Shares to the Corporation and the
Corporation shall pay to such Holder, not later than three (3) Trading Days
after the Mandatory Redemption Date, an amount of cash equal to the Stock
Replacement Payment in lieu of such portion of the Stock Payment Amount for
which such Holder has elected in writing to redeliver Advance Shares to the
Corporation. For the avoidance of doubt, to the extent this Section
6(d)(ii)(D) applies, then by the third (3rd)
Trading Day after the Mandatory Redemption Date the Corporation must pay to the
Holder an amount of cash and Advance Shares equal in value to at least the
product of (x) a fraction the numerator of which is the average Daily VWAP of
the Common Shares for the applicable Stock Payment Pricing Period and the
denominator of which is the Stock Payment Price for such Stock Payment Pricing
Period and (y) the entire Stock Payment Amount.
9
The
“Stock Replacement Payment” shall be determined according to the following
formula:
SRP =
(X/Y) * S
For the
purposes of the foregoing formula:
SRP =
Stock Replacement Payment
X = the
average Daily VWAP of the Common Shares for the applicable Stock Payment Pricing
Period
Y = the
Stock Payment Price for the applicable Stock Payment Pricing Period
S = the
Stock Payment Amount (or, (A) in the case that either or both of Maximum Share
Amount and/or Beneficial Ownership Limitation is exceeded as provided above,
only that portion of such Stock Payment Amount that would exceed the Maximum
Share Amount and/or Beneficial Ownership Limitation, as applicable, and/or (B)
in the case of Section 6(d)(ii)(D) that portion of the Stock Payment Amount for
which the Holder has elected in its written notice to redeliver Advance Shares
to the Corporation).
(iii) Any
Common Shares required to be delivered by the Corporation to a Holder under this
Section 6 shall be credited to such Holder’s or its designee’s balance account
with DTC through its Deposit/Withdrawal at Custodian system
(“DWAC”). In addition, the provisions of the Section 7(c) and Section
7(g) shall apply to the delivery of Common Shares under this Section 6 mutatis mutandis as if each
date when Common Shares are required to be delivered under this Section 6 was a
Share Delivery Date. Notwithstanding the foregoing, the Corporation
shall only be liable for Stock Payment Liquidated Damages (as defined below)
with respect to any Advance Date or Mandatory Redemption Date to the extent that
the Corporation fails to deliver Common Shares when due more than once (1) in
any twelve month period.
(e) Each
mandatory redemption pursuant to this Section 6 (and the related payment of the
Mandatory Redemption Price) shall be made pro rata among the Holders based on
each Holder’s relative percentage ownership of the outstanding Preferred
Shares.
(f) Notwithstanding
the delivery of a Mandatory Redemption Notice or any provision of this Section 6
to the contrary, the Holder may deliver a Conversion Notice with respect to all
or any portion of the specific Mandatory Redemption Shares to be redeemed on the
applicable Mandatory Redemption Date at any time prior to such Mandatory
Redemption Date. Any Advance Shares delivered to such Holder in
connection with such Mandatory Redemption Date shall count towards the number of
Common Shares that Corporation shall be obligated to deliver on the applicable
Share Delivery Date (as defined below), and to the extent that the Advance
Shares exceeds the number of Common Shares that the Corporation would be
required to deliver on the applicable Share Delivery Date, the Holder shall
return such excess to the Corporation.
10
(g) Each
and every time that the Corporation sells any Common Shares pursuant to any
Equity Line, the Corporation shall immediately deliver a written notice to each
Holder (an “Equity Line Draw Notice”), which Equity Line Draw Notice shall state
the aggregate purchase price for such Common Shares (the “Equity Line Aggregate
Purchase Price”). Each Holder may, at its option, by delivering a
written notice to the Corporation, require the Corporation to pay the Mandatory
Redemption Price (or the appropriate portion thereof) on the next succeeding
Mandatory Redemption Date (or to the extent that the date of such Equity Line
Draw notice is subsequent to the date of the Mandatory Redemption Notice for
such Mandatory Redemption Date, then the next succeeding Mandatory Redemption
Date) in Common Shares in an amount equal to its “pro rata portion” of the
Equity Line Aggregate Purchase Price. To the extent that the Equity
Line Aggregate Purchase Price exceeds the aggregate amount of the entire
Mandatory Redemption Price for such Mandatory Redemption Date, then on each
succeeding Mandatory Redemption Date the Holder may, at its option, by
delivering a written notice to the Corporation, require the Corporation to pay
its “pro rata portion” of the applicable Mandatory Redemption Price in Common
Shares until the Corporation has made aggregate payments in Common Shares equal
to its “pro rata portion” of the entire Equity Line Aggregate Purchase
Price. Notwithstanding anything contained in this Section 6(g) to the
contrary, all payments of Mandatory Redemption Price made in Common Shares shall
be subject to Section 6(d) and upon the occurrence of any of the events
described in Sections 6(d)(ii)(A) – (D) the Corporation shall make the
appropriate Stock Replacement Payment as required by Section
6(d)(ii). For purposes of this Section 6(g), “pro rata portion”
means, with respect to each Holder, the number of Preferred Shares then held by
such Holder divided by the aggregate number of outstanding Preferred
Shares.
7. Optional
Conversion by the Holders. Each Holder shall
have the right at any time and from time to time, at the option of such Holder,
to convert all or any portion of the Preferred Shares held by such Holder, for
such number of Common Shares, free and clear of any liens, claims or
encumbrances, as is determined by dividing (i) the Liquidation Preference times
the number of Preferred Shares being converted, by (ii) the Conversion Price (as
defined below) in effect on the Conversion Date (as defined
below). Immediately following such conversion, the persons entitled
to receive the Common Shares upon the conversion of Preferred Shares shall be
treated for all purposes as having become the owners of such Common Shares,
subject to the rights provided herein to Holders. The term
“Conversion Price” means $2.0004, subject to adjustment as provided
herein.
(a) Delivery of Conversion
Notice. To convert Preferred Shares into Common Shares on any
date (a “Conversion Date”), the Holder shall give written notice (a “Conversion
Notice”) to the Corporation in the form of page 1 of Exhibit A hereto (which
Conversion Notice will be given by facsimile transmission, e-mail or other
electronic means no later than 11:59 p.m. New York City Time on such date, and
sent via overnight delivery no later than one (1) Trading Day (as defined below)
after such date) stating that such Holder elects to convert the same and shall
state therein the number of Preferred Shares to be converted and the name or
names in which such Holder wishes the certificate or certificates for Common
Shares to be issued. If required by Section 14, as soon as possible
after delivery of the Conversion Notice, such Holder shall surrender the
certificate or certificates representing the Preferred Shares being converted,
duly endorsed, at the office of the Corporation.
11
(b) Mechanics of
Conversion. The Corporation shall, promptly upon receipt of a
Conversion Notice (but in any event not less than one (1) Trading Day after
receipt of such Conversion Notice), (I) send, via facsimile, e-mail or other
electronic means a confirmation of receipt of such Conversion Notice to such
Holder and the Transfer Agent (as defined below), which confirmation shall
constitute an instruction to the Transfer Agent to process such Conversion
Notice in accordance with the terms herein and (II) on or before the third (3rd)
Trading Day following the date of receipt by the Corporation of such Conversion
Notice (the “Share Delivery Date”), credit such aggregate number of Common
Shares to which the Holder shall be entitled to such Holder’s or its designee's
balance account with DTC via DWAC. If the number of Preferred Shares
represented by the Preferred Stock certificate(s) delivered to the Corporation
in connection with a Conversion Notice, to the extent required by Section 14 or
to the extent otherwise requested by the Holder, is greater than the number of
Preferred Shares being converted, then the Corporation shall, as soon as
practicable and in no event later than three (3) Business Days after receipt of
such Preferred Stock certificate(s) (the “Preferred Stock Delivery Date”) and at
its own expense, issue and deliver to the Holder a new Preferred Stock
certificate representing the number of Preferred Shares not
converted. The person or persons entitled to receive the Common
Shares issuable upon a conversion of Preferred Shares shall be treated for all
purposes as the record holder or holders of such Common Shares on the Conversion
Date.
The
Corporation’s obligation to issue Common Shares upon conversion of Preferred
Shares shall, except as set forth below, be absolute, is independent of any
covenant of any Holder, and shall not be subject to: (i) any offset
or defense; or (ii) any claims against the Holders of Preferred Shares whether
pursuant to this Certificate, the Purchase Agreement, the Warrant or otherwise,
including, without limitation, any claims arising out of any selling or
short-selling activity by Holders.
(c) Corporation’s Failure to Timely
Convert. If within three (3) Trading Days after the
Corporation’s receipt of the facsimile copy of a Conversion Notice the
Corporation shall fail to credit a Holder's balance account with DTC for the
number of shares of Common Stock to which such Holder is entitled upon such
Holder's conversion of Preferred Shares, then in addition to all other available
remedies which such Holder may pursue hereunder and under the Purchase Agreement
(including indemnification pursuant to Article 5 thereof), the Corporation shall
pay additional damages to such Holder for each day after the Share Delivery Date
that such conversion is not timely effected in an amount equal to two percent
(2.0%) of the product of (I) the sum of the number of Common Shares not issued
to the Holder on or prior to the Share Delivery Date and to which such Holder is
entitled pursuant to the applicable Conversion Notice and the terms of this
Certificate of Designations, and (II) the Closing Sale Price (as defined below)
of the Common Stock on the Share Delivery Date, but in no event in excess of
twenty-four percent (24.0%) (“Stock Payment Liquidated Damages”). In
addition to the foregoing, if on the Share Delivery Date, the Corporation shall
fail to credit such Holder's balance account with DTC for the number of Common
Shares to which such Holder is entitled upon such Holder's conversion of
Preferred Shares, and if on or after such Trading Day the Holder purchases (in
an open market transaction or otherwise) Common Shares to deliver in
satisfaction of a sale by the Holder of the Common Shares issuable upon such
conversion that the Holder anticipated receiving from the Corporation (a
“Buy-In”), then the Corporation shall, within three (3) Trading Days after the
Holder's request and in the Holder's discretion, either (i) pay cash to the
Holder in an amount equal to the Holder's total purchase price (including
brokerage commissions and out-of-pocket expenses, if any) for the Common Shares
so purchased (the “Buy-In Price”), at which point the Corporation's obligation
to deliver such certificate (and to issue such Common Shares) shall terminate,
or (ii) promptly honor its obligation to deliver to the Holder a certificate or
certificates representing such Common Shares and pay cash to the Holder in an
amount equal to the difference between (if any) of the Buy-In Price and the
product of (A) such number of Common Shares, times (B) the Closing Sale Price on
the Conversion Date. Nothing herein shall limit a Holder’s right to
pursue any other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Corporation’s failure to timely deliver
certificates representing Common Shares upon conversion of the Preferred Shares
as required pursuant to the terms hereof.
12
The terms
“Closing Sale Price” means the last closing trade price for the Common Shares on
the NYSE Amex Equities, as reported by Bloomberg, or, if the NYSE Amex Equities
begins to operate on an extended hours basis and does not designate the closing
trade price then the last trade price, respectively, of such security prior to
3:59 p.m., New York City Time, as reported by Bloomberg, or, if the foregoing do
not apply, the last trade price, respectively, of the Common Shares in the
over-the-counter market on the electronic bulletin board for the Common Shares
as reported by Bloomberg, or, if no last trade price is reported for such
security by Bloomberg, the highest bid price as reported on the "pink sheets" by
Pink Sheets LLC (formerly the National Quotation Bureau, Inc.) at the close of
trading. If the Closing Sale Price cannot be calculated for the
Common Shares on a particular date on any of the foregoing bases, the Closing
Sale Price of the Common Shares on such date shall be the fair market value as
mutually determined by the Corporation and the Holder. All such
determinations to be appropriately adjusted for any stock dividend, stock split,
stock combination or other similar transaction during the applicable calculation
period.
(d) Adjustments to the Conversion
Price.
(i) Adjustments for Stock Splits and
Combinations. If the Corporation shall at any time or from
time to time after the Closing Date effect a stock split of the outstanding
Common Stock, the applicable Conversion Price in effect immediately prior to the
stock split shall be proportionately decreased. If the Corporation
shall at any time or from time to time after the Closing Date, combine the
outstanding shares of Common Stock, the applicable Conversion Price in effect
immediately prior to the combination shall be proportionately
increased. Any adjustments under this Section 7(d)(i) shall be
effective at the close of business on the date the stock split or combination
occurs.
13
(ii) Adjustments for Certain Dividends
and Distributions. If the Corporation shall at any time or
from time to time on or after the Initial Issuance Date make or issue or set a
record date for the determination of holders of Common Stock entitled to receive
a dividend or other distribution payable in Common Shares then, and in each
event, the applicable Conversion Price in effect immediately prior to such event
shall be decreased as of the time of such issuance or, in the event such record
date shall have been fixed, as of the close of business on such record date, by
multiplying the applicable Conversion Price then in effect by a
fraction:
(A) the
numerator of which shall be the total number of Common Shares issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date; and
(B) the
denominator of which shall be the total number of Common Shares issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date plus the number of Common Shares issuable in
payment of such dividend or distribution.
(iii) Adjustment for Other Dividends and
Distributions. If the Corporation shall at any time or from
time to time on or after the Initial Issuance Date make or issue or set a record
date for the determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in securities or property other than
Common Shares, then, and in each event, an appropriate revision to the
applicable Conversion Price shall be made and provision shall be made (by
adjustments of the Conversion Price or otherwise) so that the Holders of
Preferred Shares shall receive upon conversions thereof, in addition to the
number of Common Shares receivable thereon, the number of securities of the
Corporation or other issuer (as applicable) or other property that they would
have received had the Preferred Shares been converted into Common Shares on the
date of such event.
(iv) Adjustments for Issuance of
Additional Shares of Common Stock. In the event the
Corporation shall issue or sell any Common Shares (otherwise than as provided in
the foregoing subsections (i) through (iii) of this Section 7 or upon the
exercise or conversion of Common Stock Equivalents (as defined below) that were
outstanding on or prior to the Initial Issuance Date (for the avoidance of
doubt, this Section 7(d)(iv) shall apply to the issuance and sale of Common
Shares under the Equity Line) (the “Additional Shares”), at a price per share
less than the Conversion Price, or without consideration, the Conversion Price
then in effect upon each such issuance shall be adjusted to that price (rounded
to the nearest cent) determined by multiplying the Conversion Price by a
fraction:
(A) the
numerator of which shall be equal to the sum of (A) the number of Common Shares
outstanding immediately prior to the issuance of such Additional Shares plus (B)
the number of Common Shares (rounded to the nearest whole share) which the
aggregate consideration for the total number of such Additional Shares so issued
would purchase at a price per share equal to the then Conversion Price,
and
14
(B) the
denominator of which shall be equal to the number of Common Shares outstanding
immediately after the issuance of such Additional Shares.
No
adjustment shall be made under this Section 7(d)(iv) upon the issuance of any
Additional Shares which are issued pursuant to the exercise, conversion or
exchange rights under any Common Stock Equivalents (as defined below), if any
such adjustment shall previously have been made upon the issuance of such Common
Stock Equivalents (or upon the issuance of any warrant or other rights
therefore) pursuant to Section 7(d)(v).
(v) Issuance of Common Stock
Equivalents. In the event the Corporation shall issue or sell
any Common Stock Equivalents (other than the Preferred Shares and the Warrants)
and the price per share for which Additional Shares may be issued pursuant to
any such Common Stock Equivalent shall be less than the applicable Conversion
Price then in effect, or if, after any such issuance of Common Stock
Equivalents, the price per share for which Additional Shares of Common Stock may
be issued thereafter is amended or adjusted, and such price as so amended shall
be less than the applicable Conversion Price in effect at the time of such
amendment or adjustment, then the applicable Conversion Price upon each such
issuance or amendment shall be adjusted as provided in Section
7(d)(iv). For purposes of the foregoing, in the case of the sale of
issuance of any Common Stock Equivalents or in that case that any Common Stock
Equivalents are amended and adjusted as provided in this Section 7(d)(v), the
maximum number of Additional Shares issuable upon conversion, exchange or
exercise of such Common Stock Equivalent shall be deemed to be outstanding at
the time of such sale or issuance or amendment or adjustment, as the case may
be, and no further adjustment shall be made to the Conversion Price upon the
actual issuance of Additional Shares pursuant to the exercise, conversion or
exchange of such Common Stock Equivalents. The term “Common Stock
Equivalent” means any rights, warrants or options to purchase or other
securities convertible into or exchangeable or exercisable for, directly or
indirectly, any (1) Common Shares or (2) securities convertible into or
exchangeable or exercisable for, directly or indirectly, Common Shares or Common
Stock Equivalents.
(vi) Certain Issues
Excepted. There shall be no adjustment to the Conversion
Price pursuant to Section 7(d)(iv) or Section 7(d)(v) with respect to the
sale or issuance of Excluded Securities.
15
(vii) Calculation of Consideration
Received. In case any Common Stock Equivalents are issued in
connection with the issue or sale of other securities of the Corporation,
together comprising one integrated transaction in which no specific
consideration is allocated to such Common Stock Equivalents by the parties
thereto, the Common Stock Equivalents will be deemed to have been issued for a
consideration of $.01. If any Common Shares or Common Stock
Equivalents are issued or sold or deemed to have been issued or sold for cash,
the consideration received therefor will be deemed to be the net amount received
by the Corporation therefor. If any Common Stock or Common Stock
Equivalents are issued or sold for a consideration other than cash, the amount
of the consideration other than cash received by the Corporation will be the
fair market value of such consideration. If any Common Stock or
Common Stock Equivalents are issued to the owners of the non surviving entity in
connection with any merger in which the Corporation is the surviving entity, the
amount of consideration therefor will be deemed to be the fair market value of
such portion of the net assets and business of the non surviving entity as is
attributable to such Common Stock or Common Stock Equivalents, as the case may
be. The fair market value of any consideration other than cash or
securities will be determined jointly by the Corporation and the Holders of the
Preferred Shares. If such parties are unable to reach agreement
within 10 days after the occurrence of an event requiring valuation (the
“Valuation Event”), the fair market value of such consideration will be
determined within five (5) Business Days after the tenth (10th) day following
the Valuation Event by an independent, reputable appraiser jointly selected by
the Corporation and the Required Holders. The determination of such
appraiser shall be deemed binding upon all parties absent manifest error or
fraud and the fees and expenses of such appraiser shall be borne by the
Corporation.
(e) Notice of Record
Date. In the event of any taking by the Corporation of a
record date of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, any security or right convertible into or entitling the
holder thereof to receive additional Common Shares, 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, the Corporation shall
deliver to each Holder at least twenty (20) days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution, security or right and the amount
and character of such dividend, distribution, security or right.
(f) Reservation of Stock Issuable Upon
Conversion. The Corporation shall at all times reserve and
keep available out of its authorized but unissued Common Stock, solely for the
purposes of effecting the conversion and/or redemption of the Preferred Shares,
an amount of Common Shares equal to 200% of the number of shares
issuable upon conversion of the Preferred Shares at the current Conversion Price
(the “Required Reserve Amount”). If at any time while any of the
Preferred Shares remain outstanding the Corporation does not have a sufficient
number of authorized and unreserved Common Shares to satisfy its obligation to
reserve for issuance upon conversion and/or redemption of the Preferred Shares
at least a number of Common Shares equal to the Required Reserve Amount (an
“Authorized Share Failure”), then the Corporation shall promptly take all action
necessary to increase the Corporation’s authorized Common Shares to an amount
sufficient to allow the Corporation to reserve the Required Reserve Amount for
the Preferred Shares then outstanding. Without limiting the
generality of the foregoing sentence, as soon as practicable after the date of
the occurrence of an Authorized Share Failure, but in no event later than sixty
(60) days (or the lesser of (i) ninety (90) days if the proxy statement is
reviewed by the staff of the SEC or (ii) ten (10) days after the staff of the
SEC indicates that it has no further comments to such proxy statement) after the
occurrence of such Authorized Share Failure (the “Meeting Outside Date”), the
Corporation shall hold a meeting of its stockholders for the approval of an
increase in the number of authorized Shares of Common Stock. In
connection with such meeting, the Corporation shall provide each stockholder
with a proxy statement and shall use its reasonable best efforts to solicit its
stockholders' approval of such increase in authorized Common Shares and to cause
its Board of Directors to recommend to the stockholders that they approve such
proposal. Notwithstanding the foregoing, if at such time of an
Authorized Share Failure, the Corporation is able to obtain the written consent
of a majority of the shares of its issued and outstanding Common Stock to
approve the increase in the number of authorized shares of Common Stock, the
Corporation shall satisfy this obligation by obtaining such consent and
submitting for filing with the SEC an Information Statement on Schedule
14C.
16
(g) Fractional
Shares. No fractional shares shall be issued upon the
conversion of any Preferred Shares. All Common Shares (including
fractions thereof) issuable upon conversion of more than one Preferred Share by
a Holder thereof and all Preferred Shares issuable upon the purchase thereof
shall be aggregated for purposes of determining whether the conversion and/or
purchase would result in the issuance of any fractional share. If,
after the aforementioned aggregation, the conversion and/or purchase would
result in the issuance of a fraction of a share of Common Stock, the Corporation
shall, in lieu of issuing any fractional share, either round up the number of
shares to the next highest whole number or, at the Corporation's option, pay the
Holder otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the Conversion Date (as determined in good
faith by the Board of Directors of the Corporation).
(h) Reorganization, Merger or Going
Private. In case of any reorganization or any reclassification
of the capital stock of the Corporation or any consolidation or merger of the
Corporation with or into any other corporation or corporations or a sale or
transfer of all or substantially all of the assets of the Corporation to any
other person or a “going private” transaction under Rule 13e-3 promulgated
pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”), as
amended, then, as part of such reorganization, consolidation, merger, or
transfer if the holders of Common Shares receive any publicly traded securities
as part or all of the consideration for such reorganization, reclassification,
consolidation, merger or sale, then it shall be a condition precedent of any
such event or transaction that provision shall be made such that each Preferred
Share shall thereafter be convertible into such new securities at a conversion
price and pricing formula which places the Holders of Preferred Shares in an
economically equivalent position as they would have been if not for such
event. The Corporation shall give each holder written notice at least
ten (10) Trading Days prior to the consummation of any such reorganization,
reclassification, consolidation, merger or sale. Notwithstanding
anything contained herein to the contrary, nothing contained in this Section
7(h) shall be deemed to limit the Holder’s right to require the Corporation to
repurchase the Preferred Shares in accordance with Section 9.
(i) Certificate for Conversion Price
Adjustment. The Corporation shall promptly furnish or cause to
be furnished to each Holder a certificate prepared by the Corporation setting
forth any adjustments or readjustments of the Conversion Price pursuant to this
Section 7.
17
(j) Failure to
Redeliver. If a Holder fails to re-deliver shares of Common
Stock to the Corporation within ten (10) Trading Days of being required to do so
pursuant to Section 6(d)(i)(C) in connection with a Mandatory Redemption or
Section 8 in connection with an optional redemption by the Corporation, then,
unless such Common Shares have been cancelled by the Corporation, the
Corporation may, at its option, redeem a number of Preferred Share having a
Liquidation Preference equal in value to the product of (x) such number of
Common Shares and (y) the Stock Payment Price for such Mandatory Redemption Date
or Optional Redemption Date, as the case may be, in lieu of requiring such
Holder to return such Common Shares.
(k) Cash
Settlement. Notwithstanding anything contained herein to the
contrary, to the extent that the effectiveness of the Registration Statement or
the ability to use the Prospectus has lapsed or such Registration Statement or
Prospectus is unavailable for the issuance of Common Shares pursuant to this
Section 7, then, unless such Common Shares may be resold by the Holder pursuant
to Rule 144 under the Securities Act without volume limitations or any public
information requirements or such other exemption from registration that would
permit the Holder to resell such Common Shares without restriction and without
need for additional registration under any securities laws, at the option of the
Holder, any conversion of Preferred Shares into Common Shares shall be “cash
settled” and the Corporation shall pay to such Holder an amount in cash equal to
the sum of (x) the Liquidation Preference for each Preferred Share being
converted and (y) the Conversion Premium. The “Conversion Premium”
means the product of (v) the difference between (A) the Daily VWAP on the
Conversion Date and (B) the Conversion Price in effect on such Conversion Date
and (w) the quotient of (I) the Liquidation Preference times the number of
Preferred Shares being converted and (II) the Conversion Price in effect on such
Conversion Date, no later than three (3) Trading Days after the date of the
applicable Conversion Notice.
18
8. Optional Redemption by the
Corporation. The Corporation may, at its option, redeem the
Preferred Stock, at any time and from time to time, in whole or in part (but not
less than 1,000,000 Preferred Shares at any one time) for an amount equal to (a)
the Liquidation Preference per Preferred Share plus any accrued and unpaid
dividends through the Optional Redemption Date (as defined below) (the “Base
Redemption Price”) plus (b) (i) if such prepayment occurs on or before the
twelve (12) month anniversary of the Initial Issuance Date, an amount equal to
15% of the Base Redemption Price or (ii) if such prepayment occurs at any time
after the twelve (12) month anniversary of the Initial Issuance Date, an amount
equal to 10% of the Base Redemption Price (the additional amount under clause
(b) being referred to as the “Additional Redemption Price”). The Base
Redemption Price shall be paid in cash and the Additional Redemption Price shall
be paid in cash or, at the Corporation’s option and provided (w) the Equity
Conditions are satisfied (unless waived by the Required Holders), (x) the
portion of the Additional Redemption Price to be paid in Common Shares does not
exceed the Dollar Volume Limitation (unless waived by the Required Holders), (y)
the Maximum Share Amount is not exceeded and (z) the Daily VWAP is available on
the Trading Day immediately preceding the First Optional Redemption Advance Date
(as defined below) and on each day of the Stock Payment Pricing Period, in
Common Shares. The Corporation shall deliver written notice of
optional redemption (an “Optional Redemption Notice”) to the Holders thirty (30)
Trading Days prior to the date set by the Corporation for such optional
redemption (the “Optional Redemption Date”), which Optional Redemption Date may
not be a Mandatory Redemption Date or any day of a Stock Payment Pricing Period
with respect to any Mandatory Redemption Date. For the avoidance of
doubt, each Holder may submit a Conversion Notice for the specific Optional
Redemption Shares (as defined below) to be redeemed on such Optional Redemption
Date at any time prior to the Optional Redemption Date notwithstanding the
delivery of an Optional Redemption Notice by the Corporation. Such
Optional Redemption Notice shall specify the number of preferred shares to be
redeemed (the “Optional Redemption Shares”) and what portion of the Additional
Redemption Price will be paid in Common Shares (expressed in dollars), what
portion of the Additional Redemption Price will be paid in cash (expressed in
dollars) and (A) certify that the Equity Conditions are satisfied, (B) state the
Dollar Volume Limitation (expressed in dollars) and certify that the portion of
the Additional Redemption Price to be paid in Common Shares does not exceeded
such Dollar Volume Limitation and (C) certify that the Maximum Share Amount has
not been exceeded. Such Optional Redemption Notice shall be
irrevocable. To the extent that any portion of the Additional
Redemption Price will be paid in Common Shares, twenty-one (21) Trading Days
prior to the Optional Redemption Date (the “First Optional Redemption Advance
Date”), the Corporation shall advance to the Holder a number of Common Shares
determined by dividing (x) that portion of the Additional Redemption Price to be
paid in Common Shares by (y) 92% of the Daily VWAP on the Trading Day
immediately preceding the First Optional Redemption Advance Date (the “First
Optional Redemption Advance Shares”). In addition, eleven (11)
Trading Days prior to the applicable Optional Redemption Date (the "Second
Optional Redemption Advance Date" and together with the First Optional
Redemption Advance Date, the "Optional Redemption Advance Dates" and each, an
"Optional Redemption Advance Date"), the Corporation shall advance to the
Holders and an additional number of Common Shares equal to the positive
difference (if any) between (x) the quotient of (1) the portion of the
Additional Redemption Price to be paid in Common Shares and (2) the average
of the five lowest Daily VWAPs during the first ten (10) Trading Days of
the applicable Stock Payment Pricing Period and (y) the number of First Optional
Redemption Advance Shares delivered to the Holders pursuant to the
immediately preceding sentence in connection with such Optional Redemption
Date (the "Second Optional Redemption Advance Shares" and together with the
First Optional Redemption Advance Shares, the "Optional Redemption Advance
Shares"). Not later than three (3) Trading Days after the Optional
Redemption Date, the Corporation shall deliver an additional number of Common
Shares, if any, to the Holder equal to the positive difference between (1) that
portion of the Additional Redemption Price to be paid in Common Shares divided
by the Stock Payment Price and (2) the Optional Redemption Advance
Shares. If clause (2) of the immediately preceding sentence exceeds
clause (1) of the immediately preceding sentence, then each Holder shall return
to the Corporation its pro rata portion of such excess number of Common
Shares. For the avoidance of doubt, no Holder shall have any liability to
the Corporation to the extent that any Optional Redemption Advance Shares that
are returned to the Corporation pursuant to the immediately preceding
sentence decrease in value following the applicable Optional Redemption Advance
Date. The provisions of Section 6(d)(ii), Section 6(d)(iii), Section
6(e) and Section 6(f) shall apply to this Section 8 mutatis
mutandis.
19
9. Mandatory Repurchase. Each Holder
shall have the unilateral option and right to compel the Corporation to
repurchase for cash any or all of such Holder's Preferred Shares within three
(3) days of a written notice requiring such repurchase (provided that no such
written notice shall be required for clauses (v) and (vi) and such demand for
repurchase shall be deemed automatically made upon the occurrence of any of the
events set forth in such clauses (v) and (vi)) , at a price per Preferred Share
equal to the sum of (a) the Liquidation Preference plus (b) any and all
accrued and unpaid dividends on the Preferred Shares (the sum of
(a) and (b), the "Base Mandatory Repurchase Price") plus (c) (i)
if such demand for repurchase occurs on or before the twelve (12) month
anniversary of the Initial Issuance Date, an amount equal to 15% of the Base
Mandatory Repurchase Price, or (ii) if such demand for repurchase occurs at any
time after the twelve (12) month anniversary of the Initial Issuance Date, an
amount equal to 10% of the Base Mandatory Repurchase Price, if any of the
following events shall have occurred or are continuing:
(i) A
Change in Control Transaction (as defined below);
(ii) A
“going private” transaction under Rule 13e-3 promulgated pursuant to the
Exchange Act;
(iii) A
tender offer by the Corporation under Rule 13e-4 promulgated pursuant to the
Exchange Act;
(iv) the
suspension from trading or the failure of the Common Shares to be listed on a
Trading Market for a period of five (5) consecutive Trading Days or for more
than an aggregate of ten (10) trading days in any 365-day period;
(v) the
entry by a court having jurisdiction in the premises of (i) a decree or order
for relief in respect of the Corporation or any Subsidiary of a voluntary case
or proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or (ii) a decree or order adjudging the
Corporation or any Subsidiary as bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment or composition
of or in respect of the Corporation or any Subsidiary under any applicable
federal or state law or (iii) appointing a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official of the Corporation or
any Subsidiary or of any substantial part of its property, or ordering the
winding up or liquidation of its affairs, and the continuance of any such decree
or order for relief or any such other decree or order unstayed and in effect for
a period of 60 consecutive days;
(vi) the
commencement by the Corporation or any Subsidiary of a voluntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to be
adjudicated a bankrupt or insolvent, or the consent by it to the entry of a
decree or order for relief in respect of the Corporation or any Subsidiary in an
involuntary case or proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, or the filing by it of a
petition or answer or consent seeking reorganization or relief under any
applicable federal or state law, or the consent by it to the filing of such
petition or to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of the
Corporation or any Subsidiary or of any substantial part of its property, or the
making by it of an assignment for the benefit of creditors, or the admission by
it in writing of its inability to pay its debts generally as they become due, or
the taking of corporate action by the Corporation or any Subsidiary in
furtherance of any such action;
20
(vii) following
an Authorized Share Failure, the Corporation fails to receive stockholder
approval or the written consent of a majority of the issued and outstanding
Common Shares to approve the required increase in the number of Common Shares
within five (5) days after the Meeting Outside Date; or
(viii) the
Corporation’s failure to deliver Common Shares on any Share Delivery Date,
Advance Date, Mandatory Redemption Date or Optional Redemption Date, if such
failure continues for two (2) Trading Days after the date that delivery of such
Common Shares is due;
(ix) the
Corporation’s failure to pay any amounts when and as due pursuant to this
Certificate of Designations or any other Transaction Document, if such failure
continues for two (2) Trading Days after the date that such payment is
due;
(x) the
Corporation breaches any covenants and agreements contained in Section 13 of
this Certificate of Designations, Section 3.10 of the Purchase Agreement,
Section 3.11, Section 3.12 of the Purchase Agreement and/or Section 3.14 of the
Purchase Agreement;
(xi) the
Corporation or any of its Subsidiaries shall (A) default in any payment of any
amount or amounts of principal of or interest on any Indebtedness (as defined
the Purchase Agreement) the aggregate principal amount of which Indebtedness is
in excess of $1,000,000 or (B) default in the observance or performance of any
other agreement or condition relating to any such Indebtedness or contained in
any instrument or agreement evidencing, securing or relating thereto, or any
other event shall occur or condition exist, as a result of which default or
other event or condition the holder or holders or beneficiary or beneficiaries
of such Indebtedness or a trustee on their behalf have declared such
Indebtedness to be due prior to its stated maturity;
(xii) the
effectiveness of the Registration Statement or the ability to use the Prospectus
lapses for any reason (including, without limitation, the issuance of a stop
order) or such Registration Statement or Prospectus is unavailable for the
issuance of Common Shares hereunder, and such lapse or unavailability continues
for a period of ten (10) consecutive days or for more than an aggregate of
twenty (20) days in any 365-day period;
21
(xiii) the
Corporation breaches any representation, warranty, covenant or other term or
condition of any this Certificate of Designations, the Purchase Agreement or the
Warrant, except to the extent that such breach, or the event that gave rise to
such breach, would not have a Material Adverse Effect (as defined in the
Purchase Agreement), and except in the case of a breach of a covenant which is
curable, only if such breach remains uncured for a period of at least ten (10)
calendar days (the events described in clauses (v), (vi), (viii), (ix), (x),
(xi), (xii) and this (xiii) of this Section 9, collectively, the “Trigger
Events” and each a “Trigger Event”).
A “Change
in Control Transaction” will be deemed to exist if (i) there occurs any
consolidation or merger of the Corporation with or into any other corporation or
other entity or person (whether or not the Corporation is the surviving
corporation), or any other corporate reorganization or transaction or series of
related transactions in which in excess of 50% of the Corporation's voting power
is transferred through a merger, consolidation, tender offer or similar
transaction, (ii) any person (as defined in Section 13(d) of the Exchange Act),
together with its affiliates and associates (as such terms are defined in Rule
405 under the Securities Act), beneficially owns or is deemed to beneficially
own (as described in Rule 13d-3 under the Exchange Act without regard to the
60-day exercise period) in excess of 50% of the Corporation's voting power
(provided, however, that if any person is immediately prior to he Initial
Issuance Date a Beneficial Owner of 40% or more of the Corporation's Common
Stock, it shall not be deemed to be a Change of Control Transaction if such
person increases its Beneficial Ownership percentage by not more than 10
percentage points), (iii) there is a replacement of more than one-half of the
members of the Corporation’s Board of Directors which is not approved by those
individuals who are members of the Corporation's Board of Directors on the date
thereof, in one or a series of related transactions or (iv) a sale or transfer
of all or substantially all of the assets of the Corporation, determined on a
consolidated basis; provided, however that a Change in Control Transaction will
not be deemed to have occurred pursuant to clause (iv) if such sale or transfer
is the sale or transfer of not more than one business segment during the period
from the Initial Issuance Date through the Maturity Date and the Corporation
remains a publicly traded corporation and if, on the effective date of the sale
or transfer described therein, the Corporation deposits funds in the Escrow
Account (as defined in the Purchase Agreement) such that the balance in the
Escrow Account after such deposit is the lesser of $5 million or 100% of the
aggregate Liquidation Preference of the outstanding Preferred
Shares.
10. Voting
Rights. Except as
otherwise set forth herein, the Preferred Shares shall not have any voting
rights.
22
11. Rank. All
shares of Common Stock shall be of junior rank to all Preferred Shares with
respect to the preferences as to dividends, distributions and payments upon a
Liquidation Event. The rights of the shares of Common Stock shall be
subject to the preferences and relative rights of the Preferred
Shares. Without the prior express written consent of the Required
Holders, the Corporation shall not hereafter authorize or issue additional or
other capital stock that is of senior or pari-passu rank to the Preferred Shares
in respect of the preferences as to dividends and other distributions,
amortization and redemption payments and payments upon Liquidation
Event. The Corporation shall be permitted to issue preferred stock
that is junior in rank to the Preferred Shares in respect of the preferences as
to dividends and other distributions, amortization and redemption payments and
payments upon Liquidation Event, provided, that the maturity date (or any other
date requiring redemption, repayment or any other payment, including, without
limitation, dividends in respect of any such preferred shares) of any such
junior preferred shares is not on or before ninety-one (91) days after the
Maturity Date. In the event of the merger or consolidation of the
Corporation with or into another corporation, the Preferred Shares shall
maintain their relative powers, designations and preferences provided for herein
(except that the Preferred Shares may not be pari passu with, or junior to, any
capital stock of the successor entity) and no merger shall have a result
inconsistent therewith.
12. Participation. The
Holders of the Preferred Shares shall be entitled to such dividends paid and
distributions made to the holders of Common Stock to the same extent as if such
Holders of the Preferred Shares had converted the Preferred Shares into Common
Shares (without regard to any limitations on conversion herein or elsewhere) and
had held such Common Shares on the record date for such dividends and
distributions. Payments under the preceding sentence shall be made
concurrently with the dividend or distribution to the holders of Common
Stock.
13. Vote to
Change the Terms of or Issue Preferred Shares. In addition to
any other rights provided by law, except where the vote or written consent of
the Holders of a greater number of shares is required by law or by another
provision of the Certificate of Incorporation, the affirmative vote at a meeting
duly called for such purpose or the written consent without a meeting of the
Required Holders, voting together as a single class, shall be required before
the Corporation may: (a) amend or repeal any provision of, or add any provision
to, this Certificate of Designations, the Certificate of Incorporation or
bylaws, or file any articles of amendment, certificate of designations,
preferences, limitations and relative rights of any series of preferred stock,
if such action would adversely alter or change the preferences, rights,
privileges or powers of, or restrictions provided for the benefit of the
Preferred Shares, regardless of whether any such action shall be by means of
amendment to the Certificate of Incorporation or by merger, consolidation or
otherwise; (b) increase or decrease (other than by conversion) the authorized
number of shares of Preferred Shares (for the avoidance of doubt, the
Corporation may increase or decrease the number of authorized shares of
undesignated “blank check” preferred stock); (c) create or authorize (by
reclassification or otherwise) any new class or series of shares that has a
preference over or is on a parity with the Preferred Shares with respect to
dividends or the distribution of assets on a Liquidation Event; (d) purchase,
repurchase or redeem any Common Shares or other shares of capital stock of the
Corporation; (e) pay dividends or make any other distribution on the Common
Stock or any other capital stock of the Corporation or (f) whether or not
prohibited by the terms of the Preferred Shares, circumvent a right of the
Preferred Shares.
23
14. Book-Entry. Notwithstanding
anything to the contrary set forth herein, upon conversion or redemption of
Preferred Shares in accordance with the terms hereof, the Holder thereof shall
not be required to physically surrender the certificate representing the
Preferred Shares to the Corporation unless (A) the full or remaining number of
Preferred Shares represented by the certificate are being converted or redeemed
or (B) such Holder has provided the Corporation with prior written notice
requesting reissuance of Preferred Shares upon physical surrender of any
Preferred Shares. Each Holder and the Corporation shall maintain
records showing the number of Preferred Shares so converted or redeemed and the
dates of such conversions or redemptions. Notwithstanding the
foregoing, if Preferred Shares represented by a certificate are converted or
redeemed as aforesaid, a Holder may not transfer the certificate representing
the Preferred Shares unless such Holder first physically surrenders the
certificate representing the Preferred Shares to the Corporation, whereupon the
Corporation will forthwith issue and deliver upon the order of such Holder a new
certificate of like tenor, registered as such Holder may request, representing
in the aggregate the remaining number of Preferred Shares represented by such
certificate. A Holder and any assignee, by acceptance of a
certificate, acknowledges and agrees that, by reason of the provisions of this
paragraph, following conversion or redemption of any Preferred Shares, the
number of Preferred Shares represented by such certificate will be less than the
number of Preferred Shares stated on the face thereof. Each
certificate for Preferred Shares shall bear the following legend:
ANY
TRANSFEREE OF THIS CERTIFICATE SHOULD CAREFULLY REVIEW THE TERMS OF THE
CORPORATION’S CERTIFICATE OF DESIGNATIONS RELATING TO THE PREFERRED SHARES
REPRESENTED BY THIS CERTIFICATE. THE NUMBER OF PREFERRED SHARES
REPRESENTED BY THIS CERTIFICATE MAY BE LESS THAN THE NUMBER OF PREFERRED SHARES
STATED ON THE FACE HEREOF PURSUANT TO THE CERTIFICATE OF DESIGNATIONS RELATING
TO THE PREFERRED SHARES REPRESENTED BY THIS CERTIFICATE.
15. Taxes.
(a) Any
and all payments made by the Corporation hereunder, including any amounts
received on a conversion or redemption of the Preferred Shares and any amounts
on account of dividends or deemed dividends, must be made by it without any Tax
Deduction, unless a Tax Deduction is required by law. If the Corporation is
aware that it must make a Tax Deduction (or that there is a change in the rate
or the basis of a Tax Deduction) in respect of any payment to any Holder, it
must notify such Holders promptly.
24
(b) If
a Tax Deduction for Taxes other than Excluded Taxes (as defined below) is
required to be made by the Corporation with respect to any payment to any
Holder, the amount of the payment made by the Corporation will be increased to
an amount which (after making the Tax Deduction, including any Tax Deduction
applicable to additional sums payable pursuant to this Section 15(b)) results in
the receipt by such Holder of an amount equal to the payment which would have
been due if no Tax Deduction had been required. If the Corporation is
required to make a Tax Deduction, it must make any payment required in
connection with that Tax Deduction within the time allowed by law. As
soon as practicable after making a Tax Deduction or a payment required in
connection with a Tax Deduction, the Corporation must deliver to the Holder any
official receipt or form, if any, provided by or required by the taxing
authority to whom the Tax Deduction was paid. "Excluded Taxes" means
(a) Taxes imposed on or measured by the Holder's net income (however
denominated), and franchise Taxes imposed on the Holder (in lieu of net income
Taxes), by the jurisdiction (or any political subdivision thereof) under the
laws of which such Holder is a citizen or resident, under the laws of which such
Holder is organized, in which the Holder's principal office is located, or in
which the Holder is otherwise doing business, (b) any branch profits Taxes
imposed by the United States of America or any similar Tax imposed by any other
jurisdiction in which the Corporation is located, (c) in the case of a non-US
Holder, any withholding Tax that is imposed on amounts payable to such non-US
Holder at the time such non-US Holder becomes a Holder (or at such time that
such Holder changes its citizenship, residence, place of organization, principal
office, or location where doing business) or is attributable to such non-US
Holder’s failure or inability to comply with any applicable documentation
requirements or to provide any documents or certifications that are reasonably
requested by the Corporation, and (d) in the case of any Holder, any withholding
Tax (including any backup withholding tax) that is imposed on amounts payable to
such Holder that is attributable to such Holder’s failure or inability to comply
with any applicable documentation requirements or to provide any documents or
certifications that are reasonably requested by the Corporation.
(c) In
addition, the Corporation agrees to pay in accordance with applicable law any
present or future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies that arise from any payment made hereunder or
in connection with the execution, delivery, registration or performance of, or
otherwise with respect to, the Preferred Shares other than income taxes (“Other
Taxes”). As soon as practicable after making a payment of Other
Taxes, the Corporation must deliver to such Holder any official receipt or form,
if any, provided by or required by the taxing authority to whom such Other Taxes
were paid.
(d) The
obligations of the Corporation under this Section 15 shall survive the Maturity
Date of the Preferred Shares and the payment for the Preferred Shares and all
other amounts payable hereunder.
16. Issuance
Limitations. The
total number of Common Shares issued or issuable hereunder shall not (when
aggregated with any Common Shares already issued in respect of all of the
Preferred Shares) exceed the maximum number of Common Shares which the
Corporation can so issue pursuant to any rule or regulation of the NYSE Amex
Equities (or any other Trading Market on which the Common Shares trade) (the
“Maximum Share Amount”), subject to equitable adjustments from time to time for
stock splits, stock dividends, combinations, capital reorganizations and similar
events relating to the Common Shares occurring after the Initial Issuance
Date. For the avoidance of doubt, each and every provision of this
Certificate of Designations shall remain in full force and effect and the
Corporation shall be required to perform its obligations in accordance with the
terms hereof notwithstanding the fact that the number of Common Shares issued
hereunder may exceed the Maximum Share Amount. Notwithstanding any
other provision hereof, no shares of Common Stock in excess of ______ [19.9% of NBS outstanding common
stock less than common stock issued in simultaneous common stock offering and
Common Stock issued pursuant to Purchase Agreement] [PLEASE FILL IN] shares shall
be issued by the Corporation hereunder, whether by reason of conversion,
redemption or otherwise, and no voting rights may be exercised, until after
approval of the shareholders of the Corporation as contemplated by Section 3.14
of the Purchase Agreement.
25
17. Ownership
Cap. Notwithstanding anything to the contrary set forth
herein, at no time may the Corporation issue to a Holder, Common Shares if the
number of Common Shares to be issued pursuant to such issuance would exceed,
when aggregated with all other Common Shares beneficially owned by such Holder
at such time (as determined in accordance with Section 13(d) of the Exchange Act
and the rules thereunder, including without limitation, Common Shares that would
be aggregated with the Holder’s beneficial ownership for purpose of determining
a group under Section 13(d) of the Exchange Act), the number of Common Shares
that would result in the Holder beneficially owning (as determined in accordance
with Section 13(d) of the Exchange Act and the rules thereunder, including
without limitation, Common Shares that would be aggregated with the Holder’s
beneficial ownership for purpose of determining a group under Section 13(d) of
the Exchange Act) more than 4.9% (the “Beneficial Ownership Limitation”) of the
then issued and outstanding Common Shares. Each Holder shall have the
right (with respect to itself only) to waive the provisions of this
Section 17 upon not less than sixty-five (65) days’ prior notice to the
Corporation. Notwithstanding the foregoing, the Holder shall have the
right to: (A) at any time and from time to time immediately reduce the
Beneficial Ownership Limitation and (B) (subject to waiver) at any time and from
time to time, increase the Beneficial Ownership Limitation immediately in the
event of the announcement as pending or planned, of a Change in Control
Transaction.
18. Notices. The
Corporation shall distribute to the Holders of Preferred Shares copies of all
notices, materials, annual and quarterly reports, proxy statements, information
statements and any other documents distributed generally to the holders of
shares of Common Stock of the Corporation, at such times and by such method as
such documents are distributed to such holders of such Common
Stock.
19. Replacement
Certificates. The
certificate(s) representing the Preferred Shares held by any Holder may be
exchanged by such Holder at any time and from time to time for certificates with
different denominations representing an equal aggregate number of Preferred
Shares, as reasonably requested by such Holder, upon surrendering the
same. No service charge will be made for such registration or
transfer or exchange.
20. Attorneys'
Fees. In
connection with enforcement by a Holder of any obligation of the Corporation
hereunder, the prevailing party shall be entitled to recovery of reasonable
attorneys’ fees and expenses incurred.
21. No
Reissuance. No Preferred
Shares acquired by the Corporation by reason of redemption, purchase, conversion
or otherwise shall be reissued. Preferred Shares issued and
reacquired by the Corporation, whether upon redemption, conversion or otherwise,
shall have the status of authorized and unissued undesignated shares of “blank
check” preferred stock.
26
22. Severability
of Provisions. If any right,
preference or limitation of the Preferred Shares set forth in this Certificate
of Designations (as this Certificate of Designations may be amended from time to
time) is invalid, unlawful or incapable of being enforced by reason of any rule
or law or public policy, all other rights, preferences and limitations set forth
in this Certificate of Designations, which can be given effect without the
invalid, unlawful or unenforceable right, preference or limitation shall
nevertheless remain in full force and effect, and no right, preference or
limitation herein set forth be deemed dependent upon any such other right,
preference or limitation unless so expressed herein.
23. Limitations. Except as may
otherwise be required by law and as are set forth in the Purchase Agreement, the
Preferred Shares shall not have any powers, preference or relative
participating, optional or other special rights other than those specifically
set forth in this Certificate of Designation (as may be amended from time to
time) or otherwise in the Certificate of Incorporation of the
Corporation.
24. Payments. Any
payments required to be made to the Holders in cash hereunder, shall be made by
wire transfer of immediately available funds.
Signed on
November __, 2010
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NEOSTEM,
INC.
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By:
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Name:
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Title:
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27
EXHIBIT
A
(To be
Executed by Holder
in order
to Convert Preferred Shares)
CONVERSION
NOTICE
FOR
SERIES E 7% SENIOR
CONVERTIBLE PREFERRED STOCK
The
undersigned, as a holder (“Holder”) of shares of Series E 7% Senior Convertible
Preferred Stock (“Preferred Shares”) of Neostem, Inc. (the “Corporation”),
hereby irrevocably elects to convert _____________ Preferred Shares for shares
(“Common Shares”) of common stock, par value $0.01 per share (the “Common
Stock”), of the Corporation according to the terms and conditions of the
Certificate of Designations for the Preferred Shares as of the date written
below. The undersigned hereby requests the Common Shares to be issued
to the undersigned pursuant to this Conversion Notice be issued in the name of,
and delivered via DWAC to, the undersigned or its designee as indicated
below. No fee will be charged to the Holder of Preferred Shares for
any conversion. Capitalized terms used herein and not otherwise
defined shall have the meanings ascribed thereto in the Certificate of
Designations.
Conversion
Date: __________________________
Conversion
Information: NAME OF
HOLDER:
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By:
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Print
Name:
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Print
Title:
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Print
Address of Holder:
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DWAC
Instructions:
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If
Common Shares are to be issued to a person other than Holder,
Holder's signature must be
guaranteed below:
SIGNATURE
GUARANTEED BY:
THE
COMPUTATION OF NUMBER OF COMMON SHARES TO BE RECEIVED IS SET FORTH ON PAGE 2 OF
THE CONVERSION NOTICE.
Page
1 of Conversion Notice
28
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Page
2 to Conversion Notice dated
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for:
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(Conversion
Date)
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(Name
of Holder)
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COMPUTATION OF NUMBER OF
COMMON SHARES TO BE RECEIVED
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Number
of Preferred Shares
converted:
shares
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||||
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Number
of Preferred Shares converted x Liquidation Preference
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$ | |||
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Total
dollar amount converted
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$ | |||
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Conversion
Price
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$ | |||
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||||
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Number
of Common Shares = Total dollar amount
converted =
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||||
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Conversion
Price
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||||
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Number
of Common Shares =
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Please
issue and deliver _____ certificate(s) for Common Shares in the following
amount(s):
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29
COMMON
STOCK PURCHASE WARRANT
NEOSTEM,
INC.
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Warrant
Shares: ___________
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Initial
Exercise Date: May __,
2011
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THIS
COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies
that, for value received, ________________. or its assigns (the “Holder”) is entitled,
upon the terms and subject to the limitations on exercise and the conditions
hereinafter set forth, at any time on or after the six month anniversary of the
date hereof (the “Initial Exercise
Date”) and on or prior to the close of business on November __, 2015 (the
“Termination
Date”) but not thereafter, to subscribe for and purchase from Neostem,
Inc., a Delaware corporation (the “Company”), up to
_____________ (_________) shares (as subject to adjustment hereunder, the “Warrant Shares”) of
Common Stock. The purchase price of one share of Common Stock under this Warrant
shall be equal to the Exercise Price, as defined in Section
2(b). This Warrant is the Warrant to purchase Common Stock issued
pursuant to the prospectus supplement dated November 16, 2010 and accompanying
prospectus (collectively, the “Prospectus”) that
forms a part of the Registration Statement on Form S-3 (File No. 333-166169)
(the “Registration
Statement”).
Section
1. Definitions. For
purposes of this Warrant, the following terms shall have the following
meanings:
a) “Affiliate” means any
Person that, directly or indirectly through one or more intermediaries, controls
or is controlled by or is under common control with a Person as such terms are
used in and construed under Rule 405 under the Securities Act.
b) “Black Scholes Value”
means the value of this Warrant based on the Black and Scholes Option Pricing
Model obtained from the “OV” function on Bloomberg using (i) a price per share
of Common Stock equal to the Weighted Average Price of the Common Stock for the
Trading Day immediately preceding the date of consummation of the applicable
Change of Control, (ii) a risk-free interest rate corresponding to the U.S.
Treasury rate for a period equal to the remaining term of this Warrant as of the
date of consummation of the applicable Fundamental Transaction
and (iii) an expected volatility equal to the greater of 60% and the 100-day
volatility obtained from the HVT function on Bloomberg determined as of the
Trading Day next following the date of the public announcement of the applicable
Fundamental Transaction.
c) “Change of Control”
means any Fundamental Transaction other than (A) any reorganization,
recapitalization or reclassification of the Common Stock, in which holders of
the Company’s voting power immediately prior to such reorganization,
recapitalization or reclassification continue after such reorganization,
recapitalization or reclassification to hold publicly traded securities and,
directly or indirectly, the voting power of the surviving entity or entities
necessary to elect a majority of the members of the board of directors (or their
equivalent if other than a corporation) of such entity or entities, or (B)
pursuant to a migratory merger effected solely for the purpose of changing the
jurisdiction of incorporation of the Company.
d) “Common Stock” means
the common stock of the Company, par value $0.001 per share, and any other class
of securities into which such securities may hereafter be reclassified or
changed.
e) “Common Stock
Equivalents” means any securities of the Company or the Subsidiaries
which would entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, right, option, warrant
or other instrument that is at any time convertible into or exercisable or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.
f) “Eligible Market”
means the The New York Stock Exchange, Inc., The NYSE Amex, The NASDAQ Global
Select Market, The NASDAQ Global Market or The NASDAQ Capital
Market.
g) “Exchange Act” means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
h) “Parent Entity” of a
Person means an entity that, directly or indirectly, controls the applicable
Person and whose common stock or equivalent equity security is quoted or listed
on an Eligible Market, or, if there is more than one such Person or Parent
Entity, the Person or Parent Entity with the largest public market
capitalization as of the date of consummation of the Fundamental
Transaction.
i) “Person” means an
individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.
j) “Securities Act” means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
k) “Subsidiary” means any
subsidiary of the Company and shall, where applicable, also include any direct
or indirect subsidiary of the Company formed or acquired after the date
hereof.
l) “Successor Entity”
means the Person (or, if so elected by the Holder, the Parent Entity) formed by,
resulting from or surviving any Fundamental Transaction or the Person (or, if so
elected by the Holder, the Parent Entity) with which such Fundamental
Transaction shall have been entered into.
m) “Trading Day” means a
day on which the principal Trading Market is open for trading.
-2-
n) “Trading Market” means
any of the following markets or exchanges on which the Common Stock is listed or
quoted for trading on the date in question: the NYSE AMEX, the Nasdaq
Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the
New York Stock Exchange or the OTC Bulletin Board (or any successors to any of
the foregoing).
o) “VWAP” means, for any
date, the price determined by the first of the following clauses that applies:
(a) if the Common Stock is then listed or quoted on a Trading Market, the daily
volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Trading Market on which the Common Stock is then listed
or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m.
(New York City time) to 4:02 p.m. (New York City time)), (b) if the OTC
Bulletin Board is not a Trading Market, the volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the OTC Bulletin
Board, (c) if the Common Stock is not then listed or quoted for trading on the
OTC Bulletin Board and if prices for the Common Stock are then reported in the
“Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or
agency succeeding to its functions of reporting prices), the most recent bid
price per share of the Common Stock so reported, or (d) in all other cases,
the fair market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Holders of a majority in interest of the
Securities then outstanding and reasonably acceptable to the Company, the fees
and expenses of which shall be paid by the Company.
Section
2. Exercise.
a) Exercise
of the purchase rights represented by this Warrant may be made, in whole or in
part, at any time or times on or after the Initial Exercise Date and on or
before the Termination Date by delivery to the Company (or such other office or
agency of the Company as it may designate by notice in writing to the registered
Holder at the address of the Holder appearing on the books of the Company) of a
duly executed facsimile copy of the Notice of Exercise Form annexed hereto.
Within three (3) Trading Days following the date of exercise as aforesaid, the
Holder shall deliver the aggregate Exercise Price for the shares specified in
the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a
United States bank unless the cashless exercise procedure specified in Section
2(c) below is specified in the applicable Notice of Exercise. Notwithstanding
anything herein to the contrary, the Holder shall not be required to physically
surrender this Warrant to the Company until the Holder has purchased all of the
Warrant Shares available hereunder and the Warrant has been exercised in full,
in which case, the Holder shall surrender this Warrant to the Company for
cancellation within three (3) Trading Days of the date the final Notice of
Exercise is delivered to the Company. Partial exercises of this Warrant
resulting in purchases of a portion of the total number of Warrant Shares
available hereunder shall have the effect of lowering the outstanding number of
Warrant Shares purchasable hereunder in an amount equal to the applicable number
of Warrant Shares purchased. The Holder and the Company shall
maintain records showing the number of Warrant Shares purchased and the date of
such purchases. The Company shall deliver any objection to any Notice of
Exercise Form within one (1) Business Day of receipt of such
notice. The Holder
and any assignee, by acceptance of this Warrant, acknowledge and agree that, by
reason of the provisions of this paragraph, following the purchase of a portion
of the Warrant Shares hereunder, the number of Warrant Shares available for
purchase hereunder at any given time may be less than the amount stated on the
face hereof.
-3-
b) Exercise
Price. The exercise price per share of the Common Stock under
this Warrant shall be $1.85, subject to adjustment hereunder (the “Exercise
Price”).
c) Cashless Exercise. If
at the time of exercise hereof there is no effective registration statement
registering, or the prospectus contained therein is not available for the
issuance of the Warrant Shares to the Holder and all of the Warrant Shares are
not then registered for resale by Holder into the market at market prices from
time to time on an effective registration statement for use on a continuous
basis (or the prospectus contained therein is not available for use), then this
Warrant may also be exercised, in whole or in part, at such time by means of a
“cashless exercise” in which the Holder shall be entitled to receive a
certificate for the number of Warrant Shares equal to the quotient obtained by
dividing [(A-B) (X)] by (A), where:
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(A)
= the VWAP on the Trading Day immediately preceding the date on which
Holder elects to exercise this Warrant by means of a “cashless exercise,”
as set forth in the applicable Notice of
Exercise;
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(B)
= the Exercise Price of this Warrant, as adjusted hereunder;
and
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(X)
= the number of Warrant Shares that would be issuable upon exercise of
this Warrant in accordance with the terms of this Warrant if such exercise
were by means of a cash exercise rather than a cashless
exercise.
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In no event may this warrant be net
cash settled.
d) Mechanics of
Exercise.
i. Delivery of Certificates
Upon Exercise. Certificates for shares purchased hereunder
shall be transmitted by the Transfer Agent to the Holder by crediting the
account of the Holder’s prime broker with The Depository Trust Company through
its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company
is then a participant in such system and either (A) there is an effective
registration statement permitting the issuance of the Warrant Shares to or
resale of the Warrant Shares by Holder or (B) this Warrant is being exercised
via cashless exercise, and otherwise by physical delivery to the address
specified by the Holder in the Notice of Exercise by the date that is three (3)
Trading Days after the latest of (A) the delivery to the Company of the Notice
of Exercise, (B) surrender of this Warrant (if required) and (C) payment of the
aggregate Exercise Price as set forth above (including by cashless exercise, if
permitted) (such date, the “Warrant Share Delivery
Date”). The Warrant Shares shall be deemed to have been
issued, and Holder or any other person so designated to be named therein shall
be deemed to have become a holder of record of such shares for all purposes, as
of the date the Warrant has been exercised, with payment to the Company of the
Exercise Price (or by cashless exercise, if permitted) and all taxes required to
be paid by the Holder, if any, pursuant to Section 2(d)(vi) prior to the
issuance of such shares, having been paid.
-4-
ii. Delivery of New Warrants
Upon Exercise. If this Warrant shall have been exercised in
part, the Company shall, at the request of a Holder and upon surrender of this
Warrant certificate, at the time of delivery of the certificate or certificates
representing Warrant Shares, deliver to the Holder a new Warrant evidencing the
rights of the Holder to purchase the unpurchased Warrant Shares called for by
this Warrant, which new Warrant shall in all other respects be identical with
this Warrant.
iii. Rescission
Rights. If the Company fails to cause the Transfer Agent to
transmit to the Holder a certificate or the certificates representing the
Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date,
then the Holder will have the right to rescind such exercise.
iv. Compensation for Buy-In on
Failure to Timely Deliver Certificates Upon Exercise. In
addition to any other rights available to the Holder, if the Company fails to
cause the Transfer Agent to transmit to the Holder a certificate or the
certificates representing the Warrant Shares pursuant to an exercise on or
before the second Trading Day following the Warrant Share Delivery Date, and if
after such date the Holder is required by its broker to purchase (in an open
market transaction or otherwise) or the Holder’s brokerage firm otherwise
purchases, shares of Common Stock to deliver in satisfaction of a sale by the
Holder of the Warrant Shares which the Holder anticipated receiving upon such
exercise (a “Buy-In”), then the
Company shall (A) pay in cash to the Holder the amount, if any, 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 (1) the number of Warrant Shares that the Company was required to
deliver to the Holder in connection with the exercise at issue times (2) the
price at which the sell order giving rise to such purchase obligation was
executed, and (B) at the option of the Holder, either reinstate the portion of
the Warrant and equivalent number of Warrant Shares for which such exercise was
not honored (in which case such exercise shall be deemed rescinded) or deliver
to the Holder the number of shares of Common Stock that would have been issued
had the Company timely complied with its exercise and delivery obligations
hereunder. 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 an aggregate sale price giving rise to
such purchase obligation of $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 indicating the amounts payable
to the Holder in respect of the Buy-In and, upon request of the Company,
evidence of the amount of such loss. Nothing herein shall limit a
Holder’s right to pursue any other remedies available to it hereunder, at law or
in equity including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company’s failure to timely deliver
certificates representing shares of Common Stock upon exercise of the Warrant as
required pursuant to the terms hereof.
-5-
v. No Fractional Shares or
Scrip. No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant. As to any
fraction of a share which the Holder would otherwise be entitled to purchase
upon such exercise, the Company shall, at its election, either pay a cash
adjustment in respect of such final fraction in an amount equal to such fraction
multiplied by the Exercise Price or round up to the next whole
share.
vi.
Charges, Taxes and
Expenses. Issuance of certificates for Warrant Shares shall be
made without charge to the Holder for any issue or transfer tax or other
incidental expense in respect of the issuance of such certificate, all of which
taxes and expenses shall be paid by the Company, and such certificates shall be
issued in the name of the Holder or in such name or names as may be directed by
the Holder; provided, however, that in the
event certificates for Warrant Shares are to be issued in a name other than the
name of the Holder, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the Holder
and the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.
vii. Closing of
Books. The Company will not close its stockholder books or
records in any manner which prevents the timely exercise of this Warrant,
pursuant to the terms hereof.
e) Holder’s Exercise
Limitations. The Company shall not effect any exercise of this
Warrant, and a Holder shall not have the right to exercise any portion of this
Warrant, pursuant to Section 2 or otherwise, to the extent that after giving
effect to such issuance after exercise as set forth on the applicable Notice of
Exercise, the Holder (together with the Holder’s Affiliates, and any other
Persons acting as a group together with the Holder or any of the Holder’s
Affiliates), would beneficially own in excess of the Beneficial Ownership
Limitation (as defined below). For purposes of the foregoing sentence, the
number of shares of Common Stock beneficially owned by the Holder and its
Affiliates shall include the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to which such determination is being made,
but shall exclude the number of shares of Common Stock which would be issuable
upon (i) exercise of the remaining, nonexercised portion of this Warrant
beneficially owned by the Holder or any of its Affiliates and (ii) exercise or
conversion of the unexercised or nonconverted portion of any other securities of
the Company (including, without limitation, any other Common Stock
Equivalents) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the Holder or any of its
Affiliates. Except as set forth in the preceding sentence, for purposes of
this Section 2(e), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder, it being acknowledged by the Holder that the Company is not
representing to the Holder that such calculation is in compliance with Section
13(d) of the Exchange Act and the Holder is solely responsible for any schedules
required to be filed in accordance therewith. To the extent
that the limitation contained in this Section 2(e) applies, the determination of
whether this Warrant is exercisable (in relation to other securities owned by
the Holder together with any Affiliates) and of which portion of this Warrant is
exercisable shall be in the sole discretion of the Holder, and the submission of
a Notice of Exercise shall be deemed to be the Holder’s determination of whether
this Warrant is exercisable (in relation to other securities owned by the Holder
together with any Affiliates) and of which portion of this Warrant is
exercisable, in each case subject to the Beneficial Ownership Limitation, and
the Company shall have no obligation to verify or confirm the accuracy of such
determination. In addition, a determination as to any group
status as contemplated above shall be determined in accordance with Section
13(d) of the Exchange Act and the rules and regulations promulgated
thereunder. For purposes of this Section 2(e), in determining the
number of outstanding shares of Common Stock, a Holder may rely on the number of
outstanding shares of Common Stock as reflected in (A) the Company’s most recent
periodic or annual report filed with the Commission, as the case may be, (B) a
more recent public announcement by the Company or (C) a more recent written
notice by the Company or the Transfer Agent setting forth the number of shares
of Common Stock outstanding. Upon the written or oral request of a Holder,
the Company shall within two Trading Days confirm orally and in writing to the
Holder the number of shares of Common Stock then outstanding. In any case,
the number of outstanding shares of Common Stock shall be determined after
giving effect to the conversion or exercise of securities of the Company,
including this Warrant, by the Holder or its Affiliates since the date as of
which such number of outstanding shares of Common Stock was
reported. The “Beneficial Ownership
Limitation” shall be 4.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of Common
Stock issuable upon exercise of this Warrant. The Holder, upon not
less than 61 days’ prior notice to the Company, may increase or decrease the
Beneficial Ownership Limitation provisions of this Section 2(e), provided that
the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of
shares of the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock upon exercise of this Warrant held by the
Holder and the provisions of this Section 2(e) shall continue to
apply. Any such increase or decrease will not be effective until the
61st
day after such notice is delivered to the Company. The provisions of
this paragraph shall be construed and implemented in a manner otherwise than in
strict conformity with the terms of this Section 2(e) to correct this paragraph
(or any portion hereof) which may be defective or inconsistent with the intended
Beneficial Ownership Limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such limitation.
The limitations contained in this paragraph shall apply to a successor holder of
this Warrant.
-6-
f) Call
Provision. Subject to the provisions of Section 2(d) and this
Section 2, if, after the Initial Exercise Date, (i) the VWAP for each of 20
consecutive Trading Days (the “Measurement Period,”
which 20 consecutive Trading Day period shall not have commenced until after the
Initial Exercise Date) exceeds $3.70 (subject to adjustment for forward and
reverse stock splits, recapitalizations, stock dividends and the like after the
issuance date of this Warrant), (ii) the average daily volume for such
Measurement Period exceeds $100,000 per Trading Day (subject to adjustment for
forward and reverse stock splits, recapitalizations, stock dividends and the
like after the issuance date of this Warrant) and (iii) the Holder is not in
possession of any information that constitutes, or might constitute, material
non-public information which was provided by the Company, then the Company may,
within 1 Trading Day of the end of such Measurement Period, call for
cancellation of all or any portion of this Warrant for which a Notice of
Exercise has not yet been delivered (such right, a “Call”) for
consideration equal to $0.001 per Share. To exercise this right, the
Company must deliver to the Holder an irrevocable written notice (a “Call Notice”),
indicating therein the portion of unexercised portion of this Warrant to which
such notice applies. If the conditions set forth below for such Call
are satisfied from the period from the date of the Call Notice through and
including the Call Date (as defined below), then any portion of this Warrant
subject to such Call Notice for which a Notice of Exercise shall not have been
received by the Call Date will be cancelled at 6:30 p.m. (New York City time) on
the tenth Trading Day after the date the Call Notice is sent by the Company
(such date and time, the “Call
Date”). Any unexercised portion of this Warrant to which the
Call Notice does not pertain will be unaffected by such Call
Notice. In furtherance thereof, the Company covenants and agrees that
it will honor all Notices of Exercise with respect to Warrant Shares subject to
a Call Notice that are tendered through 6:30 p.m. (New York City time) on the
Call Date. The parties agree that any Notice of Exercise delivered
following a Call Notice which calls less than all the Warrants shall first
reduce to zero the number of Warrant Shares subject to such Call Notice prior to
reducing the remaining Warrant Shares available for purchase under this
Warrant. For example, if (A) this Warrant then permits the Holder to
acquire 100 Warrant Shares, (B) a Call Notice pertains to 75 Warrant Shares, and
(C) prior to 6:30 p.m. (New York City time) on the Call Date the Holder tenders
a Notice of Exercise in respect of 50 Warrant Shares, then (x) on the Call Date
the right under this Warrant to acquire 25 Warrant Shares will be automatically
cancelled, (y) the Company, in the time and manner required under this Warrant,
will have issued and delivered to the Holder 50 Warrant Shares in respect of the
exercises following receipt of the Call Notice, and (z) the Holder may, until
the Termination Date, exercise this Warrant for 25 Warrant Shares (subject to
adjustment as herein provided and subject to subsequent Call
Notices). Subject again to the provisions of this Section 2(f), the
Company may deliver subsequent Call Notices for any portion of this Warrant for
which the Holder shall not have delivered a Notice of
Exercise. Notwithstanding anything to the contrary set forth in this
Warrant, the Company may not deliver a Call Notice or require the cancellation
of this Warrant (and any such Call Notice shall be void), unless, from the
beginning of the Measurement Period through the Call Date, (1) the Company shall
have honored in accordance with the terms of this Warrant all Notices of
Exercise delivered by 6:30 p.m. (New York City time) on the Call
Date, and (2) a registration statement shall be effective as to all Warrant
Shares and the prospectus thereunder available for use by the Company for the
sale of all such Warrant Shares to the Holder, and (3) the Common Stock shall be
listed or quoted for trading on a Trading Market, and (4) there is a sufficient
number of authorized shares of Common Stock for issuance of all shares
underlying Warrants, and (5) the issuance of the shares shall not cause a breach
of any provision of 2(e) herein (i.e., the Company may only call such portion of
the Warrant as to which Holder is entitled to exercise in accordance with
Section 2(e)). The Company’s right to call the Warrants under this
Section 2(f) shall be exercised ratably among the Holders based on each Holder’s
initial purchase of Warrants from the Company pursuant to the Registration
Statements.
-7-
Section
3. Certain
Adjustments.
a) Stock Dividends and
Splits. If the Company, at any time while this Warrant is outstanding:
(i) pays a stock dividend or otherwise makes a distribution or distributions on
shares of its Common Stock or any other equity or equity equivalent securities
payable in shares of Common Stock (which, for avoidance of doubt, shall not
include any shares of Common Stock issued by the Company upon exercise of this
Warrant), (ii) subdivides outstanding shares of Common Stock into a larger
number of shares, (iii) combines (including by way of reverse stock split)
outstanding shares of Common Stock into a smaller number of shares, or (iv)
issues by reclassification of shares of the Common Stock any shares of capital
stock of the Company, then in each case the Exercise Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding immediately before such
event and of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event, and the number of shares issuable upon
exercise of this Warrant shall be proportionately adjusted such that the
aggregate Exercise Price of this Warrant shall remain unchanged. Any
adjustment made pursuant to this Section 3(a) shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
re-classification.
b) Subsequent Rights
Offerings. If the Company, at any time while the Warrant is
outstanding, shall issue rights, options or warrants to all holders of Common
Stock (and not to the Holder) entitling them to subscribe for or purchase shares
of Common Stock at a price per share less than the VWAP on the record date
mentioned below, then the Exercise Price shall be multiplied by a fraction, of
which the denominator shall be the number of shares of the Common Stock
outstanding on the date of issuance of such rights, options or warrants plus the
number of additional shares of Common Stock offered for subscription or
purchase, and of which the numerator shall be the number of shares of the Common
Stock outstanding on the date of issuance of such rights, options or warrants
plus the number of shares which the aggregate offering price of the total number
of shares so offered (assuming receipt by the Company in full of all
consideration payable upon exercise of such rights, options or warrants) would
purchase at such VWAP. Such adjustment shall be made whenever such
rights, options or warrants are issued, and shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such rights, options or warrants.
-8-
c) Pro Rata
Distributions. If the Company, at any time while this Warrant
is outstanding, shall distribute to all holders of Common Stock (and not to the
Holder) evidences of its indebtedness or assets (including cash and cash
dividends) or rights or warrants to subscribe for or purchase any security, then
in each such case the Exercise Price shall be adjusted by multiplying the
Exercise Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the VWAP determined as of the record
date mentioned above, and of which the numerator shall be such VWAP on such
record date less the then per share fair market value at such record date of the
portion of such assets or evidence of indebtedness so distributed applicable to
one outstanding share of the Common Stock as determined by the Board of
Directors of the Company in good faith. In either case the
adjustments shall be described in a statement provided to the Holder of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.
d) Fundamental
Transaction. If, at any time while this Warrant is outstanding, (i) the
Company, directly or indirectly, in one or more related transactions effects any
merger or consolidation of the Company with or into another Person, (ii) the
Company, directly or indirectly, effects any sale, lease, license, assignment,
transfer, conveyance or other disposition of all or substantially all of its
assets in one or a series of related transactions, (iii) any, direct or
indirect, purchase offer, tender offer or exchange offer (whether by the Company
or another Person) is completed pursuant to which holders of Common Stock are
permitted to sell, tender or exchange their shares for other securities, cash or
property and has been accepted by the holders of 50% or more of the outstanding
Common Stock or (iv) the Company, directly or indirectly, in one or more related
transactions effects any reclassification, reorganization or recapitalization of
the Common Stock or any compulsory share exchange pursuant to which the Common
Stock is effectively converted into or exchanged for other securities, cash or
property (each a “Fundamental
Transaction”), then, upon any subsequent exercise of this Warrant, the
Holder shall have the right to receive, for each Warrant Share that would have
been issuable upon such exercise immediately prior to the occurrence of such
Fundamental Transaction, at the option of the Holder (without regard to any
limitation in Section 2(e) on the exercise of this Warrant), the number of
shares of Common Stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and any additional consideration
(the “Alternate
Consideration”) receivable as a result of such Fundamental Transaction by
a holder of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such Fundamental Transaction (without regard to
any limitation in Section 2(e) on the exercise of this Warrant). For
purposes of any such exercise, the determination of the Exercise Price shall be
appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the
Exercise Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to
the securities, cash or property to be received in a Fundamental Transaction,
then the Holder shall be given the same choice as to the Alternate Consideration
it receives upon any exercise of this Warrant following such Fundamental
Transaction. Notwithstanding the foregoing, in the event of a Change
of Control other than one in which a Successor Entity that is a publicly traded
corporation whose stock is quoted or listed for trading on an Eligible Market
assumes this Warrant such that the Warrant shall be exercisable for the publicly
traded common stock of such Successor Entity, at the request of the Holder
delivered before the 90th day after such Change of Control (such a request, a
“Black Scholes
Exercise”), the Company (or the Successor Entity) shall purchase this
Warrant from the Holder by paying to the Holder, within five business days after
such request (or, if later, on the effective date of the Fundamental
Transaction), cash in an amount equal to the Black Scholes Value of the
remaining unexercised portion of this Warrant on the date of such Change of
Control.
-9-
e) Calculations. All
calculations under this Section 3 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. For purposes of this Section 3,
the number of shares of Common Stock deemed to be issued and outstanding as of a
given date shall be the sum of the number of shares of Common Stock (excluding
treasury shares, if any) issued and outstanding.
f) Notice to
Holder.
i. Adjustment to Exercise
Price. Whenever the Exercise Price is adjusted pursuant to any provision
of this Section 3, the Company shall promptly mail to the Holder a notice
setting forth the Exercise Price after such adjustment and any resulting
adjustment to the number of Warrant Shares and setting forth a brief statement
of the facts requiring such adjustment.
ii. Notice to Allow Exercise by
Holder. If (A) the Company shall declare a dividend (or any other
distribution in whatever form) on the Common Stock, (B) the Company shall
declare a special nonrecurring cash dividend on or a redemption of the Common
Stock, (C) the Company shall authorize the granting to all holders of the Common
Stock rights or warrants to subscribe for or purchase any shares of capital
stock of any class or of any rights, (D) the approval of any stockholders of the
Company shall be required in connection with any reclassification of the Common
Stock, any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, or any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property, or (E) the Company shall authorize the voluntary
or involuntary dissolution, liquidation or winding up of the affairs of the
Company, then, in each case, the Company shall cause to be mailed to the Holder
at its last address as it shall appear upon the Warrant Register of the Company,
at least 20 calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which the holders of
the Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer or
share exchange; provided that the failure to mail such notice or any defect
therein or in the mailing thereof shall not affect the validity of the corporate
action required to be specified in such notice. To the extent that
any notice provided hereunder constitutes, or contains, material, non-public
information regarding the Company or any of the Subsidiaries, the Company shall
simultaneously file such notice with the Commission pursuant to a Current Report
on Form 8-K. The Holder shall remain entitled to exercise this
Warrant during the period commencing on the date of such notice to the effective
date of the event triggering such notice except as may otherwise be expressly
set forth herein.
-10-
Section
4. Transfer of
Warrant.
a) Transferability. This
Warrant and all rights hereunder (including, without limitation, any
registration rights) are transferable, in whole or in part, upon surrender of
this Warrant at the principal office of the Company or its designated agent,
together with a written assignment of this Warrant substantially in the form
attached hereto duly executed by the Holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable upon the making of such
transfer. Upon such surrender and, if required, such payment, the
Company shall execute and deliver a new Warrant or Warrants in the name of the
assignee or assignees, as applicable, and in the denomination or denominations
specified in such instrument of assignment, and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be cancelled. The Warrant, if properly
assigned in accordance herewith, may be exercised by a new holder for the
purchase of Warrant Shares without having a new Warrant issued.
b) New Warrants. This
Warrant may be divided or combined with other Warrants upon presentation hereof
at the aforesaid office of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by the Holder or its agent or attorney. Subject to compliance
with Section 4(a), as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice. All Warrants issued on transfers or exchanges shall be dated
the initial issuance date of this Warrant and shall be identical with this
Warrant except as to the number of Warrant Shares issuable pursuant
thereto.
-11-
c) Warrant Register. The
Company shall register this Warrant, upon records to be maintained by the
Company for that purpose (the “Warrant Register”),
in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, absent actual notice to the
contrary.
Section
5. Miscellaneous.
a) No Rights as Stockholder
Until Exercise. This Warrant does not entitle the Holder to
any voting rights, dividends or other rights as a stockholder of the Company
prior to the exercise hereof as set forth in Section 2(d)(i).
b) Loss, Theft, Destruction or
Mutilation of Warrant. The Company covenants that upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant or any stock certificate relating to
the Warrant Shares, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it (which, in the case of the Warrant, shall
not include the posting of any bond), and upon surrender and cancellation of
such Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of such Warrant or stock certificate.
c) Saturdays, Sundays,
Holidays, etc. If the last or appointed day for the taking of
any action or the expiration of any right required or granted herein shall not
be a Business Day, then, such action may be taken or such right may be exercised
on the next succeeding Business Day.
d) Authorized
Shares.
The
Company covenants that, during the period the Warrant is outstanding, it will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of the Warrant Shares upon the exercise of
any purchase rights under this Warrant. The Company further covenants
that its issuance of this Warrant shall constitute full authority to its
officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the Warrant Shares upon the
exercise of the purchase rights under this Warrant. The Company will
take all such reasonable action as may be necessary to assure that such Warrant
Shares may be issued as provided herein without violation of any applicable law
or regulation, or of any requirements of the Trading Market upon which the
Common Stock may be listed. The Company covenants that all Warrant
Shares which may be issued upon the exercise of the purchase rights represented
by this Warrant will, upon exercise of the purchase rights represented by this
Warrant and payment for such Warrant Shares in accordance herewith, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges created by the Company in respect of the issue thereof
(other than taxes in respect of any transfer occurring contemporaneously with
such issue).
-12-
Except
and to the extent as waived or consented to by the Holder, the Company shall not
by any action, including, without limitation, amending 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 of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of Holder as set forth in this Warrant against
impairment. Without limiting the generality of the foregoing, the
Company will (i) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to such increase in
par value, (ii) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares upon the exercise of this Warrant and (iii) use commercially
reasonable efforts to obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof, as may be,
necessary to enable the Company to perform its obligations under this
Warrant.
Before
taking any action which would result in an adjustment in the number of Warrant
Shares for which this Warrant is exercisable or in the Exercise Price, the
Company shall obtain all such authorizations or exemptions thereof, or consents
thereto, as may be necessary from any public regulatory body or bodies having
jurisdiction thereof.
e) Jurisdiction. This
Warrant shall be governed by and construed and enforced in accordance with, and
all questions concerning the construction, validity, interpretation and
performance of this Warrant shall be governed by, the internal laws of the State
of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York.
f) Restrictions. The
Holder acknowledges that the Warrant Shares acquired upon the exercise of this
Warrant, if not registered, will have restrictions upon resale imposed by state
and federal securities laws.
g) Nonwaiver and
Expenses. No course of dealing or any delay or failure to
exercise any right hereunder on the part of Holder shall operate as a waiver of
such right or otherwise prejudice the Holder’s rights, powers or
remedies.
h) Notices. Any
notice, request or other document required or permitted to be given or delivered
to the Holder by the Company shall be delivered in accordance with the
information provided by the Holder to the Company in writing.
-13-
i) Limitation of
Liability. No provision hereof, in the absence of any
affirmative action by the Holder to exercise this Warrant to purchase Warrant
Shares, and no enumeration herein of the rights or privileges of the Holder,
shall give rise to any liability of the Holder for the purchase price of any
Common Stock or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.
j) Remedies. The
Holder, in addition to being entitled to exercise all rights granted by law,
including recovery of damages, will be entitled to specific performance of its
rights under this Warrant. The Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of the provisions of this Warrant and hereby agrees to waive and not to
assert the defense in any action for specific performance that a remedy at law
would be adequate.
k) Successors and
Assigns. Subject to applicable securities laws, this Warrant
and the rights and obligations evidenced hereby shall inure to the benefit of
and be binding upon the successors and permitted assigns of the Company and the
successors and permitted assigns of Holder. The provisions of this
Warrant are intended to be for the benefit of any Holder from time to time of
this Warrant and shall be enforceable by the Holder or holder of Warrant
Shares.
l) Amendment. This
Warrant may be modified or amended or the provisions hereof waived with the
written consent of the Company and the Holder.
m) Severability. Wherever
possible, each provision of this Warrant shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Warrant shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Warrant.
n) Headings. The
headings used in this Warrant are for the convenience of reference only and
shall not, for any purpose, be deemed a part of this Warrant.
********************
(Signature
Page Follows)
-14-
IN
WITNESS WHEREOF, the Company has caused this Common Stock Purchase Warrant to be
executed by its officer thereunto duly authorized as of the date first above
indicated.
NEOSTEM,
INC.
By:__________________________________________
Name:
Title:
-15-
NOTICE
OF EXERCISE
TO: NEOSTEM,
INC.
(1) The
undersigned hereby elects to purchase ________ Warrant Shares of the Company
pursuant to the terms of the attached Warrant (only if exercised in full), and
tenders herewith payment of the exercise price in full, together with all
applicable transfer taxes, if any.
(2) Payment
shall take the form of (check applicable box):
[ ]
in lawful money of the United States; or
[ ]
if permitted the cancellation of such number of Warrant Shares as is necessary,
in accordance with the formula set forth in subsection 2(c), to exercise this
Warrant with respect to the maximum number of Warrant Shares purchasable
pursuant to the cashless exercise procedure set forth in subsection
2(c).
(3) Please
issue a certificate or certificates representing said Warrant Shares in the name
of the undersigned or in such other name as is specified below:
_______________________________
The
Warrant Shares shall be delivered to the following DWAC Account Number or by
physical delivery of a certificate to:
_______________________________
_______________________________
_______________________________
[SIGNATURE
OF HOLDER]
Name of
Investing Entity:
________________________________________________________________________
Signature of Authorized Signatory of
Investing Entity:
_________________________________________________
Name of
Authorized Signatory:
___________________________________________________________________
Title of
Authorized Signatory:
____________________________________________________________________
Date:
________________________________________________________________________________________
-16-
ASSIGNMENT
FORM
(To
assign the foregoing warrant, execute
this form
and supply required information.
Do not
use this form to exercise the warrant.)
FOR VALUE
RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all
rights evidenced thereby are hereby assigned to
_______________________________________________
whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ______________,
_______
Holder’s
Signature: _____________________________
Holder’s
Address: _____________________________
_____________________________
Signature
Guaranteed: ___________________________________________
NOTE: The
signature to this Assignment Form must correspond with the name as it appears on
the face of the Warrant, without alteration or enlargement or any change
whatsoever, and must be guaranteed by a bank or trust
company. Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of authority to assign
the foregoing Warrant.
-17-
FORM
OF COMMON STOCK PURCHASE WARRANT
NEOSTEM,
INC.
|
Warrant
Shares: [1,322,486]
|
Issue
Date: November __, 2010
|
THIS
COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies
that, for value received, [________] (the “Holder”) is entitled,
upon the terms and subject to the limitations on exercise and the conditions
hereinafter set forth, at any time on or after May ___, 2011 (the “Initial Exercise
Date”) and on or prior to the close of business on the three (3) year
anniversary of the Initial Exercise Date (the “Termination Date”)
but not thereafter, to subscribe for and purchase from Neostem Inc., a Delaware
corporation (the “Company”), up to
[1,322,486] shares (the
“Warrant
Shares”) of Common Stock. The purchase price of one share of
Common Stock under this Warrant shall be equal to the Exercise Price, as defined
in Section 2(b).
Section
1. Definitions. Capitalized
terms used and not otherwise defined herein shall have the meanings set forth in
that certain Securities Purchase Agreement (the “Purchase Agreement”),
dated November 16, 2010, among the Company and the purchasers signatory thereto,
as the same may be amended from time to time. Exercise of this
Warrant in excess of the amounts permitted under Section 16 of the Certificate
of Designations (as defined below) is conditional on approval of the
shareholders of the Company as contemplated by Section 3.13 of the Purchase
Agreement.
Section
2. Exercise.
(a) Exercise of
Warrant. Exercise of the purchase rights represented by this
Warrant may be made, in whole or in part, at any time or times on or after the
Initial Exercise Date and on or before the Termination Date by delivery to the
Company of a duly executed facsimile copy of the Notice of Exercise annexed
hereto (or such other office or agency of the Company as it may designate by
notice in writing to the registered Holder at the address of the Holder
appearing on the books of the Company); and, within 3 Trading Days of the date
said Notice of Exercise is delivered to the Company, the Company shall have
received payment of the aggregate Exercise Price of the shares thereby purchased
by wire transfer or cashier’s check drawn on a United States
bank. Notwithstanding anything herein to the contrary, the Holder
shall not be required to physically surrender this Warrant to the Company until
the Holder has purchased all of the Warrant Shares available hereunder and the
Warrant has been exercised in full, in which case, the Holder shall surrender
this Warrant to the Company for cancellation within 3 Trading Days of the date
the final Notice of Exercise is delivered to the Company. Partial
exercises of this Warrant resulting in purchases of a portion of the total
number of Warrant Shares available hereunder shall have the effect of lowering
the outstanding number of Warrant Shares purchasable hereunder in an amount
equal to the applicable number of Warrant Shares purchased. The
Holder and the Company shall maintain records showing the number of Warrant
Shares purchased and the date of such purchases. The Company shall
deliver any objection to any Notice of Exercise within 1 business day of receipt
of such notice. In the event of any dispute or discrepancy, the
records of the Holder shall be controlling and determinative in the absence of
manifest error. The Holder and any assignee, by acceptance of this
Warrant, acknowledge and agree that, by reason of the provisions of this
paragraph, following the purchase of a portion of the Warrant Shares hereunder,
the number of Warrant Shares available for purchase hereunder at any given time
may be less than the amount stated on the face hereof.
(b) Exercise
Price. The exercise price per share of the Common Stock under
this Warrant shall be $2.0874 subject to adjustment hereunder (the “Exercise
Price”).
(c) Exercise Elected by
Company. To the extent that the Daily VWAP (as defined in the Certificate
of Designations) of the Common Stock has remained at least 100% above the
Exercise Price ($4.1748) for 20 Trading Days out of 30 consecutive Trading Days
(the “Trigger
Period”), but subject to the conditions set forth below, the Company may
require the Holder to exercise this Warrant in full upon not less than 10
business days prior written notice (“Mandatory Notice
Period”) to the registered Holder at the address of the Holder appearing
on the books of the Company, stating that the Company is requiring exercise of
this Warrant. Exercise by the Holder shall occur in accordance with
Section 2(f) herein. Notwithstanding the delivery of a notice
pursuant to this Section 2(f), the Holder may exercise of this Warrant at any
time during the Mandatory Notice Period. The Company’s right to
require the exercise of this Warrant shall be subject to the following
additional conditions: (i) during each Trading Day of the Trigger Period and
during each Trading Day of the Mandatory Notice Period, the Equity Conditions
(as defined below) shall be satisfied; and (ii) the Daily VWAP of the Common
Stock has remained at least 100% above the Exercise Price during all Trading
Days in the Mandatory Notice Period.
As used
herein, “Equity
Conditions” shall mean each of the following: (i) on each day
of the Trigger Period and on each day of the Mandatory Notice Period, all
Warrants Shares issuable upon exercise of this Warrant shall be eligible for
resale by the Holder without restriction and without need for additional
registration under any applicable federal or state securities laws and the
Company shall have no knowledge of any fact that would cause any Warrant Shares
issuable upon exercise of this Warrant not to be so eligible for resale by the
Holder without restriction and without the need for additional registration
under any applicable federal or state securities laws; (ii) on each day during
the Trigger Period and the Mandatory Notice Period, the Common Stock is
designated for listing on a Trading Market (as defined in the Certificate of
Designations) and shall not have been suspended from trading on such Trading
Market nor shall delisting or suspension by such exchange or market have been
threatened or pending in writing by such Trading Market nor shall there be any
Securities and Exchange Commission (“SEC”) or judicial stop trade order or
trading suspension stop order; (iii) any Warrant Shares issuable upon exercise
of this Warrant may be issued in full without violating the rules or regulations
of the Trading Market or any applicable laws; (iv) on each day during the
Trigger Period and the Mandatory Notice Period, there shall not have occurred
and be continuing, unless waived by the Holder, either (A) a Trigger Event (as
defined in the Certificate of Designations) or (B) an event that with the
passage of time or giving of notice would constitute a Trigger Event; (v) on
each day during the Trigger Period and the Mandatory Notice Period, the Company
has not provided the Holder with any non-public information in breach of Section
3.8 of the Purchase Agreement; (vi) on each day during the Trigger Period and
the Mandatory Notice Period, neither the Registration Statement (as defined in
the Purchase Agreement) nor the Prospectus (as defined in the Purchase
Agreement) nor any Prospectus Supplements (as defined in the Purchase Agreement)
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading and such Registration
Statement, such Prospectus and such Prospectus Supplements comply with all
applicable securities laws as to form and substance (unless all Common Shares
issuable on the applicable Mandatory Redemption Date (or such other date
requiring payment in Common Shares) may be resold by the Holder pursuant to Rule
144 under the Securities Act of 1933, as amended (the “Securities Act”) without
volume limitations or any public information requirements or such other
exemption from registration that would permit the Holder to resell such Common
Shares without restriction and without need for additional registration under
any securities laws); (vii) the Company’s transfer agent for the Common Stock is
participating in the Depository Trust Company (“DTC”) Fast Automated
Securities Transfer Program; and (viii) all Warrants Shares issuable upon
exercise of this Warrant are duly authorized and will be validly issued, fully
paid and non-assessable upon issuance, free and clear of all liens, claims or
encumbrances, and the issuance (and Payment of the Exercise Price in accordance
with the terms hereof) thereof will not require any further approvals of the
Company’s Board of Directors or stockholders. All references to the
"Registration Statement" or "Prospectus" shall include any amendments or
supplements thereto, as filed from time to time, including, without limitation,
any Exchange Act (as defined below) filings incorporated by
reference.
2
(d) Cashless
Exercise. If at any time after 6 months from the Issue Date,
there is no effective registration statement registering issuance of the Warrant
Shares to the Holder, or no current prospectus available for, the resale of the
Warrant Shares by the Holder, then this Warrant may also be exercised at such
time by means of a “Cashless Exercise” (including any exercise required by the
Company pursuant to Section 6(c)). Pursuant to such Cashless
Exercise, the Holder shall be entitled to receive a certificate for the number
of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A),
where:
|
|
(A)
=
|
the
Daily VWAP (as defined in the Certificate of Designations) on the Trading
Day immediately preceding the date of such
election;
|
|
|
(B)
=
|
the
Exercise Price of this Warrant, as adjusted;
and
|
|
|
(X)
=
|
the
number of Warrant Shares issuable upon exercise of this Warrant in
accordance with the terms of this Warrant by means of a cash exercise
rather than a cashless exercise.
|
(e) Exercise
Limitations.
(i) Holder’s
Restrictions. Notwithstanding anything to the contrary
contained herein, the Company shall not effect any exercise of this Warrant, and
the Holder shall not have the right to exercise any portion of this Warrant, if
the number of Warrant Shares to be issued pursuant to such exercise would
exceed, when aggregated with all other shares of Common Stock beneficially owned
by the Holder at such time (as determined in accordance with Section 13(d) of
the Exchange Act and the rules thereunder, including without limitation, shares
of Common Stock that would be aggregated with the Holder’s beneficial ownership
for purpose of determining a group under Section 13(d) of the Exchange Act), the
number of shares of Common Stock that would result in the Holder beneficially
owning (as determined in accordance with Section 13(d) of the Exchange Act and
the rules thereunder, including without limitation, shares of Common Stock that
would be aggregated with the Holder’s beneficial ownership for purpose of
determining a group under Section 13(d) of the Exchange Act) more than 4.9% (the
“Beneficial Ownership
Limitation”) of the then issued and outstanding shares of Common
Stock. The provisions of this Section 2(e) may be waived by a Holder
upon not less than sixty-five (65) days prior notice to the
Company. Notwithstanding the foregoing, the Holder shall have the
right to: (A) at any time and from time to time immediately reduce the
Beneficial Ownership Limitation and (B) (subject to waiver) at any time and from
time to time, increase the Beneficial Ownership Limitation immediately in the
event of the announcement as pending or planned, of a Change in Control
Transaction (as defined in the Certificate of Designations).
3
(f) Mechanics of
Exercise.
(i) Issuance
Limitations. The total number of Warrant Shares issued or
issuable hereunder shall not (when aggregated with any Warrant Shares already
issued upon exercise of this Warrant and any shares of Common Stock issued upon
conversion or redemption of the Preferred Shares) exceed the maximum number of
Common Shares which the Company can so issue pursuant to any rule or regulation
of the NYSE Amex Equities (or any other Trading Market (as defined in the
Certificate of Designations) on which the Common Shares trade) (the “Maximum Share
Amount”), subject to equitable adjustments from time to time for stock
splits, stock dividends, combinations, capital reorganizations and similar
events relating to the Common Shares occurring after the Initial Issuance Date
(as defined in the Certificate of Designations).
(ii) Delivery of Certificates
Upon Exercise. Certificates for shares purchased hereunder
shall be transmitted by the transfer agent of the Company to the Holder by
crediting the account of the Holder’s prime broker with the Depository Trust
Company through its Deposit/Withdrawal at Custodian (“DWAC”) system if the
Company is a participant in such system and there is an effective Registration
Statement permitting the resale of the Warrant Shares by the Holder, and
otherwise by physical delivery to the address specified by the Holder in the
Notice of Exercise within three (3) Trading Days after the receipt by the
Company of the Notice of Exercise, surrender of this Warrant and payment of the
aggregate Exercise Price as set forth above (“Warrant Share Delivery
Date”). This Warrant shall be deemed to have been
exercised on the date the Exercise Price is received by the Company, if such
date is after Notice of Exercise and this Warrant are received by the
Company. The Warrant Shares shall be deemed to have been issued, and
the Holder or any other person so designated to be named therein shall be deemed
to have become a holder of record of such shares for all purposes, as of the
date the Warrant has been exercised by payment to the Company of the Exercise
Price (or by cashless exercise, if permitted) and all taxes required to be paid
by the Holder, if any, pursuant to Section 2(f)(vi) prior to the issuance of
such shares, have been paid.
(iii) Delivery of New Warrants
Upon Exercise. If this Warrant shall have been exercised in
part, the Company shall, at the request of a Holder and upon surrender of this
Warrant certificate, at the time of delivery of the certificate or certificates
representing Warrant Shares, deliver to Holder a new Warrant evidencing the
rights of Holder to purchase the unpurchased Warrant Shares called for by this
Warrant, which new Warrant shall in all other respects be identical with this
Warrant.
4
(iv) Rescission
Rights. If the Company fails to cause its transfer agent to
transmit to the Holder a certificate or certificates representing the Warrant
Shares pursuant to this Section 2(f)(ii) by the third Trading Day immediately
following the Warrant Share Delivery Date, then the Holder will have the right
to rescind such exercise.
(v) Compensation for Buy-In on
Failure to Timely Deliver Certificates Upon Exercise. In
addition to any other rights available to the Holder, if the Company fails to
cause its transfer agent to transmit to the Holder a certificate or certificates
representing the Warrant Shares pursuant to an exercise on or before the Warrant
Share Delivery Date, and if after such date the Holder is required by its broker
to purchase (in an open market transaction or otherwise) or the Holder’s
brokerage firm otherwise purchases, shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the Warrant Shares which the Holder
anticipated receiving upon such exercise (a “Buy-In”), then the
Company shall (1) pay 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 Warrant Shares that the Company was required to deliver to the Holder
in connection with the exercise at issue times (B) the price at which the sell
order giving rise to such purchase obligation was executed, and (2) at the
option of the Holder, either reinstate the portion of the Warrant and equivalent
number of Warrant Shares for which such exercise was not honored (in which case
the Company shall promptly return the Exercise Price for such Warrant Shares to
the Holder) or deliver to the Holder the number of shares of Common Stock that
would have been issued had the Company timely complied with its exercise and
delivery obligations hereunder. 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 an aggregate
sale price giving rise to such purchase obligation of $10,000, under clause (1)
of the immediately preceding sentence the Company shall be required to pay the
Holder $1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In and, upon
request of the Company, evidence of the amount of such loss. Nothing
herein shall limit a Holder’s right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company’s
failure to timely deliver certificates representing shares of Common Stock upon
exercise of the Warrant as required pursuant to the terms hereof.
(vi) No Fractional Shares or
Scrip. No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant. As to any
fraction of a share which Holder would otherwise be entitled to purchase upon
such exercise, the Company shall at its election, either pay a cash adjustment
in respect of such final fraction in an amount equal to such fraction multiplied
by the Exercise Price or round up to the next whole share.
(vii) Charges, Taxes and
Expenses. Issuance of certificates for Warrant Shares shall be
made without charge to the Holder for any issue or transfer tax or other
incidental expense in respect of the issuance of such certificate, all of which
taxes and expenses shall be paid by the Company, and such certificates shall be
issued in the name of the Holder or in such name or names as may be directed by
the Holder; provided, however, that in the event certificates for Warrant Shares
are to be issued in a name other than the name of the Holder, this Warrant when
surrendered for exercise shall be accompanied by the Assignment Form attached
hereto duly executed by the Holder; and the Company may require, as a condition
thereto, the payment of a sum sufficient to reimburse it for any transfer tax
incidental thereto.
5
(g) Closing of
Books. The Company will not close its stockholder books or
records in any manner which prevents the timely exercise of this Warrant,
pursuant to the terms hereof.
Section
3. Certain Adjustments.
At any time while this Warrant is outstanding, the Exercise Price shall be
subject to adjustment from time to time as follows (but shall not be increased,
other than pursuant to Section 3(a) hereof):
(a) Adjustments for Stock Splits
and Combinations. If the Company shall at any time or from time to time
effect a stock split of the outstanding Common Stock, the Exercise Price in
effect immediately prior to the stock split shall be proportionately
decreased. If the Company shall at any time or from time to time,
combine the outstanding shares of Common Stock, the Exercise Price in effect
immediately prior to the combination shall be proportionately increased. Any
adjustments under this Section 3(a) shall be effective at the close of business
on the date the stock split or combination occurs.
(b) Adjustments for Certain
Dividends and Distributions. If the Company shall at any time or from
time to time make or issue or set a record date for the determination of holders
of Common Stock entitled to receive a dividend or other distribution payable in
shares of Common Stock, then, and in each event, the Exercise Price in effect
immediately prior to such event shall be decreased as of the time of such
issuance or, in the event such record date shall have been fixed, as of the
close of business on such record date, by multiplying the Exercise Price then in
effect by a fraction:
(i) the
numerator of which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date; and
(ii) the
denominator of which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of Common Stock issuable
in payment of such dividend or distribution.
(c) Adjustment for Other
Dividends and Distributions. If the Company shall at any time or from
time to time make or issue or set a record date for the determination of holders
of Common Stock entitled to receive a dividend or other distribution payable in
securities or other property other than shares of Common Stock, then, and in
each event, an appropriate revision to the Exercise Price shall be made and
provision shall be made (by adjustments of the Exercise Price or otherwise) so
that Holder shall receive upon exercise of this Warrant, in addition to the
number of Warrant Shares issuable upon such exercise, the number of securities
of the Company or other issuer (as applicable) or other property that the Holder
would have received had this Warrant been exercisable into Common Stock on the
date of such event; provided, however, that if such
record date shall have been fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Exercise Price
shall be adjusted pursuant to this Section 3(c) as of the time of actual payment
of such dividends or distributions.
6
(d) Adjustments for
Reclassification, Exchange or Substitution. If the Common Stock at any
time or from time to time after the Closing Date shall be changed to the same or
different number of shares or other securities of any class or classes of stock
or other property, whether by reclassification, exchange, substitution or
otherwise (other than by way of a stock split or combination of shares or stock
dividends provided for in Sections 3(a), 3(b) and 3(c), or a Corporate Event
provided for in Section 3(e), then, and in each event, an appropriate revision
to the Exercise Price shall be made and provisions shall be made (by adjustments
of the Exercise Price or otherwise) so that the Holder shall have the right
thereafter to exercise this Warrant for the kind and amount of shares of stock
or other securities or other property receivable upon reclassification,
exchange, substitution or other change, by holders of the number of shares of
Common Stock into which this Warrant might have been exercised immediately prior
to such reclassification, exchange, substitution or other change, all subject to
further adjustment as provided herein.
(e) Other Corporate
Events. Prior to the consummation of any Change of Control pursuant to
which holders of shares of Common Stock are entitled to receive securities or
other assets with respect to or in exchange for shares of Common Stock (a “Corporate Event”),
the Company shall make appropriate provision to insure that the Holder will
thereafter have the right to receive upon exercise of this Warrant, in
substitution for the shares of Common Stock issuable upon exercise of this
Warrant, such securities or other assets to which the Holder would have been
entitled with respect to such shares of Common Stock had such shares of Common
Stock been held by the Holder upon the consummation of such Corporate Event
(without taking into account any limitations or restrictions on the
exercisability of this Warrant). Provisions made pursuant to the preceding
sentence shall be in a form and substance reasonably satisfactory to the Holder.
The provisions of this Section 3(e) shall apply similarly and equally to
successive Corporate Events and shall be applied without regard to any
limitations on the exercisability of this Warrant.
(f) Adjustments for Issuance of
Additional Shares of Common Stock. In the event the Company shall issue
or sell any additional shares of Common Stock (otherwise than as provided in the
foregoing subsections (a) through (e) of this Section 3 or pursuant to Common
Stock Equivalents (as defined below) granted or issued on or prior to the
Closing Date) (for the avoidance of doubt, this Section 3(f) shall apply to the
issuance and sale of the shares of Common Stock under the Equity Line (as
defined in the Certificate of Designations)) (the “Additional Shares of Common
Stock”), at a price per share less than the Exercise Price then in
effect, or without consideration, the Exercise Price then in effect upon each
such issuance shall be adjusted to that price (rounded to the nearest cent)
determined by multiplying the Exercise Price by a fraction:
(i) the
numerator of which shall be equal to the sum of (A) the number of shares of
Common Stock outstanding immediately prior to the issuance of such Additional
Shares of Common Stock plus (B) the number of shares of Common Stock (rounded to
the nearest whole share) which the aggregate consideration for the total number
of such Additional Shares of Common Stock so issued would purchase at a price
per share equal to the then Exercise Price, and
7
(ii) the
denominator of which shall be equal to the number of shares of Common Stock
outstanding immediately after the issuance of such Additional Shares of Common
Stock.
(iii) No
adjustment of the number of shares of Common Stock shall be made under this
Section 3(f) upon the issuance of any Additional Shares of Common Stock which
are issued pursuant to the exercise of any warrants or other subscription or
purchase rights or pursuant to the exercise of any conversion or exchange rights
in any Common Stock Equivalents (as defined below), if any such adjustment shall
previously have been made upon the issuance of such warrants or other rights or
upon the issuance of such Common Stock Equivalents (or upon the issuance of any
warrant or other rights therefore) pursuant to Section 3(g).
(g) Issuance of Common Stock
Equivalents. If (a) the Company, at any time after the Closing
Date, shall issue any securities convertible into or exchangeable for, directly
or indirectly, Common Stock (“Convertible
Securities”), or (b) any rights or warrants or options to purchase any
such Common Stock or Convertible Securities (collectively, the “Common Stock
Equivalents”) shall be issued or sold and if the sum of the price for
which such Common Stock Equivalents are sold (on a per Common Share Basis) plus
the price per share for which Additional Shares of Common Stock may be issuable
pursuant to any such Common Stock Equivalent shall be less than the Exercise
Price then in effect, or if, after any such issuance of Common Stock
Equivalents, the price per share for which Additional Shares of Common Stock may
be issuable thereafter is amended or adjusted, and the sum of such issuance
price plus such price as so amended shall be less than the Exercise Price in
effect at the time of such amendment or adjustment, then the Exercise Price,
upon each such issuance or amendment, shall be adjusted as provided in Section
3(f). No adjustment shall be made to the Exercise Price upon the issuance of
Common Stock pursuant to the exercise, conversion or exchange of any Convertible
Security or Common Stock Equivalent where an adjustment to the Exercise Price
was made as a result of the issuance or purchase of any Convertible Security or
Common Stock Equivalent.
(h) Certain Issues
Excepted. There shall be no adjustment to the Exercise
Price pursuant to Section 3(f) or Section 3(g) with respect to the sale or
issuance of Excluded Securities (as defined in the Certificate of
Designations).
8
(i) Calculation of Consideration
Received. In case any Common Stock Equivalents are issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Common Stock Equivalents by the parties thereto, the Common
Stock Equivalents will be deemed to have been issued for a consideration of
$0.01. If any shares of Common Stock, Common Stock Equivalents or
Convertible Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor will be deemed to be the gross
proceeds received by the Company therefor. If any shares of Common
Stock, Common Stock Equivalents or Convertible Securities are issued or sold for
a consideration other than cash, the amount of such consideration received by
the Company will be the fair value of such consideration, except where such
consideration consists of publicly traded securities, in which case the amount
of consideration received by the Company will be the closing sale price of such
security on the date of receipt. If any shares of Common Stock,
Common Stock Equivalents or Convertible Securities are issued to the owners of
the non-surviving entity in connection with any merger in which the Company is
the surviving entity, the amount of consideration therefor will be deemed to be
the fair value of such portion of the net assets and business of the
non-surviving entity as is attributable to such shares of Common Stock, Common
Stock Equivalents or Convertible Securities, as the case may be. The
fair value of any consideration other than cash or publicly traded securities
will be determined jointly by the Company and the Holder. If such
parties are unable to reach agreement within ten (10) days after the occurrence
of an event requiring valuation (the “Valuation Event”),
the fair value of such consideration will be determined within twenty (20)
Trading Days after the tenth day following the Valuation Event by an
independent, reputable appraiser jointly selected by the Company and the
Holders. The determination of such appraiser shall be final and
binding upon all parties absent manifest error or fraud and the fees and
expenses of such appraiser shall be borne by the Company.
(j) Adjustment to Warrant
Shares. Upon each such adjustment of the Exercise Price
hereunder, the number of Warrant Shares shall be adjusted to the number of
shares of Common Stock determined by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares acquirable
upon exercise of this Warrant immediately prior to such adjustment and dividing
the product thereof by the Exercise Price resulting from such
adjustment.
(k) Certificates as to
Adjustments. Upon occurrence of each adjustment or readjustment of the
Exercise Price or number of shares of Common Stock issuable upon conversion of
this Warrant pursuant to this Section 3, the Company at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and furnish to the Holder a certificate setting forth such adjustment and
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based. The Company shall, upon written request of the Holder, at
any time, furnish or cause to be furnished to the Holder a like certificate
setting forth such adjustments and readjustments, the Exercise Price in effect
at the time, and the number of shares of Common Stock and the amount, if any, of
other securities or property which at the time would be received upon the
exercise of this Warrant. Notwithstanding the foregoing, the Company shall not
be obligated to deliver a certificate unless such certificate would reflect an
increase or decrease of at least one percent (1%) of such adjusted
amount. If the adjustment is not made because the adjustment does not
change the applicable Exercise Price by more than one percent (1%),
then the adjustment that is not made will be carried forward and taken into
account in any future adjustment. Notwithstanding the foregoing, all such
carried forward adjustments shall be made to the Exercise Price when they
add up to one percent (1%).
(l) Participation. The
Holder, as the holder of this Warrant, shall be entitled to receive such
dividends paid and distributions made to the holders of Common Stock to the same
extent as if the Holder had exercised this Warrant into Common Stock (without
regard to any limitations on exercise herein or elsewhere) and had held such
shares of Common Stock on the record date for such dividends and
distributions. Payments under the preceding sentence shall be made
concurrently with the dividend or distribution to the holders of Common
Stock.
9
(m) Notice to Allow Exercise by
Holder. If (A) the Company shall declare a redemption of the
Common Stock; (B) the Company shall authorize the granting to all holders of the
Common Stock rights or warrants to subscribe for or purchase any shares of
capital stock of any class or of any rights; (C) the approval of any
stockholders of the Company shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger to which the
Company is a party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share exchange whereby the Common Stock
is converted into other securities, cash or property; or (D) the Company shall
authorize the voluntary or involuntary dissolution, liquidation or winding up of
the affairs of the Company; then, in each case, the Company shall cause to be
mailed to the Holder at its last address as it shall appear upon the Warrant
Register of the Company, a notice stating (x) the date on which a record is to
be taken for the purpose of such redemption, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such redemption are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share exchange is
expected to become effective or close, and the date as of which it is expected
that holders of the Common Stock of record shall be entitled to exchange their
shares of the Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer or share
exchange or (z) the date of such dissolution, liquidation or winding up of the
affairs of the Company; provided that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice. Subject to
applicable law and notwithstanding anything herein to the contrary, the Holder
shall be provided a reasonable opportunity (which shall be not less than eight
(8) calendar days notice) to exercise this Warrant prior to the effective date
of the event triggering such notice. Notwithstanding the foregoing,
the delivery of the notice described in this Section 3(m) is not intended to and
shall not bestow upon the Holder any voting rights whatsoever with respect to
outstanding unexercised Warrants.
Section
4. Transfer of
Warrant.
(a) Transferability. Subject
to compliance with any applicable securities laws and the conditions set forth
in Section 4(d) hereof, this Warrant and all rights hereunder are transferable,
in whole or in part, upon surrender of this Warrant at the principal office of
the Company or its designated agent, together with a written assignment of this
Warrant substantially in the form attached hereto duly executed by the Holder or
its agent or attorney and funds sufficient to pay any transfer taxes payable
upon the making of such transfer. Upon such surrender and, if
required, such payment, the Company shall execute and deliver a new Warrant or
Warrants in the name of the assignee or assignees and in the denomination or
denominations specified in such instrument of assignment, and shall issue to the
assignor a new Warrant evidencing the portion of this Warrant not so assigned,
and this Warrant shall promptly be cancelled. A Warrant, if properly
assigned, may be exercised by a new holder for the purchase of Warrant Shares
without having a new Warrant issued.
(b) New
Warrants. This Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by the Holder or its agent or
attorney. Subject to compliance with Section 4(a), as to any transfer
which may be involved in such division or combination, the Company shall execute
and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to
be divided or combined in accordance with such notice. All Warrants
issued on transfers or exchanges shall be dated the original Issue Date and
shall be identical with this Warrant except as to the number of Warrant Shares
issuable pursuant thereto.
10
(c) Warrant
Register. The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose (the “Warrant Register”),
in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, absent actual notice to the
contrary.
(d) Transfer
Restrictions. If, at the time of the surrender of this Warrant
in connection with any transfer of this Warrant, the transfer of this Warrant
shall not be registered pursuant to an effective registration statement under
the Securities Act and under applicable state securities or blue sky laws, the
Company may require, as a condition of allowing such transfer, that the Holder
or transferee of this Warrant, as the case may be, furnish to the Company a
written opinion of counsel reasonably satisfactory to the Company (which opinion
shall be in form, substance and scope customary for opinions of counsel in
comparable transactions) to the effect that such transfer may be made without
registration under the Securities Act, (ii) that the transferor or transferee
execute and deliver to the Company an investment letter in form and substance
reasonably acceptable to the Company and (iii) that the transferee be an
“accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a) (7), or
(a)(8) promulgated under the Securities Act or a qualified institutional buyer
as defined in Rule 144A(a)(1) promulgated under the Securities Act.
Section
5. Transferability.
(a) Conditions for
Transfer. The Holder agrees and acknowledges that this Warrant
may not be sold, transferred, assigned or hypothecated by the Holder except in
compliance with the provisions of the Securities Act and any applicable State
securities or “blue sky” laws. The Holder further represents to the
Company, by accepting this Warrant, that it has full power and authority to
accept this Warrant and make the representations set forth herein.
Section
6. Miscellaneous.
(a) No Rights as Stockholder
Until Exercise. Except as set forth in Section 3(l), this
Warrant does not entitle the Holder to any voting rights or other rights as a
stockholder of the Company prior to the exercise hereof. Upon the
surrender of this Warrant and the payment of the aggregate Exercise Price, the
Warrant Shares so purchased shall be and be deemed to be issued to such Holder
as the record owner of such shares as of the close of business on the later of
the date of such surrender and payment.
(b) Loss, Theft, Destruction or
Mutilation of Warrant. The Company covenants that upon receipt
by the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant or any stock certificate relating to
the Warrant Shares, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it (which, in the case of the Warrant, shall
not include the posting of any bond), and upon surrender and cancellation of
such Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of such Warrant or stock certificate.
11
(c) Saturdays, Sundays,
Holidays, etc. If the last or appointed day for the taking of
any action or the expiration of any right required or granted herein shall not
be a business day, then such action may be taken or such right may be exercised
on the next succeeding business day.
(d) Authorized
Shares. The Company covenants that during the period the
Warrant is outstanding and exercisable, it will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of the Warrant Shares upon the exercise of any purchase rights under this
Warrant. The Company further covenants that its issuance of this
Warrant shall constitute full authority to its officers who are charged with the
duty of executing stock certificates to execute and issue the necessary
certificates for the Warrant Shares upon the exercise of the purchase rights
under this Warrant. The Company will take all such reasonable action
as may be necessary to assure that such Warrant Shares may be issued as provided
herein without violation of any applicable law or regulation, or of any
requirements of the Trading Market (as defined in the Certificate of
Designations) upon which the Common Stock may be listed. The Company
covenants that all Warrant Shares which may be issued upon the exercise of the
purchase rights represented by this Warrant will, upon exercise of the purchase
rights represented by this Warrant, be duly authorized, validly issued, fully
paid and nonassessable and free from all taxes, liens and charges created by the
Company in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously with such issue).
The
Company shall not by any action, including, without limitation, amending 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 of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights of Holder as set forth in this
Warrant against impairment. Without limiting the generality of the
foregoing, the Company will (a) not increase the par value of any Warrant Shares
above the amount payable therefor upon such exercise immediately prior to such
increase in par value, (b) take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use
its reasonable best efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under this
Warrant.
Before
taking any action which would result in an adjustment in the number of Warrant
Shares for which this Warrant is exercisable or in the Exercise Price, the
Company shall obtain all such authorizations or exemptions thereof, or consents
thereto, as may be necessary from any public regulatory body or bodies having
jurisdiction thereof.
12
(e) Governing Law and
Jurisdiction. All questions concerning the construction,
validity, enforcement and interpretation of this Warrant or actions, disputes or
proceedings arising out or related to this Warrant shall be determined in
accordance with the provisions of the Purchase Agreement.
(f) Nonwaiver. No
course of dealing or any delay or failure to exercise any right hereunder on the
part of Holder shall operate as a waiver of such right or otherwise prejudice
Holder’s rights, powers or remedies, notwithstanding the fact that all rights
hereunder terminate on the Termination Date.
(g) Notices. Any
notice, request or other document required or permitted to be given or delivered
to the Holder by the Company shall be delivered in accordance with the notice
provisions of the Purchase Agreement.
(h) Limitation of
Liability. No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant to purchase Warrant
Shares, and no enumeration herein of the rights or privileges of Holder, shall
give rise to any liability of Holder for the purchase price of any Common Stock
or as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
(i) Remedies. Holder,
in addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Warrant. The Company agrees that monetary damages would
not be adequate compensation for any loss incurred by reason of a breach by it
of the provisions of this Warrant and hereby agrees to waive and not to assert
the defense in any action for specific performance that a remedy at law would be
adequate.
(j) Successors and
Assigns. Subject to applicable securities laws, this Warrant
and the rights and obligations evidenced hereby shall inure to the benefit of
and be binding upon the successors of the Company and the successors and
permitted assigns of Holder. The provisions of this Warrant are
intended to be for the benefit of all Holders from time to time of this Warrant
and shall be enforceable by any such Holder or holder of Warrant
Shares.
(k) Amendment. This
Warrant may be modified or amended or the provisions hereof waived with the
written consent of the Company and the Holder.
(l) Severability. Wherever
possible, each provision of this Warrant shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Warrant shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Warrant.
(m) Headings. The
headings used in this Warrant are for the convenience of reference only and
shall not, for any purpose, be deemed a part of this Warrant.
[Remainder
of Page Left Blank Intentionally]
13
IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its
duly authorized officer as of the date first above indicated.
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NEOSTEM,
INC.
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By:
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Signature Page to
Warrant
NOTICE
OF EXERCISE
TO: [_______________________]
1. The
undersigned hereby elects to purchase ________ Warrant Shares of the Company
pursuant to the terms of the attached Warrant (only if exercised in full), and
tenders herewith payment of the exercise price in full, together with all
applicable transfer taxes, if any.
2. Payment
shall be made in lawful money of the United States.
3. Please
issue a certificate or certificates representing said Warrant Shares in the name
of the undersigned or in such other name as is specified below:
_________________________
The
Warrant Shares shall be delivered by physical delivery of a certificate
to:
4. Accredited
Investor. The undersigned is an “accredited investor” as
defined in Regulation D promulgated under the Securities Act of 1933, as
amended.
[SIGNATURE
OF HOLDER]
Name of
Investing Entity:
___________________________________________________________________________
Signature
of Authorized Signatory of Investing Entity:
_____________________________________________________
Name of
Authorized Signatory:
_______________________________________________________________________
Title of
Authorized Signatory:
________________________________________________________________________
Date:
___________________________________________________________________________________________
ASSIGNMENT
FORM
(To
assign the foregoing warrant, execute
this form
and supply required information.
Do not
use this form to exercise the warrant.)
FOR VALUE
RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all
rights evidenced thereby are hereby assigned to
____________________________________________________________ whose address is
_____________________________________________.
Dated:
______________, _______
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Holder’s
Signature:
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|
|
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Holder’s
Address:
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|
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Signature
Guaranteed: ___________________________________________
NOTE: The
signature to this Assignment Form must correspond with the name as it appears on
the face of the Warrant, without alteration or enlargement or any change
whatsoever, and must be guaranteed by a bank or trust
company. Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of authority to assign
the foregoing Warrant.
Exhibit
5.1
[Lowenstein
Sandler PC Letterhead]
November
16, 2010
NeoStem,
Inc.
420
Lexington Avenue, Suite 450
New York,
New York 10170
|
Re:
|
Shelf Registration
Statement on Form S-3
|
Ladies
and Gentlemen:
We have
acted as special counsel for NeoStem, Inc., a Delaware corporation (the “Company”), in
connection with the preparation and filing of a Registration Statement on Form
S-3 (File No. 333-166169) (the “Registration
Statement”) with the Securities and Exchange Commission (the “Commission”) under
the Securities Act of 1933, as amended (the “Securities Act”), and
the rules and regulations promulgated thereunder, and declared effective by the
Commission on May 11, 2010, the prospectus, dated May 19, 2010 (the “Prospectus”) and two
prospectus supplements described below, each filed with the Commission pursuant
to Rule 424(b) of the rules and regulations of the Securities Act on November
16, 2010 (each, a “Prospectus
Supplement”).
The first
Prospectus Supplement pertains to an underwritten offering (the
“Underwritten Offering
Prospectus Supplement”) pursuant to the Underwriting Agreement dated the
date hereof between the Company and the underwriters named therein (the "Underwriting
Agreement") and relates to the issuance and sale by the Company of
6,337,980 units (the “Underwritten Units”),
with each Underwritten Unit consisting of one share of the common stock (each,
an “Underwritten
Share”), par value $0.001 per share, of the Company (“Common Stock”) and a
warrant (collectively, the “Underwritten
Warrants”) to purchase 0.50 of a share of Common Stock. The
Underwritten Offering Prospectus Supplement also covers the 3,168,990 shares of
Common Stock issuable from time to time upon exercise of the Underwritten
Warrants (collectively, the “Underwritten Offering
Warrant Shares”).
We
understand that the Underwritten Units are to be sold, as described in the
Registration Statement, the Prospectus and the Underwritten Offering Prospectus
Supplement, pursuant to the Underwriting Agreement filed as Exhibit 1.1 to the
Current Report on Form 8-K to which this opinion is attached as Exhibit
5.1. We further understand that the Underwritten Units will not be
issued or certificated; the Underwritten Shares and the Underwritten Warrants
are immediately separable and will be issued separately, but will be purchased
together in the Underwritten Offering.
The
second Prospectus Supplement (the “Preferred Offering
Prospectus Supplement”) relates to the issuance and sale by the Company
of 10,582,011 units (the “Preferred Offering
Units”), with each Preferred Offering Unit consisting of (i) one share of
Series E 7% Senior convertible Preferred Stock, par value $0.01 per share, of
the Company (the “Preferred Shares”),
(ii) a warrant (collectively, the “Preferred Offering
Warrants”) to purchase 0.25 of a share of Common Stock, and (iii) 0.0155
of a share of Common Stock (collectively, the “Preferred Offering Common
Shares”). The Preferred Offering Prospectus Supplement also
covers the 1,322,486 shares of Common Stock issuable from time to time upon
exercise of the Preferred Offering Warrants (collectively, the “Preferred Offering Warrant
Shares”), and the shares of Common Stock issuable from time to time upon
conversion of redemption of the Preferred Shares (collectively, the “Conversion / Redemption
Shares”).
We
understand that the Preferred Offering Units are to be sold, as described in the
Registration Statement, the Prospectus and the Preferred Offering Prospectus
Supplement, to investors (each, a “Purchaser”) pursuant
to definitive securities purchase agreements entered into among the Company, JGB
Management Inc. and each of the Purchasers, dated as of November 16, 2010 (the
“Securities Purchase
Agreements”), substantially in the form filed as Exhibit 10.1 to the
Current Report on Form 8-K to which this opinion is attached as Exhibit
5.1. We further understand that the Preferred Offering Units will not
be issued or certificated; the Preferred Shares, the Preferred Offering Warrants
and the Preferred Offering Common Shares are immediately separable and will be
issued separately, but will be purchased together in the Preferred
Offering.
In
connection with this opinion, we have examined the Registration Statement, the
Prospectus, the Underwritten Offering Prospectus Supplement and the Preferred
Offering Prospectus Supplement. We also have examined such corporate
records, certificates and other documents and such questions of law as we have
considered necessary or appropriate for the purpose of this
opinion. We have assumed: (A) the genuineness and
authenticity of all documents submitted to us as originals and (B) the
conformity to originals of all documents submitted to us as copies
thereof. As to certain factual matters, we have relied upon
certificates of officers of the Company and have not sought independently to
verify such matters.
Based on
the foregoing, and subject to the assumptions, limitations and qualifications
set forth herein, we are of the opinion that:
1. the
issuance and sale of the Underwritten Units, and the Underwritten Shares and the
Underwritten Warrants included therein, has been duly authorized and, when
issued and sold in the manner described in the Registration Statement, the
Prospectus and the Underwritten Offering Prospectus Supplement and in accordance
with the Underwriting Agreement, the Underwritten Units, and the Underwritten
Shares and the Underwritten Warrants included therein, will be validly issued,
fully paid and non-assessable;
-2-
2. the
Underwritten Offering Warrant Shares have been duly authorized and, when issued
in the manner described in the Registration Statement, the Prospectus and the
Underwritten Offering Prospectus Supplement and in accordance with the terms and
conditions of the Underwritten Warrants (including the due payment of any
exercise price therefor specified in the Underwritten Warrants), the
Underwritten Offering Warrant Shares will be validly issued, fully paid and
non-assessable;
3. the
issuance and sale of the Preferred Offering Units, and the Preferred Shares, the
Preferred Offering Warrants and the Preferred Offering Common Shares included
therein, has been duly authorized and, when issued and sold in the manner
described in the Registration Statement, the Prospectus and the Preferred
Offering Prospectus Supplement and in accordance with the Securities Purchase
Agreements, the Preferred Offering Units, and the Preferred Shares, the
Preferred Offering Warrants and the Preferred Offering Common Shares included
therein, will be validly issued, fully paid and non-assessable;
4. the
Preferred Offering Warrant Shares have been duly authorized and, when issued in
the manner described in the Registration Statement, the Prospectus and the
Preferred Offering Prospectus Supplement in accordance with the terms and
conditions of the Preferred Offering Warrants (including the due payment of any
exercise price therefor specified in the Preferred Offering Warrants), the
Preferred Offering Warrant Shares will be validly issued, fully paid and
non-assessable; and
5. the
Conversion / Redemption Shares have been duly authorized and, when issued in
accordance with the terms and conditions of the Certificate of Designations
applicable to the Preferred Shares, the Conversion / Redemption Shares will be
validly issued, fully paid and non-assessable.
Our
opinion is limited to the federal laws of the United States and to the Delaware
General Corporation Law. We express no opinion as to the effect of
the law of any other jurisdiction. Our opinion is rendered as of the
date hereof, and we assume no obligation to advise you of changes in law or fact
(or the effect thereof on the opinions expressed herein) that hereafter may come
to our attention.
We hereby
consent to the inclusion of this opinion as an exhibit to the Registration
Statement and to the references to our firm therein and in the Prospectus, the
Underwritten Offering Prospectus Supplement and the Preferred Offering
Prospectus Supplement under the caption “Legal Matters.” In giving
our consent, we do not admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act or the rules and
regulations thereunder.
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Very
truly yours,
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| /s/ | |
|
Lowenstein
Sandler PC
|
-3-
Execution
Version
SECURITIES
PURCHASE AGREEMENT
Dated
as of November 16, 2010
by
and among
Neostem,
Inc., JGB Management Inc.
and
THE
PURCHASERS LISTED ON EXHIBIT A
SECURITIES
PURCHASE AGREEMENT
This
SECURITIES PURCHASE AGREEMENT dated as of November 16, 2010 (this “Agreement”) is by and
among Neostem, Inc., a Delaware corporation
(the “Company”), each of
the purchasers whose names are set forth on Exhibit A attached
hereto (each a “Purchaser” and
collectively, the “Purchasers”), and JGB
Management Inc., the Purchaser Representative (as defined herein), only with
respect to Section 3.7(a) and Article 6.
WHEREAS:
A. The
Company has authorized convertible preferred stock of the Company designated as
“7% Senior Convertible
Preferred Stock”, the terms of which are set forth in the certificate of
designation for such series of preferred stock (the “Certificate of
Designations”) in the form attached hereto as Exhibit B (together
with any convertible preferred shares issued in replacement
thereof in accordance with the terms thereof, the “Preferred Shares”),
which Preferred Shares shall be convertible into the Company's common stock, par
value $0.0001 per share (the “Common Stock”), in
accordance with the terms of the Certificate of Designations (as converted,
collectively, the “Conversion
Shares”).
B. The
Preferred Shares shall be mandatorily redeemed by the Company in accordance with
the Certificate of Designations and the redemption price therefor shall be paid
either in cash or shares of Common Stock (the “Redemption
Shares”).
C. Each
Purchaser wishes to purchase, and the Company wishes to sell, upon the terms and
conditions stated in this Agreement, (i) that aggregate number of Preferred
Shares set forth opposite such Purchaser’ name in Exhibit A hereto
(which aggregate number for all Purchasers shall be 10,582,011 (the “Total Subscription
Amount”); (ii) a Warrant representing the right to acquire initially up
to that number of additional shares of Common Stock set forth opposite such
Purchaser’s name on Exhibit A (the “Warrants”), in
substantially the form attached hereto as Exhibit C (as
exercised, collectively, the “Warrant Shares”); and
(iii) the number of shares of Common Stock (the “Common Shares”) set
forth opposite such Purchaser’s Name on Exhibit
A.
D. The
Preferred Shares, the Conversion Shares, the Redemption Shares, the Common
Shares, the Warrants and the Warrant Shares are collectively referred to herein
as the “Securities”.
E. The
Company has engaged Cowen and Company, LLC and LifeTech Capital, a division of
Aurora Capital, LLC as its exclusive placement agents (the “Placement Agents”)
for the offering of the Securities on a “best efforts” basis.
The
parties hereto agree as follows:
ARTICLE
1
PURCHASE
AND SALE OF SECURITIES
1.1. Purchase and Sale of
Securities.
(a) Purchase and Sale of
Securities. Subject to the satisfaction (or waiver) of the
conditions set forth herein, the Company shall issue and sell to each Purchaser,
and each Purchaser severally, but not jointly, agrees to purchase from the
Company on the Closing Date (as defined below), (i) the number of Preferred
Shares as is set forth opposite such Purchaser’s name in Exhibit A; (ii)
Warrants to acquire initially up to that number of Warrant Shares as is set
forth opposite such Purchaser’s name as set forth in Exhibit A; and (iii)
the number of Common Shares set forth opposite such Purchaser’s name in Exhibit
A. The aggregate purchase price for the Securities shall be
$10,000,000.
(b) The
Company has filed with the Securities and Exchange Commission (the “Commission”) a
registration statement on Form S-3 (File No. 333-166169]) (the “Registration
Statement”), including the prospectus contained therein (the “Base Prospectus”),
relating to securities (the “Shelf Securities”),
including the Securities to be issued from time to time by the
Company. The offering and sale of the Securities (the “Offering”) are being
made pursuant to (a) the Registration Statement and the Base Prospectus and
(b) one or more prospectus supplements (the “Prospectus Supplements” and the Base Prospectus, the
“Prospectus”)
containing certain supplemental information regarding the Securities and the
terms of the Offering that has been or will be filed with the Commission and
delivered to the Purchasers (or made available to the Purchasers by the filing
by the Company of an electronic version thereof with the
Commission).
1.2. Purchase Price and
Closing. (a) Subject to the terms and conditions of
this Agreement, the Company agrees to issue and sell to each Purchaser and, in
consideration of and in express reliance upon the representations, warranties,
covenants, terms and conditions of this Agreement, each Purchaser, severally but
not jointly, agrees to purchase the Preferred Shares, Common Shares, and
Warrants set forth opposite such Purchaser’s name on Exhibit A for the
amount to be paid by such Purchaser for the Preferred Shares, Common Shares, and
Warrants as specified on Exhibit A (as to each
Purchaser, the “Subscription
Amount”). At the Closing (as defined below) under this
Agreement, each Purchaser shall deliver (i) 67.5% of the Subscription Amount by
wire transfer of immediately available funds to the Company; (ii) 7.5% of the
Subscription Amount by wire transfer of immediately available funds to Cowen and
Company, LLC as representative of the Placement Agents; and (iii) 25% of the
Subscription Amount (the “Escrow Amount”) to Wells Fargo Bank, National
Association, as escrow agent (the “Escrow Agent”) pursuant to the terms of that
certain Escrow Agreement between the Company, the Purchasers, and the Escrow
Agent (the “Escrow Agreement”) in the form annexed hereto as Exhibit
D. The Purchase Price shall be allocated to the Preferred Shares, the
Common Shares, and the Warrants based on their relative fair-market values, as
determined by the Purchasers
(b) The
Closing under this Agreement (the “Closing”) shall take
place on or before November 19, 2010 (the “Closing Date”), provided, that all of the
conditions set forth in Article 4 hereof have been fulfilled or waived in
accordance herewith. The Closing shall take place at the offices of
Kleinberg, Kaplan, Wolff & Cohen, P.C., 551 Fifth Avenue, 18th Floor, New
York, New York 10176 at 10:00 a.m. Eastern Standard Time, or at such
other time and place as the parties may agree. Subject to the terms
and conditions of this Agreement, at the Closing the Purchasers shall purchase
and the Company shall issue and deliver or cause to be delivered to each
Purchaser the Preferred Shares, Common Shares, and Warrants for the applicable
amounts set forth opposite the name of such Purchaser on Exhibit A
hereto. Also at the Closing, the Company shall issue and deliver the
Preferred Shares, Common Shares, and Warrants in the applicable percentages set
forth opposite the names of such Purchaser on Exhibit A
hereto.
2
ARTICLE
2
REPRESENTATIONS
AND WARRANTIES
2.1. Representations and
Warranties of the Company. Except as otherwise disclosed or
incorporated by reference and readily apparent in the Company’s Prospectus
Supplement, Prospectus, Annual Report on Form 10-K for the year ended December
31, 2009 (the "Form
10-K"), any quarterly or current report, or proxy statement filed by the
Company with the Commission pursuant to the reporting requirements of the
Exchange Act subsequent to the filing of the Form 10-K and prior to the date of
this Agreement (in each case, including any supplements or amendments thereto)
(the “Reports”), the
Company hereby represents and warrants to the Purchasers and the Placement
Agents, as of the date of this Agreement and as of the Closing Date as
follows:
(a) Organization, Good Standing
and Power. The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
and has the requisite corporate power to own, lease and operate its properties
and assets and to conduct its business as it is now being
conducted. The Company and each such Subsidiary (as defined below) is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing would not, individually or in the aggregate,
reasonably be expected to have or result in a Material Adverse Effect (as
defined below). For the purposes of this Agreement, “Material Adverse
Effect” means any material adverse effect on the business, operations,
properties, prospects, or condition (financial or otherwise) of the Company and
its Subsidiaries taken as a whole and/or any condition, circumstance, or
situation that would prohibit in any material respect the ability of the Company
to perform any of its obligations under this Agreement or any of the Transaction
Documents (as defined below) in any material respect.
(b) Authorization;
Enforcement. The Company has the requisite corporate power and
authority to enter into and perform this Agreement, the Certificate of
Designations, the Escrow Agreement, and the Warrants (collectively, the “Transaction
Documents”) and to issue and sell the Preferred Shares, Common Shares,
and Warrants in accordance with the terms hereof. The execution,
delivery and performance of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly and
validly authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required, provided however that the Company must obtain any stockholder approval
as may be required by the NYSE Amex. When executed and delivered by
the Company, each of the Transaction Documents shall constitute a valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, reorganization, moratorium, liquidation, conservatorship,
receivership or similar laws relating to, or affecting generally the enforcement
of, creditor’s rights and remedies or by other equitable principles of general
application.
3
(c) Capitalization. The
authorized capital stock and the issued and outstanding shares of capital stock
of the Company as of the date of this Agreement is set forth in the Prospectus
Supplement. All of the outstanding shares of the Common Stock and any
other outstanding security of the Company have been duly and validly
authorized. No shares of Common Stock or any other security of the
Company were issued in violation of any preemptive rights and there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the
Company. Furthermore, there are no equity plans, contracts,
commitments, understandings, or arrangements by which the Company is or may
become bound to issue additional shares of the capital stock of the Company or
options, securities or rights convertible into shares of capital stock of the
Company, except as set forth on Schedule
2.1(e). The Company is not a party to or bound by any
agreement or understanding granting registration or anti-dilution rights to any
person or entity with respect to any of its equity or debt securities, except
where such registration or anti-dilution rights pursuant to such agreements
individually or in the aggregate, have not had or reasonably would be expected
to have a Material Adverse Effect. Except for customary transfer
restrictions contained in agreements entered into by the Company in order to
sell restricted securities and any voting and lock-up agreements entered into in
connection with the transactions contemplated by that certain Agreement and Plan
of Merger, dated September 23, 2010, by and among the Company, NBS Acquisition
Company LLC and Progenitor Cell Therapy, LLC (the “PCT Merger”) and the
concurrent common stock offering, the Company is not a party to, and it has no
knowledge of, any agreement or understanding restricting the voting or transfer
of any shares of the capital stock of the Company. For purposes of
this Section 2.1 “knowledge” means the actual or constructive knowledge of the
Company.
(d) Issuance of
Securities. The Preferred Shares, Common Shares, and Warrants
to be issued at the Closing have been duly authorized by all necessary corporate
action and, when paid for or issued in accordance with the terms hereof, the
Securities shall be validly issued and outstanding, fully-paid, non-assessable
and free any clear of all Liens (as defined below) of any pre-emptive rights and
rights of refusal of any kind. When the Preferred Shares and Warrants
are issued and paid for in accordance with the terms of the Transaction
Documents, such shares will be duly authorized by all necessary corporate action
and validly issued and outstanding, fully paid and nonassessable, free and clear
of all Liens, encumbrances, pre-emptive rights and rights of refusal of any
kind. When the Conversion Shares and/or Redemptions Shares are issued
in accordance with the terms of the Certificate of Designations and the Warrant
Shares are issued upon exercise of the Warrants and payment of the exercise
price, such shares will be duly authorized by all necessary corporate action and
validly issued and outstanding, fully paid and nonassessable, free and clear of
all Liens, encumbrances, pre-emptive rights and rights of refusal of any
kind.
4
(e) No
Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company, the performance by the Company of its
obligations under the Transaction Documents, and the consummation by the Company
of the transactions contemplated by the Transaction Documents, and the issuance
of the Securities as contemplated by the Transaction Documents, do not and will
not (i) violate or conflict with any provision of the Company’s Articles of
Incorporation (the “Articles”) or By-laws
(the “By-laws”), each as
amended to date (ii) conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, mortgage, deed of trust, indenture, note, bond, license, lease
agreement, instrument or obligation to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries’
respective properties or assets are bound, (iii) result in a violation of any
foreign, federal, state or local statute, law, rule, regulation, order, judgment
or decree (including federal and state securities laws and regulations)
applicable to the Company or any of its Subsidiaries or by which any property or
asset of the Company or any of its Subsidiaries are bound or affected, or (iv)
create or impose a lien, mortgage, security interest, charge or encumbrance of
any nature (each, a “Lien”) on any
property or asset of the Company or its Subsidiaries under any agreement or any
commitment to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound or by which any of their
respective properties or assets are bound, except, in the case of clauses (ii),
(iii) and (iv), for such conflicts, defaults, terminations, amendments,
violations, acceleration, cancellations, creations and impositions as would not,
individually or in the aggregate, reasonably be expected to have or result in a
Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is required under foreign, federal, state or local law, rule or
regulation to obtain any consent, authorization or order of, or make any filing
or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under the Transaction
Documents or issue and sell the Securities other than the filing of the
Prospectus Supplements with the Commission in accordance with the terms hereof,
any filings or approvals required from the Financial Industry Regulatory
Authority, Inc. (“FINRA”) and any
approval of the Company's stockholders, as may be required by the NYSE
Amex.
(f) Commission Documents,
Financial Statements. The Common Stock of the Company is
registered pursuant to Section 12(b) of the Securities Exchange Act of 1934, as
amended (the “Exchange
Act”), and the Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the Commission
pursuant to the reporting requirements of the Exchange Act (all of the foregoing
including filings incorporated by reference therein being referred to herein as
the “Commission
Documents”). At the times of their respective filings, the
Form 10-K for the fiscal year ended December 31, 2009 (the “Form 10-K”, and
together with any other report, schedule, form, statement or other document
filed by the Company with the Commission pursuant to the reporting requirements
of the Exchange Act subsequent to the filing of the Form 10-K and prior to the
date of this Agreement, the “Public Filings”)
complied in all material respects with the requirements of the Exchange Act and
the rules and regulations of the Commission promulgated
thereunder. The Public Filings, the Registration Statement, and the
Prospectus did not (and at the time of filing of any applicable Prospectus
Supplement will not), and do not, contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading, provided however, that the Company makes
no representation or warranty as to information furnished to the Company by the
Purchasers. As of their respective dates, the financial statements of
the Company included in the Commission Documents complied as to form in all
material respects with Regulation S-X and all other published rules and
regulations of the Commission. Such financial statements have been
prepared in accordance with generally accepted accounting principles (“GAAP”) applied on a
consistent basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto or (ii) in the case
of unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements), and fairly present in all material
respects the financial position of the Company and its consolidated Subsidiaries
as of the dates thereof and the results of operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments).
5
(g) Subsidiaries.
(i) Schedule 2.1(g) sets
forth each Subsidiary of the Company, showing the jurisdiction of its
incorporation or organization and showing the percentage of each person’s or
entity’s ownership of the outstanding stock or other interests of such
Subsidiary. For the purposes of this Agreement, “Subsidiary” shall
mean any corporation or other entity of which at least a majority of the
securities or other ownership interest having ordinary voting power (absolutely
or contingently) for the election of directors or other persons performing
similar functions are at the time owned directly or indirectly by the Company
and/or any of its other Subsidiaries. All the outstanding shares of
capital stock (if any) of each subsidiary of the Company have been duly
authorized and validly issued, are fully paid and non-assessable and are owned
by the Company directly or indirectly through one or more wholly-owned
subsidiaries, free and clear of any claim, lien, encumbrance, security interest,
restriction upon voting or transfer or any other claim of any third
party.
(ii) Each
of the Company's Subsidiaries that is incorporated in the People's Republic of
China or "PRC" (a "China Subsidiary") have been duly organized and are validly
existing as corporations or other legal entities in good standing (or the
Chinese equivalent thereof) under the laws of their respective jurisdictions of
organization. Each China Subsidiary is duly qualified to do business
and is in good standing as foreign corporations or other legal entity in each
jurisdiction in which their respective ownership or lease of property or the
conduct of their respective businesses requires such qualification and have all
power and authority (corporate or other) necessary to own or hold their
respective properties and to conduct the businesses in which they are engaged,
except where the failure to so qualify or have such power or authority would not
have, singularly or in the aggregate, a Material Adverse Effect. The
Company owns or controls, directly or indirectly, only the following
corporations, partnerships, limited liability partnerships, limited liability
companies, associations or other entities: NeoStem (China), Inc.,
China Biopharmaceutical Holdings, Inc., Stem Cell Technologies, Inc., NeoStem
Therapies, Inc., Qingdao Niao Bio-Technology Ltd. and Beijing Ruijieao
Bio-Technology Ltd. (the "PRC VIEs") and Suzhou Erye Pharmaceuticals
Ltd.
(iii) Each
China Subsidiary has applied for and obtained all requisite business licenses,
clearance and permits required under PRC law as necessary for the conduct of its
businesses in all material respects, and each China Subsidiary has complied in
all material respects with all PRC laws, rules and regulations (“PRC Laws”) in
connection with foreign exchange, including without limitation, carrying out all
relevant filings, registrations and applications for relevant permits with the
PRC State Administration of Foreign Exchange and any other relevant authorities,
and all such permits are validly subsisting. The registered capital of each
China Subsidiary has been fully paid up in accordance with the schedule of
payment stipulated in its respective articles of association, approval document,
certificate of approval and legal person business license (hereinafter referred
to as the “Establishment Documents”) and in compliance in all material respects
with PRC Laws, except where the failure to have been fully paid would not have a
Material Adverse Effect and there is no outstanding capital contribution
commitment for any China Subsidiary. The Establishment Documents of the China
Subsidiaries have been duly approved in accordance with the laws of the PRC and
are valid and enforceable. The business scope specified in the Establishment
Documents of each China Subsidiary complies in all material respects with the
requirements of all relevant PRC Laws. The outstanding equity interests of each
China Subsidiary are owned by the respective entities or individuals identified
as the registered holders thereof in the Reports.
6
(iv) No
consents, approvals, authorizations, orders, registrations, clearances,
certificates, franchises, licenses, permits or qualifications of or with any PRC
governmental agency are required for the Company’s or its affiliates’ or
subsidiaries’ contractual arrangements and agreements with the PRC variable
interest entities and their registered equity holders (the “VIE Structure”) or
the execution, delivery and performance of such contractual arrangements and
agreements (the “VIE Structuring Documents”) except where the failure to obtain
such consents, approvals, authorizations, orders, registrations, clearances,
certificates, franchises, licenses, permits or qualifications would not,
singularly or in the aggregate, have a Material Adverse Effect. None
of the VIE Structuring Documents has been revoked and no such revocation is
pending or, to the Company’s knowledge, threatened. Each of the VIE
Structuring Documents has been entered into prior to the date thereof in
compliance in all material respects with all applicable laws and regulations and
constitutes a valid and legally binding agreement, enforceable in accordance
with its terms.
(v) The
VIE Structure complies, and immediately following the consummation of the
offering and sale of the Securities will comply, in all material respects with
all applicable laws, regulations, rules, orders, decrees, guidelines, notices or
other legislation of the PRC; the VIE Structure has not been challenged by any
PRC governmental agency and there are no legal, arbitration, governmental or
other proceedings (including, without limitation, governmental investigations or
inquiries) pending before or, to the Company’s knowledge, threatened or
contemplated by any PRC governmental agency in respect of the VIE Structure; and
the Company reasonably believes that after the consummation of the offering and
sale of the Securities, the VIE Structure will not be challenged by any PRC
governmental agency.
(vi) Each
of the China Subsidiaries is in compliance with all requirements under all
applicable PRC Laws to qualify in all material respects for their exemptions
from enterprise income tax or other income tax benefits (the “Tax Benefits”) as
described in the Reports, and the actual operations and business activities of
each such China Subsidiary are sufficient to meet the qualifications for the Tax
Benefits. No submissions made to any PRC government authority in connection with
obtaining the Tax Benefits contained any misstatement or omission that would
have affected the granting of the Tax Benefits. No China Subsidiary has received
notice of any deficiency in its respective applications for the Tax Benefits,
and the Company is not aware of any reason why any such China Subsidiary might
not qualify for, or be in compliance with the requirements for, the Tax
Benefits.
7
(h) No Material Adverse
Change. Since December 31, 2009, (i) the Company has not
experienced or suffered any event or series of events that, individually or in
the aggregate, has had or reasonably would be expected to have a Material
Adverse Effect; and (ii) no event or circumstance has occurred or exists with
respect to the Company or its Subsidiaries or their respective businesses,
properties, prospects, operations or financial condition, that, under applicable
law, rule or regulation, requires public disclosure or announcement by the
Company but which has not been so publicly announced or disclosed.
(i) No Undisclosed
Liabilities. Neither the Company nor any Subsidiary has any
liabilities or obligations of any nature (absolute, accrued, contingent or
otherwise) which are not properly reflected or reserved against in the Company’s
financial statements included in the Reports to the extent required to be so
reflected or reserved against in accordance with GAAP, except for (i)
liabilities that have arisen in the ordinary course of business consistent with
past practice and that have not had a Material Adverse Effect, and (ii)
liabilities that, individually or in the aggregate, have not had and would not
reasonably be expected to have or result in a Material Adverse
Effect.
(j) Indebtedness. Schedule 2.1(j)
hereto sets forth as of the Closing Date all outstanding secured and unsecured
Indebtedness of the Company or any Subsidiary, or for which the Company or any
Subsidiary has commitments. For the purposes of this Agreement,
“Indebtedness”
shall include (a) all obligations for borrowed money, (b) all obligations
evidenced by bonds, debentures, notes, or other similar instruments and all
reimbursement or other obligations in respect of letters of credit, bankers
acceptances, current swap agreements, interest rate hedging agreements, interest
rate swaps, or other financial products, (c) all capital or equipment lease
obligations or purchase money security interests that exceed $2,500,000 in the
aggregate in any fiscal year, (d) all obligations or liabilities secured by a
Lien on any asset of the Company, irrespective of whether such obligation or
liability is assumed, other than capital or equipment leases and purchase money
security interests in amounts excluded from disclosure under clause (c) above,
and (e) any obligation guaranteeing or intended to guarantee (whether directly
or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse)
any of the foregoing obligations of any other person or entity.
(k) Title to
Assets. Each of the Company and the Subsidiaries has good and
marketable title to all of its real and personal property which are material to
the business of the Company, free and clear of any Liens, except for those that
would not, individually or in the aggregate, reasonably be expected to have or
result in a Material Adverse Effect. All leases of the Company and
each of its Subsidiaries are valid and subsisting and in full force and
effect.
(l) Actions
Pending. There is no action, suit, claim, arbitration,
alternate dispute resolution proceeding or other proceeding (collectively,
“Proceedings”)
pending or, to the knowledge of the Company, threatened against the Company or
any Subsidiary that questions the validity of this Agreement or any of the other
Transaction Documents or any of the transactions contemplated hereby or thereby
or any action taken or to be taken pursuant hereto or thereto. To the
knowledge of the Company, there are no such investigations pending or
threatened. There are no material Proceedings pending or, to the
knowledge of the Company, threatened against or involving the Company, any
Subsidiary or any of their respective properties or assets. No
Proceeding described in the Reports would, individually or in the aggregate,
reasonably be expected, if adversely determined, to have a Material Adverse
Effect. There are no outstanding orders, judgments, injunctions,
awards, decrees or, to the knowledge of the Company, investigations of any
court, arbitrator or governmental, regulatory body, self-regulatory agency or
stock exchange against the Company or any Subsidiary or, to the knowledge of the
Company, any officers or directors of the Company or Subsidiary in their
capacities as such, except for those that would not, individually or in the
aggregate, reasonably be expected to have or result in a Material Adverse
Effect.
8
(m) Compliance with
Law. Except as would not, individually or in the aggregate,
reasonably be expected to have or result in a Material Adverse Effect, the
Company and its Subsidiaries have been and are presently conducting their
respective businesses in accordance with all applicable foreign, federal, state
and local governmental laws, rules, regulations and ordinances. The
Company and each of its Subsidiaries have all material franchises, permits,
licenses, consents and other material governmental or regulatory authorizations
and approvals necessary for the conduct of its business as now being conducted
by it except where any failures to possess the same would not individually or in
the aggregate reasonably be expected to have or result in a Material Adverse
Effect. The Company has complied and will comply in all material
respects with all applicable federal and state securities laws in connection
with the Offering.
(n) Taxes. The
Company and each Subsidiary each has (i) timely filed all necessary federal,
state, local and foreign tax returns, and all such returns were true, complete
and correct, and (ii) paid all federal, state, local and foreign taxes,
assessments, governmental or other charges due and payable for which it is
liable, including, without limitation, all sales and use taxes and all taxes
which the Company or any of its Subsidiaries is obligated to withhold from
amounts owing to employees, creditors and third parties, and (iii) does not have
any tax deficiency or claims outstanding or assessed or, to its knowledge,
proposed against any of them, except those, in each of the cases described in
clauses (i), (ii) and (iii) of this paragraph (n), that would not, singularly or
in the aggregate, have a Material Adverse Effect. The Company is not,
nor has it been in the last five years, a U.S. real property holding corporation
under Section 897 of the Code. The Company and its Subsidiaries have
not engaged in any transaction which is a corporate tax shelter or which could
be characterized as such by the Internal Revenue Service or any other taxing
authority. The accruals and reserves on the books and records of the
Company and its Subsidiaries in respect of tax liabilities are adequate to meet
any assessments and related liabilities, and since December 31, 2009 the Company
and its Subsidiaries have not incurred any liability for taxes other than in the
ordinary course.
(o) Certain
Fees. Except for the retention of the Placement Agents, the
Company has not employed any broker or finder or incurred any liability for any
brokerage or investment banking fees, commissions, finders’ structuring fees,
financial advisory fees or other similar fees in connection with the Transaction
Documents.
(p) Disclosure. Except
for the information concerning the transactions contemplated by this Agreement
and the concurrent common stock offering, the Company confirms that neither it
nor any other person or entity acting on its behalf has provided any of the
Purchasers or their agents or counsel with any information that constitutes or
might constitute material, nonpublic information.
9
(q) Intellectual
Property. The Company and its subsidiaries own or possess the
valid right to use all (i) valid and enforceable patents, patent applications,
trademarks, trademark registrations, service marks, service mark registrations,
Internet domain name registrations, copyrights, copyright registrations,
licenses, trade secret rights (“Intellectual Property
Rights”) and (ii) inventions, software, works of authorships, trade
marks, service marks, trade names, databases, formulae, know how, Internet
domain names and other intellectual property (including trade secrets and other
unpatented and/or unpatentable proprietary confidential information, systems, or
procedures) (collectively, “Intellectual Property
Assets”) necessary to conduct their respective businesses as currently
conducted, and as proposed to be conducted and described in the Reports and the
Prospectus. To the knowledge of the Company, neither the Company nor
any of its Subsidiaries is infringing, misappropriating, or otherwise violating,
valid and enforceable Intellectual Property Rights of any other person, and,
except as set forth in the Reports and the Prospectus, have not received written
notice of any challenge (, by any other person to the rights of the Company and
its subsidiaries with respect to any Intellectual Property Rights or
Intellectual Property Assets owned or used by the Company or its
subsidiaries. To the knowledge of the Company, except as described in
the Registration Statement, the Report and the Prospectus, the Company and its
subsidiaries’ respective businesses as now conducted do not give rise to any
infringement of, any misappropriation of, or other violation of, any valid and
enforceable Intellectual Property Rights of any other person. All
licenses for the use of the Intellectual Property Rights described in the
Reports and the Prospectus are valid, binding upon, and enforceable by or
against the parties thereto in accordance to its terms. The Company
has complied in all material respects with, and is not in breach nor has
received any asserted or threatened claim of breach of any Intellectual Property
license that has not been resolved, and to the knowledge of the Company there
has been no unresolved breach or anticipated breach by any other person to any
Intellectual Property license, except where such breach, singularly or in the
aggregate, would not have a Material Adverse Effect. There are no
unresolved claims against the Company alleging the infringement by the Company
of any patent, trademark, service mark, trade name, copyright, trade secret,
license in or other intellectual property right or franchise right of any
person, except to the extent that any such claim does not have a Material
Adverse Effect. The Company has taken reasonable steps to protect,
maintain and safeguard its Intellectual Property Rights, including the execution
of appropriate nondisclosure and confidentiality agreements. The
consummation of the transactions contemplated by this Agreement will not result
in the loss or impairment of or payment of any additional amounts with respect
to, nor require the consent of any other person in respect of, the Company's
right to own, use, or hold for use any of the Intellectual Property Rights as
owned, used or held for use in the conduct of the business as currently
conducted. The Company has taken the necessary actions to obtain
ownership of all works of authorship and inventions made by its employees,
consultants and contractors during the time they were employed by or under
contract with the Company and which relate to the Company’s business. All key
employees have signed confidentiality and invention assignment agreements with
the Company.
10
(r) Environmental
Compliance. The Company and each of its Subsidiaries have
obtained all material approvals, authorization, certificates, consents,
licenses, orders and permits or other similar authorizations of all governmental
authorities (whether foreign, federal, state or local), or from any other person
or entity, that are required under any Environmental Laws, except where any such
failures would not individually or in the aggregate, reasonably be expected to
have or result in a Material Adverse Effect. “Environmental Laws”
shall mean all applicable foreign, federal, state and local laws relating to the
protection of the environment including, without limitation, all requirements
pertaining to reporting, licensing, permitting, controlling, investigating or
remediating emissions, discharges, releases or threatened releases of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
materials or wastes, whether solid, liquid or gaseous in nature, into the air,
surface water, groundwater or land, or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
hazardous substances, chemical substances, pollutants, contaminants or toxic
substances, material or wastes, whether solid, liquid or gaseous in
nature. The Company and each of its Subsidiaries are also in
compliance with all requirements, limitations, restrictions, conditions,
standards, schedules and timetables required or imposed under all Environmental
Laws, except as would not, individually or in the aggregate, reasonably be
expected to have or result in a Material Adverse Effect. Except as
would not, individually or in the aggregate, reasonably be expected to have or
result in a Material Adverse Effect, there are no past or present events,
conditions, circumstances, incidents, actions or omissions relating to or in any
way affecting the Company or its Subsidiaries that violate or may violate any
Environmental Law or that may give rise to any environmental liability, or
otherwise form the basis of any claim, action, demand, suit, proceeding,
hearing, study or investigation under any Environmental Law, or based on or
related to the manufacture, processing, distribution, use, treatment, storage
(including without limitation underground storage tanks), disposal, transport or
handling, or the emission, discharge, release or threatened release of any
hazardous substance.
(s) Books and Records; Internal
Accounting Controls. The books and records of the Company and
its Subsidiaries accurately reflect in all material respects the information
relating to the business of the Company and the Subsidiaries, the location and
collection of their assets, and the nature of all transactions giving rise to
the obligations or accounts receivable of the Company or any
Subsidiary. The Company is in material compliance with all provisions
of the Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing
Date. The Company and its Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management’s general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences and
control over financial reporting (as defined in Exchange Act Rules
13a-15). The Company has established disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
Company and designed such disclosure controls and procedures to ensure that
information required to be disclosed by the Company in the reports it files or
submits under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Commission’s rules and
forms. The Company’s certifying officers have evaluated the
effectiveness of the Company’s disclosure controls and procedures as of the end
of the period covered by the Company’s most recently filed periodic report under
the Exchange Act (such date, the “Evaluation
Date”). The Company presented in its most recently filed
periodic report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date. Since the Evaluation
Date, there have been no changes in the Company’s internal control over
financial reporting (as such term is defined in the Exchange Act).
11
(t) Material
Agreements. True, complete and correct copies of each material
contract of the Company or any Subsidiary required to be filed on a Current
Report on Form 8-K, a Quarterly Report on Form 10-Q, or an Annual Report on Form
10-K, in each case pursuant to Item 601(a) and Item 601(b)(10) of Regulation S-K
under the Exchange Act (the “Company Material
Agreements”) are attached or incorporated as exhibits to the
Reports. Each of the Company Material Agreements is valid and binding
on the Company and the Subsidiaries, as applicable, and in full force and
effect. The Company and each of the Subsidiaries, as applicable, are
in all material respects in compliance with and have in all material respects
performed all obligations required to be performed by them to date under each
Company Material Agreement. Neither the Company nor any Subsidiary
knows of, or has received notice of, any material violation or default (or any
condition which with the passage of time or the giving of notice would cause
such a violation of or a default) by any party under any Company Material
Agreement.
(u) Transactions with
Affiliates. There are no loans, leases, agreements, contracts,
royalty agreements, management contracts or arrangements or other continuing
transactions between (a) the Company, any Subsidiary or any of their respective
customers or suppliers on the one hand, and (b) on the other hand, any officer,
employee, consultant or director of the Company, or any of its Subsidiaries, or
any person or entity owning at least 5% of the outstanding capital stock of the
Company or any Subsidiary or any member of the immediate family of such officer,
employee, consultant, director or stockholder or any corporation or other entity
controlled by such officer, employee, consultant, director or stockholder, or a
member of the immediate family of such officer, employee, consultant, director
or stockholder which, in each case, is required to be disclosed in the
Commission Documents or in the Company’s most recently filed definitive proxy
statement on Schedule 14A, that is not so disclosed in the Commission Documents
or in such proxy statement.
(v) Employees. There
is (A) no significant unfair labor practice complaint pending against the
Company, or any of its subsidiaries, nor to the knowledge of the Company,
threatened against it or any of its subsidiaries, before the National Labor
Relations Board, any state or local labor relation board or any foreign labor
relations board, and no significant grievance or significant arbitration
proceeding arising out of or under any collective bargaining agreement is so
pending against the Company or any of its subsidiaries, or, to the knowledge of
the Company, threatened against it and (B) no labor disturbance by the employees
of the Company or any of its subsidiaries exists or, to the Company’s knowledge,
is imminent, and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its or its subsidiaries principal
suppliers, manufacturers, customers or contractors, that could reasonably be
expected, singularly or in the aggregate, to have a Material Adverse
Effect. Neither the Company nor any Subsidiary has any employment
contract, agreement regarding proprietary information, non-competition
agreement, non-solicitation agreement, confidentiality agreement, or any other
similar contract or restrictive covenant, relating to the right of any officer,
employee or consultant to be employed or engaged by the Company or such
Subsidiary required to be disclosed in the Reports that is not so
disclosed. No “named executive officer” (as defined in Item 402 of
Regulation S-K) of the Company has terminated or, to the knowledge of the
Company, has any present intention of terminating his or her employment with the
Company or any Subsidiary. The Company and each Subsidiary is in
compliance with all foreign, federal, state and local laws and regulations
relating to employment and employment practices, terms and conditions of
employment and wages and hours, and employee benefits plans (including, without
limitation, the Employee Retirement Income Securities Act of 1974, as amended,
and any similar law of the PRC), except where such non-compliance would not,
individually or in the aggregate, reasonably be expected to have or result in a
Material Adverse Effect.
12
(w) Absence of Certain
Developments. Since the date on which the most recent Report
was filed with the Commission through the date hereof, neither the Company nor
any of its subsidiaries has (i) issued or granted any securities other than
options to purchase common stock pursuant to the Company’s stock option plan or
securities issued upon exercise of stock options in the ordinary course of
business, (ii) incurred any material liability or obligation, direct or
contingent, other than liabilities and obligations which were incurred in the
ordinary course of business, (iii) entered into any material transaction other
than in the ordinary course of business or (iv) declared or paid any dividend on
its capital stock.
(x) No Guarantees of
Indebtedness. The Company has not guaranteed (directly or
indirectly) any Indebtedness of any Subsidiary.
(y) Investment Company Act
Status. Neither the Company nor any Subsidiary is, nor as a
result of and immediately upon the Closing will be, an “investment company” or a
company “controlled” by an “investment company,” within the meaning of the
Investment Company Act of 1940, as amended.
(z) Independent Nature of
Purchasers. The Company acknowledges that the obligations of
each Purchaser under the Transaction Documents are several and not joint with
the obligations of any other Purchaser, and no Purchaser shall be responsible in
any way for the performance of the obligations of any other Purchaser under the
Transaction Documents. The Company acknowledges that each Purchaser
shall be entitled to independently protect and enforce its rights, including
without limitation, the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such
purpose.
(aa) Dilutive
Effect. The Company understands and acknowledges that its
obligation to issue the Securities pursuant to the Transaction Documents is
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interest of other shareholders of the
Company.
(bb) DTC
Status. The Company’s transfer agent is a participant in and
the Common Stock is eligible for transfer pursuant to the Depository Trust
Company Fast Automated Securities Transfer Program. The name,
address, telephone number, fax number, contact person and email of the Company
transfer agent is set forth on Schedule
2.1(bb).
(cc) Governmental
Approvals. Except for the filing of the Prospectus Supplements
and the filing of any notice prior or subsequent to the Closing that may be
required under applicable state and/or federal securities laws or
by FINRA or the NYSE Amex (which if required, shall be filed on a
timely basis), no authorization, consent, approval, license, exemption of,
filing or registration with any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, is or will be
necessary for, or in connection with, the performance by the Company of its
obligations under the Transaction Documents.
13
(dd) Insurance. The
Company and each of its Subsidiaries carry or are covered by insurance in such
amounts and covering such risks as management of the Company believes to be
prudent. Neither the Company nor any such Subsidiary has been refused
any material insurance coverage sought or applied for and the Company does not
have any reason to believe that it or any Subsidiary will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not reasonably be expected to have or result in a
Material Adverse Effect.
(ee) Trading
Activities. It is understood and acknowledged by the Company
that none of the Purchasers has been asked to agree, nor has any Purchaser
agreed, to desist from purchasing or selling, long and/or short, securities of
the Company, or “derivative” securities based on securities issued by the
Company or to hold the Conversion Shares, the Redemption Shares or the Warrant
Shares for any specified term. The Company further understands and
acknowledges that one or more Purchasers may engage in hedging and/or trading
activities at various times during the period that the Conversion Shares, the
Redemption Shares or the Warrant Shares are outstanding, including, without
limitation, during the periods that the value of the Conversion Shares, the
Redemption Shares or Warrant Shares are being determined and such hedging and/or
trading activities, if any, can reduce the value of the existing stockholders’
equity interest in the Company both at and after the time the hedging and/or
trading activities are being conducted.
(ff) Certain Business
Practices. None of the Company or any Company Subsidiary or,
to the Company's knowledge, any director, officer, agent, employee or other
person or entity acting for or on behalf of Company or any Subsidiary has
violated the U.S. Foreign Corrupt Practices Act of 1977, as amended or to the
knowledge of the Company, anti-corruption laws applicable to the Company or any
Subsidiary.
(gg) Shell Company
Status. The Company is not currently, and has not been for the
past twelve (12) months, an issuer of the type described in paragraph (i) of
Rule 144 under the Securities Act.
(hh) Registration
Statement.
(i) The
Registration Statement has become effective; no stop order suspending the
effectiveness of the Registration Statement is in effect, and no proceedings for
such purpose are pending before or, to the knowledge of the Company, threatened
by the Commission. Upon issuance and delivery to the Purchasers in
accordance with the provisions of the Transaction Documents, the Securities
shall be free of any restriction on transferability under federal securities
laws and for Securities consisting of shares of Common Stock, state “Blue Sky”
laws and any certificates or other instruments evidencing or representing the
Securities shall be free of any restrictive legend.
14
(ii) The
Company is in compliance in all material respects with the applicable listing
and corporate governance rules and regulations of the NYSE AMEX Equities (the
“Principal
Market”). The Company has not, in the preceding twelve (12)
months, received notice from the Principal Market to the effect that the Company
is not in compliance with the listing or maintenance requirements of the
Principal Market. The Company is, and has no reason to believe that it will not
in the foreseeable future continue to be, in compliance with all such listing
and maintenance requirements.
2.2. Representations and
Warranties of the Purchasers. Each of the Purchasers hereby
represents and warrants to the Company with respect solely to itself and not
with respect to any other Purchaser as follows as of the date hereof and as of
the Closing Date:
(a) Organization and Standing of
the Purchasers. If the Purchaser is an entity, such Purchaser
is a corporation, limited liability company, partnership or limited partnership
duly incorporated or organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization.
(b) Authorization and
Power. Each Purchaser has the requisite power and authority to
enter into and perform the Transaction Documents and to purchase Preferred
Shares and Warrants being sold to it hereunder. The execution,
delivery and performance of the Transaction Documents by each Purchaser and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate or partnership action, and no further
consent or authorization of such Purchaser or its board of directors,
stockholders, members or partners, as the case may be, is
required. When executed and delivered by the Purchasers, the
Transaction Documents shall constitute valid and binding obligations of each
Purchaser enforceable against such Purchaser in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation, conservatorship,
receivership or similar laws relating to, or affecting generally the enforcement
of, creditor’s rights and remedies or by other equitable principles of general
application.
(c) No
Conflicts. The execution, delivery and performance by each
Purchaser of the Transaction Documents to which it is a party and the
consummation by each Purchaser of the transactions contemplated hereby and
thereby will not (i) result in a violation of the organizational documents of
the Purchaser, (ii) conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which the Purchaser is a party, or
(iii) result in a violation of any law, rule, regulation, order, judgment or
decree (including federal and state securities laws) applicable to the
Purchaser, except in the case of clauses (ii) and (iii) above, for such
conflicts, defaults, rights or violations that would not, individually or in the
aggregate, reasonably be expected to have or result in a material adverse effect
on the ability of the Purchaser to perform its obligations
hereunder.
(d) Certain Fees. The Purchasers have not
employed any broker or finder or incurred any liability for any brokerage or
investment banking fees, commissions, finders’ structuring fees, financial
advisory fees or other similar fees in connection with the Transaction
Documents.
15
ARTICLE
3
COVENANTS
AND AGREEMENTS
Unless
otherwise specified in this Article, for so long as any Preferred Shares or
Warrants remain outstanding, and between the date hereof and the Closing Date,
the Company covenants with each Purchaser as follows, which covenants are for
the benefit of each Purchaser their respective permitted assignees.
3.1. Issuance of the
Shares. The Company will issue the Preferred Shares, Common
Shares, and Warrants to each Purchaser at the Closing.
3.2. Compliance with Laws;
Commission. The Company shall take all necessary
actions and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance (free from any restriction on
transferability under federal securities laws) of the Securities to the
Purchasers or their respective subsequent holders.
3.3. Registration and
Listing. The Company shall cause its Common Stock to continue
to be registered under Sections 12(b) of the Exchange Act, to comply in all
material respects with its reporting and filing obligations under the Exchange
Act and to not take any action or file any document (whether or not permitted by
the Securities Act or the rules promulgated thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under the Exchange Act or Securities Act even if the rules and
regulations thereunder would permit such termination. The Company
will use its reasonable commercial efforts to continue the listing or trading of
its Common Stock on the Principal Market. In addition, the Company
shall keep the Registration Statement (or another registration statement
covering issuance of the Warrant Shares) continuously effective. In
further addition, the Company shall file such amendments to the Registration
Statement (or such other registration statement covering the issuance of Warrant
Shares) and such prospectus supplements that may be necessary for the issuance
of any Conversion Shares, Redemption Shares and/or Warrant Shares to the
Purchasers free of any restrictive legends or other limitation on resale by the
Purchasers under the Securities Act.
3.4. Keeping of Records and Books
of Account. The Company shall use reasonable commercial
efforts to keep and cause each Subsidiary to keep adequate records and books of
account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Company and
its Subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
3.5. Other
Agreements. The Company shall not enter into any agreement in
which the terms of such agreement would restrict or impair the right or ability
of the Company to perform under any Transaction Document. The Company
shall comply with each of its obligations, covenants and agreements under the
other Transaction Documents in all material respects.
16
3.6. Use of
Proceeds. The proceeds from the sale of the Securities
hereunder shall be used by the Company for general corporate
purposes.
3.7. Disclosure of
Transaction.
(a) Except
for press releases and public statements as may upon the advice of outside
counsel be required by law or the rules or regulations of the Principal Market
or the Commission (“Required
Disclosures”), the Company shall separately consult with JGB Management
Inc. (the “Purchaser
Representative”) before issuing any press release with respect to the
Transaction Documents or the transactions contemplated thereby and shall not
issue any such press release or make any public statements (including any
non-confidential filings with governmental entities that name another party
hereto) without the prior consent of the Purchaser Representative, which consent
shall not be unreasonably withheld or delayed. In the case of any
Required Disclosure, the Company shall provide the Purchaser Representative with
prior notice of such Required Disclosure and use its reasonable best efforts to
consult with and coordinate such Required Disclosure with the Purchaser
Representative. Unless the Company and the Purchaser Representative
otherwise agree, the Company shall only include in a Required Disclosure such
information that is legally required to be disclosed upon the advice of
counsel.
(b) The
Company shall file with the Commission a Current Report on Form 8-K (the “Form 8-K”), as soon
as practicable following the date hereof but in no event more than four business
days following the date hereof (the “Announcement Date”),
which shall attach as exhibits all press releases relating to the transactions
contemplated by this Agreement and the Transaction Documents. In
addition, no later than 8:45 AM New York City Time on the business day following
the Closing Date (the “Closing Announcement
Date”), the Company shall also file a Current Report on Form
8-K. The Form 8-K, including all exhibits, filed no later than the
Announcement Date and the Closing Announcement Date, shall be subject to prior
review and comment by the Purchaser Representative. Upon the filing
of the Form 8-K either by the Announcement Date or Closing Announcement Date, as
applicable, no Purchaser shall be deemed to be in possession of any non-public
information regarding the Company. Notwithstanding the Company’s
failure to comply with its obligation to file the Form 8-K, pursuant to this
Section 3.7(b), following the Announcement Date, or Closing Announcement Date,
as applicable, no Purchaser shall be deemed (A) to have any obligation of
confidentiality with respect to any non-public information of the Company or (B)
to be in breach of any duty to the Company and/or any other person and/or to
have misappropriated any non-public information of the Company, if such
Purchaser engages in transactions in securities of the Company, including,
without limitation, any hedging transactions, short sales or any derivative
transactions based on securities of the Company, while in possession of such
information.
17
3.8. Disclosure of Material
Information; No Obligation of Confidentiality.
(a) The
Company covenants and agrees that neither it nor any other person or entity
acting on its behalf will provide any Purchaser or its agents or counsel with
any information that the Company believes constitutes non-public information,
unless prior thereto such Purchaser shall have executed a written agreement
regarding the confidentiality and use of such information. The
Company understands and confirms that each Purchaser shall be relying on the
foregoing representations in effecting transactions in securities of the
Company. In the event of a breach of the foregoing covenant by the
Company, or any of its Subsidiaries, or any of its or their respective officers,
directors, employees and agents, in addition to any other remedy provided herein
or in the Transaction Documents, the Company shall publicly disclose any
material, non-public information in a Form 8-K within one business day following
the date that it discloses such information to any Purchaser or such earlier
time as may be required by Regulation FD or other applicable
law. In the event that the Company discloses any non-public
information to a Purchaser and fails to publicly file a Form 8-K in accordance
with the above, then a Purchaser shall have the option to make a public
disclosure, in the form of a press release, public advertisement or otherwise,
of such nonpublic information without the prior approval by the Company, its
Subsidiaries, or any of its or their respective officers, directors, employees
or agents; provided, however, such Purchaser shall provide the Company with a
copy of such press release, public advertisement or other public announcement at
least twelve hours prior to its public dissemination. No Purchaser
shall have any liability to the Company, its Subsidiaries, or any of its or
their respective officers, directors, employees, stockholders or agents, for any
such disclosure.
(b) No
Purchaser shall be deemed to have any obligation of confidentiality with respect
to (i) any non-public information of the Company disclosed to such Purchaser in
breach of Section 3.8(a) (whether or not the Company files a Form 8-K as
provided above), (ii) the fact that any Purchaser has exercised any of its
rights and/or remedies under the Transaction Documents or (iii) any information
obtained by any Purchaser as a result of exercising any of its rights and/or
remedies under the Transaction Documents. In further addition,
no Purchaser shall be deemed to be in breach of any duty to the Company and/or
to have misappropriated any non-public information of the Company, if such
Purchaser engages in transactions of securities of the Company, including,
without limitation, any hedging transactions, short sales or any derivative
transactions based on securities of the Company while in possession of such
non-public information.
(c) Any
Form 8-K, including all exhibits thereto, filed by the Company pursuant to Section 3.8(a) shall
be subject to prior review and comment by the applicable Purchaser.
(d) From
and after the filing of any Form 8-K pursuant to Section 3.8(a) with the
Commission, no Purchaser shall be in possession of any material, nonpublic
information received from the Company, any of its Subsidiaries or any of their
respective officers, directors, employees or agents, that is not disclosed in
such Form 8-K filed pursuant to Section 3.8(a).
3.9. Amendments to Charter
Documents. The Company shall not, without the consent of each
holder of the Preferred Shares then held by the Purchasers, amend or waive any
provision of the Articles or By-laws of the Company whether by merger,
consolidation or otherwise in any way that would adversely affect any rights of
the holder of the Securities. Without limiting the generality of the
foregoing, without the prior express written consent of the Required Holders (as
defined in the Certificate of Designations), the Company shall not hereafter
authorize or issue additional or other capital stock that is of senior or
pari-passu rank to the Preferred Shares in respect of the preferences as to
dividends and other distributions, amortization and redemption payments and
payments upon a Liquidation Event (as defined in the Certificate of
Designations). The Company shall be permitted to issue preferred
stock that is junior in rank to the Preferred Shares in respect of the
preferences as to dividends and other distributions, amortization and redemption
payments and payments upon a Liquidation Event, provided, that the maturity date
(or any other date requiring redemption, repayment or any other payment,
including, without limitation, dividends in respect of any such preferred
shares) of any such junior preferred shares is not on or before ninety-one (91)
days after the Maturity Date (as defined in the Certificate of
Designations).
18
3.10. No
Pledge. Neither the Company nor any Subsidiary (except for the
existing mortgage by Progenitor Cell Therapy, LLC on the property located in
Allendale, New Jersey (the “Allendale Property”),
as it may be increased by up to $1 million or otherwise amended from time to
time (not to exceed a total of $3.9 million), and any existing pledges by
Neostem (China) Inc. prior to the Closing Date) shall create, incur or permit to
exist any pledge, mortgage, lien, charge, encumbrance, hypothecation or other
grant of security interest, whether direct or indirect, voluntary or involuntary
or by operation of law on any assets without the prior written consent of a
majority of the holders of the Preferred Shares (“Pledge
Limitations”). Such Pledge Limitations shall not apply to (1)
any pledges by Suzhou Erye Pharmaceutical Co., Ltd (“Suzhou”), a company
organized under the laws of the People’s Republic of China (for the avoidance of
doubt, neither the Company nor any Subsidiary shall guarantee (directly or
indirectly) any Indebtedness of any kind incurred by Suzhou), (2) capital or
equipment leases or purchase money financing arrangements first incurred after
the date hereof involving less than $2.5 million in the aggregate so long as the
collateral is limited to the equipment or other Property leased or purchased
(“Permitted Equipment Financing”) (for the avoidance of doubt, once any portion
of Permitted Equipment Financing has been repaid by the Company or any
Subsidiary, as applicable, it may not be reborrowed), (3) insurance premium
financing, (4) any pledges securing debt described by the last sentence of
Section 3.11 or (5) any “Permitted Liens.” (“Permitted Liens”
shall mean: (i) liens imposed by law for taxes, assessments or charges or levies
of any governmental authority for claims not yet due or which are being
contested in good faith by appropriate proceedings and with respect to which
adequate reserves or other appropriate provisions are being maintained in
accordance with GAAP; (ii) liens of landlords and liens of carriers,
warehousemen, suppliers, mechanics, materialmen and other liens in existence on
the date hereof or thereafter imposed by law and created in the ordinary course
of business; (iii) liens incurred or deposits made in the ordinary course of
business (including, without limitation, surety bonds and appeal bonds) in
connection with workers’ compensation, unemployment insurance and other types of
social security benefits or to secure the performance of tenders, bids, leases,
contracts, statutory obligations and other similar obligations, (iv) easements
(including, without limitations, reciprocal easement agreements and utility
agreements), rights-of-way, covenants, consents, reservations, encroachments,
variations and zoning and other restrictions, charges or encumbrances (whether
or not recorded) and interest of ground lessors, which do not interfere
materially with the ordinary conduct of the business of the Company; (v) letters
of credit or deposits in the ordinary course to secure leases, and (vi) liens
consisting of customary transfer restrictions in joint venture agreements,
stockholder agreements or other similar agreements.
19
3.11. Indebtedness;
Rank. Except for the mortgage held by Progenitor Cell Therapy,
LLC on the Allendale Property as it may be increased by up to $1 million or
otherwise amended from time to time (not to exceed a total of $3.9 million),
existing Indebtedness incurred by Neostem (China) Inc. prior to the Closing
Date, other borrowing by NeoStem (China) to provide for foreign currency
exchange and secured by cash reserves of 100% of the amount borrowed, any
Indebtedness incurred by Suzhou, Permitted Equipment Financing (for the
avoidance of doubt, once any portion of Permitted Equipment Financing has been
repaid by the Company or any Subsidiary, as applicable, it may not be
reborrowed) and insurance premium financing, the Company will not, directly or
indirectly, enter into, create, incur, assume or suffer to exist any
Indebtedness of any kind, on or with respect to any of its property or assets
now owned or hereafter acquired or any interest therein or any income or profits
therefrom that is senior in any respect to the Preferred Shares without the
prior written consent of a majority of the holders of the Preferred
Shares. Without limiting the foregoing, the Company will not create
any class or series of Securities having preference over, or senior to, the
Preferred Shares without the prior written consent of a majority of the holders
of the Preferred Shares. Notwithstanding the foregoing, if the
Company acquires any other business, whether through merger, sale of stock, sale
of assets or otherwise, and such business is obligated under any Indebtedness,
such acquisition shall be permitted and neither this Section 3.11 nor Section
3.10 will be deemed to have been breached by virtue of the assumption of such
Indebtedness in or by virtue of the acquisition transaction; provided, that such
acquired business did not incur Indebtedness or encumber its assets in
contemplation of such acquisition.
3.12. No Guarantees of
Indebtedness. The Company will not guarantee (directly or
indirectly), any Indebtedness of any Subsidiary, including without limitation,
any Indebtedness of Suzhou.
3.13. Certificate re: Tax
Status: Upon the request of any Purchaser, the Company shall
deliver to such Purchaser a certificate in the form of Exhibit E and as of
such date as may be requested by such Purchaser and shall make such filings as
may be required to permit such Purchaser to rely on such certification to
establish that an interest in the Company is not a U.S. real property interest
holding corporation for the purposes of the Code.
3.14. Special Stockholders
Meeting. The Company agrees to call a special meeting of
shareholders, to file with the SEC a proxy statement/prospectus within thirty
days of the date hereof and will use commercially reasonable efforts hold within
eighty days of the
date hereof (or one-hundred days after the date hereof if
the proxy statement/prospectus is reviewed by the SEC), a special stockholders
meeting for the purpose of approving the issuance in full of all Conversion
Shares and Redemption Shares issued pursuant to the Certificate of Designations
and all Warrant Shares pursuant to the Warrants. The Purchasers
acknowledge that they cannot convert the Preferred Stock to Common Stock or
exercise the Warrants for more than an aggregate of [___] shares [19.9% of the outstanding NeoStem
Common Stock minus shares to be issued in simultaneous common stock offerings
and the number of common shares issued hereunder] [PLEASE FILL IN], or
exercise any voting rights, until after shareholder approval of such issuances
is obtained at such shareholders meeting.
3.15. Tax
Compliance. The Company shall keep such records and make such
tax filings, including filing IRS Form 5452 and making the election under
Treasury Regulation 1.1441-3(c)(2)(i)(C), as may be required in connection with
any actual or deemed distribution with respect to the capital stock of the
Company (including, without limitation, the Preferred Shares) that is not
taxable as a “dividend” for U.S. federal income tax purposes.
20
ARTICLE
4
CONDITIONS
4.1. Conditions Precedent to the
Obligation of the Company to Close and to Sell the
Securities. The obligation hereunder of the Company to close
and issue and sell the Securities to the Purchasers at the Closing is subject to
the satisfaction or waiver, at or before the Closing of the conditions set forth
below. These conditions are for the Company’s sole benefit and may be
waived by the Company (other than as set forth in Section 4.1(g) below) at any
time in its sole discretion.
(a) Accuracy of the Purchasers’
Representations and Warranties. The representations and warranties of
each Purchaser shall be true and correct in all material respects as of the date
when made and as of the Closing Date as though made at that time, except for
representations and warranties that are expressly made as of a particular date,
which shall be true and correct in all material respects as of such
date.
(b) Performance by the
Purchasers. Each Purchaser shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Purchasers at or prior to the Closing Date.
(c) Escrow. The
Purchasers shall have executed and delivered the Escrow Agreement.
(d) No
Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(e) Delivery of Subscription
Amount. Each Purchaser shall have delivered to the Company its
Subscription Amount for the Preferred Shares, Common Shares, and Warrants
purchased by such Purchaser.
(f) Delivery of Transaction
Documents. The Transaction Documents shall have been duly
executed and delivered by the Purchasers to the Company.
(g) Satisfaction of Certain
Other Conditions. The conditions of the Placement Agents’
obligations set forth in Section 6 of that certain Placement Agency Agreement
dated of even date herewith by and among the Company and the Placement Agents
(the “Placement Agency Agreement”) shall have been satisfied by the Company in
full and the Placement Agency Agreement shall not have been terminated by the
Placement Agents pursuant to Section 8 of the Placement Agency
Agreement.
4.2. Conditions Precedent to the
Obligation of the Purchasers to Close and to Purchase the
Securities. The obligation hereunder of the Purchasers to
purchase the Securities and consummate the transactions contemplated by this
Agreement is subject to the satisfaction or waiver, at or before the Closing, of
each of the conditions set forth below. These conditions are for the
Purchasers’ sole benefit and may be waived by the Purchasers (other than as set
forth in Section 4.2(q) below) at any time in their sole
discretion.
21
(a) Accuracy of the Company’s
Representations and Warranties. The representations and
warranties of the Company in this Agreement and the other Transaction Documents
shall be true and correct in all material respects as of the date when made and
as of the Closing Date, except for representations and warranties that speak as
of a particular date, which shall be true and correct in all material respects
as of such date.
(b) Performance by the
Company. The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Date.
(c) Escrow. The Company
shall have executed and delivered the Escrow Agreement.
(d) Prospectus: Registration
Statement. The Prospectus shall have been filed with the
Commission pursuant to Rule 424(b) under the Securities Act within the
applicable time period prescribed for such filing by the rules and regulations
under the Securities Act; no stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose shall have been initiated or, to the Company’s
knowledge, threatened by the Commission and no notice of objection by the
Commission to the use of the Registration Statement or any post-effective
amendment thereto pursuant to Rule 401 (g)(2) under the Securities Act
shall have been received; no stop order suspending or preventing the use of the
Prospectus shall have been initiated or threatened by the
Commission.
(e) No Suspension,
Etc. The shares of Common Stock (i) shall be designated for
quotation or listed on the Principal Market and (ii) shall not have been
suspended, as of the Closing Date, by the Commission or the Principal Market
from trading on the Principal Market nor shall suspension by the Commission or
the Principal Market have been threatened, as of the Closing Date, either (A) in
writing by the Commission or the Principal Market or (B) by falling below the
minimum listing maintenance requirements of the Principal Market.
(f) No
Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(g) No Proceedings or
Litigation. No action, suit or proceeding before any
arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Company or any Subsidiary or any Purchaser, or any of the officers,
directors or affiliates of the Company or any Subsidiary or any Purchaser
seeking to restrain, prevent or change the transactions contemplated by this
Agreement, or seeking damages in connection with such transactions.
(h) Opinion of
Counsel. The Purchasers shall have received an opinion of
counsel to the Company, dated the Closing Date, substantially in the form of
Exhibit G
hereto, with such exceptions and limitations as shall be reasonably acceptable
to counsel to the Purchasers.
22
(i) Receipt of
Proceeds. Prior to the Closing Date or simultaneously
therewith, the Company shall have sold Common Stock and/or warrants for gross
proceeds of not less than $8,000,000 and not more than $15,000,000.
(j) Secretary’s
Certificate. The Company shall have delivered to the Purchasers a
certificate, signed by the Secretary of the Company and dated as of the Closing
Date, as to (i) the resolutions adopted by its Board of Directors approving the
transactions contemplated hereby, (ii) its charter, as in effect at the Closing
Date, (iii) its bylaws, as in effect at the Closing Date, and (iv) the authority
and incumbency of the officers executing the Transaction Documents and any other
documents required to be executed or delivered in connection
therewith.
(k) Officer’s
Certificate. On the Closing Date, the Company shall have delivered to the
Purchasers a certificate signed by an executive officer on behalf of the
Company, dated as of the Closing Date, confirming the accuracy of the
Company’s representations, warranties and performance of covenants as of the
Closing Date and confirming the compliance by the Company with the conditions
precedent set forth in paragraphs (a)-(e) and (j)-(p) of this Section 4.2 as of
the Closing Date.
(l) Material Adverse
Effect. No change having a Material Adverse Effect shall have
occurred.
(m) Listing
Application. The Conversion Shares, the Redemption Shares and
the Warrant Shares have been approved for listing on the Principal Market,
subject only to official notice of issuance.
(n) Approvals. Except
as otherwise provided in Section 3.14 herein, the Company shall have obtained
all required consents and approvals of its Board of Directors deliver and
perform the Transaction Documents.
(o) Voting Agreement. The
Purchasers shall have received the Voting Agreement, in the form of Exhibit F attached
hereto, from officers, directors and certain shareholders of the Company, with
respect to the voting of their shares of Common Stock, which shall include Robin
Smith, Catherin M. Vaczy, Larry A. May, Alan G. Harris, Richard Berman, Steven
S. Myers, Drew Bernstein, Eric H.C. Wei, Rim Asia Capital Partners, L.P., Shi
Mingsheng, Madam Zhang Jian and Fullbright Finance Limited.
(p) Certificate of
Designations. The Certificate of Designations shall have been
filed with the Secretary of State of the State of Delaware.
(q) Satisfaction of Certain
Other Conditions. The conditions of the Placement Agents’
obligations set forth in Section 6 of the Placement Agency Agreement shall have
been satisfied by the Company in full and the Placement Agency Agreement shall
not have been terminated by the Placement Agents pursuant to Section 8 of the
Placement Agency Agreement.
23
ARTICLE
5
TERMINATION
5.1. Termination. This
Agreement may be terminated at any time prior to the Closing Date:
5.1.1. by
either Purchasers representing a majority of the Total Subscription Amount or
the Company if the Closing shall not have occurred by November 19, 2010 (the
“Termination
Date”), provided,
however that the right to terminate this Agreement under this Section
5.1.1 shall not be available to any party whose breach of any
representation or warranty or failure to perform any obligation under this
Agreement shall have caused or resulted in the failure of the Closing to occur
on or prior to such date; or
5.1.2. Purchasers
representing a majority of the Total Subscription Amount or the Company in the
event that any federal, state or local court, governmental, legislative,
judicial, administrative or regulatory authority, agency, commission, body or
other governmental entity or self regulatory organization or stock exchange
(each, a “Governmental
Authority”) shall have issued any statute, law, ordinance, rule,
regulation, judgment, decree, injunction or other order (whether temporary,
preliminary or permanent) that is in effect and restrain, enjoins or otherwise
prohibits consummation of any transaction contemplated by this Agreement
(collectively, an “Order”) and such
Order shall have become final and nonappealable; or
5.1.3. by
the Company if there has been a material breach of any representation, warranty,
covenant or agreement made by Purchasers in this Agreement, or any such
representation and warranty shall have become untrue after the date of this
Agreement, such that Section 4.1(a) would not be satisfied and such breach or
condition is not curable or, if curable, is not cured within five (5) days after
written notice thereof is given by the Company to Purchasers (but in any event
not later than the Termination Date); or
5.1.4. by
Purchasers representing a majority of the Total Subscription Amount if there has
been a material breach of any representation, warranty, covenant or agreement
made by the Company in this Agreement, or any such representation and warranty
shall have become untrue after the date of this Agreement, such that Section
4.2(a) would not be satisfied and such breach or condition is not curable or, if
curable, is not cured within five (5) days after written notice thereof is given
by Purchaser to the Company (but in any event not later than the Termination
Date); or
24
5.1.5. by
the mutual written consent of the Purchasers representing a majority of the
Total Subscription Amount and the Company.
5.2. In
the event of termination of this Agreement as provided in this Section 5.2,
this Agreement shall forthwith become void, except that this Article 5 and
Article 7 herein shall survive. No such termination shall relieve any
party from liability for any breach of this Agreement, material
misrepresentation or fraud.
ARTICLE
6
INDEMNIFICATION
6.1. General
Indemnity. The Company agrees to indemnify and hold harmless
each Purchaser and its respective directors, officers, affiliates, members,
managers, employees, agents, successors and assigns (collectively, “Indemnified Parties”)
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys’ fees, charges
and disbursements) incurred by any Indemnified Party as a result of, arising out
of or based upon (i) any inaccuracy in or breach of the Company’s
representations or warranties in this Agreement; (ii) the Company’s breach of
agreements or covenants made by the Company in this Agreement or any Transaction
Document; (iii) any third party claims arising out of or resulting from the
transactions contemplated by this Agreement or any other Transaction Document
(unless such claim is based upon conduct by such Indemnified Party that
constitutes fraud, gross negligence or willful misconduct); (iv) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, the Prospectus, any Prospectus Supplement or any
preliminary prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or judgments are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information relating to any Purchaser furnished in writing to the Company by or
on behalf of any Purchaser; (v) any breach by the Company of the Securities Act
or the rules promulgated thereunder, or (vi) any third party claims arising
directly or indirectly out of such Indemnified Party’s status as owner of the
Securities or the actual, alleged or deemed control or ability to influence the
Company or any Subsidiary (unless such claim is based upon conduct by such
Purchaser that constitutes fraud, gross negligence or willful
misconduct).
25
6.2. Indemnification
Procedure. With respect to any third-party claims giving rise
to a claim for indemnification, the Indemnified Party will give written notice
to the Company of such third party claim; provided, that the failure of
any party entitled to indemnification hereunder to give notice as provided
herein shall not relieve the Company of its obligations under this Article 5
except to the extent that the Company is actually materially prejudiced by such
failure to give notice. In case any such action, proceeding or claim is brought
against an Indemnified Party in respect of which indemnification is sought
hereunder, the Company shall be entitled to participate in and, unless in the
reasonable judgment of the Indemnified Party a conflict of interest between it
and the Indemnified Party exists with respect to such action, proceeding or
claim (in which case the Company shall be responsible for the reasonable fees
and expenses of one separate counsel for the Indemnified Parties), to assume the
defense thereof with counsel satisfactory to the Indemnified
Party. In the event that the Company advises an Indemnified Party
that it will not contest such a claim for indemnification hereunder, or fails,
within 10 days of receipt of any indemnification notice to notify, in writing,
such person or entity of its election to defend, settle or compromise, at its
sole cost and expense, any action, proceeding or claim (or discontinues its
defense at any time after it commences such defense), then the Indemnified Party
may, at its option, defend, settle or otherwise compromise or pay such action or
claim. In any event, unless and until the Company elects in
writing to assume and does so assume the defense of any such claim, proceeding
or action, the Indemnified Party’s costs and expenses arising out of the
defense, settlement or compromise of any such action, claim or proceeding shall
be losses subject to indemnification hereunder. The Company shall
keep the Indemnified Party fully apprised at all times as to the status of the
defense or any settlement negotiations with respect thereto. If the
Company elects to defend any such action or claim, then the Indemnified Party
shall be entitled to participate in such defense with counsel of its choice at
its sole cost and expense. Notwithstanding anything in this Article 6
to the contrary, the Company shall not, without the Indemnified Party’s prior
written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof. The indemnification obligations to
defend the Indemnified Party required by this Article 6 shall be made by
periodic payments of the amount thereof during the course of investigation or
defense, as and when bills are received or expense, loss, damage or liability is
incurred, so long as the Indemnified Party shall refund such moneys if it is
ultimately determined by a court of competent jurisdiction that such party was
not entitled to indemnification. The indemnity agreements contained
herein shall be in addition to (a) any cause of action or similar rights of the
Indemnified Party against the Company or others, and (b) any liabilities the
Company may be subject to pursuant to the law.
6.3. Contribution. If
the indemnification provided for in Section 6.1 is unavailable to any
Indemnified Party thereunder in respect of any losses, liabilities,
deficiencies, costs, damages or expenses (or actions in respect thereof)
referred to in such Section, then the Company shall contribute to the amount
paid or payable by such Indemnified Party as a result of such losses,
liabilities, deficiencies, costs, damages or expenses (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative fault of
the Company on the one hand and such Indemnified Party on the
other.
ARTICLE
7
MISCELLANEOUS
7.1. Fees and
Expenses. The Company shall reimburse each Purchaser for all costs and
expenses reasonably incurred by such Purchaser in connection with the
negotiation, drafting and execution of the Transaction Documents and the
transactions contemplated thereby (including all legal fees, travel,
disbursements and due diligence in connection therewith and all fees incurred in
connection with any necessary regulatory filings and clearances); provided, however, that the
amount of such costs and expenses due to the Purchasers shall be reduced by an
amount equal to $25,000, which has been previously advanced to the Purchasers;
provided, further,
however, that the Company shall have no obligation to reimburse the
Purchasers for any such costs and expenses to the extent that they exceed, in
the aggregate, $75,000, unless otherwise agreed in writing by the
Company. In addition, the Company shall pay all reasonable fees and
expenses incurred by any Purchaser in connection with the enforcement of this
Agreement or any of the other Transaction Documents, including, without
limitation, all reasonable attorneys’ fees and expenses; provided, however, that in the event
that the enforcement of this Agreement is contested and it is finally judicially
determined that such Purchaser was not entitled to the enforcement of the
Transaction Document sought, then the Purchaser seeking enforcement shall
reimburse the Company for all fees and expenses paid pursuant to this
sentence. The Company shall be responsible for its own fees and
expenses incurred in connection with the transactions contemplated by this
Agreement, including the fees and expenses of the Placement
Agents. The Company shall pay all fees of its transfer agent, stamp
taxes and other taxes and duties levied in connection with the delivery of the
Securities to each Purchaser.
26
7.2. Specific Performance;
Consent to Jurisdiction; Venue.
(a) The
Company and the Purchasers acknowledge and agree that irreparable damage would
occur in the event that any of the provisions of this Agreement or the other
Transaction Documents were not performed in accordance with their specific terms
or were otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent or cure breaches of
the provisions of this Agreement or the other Transaction Documents and to
enforce specifically the terms and provisions hereof or thereof without the
requirement of posting a bond or providing any other security, this being in
addition to any other remedy to which any of them may be entitled by law or
equity.
(b) The
parties agree that venue for any dispute arising under this Agreement will lie
exclusively in the state or federal courts located in New York County, New York,
and the parties irrevocably waive any right to raise forum non conveniens or any
other argument that New York is not the proper venue. The parties
irrevocably consent to personal jurisdiction in the state and federal courts in
New York County of the state of New York. The Company and each
Purchaser consent to process being served in any such suit, action or proceeding
by mailing a copy thereof to such party at the address in effect for notices to
it under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing in this
Section 7.2 shall affect or limit any right to serve process in any other manner
permitted by law. The parties hereby waive all rights to a trial by
jury.
7.3. Amendment. No
provision of this Agreement may be waived or amended except in a written
instrument signed by the Company and Purchasers holding at least a majority of
the outstanding principal amount of the Preferred Shares; provided, that any
waiver or amendment of any provision effecting the rights, obligations or
conditions of, or relating to, the Placement Agents shall not be effective
without the written consent of Cowen and Company, LLC.
7.4. Notices. Any
notice, demand, request, waiver or other communication required or permitted to
be given hereunder shall be in writing and shall be effective (a) upon hand
delivery by telecopy or facsimile at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur or (c) upon delivery
by e-mail (if delivered on a Business Day during normal business hours where
such notice is to be received) upon recipient’s actual receipt and
acknowledgement of such e-mail. The addresses for such communications shall
be:
27
|
If
to the Company:
|
Neostem,
Inc.
420
Lexington Avenue
Suite
450
New
York, New York
Attention:
General Counsel
Telephone
No.: 212-584-4180
Facsimile
No.: 646-514-7787
E-mail: cvaczy@neostem.com
|
|
with
a copy to:
|
Lowenstein
Sandler PC
65
Livingston Avenue
Roseland,
New Jersey 07068
Attention: Alan
Wovsaniker
Telephone
No.: (973) 597 2564
Telecopy
No.: (973) 597 2565
E-mail: awovsaniker@lowenstein.com
|
|
If
to any Purchaser:
|
At
the address of such Purchaser set forth on such Purchaser’s signature
page
|
|
With
a copy to (which shall not constitute
notice):
|
Kleinberg,
Kaplan, Wolff & Cohen, P.C.
551
Fifth Avenue, 18th Floor
New
York, New York 10176
Attention: Lawrence
D. Hui, Esq.
Telephone
No.: (212) 986-6000
E-mail:
lhui@kkwc.com
|
Any party
hereto may from time to time change its address for notices by giving written
notice of such changed address to the other party hereto.
28
7.5. Waivers. No
waiver by either party of any default with respect to any provision, condition
or requirement of this Agreement shall be deemed to be a continuing waiver in
the future or a waiver of any other provision, condition or requirement hereof,
nor shall any delay or omission of any party to exercise any right hereunder in
any manner impair the exercise of any such right accruing to it
thereafter. No consideration shall be offered or paid to any
Purchaser to amend or waive or modify any provision of this Agreement unless the
same consideration is also offered to all of the parties to this Agreement then
holding Preferred Shares. This provision constitutes a separate right
granted to each Purchaser by the Company and shall not in any way be construed
as the Purchasers acting in concert or as a group with respect to the purchase
disposition or voting of Securities or otherwise.
7.6. Headings. The
article, section and subsection headings in this Agreement are for convenience
only and shall not constitute a part of this Agreement for any other purpose and
shall not be deemed to limit or affect any of the provisions
hereof.
7.7. Successors and
Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and assigns. The
Purchasers may assign the Securities and its rights under this Agreement and the
other Transaction Documents and any other rights hereto and thereto without the
consent of the Company. The Company may not assign or delegate any of
its rights or obligations hereunder or under any Transaction
Document.
7.8. No Third Party
Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective permitted successors and assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
person or entity, except that the Placement Agents are intended third party
beneficiaries of the representations, warranties and agreements of the Company
contained herein.
7.9. Governing Law. This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of New York, without giving effect to any of the conflicts of
law principles that would result in the application of the substantive law of
another jurisdiction. This Agreement shall not be interpreted or
construed with any presumption against the party causing this Agreement to be
drafted.
7.10. Survival. The
covenants, agreements and representations and warranties of the Company under
the Transaction Documents shall survive the execution and delivery hereof
indefinitely.
7.11. Counterparts. This
Agreement may be executed in any number of counterparts, all of which taken
together shall constitute one and the same instrument and shall become effective
when counterparts have been signed by each party and delivered to the other
parties hereto, it being understood that all parties need not sign the same
counterpart. Signature pages to this Agreement may be delivered by
facsimile or other means of electronic transmission.
7.12. Publicity. Subject
to Section 3.7, the Company agrees that it will not disclose, and will not
include in any public announcement, the names of the Purchasers without the
consent of the Purchasers, which consent shall not be unreasonably withheld or
delayed, or unless and until such disclosure is required by law, rule or
applicable regulation, and then only to the extent of such requirement.
Notwithstanding the foregoing, the Purchasers consent to being identified in any
filings the Company makes with the Commission to the extent required by law or
the rules and regulations of the Commission.
29
7.13. Severability. The
provisions of this Agreement are severable and, in the event that any court of
competent jurisdiction shall determine that any one or more of the provisions or
part of the provisions contained in this Agreement shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision or part of a
provision of this Agreement and this Agreement shall be reformed and construed
as if such invalid or illegal or unenforceable provision, or part of such
provision, had never been contained herein, so that such provisions would be
valid, legal and enforceable to the maximum extent possible.
7.14. Further
Assurances. From and after the date of this Agreement, upon
the request of the Purchasers or the Company, the Company and each Purchaser
shall execute and deliver such instruments, documents and other writings as may
be reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement and the other Transaction
Documents
7.15. Independent Nature of
Purchasers’ Obligations and Rights. The rights and obligations
of each Purchaser under any Transaction Document are several and not joint with
the obligations of any other Purchaser, and no Purchaser shall be responsible in
any way for the performance of the obligations of any other Purchaser under any
Transaction Document. Nothing contained herein or in any other
Transaction Document, and no action taken by any Purchaser pursuant hereto or
thereto, shall be deemed to constitute the Purchaser as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. The Company acknowledges, that each Purchaser
has independently participated in the negotiation of the transaction
contemplated hereby with the advice of its own counsel and
advisors. Each Purchaser shall be entitled to independently protect
and enforce its rights, including, without limitation, the rights arising out of
this Agreement or out of any other Transaction Documents, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose.
7.16. Time Is of the
Essence. Time is of the essence of this Agreement and each
Transaction Document.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
30
IN
WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized officers as of the
date first above written.
|
NEOSTEM,
INC.
|
|
|
By:
|
/s/ Robin L.
Smith
|
|
Name:
|
Robin L. Smith |
|
Title:
|
Chief Executive Officer |
|
JGB
MANAGEMENT INC.
|
|
|
By:
|
/s/ Brett Cohen |
|
Name:
|
Brett Cohen |
|
Title:
|
Director |
[SIGNATURE
PAGES CONTINUE]
[PURCHASER
SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]
IN
WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
to be duly executed by their respective authorized signatories as of the date
first indicated above.
Name of
Purchaser:
_____________________________________________________________
Signature
of Authorized Signatory of Purchaser:
______________________________________
Name of
Authorized Signatory:
____________________________________________________
Title of
Authorized Signatory:
_____________________________________________________
Email
Address of
Purchaser:_______________________________________________________
Fax
Number of Purchaser:
________________________________________________________
Address
for Notice of Purchaser:
___________________________________________________
Address
for Delivery of Securities for Purchaser (if not same as address for notice):
______________________________________________________________________________
Subscription
Amount: $_________________
[SIGNATURE
PAGES CONTINUE]
EXHIBIT
A
LIST
OF PURCHASERS AND SUBSCRIPTION AMOUNT
A-1
EXHIBIT
B
FORM
OF CERTIFICATE OF DESIGNATIONS
B-1
EXHIBIT
C
FORM
OF WARRANT
C-1
EXHIBIT
D
FORM
OF ESCROW AGREEMENT
D-1
EXHIBIT
E
FIRPTA
CERTIFICATE
At no
time during the period beginning five years prior to [date] and ending on [date]
was Neostem, Inc. a “United States real property holding corporation,” as such
term is defined by Section 897(b)(2) of the Internal Revenue Code of 1986, as
amended.
Under
penalties of perjury I declare that I have examined this certification and, to
the best of my knowledge and belief, it is true, correct and
complete.
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By:
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Title:
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Date:
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E-1
EXHIBIT
F
FORM
OF VOTING AGREEMENT
F-1
EXHIBIT
G
OPINION
OF COUNSEL TO COMPANY
G-1
EXECUTION
VERSION
ESCROW
AGREEMENT
This
Escrow Agreement dated this [__] day of November 2010 (the “Escrow Agreement”),
is entered into by and among Neostem Inc., a Delaware Corporation (“Neostem”),
JGB Management Inc., a Delaware Corporation, as agent (“Agent,” and together
with Neostem, the “Parties,” and each individually, a “Party”) for the
purchasers under that certain Securities Purchase Agreement dated as of November
16, 2010 (the “Purchase Agreement”) among Neostem and the purchasers party
thereto (the “Purchasers”), and Wells Fargo Bank, National Association, as
escrow agent (“Escrow Agent”).
RECITALS
A. Neostem
and the Purchasers have entered into Purchase Agreement pursuant to which
Neostem has agreed to sell, and the Purchasers have agreed to purchase, Senior
Convertible Preferred Stock, Common Stock and Warrants (the “Securities”)
to be issued pursuant to the 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 7%
Senior Convertible Preferred Stock for Neostem, Inc. dated November 16, 2010
(the “Certificate of Designations”) for consideration of $10,000,000 (the
“Purchase Price”). Capitalized terms used herein that are not defined
shall have the meanings given to them in the Certificate of
Designations.
B. The
Purchase Agreement requires that twenty-five per cent of the Purchase Price (the
“Escrowed Amount”) be deposited into escrow to secure certain payment
obligations of Neostem to the Purchasers under the Certificate of
Designations;
C. The
Parties agree to place the Escrowed Amount in escrow and the Escrow Agent agrees
to hold and distribute such funds in accordance with the terms of this Escrow
Agreement.
In
consideration of the promises and agreements of the Parties and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Parties and the Escrow Agent agree as follows:
ARTICLE
1
ESCROW
DEPOSIT
Section
1.1. Receipt of Escrow
Property. Upon execution hereof,
Agent shall deliver to the Escrow Agent the amount of $2,500,000 (the “Escrow
Property”) in immediately available funds. Neostem may, from time to
time, as obligated under the Certificate of Designations, deposit additional
funds into the escrow, which funds will become “Escrow Property.”
1
EXECUTION
VERSION
Section
1.2. Investments.
(a) The
Escrow Agent is authorized and directed to deposit, transfer, hold and invest
the Escrow Property and any investment income thereon as set forth in Exhibit A
hereto, or as set forth in any subsequent written instruction signed by the
Parties. Any investment earnings and income on the Escrow Property
shall become part of the Escrow Property, and shall be disbursed in accordance
with Section 1.3 or Section 1.5 of this Escrow Agreement.
(b) The
Escrow Agent is hereby authorized and directed to sell or redeem any such
investments as it deems necessary to make any payments or distributions required
under this Escrow Agreement. The Escrow Agent shall have no
responsibility or liability for any loss which may result from any investment or
sale of investment made pursuant to this Escrow Agreement; provided that the
Escrow Agent has invested the Escrow Property in accordance with Exhibit
A. The Escrow Agent is hereby authorized, in making or disposing of
any investment permitted by this Escrow Agreement, to deal with itself (in its
individual capacity) or with any one or more of its affiliates, whether it or
any such affiliate is acting as agent of the Escrow Agent or for any third
person or dealing as principal for its own account. The Parties
acknowledge that the Escrow Agent is not providing investment supervision,
recommendations, or advice.
Section
1.3. Disbursements.
(a)
Subject to subsection (d) below, Escrow Agent shall hold
the Escrowed Property and all interest accrued thereon and shall dispose of the
same only in accordance with the following provisions:
(i) upon
receipt of a written notice from the Agent stating (1) that Neostem failed to
pay when due the cash portion of the Mandatory Redemption Price under Section
6(c) of the Certificate of Designations and/or the Stock Replacement Payment or
cash payments due under Section 6(d)(ii) of the Certificate of Designations and
(2) the dollar amount of the unpaid Mandatory Redemption Price or Stock
Replacement Payment, as appropriate, the Escrow Agent shall deliver to the
Agent, for the benefit of the Purchasers, cash equal to the lesser of the unpaid
Mandatory Redemption Price and/or Stock Replacement Payment and the remaining
balance of the Escrow Property (including any accrued interest);
(ii) upon
receipt of a written notice from the Agent stating (1) that Neostem failed to
pay any amount due in cash under Section 7 of the Certificate of Designations
and (2) the amount of damages due to it under Section 7(c) of the Certificate of
Designations, the Escrow Agent shall deliver to the Agent, for the benefit of
the Purchasers, cash equal to the lesser of the damages due and the remaining
balance of the Escrow Property (including any accrued interest);
2
EXECUTION
VERSION
(iii) upon
receipt of a written notice from the Agent stating (1) that Neostem failed to
pay any amount due under Section 8 of the Certificate of Designations and (2)
the amount due and owing thereunder, the Escrow Agent shall deliver to the
Agent, for the benefit of the Purchasers, cash equal to the lesser of the
damages due and the remaining balance of the Escrow Property (including any
accrued interest);
(iv) upon
receipt of a written notice from the Agent stating (1) that Neostem has an
obligation to repurchase all or a portion of the Preferred Shares pursuant to
Section 9 of the Certificate of Designations, (2) that Neostem has failed to
repurchase the required portion of the Preferred Shares when required to do so
and (3) the amount due to the Purchasers, the Escrow Agent shall deliver to the
Agent, for the benefit of the Purchasers, cash equal to the lesser of the amount
due and the remaining balance of the Escrow Property (including any accrued
interest);
(v) upon
receipt of a written notice from Neostem stating (1) that no amounts are
presently due and owing to the Purchasers under the Certificate of Designations
and (2) the aggregate Liquidation Preference of the outstanding Preferred Stock
as of the date of the notice (the “Liquidation Preference Amount”) is less than
the balance of the Escrow Property, the Escrow Agent shall deliver to Neostem
cash equal to the difference between the Liquidation Preference Amount and the
remaining balance of the Escrow Property (including any accrued interest);
and
(vi) upon
a joint written direction signed by the Parties, the Escrow Agent shall disburse
the Escrow, or the appropriate portion thereof, in accordance with the written
direction.
(b) Any
notice given by a Party to the Escrow Agent under subsection (a) above shall
include the relevant dollar amount related to that notice and shall also be
given to the other Party simultaneously.
(c) The
Escrow Agent’s sole duty is to accept notice under subsection (a) and shall have
no duty to determine nor shall be liable to ascertain the validity of the claims
of the Agent or Neostem under subsection (a).
(d) The
Escrow Agent shall disburse any Escrow Property eight (8) business days after
receiving notice under subsection (a) unless it receives written notice pursuant
to Subsection (e) hereto, upon which subsection (e) shall govern.
(e) To
the extent that the non-requesting Party objects in good faith to any request
for payment, such Party must deliver a written objection notice, stating the
basis for such objection, to the Escrow Agent and the other Party within seven
(7) business days after receipt of the notice requesting payment and such
objection shall be resolved in accordance with Section 3.5 hereof.
3
EXECUTION VERSION
(f) The
Escrow Agent shall deliver the applicable portion of the Escrow Property at the
election of the Party entitled to receive the same by (i) a good, unendorsed
check of Escrow Agent payable to the order of such Party, or (ii) a bank wire
transfer to an account designated by such Party.
Section
1.4. Income
Tax Allocation and Reporting.
(a) The
Parties agree that, for tax reporting purposes, all interest and other income
from investment of the Escrow Property shall, as of the end of each calendar
year and to the extent required by the Internal Revenue Service, be reported as
having been earned by Neostem, whether or not such income was disbursed during
such calendar year.
(b) Prior
to closing, the Parties shall provide the Escrow Agent with certified tax
identification numbers by furnishing appropriate forms W-9 or W-8 and such other
forms and documents that the Escrow Agent may request. The
Parties understand that if such tax reporting documentation is not provided and
certified to the Escrow Agent, the Escrow Agent may be required by the Internal
Revenue Code of 1986, as amended, and the regulations promulgated thereunder, to
withhold a portion of any interest or other income earned on the investment of
the Escrow Property.
(c) To
the extent that the Escrow Agent becomes liable for the payment of any taxes in
respect of income derived from the investment of the Escrow Property, the Escrow
Agent shall satisfy such liability to the extent possible from the Escrow
Property. The Parties, jointly and severally, shall indemnify, defend
and hold the Escrow Agent harmless from and against any tax, late payment,
interest, penalty or other cost or expense that may be assessed against the
Escrow Agent on or with respect to the Escrow Property and the investment
thereof unless such tax, late payment, interest, penalty or other expense was
directly caused by the gross negligence or willful misconduct of the Escrow
Agent. The indemnification provided by this Section 1.4(c) is in
addition to the indemnification provided in Section 3.1 and shall survive the
resignation or removal of the Escrow Agent and the termination of this Escrow
Agreement.
Section
1.5. Termination. Upon
the disbursement of all of the Escrow Property, including any interest and
investment earnings thereon, this Escrow Agreement shall terminate and be of no
further force and effect except that the provisions of Sections 1.4(c), 3.1 and
3.2 hereof shall survive termination.
4
EXECUTION VERSION
ARTICLE
2
DUTIES OF
THE ESCROW AGENT
Section
2.1. Scope
of Responsibility. Notwithstanding any provision to the
contrary, the Escrow Agent is obligated only to perform the duties specifically
set forth in this Escrow Agreement, which shall be deemed purely ministerial in
nature. Under no circumstances will the Escrow Agent be deemed to be
a fiduciary to any Party or any other person under this Escrow
Agreement. The Escrow Agent will not be responsible or liable for the
failure of any Party to perform in accordance with this Escrow Agreement. The
Escrow Agent shall neither be responsible for, nor chargeable with, knowledge of
the terms and conditions of any other agreement, instrument, or document other
than this Escrow Agreement, whether or not an original or a copy of such
agreement has been provided to the Escrow Agent; and the Escrow Agent shall have
no duty to know or inquire as to the performance or nonperformance of any
provision of any such agreement, instrument, or document. References
in this Escrow Agreement to any other agreement, instrument, or document are for
the convenience of the Parties, and the Escrow Agent has no duties or
obligations with respect thereto. This Escrow Agreement sets forth
all matters pertinent to the escrow contemplated hereunder, and no additional
obligations of the Escrow Agent shall be inferred or implied from the terms of
this Escrow Agreement or any other agreement.
Section
2.2. Attorneys and
Agents. The Escrow Agent shall be entitled to rely on and
shall not be liable for any action taken or omitted to be taken by the Escrow
Agent in accordance with the advice of counsel or other professionals retained
or consulted by the Escrow Agent. The Escrow Agent shall be
reimbursed as set forth in Section 3.1 for any and all compensation (fees,
expenses and other costs) paid and/or reimbursed to such counsel and/or
professionals. The Escrow Agent may perform any and all of its duties
through its agents, representatives, attorneys, custodians, and/or
nominees.
Section
2.3. Reliance. The
Escrow Agent shall not be liable for any action taken or not taken by it in
accordance with the direction or consent of the Parties or their respective
agents, representatives, successors, or assigns. The Escrow Agent
shall not be liable for acting or refraining from acting upon any notice,
request, consent, direction, requisition, certificate, order, affidavit, letter,
or other paper or document believed by it to be genuine and correct and to have
been signed or sent by the proper person or persons, without further inquiry
into the person’s or persons’ authority. Concurrent with the
execution of this Escrow Agreement, the Parties shall deliver to the Escrow
Agent authorized signers’ forms in the form of Exhibit B-1 and Exhibit B-2 to
this Escrow Agreement.
Section
2.4. Right
Not Duty Undertaken. The permissive rights of the Escrow Agent
to do things enumerated in this Escrow Agreement shall not be construed as
duties.
Section
2.5. No
Financial Obligation. No provision of this Escrow Agreement
shall require the Escrow Agent to risk or advance its own funds or otherwise
incur any financial liability or potential financial liability in the
performance of its duties or the exercise of its rights under this Escrow
Agreement.
5
EXECUTION VERSION
ARTICLE
3
PROVISIONS
CONCERNING THE ESCROW AGENT
Section
3.1. Indemnification. The
Parties, jointly and severally, shall indemnify, defend and hold harmless the
Escrow Agent from and against any and all loss, liability, cost, damage and
expense, including, without limitation, attorneys’ fees and expenses or other
professional fees and expenses which the Escrow Agent may suffer or incur by
reason of any action, claim or proceeding brought against the Escrow Agent,
arising out of or relating in any way to this Escrow Agreement or any
transaction to which this Escrow Agreement relates, unless such loss, liability,
cost, damage or expense shall have been finally adjudicated to have been
directly caused by the willful misconduct or gross negligence of the Escrow
Agent. The provisions of this Section 3.1 shall survive the resignation or
removal of the Escrow Agent and the termination of this Escrow
Agreement.
Section
3.2. Limitation of
Liability. THE ESCROW AGENT SHALL NOT BE LIABLE, DIRECTLY OR
INDIRECTLY, FOR ANY (I) DAMAGES, LOSSES OR EXPENSES ARISING OUT OF THE SERVICES
PROVIDED HEREUNDER, OTHER THAN DAMAGES, LOSSES OR EXPENSES WHICH HAVE BEEN
FINALLY ADJUDICATED TO HAVE DIRECTLY RESULTED FROM THE ESCROW AGENT’S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT, OR (II) SPECIAL, INDIRECT OR CONSEQUENTIAL
DAMAGES OR LOSSES OF ANY KIND WHATSOEVER (INCLUDING WITHOUT LIMITATION LOST
PROFITS), EVEN IF THE ESCROW AGENT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
LOSSES OR DAMAGES AND REGARDLESS OF THE FORM OF ACTION.
Section
3.3. Resignation or
Removal. The Escrow Agent may resign by furnishing written
notice of its resignation to the Parties, and the Parties may remove the Escrow
Agent by furnishing to the Escrow Agent a joint written notice of its removal
along with payment of all fees and expenses to which it is entitled through the
date of termination. Such resignation or removal, as the case may be,
shall be effective thirty (30) days after the delivery of such notice or upon
the earlier appointment of a successor, and the Escrow Agent’s sole
responsibility thereafter shall be to safely keep the Escrow Property and to
deliver the same to a successor escrow agent as shall be appointed by the
Parties, as evidenced by a joint written notice filed with the Escrow Agent or
in accordance with a court order. If the Parties have failed to
appoint a successor escrow agent prior to the expiration of thirty (30) days
following the delivery of such notice of resignation or removal, the Escrow
Agent may petition any court of competent jurisdiction for the appointment of a
successor escrow agent or for other appropriate relief, and any such resulting
appointment shall be binding upon the Parties.
6
EXECUTION VERSION
Section
3.4. Compensation. The
Escrow Agent shall be entitled to compensation for its services as stated in the
fee schedule attached hereto as Exhibit C, which compensation shall be paid by
Neostem. The
fee agreed upon for the services rendered hereunder is intended as full
compensation for the Escrow Agent's services as contemplated by this Escrow
Agreement; provided, however, that in the event that the conditions for the
disbursement of funds under this Escrow Agreement are not fulfilled, or the
Escrow Agent renders any service not contemplated in this Escrow Agreement, or
there is any assignment of interest in the subject matter of this Escrow
Agreement, or any material modification hereof, or if any material controversy
arises hereunder, or the Escrow Agent is made a party to any litigation
pertaining to this Escrow Agreement or the subject matter hereof, then the
Escrow Agent shall be compensated, at a rate determined in good faith by the
Parties, for such extraordinary services and reimbursed for all costs and
expenses, including reasonable attorneys’ fees and expenses, occasioned by any
such delay, controversy, litigation or event. If any amount due to
the Escrow Agent hereunder is not paid within thirty (30) days of the date due,
the Escrow Agent in its sole discretion may charge interest on such amount up to
the highest rate permitted by applicable law. The Escrow Agent
shall have, and is hereby granted, a prior lien upon the Escrow Property with
respect to its unpaid fees, non-reimbursed expenses and unsatisfied
indemnification rights, superior to the interests of any other persons or
entities and is hereby granted the right to set off and deduct any unpaid fees,
non-reimbursed expenses and unsatisfied indemnification rights from the Escrow
Property.
Section
3.5. Disagreements. If
any conflict, disagreement or dispute arises between, among, or involving any of
the parties hereto concerning the meaning or validity of any provision hereunder
or concerning any other matter relating to this Escrow Agreement, or the Escrow
Agent is in doubt as to the action to be taken hereunder, the Escrow Agent may,
at its option, retain the Escrow Property until the Escrow Agent (i) receives a
final non-appealable order of a court of competent jurisdiction or a final
non-appealable arbitration decision directing delivery of the Escrow Property,
(ii) receives a written agreement executed by each of the parties involved in
such disagreement or dispute directing delivery of the Escrow Property, in which
event the Escrow Agent shall be authorized to disburse the Escrow Property in
accordance with such final court order, arbitration decision, or agreement, or
(iii) files an interpleader action in any court of competent jurisdiction, and
upon the filing thereof, the Escrow Agent shall be relieved of all liability as
to the Escrow Property and shall be entitled to recover attorneys’ fees,
expenses and other costs incurred in commencing and maintaining any such
interpleader action. The Escrow Agent shall be entitled to act on any
such agreement, court order, or arbitration decision without further question,
inquiry, or consent.
Section
3.6. Merger
or Consolidation. Any corporation or association into which
the Escrow Agent may be converted or merged, or with which it may be
consolidated, or to which it may sell or transfer all or substantially all of
its corporate trust business and assets as a whole or substantially as a whole,
or any corporation or association resulting from any such conversion, sale,
merger, consolidation or transfer to which the Escrow Agent is a party, shall be
and become the successor escrow agent under this Escrow Agreement and shall have
and succeed to the rights, powers, duties, immunities and privileges as its
predecessor, without the execution or filing of any instrument or paper or the
performance of any further act.
7
EXECUTION VERSION
Section
3.7. Attachment of Escrow
Property; Compliance with Legal Orders. In the event that any
Escrow Property shall be attached, garnished or levied upon by any court order,
or the delivery thereof shall be stayed or enjoined by an order of a court, or
any order, judgment or decree shall be made or entered by any court order
affecting the Escrow Property, the Escrow Agent is hereby expressly authorized,
in its sole discretion, to respond as it deems appropriate or to comply with all
writs, orders or decrees so entered or issued, or which it is advised by legal
counsel of its own choosing is binding upon it, whether with or without
jurisdiction. In the event that the Escrow Agent obeys or complies
with any such writ, order or decree it shall not be liable to any of the Parties
or to any other person, firm or corporation, should, by reason of such
compliance notwithstanding, such writ, order or decree be subsequently reversed,
modified, annulled, set aside or vacated.
Section
3.8 Force
Majeure. The Escrow Agent shall not be responsible or liable
for any failure or delay in the performance of its obligation under this Escrow
Agreement arising out of or caused, directly or indirectly, by circumstances
beyond its reasonable control, including, without limitation, acts of God;
earthquakes; fire; flood; wars; acts of terrorism; civil or military
disturbances; sabotage; epidemic; riots; interruptions, loss or malfunctions of
utilities, computer (hardware or software) or communications services;
accidents; labor disputes; acts of civil or military authority or governmental
action; it being understood that the Escrow Agent shall use commercially
reasonable efforts which are consistent with accepted practices in the banking
industry to resume performance as soon as reasonably practicable under the
circumstances.
ARTICLE
4
MISCELLANEOUS
Section
4.1. Successors and
Assigns. This Escrow Agreement shall be binding on and inure
to the benefit of the Parties and the Escrow Agent and their respective
successors and permitted assigns. No other persons shall have any rights under
this Escrow Agreement. No assignment of the interest of any of the
Parties shall be binding unless and until written notice of such assignment
shall be delivered to the other Party and the Escrow Agent and shall require the
prior written consent of the other Party and the Escrow Agent
(such consent not to be unreasonably withheld).
Section
4.2. Escheat. The
Parties are aware that under applicable state law, property which is presumed
abandoned may under certain circumstances escheat to the applicable
state. The Escrow Agent shall have no liability to the Parties, their
respective heirs, legal representatives, successors and assigns, or any other
party, should any or all of the Escrow Property escheat by operation of
law.
8
EXECUTION
VERSION
Section
4.3. Notices. All
notices, requests, demands, and other communications required under this Escrow
Agreement shall be in writing, in English, and shall be deemed to have been duly
given if delivered (i) personally, (ii) by facsimile transmission with written
confirmation of receipt, (iii) by overnight delivery with a reputable national
overnight delivery service, or (iv) by mail or by certified mail, return receipt
requested, and postage prepaid. If any notice is mailed, it shall be
deemed given five business days after the date such notice is deposited in the
United States mail. If notice is given to a party, it shall be given
at the address for such party set forth below. It shall be the
responsibility of the Parties to notify the Escrow Agent and the other Party in
writing of any name or address changes. In the case of communications
delivered to the Escrow Agent, such communications shall be deemed to have been
given on the date received by the Escrow Agent.
If to the
Agent:
JGB
Management Inc.
400
Madison Avenue
Suite
8D
New York,
New York 10017
Attention:
Brett Cohen
Telephone:
212-355-5771
Facsimile:
212-253-4093
If to
Neostem:
Neostem,
Inc.
420
Lexington Avenue
Suite
450
New York,
New York 10170
Attention:
General Counsel
Telephone
No.: 212-584-4180
Facsimile
No.: 646-514-7787
E-mail:
cvaczy@neostem.com
If to the
Escrow Agent:
Wells
Fargo Bank, National Association
45
Broadway, 14th
Floor
New York,
NY 10006
Attention:
Matthew Sherman; Corporate, Municipal and Escrow Solutions
Telephone:
(212) 515-1573
Facsimile:
(212) 509-1716
Section
4.4. Governing
Law. This Escrow Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York.
Section
4.5. Entire
Agreement. This Escrow Agreement sets forth the entire
agreement and understanding of the parties related to the Escrow
Property.
9
EXECUTION VERSION
Section
4.6. Amendment. This
Escrow Agreement may be amended, modified, superseded, rescinded, or canceled
only by a written instrument executed by the Parties and the Escrow
Agent.
Section
4.7. Waivers. The
failure of any party to this Escrow Agreement at any time or times to require
performance of any provision under this Escrow Agreement shall in no manner
affect the right at a later time to enforce the same performance. A
waiver by any party to this Escrow Agreement of any such condition or breach of
any term, covenant, representation, or warranty contained in this Escrow
Agreement, in any one or more instances, shall neither be construed as a further
or continuing waiver of any such condition or breach nor a waiver of any other
condition or breach of any other term, covenant, representation, or warranty
contained in this Escrow Agreement.
Section
4.8. Headings. Section
headings of this Escrow Agreement have been inserted for convenience of
reference only and shall in no way restrict or otherwise modify any of the terms
or provisions of this Escrow Agreement.
Section
4.9. Counterparts. This
Escrow Agreement may be executed in one or more counterparts, each of which when
executed shall be deemed to be an original, and such counterparts shall together
constitute one and the same instrument.
[The
remainder of this page left intentionally blank.]
10
EXECUTION VERSION
IN
WITNESS WHEREOF, this Escrow Agreement has been duly executed as of the date
first written above.
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NEOSTEM
INC.
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By:
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Name:
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Title:
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JGB
MANAGEMENT INC., as Agent for the Purchasers
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By:
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Name:
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Title:
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WELLS
FARGO BANK, NATIONAL ASSOCIATION, as Escrow Agent
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By:
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Name:
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Title:
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S-1
EXECUTION VERSION
EXHIBIT
A
Agency
and Custody Account Direction
For
Cash Balances
Wells
Fargo Money Market Deposit Accounts
Direction
to use the following Wells Fargo Money Market Deposit Accounts for Cash Balances
for the escrow account or accounts (the “Account”) established under the Escrow
Agreement to which this Exhibit A is attached.
You are
hereby directed to deposit, as indicated below, or as we shall direct further in
writing from time to time, all cash in the Account in the following money market
deposit account of Wells Fargo Bank, National Association:
Wells
Fargo Money Market Deposit Account (MMDA)
We
understand that amounts on deposit in the MMDA are insured, subject to the
applicable rules and regulations of the Federal Deposit Insurance Corporation
(FDIC), in the basic FDIC insurance amount of $100,000 per depositor, per
insured bank. This includes principal and accrued interest up to a total of
$100,000. Note: On May 20, 2009,
FDIC deposit insurance temporarily increased from $100,000 to $250,000 per
depositor through December 31, 2013.
We
acknowledge that we have full power to direct investments of the
Account.
We
understand that we may change this direction at any time and that it shall
continue in effect until revoked or modified by us by joint written notice to
you.
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Authorized
Representative
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Authorized
Representative
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Neostem
Inc.
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JGB
Management Inc, as Agent
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Date
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Date
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EXECUTION VERSION
EXHIBIT
B-1
Certificate
as to Authorized Signatures
The
specimen signatures shown below are the specimen signatures of the individuals
who have been designated as authorized representatives of Neostem Inc. and are
authorized to initiate and approve transactions of all types for the escrow
account or accounts established under the Escrow Agreement to which this Exhibit
B-1 is attached, on behalf of Neostem Inc.
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Name
/ Title
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Specimen
Signature
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Name
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Signature
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Title
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Name
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Signature
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Title
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Name
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Signature
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Title
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Name
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Signature
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Title
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EXECUTION VERSION
EXHIBIT
B-2
Certificate
as to Authorized Signatures
The
specimen signatures shown below are the specimen signatures of the individuals
who have been designated as authorized representatives of the Agent and are
authorized to initiate and approve transactions of all types for the escrow
account or accounts established under the Escrow Agreement to which this Exhibit
B-2 is attached, on behalf of the Agent.
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Name
/ Title
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Specimen
Signature
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Name
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Signature
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Title
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Name
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Signature
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Title
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Name
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Signature
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Title
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Name
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Signature
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Title
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EXECUTION VERSION
EXHIBIT
C
FEES
OF ESCROW AGENT
NeoStem
Announces Pricing of Concurrent
Offerings
for $19 Million in Gross Proceeds
NEW YORK,
Nov 16 /PRNewswire-FirstCall/ -- NeoStem, Inc. (NYSE Amex: NBS) ("NeoStem" or
the "Company") an international biopharmaceutical company with product and
service revenues, global research and development capabilities and operations in
three distinct business units, U.S. adult stem cells, China adult stem cells,
and China pharmaceuticals today announced the pricing of concurrent
offerings.
An
underwritten registered offering of 6,337,980 common units at $1.45 per
unit. Each unit consists of one share of common stock and a warrant
to purchase 0.5 of a share of common stock with a per share exercise price of
$1.85. Cowen and Company, LLC acted as sole book-running manager and
Maxim Group LLC and National Securities Corporation acted as co-managers for
this offering.
A
registered direct offering of 10,582,011 preferred units. Each unit consists of
one share of series E 7% senior convertible preferred stock convertible at
$2.0004, maturing May 20, 2013, a warrant to purchase 0.25 of a share of
common stock with a per share exercise price of $2.0874 and 0.0155 shares of
common stock. Cowen and Company, LLC and LifeTech
Capital, a division of Aurora Capital LLC, acted as co-placement agents for
this offering.
From the
two offerings, which are running concurrently, the company expects to receive
$19 million in gross proceeds, prior to deducting underwriting discounts
and commissions, placement agent fees and offering expenses payable by the
company. These funds will give Neostem the ability to proceed with
its acquisition of Progenitor Cell Therapy LLC, and focus on growing the cord
blood and adult stem cell banking, cellular manufacturing and therapeutic
business, as well as expand our businesses in Asia and other countries.
Additionally, the company will be able to continue to develop its intellectual
property and acquire new technology. $2,500,000 will be placed in
escrow pursuant to the terms of the offering.
The
transactions are expected to close on or about November 19, 2010, subject to the
satisfaction of customary closing conditions.
Each of
these offerings is being made only by means of a prospectus supplement and
accompanying prospectus. Copies of the final prospectus
supplement and accompanying prospectus relating to each of these offerings may
be obtained from the Securities and Exchange Commission’s website at
http://www.sec.gov or from the offices of Cowen and Company, LLC (c/o Broadridge
Financial Solutions, 1155 Long Island Avenue, Edgewood, NY 11717, Attn:
Prospectus Department (631) 254-7106).
A shelf
registration statement relating to each of these offerings has previously been
filed with the Securities and Exchange Commission and which became effective on
May 11, 2010. This press release is neither an offer to sell nor a
solicitation of an offer to buy any of the Company’s securities. No
offer, solicitation or sale will be made in any jurisdiction in which such
offer, solicitation or sale is unlawful.
Further
information regarding the offerings is contained in the Company’s Current Report
on Form 8-K to be filed with the Securities and Exchange Commission and which
may be accessed at www.sec.gov.
About
NeoStem, Inc.
NeoStem,
Inc. is engaged in the development of stem cell-based therapies, pursuit of
anti-aging initiatives and building of a network of adult stem cell collection
centers in the U.S. and China that are focused on enabling people to donate and
store their own (autologous) stem cells for their personal use in times of
future medical need. The Company also has licensed various stem cell
technologies, including a worldwide exclusive license to VSEL™ Technology which
uses very small embryonic-like stem cells, shown to have several physical
characteristics that are generally found in embryonic stem cells, and is
pursuing the licensing of other technologies for therapeutic use. NeoStem's
majority-controlled Chinese pharmaceutical operation, Suzhou Erye, manufactures
and distributes generic antibiotics in China. For more information, please
visit: http://www.neostem.com
..
Forward-Looking
Statements
This
press release contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
reflect management's current expectations, as of the date of this press release,
and involve certain risks and uncertainties. Forward looking statements include
statements herein with respect to the successful execution of the Company's
strategy, accelerating Erye's sales growth in 2010 and successful transfer of
Erye's production lines to the new facility, growth in revenues from the
Company's China operations, as well as other advances in the Company's business,
about which no assurances can be given. The Company's actual results could
differ materially from those anticipated in these forward-looking statements as
a result of various factors. Factors that could cause future results to
materially differ from the recent results or those projected in forward-looking
statements include the "Risk Factors" described in the Company's Annual Report
on Form 10-K filed with the Securities and Exchange Commission on March 31, 2010
as well as other periodic filings made with the Securities and Exchange
Commission. The Company's further development is highly dependent on future
medical and research developments and market acceptance, which is outside its
control.
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For
more information, please contact:
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NeoStem,
Inc.
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Robin
Smith, CEO
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Phone:
+1-212-584-4174
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Email: rsmith@neostem.com
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Web: http://www.neostem.com
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