UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
(Mark
One)
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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For
the fiscal year ended December 31, 2009.
or
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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For
the transition period from
to
.
Commission
File Number 000-1357459
NEURALSTEM,
INC.
(Exact
name of registrant as specified in its charter)
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Delaware
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52-2007292
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State
or other jurisdiction of
incorporation
or organization
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(I.R.S.
Employer
Identification
No.)
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9700
Great Seneca Highway
Rockville,
MD
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20850
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code
(301)-366-4841
Securities
registered pursuant to Section 12(b) of the Act:
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Name
of each exchange on which registered
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Common
stock, $0.01 par value
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NYSE
Amex
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Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
¨
Yes
x
No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
¨
Yes
x
No
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
x
Yes
¨
No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
x
Yes
¨
No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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Accelerated
filer
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Non-accelerated
filer
¨
(Do
not check if a smaller reporting
company)
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Smaller
reporting company
x
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Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes
¨
No
x
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold as of the last business day of the registrant’s most recently
completed second fiscal quarter based upon the closing price of the common stock
as reported by NYSE Amex on such date, was approximately
$33,827,962.
The
number of shares outstanding of Registrant’s common stock, $0.01 par value at
March 25, 2010 was
42,820,875.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
SUBSEQUENT
EVENTS
During
the first quarter of 2010, the Company entered into a series of transactions
resulting in securing what management believes provides sufficient financing to
fund operations through the first quarter of 2011. As a result of these
transactions, it received net proceeds from the exercise of our Series A, B, C
and D warrants of $7.3 million. On March 16, 2010 the Company had
cash on hand of $7.5 million.
On
January 21, 2010, Neuralstem, Inc. announced that the first Amyotrophic Lateral
Sclerosis (“ALS” or “Lou Gehrig’s disease”) patient was treated with its spinal
cord stem cells at the Emory ALS Center at Emory University, in Atlanta,
GA.
NEURALSTEM,
INC
FORM 10-K
FOR
THE YEAR ENDED DECEMBER 31, 2009
INDEX
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Page
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PART I
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3
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Item
1.
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Business
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3
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Item
1A.
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Risk
Factors
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13
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Item
2.
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Properties
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21
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Item
3.
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Legal
Proceedings
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21
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Item
4.
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Removed
and
Reserved
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21
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PART II
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22
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Item
5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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22
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Item
6.
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Selected
Financial Data
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24
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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24
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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30
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Item
8.
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Financial
Statements and Supplementary Data
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30
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Item
9.
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Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
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46
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Item
9A.
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Controls
and Procedures
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47
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Item
9B.
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Other
Information
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48
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PART III
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48
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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48
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Item
11.
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Executive
Compensation
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52
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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56
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence
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58
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Item
14.
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Principal
Accounting Fees and Services
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58
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PART IV
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58
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Item
15.
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Exhibits,
Financial Statement Schedules
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59
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PART I
We
urge you to read this entire Annual Report on Form 10-K, including the” Risk
Factors” section, the financial statements and related notes included
herein. As used in this Annual Report, unless context otherwise
requires, the words “we,” “us,”“our,” “the Company,” “Neuralstem” and
“Registrant” refer to Neuralstem, Inc. Also, any reference to “common
share” or “common stock,” refers to our $.01 par value common
stock.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain
statements contained in this Annual Report on Form 10-K constitute
“forward-looking statements” within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. All statements included in this Annual Report, including those related to
our cash, liquidity, resources and our anticipated cash expenditures, as well as
any statements other than statements of historical fact, regarding our strategy,
future operations, financial position, projected costs, prospects, plans and
objectives are forward-looking statements. These forward-looking
statements are derived, in part, from various assumptions and analyses we have
made in the context of our current business plan and information currently
available to us and in light of our experience and perceptions of historical
trends, current conditions and expected future developments and other factors we
believe are appropriate in the circumstances. You can generally identify forward
looking statements through words and phrases such as
“believe”, “expect”, “seek”,
“estimate”, “anticipate”, “intend”, “plan”, “budget”, “project”, “may likely
result”, “may be”, “may continue”
and other similar
expressions, although not all forward-looking statements contain these
identifying words. We cannot guarantee future results, levels of activity,
performance or achievements, and you should not place undue reliance on our
forward-looking statements.
Our
actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including the risks
described in Part I, Item 1A, “
Risk Factors
” and elsewhere
in this Annual Report. Our forward-looking statements do not reflect the
potential impact of any future acquisitions, mergers, dispositions, joint
ventures or strategic investments. In addition, any forward-looking statement
represents our expectation only as of the day this Annual Report was first filed
with the Securities and Exchange Commission (“SEC”) and should not be relied on
as representing our expectations as of any subsequent date. While we may elect
to update forward-looking statements at some point in the future, we
specifically disclaim any obligation to do so, even if our expectations
change.
When
reading any forward-looking statement, you should remain mindful that actual
results or developments may vary substantially from those expressed in or
implied by such statement for a number of reasons or factors, including but not
limited to:
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the
success of our research and development activities, the development of a
viable commercial product, and the speed with which regulatory
authorizations and product launches may be
achieved;
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whether
or not a market for our product develops, and, if a market develops, the
rate at which it develops;
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our
ability to successfully sell or license our products if a market
develops;
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our
ability to attract and retain qualified personnel to implement our
business plan and corporate growth
strategies;
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our
ability to develop sales, marketing, and distribution
capabilities;
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our
ability to obtain reimbursement from third party payers for our proposed
products if they are developed;
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the
accuracy of our estimates and
projections;
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our
ability to fund our short-term and long-term financing
needs;
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changes
in our business plan and corporate strategies;
and
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·
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other
risks and uncertainties discussed in greater detail in the section
captioned “
Risk
Factors
”
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Each
forward-looking statement should be read in context with and in understanding of
the various other disclosures concerning our company and our business made
elsewhere in this Annual Report as well as our public filings with the SEC. You
should not place undue reliance on any forward-looking statement. We are not
obligated to update or revise any forward-looking statements contained in this
Annual Report or any other filing to reflect new events or circumstances unless
and to the extent required by applicable law.
Overview
We are
focused on the development and commercialization of treatments for central
nervous system disease based on transplanting human neural stem cells and small
molecule drugs. We are headquartered in Rockville,
Maryland.
We have
developed and maintain a portfolio of patents and patent applications that form
the proprietary base of our research and development efforts in the areas of
neural stem cell research, small molecule research, and related technologies. We
believe our patented technology, in combination with our know-how, and
collaborative projects with major research institutions, provide a competitive
advantage and will enable us to develop and commercialize products
for use in treatment of a number of neurodegenerative conditions and in
regenerative repair of acute disease.
Regenerative
medicine is a young and emerging field. There can be no assurances that our
intellectual property portfolio will ultimately produce viable commercialized
products and processes. Even if we are able to produce a commercially viable
product, there are strong competitors in this field and our product may not be
able to successfully compete against them.
All of
our research efforts to date are at either the level of research or pre-clinical
stage of development, or at the clinical stage of development. On December
18, 2008 we filed our first Investigational New Drug Application (“IND”) with
the U.S. Food and Drug Administration (“FDA”) to begin a clinical trial to treat
Amyotrophic Lateral Sclerosis (“ALS” or “Lou Gehrig’s disease”). On September
21, 2009, the FDA approved our IND. The first patient was dosed on January
21, 2010.
The
Field of Regenerative Medicine
The
emerging field of treatment called "regenerative medicine" or "cell therapy"
refers to treatments that are founded on the concept of producing new cells to
replace malfunctioning or dead cells as a way to treat disease and injury. Many
significant and currently untreatable human diseases arise from the loss or
malfunction of specific cell types in the body. Our focus is the development of
effective methods to generate replacement cells from neural stem cells. We
believe that replacing damaged or malfunctioning or dead neural cells with fully
functional ones may be a useful therapeutic strategy in treating many diseases
and conditions of the central nervous system (“CNS”) including: Alzheimer's
disease, Parkinson's disease, Multiple Sclerosis, ALS, depression, and injuries
to the spinal cord.
Stem
Cell Therapy Background
Cells
maintain normal physiological function in healthy individuals by secreting or
metabolizing substances, such as sugars, amino acids, neurotransmitters and
hormones, which are essential to life. When cells are damaged or destroyed, they
no longer produce, metabolize or accurately regulate those substances. Cell loss
or impaired cellular functions are leading causes of degenerative diseases, and
some of the specific substances or proteins that are deficient in some of these
diseases have been identified. Although administering these substances or
proteins has some advantages over traditional pharmaceuticals, such as
specificity, there is no existing technology that can deliver them precisely to
the sites of action, under the appropriate physiological regulation, in the
appropriate quantity, nor for the duration required to cure the degenerative
condition. Cells, however, may do all this naturally. Thus, where failing cells
are no longer producing needed substances or proteins or where there has been
irreversible tissue damage or organ failure, transplantation of stem or
progenitor cells may enable the generation of new functional cells, thus
potentially restoring organ function and the patient's health.
Stem
cells have two defining characteristics: (i) they produce mature cells
which make up particular organs; and (ii) they self renew — that
is, some of the cells developed from stem cells are themselves new stem cells,
thus permitting the process to continue again and again. Stem cells are known to
exist for a number of systems of the human body, including the blood and immune
system, the central and peripheral nervous systems (including the brain), the
skin, bone, and even hair. They are thought to exist for many others, including
the liver and pancreas endocrine systems, gut, muscle, and heart. Stem cells are
responsible for organ regeneration during normal cell replacement and, to a
greater or lesser extent, after injury.
Stem
cells are rare and only available in limited supply, whether from the patients
themselves or from donors. Also, stem cells can often be obtained only through
significant surgical procedures. Therefore, in order to develop stem cell
therapeutics, three key challenges must be overcome: (i) identification of
stem or progenitor cells of a particular organ and testing them for therapeutic
potential; (ii) creation of processes to enable use of these rare cells in
clinical applications, such as expanding and banking them in sufficient
quantities to transplant into multiple patients; and (iii) demonstration of
the safety and efficacy of these potential therapeutics in human clinical
trials.
The
Potential of Our Tissue-Derived Stem Cell-Based Therapy
We
believe that, if successfully developed, stem cell therapeutics have the
potential to provide a broad therapeutic approach comparable in importance to
traditional pharmaceuticals and genetically engineered biologics. With respect
to the human neural stem cells, we have developed proprietary and reproducible
processes to identify, isolate, expand, and control cell differentiation in
mature functioning human neurons
1
and glia
2
and
bank human neural stem cells derived from brain tissue. Because the cells are
normal human neural stem cells, they may be better suited for transplantation
and may provide a safer and more effective alternative to therapies that are
based on cells derived from cancer cells, animal derived cells or cells derived
from an unpurified mix of many different cell types.
1
Neurons
are a major class
of cells in the nervous system. Neurons are sometimes called nerve cells, though
this term is technically imprecise since many neurons do not form nerves. In
vertebrates, they are found in the brain, the spinal cord and in the nerves and
ganglia of the peripheral nervous system, and their primary role is to process
and transmit neural information. One important characteristic of neurons is that
they have excitable membranes which allow them to generate and propagate
electrical signals.
2
Glia
cells, commonly
called neuroglia or simply glia, are non-neuronal cells that provide support and
nutrition, maintain homeostasis, form myelin, and participate in signal
transmission in the nervous system. In the human brain, glia are estimated to
outnumber neurons by as much as 50 to 1.
Potential
Markets
We
believe the potential markets for regenerative medicine based on our
technologies are large. The table below summarizes the potential United States
patient populations which we believe may be amenable to neural cell
transplantation or treatment with our small molecule compound and represent
potential target markets for our proposed products:
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Medical Condition
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Number of Patients
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Stem
cells
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ALS
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30,000
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(1)
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Huntington’s
disease
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15,000
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(2)
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Spinal
Cord Injury
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250,000
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(4)
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Stroke
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6.5
million
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(3)
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Small
molecule compound
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Alzheimer’s
disease
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4.5
million
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(5)
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Depression
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14.8
million
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(5)
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Schizophrenia
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2.4
million
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(5)
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Stroke
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6.5
million
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(3)
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(1)
Agency for Toxic Substances and Disease Registry (ATSDR),
(2)
National Institute of the Neurological Disorders and Stroke (NINDS)
(3) 2005
American Heart Association study
(4) The
University of Alabama National Spinal Cord Injury Statistical Center - March
2002
(5)
National Institute of Health
Our
Technology
Stem
Cells
Our
technology includes the ability to isolate human neural stem cells from most
areas of the human brain and spinal cord and to grow them into physiologically
relevant human neurons of all types. Our core patents entitled:
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·
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Isolation, Propagation, and
Directed Differentiation of Stem Cell from Embryonic and Adult Central
Nervous System of Mammal;
and
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·
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In Vitro Generation of
Differentiated Neurons from Cultures of Mammalian Multi-potential CNS Stem
Cell
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contain
claims which cover the details of this process and the culture of cells created.
What differentiates our stem cell technology from others is that our patented
processes do not require us to “push” the cells towards a certain fate by adding
specific growth factors. Our cells actually “become” the type of cell they are
fated to be. We believe this process and the resulting cells create a technology
platform that allows for the efficient isolation and ability to produce, in
commercially reasonable quantities, neural stem cells.
Our
technology allows for cells to grow in cultured dishes, also known as
“in vitro”
growth, without
mutations or other adverse events that would compromise their usefulness. We
believe this provides the following advantages:
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·
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Our
cells are multipotent, so they give rise to the three critical cell types
of the nervous system: neurons (cells that carry signals throughout the
brain and spinal cord), astrocytes (cells that support and protect
neurons), and oligodendrocytes (cells that provide insulation to neurons
to make signaling efficient).
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·
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The
cells are lineage-restricted, so they only give rise to cells of the
nervous system. For example, our spinal cord stem cells can only form
cells found within the spinal
column.
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·
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Our technology enables
large-scale expansion of neural stem cells under controlled conditions
without introducing mutations or other adverse events that would
compromise their usefulness.
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·
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Our
spinal cord cells can be produced in commercial
quantities.
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·
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We
have isolated and cultured cells from multiple regions of the brain,
allowing application to a number of serious disorders. Cells have been
isolated from spinal cord (ALS, spinal cord injury), hippocampus (stroke,
Alzheimer’s disease), midbrain (Parkinson’s disease), and cortex
(ischemia).
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·
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Universal
Compatibility. The Company’s stem cell products are provided
to patients as ‘allografts,’ As such, the recipient is not genetically
identical to the donor, and may be treated with a course of
immunosuppressant drugs to prevent rejection of the cells. This strategy
allows for a single stem cell product to be provided to many thousands of
patients, ensuring the highest degree of quality in manufacturing and
predictability in outcome. Because the brain and spinal cord are
considered ‘immune privileged’ by most experts in the field, it is
expected that immune suppression of the patient will only be performed for
a brief period, allowing for minimal disruption of their normal immune
function.
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·
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Our
biologic drug candidates can be stored frozen at end-user medical
facilities until they are needed. This is a key feature of our
technology.
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Although
not the focus of our business, our technology also has ancillary uses with
respect to drug development. Our ability to grow and differentiate neural
cells
in vitro
, gives
us the ability to analyze the potential biological effects of molecules on these
cells.
Small molecule
Compounds
The
Company has developed and patented a series of small molecule
compounds (low molecular weight organic compounds which can efficiently
cross the blood/brain barrier). The Company expects to file an IND to
commence a human safety trial of its lead compound to treat major depression in
late 2010 or early 2011.
Business
Strategy
Neuralstem
has a number of prospects for developing treatments for central nervous system
disease using its stem cells and small molecule compounds.
A central
focus of Company strategy is keeping its fixed costs as low as possible through
outsourcing a wide variety of functions including some legal services, financial
transaction processing, laboratory staffing, regulatory management, IT, public
relations and research projects. As a result we can find the best possible
resource to fill a particular need, and after the project is completed the
associated costs stop. This low fixed cost approach enables the company to fit
its development spending to the cash on hand.
Stem
Cells
The
Company has focused its most intensive cell development activities on treating
spinal cord injury and disease. All preclinical safety and efficacy testing has
been successfully completed for our first application in Amyotrophic Lateral
Sclerosis (ALS, or Lou Gehrig’s disease). This work culminated in the filing of
an Investigational New Drug (IND) application to the FDA. In
September of 2009 the FDA approved the Company’s application, making ours the
first neural stem cell clinical trial in the United States for
ALS. Neuralstem believes that it can manage the clinical trial and
product approval process without a strategic partner.
In
preparation for the clinical trials described above, Neuralstem has reached the
following milestones with regard to our spinal cord stem cell product: (1) the
cells have been produced in large quantities under Good Manufacturing Practices
(GMP) methodology; (2) the cells have completed pre-clinical safety testing in
the context of delivery to the spinal cord; and (3) the Company has developed a
process for delivering the cells to the spinal cord. We are also
working on the following additional indications for our
technologies:
Small
Molecule Compounds
As a
first indication, Neuralstem is targeting depression. The Company plans to file
a request with the FDA to initiate clinical trials for this application without
a partner, and may also manage initial clinical safety and efficacy trials by
itself. Because of the complexity and cost of managing clinical trials after the
earliest phases, Neuralstem will seek a strategic partner to manage the later
stages of the trials.
Our
Research and Programs
We have
devoted substantial resources to our research programs to isolate and develop a
series of neural stem cell banks that we believe can serve as a basis for
therapeutic products. Our efforts to date have been directed at methods to
identify, isolate and culture large varieties of stem cells of the human nervous
system, and to develop therapies utilizing these stem cells. This research is
conducted both internally and through the use of third party laboratory
consulting companies under our direct supervision.
In
addition to research which we conduct internally or under our direct
supervision, we conduct research and development through research
collaborations. These collaborations, or programs, are undertaken with both
commercial and scholarly institutes pursuant to the terms and conditions of our
standard material transfer agreement.
The terms
of our standard material transfer agreement require us to provide our research
partner or collaborator with access to our technology or “research materials,”
which are comprised of our neurological stem cells, for a specific pre-defined
purpose. As part of the agreement, we agree to provide sufficient research
materials and technical assistance to accomplish the purpose of the program. The
determination of sufficiency is determined at our sole discretion. As part of
these agreements, we are entitled to certain reporting rights and the right to
have patentable discoveries presented to us prior to publication in order for us
to file applicable patents. In the event we choose to file a patent, we will
either be responsible for all filing and maintenance fees or we will split the
fees with our research partner depending on the type of patent to be filed. The
agreements also provide for us to receive a fully paid up, royalty free,
non-exclusive license to any inventions made by our partner with respect to our
technologies and their interest in any intellectual property jointly developed
and first right to negotiate an exclusive license. The agreements also provide
confidentiality between the parties. Generally each party is responsible for its
own expense, there are no milestone payment or royalty payment requirements
and the duration of these agreements is for a three year term which can be
terminated by either party by providing 90 days written notice. Also,
these agreements may require us to pay for certain costs and expenses incurred
in connection with the research.
Examples
of such projects include:
University
of California San Diego, San Diego, CA
: In May of 2002, we initiated a
research project with the University of California in San Diego for the purpose
of researching the applicability of our technology to the treatment of Ischemic
Spastic Paraplegia and traumatic spinal cord injury. The project is ongoing. The
research yielded findings that contributed to our filing of patent entitled
Transplantation of Human Cells for Treatment of Neurological
Disorders.
Johns
Hopkins University, School of Medicine, Baltimore, MD
: In March of 2001
we initiated a research project with Johns Hopkins University, School of
Medicine for the purpose of researching the applicability of our technology to
the treatment of Amyotrophic Lateral Sclerosis and traumatic spinal cord injury.
The project is ongoing. The research yielded findings that contributed to our
filing of patent entitled Transplantation of Human Cells for Treatment of
Neurological Disorders.
University
of Southern Florida, Tampa, FL
: In September of 2005 we initiated a
research project with the University of Southern Florida for the purpose of
researching the applicability of our technology to the treatment of Parkinson's
Disease. The project is ongoing.
University
of Central Florida, Orlando, FL
: In March of 2006 we initiated a research
project with the University of Central Florida for the purpose of researching
the applicability of our technology to the treatment of spinal cord injuries.
The project is ongoing.
University
of Pennsylvania
whereby we have entered into an agreement with the
university to assist us in developing “A Feasibility and Safety Study of human
Spinal Stem Cell Transplantation for the Treatment of Ischemic Spastic
Paraplegia Due to Spinal Cord Ischemia.
China
Medical University & Hospital of Taiwan
, to collaborate on
Amyotrophic Lateral Sclerosis (ALS or Lou Gehrig's disease) with Dr. Shinn-Zong
Lin, MD, PhD as principle investigator.
Albert-Ludwigs-University
in Freiburg
, Germany, to collaborate on the treatment of Huntington's
disease.
University
of Cincinnati
to collaborate on the treatment of Parkinson’s
Disease
University
of Michigan
to collaborate on the treatment of ALS
Emory
University
for ALS clinical trials.
The
forgoing is not exhaustive and is only meant to provide a brief overview of the
types of projects we are undertaking with third parties.
Manufacturing
We
currently manufacture our cells both in-house and on an outsource basis. We
manufacture cells in-house which are not required to meet stringent FDA
requirements. We use these cells in our research and collaborative programs. We
outsource all the manufacturing and storage of our stem cells to be used in
pre-clinical works, and which are accordingly subject to higher FDA
requirements, to Charles River Laboratories, Inc., of Wilmington, Massachusetts.
The Charles River facility has the capacity to be used for cell processing under
the FDA determined Good Manufacturing Practices (GMP) in quantities sufficient
for our current and anticipated pre-trial and clinical trial needs in both
the near to intermediate term. We have no quantity or volume commitment with
Charles River Laboratories and our cells are ordered and manufactured on an as
needed basis.
Products
& Marketing
Because
of the early stage of our programs, we have yet to identify any specific product
and we have not yet addressed questions of channels of distribution and
marketing of potential future products.
Our
Intellectual Property
Our
research and development is supported by our intellectual property. We currently
own or have exclusive licenses to 14 patents and 22 patent applications pending
worldwide in the field of regenerative medicine and cell therapy.
Our
success will likely depend upon our ability to preserve our technologies and
operate without infringing the proprietary rights of other parties. However, we
may rely on certain proprietary technologies and know-how that are not
patentable. We protect our proprietary information, in part, by the use of
confidentiality agreements with our employees, consultants and certain of our
contractors.
When
appropriate, we seek patent protection for inventions in our core technologies
and in ancillary technologies that support our core technologies or which we
otherwise believe will provide us with a competitive advantage. We accomplish
this by filing patent applications for discoveries we make, either alone or in
collaboration with scientific collaborators and strategic partners. Typically,
although not always, we file patent applications both in the United States and
in select international markets. In addition, we plan to obtain licenses or
options to acquire licenses to patent filings from other individuals and
organizations that we anticipate could be useful in advancing our research,
development and commercialization initiatives and our strategic business
interests.
The
following table identifies the issued and pending patents we own that we believe
currently support our technology platform.
Patents
Pending
|
Number
|
|
Country
|
|
Filing
Date
|
|
Issue
Date
|
|
Expiration
Date
|
|
Title
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2257068
|
|
CA
|
|
5/7/1997
|
|
N/A
|
|
N/A
|
|
ISOLATION,
PROPOGATION, AND DIRECTED DIFFERENTIATION OF STEM CELLS FROM CENTRAL
NERVOUS SYSTEM OF MAMMALS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2343571
|
|
CA
|
|
9/20/1999
|
|
N/A
|
|
N/A
|
|
STABLE
NEURAL STEM CELL LINES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99948396.9
|
|
EP
|
|
9/20/1999
|
|
N/A
|
|
N/A
|
|
STABLE
NEURAL STEM CELL LINES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2000-574224
|
|
JP
|
|
9/20/1999
|
|
N/A
|
|
N/A
|
|
STABLE
NEURAL STEM CELL LINES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3790356.4
|
|
EP
|
|
12/5/2003
|
|
N/A
|
|
N/A
|
|
METHOD
FOR DISCOVERING NEUROGENIC AGENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/281,640
|
|
US
|
|
11/17/2005
|
|
N/A
|
|
N/A
|
|
TRANSPLANTATION
OF HUMAN NEURAL CELLS FOR TREATMENT OF NEUROLOGICAL
DISORDERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200580039450
|
|
CN
|
|
11/17/2005
|
|
N/A
|
|
N/A
|
|
TRANSPLANTATION
OF HUMAN NEURAL CELLS FOR TREATMENT OF NEUROLOGICAL
DISORDERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5851748.3
|
|
EP
|
|
11/17/2005
|
|
N/A
|
|
N/A
|
|
TRANSPLANTATION
OF HUMAN NEURAL CELLS FOR TREATMENT OF NEUROLOGICAL
DISORDERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2613/CHENP/2007
|
|
IN
|
|
11/17/2005
|
|
N/A
|
|
N/A
|
|
TRANSPLANTATION
OF HUMAN NEURAL CELLS FOR TREATMENT OF NEUROLOGICAL
DISORDERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
183092
|
|
IL
|
|
11/17/2005
|
|
N/A
|
|
N/A
|
|
TRANSPLANTATION
OF HUMAN NEURAL CELLS FOR TREATMENT OF NEUROLOGICAL
DISORDERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007-543219
|
|
JP
|
|
11/17/2005
|
|
N/A
|
|
N/A
|
|
TRANSPLANTATION
OF HUMAN NEURAL CELLS FOR TREATMENT OF NEUROLOGICAL
DISORDERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10-2007-7012097
|
|
KR
|
|
11/17/2005
|
|
N/A
|
|
N/A
|
|
TRANSPLANTATION
OF HUMAN NEURAL CELLS FOR TREATMENT OF NEUROLOGICAL
DISORDERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-2007-501016
|
|
PH
|
|
11/17/2005
|
|
N/A
|
|
N/A
|
|
TRANSPLANTATION
OF HUMAN NEURAL CELLS FOR TREATMENT OF NEUROLOGICAL
DISORDERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007122507
|
|
RU
|
|
11/17/2005
|
|
N/A
|
|
N/A
|
|
TRANSPLANTATION
OF HUMAN NEURAL CELLS FOR TREATMENT OF NEUROLOGICAL
DISORDERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-2007-01216
|
|
VN
|
|
11/17/2005
|
|
N/A
|
|
N/A
|
|
TRANSPLANTATION
OF HUMAN NEURAL CELLS FOR TREATMENT OF NEURODEGENERATIVE
CONDITIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20073078
|
|
NO
|
|
11/17/2005
|
|
N/A
|
|
N/A
|
|
TRANSPLANTATION
OF HUMAN NEURAL CELLS FOR TREATMENT OF NEUROLOGICAL
DISORDERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/852,922
|
|
US
|
|
9/10/2007
|
|
N/A
|
|
N/A
|
|
METHOD
FOR DISCOVERING NEUROGENIC AGENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/932,923
|
|
US
|
|
10/31/2007
|
|
N/A
|
|
N/A
|
|
TRANSPLANTATION
OF HUMAN NEURAL CELLS FOR TREATMENT OF NEUROLOGICAL
DISORDERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/404,841
|
|
US
|
|
3/16/2009
|
|
N/A
|
|
N/A
|
|
METHODS
OF TREATING ISCHEMIC SPASTITICY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/424,238
|
|
US
|
|
4/15/2009
|
|
N/A
|
|
N/A
|
|
STABLE
NEURAL STEM CELL LINES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/500,073
|
|
US
|
|
7/9/2009
|
|
N/A
|
|
N/A
|
|
USE
OF FUSED NICOTINAMIDES TO PROMOTE
NEUROGENESIS
|
Patents
Issued
|
Number
|
|
Country
|
|
Filing
Date
|
|
Issue Date
|
|
Expiration
Date
|
|
Title
|
|
5,753,506
|
|
US
|
|
9/25/1996
|
|
5/19/1998
|
|
9/25/2016
|
|
ISOLATION
PROPAGATION AND DIRECTED DIFFERENTIATION OF STEM CELLS FROM EMBRYONIC AND
ADULT CENTRAL NERVOUS SYSTEM OF MAMMALS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,040,180
|
|
US
|
|
5/7/1997
|
|
3/21/2000
|
|
5/7/2017
|
|
IN
VITRO GENERATION OF DIFFERENTIATED NEURONS FROM CULTURES OF MAMMALIAN
MULTIPOTENTIAL CNS STEM CELLS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,284,539
|
|
US
|
|
10/9/1998
|
|
9/4/2001
|
|
10/9/2018
|
|
METHOD
FOR GENERATING DOPAMINERGIC CELLS DERIVED FROM NEURAL
PRECURSORS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,544,511
|
|
US
|
|
1/14/2002
|
|
6/9/2009
|
|
4/13/2017
|
|
STABLE
NEURAL STEM CELL LINES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,560,553
|
|
US
|
|
3/17/2008
|
|
7/14/2009
|
|
8/9/2024
|
|
USE
OF FUSED NICOTINAMIDES TO PROMOTE NEUROGENESIS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
755849
|
|
AU
|
|
9/20/1999
|
|
4/3/2003
|
|
9/20/2019
|
|
STABLE
NEURAL STEM CELL LINES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
915968
|
|
EP
|
|
5/7/1997
|
|
7/25/2007
|
|
5/7/2017
|
|
ISOLATION,
PROPOGATION, AND DIRECTED DIFFERENTIATION OF STEM CELLS FROM CENTRAL
NERVOUS SYSTEM OF MAMMALS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
915968
|
|
ES
|
|
5/7/1997
|
|
7/25/2007
|
|
5/7/2017
|
|
ISOLATION,
PROPAGATION AND DIRECTED DIFFERENTIATION OF STEM CELLS FROM EMBRYONIC AND
ADULT CENTRAL NERVOUS SYSTEM OF MAMMALS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
915968
|
|
FR
|
|
5/7/1997
|
|
7/25/2007
|
|
5/7/2017
|
|
ISOLATION,
PROPAGATION AND DIRECTED DIFFERENTIATION OF STEM CELLS FROM EMBRYONIC AND
ADULT CENTRAL NERVOUS SYSTEM OF MAMMALS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
915968
|
|
GB
|
|
5/7/1997
|
|
7/25/2007
|
|
5/7/2017
|
|
ISOLATION,
PROPAGATION AND DIRECTED DIFFERENTIATION OF STEM CELLS FROM EMBRYONIC AND
ADULT CENTRAL NERVOUS SYSTEM OF MAMMALS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
915968
|
|
IE
|
|
5/7/1997
|
|
7/25/2007
|
|
5/7/2017
|
|
ISOLATION,
PROPAGATION AND DIRECTED DIFFERENTIATION OF STEM CELLS FROM EMBRYONIC AND
ADULT CENTRAL NERVOUS SYSTEM OF MAMMALS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
915968
|
|
SE
|
|
5/7/1997
|
|
7/25/2007
|
|
5/7/2017
|
|
ISOLATION,
PROPAGATION AND DIRECTED DIFFERENTIATION OF STEM CELLS FROM EMBRYONIC AND
ADULT CENTRAL NERVOUS SYSTEM OF MAMMALS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
915968
|
|
CH
|
|
5/7/1997
|
|
7/25/2007
|
|
5/7/2017
|
|
ISOLATION,
PROPAGATION AND DIRECTED DIFFERENTIATION OF STEM CELLS FROM EMBRYONIC AND
ADULT CENTRAL NERVOUS SYSTEM OF MAMMALS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69737949.3
|
|
DE
|
|
5/7/1997
|
|
7/25/2007
|
|
5/7/2017
|
|
ISOLATION,
PROPAGATION AND DIRECTED DIFFERENTIATION OF STEM CELLS FROM EMBRYONIC AND
ADULT CENTRAL NERVOUS SYSTEM OF MAMMALS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132324
|
|
SG
|
|
11/17/2005
|
|
11/30/2009
|
|
11/17/2025
|
|
TRANSPLANTATION
OF HUMAN NEURAL CELLS FOR TREATMENT OF NEUROLOGICAL
DISORDERS
|
We also
rely upon trade-secret protection for our confidential and proprietary
information and take active measures to control access to that
information.
Our
policy is to require our employees, consultants and significant scientific
collaborators and sponsored researchers to execute confidentiality and
assignment of invention agreements upon the commencement of an employment or
consulting relationship with us. These agreements generally provide that all
confidential information developed or made known to the individual by us during
the course of the individual's relationship with us is to be kept confidential
and not disclosed to third parties except in specific circumstances. In the case
of employees and consultants, the agreements generally provide that all
inventions conceived by the individual in the course of rendering services to us
shall be our exclusive property.
The
patent positions of pharmaceutical and biotechnology companies, including ours,
are uncertain and involve complex and evolving legal and factual questions. The
coverage sought in a patent application can be denied or significantly reduced
before or after the patent is issued. Consequently, we do not know whether any
of our pending applications will result in the issuance of patents, or if any
existing or future patents will provide significant protection or commercial
advantage or will be circumvented by others. Since patent applications are
secret until the applications are published (usually eighteen months after the
earliest effective filing date), and since publication of discoveries in the
scientific or patent literature often lags behind actual discoveries, we cannot
be certain that we were the first to make the inventions covered by each of our
pending patent applications or that we were the first to file patent
applications for such inventions. There can be no assurance that patents will
issue from our pending or future patent applications or, if issued, that such
patents will be of commercial benefit to us, afford us adequate protection from
competing products, or not be challenged or declared invalid.
In the
event that a third party has also filed a patent application relating to
inventions claimed in our patent applications, we may have to participate in
interference proceedings declared by the United States Patent and Trademark
Office to determine priority of invention, which could result in substantial
uncertainties and cost for us, even if the eventual outcome is favorable to us.
There can be no assurance that our patents, if issued, would be held valid by a
court of competent jurisdiction.
A number
of pharmaceutical, biotechnology and other companies, universities and research
institutions have filed patent applications or have been issued patents relating
to cell therapy, stem cells and other technologies potentially relevant to or
required by our expected products. We cannot predict which, if any, of such
applications will issue as patents or the claims that might be
allowed.
If third
party patents or patent applications contain claims infringed by our technology
and such claims are ultimately determined to be valid, there can be no assurance
that we would be able to obtain licenses to these patents at a reasonable cost,
if at all, or be able to develop or obtain alternative non-infringing
technology. If we are unable to obtain such licenses or develop or obtain
alternative non-infringing technology at a reasonable cost, we may not be able
to develop certain products commercially. There can be no assurance that we will
not be obliged to defend ourselves in court against allegations of infringement
of third party patents. Patent litigation is very expensive and could consume
substantial resources and create significant uncertainties. An adverse outcome
in such a suit could subject us to significant liabilities to third parties,
require us to seek licenses from third parties, or require us to cease using
such technology.
Competition
The
biotechnology industries are characterized by rapidly evolving technology and
intense competition. Our competitors include major multinational pharmaceutical
companies, specialty biotechnology companies and chemical and medical products
companies operating in the fields of regenerative medicine, cell therapy, tissue
engineering and tissue regeneration. Many of these companies are
well-established and possess technical, research and development, financial and
sales and marketing resources significantly greater than ours. In addition,
certain smaller biotech companies have formed strategic collaborations,
partnerships and other types of joint ventures with larger, well established
industry competitors that afford these companies potential research and
development and commercialization advantages. Academic institutions,
governmental agencies and other public and private research organizations are
also conducting and financing research activities which may produce products
directly competitive to those we are developing. Moreover, many of these
competitors may be able to obtain patent protection, obtain FDA and other
regulatory approvals and begin commercial sales of their products before we
do.
Although
not necessarily direct competitors, some of the specialty biotechnology
companies include Geron Corporation, Genzyme Corporation, StemCells, Inc.,
Aastrom Biosciences, Inc. and Viacell, Inc. Some of these companies
are well-established and have substantial technical and financial resources
compared to us. However, as cell-based products are only just emerging as
medical therapies, many of our direct competitors are smaller biotechnology and
specialty medical products companies. These smaller companies may become
significant competitors through rapid evolution of new technologies. Any of
these companies could substantially strengthen their competitive position
through strategic alliances or collaborative arrangements with large
pharmaceutical or biotechnology companies.
The
diseases and medical conditions we are targeting have no effective long-term
therapies. Nevertheless, we expect that our technologies and products will
compete with a variety of therapeutic products and procedures offered by major
pharmaceutical companies. Many pharmaceutical and biotechnology companies are
investigating new drugs and therapeutic approaches for the same purposes, which
may achieve new efficacy profiles, extend the therapeutic window for such
products, alter the prognosis of these diseases, or prevent their onset. We
believe that our products, when and if successfully developed, will compete with
these products principally on the basis of improved and extended efficacy and
safety and their overall economic benefit to the health care system. Competition
for our products may be in the form of existing and new drugs, other forms of
cell transplantation, surgical procedures, and gene therapy. We believe that
some of our competitors are also trying to develop similar stem cell-based
technologies. We expect that all of these products will compete with our
potential stem cell products based on efficacy, safety, cost and intellectual
property positions. We may also face competition from companies that have filed
patent applications relating to the use of genetically modified cells to treat
disease, disorder or injury. In the event our therapies should require the use
of such genetically modified cells, we may be required to seek licenses from
these competitors in order to commercialize certain of our proposed products,
and such licenses may not be granted or be extremely expensive.
If we
develop products that receive regulatory approval, they would then have to
compete for market acceptance and market share. For certain of our potential
products, an important success factor will be the timing of market introduction
of competitive products. This timing will be a function of the relative speed
with which we and our competitors can develop products, complete the clinical
testing and approval processes, and supply commercial quantities of a product to
market. These competitive products may also impact the timing of clinical
testing and approval processes by limiting the number of clinical investigators
and patients available to test our potential products.
Government
Regulation
Regulation
by governmental authorities in the United States and other countries is a
significant factor in our research and development and will be a significant
factor in the manufacture and marketing of our proposed products. The nature and
extent to which such regulation applies to us will vary depending on the nature
of any products we may develop. We anticipate that many, if not all, of our
products will require regulatory approval by governmental agencies prior to
commercialization. In particular, human therapeutic products are subject to
rigorous preclinical and clinical testing and other approval procedures of the
FDA and similar regulatory authorities in European and other countries. Various
governmental statutes and regulations also, govern, or influence testing,
manufacturing, safety, labeling, storage and recordkeeping related to such
products and their marketing. The process of obtaining these approvals and the
subsequent compliance with appropriate statutes and regulations require the
expenditure of substantial time and money, and there can be no guarantee that
approvals will be granted.
FDA
Approval
We are
presently at the stage of clinical development. On December 18, 2008 we
filed our first investigational new drug application (IND) with the FDA to begin
a clinical trial to treat amyotrophic ALS or Lou Gehrig’s Disease. On September
22, 2009, the FDA provided us approval of the IND.
The
protocol for each clinical study must be approved by an independent
institutional review board, or IRB, of the institution at which the study is
conducted, and the informed consent of all participants must be obtained. The
Emory IRB approved our trial in December of 2009. The first patient
was dosed January 21, 2010. The IRB reviews the existing information
on the product, considers ethical factors, the safety of human subjects, the
potential benefits of the therapy and the possible liability of the institution.
The IRB is responsible for ongoing safety assessment of the subjects during the
clinical investigation.
Clinical
development is traditionally conducted in three sequential phases.
|
|
·
|
Phase
1 studies for a cell therapy product are designed to evaluate safety in a
small number of subjects in a selected patient population by assessing
adverse effects, and may include multiple dose levels. This study may also
gather preliminary evidence of a beneficial effect on the
disease.
|
|
|
·
|
Phase
2 may involve studies in a limited patient population to determine
biological and clinical effects of the product and to identify possible
adverse effects and safety risks of the product in the selected patient
population.
|
|
|
·
|
Phase
3 trials would be undertaken to conclusively demonstrate clinical benefit
or effect and to test further for safety within a broader patient
population, generally at multiple study sites. The FDA continually reviews
the clinical trial plans and results and may suggest changes or may
require discontinuance of the trials at any time if significant safety
issues arise.
|
The
results of the preclinical studies and clinical studies are submitted to the FDA
in the form of Biological License Application (“BLA”) marketing approval
authorization applications. The FDA must approve the applications
prior to any commercial sale or practice of the technology or product. Biologic
product manufacturing establishments located in certain states also may be
subject to separate regulatory and licensing requirements. The testing and
approval process will require substantial time, effort and expense. The time for
approval is affected by a number of factors, including relative risks and
benefits demonstrated in clinical trials, the availability of alternative
treatments and the severity of the disease, and animal studies or clinical
trials that may be requested during the FDA review period.
Our
research and development is based largely on the use of human stem and
progenitor cells. The FDA has initiated a risk-based approach to regulating
human cell, tissue and cellular and tissue-based products and has published
current Good Tissue Practice regulations. As part of this approach, the FDA has
published final rules for registration of establishments that engage in the
recovery, screening, testing, processing, storage or distribution of human
cells, tissues, and cellular and tissue-based products, and for the listing of
such products. While the Company believes that it is in compliance with all such
practices and regulations; we are not required to register until we apply for
licensure from the FDA for our product, subject to successful completion of
human trials. In addition, the FDA has published rules for making
suitability and eligibility determinations for donors of cells and tissue and
for current good tissue practice for manufacturers using them, which have
recently taken effect. We cannot now determine the full effects of this
regulatory initiative, including precisely how it may affect the clarity of
regulatory obligations and the extent of regulatory burdens associated with our
stem cell research and the manufacture and marketing of stem cell
products.
European and
Other Regulatory Approval
Approval of a product by
regulatory authorities comparable to the FDA in Europe and other countries will
likely be necessary prior to commencement of marketing a product in any of these
countries. The regulatory authorities in each country may impose their own
requirements and may refuse to grant approval, or may require additional data
before granting approval, even though the relevant product has been approved by
the FDA or another authority. The regulatory authorities in the European Union,
or EU, and other developed countries have lengthy approval processes for
pharmaceutical products. The process for gaining approval in particular
countries varies, but is generally similar to the FDA approval process. In
Europe, the European Committee for Proprietary Medicinal Products provides a
mechanism for EU-member states to exchange information on all aspects of product
licensing. The EU has established a European agency for the evaluation of
medical products, with both a centralized community procedure and a
decentralized procedure, the latter being based on the principle of licensing
within one member country followed by mutual recognition by the other member
countries.
Other
Regulations
In addition to safety regulations enforced
by the FDA, we are also subject to regulations under the Occupational Safety and
Health Act, the Environmental Protection Act, the Toxic Substances Control Act
and other present and potential future and federal, state, local, and foreign
regulations.
Outside
the United States, we will be subject to regulations that govern the import of
drug products from the United States or other manufacturing sites and foreign
regulatory requirements governing human clinical trials and marketing approval
for our products. The requirements governing the conduct of clinical trials,
product licensing, pricing and reimbursements vary widely from country to
country.
The
United States Congress, several states and foreign countries have considered
legislation banning or restricting human application of stem cell-based and
nuclear transfer based technologies. No assurance can be given regarding future
restrictions or prohibitions that might affect our technology and business. In
addition, we cannot assure you that future judicial rulings with respect to
nuclear transfer technology or human stem cells will not have the effect of
delaying, limiting or preventing the use of nuclear transfer technology or stem
cell-based technology or delaying, limiting or preventing the sale, manufacture
or use of products or services derived from nuclear transfer technology or stem
cell-derived material. Any such legislative or judicial development would harm
our ability to generate revenues and operate profitably.
For
additional information about governmental regulations that will affect our
planned and intended business operations, see "Risk Factors.”
Employees
As of
March 13, 2010, we had eight full-time employees and six full time independent
contractors. Of these employees, ten work on research and
development and four in administration. We also use the services of numerous
outside consultants in business and scientific matters.
Where
to Find More Information
We make
our public filings with the SEC, including our Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all
exhibits and amendments to these reports. Also our executive
officers, directors and holders of more than 10% of our common stock, file
reports with the SEC on Forms 3, 4 and 5 regarding their ownership of our
securities. These materials are available on the SEC’s web site,
http://www.sec.gov
.
You may also read or copy any materials we file with the SEC at the SEC’s Public
Reference Room at 100 F Street, N.E., Washington, DC 20549. You may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. Alternatively, you may obtain copies of these
filings, including exhibits, by writing or telephoning us at:
NEURALSTEM,
INC
9700
Great Seneca Highway,
Rockville,
Maryland 20850
Attn:
Chief Financial Officer
Tel:
(301) 366-4841
We have
described below a number of uncertainties and risks which, in addition to
uncertainties and risks presented elsewhere in this Annual Report, may adversely
affect our business, operating results and financial condition. The
uncertainties and risks enumerated below as well as those presented elsewhere in
this Annual Report should be considered carefully in evaluating us, our business
and the value of our securities. The following important factors, among others,
could cause our actual business, financial condition and future results to
differ materially from those contained in forward-looking statements made in
this Annual Report or presented elsewhere by management from time to
time.
Risks
Relating to Our Stage of Development
We
have a limited operating history and have significantly shifted our operations
and strategies since inception.
Since
inception in 1996 and through December 31, 2009, we have raised $62,551,375 of
capital and recorded accumulated losses totaling $67,566,831. On December
31, 2009, we had a working capital surplus of $892,552 and stockholders’ deficit
of $5,015,456. Our net losses for the two most recent fiscal years have
been $10,364,363 and $11,830,798 for 2009 and 2008 respectively. We
had no revenues for the twelve months ended December 31, 2009.
Our
ability to generate revenues and achieve profitability will depend upon our
ability to complete the development of our proposed stem cell products, obtain
the required regulatory approvals, manufacture, and market and sell our proposed
products. In part because of our past operating results, no assurances can be
given that we will be able to accomplish any of these goals.
Although
we have generated some revenue in prior years, we have not generated any revenue
from the commercial sale of our proposed stem cell products. Since inception, we
have engaged in several related lines of business and have discontinued
operations in certain areas. For example, in 2002, we lost a material contract
with the Department of Defense and were forced to close our principal facility
and lay off almost all of our employees in an attempt to focus our development
strategy on stem cell technologies. This limited and changing history may not be
adequate to enable you to fully assess our future prospects. No assurances can
be given as to exactly when, if at all, we will be able to fully develop,
commercialize, market, sell and/or derive material revenues from our proposed
products
We
will need to raise additional capital to continue operations.
Since
inception, we have relied almost entirely on external financing to fund
operations. Such financing has come primarily from the sale of common stock and
the exercise of investor warrants. As of December 31, 2009, we had
cash and cash equivalents on hand of $2,309,774. Presently, we have a
monthly cash burn rate of approximately $600,000. We will need to
raise additional capital to fund anticipated operating expenses and future
expansion. Among other things, external financing will be required to further
develop our technologies and products, as well as to pay general operating
costs. On September 21, 2009, the FDA approved our IND application to
commence Phase I trials for ALS. The first patient was dosed on January 21,
2010.
We have
expended and expect to continue to expend substantial cash in the research,
development, clinical and pre-clinical testing of our stem cell technologies
with the goal of ultimately obtaining FDA approval to market our proposed
products. We will require additional capital to conduct research and
development, establish and conduct clinical and pre-clinical trials, enter into
commercial-scale manufacturing arrangements and to provide for marketing and
distribution of our products.
Our long
term capital requirements are expected to depend on many factors,
including:
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the
continued progress and costs of our research and development
programs;
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the
progress of pre-clinical studies and clinical
trials;
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the
time and costs involved in obtaining regulatory
clearance;
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the
costs involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims;
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The
cost of defending any patent
litigation;
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the
costs of developing sales, marketing and distribution channels and our
ability to sell our products if
developed;
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the
costs involved in establishing manufacturing capabilities for commercial
quantities of our proposed
products;
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competing
technological and market
developments;
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market
acceptance of our proposed
products;
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the
costs of recruiting and retaining employees and consultants;
and
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the
costs associated with educating and training physicians about our proposed
products.
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We cannot
assure you that financing will be available if needed. If additional financing
is not available, we may not be able to fund operations and planned growth,
develop or enhance our technologies, take advantage of business opportunities or
respond to competitive market pressures. If we exhaust our cash
reserves and are unable to realize adequate additional financing, we may be
unable to meet operating obligations which could result in us initiating
bankruptcy proceedings or delaying, or eliminating some or all of our research
and product development programs.
Additional
financing requirements could result in dilution to existing
stockholders.
We are
not able to finance our operations by generating
revenue. Accordingly, we will be required to secure additional
financing which may be dilutive to current shareholders. We are
authorized to issue 150,000,000 shares of common stock and 7,000,000 shares of
preferred stock. Such securities may generally be issued without the approval or
consent of our stockholders. The issuance of such securities may
result in substantial dilution.
Risks
Relating to Our Business
Our
business is dependent on a single product candidate.
At
present our ability to progress as a company is significantly dependent on a
single product candidate for ALS which is entering Phase I clinical
trials. Any clinical, regulatory or other development that
significantly delays or prevents us from completing any of our trials, any
material safety issue or adverse side effect to any study participant in any of
these trials, or the failure of these trials to show the results expected would
likely depress our stock price significantly and could prevent us from raising
the substantial additional capital we will need to further develop our cellular
technologies. Moreover, any material adverse occurrence in our first clinical
trials could substantially impair our ability to initiate clinical trials to
test our stem cell therapies in other potential indications. This, in turn,
could adversely impact our ability to raise additional capital and pursue our
planned research and development efforts.
Our
business relies on stem cell technologies that we may not be able to
commercially develop.
We have
concentrated the majority of our research on stem cell
technologies. Our ability to generate revenue and operate profitably
will depend on being able to develop these technologies for human applications.
These are emerging technologies and have limited human applications. We cannot
guarantee that we will be able to develop our technologies or that such
development will result in products with any commercial utility or value. We
anticipate that the commercial sale of such products and royalty/licensing fees
related to the technology, will be our primary sources of revenues. If we are
unable to develop the technologies, we may never realize any
revenue.
Our
product development programs are based on novel technologies and are inherently
risky.
We are
subject to the risks of failure inherent in the development of products based on
new technologies. The novel nature of these therapies creates significant
challenges in regard to product development and optimization, manufacturing,
government regulation, third party reimbursement, and market acceptance. For
example, the pathway to regulatory approval for cell-based therapies, including
our product candidates, may be more complex and lengthy than the pathway for
conventional drugs. These challenges may prevent us from developing and
commercializing products on a timely or profitable basis or at all.
Our
inability to complete pre-clinical and clinical testing and trials will impair
our viability.
On
September 21, 2009, we received approval from the FDA for our first IND in order
to commence clinical trials. We commenced the trials on January 21,
2010 with the dosing of our first patient. Although we have commenced
the trials, the outcome of the trials is uncertain, and if we are unable to
satisfactorily complete such trials, or if such trials yield unsatisfactory
results, we will be unable to commercialize our proposed products. No assurances
can be given that the clinical trials will be completed or result in a
successful outcome.
If
regulatory authorities do not approve our products or if we fail to maintain
regulatory compliance, we would be unable to commercialize our therapeutic
products, and our business and results of operations would be materially
harmed.
Our
proposed products may not have favorable results in clinical trials or receive
regulatory approval.
Positive
results from pre-clinical studies should not be relied upon as evidence that
clinical trials will succeed. Even if our product candidates achieve positive
results in pre-clinical studies, we will be required to demonstrate through
clinical trials that the product candidates are safe and effective for use in a
diverse population before we can seek regulatory approvals for their commercial
sale. There is typically an extremely high rate of attrition from the failure of
product candidates as they proceed through clinical trials. If any product
candidate fails to demonstrate sufficient safety and efficacy in any clinical
trial, then we would experience potentially significant delays in, or be
required to abandon, development of that product candidate. If we delay or
abandon our development efforts of any of our product candidates, then we may
not be able to generate sufficient revenues to become profitable, and our
operations could be materially harmed.
There
are no assurances that we will be able to submit or obtain FDA approval of a
biologics license application.
There can
be no assurance that even if the clinical trials of any potential
product candidate are successfully initiated and completed, we will be able to
submit a Biologics License Application (“BLA”) to the FDA or that any BLA we
submit will be approved in a timely manner, if at all. If we are unable to
submit a BLA with respect to any future product candidate, or if any BLA we
submit is not approved by the FDA, we will be unable to commercialize that
product. The FDA can and does reject BLAs and requires additional clinical
trials, even when product candidates performed well or achieved favorable
results in clinical trials. If we fail to commercialize our product candidate,
we may be unable to generate sufficient revenues to attain profitability and our
reputation in the industry and in the investment community would likely be
damaged, each of which would cause our stock price to decrease.
The manufacturing
of stem cell-based therapeutic products is novel and dependent upon specialized
key materials
.
The
manufacturing of stem cell-based therapeutic products is a complicated and
difficult process, dependent upon substantial know-how and subject to the need
for continual process improvements. We depend almost exclusively on
third party manufacturers to supply our cells. In addition, our
suppliers’ ability to scale-up manufacturing to satisfy the various requirements
of our planned clinical trials is uncertain. Manufacturing
irregularities or lapses in quality control could have a material adverse effect
on our reputation and business, which could cause a significant loss of
stockholder value. Many of the materials that we use to prepare our cell-based
products are highly specialized, complex and available from only a limited
number of suppliers. At present, some of our material requirements are single
sourced, and the loss of one or more of these sources may adversely affect our
business
Our
business is subject to ethical and social concerns.
The use
of stem cells for research and therapy has been the subject of debate regarding
ethical, legal and social issues. Negative public attitudes toward
stem cell therapy could result in greater governmental regulation of stem cell
therapies, which could harm our business. For example, concerns regarding such
possible regulation could impact our ability to attract collaborators and
investors. Existing and potential U.S. government regulation of human
tissue may lead researchers to leave the field of stem cell research or the
country altogether, in order to assure that their careers will not be impeded by
restrictions on their work. Similarly, these factors may induce graduate
students to choose other fields less vulnerable to changes in regulatory
oversight, thus exacerbating the risk that we may not be able to attract and
retain the scientific personnel we need in the face of competition among
pharmaceutical, biotechnology and health care companies, universities and
research institutions for what may become a shrinking class of qualified
individuals
We
may be subject to litigation that will be costly to defend or pursue and
uncertain in its outcome.
Our
business may bring us into conflict with licensees, licensors, or others with
whom we have contractual or other business relationships or with our competitors
or others whose interests differs from ours. If we are unable to resolve these
conflicts on terms that are satisfactory to all parties, we may become involved
in litigation brought by or against it. Any litigation is likely to be expensive
and may require a significant amount of management's time and attention, at the
expense of other aspects of our business. The outcome of litigation is always
uncertain, and in some cases could include judgments against us which could have
a materially adverse effect on our business. By way of example, in
May of 2008, we filed a complaint against StemCells Inc., alleging that U.S.
Patent No. 7,361,505 (the “‘505 patent”), allegedly exclusively licensed to
StemCells, Inc., is invalid, not infringed and unenforceable. On the same day,
StemCells, Inc. filed a complaint alleging that we had infringed, contributed to
the infringement of, and or induced the infringement of two patents owned by or
exclusively licensed to StemCells relating to stem cell culture compositions. At
present, the litigation is in its initial stages and any likely outcome is
difficult to predict.
We
may not be able to obtain necessary licenses to third-party patents and other
rights.
A number
of companies, universities and research institutions have filed patent
applications or have received patents relating to technologies in our field. We
cannot predict which, if any, of these applications will issue as patents or how
many of these issued patents will be found valid and enforceable. There may also
be existing issued patents on which we would be infringed by the
commercialization of our product candidates. If so, we may be prevented from
commercializing these products unless the third party is willing to grant a
license to us. We may be unable to obtain licenses to the relevant patents at a
reasonable cost, if at all, and may also be unable to develop or obtain
alternative non-infringing technology. If we are unable to obtain such licenses
or develop non-infringing technology at a reasonable cost, our business could be
significantly harmed. Also, any infringement lawsuits commenced against us may
result in significant costs, divert our management’s attention and result in an
award against us for substantial damages, or potentially prevent us from
continuing certain operations.
We
may not be able to obtain third-party patient reimbursement or favorable product
pricing.
Our
ability to successfully commercialize our proposed products in the human
therapeutic field depends to a significant degree on patient reimbursement of
the costs of such products and related treatments. We cannot assure you that
reimbursement in the United States or foreign countries will be available for
any products developed, or, if available, will not decrease in the future, or
that reimbursement amounts will not reduce the demand for, or the price of, our
products. We cannot predict what additional regulation or legislation
relating to the health care industry or third-party coverage and reimbursement
may be enacted in the future or what effect such regulation or legislation may
have on our business. If additional regulations are overly onerous or expensive
or if health care related legislation makes our business more expensive or
burdensome than originally anticipated, we may be forced to significantly
downsize our business plans or completely abandon the current business
model.
Our
products may not be profitable due to manufacturing costs.
Our
products may be significantly more expensive to manufacture than other drugs or
therapies currently on the market today due to a fewer number of potential
manufacturers, greater level of needed expertise and other general market
conditions affecting manufacturers of stem cell based
products. Accordingly, we may not be able to charge a high enough
price for us to make a profit from the sale of our cell therapy
products.
We
are dependent on the acceptance of our products by the health care
community.
Our
proposed products, if approved for marketing, may not achieve market acceptance
since hospitals, physicians, patients or the medical community in general may
decide not to accept and utilize these products. The products that we are
attempting to develop represent substantial departures from established
treatment methods and will compete with a number of more conventional drugs and
therapies manufactured and marketed by major pharmaceutical companies. The
degree of market acceptance will depend on a number of factors,
including:
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the
clinical efficacy and safety of our proposed
products;
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the
superiority of our products to alternatives currently on the
market;
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the
potential advantages of our products over alternative treatment methods;
and
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the
reimbursement policies of government and third-party
payors.
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If the
health care community does not accept our products for any reason, our business
would be materially harmed.
We
depend on two key employees for our continued operations and future
success.
The loss
of either of our key executive officers, Richard Garr and Karl Johe, would be
detrimental to us.
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We
currently do not maintain “key person” life insurance on the life of Mr.
Garr. As a result, the Company will not receive any compensation upon the
death or incapacity of this key
individual;
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We
currently do maintain “key person” life insurance on the life of Mr. Johe.
As a result, the Company will receive approximately $1,000,000 in the
event of his death or incapacity.
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In
addition, we anticipate growth and expansion into areas and activities requiring
additional expertise, such as clinical testing, regulatory compliance,
manufacturing and marketing. We anticipate the need for additional
management personnel and the development of additional expertise by existing
management personnel. There is intense competition for qualified personnel in
the areas of our present and planned activities, and there can be no assurance
that we will be able to continue to attract and retain the qualified personnel
necessary for the development our business.
The
employment contracts of key employees contain significant anti-termination
provisions which could make changes in management difficult or
expensive.
We have
entered into employment agreements with Messrs. Garr and Johe which expire on
November 1, 2012. In the event either individual is terminated prior
to the full term of their respective contracts, for any reason other than a
voluntary resignation, all compensation due to such employee under the terms of
the respective agreement shall become due and payable immediately. These
provisions will make the replacement of either of these employees very costly
and could cause difficulty in effecting a change in control. Termination prior
to the full term of these contracts would cost us as much as $1,000,000 per
contract and the immediate vesting of all outstanding options and/or warrants
held by Messrs. Garr and Johe.
Our
competition has significantly greater experience and financial
resources.
The
biotechnology industry is characterized by intense competition. We compete
against numerous companies, many of which have substantially greater resources.
Several such enterprises have initiated cell therapy research programs and/or
efforts to treat the same diseases which we target. Although not necessarily
direct competitors, companies such as Geron Corporation, Genzyme Corporation,
StemCells, Inc., Advanced Cell Technology, Inc., Aastrom Biosciences, Inc. and
Viacell, Inc., as well as others, may have substantially greater resources and
experience in our fields which put us at a competitive
disadvantage.
Our
outsource model depends on third parties to assist in developing and testing our
proposed products.
Our
strategy for the development, clinical and preclinical testing and
commercialization of our proposed products is based on an outsource model. This
model requires us to engage third parties in order to further develop our
technology and products as well as for the day to day operations of our
business. In the event we are not able to enter into such relationships in the
future, our ability to operate and develop products may be seriously hindered or
we would be required to expend considerable resources to bring such functions
in-house. Either outcome could result in our inability to develop a commercially
feasible product or in the need for substantially more working capital to
complete the research in-house.
The
development, manufacturing and commercialization of cell-based therapeutic
products expose us to product liability claims.
By
developing and, ultimately, commercializing medical products, we are exposed to
the risk of product liability claims. Product liability claims against us could
result in substantial litigation costs and damage awards against us. We have
obtained liability insurance that covers our clinical trials. If and
when we begin commercializing products, we will need to increase our insurance
coverage. We may not be able to obtain insurance on acceptable terms,
if at all, and the policy limits on our insurance policies may be insufficient
to cover our liability.
We
intend to rely upon third-party FDA-approved manufacturers for our stem
cells.
We
currently have no internal manufacturing capability, and will rely extensively
on FDA-approved licensees, strategic partners or third party contract
manufacturers or suppliers. Should we be forced to manufacture our stem cells,
we cannot give you any assurance that we will be able to develop an internal
manufacturing capability or procure alternative third party suppliers. Moreover,
we cannot give you any assurance that any contract manufacturers or suppliers we
procure will be able to supply our product in a timely or cost effective manner
or in accordance with applicable regulatory requirements or our
specifications.
Risks
Relating to Our Common Stock
Our
common shares are sporadically or “thinly” traded.
Our
common shares have historically been sporadically or “thinly” traded, meaning
that the number of persons interested in purchasing our common shares at or near
the asking price at any given time may be relatively small or non-existent. This
situation is attributable to a number of factors, including the facts that we
are a small company which is relatively unknown to stock analysts, stock
brokers, institutional investors and others in the investment
community. Even if we came to the attention of such persons, they
tend to be risk-adverse and would be reluctant to follow an unproven development
stage company such as ours or purchase or recommend the purchase of our shares
until such time as we became more seasoned and viable. As a consequence, there
may be periods of several days or more when trading activity in our shares is
minimal or non-existent, as compared to a seasoned issuer which has a large and
steady volume of trading activity that will generally support continuous sales
without a material reduction in share price. We cannot give you any assurance
that a broader or more active trading market for our common shares will develop
or be sustained, or that current trading levels will be sustained. Due to these
conditions, we can give you no assurance that you will be able to sell your
shares if you need money or otherwise desire to liquidate your
investment.
As
a result of a recent accounting pronouncement, we no longer meet the continued
listing requirements of the NYSE AMEX.
Effective
January 1, 2009, we adopted new guidance issued by FASB related to determining
whether an instrument or embedded feature is indexed to an entity’s own
stock. As a result, we reclassified 8,547,762 of our issued and
outstanding common stock purchase warrants from equity to liability
status. The adjustment also had the effect of reducing stockholder’s
equity by $2.8 million. Due to such adjustment, we may no longer meet
the continued listing requirements of the NYSE AMEX with regard to stockholders
(deficit) equity. On June 4, 2009, as anticipated, we received
notification from the NYSE AMEX that we are not in compliance with continued
listing requirements contained in Section 1003(i) of the NYSE AMEX company
guide. In order to maintain our listing on the NYSE AMEX, we were
required to submit a plan detailing how we intend to regain
compliance. On July 6, 2009, we submitted our plan. On
August 18, 2009, the NYSE AMEX notified that it would continue listing our
common shares subject to the following conditions:
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That
we regain compliance with Section 1003(i) of the NYSE AMEX company guide
by December, 2010, and
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That
we provide the Exchange Staff with updates in conjunction with the
initiatives of the Plan as appropriate or upon request, but no later than
at each quarter completion concurrent with our appropriate filing with the
Securities and Exchange Commission.
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We
are currently being monitored by the NYSE AMEX with regard to listing
qualifications.
On
February 16, 2010 we received a letter from the NYSE Amex informing it that it
had now resolved the continued listing deficiencies referenced in the NYSE Amex
LLC's ("NYSE Amex") letters dated June 4, 2009 and August 18, 2009. The Exchange
said that while the Company remains noncompliant with the stockholders' equity
requirements under Section 1003 of the NYSE Amex Company Guide, the Exchange
staff has determined that the Company complies with the alternative listing
standards in Section 1003, including the requirement for $50,000,000 million in
market capitalization. The Exchange will continue to monitor the Company's
compliance with the continued listing standards in Section 1003 of the NYSE Amex
Company Guide. As provided in Section 1009(f) of the NYSE Amex Company
Guide. If the Company is able to demonstrate compliance with the
continued listing standards for a period of two consecutive quarters ending June
30, 2010, the Exchange staff will deem the Plan Period over. However, if the
Company cannot demonstrate compliance over the next two quarters, the Plan
Period will remain open and Exchange staff will continue to monitor the Company
throughout the end of the Plan Period, December 6, 2010. At any time during the
Plan Period, the Exchange staff may initiate delisting proceedings based on its
evaluation of the Company. In the event the Company does not comply with all
continued listing standards as of December 6, 2010, the Exchange staff will
promptly initiate delisting procedures.
The
delisting of our common shares from the NYSE Amex may limit the ability of our
stockholders to sell their common stock.
We are
currently being monitored by the NYSE AMEX. If we are delisted, our
stock will most likely commence trading on the Over-the-Counter Bulletin Board
or the Pink Sheets. In such case, a stockholder likely would find it more
difficult to trade our common stock or to obtain accurate market quotations for
it. If our common stock is delisted, it will become subject to the
Securities and Exchange Commission’s “penny stock rules,” which impose sales
practice requirements on broker-dealers that sell that common stock to persons
other than established customers and “accredited investors.” Application of this
rule could make broker-dealers unable or unwilling to sell our common stock and
limit the ability of stockholders to sell their common stock in the secondary
market.
The
market price for our common shares is particularly volatile.
The
market for our common shares is characterized by significant price volatility
when compared to seasoned issuers, and we expect that our share price will
continue to be more volatile than those of a seasoned issuer. The volatility in
our share price is attributable to a number of factors. First, our common shares
are sporadically or thinly traded. As a consequence of this lack of liquidity,
the trading of relatively small quantities of shares by our shareholders may
disproportionately influence the price of those shares in either direction. The
price for our shares could, for example, decline precipitously in the event that
a large number of our common shares are sold on the market without commensurate
demand. Secondly, we are a speculative or “risky” investment due to
our limited operating history, lack of significant revenues to date and the
uncertainty of future market acceptance for our products if successfully
developed. As a consequence of this enhanced risk, more risk-adverse investors
may, under the fear of losing all or most of their investment in the event of
negative news or lack of progress, be more inclined to sell their shares on the
market more quickly and at greater discounts than would be the case with the
stock of a seasoned issuer. Additionally, in the past, plaintiffs have often
initiated securities class action litigation against a company following periods
of volatility in the market price of its securities. We may in the future be the
target of similar litigation. Securities litigation could result in substantial
costs and liabilities and could divert management’s attention and
resources.
The
following factors may add to the volatility in the price of our common
shares: actual or anticipated variations in our quarterly or annual
operating results; government regulations; announcements of significant
acquisitions, strategic partnerships or joint ventures; our capital commitments;
and additions or departures of our key personnel. Many of these factors are
beyond our control and may decrease the market price of our common shares,
regardless of our operating performance. We cannot make any predictions or
projections as to what the prevailing market price for our common shares will be
at any time, including as to whether our common shares will sustain their
current market prices, or as to what effect the sale of shares or the
availability of common shares for sale at any time will have on the prevailing
market price.
We
face risks related to compliance with corporate governance laws and financial
reporting standard.
The
Sarbanes-Oxley Act of 2002, as well as related new rules and regulations
implemented by the SEC and the Public Company Accounting Oversight Board,
require changes in the corporate governance practices and financial reporting
standards for public companies. These new laws, rules and regulations, including
compliance with Section 404 of the Sarbanes-Oxley Act of 2002 relating to
internal control over financial reporting (“Section 404”), will materially
increase the Company's legal and financial compliance costs and make some
activities more time-consuming, burdensome and expensive. ). On
October 2, 2009, the SEC announced it would extend the deadline for
non-accelerated filers to comply with Section 404(b) of the Sarbanes-Oxley Act.
Unless further extended, we will be required to include attestation
reports in our annual report for year ending on December 31, 2010. We
anticipate this will further increase the costs associated with our compliance
with the Sarbanes-Oxley Act of 2002.
Any
failure to comply with the requirements of the Sarbanes-Oxley Act of 2002, our
ability to remediate any material weaknesses that we may identify during our
compliance program, or difficulties encountered in their
implementation, could harm our operating results, cause us
to fail to meet our reporting obligations or result
in material misstatements in
our financial statements. Any such failure could
also adversely affect the results of the periodic management
evaluations of our internal controls and, in the case of a failure to remediate
any material weaknesses that we may identify, would adversely
affect the annual auditor attestation reports regarding the effectiveness of our
internal control over financial reporting that are required under Section 404 of
the Sarbanes-Oxley Act. Inadequate internal controls could also
cause investors to lose confidence in our reported financial information, which
could have a negative effect on the trading price of our common
stock.
We
have never paid a cash dividend and do not intend to pay cash dividends on our
common stock in the foreseeable future.
We have
never paid cash dividends nor do we anticipate paying cash dividends in the
foreseeable future. Accordingly, any return on your investment will
be as a result of stock appreciation.
Issuance
of additional securities could dilute your proportionate ownership and voting
rights.
We are
entitled under our amended and restated certificate of incorporation to issue up
to 150,000,000 common and 7,000,000 “blank check” preferred shares. As
of December 31, 2009, we have issued and outstanding 35,743,831 common shares,
24,365,916 common shares reserved for issuance upon the exercise of current
outstanding options and warrants (excluding options and warrants issued under
our equity compensation plans), 319,341 common shares reserved for issuance of
additional grants under our 2005 incentive stock plan, and 760,000 shares
reserved for issuance of grants under our 2007 stock plan. Accordingly, we will
be entitled to issue up to 88,810,912 additional common shares
and 7,000,000 additional preferred shares. Our board may generally issue
those common and preferred shares, or options or warrants to purchase those
shares, without further approval by our shareholders based upon such factors as
our board of directors may deem relevant at that time. Any preferred shares we
may issue shall have such rights, preferences, privileges and restrictions as
may be designated from time-to-time by our board, including preferential
dividend rights, voting rights, conversion rights, redemption rights and
liquidation provisions. It is likely that we will be required to issue a large
amount of additional securities to raise capital to further our development and
marketing plans. It is also likely that we will be required to issue a large
amount of additional securities to directors, officers, employees and
consultants as compensatory grants in connection with their services, both in
the form of stand-alone grants or under our various stock option plans, in order
to attract and retain qualified personnel. In the event of issuance, your
proportionate ownership and voting rights may be significantly decreased and the
value of your investment impacted.
Risks
Relating to Intellectual Property and Government Regulation
We
may not be able to withstand challenges to our intellectual property
rights.
We rely
on our intellectual property, including issued and applied-for patents, as the
foundation of our business. Our intellectual property rights may come under
challenge. No assurances can be given that, even though issued, our
current and potential future patents will survive such challenges. For example,
in 2005 our neural stem cell technology was challenged in the U.S. Patent and
Trademark Office. Although we prevailed in this particular matter upon
re-examination by the patent office, these cases are complex, lengthy,
expensive, and could potentially be adjudicated adversely to our interests,
removing the protection afforded by an issued patent. The viability of our
business would suffer if such patent protection were limited or eliminated.
Moreover, the costs associated with defending or settling intellectual property
claims would likely have a material adverse effect on our business and future
prospects. At present, there is litigation with StemCells, Inc. which is in its
initial stages and any likely outcome is difficult to predict.
We
may not be able to adequately protect against the piracy of the intellectual
property in foreign jurisdictions.
We
anticipate conducting research in countries outside of the United
States. A number of our competitors are located in these countries
and may be able to access our technology or test results. The laws
protecting intellectual property in some of these countries may not adequately
protect our trade secrets and intellectual property. The
misappropriation of our intellectual property may materially impact our position
in the market and any competitive advantages, if any, that we may
have.
Our
products may not receive regulatory approval.
The FDA
and comparable government agencies in foreign countries impose substantial
regulations on the manufacturing and marketing of pharmaceutical products
through lengthy and detailed laboratory, pre-clinical and clinical testing
procedures, sampling activities and other costly and time-consuming procedures.
Satisfaction of these regulations typically takes several years or more and vary
substantially based upon the type, complexity and novelty of the proposed
product. On September 21, 2009 the FDA approved our IND application
to commence a Phase I trial for ALS. We commenced the trials on
January 21, 2010 with the dosing of our first patient. We cannot assure
you that we will successfully complete any clinical trials in connection with
such IND. Further, we cannot predict when we might first submit any product
license application for FDA approval or whether any such product license
application will be granted on a timely basis, if at all. Moreover,
we cannot assure you that FDA approvals for any products developed by us will be
granted on a timely basis, if at all. Any delay in obtaining, or failure to
obtain, such approvals could have a material adverse effect on the marketing of
our products and our ability to generate product revenue.
Development
of our technologies is subject to extensive government regulation.
Our
research and development efforts, as well as any future clinical trials, and the
manufacturing and marketing of any products we may develop, will be subject to,
and restricted by, extensive regulation by governmental authorities in the
United States and other countries. The process of obtaining FDA and other
necessary regulatory approvals is lengthy, expensive and uncertain. FDA and
other legal and regulatory requirements applicable to the development and
manufacture of the cells and cell lines required for our preclinical and
clinical products could substantially delay or prevent us from producing the
cells needed to initiate additional clinical trials. We may fail to obtain the
necessary approvals to commence clinical testing or to manufacture or market our
potential products in reasonable time frames, if at all. In addition, the U.S.
Congress and other legislative bodies may enact regulatory reforms or
restrictions on the development of new therapies that could adversely affect the
regulatory environment in which we operate or the development of any products we
may develop.
We base
our research and development on the use of human stem cells obtained from human
tissue. The U.S. federal and state governments and other jurisdictions impose
restrictions on the acquisition and use of human tissue, including those
incorporated in federal Good Tissue Practice, or “GTP,” regulations. These
regulatory and other constraints could prevent us from obtaining cells and other
components of our products in the quantity or of the quality needed for their
development or commercialization. These restrictions change from time to time
and may become more onerous. Additionally, we may not be able to identify or
develop reliable sources for the cells necessary for our potential products —
that is, sources that follow all state and federal laws and guidelines for cell
procurement. Certain components used to manufacture our stem and progenitor cell
product candidates will need to be manufactured in compliance with the FDA’s
Good Manufacturing Practices, or “GMP.” Accordingly, we will need to enter into
supply agreements with companies that manufacture these components to “GMP”
standards. There is no assurance that we will be able to enter into
any such agreements.
Noncompliance
with applicable requirements both before and after approval, if any, can subject
us, our third party suppliers and manufacturers and our other collaborators to
administrative and judicial sanctions, such as, among other things, warning
letters, fines and other monetary payments, recall or seizure of products,
criminal proceedings, suspension or withdrawal of regulatory approvals,
interruption or cessation of clinical trials, total or partial suspension of
production or distribution, injunctions, limitations on or the elimination of
claims we can make for our products, refusal of the government to enter into
supply contracts or fund research, or government delay in approving or refusal
to approve new drug applications.
We
cannot predict if or when we will be permitted to commercialize our products due
to regulatory constraints.
Federal,
state and local governments and agencies in the United States (including the
FDA) and governments in other countries have significant regulations in place
that govern many of our activities. We are or may become subject to
various federal, state and local laws, regulations and recommendations relating
to safe working conditions, laboratory and manufacturing practices, the
experimental use of animals and the use and disposal of hazardous or potentially
hazardous substances used in connection with its research and development work.
The preclinical testing and clinical trials of our proposed products are subject
to extensive government regulation that may prevent us from creating
commercially viable products. In addition, our sale of any commercially viable
product will be subject to government regulation from several standpoints,
including manufacturing, advertising, marketing, promoting, selling, labeling
and distributing. If, and to the extent that, we are unable to comply with these
regulations, our ability to earn revenues will be materially and negatively
impacted.
We
currently lease two facilities.
Our executive offices and primary research facilities are located at 9700 Great
Seneca Highway, Rockville MD, 20850. We lease these facilities consisting of
approximately 2,500 square feet for $8,220 per month. The term of our lease
expires on January 31, 2011.
We
entered into a lease in 2009 consisting of approximately 2,375 square feet of
research space in San Diego, California at a monthly lease rate of $4,806. The
lease terminates in August of 2011.
The
aforesaid properties are in good condition and we believe they will be suitable
for our purposes for the next 12 months. There is no affiliation between us or
any of our principals or agents and our landlords or any of their principals or
agents.
|
ITEM
3.
|
LEGAL
PROCEEDINGS
|
As of the
date of this Annual Report, there are no material pending legal or governmental
proceedings relating to our company or properties to which we are a party, and
to our knowledge there are no material proceedings to which any of our
directors, executive officers or affiliates are a party adverse to us or which
have a material interest adverse to us, other than the following:
|
|
|
On
May 7, 2008, we filed suit against StemCells, Inc., StemCells California,
Inc. (collectively “StemCells”) and Neurospheres Holding Ltd.,
(collectively StemCells and Neurospheres Holding Ltd are referred to as
“Plaintiffs”) in U.S. District Court for the District of Maryland,
alleging that U.S. Patent No. 7,361,505 (the “’505 patent”), alleging that
the ‘505 patent was exclusively licensed to the Plaintiffs, is invalid,
not infringed, and unenforceable. See Civil Action No.
08-1173. On May 13, we filed an Amended Complaint seeking
declaratory judgment that U.S. Patent No. 7,155,418 (the “’418 patent”) is
invalid and not infringed and that certain statements made by our CEO are
not trade libel or do not constitute unfair competition as alleged by the
Plaintiffs. On July 15, 2008, the Plaintiffs filed a Motion to
Dismiss for Lack of Subject Matter Jurisdiction, Lack of Personal
Jurisdiction, and Improper Venue or in the Alternative to Transfer to the
Northern District of California. On August 27, 2008, Judge Alexander
Williams, Jr. of the District of Maryland denied StemCells’ Motion to
Dismiss, but granted Neurospheres’ motion to dismiss. On September 11,
2008, StemCells filed its answer asserting counterclaims of infringement
for the ‘505 patent, the 418 patent, and state law claims for trade libel
and unfair competition. This case was consolidated with the 2006
litigation discussed below and it is not known when, nor on what basis,
this matter will be concluded.
|
|
|
|
On
July 28, 2006, StemCells, Inc., filed suit against Neuralstem, Inc. in the
U.S. District Court in Maryland, alleging that Neuralstem has been
infringing, contributing to the infringement of, and or inducing the
infringement of four patents owned by or exclusively licensed to StemCells
relating to stem cell culture compositions, genetically modified stem cell
cultures, and methods of using such cultures. See Civil Action
No. 06-1877. We answered the Complaint denying infringement,
asserting that the patents are invalid, asserting that we have intervening
rights based on amendments made to the patents during reexamination
proceedings, and further asserting that some of the patents are
unenforceable due to inequitable conduct. Neuralstem has also
asserted counterclaims that StemCells has engaged in anticompetitive
conduct in violation of antitrust laws. Discovery has commenced
and it is not known when, nor on what basis, this matter will be
concluded.
|
|
ITEM
4.
|
REMOVED
AND RESERVED.
|
PART
II
|
ITEM
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
Market
Information
Our
common stock is traded on the NYSE Amex under the symbol "CUR." The
following table sets forth, for the periods indicated, the high and low intraday
sale prices for our common stock.
|
|
|
High
|
|
Low
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
3.58
|
|
$
|
2.29
|
|
Second
Quarter
|
|
$
|
2.59
|
|
$
|
1.31
|
|
Third
Quarter
|
|
$
|
1.86
|
|
$
|
1.20
|
|
Fourth
Quarter
|
|
$
|
2.15
|
|
$
|
1.01
|
|
2009
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
1.79
|
|
$
|
0.80
|
|
Second
Quarter
|
|
$
|
1.30
|
|
$
|
1.03
|
|
Third
Quarter
|
|
$
|
2.08
|
|
$
|
1.04
|
|
Fourth
Quarter
|
|
$
|
1.91
|
|
$
|
1.26
|
Holders
As of
March 8, 2010 our common stock was held by approximately 725 record
holders. We believe our actual number of shareholders may be
significantly higher as 34,638,732 shares are currently being held in street
name.
Dividends
We have
not paid any cash dividends to date and have no plans to do so in the immediate
future.
Equity
Compensation Plan Information
The
following table sets forth information with respect to our 2005 & 2007 Stock
Plans as of December 31, 2009.
|
|
(a)
|
|
(b)
|
|
(c)
|
|
|
Number of Securities
to be Issued
upon Exercise of
Outstanding
Options, Warrants
and
Rights
|
|
Weighted-Average
Exercise Price of
Outstanding
Options,
Warrants and
Rights
|
|
Number of Securities
Remaining Available for
Future Issuance under
Equity Compensation Plans
(Excluding Securities
Reflected in Column (a))
|
|
Equity
compensation plans approved by security holders
|
|
|
|
|
|
|
2005 Stock Plan, as
amended
|
3,680,659
|
|
$
|
1.26
|
|
319,341
|
|
2007
Stock Plan
|
5,615,475
|
|
|
3.38
|
|
534,525
|
|
Equity
compensation plans not approved by security holders
|
N/A
|
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
Total
|
9,296,134
|
|
$
|
2.52
|
|
853,866
|
Recent
Sales of Unregistered Securities
The
following information is given with regard to unregistered securities sold
during the period covered by this report. The unregistered securities
were issued pursuant to section 4(2) of the Securities Act:
|
|
·
|
On
January 5, 2009 we granted a consultant options to purchase 100,000 common
shares at a price per share of $1.64. The options were issued
as compensation for services rendered. The grant was made
pursuant to our 2005 Stock Plan. The options have a term of 7
years.
|
|
|
·
|
On
March 30, 2009, we granted a consultant a common stock purchase warrant to
purchase 96,000 common shares at a price per share of
$1.25. The warrant will expire on
3/30/2015.
|
|
|
·
|
On
June 3, 2009, we granted a consultant100,000 options to purchase common
shares at a price of $1.13. The options were issued as
compensation for services rendered. The grant was made pursuant
to our 2005 Stock Plan. The options vest as
follows: 25,000 vested immediately; 25,000 vest at the six
month anniversary; 25,000 vest at the twelve month anniversary; 25,000
vest at the eighteen month anniversary. The options expire on
June 3, 2019.
|
|
|
·
|
On
July 2, 2009, pursuant to our director compensation policy, we granted
each of Messrs. Ogilvie and Oldaker options to purchase 35,000 common
shares as compensation for their services on our board of directors and
related committees. For a further description of the
transaction, please refer to the section of this Annual Report entitled
“
Executive Compensation
– Director Compensation
” contained in Item
11.
|
|
|
·
|
On
October 1, 2009 we granted a consultant warrants to purchase100,000 shares
at a price of $1.49. The warrants are fully vested and have a
cashless exercise provision. The warrants expire on
10/1/2016.
|
|
|
·
|
On
December 29, 2009, we completed a private placement of 646,551 common
shares resulting in gross proceeds of $1,500,000. The shares
were sold to 1 accredited investor at a price per share of
$2.32.
|
|
|
·
|
On
December 30, 2009, we issued Richard Garr and John Conron, our Chief
Executive Officer and Chief Financial Officer, respectively, an aggregate
of 225,475 common shares as consideration for the cancelation of certain
obligations owed to such executives. For a further description
of the transaction, please refer to the section of this Annual Report
entitled “
Transactions
with Related Persons, Promoters and Certain Control Person’s
”
contained in Item 13.
|
|
|
·
|
On
January 8, 2010, pursuant to a consulting agreement for investor relations
and business development services, we issued Market Development Consulting
Group, Inc.: (i) 140,000 common shares; and (ii) a common stock purchase
warrant entitling the holder to purchase 400,000 shares of common stock at
$1.70 per share. The warrant is exercisable immediately, shall
expire on December 31, 2019, and is freely assignable in whole or in
part. We also agreed to register the shares underlying
the warrant for resale. In connection with the registration of
the shares underlying the warrant, we agreed to pay consultant a penalty
of 1% additional warrants per each 30 days in the event: (i) a
registration statement covering the shares is not filed by March 21, 2009,
and (ii) the registration statement covering the shares is not declared
effective within 90 days of filing. The date for registration
has been extended to the earlier of: (a) the day following such day as we
file our Annual Report for 2009 ; or (b) April 15,
2010.
|
|
|
·
|
On
January 15, 2010, we issued a consultant options to purchase an aggregate
of 45,000 common shares at $2.40 per share. The options vest as
follows: (i) 25,000 upon grant; and (ii) 20,000 on December 31,
2010. The options have a term of 5
years.
|
|
|
·
|
On
January 15, 2010, we issued a consultant options to purchase an aggregate
of 100,000 common shares at $2.40 per share. The options are
100% vested upon grant and have a term of 7
years.
|
|
|
·
|
On
January 29, 2010, as an inducement to exercise 800,000 Series D Warrants,
we issued Vicis Capital Master Fund a replacement warrant. As a
result of the exercise, we received gross proceeds in the amount of
$1,000,000. The replacement warrant entitles the holder to
purchase 400,000 common shares at price of $1.85 per share. The
warrant has a term of 1 year.
|
|
|
·
|
In
March of 2010, in connection with the exercise of 2,699,400 Series C
Warrants, we issued the prior warrant holders an aggregate of 2,699,400
replacement warrants. As a result of the exercise, we received
gross proceeds in the amount of $3,374,250. The
replacement warrant is substantially the same as the prior Series C
warrants except that: (i) the exercise price is $2.13; (ii) the
replacement warrants expire 5 years from the date they were issued; and
(iii) the replacement warrants do not provide for any anti-dilution
rights.
|
|
|
·
|
In
March of 2010, in connection with the exercise of 782,005 placement agent
warrants, we issued T.R. Winston & Company, LLC, a replacement warrant
to purchase 782,005. As a result of the exercise, we
received gross proceeds in the amount
of $860,205. The replacement warrant is
substantially the same as the prior replacement warrants issued to our
Series C Warrant holders except that: (i) the exercise price is $2.13;
(ii) the replacement warrants expire 5 years from the date they were
issued; and (iii) the replacement warrants do not provide for any
anti-dilution rights.
|
|
|
·
|
In
March of 2010, we amended 706,752 placement agent warrants held
by TR Winston & Company, LLC. Pursuant to the amendment, we
agreed to extend the expiration date of the placement agent warrants from
March 15, 2012 to March 15, 2014 in exchange for the removal of the
anti-dilution provisions from said warrants. We did not receive
any additional consideration in connection with the
amendment.
|
|
ITEM
6.
|
SELECTED
FINANCIAL DATA
|
We are
not required to provide the information as to selected financial data as we are
considered a smaller reporting company.
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Our
Management’s Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) is provided in addition to the accompanying consolidated
financial statements and notes to assist readers in understanding our results of
operations, financial condition, and cash flows. MD&A is organized as
follows:
|
|
•
|
Overview.
Discussion
of our business and overall analysis of financial and other highlights
affecting the company in order to provide context for the remainder of
MD&A.
|
|
|
•
|
Trends &
Outlook
.
Discussion of
what we view as the overall trends affecting our business and the strategy
for our operating segments and outlook for
2010.
|
|
|
•
|
Critical Accounting
Policies
.
Accounting
policies that we believe are important to understanding the assumptions
and judgments incorporated in our reported financial results and
forecasts.
|
|
|
•
|
Results of
Operations.
Analysis of our financial results comparing 2009
to 2008.
|
|
|
•
|
Liquidity and Capital
Resources.
An analysis of changes in our balance sheets and
cash flows, and discussion of our financial condition including potential
sources of liquidity.
|
The
various sections of this MD&A contain forward-looking statements. Words such
as “expects,” “goals,” “plans,” “believes,” “continues,” “may,” and variations
of such words and similar expressions are intended to identify such
forward-looking statements. In addition, any statements that refer to
projections of our future financial performance, our anticipated growth and
trends in our businesses, and other characterizations of future events or
circumstances are forward-looking statements. Such statements are based on our
current expectations and could be affected by the uncertainties and risk factors
described throughout this filing and particularly in the “Overview” and “Trends
& Outlook” section (see also “Risk Factors” in Part I, Item 1A of this Form
10-K). Our actual results may differ materially.
Overview
Neuralstem
is focused on the development and commercialization of treatments based on
transplanting human neural stem cells.
We have
developed and maintain a portfolio of patents and patent applications that form
the proprietary base for our research and development efforts in the area of
neural stem cell research. We own or exclusively license four (4) issued patents
and twelve (12) patent pending applications in the field of regenerative
medicine and related technologies. We believe our technology base, in
combination with our know-how, and collaborative projects with major research
institutions provides a competitive advantage and will facilitate the successful
development and commercialization of products for use in the treatment of a wide
array of neurodegenerative conditions and in regenerative repair of acute
disease.
Regenerative
medicine is a young and emerging field. There can be no assurances that our
intellectual property portfolio will ultimately produce viable commercialized
products and processes. Even if we are able to produce a commercially viable
product, there are strong competitors in this field and our product may not be
able to successfully compete against them.
All of
our research efforts to date are at the pre-clinical or clinical stage of
development. We are focused on leveraging our key assets, including our
intellectual property, our scientific team, our facilities and our capital, to
accelerate the advancement of our stem cell technologies. In addition, we are
pursuing strategic collaborations with members of academia. We are headquartered
in Rockville, Maryland.
In
addition to our core tissue based technology, we have begun developing a
neurogenic and neuroprotective Small-Molecule compound. The patent
covering this new class of drugs was issued June 10, 2009.
Technology
Stem
Cells
Our
technology enables the isolation and large-scale expansion of human neural stem
cells from all areas of the developing human brain and spinal cord, thus
enabling the generation of physiologically relevant human neurons of all types.
Our two issued core patents entitled: (i)
Isolation, Propagation,
and Directed Differentiation of Stem Cell
s
from Embryonic and Adult Central
Nervous System of Mammals
; and (ii)
In Vitro Generation of
Differentiated Neurons from Cultures of Mammalian Multipotential CNS Stem
Cell
contain claims which cover the process of deriving the
cells and the cells created from this process.
What
differentiates our stem cell technology from others is that our patented
processes do not require us to direct the cells towards a certain fate by adding
specific growth factors. Our cells actually “become” the type of cell they are
fated to be. This process and the resulting cells comprise a technology platform
that allows for the efficient isolation and production, in commercially
reasonable quantities, of neural stem cells from the human brain and spinal
cord.
To date
the Company has focused its efforts on applications involving spinal cord stem
cells. It has completed preclinical efficacy and safety studies on these cells
sufficient to gain FDA approval for human clinical trials. The company believes
it has established “proof of principle” for two important spinal cord
applications: ALS, or Lou Gehrig’s disease, and Ischemic Spastic Paraplegia (a
painful form of spasticity that may arise as a complication of surgery to repair
aortic aneurysms). In anticipation of Phase I trials, the Company has created
spinal cord cell banks using GMP.
We have
developed and we maintain a portfolio of patents and patent applications that
form the proprietary basis for our research and development efforts in the area
of neural stem cell research. We own or exclusively license four (4)
issued patents and thirteen (13) patent pending applications in the field of
regenerative medicine and related technologies.
Small-molecule
Compounds
The
Company has performed tests using cultured neural stem cells and in animals to
validate the performance of small molecule compounds for hippocampal
neurogenesis. The Company has successfully contracted for the manufacture of
small batches of the compound. It expects to contract for a production run using
Good Manufacturing Practice (GMP) methods which will be large enough to complete
safety testing and Phase I clinical trials.
In
June the company received a notice of allowance from the U.S. Patent and
Trademark Office (USPTO) for a patent on these compounds. Patent application
12/049,922, entitled “Use of Fused Nicotinamides to Promote Neurogenesis,”
claims four chemical entities and any pharmaceutical composition including
them.
.
Research
We have
devoted substantial resources to our research programs in order to isolate and
develop a series of neural stem cell banks that we believe can serve as a basis
for therapeutic products. Our efforts to date have been directed at methods to
identify, isolate and culture large varieties of stem cells of the human nervous
system, and to develop therapies utilizing these stem cells. This research is
conducted both internally and through the use of third party laboratory
consulting companies under our direct supervision.
Trends
& Outlook
Revenue
We
had no revenue for the years ended December 31, 2009 and 2008. Our
focus is now on initiating and successfully managing the clinical trial for ALS
authorized by the FDA in September of this year. We are also pursuing
pre-clinical studies on other central nervous system indications in preparation
for additional clinical trials. We are not focused at this time on generating
revenue.
Long-term,
we anticipate our revenue will be derived primarily from licensing fees and
sales of our cell therapy and small molecule compounds. Because we are at such
an early stage in the clinical trials process for our first application, ALS, we
are not yet able to accurately predict when we will have a product ready for
commercialization.
Research
& Development Expenses
Our
research and development costs consist of expenses incurred in identifying,
developing and testing treatments for central nervous system diseases. These
expenses consist primarily of salaries and related expenses for personnel, fees
paid to professional service providers and academic collaborators for research,
testing, contract manufacturing, costs of facilities, and the preparation of
regulatory applications and reports.
We focus
on the development of treatment candidates with potential uses in multiple
indications, and use employee and infrastructure resources across several
projects. Accordingly, many of our costs are not attributable to a specifically
identified product and we do not account for internal research and development
costs on a project-by-project basis.
We expect
that research and development expenses will increase in the future, as funding
allows. To the extent that it is practical, we will continue to outsource much
of our efforts, including product manufacture, proof of principle and
preclinical testing, toxicology, tumorigenicity, dosing rationale, and
development of clinical protocol and IND packages. This approach allows the
Company to use the best expertise available for each task and keep its spending
inside available cash resources.
Stem
Cells
Our top
development priority is the ALS clinical trial at Emory University in Atlanta.
We estimate that the Phase I trial for ALS will require 12 to 18 patients at an
estimated cost of $130,000 per patient. The per- patient number includes the
costs of the operation to administer our spinal cord cells, post operation
treatment for the patient, Emory University’s charges for running the trial and
third party trial monitoring and data collection. Our spending on an individual
patient will be spread over the life of the trial as the majority of our costs
are incurred after the patient has been operated on. We expect trial spending to
gradually increase to $100,000 per month after a number of patients have been
treated.
In the
strategy section we outlined a number of additional indications for which our
spinal cord stem cells have potential therapeutic value. We will work
on proof of principle testing, dosing rationale, and the development of clinical
protocols for the most promising indications. We intend to submit IND
applications to the FDA to initiate clinical trials for the most promising
treatment candidates. The Company expects to submit an IND to treat
Spinal Cord Injury in 2010.
Small
Molecule Compounds
We
believe we have successfully demonstrated proof of principle to support
advancement of our lead small molecule compound for treatment of
depression. We have completed planning for toxicology,
tumorigenicity, dosing rationale, and development of the clinical protocol. We
will issue work orders to contractors for these efforts when funding is
available. If the remaining preclinical testing results are successful we will
file an IND with the FDA. We hope to begin clinical trials for this indication
in late 2010 or early 2011.
General
and Administrative Expenses
Our
general and administrative (“G&A”) expenses consist of the general costs,
expenses and salaries for the operation and maintenance of our business. We
anticipate that general and administrative expenses will increase as we progress
from pre-clinical to a clinical phase.
We
anticipate G&A expenses related to our core business will increase at a
slower rate than that of similar companies making such transition due in large
part to our outsourcing model.
Critical Accounting
Policies
Our
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses.
Note 1of the Notes to Financial Statements describes the significant
accounting policies used in the preparation of the financial statements. Certain
of these significant accounting policies are considered to be critical
accounting policies, as defined below.
A
critical accounting policy is defined as one that is both material to the
presentation of our financial statements and requires management to make
difficult, subjective or complex judgments that could have a material effect on
our financial condition and results of operations. Specifically, critical
accounting estimates have the following attributes: (1) we are required to
make assumptions about matters that are highly uncertain at the time of the
estimate; and (2) different estimates we could reasonably have used, or
changes in the estimate that are reasonably likely to occur, would have a
material effect on our financial condition or results of
operations.
Estimates
and assumptions about future events and their effects cannot be determined with
certainty. We base our estimates on historical experience and on various other
assumptions believed to be applicable and reasonable under the circumstances.
These estimates may change as new events occur, as additional information is
obtained and as our operating environment changes. These changes have
historically been minor and have been included in the financial statements as
soon as they became known. Based on a critical assessment of our accounting
policies and the underlying judgments and uncertainties affecting the
application of those policies, management believes that our financial statements
are fairly stated in accordance with accounting principles generally accepted in
the United States, and present a meaningful presentation of our financial
condition and results of operations. We believe the following critical
accounting policies reflect our more significant estimates and assumptions used
in the preparation of our financial statements:
Use of
Estimates
—Our financial statements have been prepared in accordance
with accounting principles generally accepted in the United States and,
accordingly, require management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Specifically, our management has estimated the expected
economic life and value of our licensed technology, our net operating loss for
tax purposes and our stock option and warrant expenses related to compensation
to employees and directors, consultants and investment banks. Actual results
could differ from those estimates.
Revenue
Recognition
—We had no revenues for the years ended December 31, 2009 and
2008. Our revenues, to date, have been previously derived primarily
from providing treated samples for gene expression data from stem cell
experiments and from providing services as a subcontractor under federal grant
programs. Revenue is recognized when there is persuasive evidence that an
arrangement exists, delivery of goods and services has occurred, the price is
fixed and determinable, and collection is reasonably assured.
Intangible and
Long-Lived Assets
—We follow FASB guidelines related to the accounting for
impairment of long-lived assets, which established a "
primary asset
" approach to
determine the cash flow estimation period for a group of assets and liabilities
that represents the unit of accounting for a long lived asset to be held and
used. Long-lived assets to be held and used are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The carrying amount of a long-lived asset is not
recoverable if it exceeds the sum of the undiscounted cash flows expected to
result from the use and eventual disposition of the asset. Long-lived assets to
be disposed of are reported at the lower of carrying amount or fair value less
cost to sell. During the period ended December 31, 2009 no impairment losses
were recognized.
Accounting for
Warrants
–
We
have adopted FASB guidance related to determining whether an instrument or
embedded feature is indexed to an entity’s own stock. This guidance
applies to any freestanding financial instruments or embedded features that have
the characteristics of a derivative, as defined by the FASB, and to any
freestanding financial instruments that are potentially settled in an entity’s
own common stock. As a result, certain of our warrants are considered
to be derivatives and must be valued using various assumptions as they are
recorded as liabilities.
Research and
Development Costs
—Research and development costs consist of expenditures
for the research and development of patents and technology, which are not
capitalizable and charged to operations when incurred. Our research and
development costs consist mainly of payroll and payroll related expenses,
research supplies and costs incurred in connection with specific research
grants.
Stock Based
Compensation
—The Company accounts for equity instruments issued to
non-employees in accordance with guidance issued by
FASB. Accordingly, the estimated fair value of the equity instrument
is recorded on the earlier of the performance commitment date or the date the
services required are completed.
Beginning
in 2006, we adopted the guidance issued by the FASB related to share based
payments. This guidance requires compensation costs related to
share-based payment transactions to be recognized in the financial
statements. We recognized $4,556,916 and
$4,632,847 in stock-based compensation expense for the years ended December 31,
2009 and 2008, respectively.
Results
of Operations
Revenue
The
company did not have revenues for the twelve months ended December 31, 2009 and
2008, respectively.
We do not
anticipate any revenues for 2010.
Operating
Expenses
Operating
expenses totaled $10,466,549 in 2009 and $11,831,973 in 2008.
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
Versus 2008
|
|
|
|
2009
|
|
2008
|
|
$
|
|
%
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research &
development
|
|
$
|
5,346,904
|
|
|
$
|
6,513,349
|
|
|
$
|
(1,166,445
|
)
|
|
|
18
|
%
|
|
General,
selling & administrative expense
|
|
|
5,030,981
|
|
|
|
5,252,863
|
|
|
|
(221,882
|
)
|
|
|
4
|
%
|
|
Depreciation
and amortization
|
|
|
88,664
|
|
|
|
65,761
|
|
|
|
22,903
|
|
|
|
35
|
%
|
|
Total
expense
|
|
$
|
10,466,549
|
|
|
$
|
11,831,973
|
|
|
$
|
(1,365,424
|
)
|
|
|
12
|
%
|
Research
and Development Expenses
Research
and development expenses totaled $5,346,904 in 2009, as compared to $6,513,349
in 2008. The decrease of $1,166,445, or 18%, from 2008 to 2009 was
primarily attributable to the costs in 2008 of completing the application to the
FDA to move our cell based product into clinical trials and a reduction in
non-cash stock-based compensation expense.
General
and Administrative Expenses
G&A
expenses totaled $5,030,981 in 2009, compared with $5,252,863 in
2008. The decrease of $221,882, or 4%, from 2008 to 2009 was
primarily attributable to increased litigation expenses offset by expense
decreases spread over a wide range of categories, including non-cash stock-based
compensation expense, and reflects management’s ongoing efforts to manage cash
consumption.
Depreciation
and Amortization
Depreciation
and amortization expenses totaled $88,664 in 2009, compared with $65,761 in
2008. The increase of $29,203 or 35% from 2008 to 2009 was primarily
attributed to fixed asset and patent filing fee additions over the past
year.
Nonoperating
(expense) income
Nonoperating
(expense) income totaled $102,186 and $1,175 for the twelve months ended
December 31, 2009 and 2008, respectively. The nonoperating income or
expense is discussed below.
Interest
income totaled $19,614 in 2009 compared to $39,806 in 2008. The decrease of
$20,192 for the twelve months ended December 31, 2009 compared to the comparable
period in 2008 was attributable to lower cash balances and much reduced interest
rates on short term savings.
Interest
expense was $776 in 2009 and $0 in 2008. The increase in 2009 as compared to
2008 was attributable to the short term financing of some insurance
costs.
The
Company had a warrant modification expense of $38,631 in
2008. Details of the transaction are in Note 2 to the financial
statements.
On
January 1, 2009 we reclassified the fair value of common stock
purchase warrants, which have exercise price reset and anti-liquidation
features, from equity to liability classification as if these warrants were
treated as a derivative liability since their date of issue. We
established a long-term warrant liability of $6.8 million to recognize the fair
value of such warrants. In the first quarter ended March 30, 2009, the fair
value of these common stock purchase warrants decreased because of a decrease in
the stock price, resulting in a gain for the quarter. In the three
months ended June 30, 2009, the fair value of these common stock purchase
warrants increased to $3.2 million because of an increase in the stock price. We
recognized a $473,799 non-cash expense from the change in fair value of these
warrants for the three months ended June 30, 2009. In the three
months ended September 30, 2009, the fair value of these common stock purchase
warrants increased to $5.6 million due to an increase in the stock price. We
recognized a $2.6 million non-cash expense from the change in fair value of
these warrants for the three months ended September 30, 2009. In the
three months ended December 31, 2009, the fair value of these common stock
purchase warrants increased to $6.5 million due to an increase in the stock
price. We recognized a $677,830 non-cash expense from the change in
fair value of the warrants for the three months ended December 31, 2009.The net
gain for the twelve month period ended December 31, 2009 is
$83,348.
Liquidity
and Capital Resources
Since our
inception, we have financed our operations through the private placement of our
securities, the exercise of investor warrants, and to a lesser degree from
grants. Currently, our monthly cash burn rate is $600,000. We
anticipate that our available cash and expected income will be sufficient to
finance our current activities for at least the next 12 months from December 31,
2009, although certain activities and related personnel may need to be
reduced.
On
December 18, 2008, we filed our first IND with the FDA. We estimate
that we will have sufficient cash and cash equivalents to finance our current
operations, pre-clinical and clinical work for at least 12 months from December
31, 2009. We cannot assure you that public or private financing or grants will
be available on acceptable terms, if at all. Several factors will affect our
ability to raise additional funding, including, but not limited to, the
volatility of our common shares and general market conditions.
|
|
|
|
|
|
|
|
|
Change
in 2008
|
|
|
|
|
|
|
|
|
|
|
Versus 2007
|
|
|
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
|
Cash and
cash equivalents
|
|
$
|
2,309,774
|
|
|
$
|
4,903,279
|
|
|
$
|
(2,593,505
|
)
|
|
|
(53
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
$
|
(5,144,820
|
)
|
|
$
|
(6,860,039
|
)
|
|
$
|
(1,715,219
|
)
|
|
|
(25
|
)%
|
|
Net
cash used in investing activities
|
|
$
|
(210,784
|
)
|
|
$
|
(193,630
|
)
|
|
$
|
17,154
|
|
|
|
(9
|
)%
|
|
Net
cash provided by financing activities
|
|
$
|
2,762,099
|
|
|
$
|
4,553,211
|
|
|
$
|
(1,791,112
|
)
|
|
|
(39
|
)%
|
Total
cash and cash equivalents was $2,309,774 at December 31, 2009, compared
with $4,903,279 at December 31, 2008. The decrease in our cash
and cash equivalents of $2,593,505 or 53%, from December 31, 2008 to
December 31, 2009 was do to the postponement of new financing until the
first quarter of 2010 when the company raised an additional $7M.
Net
Cash Used in Operating Activities
Operating
activities required $5,144,820 for the twelve months ended December 31, 2009
compared to $6,860,039 for the same period in 2008. The decrease of
$1,715,219 in cash consumption, or 25%, for the twelve months ended December 31,
2009 compared to the same period in 2008 was primarily attributable to an
increase of $295,334 in short term financing by vendors, employees and other
service providers for the year and a reduction in spending, particularly in
research of $969,506 and $325,112 in management incentive bonuses.
.
Net
Cash Used in Investing Activities
In our
investment activities we used $210,784 in cash in 2009 and $193,630 in cash in
2008. The increase in our cash use of $17,154, or 9%, for the twelve
months ended December 31, 2009 compared to the same period in 2008 was primarily
attributable to an increase in purchases of property and equipment.
Net
Cash Provided by Financing Activities
Net cash
provided by financing activities was $2,762,099 in 2009 as compared to
$4,553,211 in 2008 as $7M of new financing activity was postponed to the first
quarter of 2010 when better terms where available.
Subsequent
Financing Activities
During
the first quarter of 2010, and subsequent to the date of the balance sheet
included in this Annual Report, we completed a series of transactions resulting
in us receiving gross proceeds for the exercise of our Series A, B, C and D
warrants of $7.3 million. On March 16, 2010 we had cash on hand of
$7.8 million.
Listed
below are key financing transactions entered into by us in the last two
years. Also, please refer to the section of this Annual Report
entitled “
Recent Sale of
Unregistered Securities
” for a further description of the following
transactions:
In
February of 2008, we sold a strategic purchaser $2,500,000 of our common
stock.
|
|
•
|
On
December 18, 2008, we sold $2,000,000 of common stock pursuant to our
shelf registration statement on Form
S-3.
|
|
|
•
|
On
June 30, 2009, we sold $1,000,000 of common stock and warrants to purchase
an additional 2,440,000 common shares pursuant to our shelf registration
statement on Form S-3.
|
|
|
•
|
In
September 2009, we received $347,418 as a result of warrant
exercises.
|
|
|
•
|
In
October and December 2009, we received $53,214 as a result of warrant
exercises.
|
|
|
•
|
On
December 29, 2009 we sold $1,500,000 of common stock pursuant to a private
placement.
|
Transactions
Subsequent to December 31, 2009
|
|
·
|
On
January 29, 2010, we received $1,000,000 as a result of Series D warrant
exercises.
|
|
|
·
|
In
February of 2010, we exercised the call provision related to our Series B
Warrants which resulted in $2,460,918from the exercise
thereof.
|
|
|
·
|
In
March of 2010, we received $3,374,250 as a result of Series C warrant
exercises.
|
|
|
·
|
In
March of 2010, we received $860,205 as a result of placement agent warrant
exercises.
|
Call
of Series B Warrants
During
the first quarter of 2006, we issued an aggregate of 2,019,231 Series B warrants
in connection with a private placement of our securities. The Series B warrants
contained a call provision allowing us to redeem the warrants for $.01 per
warrant share, upon 30 days notice, provided the following two conditions were
met: (a) we receive approval of our IND, and (b) a registration
statement covering the resale of the warrant shares shall be
effective. As a result, Series B warrant holders exercised their
respective warrants which resulted in us issuing 1,993,876 common shares and
receiving gross proceeds in the amount of $2,460,918.
We have
incurred significant operating losses and negative cash flows since inception.
We have not achieved profitability and may not be able to realize sufficient
revenue to achieve or sustain profitability in the future. We do not expect to
be profitable in the next several years, but rather expect to incur additional
operating losses. We have limited liquidity and capital resources and must
obtain significant additional capital resources in order to sustain our product
development efforts, for acquisition of technologies and intellectual property
rights, for preclinical and clinical testing of our anticipated products,
pursuit of regulatory approvals, acquisition of capital equipment, laboratory
and office facilities, establishment of production capabilities, for general and
administrative expenses and other working capital requirements. We rely on cash
balances and the proceeds from the offering of our securities, exercise of
outstanding warrants and grants to fund our operations.
We intend
to pursue opportunities to obtain additional financing in the future through the
sale of our securities and additional research grants. We have a shelf
registration statement which was declared effective on September 29, 2008 and
covers up to approximately $25,000,000 of our securities that could be available
for financings. On December 18, 2008 and June 30, 2009, we filed Prospectus
Supplements under which we sold securities with an aggregate market value
pursuant to General Instruction I.B.6. of Form S-3, of
$6,167,520. Accordingly, depending on our market capitalization and
other restrictions and conditions contained in General Instruction I.B.6. of
Form S-3, we may be able to sell up to an additional $18,832,420 pursuant to our
shelf registration statement.
The
source, timing and availability of any future financing will depend principally
upon market conditions, interest rates and, more specifically, on our progress
in our exploratory, preclinical and future clinical development programs.
Funding may not be available when needed — at all, or on terms acceptable
to us. Lack of necessary funds may require us, among other things, to delay,
scale back or eliminate some or all of our research and product development
programs, planned clinical trials, and/or our capital expenditures or to license
our potential products or technologies to third parties.
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
|
We are
not required to provide the information as to selected financial data as we are
considered a smaller reporting company, as defined by Rule
229.10(f)(1).
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
INDEX
TO FINANCIAL STATEMENTS
|
|
|
Page
|
|
Report of Independent Registered
Public Accounting Firm
|
|
31
|
|
|
|
|
|
Balance
Sheets
|
|
32
|
|
|
|
|
|
Statements
of Operations
|
|
33
|
|
|
|
|
|
Statements
of Cash Flows
|
|
34
|
|
|
|
|
|
Statements
of Stockholders’ Equity
|
|
35
|
|
|
|
|
|
Notes
to Financial Statements
|
|
36
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders
Neuralstem,
Inc.
Rockville,
Maryland
We have audited the accompanying
balance sheets of Neuralstem, Inc. as of December 31, 2009 and 2008, and
the related statements of operations, stockholders’ equity and cash flows for
the years ended December 31, 2009 and 2008. Neuralstem, Inc.’s
management is responsible for these financial statements. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards required that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. Neuralstem, Inc. is not required to have,
nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of Neuralstem, Inc.’s internal control over
financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial
statements referred to above present fairly, in all material respects, the
financial position of Neuralstem, Inc. as of December 31, 2009 and 2008, and the
results of its operations and its cash flows for the years ended December 31,
2009 and 2008 in conformity with accounting principles generally accepted in the
United States of America.
As discussed in Note 8 to the financial
statements, in 2009 Neuralstem, Inc. adopted the guidance issued by the
Financial Accounting Standards Board regarding whether an instrument or embedded
feature is indexed to an entity’s own stock. This resulted in the
recharacterization of certain warrants as liabilities.
Baltimore,
Maryland
March 30,
2010
Neuralstem,
Inc.
Balance
Sheets
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
2,309,774
|
|
|
$
|
4,903,279
|
|
|
Prepaid
expenses
|
|
|
143,600
|
|
|
|
136,287
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
2,453,374
|
|
|
|
5,039,566
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
196,755
|
|
|
|
163,930
|
|
|
Intangible
assets, net
|
|
|
301,560
|
|
|
|
212,265
|
|
|
Other
assets
|
|
|
55,716
|
|
|
|
52,972
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
3,007,405
|
|
|
$
|
5,468,733
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' (DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
791,607
|
|
|
$
|
547,950
|
|
|
Accrued
bonus expense
|
|
|
769,215
|
|
|
|
717,538
|
|
|
Total
current liabilities
|
|
|
1,560,822
|
|
|
|
1,265,488
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of warrant obligations
|
|
|
6,462,039
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
8,022,861
|
|
|
|
1,265,488
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
(DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, 7,000,000 shares authorized, zero shares issued and
outstanding
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, $0.01 par value; 150 million shares authorized, 35,743,831 and
33,751,300 shares outstanding in 2009 and 2008,
respectively
|
|
|
357,438
|
|
|
|
337,513
|
|
|
Additional
paid-in capital
|
|
|
62,193,937
|
|
|
|
61,352,527
|
|
|
Accumulated
deficit
|
|
|
(67,566,831
|
)
|
|
|
(57,486,795
|
)
|
|
Total
stockholders' (deficit) equity
|
|
|
(5,015,456
|
)
|
|
|
4,203,245
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' (deficit) equity
|
|
$
|
3,007,405
|
|
|
$
|
5,468,733
|
|
See notes
to financial statements.
Neuralstem,
Inc.
Statements
of Operations
|
|
|
Years
|
|
|
|
|
Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
Research
and development costs
|
|
|
5,346,904
|
|
|
|
6,513,349
|
|
|
General,
selling and administrative expenses
|
|
|
5,030,981
|
|
|
|
5,252,863
|
|
|
Depreciation
and amortization
|
|
|
88,664
|
|
|
|
65,761
|
|
|
Total
operating expenses
|
|
|
10,466,549
|
|
|
|
11,831,973
|
|
|
Operating
loss
|
|
|
(10,466,549
|
)
|
|
|
(11,831,973
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating
(expense) income:
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
19,614
|
|
|
|
39,806
|
|
|
Interest
expense
|
|
|
(776
|
)
|
|
|
-
|
|
|
Warrant
modification expense
|
|
|
-
|
|
|
|
(38,631
|
)
|
|
Gain
from change in fair value of warrant obligations
|
|
|
83,348
|
|
|
|
-
|
|
|
Total
nonoperating income
|
|
|
102,186
|
|
|
|
1,175
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to common shareholders
|
|
$
|
(10,364,363
|
)
|
|
$
|
(11,830,798
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share, basic and diluted
|
|
$
|
(0.30
|
)
|
|
$
|
(0.37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding, basic and diluted
|
|
|
34,280,882
|
|
|
|
32,114,365
|
|
See notes
to financial statements.
Neuralstem,
Inc.
Statements
of Cash Flows
|
|
|
Twelve Months
|
|
|
|
|
Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(10,364,363
|
)
|
|
$
|
(11,830,798
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
88,664
|
|
|
|
65,761
|
|
|
Share
based compensation expenses
|
|
|
4,556,916
|
|
|
|
4,632,847
|
|
|
Warrant
modification expense
|
|
|
-
|
|
|
|
38,631
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
from change in fair value of warrant obligations
|
|
|
(83,348
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses
|
|
|
(7,313
|
)
|
|
|
(5,568
|
)
|
|
Other
assets
|
|
|
(2,744
|
)
|
|
|
(9,701
|
)
|
|
Accounts
payable and accrued expenses
|
|
|
243,657
|
|
|
|
127,301
|
|
|
Accrued
bonus expenses
|
|
|
423,711
|
|
|
|
121,488
|
|
|
Net
cash used in operating activities
|
|
|
(5,144,820
|
)
|
|
|
(6,860,039
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Acquisition
of intangible assets
|
|
|
(122,406
|
)
|
|
|
(116,921
|
)
|
|
Purchase
of property and equipment
|
|
|
(88,378
|
)
|
|
|
(76,709
|
)
|
|
Net
cash used in investing activities
|
|
|
(210,784
|
)
|
|
|
(193,630
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows From financing activities:
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock
|
|
|
2,762,099
|
|
|
|
4,553,211
|
|
|
Net
cash provided by financing activities
|
|
|
2,762,099
|
|
|
|
4,553,211
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash
|
|
|
(2,593,505
|
)
|
|
|
(2,500,458
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
4,903,279
|
|
|
|
7,403,737
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
2,309,774
|
|
|
$
|
4,903,279
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flows information:
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
|
776
|
|
|
|
-
|
|
|
Cash
paid for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of non cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
Common
stock issued to pay accrued employee bonuses
|
|
|
372,033
|
|
|
|
-
|
|
See notes
to financial statements.
Neuralstem,
Inc.
Statements
of
Shareholders' Equity (Deficit)
For
the years ended December 31, 2009 and 2008
|
|
|
Common
|
|
|
Common
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Stockholders'
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2008
|
|
|
31,410,566
|
|
|
$
|
314,106
|
|
|
$
|
52,151,245
|
|
|
$
|
(45,655,997
|
)
|
|
$
|
6,809,354
|
|
|
Exercise
of Warrants to purchase Common Stock ($1.50 to $2.00 per share), net of
offering costs of $20,889
|
|
|
125,425
|
|
|
|
1,254
|
|
|
|
209,957
|
|
|
|
|
|
|
|
211,211
|
|
|
Issuance
of common stock though private placement ($4.06 per
share).
|
|
|
615,309
|
|
|
|
6,153
|
|
|
|
2,493,847
|
|
|
|
|
|
|
|
2,500,000
|
|
|
Issuance
of common stock though private placement ($1.25 per share) , net of
offering costs of $158,000
|
|
|
1,600,000
|
|
|
|
16,000
|
|
|
|
1,826,000
|
|
|
|
|
|
|
|
1,842,000
|
|
|
Share
Based Payments - Employee Compensation
|
|
|
|
|
|
|
|
|
|
|
4,632,847
|
|
|
|
|
|
|
|
4,632,847
|
|
|
Warrant
Modification Expense
|
|
|
|
|
|
|
|
|
|
|
38,631
|
|
|
|
|
|
|
|
38,631
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,830,798
|
)
|
|
|
(11,830,798
|
)
|
|
Balance
at December 31, 2008
|
|
|
33,751,300
|
|
|
|
337,513
|
|
|
|
61,352,527
|
|
|
|
(57,486,795
|
)
|
|
|
4,203,245
|
|
|
Cumulative
effect of reclassification of warrants to liabilities
|
|
|
|
|
|
|
|
|
|
|
(7,044,118
|
)
|
|
|
284,327
|
|
|
|
(6,759,791
|
)
|
|
Balance,
January 1, 2009 as adjusted
|
|
|
33,751,300
|
|
|
|
337,513
|
|
|
|
54,308,409
|
|
|
|
(57,202,468
|
)
|
|
|
(2,556,546
|
)
|
|
Share
based payment - employee compensation
|
|
|
|
|
|
|
|
|
|
|
4,556,916
|
|
|
|
|
|
|
|
4,556,916
|
|
|
Issuance
of common stock through Private Placement ($1.25 per share), net of
financing costs of $96,608.
|
|
|
800,000
|
|
|
|
8,000
|
|
|
|
895,392
|
|
|
|
|
|
|
|
903,392
|
|
|
Issuance
of common stock from warrants exercised ($1.25 per share), net of
financing costs of $31,300.
|
|
|
320,505
|
|
|
|
3,205
|
|
|
|
575,741
|
|
|
|
|
|
|
|
578,946
|
|
|
Issuance
of common stock in settlement of outstanding 2008 bonus due to officers
(225,475 shares at $1.65 per share)
|
|
|
225,475
|
|
|
|
2,255
|
|
|
|
369,778
|
|
|
|
|
|
|
|
372,033
|
|
|
Issuance
of common stock through Private Placement ($2.32 per share), net of
financing costs of $5,833
|
|
|
646,551
|
|
|
|
6,465
|
|
|
|
1,487,701
|
|
|
|
|
|
|
|
1,494,166
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,364,363
|
)
|
|
|
(10,364,363
|
)
|
|
Balance
at December 31, 2009
|
|
|
35,743,831
|
|
|
$
|
357,438
|
|
|
$
|
62,193,937
|
|
|
$
|
(67,566,831
|
)
|
|
$
|
(5,015,456
|
)
|
See notes
to financial statements.
NEURALSTEM,
INC.
NOTES
TO FINANCIAL STATEMENTS
Note 1.
Nature of Business and Significant
Accounting Policies
Nature of
business:
Neuralstem,
Inc. (“Company”) is a biopharmaceuticals company that is utilizing its
proprietary human neural stem cell technology to create a comprehensive platform
for the treatment of central nervous system diseases. The Company will
commercialize this technology as a tool for use in the next generation of
small-molecule drug discovery and to create cell therapy biotherapeutics to
treat central nervous system diseases for which there are no cures. The Company
was founded in 1997 and currently occupies lab and office space in Rockville,
Maryland.
Inherent
in the Company’s business are various risks and uncertainties, including its
limited operating history, the fact that Neuralstem’s technologies are new and
may not allow the Company or its customers to develop commercial products,
regulatory requirements associated with drug development efforts and the intense
competition in the genomics industry. The Company’s success depends, in part,
upon successfully raising additional capital, prospective product development
efforts, the acceptance of the Company’s solutions by the marketplace, and
approval of the Company’s solutions by various governmental
agencies.
A summary of the Company’s
significant accounting policies is as follows:
Basis of
Presentation
These
financial statements have been prepared on the basis that the Company will
continue as a going concern. Such assertion contemplates the
significant losses recognized to date and the challenges we anticipate with
respect to obtaining near-term funding under prevailing and forecasted economic
conditions. The Company continues to be fully committed and has the
capacity to continue to provide necessary capital and liquidity to fund
continuing operations.
Use of
Estimates
The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Because of the use of estimates inherent in the financial reporting process,
actual results could differ significantly from those estimates.
The
Company's business currently does not generate cash. The Company's management
does not know when this will change. The Company has expended and will continue
to expend substantial funds in the research, development and clinical and
pre-clinical testing of the Company's stem cell technologies and products with
the goal of ultimately obtaining approval from the United States Food and Drug
Administration ("FDA") to market and sell our products. We believe our long-term
cash position is inadequate to fund all of the costs associated with the full
range of testing and clinical trials required by the FDA for our core products.
Based on our current operating levels, we believe that we have sufficient levels
of cash and cash equivalents to fund operations into the first quarter of
2011.
No
assurance can be given that (i) we will be able to expand our operations
prior to FDA approval of our products, or (ii) that FDA approval will ever
be granted for our products.
Cash and Cash
Equivalents
For the
Statements of Cash Flows, all highly liquid investments with maturity of three
months or less are considered to be cash equivalents.
Property and
Equipment
Property
and equipment is stated at cost and depreciated on a straight-line basis over
the estimated useful lives ranging from three to eight years. Expenditures for
maintenance and repairs are charged to operations as incurred.
Recoverability of Long-Lived
Assets and Identifiable Intangible Assets
Long-lived
assets and certain identifiable intangible assets to be held and used are
reviewed for impairment when events or changes in circumstances indicate that
the carrying amount of such assets may not be recoverable. Determination of
recoverability is based on an estimate of undiscounted future cash flows
resulting from the use of the asset and its eventual disposition. In the event
that such cash flows are not expected to be sufficient to recover the carrying
amount of the assets, the assets are written down to their estimated fair
values. Long-lived assets and certain identifiable intangible assets to be
disposed of are reported at the lower of carrying amount or fair value less cost
to sell.
Fair Value of Financial
Instruments
The fair
values of financial instruments are estimated based on market rates based upon
certain market assumptions and information available to management. The
respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include cash,
accounts payable and notes payable. Fair values were assumed to approximate
carrying values for cash and payables due to the short-term nature or that they
are payable on demand.
Revenue
Recognition
Our
revenue recognition policies are in accordance with guidance issued by the SEC
and Financial Accounting Standards Board (FASB). Historically, our
revenue has been derived primarily from providing treated samples for gene
expression data from stem cell experiments, from providing services under
various grant programs and through the licensing of the use of our intellectual
property. Revenue is recognized when there is persuasive evidence that an
arrangement exists, delivery of goods and services has occurred, the price is
fixed and determinable, and collection is reasonably assured.
Research and
Development
Research
and development expenses consist primarily of costs associated with pre-clinical
research, exclusively in the field of human neural stem cell therapies and
regenerative medicine, related to our clinical cell therapy candidates. These
expenses represent both pre-clinical development costs and costs associated with
non-clinical support activities such as quality control and regulatory
processes. Research and development costs are expensed as they are
incurred.
Income
taxes
Income
taxes are provided for using the liability method of accounting in accordance
with accepted accounting standards. A deferred tax asset or liability
is recorded for all temporary differences between financial and tax reporting.
Temporary differences are the differences between the reported amounts of assets
and liabilities and their tax basis. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effect of changes in
tax laws and rates on the date of enactment.
Significant New Accounting
Pronouncements
On July
1, 2009, the Accounting Standards codification became FASB’s officially
recognized source of authoritative U.S. generally accepted accounting principles
applicable to all public and non-public non-governmental entities, superseding
existing FASB, AICPA, EITF and related literature. Rules and
interpretive releases of the SEC under the authority of federal securities laws
are also sources of authoritative GAAP for SEC registrants. All other
accounting literature is considered non-authoritative. The switch to
the ASC affects the way companies refer to U.S. GAAP in financial statements and
accounting policies. Citing particular content in the ASC involves
specifying the unique numeric path to the content through the Topic, Subtopic,
Section and Paragraph structure.
In June
2008, the FASB ratified consensus reached on determining whether an instrument
is indexed to an entity’s own stock. The FASB provides guidance for determining
whether an equity-linked financial instrument (or embedded feature) is indexed
to an entity's own stock. The guidance applies to any freestanding financial
instrument or embedded feature that has all the characteristics of a derivative,
as defined by the FASB. The guidance also applies to any freestanding financial
instrument that is potentially settled in an entity's own stock, regardless of
whether the instrument has all the characteristics of a derivative, for purposes
of determining whether the instrument is subject to accounting guidance for
instruments that are indexed to, and potentially settled in, the issuer's own
stock. This guidance is effective for fiscal years beginning after December 15,
2008. See Note 5 for a discussion of the effect of this standard that
was adopted on January 1, 2009.
In May
2009, the FASB issued new accounting guidance related to the accounting and
disclosures of subsequent events. This guidance incorporates the
subsequent events guidance contained in the auditing standards literature into
authoritative accounting literature. This guidance is effective for financial
statements issued for interim or annual periods ending after June 15,
2009. We adopted this guidance upon its issuance and it had no
material impact on our financial statements.
In June
2009, the FASB issued new accounting guidance to improve financial reporting by
companies involved with variable interest entities and to provide more relevant
and reliable information to users of financial statements. This
guidance is effective as of the beginning of each reporting entity’s first
annual reporting period that begins after November 15, 2009, for interim periods
within that first annual reporting period, and for interim and annual reporting
periods thereafter. Earlier application is prohibited. We adopted
this guidance upon its issuance and it had no material impact on the Company’s
financial statements.
Share Based
Payments
We have
granted stock-based compensation awards to employees and board members.
Awards may consist of common stock, warrants, or stock options. Our stock
options and warrants have up to a ten year life. The stock options or
warrants vest either upon the grant date or over varying periods of time. The
stock options we grant provide for option exercise prices equal to or greater
than the fair market value of the common stock at the date of the
grant.
During
the twelve months ended December 31, 2009, we granted 270,000 options, and in
the similar period ended December 31, 2008, we granted 5,650,000 options. We
recorded related compensation expenses as our options vest in accordance with
guidance issued by the FASB related to share based payments. We recognized
$4,556,916 and $4,632,847 in share-based compensation expense during the twelve
months ended December 31, 2009 and 2008, respectively, from the vesting of stock
options or warrants.
Note
2. Stockholders’ (Deficit) Equity
Preferred and Common
Stock
The
authorized stock of the Company consists of 7,000,000 shares of blank check
preferred stock with a par value of $0.01 and 150,000,000 shares of common stock
with par value of $0.01. None of these shares have been
issued.
The
Company completed a registered offering of 800,000 common shares at $1.25 per
share increasing equity by approximately $1,000,000 in June 2009, less
approximately $97,000 in related placement and closing costs. In
September 2009 and December 2009, several warrant holders exercised 320,505
warrants at $1.25 per warrant increasing equity by approximately $401,000 less
$31,300 in related financing costs. In December 2009, the Company
completed a private placement of 646,551 common shares at $2.32 per share
increasing equity by approximately $1,500,000 less approximately $6,000 in
related costs.
During
the year ended December 31, 2008, the Company sold 2,215,309 shares of common
stock for a total consideration of $4,342,000 (net of offering expenses of
$158,000). During the year ended December 31, 2008 the Company also converted
125,425 warrants to purchase Common Stock into common shares, raising $211,211
net of $20,889 in expenses.
Stock
Options
In 1997,
the Company adopted a stock incentive plan (the Plan) to provide for the
granting of stock awards, such as stock options and restricted common stock to
employees, directors and other individuals as determined by the Board of
Directors. The Company reserved 2.7 million shares of common stock for issuance
under the Plan. At December 31, 2002, 816,084 options were outstanding with
216,040 options exercisable. During 2003, the Company reduced operations and
terminated employment with all employees. The Plan was discontinued, terminating
all options outstanding.
|
·
|
On
January 21, 2008, we granted the following options pursuant to our 2007
Stock Plan:
|
Karl Johe, Chairman and Chief
Science Officer
- options to purchase 2.1 million common shares at a
price of $3.66 per share. The options vest over 3.5 years with the vesting
period commencing on January 1, 2008 with 700,000 options vesting on each of
February 28, 2009, April 30, 2010, and June 30, 2011. The options expire on
January 1, 2018. Additionally, the options will become immediately exercisable
upon an event which would result in an acceleration of Mr. Johe’s stock options
granted under his employment agreement.
Richard Garr, Chief Executive
Officer and General Council
- options to purchase 2.1 million common
shares at a price of $3.66 per share. The options vest over 3.5 years with the
vesting period commencing on January 1, 2008 with 700,000 options vesting on
each of February 28, 2009, April 30, 2010, and June 30, 2011. The options expire
on January 1, 2018. Additionally, the options will become immediately
exercisable upon an event which would result in an acceleration of Mr. Garr’s
stock options granted under his employment agreement.
|
·
|
On
April 1, 2008, we granted an officer compensatory options to purchase an
aggregate of 1,050,000 common shares at an exercise price of $2.60. The
options vest as follows: (i) 50,000 vest immediately; and (ii) 1,000,000
vest annually over the next three years so that 100% of the options will
be vested on April 1, 2011. The options were issued pursuant to our two
stock plans as follows: (x) the option to purchase 1,000,000 common shares
was issued pursuant to our 2007 Stock Plan; and (y) option to purchase
50,000 common shares was issued pursuant to our 2005 Stock
Plan.
|
|
·
|
On
May 28, 2008, we granted independent directors options to purchase an
aggregate of 120,000 common shares at an exercise price of $1.32. The
grant was made pursuant to our 2007 Stock Plan and in compliance with our
non-executive compensation arrangement. The grant consists of: (i) an
option purchase 90,000 common shares as compensation for serving on the
board of directors; (ii) an option to purchase 10,000 common shares as
compensation for serving on our Audit Committee; (iii) an option to
purchase 10,000 common shares as compensation for serving on our
Compensation Committee; and (iv) an option to purchase 10,000 common
shares as compensation for serving on our Governance and Nominating
Committee. The options vest quarterly over the grant year and expire 7
years from the date of grant.
|
|
·
|
On
August 14, 2008, we granted options to purchase an aggregate of 30,000
common shares at an exercise price of $1.88 to two employees (15,000
each). The grants were made pursuant to our 2005 Stock Plan. The options
vest as follows: (i) 15,000 on the granted date; and (ii) 15,000 on August
14, 2009. The options expire on August 14,
2018.
|
|
·
|
On
August 14, 2008, we granted one of our employees options to purchase
200,000. The grant is effective as of August 11, 2008, the employee’s
start date. The options vest as follows: (i) 40,000 on the effective date;
and (ii) 40,000 on each of August 11, 2009, 2010, 2011 and 2012. The grant
was made pursuant to the 2005 Stock Plan. The options have an exercise
price of $1.89 and expire on August 14,
2018.
|
|
·
|
On
November 14, 2008 we granted a consultant 50,000 warrants to purchase
common shares at a price of $2.75, which were reclassed in 2009 to options
with the same terms. The grant was made pursuant to our 2005 Stock
Plan. The options are fully vested. The options were
issued as partial compensation for services rendered. The
options expire on November 13,
2013.
|
|
·
|
On
January 5, 2009 we granted a consultant 100,000 options to purchase common
shares at a price of $1.64. The options were issued as
compensation for services rendered. The grant was made pursuant to our
2005 Stock Plan. The options are fully vested and have a
cashless exercise provision. The options expire on January 5,
2016.
|
|
·
|
On
June 3, 2009 we granted a consultant100,000 options to purchase common
shares at a price of $1.13. The options were issued as
compensation for services rendered. The grant was made pursuant
to our 2005 Stock Plan. The options vest as
follows: 25,000 vested immediately; 25,000 vest at the six
month anniversary; 25,000 vest at the twelve month anniversary; 25,000
vest at the eighteen month anniversary. The options expire on
June 3, 2019.
|
|
·
|
On
July 2, 2009 we granted independent directors options to purchase an
aggregate of 70,000 common shares at an exercise price of
$1.17. The grant was made pursuant to our 2007 Stock Plan and
in compliance with our non-executive compensation
arrangement. The grant consists of: (i) options to purchase
40,000 common shares as compensation for serving on the Board of
Directors; (ii) options to purchase 10,000 common shares as compensation
for serving on the Audit Committee; (iii) options to purchase 10,000
common shares as compensation for serving on the Compensation Committee;
and (iv) options to purchase 10,000 common shares as compensation for
serving on the Governance and Nominating Committee. These
options vest quarterly over the grant year and expire 7 years from the
date of grant.
|
During
the twelve months ended December 31, 2009, we granted 270,000 options and in the
similar period ended December 31, 2008, we granted 5,650,000 options. We
recorded related compensation expenses as our options vest in accordance with
accordance with guidance issued by the FASB related to share based payments.
We recognized $4,556,916 and $4,632,847 in share-based compensation
expense during the twelve months ended December 31, 2009 and 2008, respectively,
from the vesting of stock options or warrants.
|
|
|
Number of
Options
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual Life
(in years)
|
|
|
Aggregate
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2008
|
|
|
3,150,659
|
|
|
$
|
1.19
|
|
|
|
6.8
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
5,650,000
|
|
|
|
3.34
|
|
|
|
9.3
|
|
|
$
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2009
|
|
|
8,800,659
|
|
|
$
|
2.55
|
|
|
|
8.2
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
270,000
|
|
|
|
1.33
|
|
|
|
8.2
|
|
|
$
|
124,400
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2009
|
|
|
9,070,659
|
|
|
$
|
2.52
|
|
|
|
7.2
|
|
|
$
|
3,276,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at December 31, 2009
|
|
|
5,065,659
|
|
|
$
|
1.88
|
|
|
|
6.6
|
|
|
$
|
3,222,100
|
|
|
Range
of
|
|
|
|
|
|
|
|
Exercise
|
|
Outstanding
|
|
|
|
|
|
Price
|
|
Options
|
|
|
Expiration
Dates
|
|
|
|
|
|
|
|
|
|
|
$0.50
- 2.00
|
|
|
3,070,000
|
|
|
|
2015
- 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
$
2.01 - 3.00
|
|
|
1,115,000
|
|
|
|
2013
- 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
$3.01
- 4.00
|
|
|
4,818,275
|
|
|
|
2012
- 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
$4..01
- 8.00
|
|
|
62,042
|
|
|
|
2011
- 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
$8.01
- higher
|
|
|
5,342
|
|
|
|
2010
- 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,070,659
|
|
|
|
|
|
Share-based
compensation included in the statements of operations for the twelve months
ended December 31, 2009and 2008 was as follows:
Stock
Compensation Expense
|
|
|
Twelve Months Ended Dec. 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Research
and development costs
|
|
$
|
2,887,001
|
|
|
$
|
3,024,537
|
|
|
|
|
|
|
|
|
|
|
|
|
General,
selling and administrative expenses
|
|
|
1,669,915
|
|
|
|
1,608,310
|
|
|
Total
|
|
$
|
4,556,916
|
|
|
$
|
4,632,847
|
|
Stock
Warrants
During
the years ended December 31, 2008 and 2009 the company issued the following
warrants:
|
|
·
|
On
December 18, 2008, we completed a registered offering of our shares at a
price per share of $1,25. As a result of this transaction we
issued:
|
|
|
o
|
112,000
placement agent warrants to purchase common stock at a price per share of
$2.52. The warrants expire December 16,
2013.
|
|
|
o
|
1,884,672
Series C Warrants to purchase common stock at a price per share of
$1.25. The warrants expire October 31,
2012.
|
|
|
·
|
On
March 30, 2009 we granted a consultant warrants to purchase 96,000 shares
at a price of $1.25. The warrants shall be fully vested on
3/20/2010 and expire on 3/30/2015.
|
|
|
·
|
On
June 30, 2009 we completed a registered offering of 800,000 units at a
price per share of $1.25. As a result of this transaction we
issued:
|
|
|
o
|
800,000
fully paid common shares.
|
|
|
o
|
800,000
Series D Warrants to purchase common stock at a price of
$1.25. The warrants expire on June 30,
2010.
|
|
|
o
|
800,000
Series E Warrants to purchase common stock at a price of
$1.25. The warrants expire on June 30,
2012.
|
|
|
o
|
800,000
Series F Warrants to purchase common stock at a price of
$1.25. The warrants expire on June 30,
2014.
|
|
|
o
|
40,000
placement agent warrants to purchase common stock at a price of
$1.5625. The warrants expire on June 30,
2014.
|
|
|
·
|
On
October 1, 2009 we granted a consultant warrants to purchase100,000 shares
at a price of $1.49. The warrants are fully vested and have a
cashless exercise provision. The warrants expire on
10/1/2016.
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
Number
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
of Warrants
|
|
|
Price
|
|
|
Life (in years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2008
|
|
|
11,208,515
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
1,996,672
|
|
|
|
|
|
|
|
|
|
-
|
|
|
Exercised
|
|
|
(125,425
|
)
|
|
|
|
|
|
|
|
|
-
|
|
|
Forfeited
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2008
|
|
|
13,079,762
|
|
|
$
|
2.27
|
|
|
|
2.0
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
2,536,000
|
|
|
|
1.25
|
|
|
|
2.8
|
|
|
|
-
|
|
|
Exercised
|
|
|
(320,505
|
)
|
|
|
1.25
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2009
|
|
|
15,295,257
|
|
|
$
|
1.82
|
|
|
|
2.0
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at December 31, 2009
|
|
|
12,199,257
|
|
|
$
|
1.53
|
|
|
|
2.0
|
|
|
|
-
|
|
Effective
January 1, 2009 we adopted the provisions of recent accounting guidance,
described below. As a result of adopting this guidance, 8,547,762 of
our issued and outstanding common stock purchase warrants previously treated as
equity pursuant to the derivative treatment exemption were no longer afforded
equity treatment. These warrants have the following
characteristics:
|
|
|
Strike
Price
|
|
Date
of Issue
|
|
Date
of Expiration
|
|
Warrants
Outstanding
|
|
|
Series
A & B Warrants
|
|
$
|
1.25
|
|
February-06
|
|
February-11
|
|
|
4,359,605
|
|
|
Series
A & B Warrants, Placement Agent
|
|
$
|
1.10
|
|
February-06
|
|
February-11
|
|
|
782,005
|
|
|
Series
C Warrants
|
|
$
|
1.25
|
|
October-07
|
|
October-12
|
|
|
1,227,000
|
|
|
Series
C Warrants, Placement Agent
|
|
$
|
1.25
|
|
March-07
|
|
March-12
|
|
|
294,480
|
|
|
Series
C Warrants, anti-dilution awards
|
|
$
|
1.25
|
|
December-08
|
|
October-12
|
|
|
1,472,400
|
|
|
Series
C Warrants, Placement Agent, anti-dilution awards
|
|
$
|
1.25
|
|
December-08
|
|
March-12
|
|
|
412,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
warrants no longer accounted for as equity
|
|
|
|
|
|
|
|
|
|
8,547,762
|
|
In June
2008, the FASB ratified EITF Issue 07-05,
Determining Whether an Instrument
(or an Embedded Feature) is indexed to an Entity’s Own Stock,
or EITF
0705, codified into FASB ASC Subtopic 815-40,
Contracts in Entity’s Own
Equity
. EITF 07-5 provides that an entity should use a two
step approach to evaluate whether an equity-linked financial instrument (or
embedded feature) is indexed to its own stock, including evaluating the
instrument’s contingent exercise and settlement provisions. EITF 07-5
is effective for fiscal years beginning after December 15,
2008.
As
such, effective January 1, 2009 we reclassified the fair value of the common
stock purchase warrants, which were outstanding at January 1, 2009, and which
have exercise price reset and anti-liquidation features, from equity to
liability status as if these warrants were treated as a derivative liability
since their date of issue. On January 1, 2009, we reduced
additional paid-in capital by $6.9 million and decreased the beginning
retained deficit by $.3 million as a cumulative effect to establish a long-term
warrant liability of $6.6 million to recognize the fair value of such
warrants. During the three months ended September 30, 2009, 277,934
warrants were exercised. The fair value of the common stock purchase warrants
which remained declined to $5.6 million as of September 30, 2009, and we
recognized a $0.76 million gain from the change in fair value of these
warrants for the nine months ended September 30, 2009, and a $2.6 million loss
for the three months ended September 30, 2009. In the three months
ended December 31, 2009, the fair value of these common stock purchase warrants
increased to $6.5 million due to an increase in the stock price. We
recognized a $677,830 non-cash expense from the change in fair value of the
warrants for the three months ended December 31, 2009. The net gain
for the twelve month period ended December 31, 2009 is $83,348.
These
common stock purchase warrants were initially issued in connection with
placement of the Company’s common stock. The common stock purchase warrants were
not issued with the intent of effectively hedging any future cash flow, fair
value of any asset, liability or any net investment in a foreign operation. The
warrants do not qualify for hedge accounting, and as such, all future changes in
the fair value of these warrants will be recognized currently in earnings until
such time as the warrants are exercised or expire. These common stock purchase
warrants do not trade in an active securities market, and as such, we estimate
the fair value of these warrants using the Black-Scholes option pricing model
using the following assumptions:
|
|
|
December 31,
|
|
|
January 1,
|
|
|
|
|
2009
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Annual
dividend yield
|
|
|
-
|
|
|
|
-
|
|
|
Expected
life (years)
|
|
|
.60-2.00
|
|
|
|
1.0-2.5
|
|
|
Risk
free interest rate
|
|
|
.20%-1.14
|
%
|
|
|
0.40
|
%
|
|
Expected
volatility
|
|
|
62%-98
|
%
|
|
|
86
|
%
|
Expected
volatility is based primarily on historical volatility. Historical volatility
was computed using daily pricing observations for a group of similar companies
for recent periods that correspond to the expected life of the warrants. We
believe this method produces an estimate that is representative of our
expectations of future volatility over the expected term of these warrants. We
currently have no reason to believe future volatility over the expected
remaining life of these warrants is likely to differ materially from historical
volatility. The expected life is estimated by management based on the remaining
term of the warrants. The risk-free interest rate is based on the rate for U.S.
Treasury securities over the expected life.
Warrant
Modification
Expense
In
November 2008 we extended the lives of warrants for 320,000 shares of common
stock with a strike price of $.50 for two years. The warrants had been issued
earlier in the decade in exchange for extinguishment of debt. The warrants were
due to expire in November 2008. As a result of the term change we
recorded a Warrant Modification Expense charge of $38,631 for the warrants that
were modified.
Valuation
and Expense Information for Share-based Compensation
On
January 1, 2006, we adopted accounting guidance which requires the measurement
and recognition of compensation expense for all share-based payment awards made
to employees, service providers, and directors, including employee stock options
and warrant awards.
The
following table summarizes the stock-based compensation expense related to
share-based payment awards under this accounting guidance for the year ended
December 31, 2009 and 2008 which was allocated as follows:
|
|
|
Twelve Months Ended Dec. 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Research
and development costs
|
|
$
|
2,887,001
|
|
|
$
|
3,024,537
|
|
|
General,
selling and administrative expenses
|
|
|
1,669,915
|
|
|
|
1,608,310
|
|
|
Total
|
|
$
|
4,556,916
|
|
|
$
|
4,632,847
|
|
The fair
value of options granted in fiscal years 2009 and 2008 reported above have been
estimated at the date of grant using the Black Scholes option-pricing model with
the following assumptions:
|
|
|
2009
|
|
|
2008
|
|
|
Dividend
yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
Expected
volatility range
|
|
46%
to 85
|
%
|
|
46%
to 82
|
%
|
|
Risk-free
interest rate range
|
|
.74%
to 4.96
|
%
|
|
1.22%
to 4.96
|
%
|
|
Expected
life
|
|
2
to 6.5 yrs
|
|
|
2
to 6.5 yrs
|
|
We have
not used the historical volatility of our stock since we began public trading in
December 2006 and consequently do not have sufficient trading history to
forecast volatility for the expected life of our options. Instead to estimate
expected volatility we use a market capitalization weighted average of the
historical trading of other companies in our industry. The expected term of
options is two years beyond the vesting date. This is an estimate based on
management‘s judgment and corresponds with its experience with Equity Warrants.
The risk-free interest rate is based on the Daily Treasury Yield Curve Rates as
published by the US Treasury for the expected term in effect on the date of
grant. We grant options under our equity plans to employees, non-employee
directors, and consultants for whom the vesting period is between
immediate and 4.5 years.
As
stock-based compensation expense recognized in the statements of operations for
the years ended December 31, 2009 and December 31, 2008 is based on awards
ultimately expected to vest, it has been reduced for estimated forfeitures but
at a minimum, reflects the grant-date fair value of those awards that actually
vested in the period. Accounting guidance requires forfeitures to be estimated
at the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. Forfeitures were estimated based on
management judgment.
Based on
the Black Scholes option-pricing model, the weighted average estimated fair
value of employee stock options granted during the year ended December 31, 2009
was $1.33 per share. The weighted average estimated fair value of
employee stock options granted during the year ended December 31, 2008 was
$3.34.
Loss per Common
Share
Basic
loss per common share is calculated by dividing the net loss by the weighted
average number of common shares outstanding during the period. Diluted loss per
common share adjusts basic loss per share for the potentially dilutive effects
of shares issuable under our stock option plan, using the treasury stock method.
All of the Company’s options and warrants, which are common stock equivalents,
have been excluded from the calculation of diluted loss per share, as their
effect would have been anti-dilutive.
Note
3. Property and Equipment
The major
classes of property and equipment
consist of the
following:
|
|
|
2009
|
|
|
2008
|
|
|
Furniture
and Fixtures
|
|
$
|
14,400
|
|
|
$
|
14,400
|
|
|
Computers
and office equipment
|
|
|
47,109
|
|
|
|
43,273
|
|
|
Lab
equipment
|
|
|
280,579
|
|
|
|
196,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
342,088
|
|
|
$
|
253,709
|
|
|
Less
accumulated depreciation and amortization
|
|
|
(145,333
|
)
|
|
|
(89,779
|
)
|
|
Property
and equipment, net
|
|
$
|
196,755
|
|
|
$
|
163,930
|
|
Depreciation
expense for the years ended December 31, 2009 and 2008 was $55,554 and $49,699,
respectively.
Note
4. Intangible Assets
The
Company holds patents related to its stem cell research. Patent filing costs
were capitalized and are being amortized over the life of the patents. The
company has determined that the intangibles purchased have a seventeen year
useful life. The Company follows FASB guidelines in determining if there is any
impairment. The Company determined that no impairment to the assigned values had
occurred. The Company’s intangible assets and accumulated amortization consisted
of the following at December 31, 2009 and 2008:
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Accumulated
|
|
|
|
|
Gross
|
|
|
Amortization
|
|
|
Gross
|
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patent
filing fees
|
|
$
|
365,409
|
|
|
$
|
(63,849
|
)
|
|
$
|
243,004
|
|
|
$
|
(30,739
|
)
|
Amortization
expense for the years ended December 31, 2009 and 2008 was $33,110 and $16,062,
respectively.
Note
5. Income Taxes
We did
not provide any current or deferred U.S. federal income tax provision or benefit
for any of the periods presented because we have experienced operating losses
since inception. We provided a full valuation allowance on the net deferred tax
asset, consisting of net operating loss carryforwards, because management has
determined that it is more likely than not that we will not earn income
sufficient to realize the deferred tax assets during the carryforward
period.
The tax
effects of significant temporary differences representing deferred tax
assets as of December 31, 2009 and 2008:
|
|
|
2009
|
|
|
2008
|
|
|
Net
operating loss carry-forwards
|
|
$
|
17,842,957
|
|
|
$
|
15,563,878
|
|
|
Valuation
allowance
|
|
|
(17,842,957
|
)
|
|
|
(15,563,878
|
)
|
|
Net
deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
At
December 31, 2009, the Company has net operating loss carryforwards of
approximately $44.6 million. The Company has also reported certain other tax
credits, the benefit of which has been deferred. The Company’s NOL carryforwards
and credits will begin to expire in the tax year 2012. The timing and manner in
which these net operating loss carryforwards and credits may be utilized in any
year by the Company will be limited to the Company’s ability to generate future
earnings and also may be limited by certain provision of the U.S. tax
code.
Note
6. Commitments and Contingencies
We
currently lease two facilities. Our executive offices and primary research
facilities are located at 9700 Great Seneca Highway, Rockville MD, 20850. We
lease these facilities consisting of approximately 2,500 square feet for $8,220
per month. The term of our lease expires on January 31, 2011
We
entered into a lease in 2007 to secure approximately 900 square feet of research
space in San Diego, California at a monthly lease rate of $3,278. The
lease expired in August of 2009.
We
entered into a lease in February 2008 to secure an additional two rooms for
research purposes in San Diego, California at a monthly lease rate of
$6,000. The lease expired in February of 2009. The Company
then extended the lease an additional year for one room at $4,000 per
month. The lease was terminated in September 2009.
We
entered into a lease in September 2009 consisting of approximately 2,375 square
feet of research space in San Diego, California, at a monthly lease rate of
$4,806. The lease terminates in August of 2011.
The
Company recognized $217,386 and $180,356 in rent expense for the years ended
December 31, 2009 and December 31, 2008, respectively.
On
November 1, 2005, the Company amended and extended its employment agreements
dated January 1, 1997 with Richard Garr and Karl Johe for an additional seven
(7) years which includes a base salary of $240,000 per year for each officer. On
July 28, 2005, the Company granted both Mr. Garr and Mr. Johe stock options for
1,200,000 shares of the Company’s common stock each vesting annually over a four
year period with an exercise price of $0.50 per share. Termination prior to full
term on the contracts would cost the Company $240,000 per year unserved, or as
much as $1,213,000 per contract, and immediate vesting of all outstanding
options.
In May of
2008, the Company filed a complaint against StemCells Inc., alleging that U.S.
Patent No. 7,361,505 (the “‘505 patent”), allegedly exclusively licensed to
StemCells, Inc., is invalid, not infringed and unenforceable. On the same day,
StemCells, Inc. filed a complaint alleging that we had infringed, contributed to
the infringement of, and or induced the infringement of two patents owned by or
exclusively licensed to StemCells relating to stem cell culture compositions. At
present, the litigation is in its initial stages and any likely outcome is
difficult to predict.
Note
7. Fair Value
In
September 2006, the FASB issued new accounting guidance related to fair value
measurements and related disclosures. This new guidance establishes a
standard framework for measuring fair value in generally accepted accounting
principles, clarifies the definition of "fair value" within that framework, and
expands disclosures about the use of fair value measurements. We adopted this
new guidance in the first quarter of 2008 with regard to all financial assets
and liabilities in our financial statements going forward. However,
the FASB deferred the effective date of this new guidance for one year as it
relates to fair value measurement requirements for nonfinancial assets and
nonfinancial liabilities that are not recognized or disclosed at fair value on a
recurring basis. We adopted these remaining provisions on January 1,
2009. The adoption of this accounting guidance had no material impact
on our financial statements.
Fair
value is defined as the price at which an asset could be exchanged or a
liability transferred (an exit price) in an orderly transaction between
knowledgeable, willing parties in the principal or most advantageous market for
the asset or liability. Where available, fair value is based on observable
market prices or parameters or derived from such prices or parameters. Where
observable prices or inputs are not available, valuation models are
applied.
Financial
assets recorded at fair value in the accompanying financial statements are
categorized based upon the level of judgment associated with the inputs used to
measure their fair value. Hierarchical levels, as defined by the new guidance
related to fair value measurements and disclosures, and directly related to the
amount of subjectivity associated with the inputs to fair valuation of these
assets and liabilities, are as follows:
|
Level 1 —
|
Inputs
are unadjusted, quoted prices in active markets for identical assets at
the reporting date. Active markets are those in which transactions for the
asset or liability occur in sufficient frequency and volume to provide
pricing information on an ongoing
basis.
|
The fair
valued assets we hold that are generally included in this category are money
market securities where fair value is based on publicly quoted prices and
included in cash equivalents.
|
Level 2 —
|
Inputs
are other than quoted prices included in Level 1, which are either
directly or indirectly observable for the asset or liability through
correlation with market data at the reporting date and for the duration of
the instrument's anticipated life.
|
We carry
no investments classified as Level 2.
|
Level 3 —
|
Unobservable
inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities and which
reflect management's best estimate of what market participants would use
in pricing the asset or liability at the reporting date. Consideration is
given to the risk inherent in the valuation technique and the risk
inherent in the inputs to the model. Our warranty obligations
are considered Level 3.
|
Financial
assets and liabilities measured at fair value on a recurring basis are
summarized below:
|
|
|
Fair value measurements at December 31, 2009 using
|
|
|
|
|
Fair Value on
Balance
Sheet
2009
|
|
|
Quoted prices in
active markets for
identical assets
(Level 1)
|
|
|
Significant
other
observable
inputs
(Level 2)
|
|
|
Significant
unobservable
inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
2,309,774
|
|
|
$
|
2,309,774
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of warrant obligations
|
|
|
6,462,039
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,462,039
|
|
|
|
|
Three months ended
December 31, 2009
|
|
|
Twelve months ended
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
Fair
value of warrant obligations at beginning of period
|
|
$
|
5,622,339
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
effect of reclassification of warrants to liabilities at beginning
period
|
|
|
181,498
|
|
|
|
6,759,791
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss (gain) for change in fair value included in the statement of
operations for period
|
|
|
677,830
|
|
|
|
(83,348
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Decrease
in value from warrant exercises
|
|
|
(19,628
|
)
|
|
|
(214,404
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of warrant obligations at end of period
|
|
$
|
6,462,039
|
|
|
$
|
6,462,039
|
|
The fair
value of the warrant obligations was determined using the Black Scholes
option pricing model with inputs which are described in Note
2.
Note
8. Change in Accounting Principle: Recharacterization of
Warrants
In June 2008, the FASB ratified the
consensus reached on whether an instrument or embedded feature is indexed to an
entity’s own stock. FASB guidance clarifies the determination of
whether an instrument (or an embedded feature) is indexed to an entity’s own
stock, which would qualify as a scope exception
.
We
adopted the FASB guidance as of January 1, 2009. As is discussed
in Note 1 and 2 above, as of that date we had 8,547,762 warrants which were
reassessed under the new guidance. Because of certain price adjustment
provisions contained in the warrants, they were no longer deemed to be indexed
to our stock and therefore, no longer meet the scope
exception. Hence, these warrants were determined to be derivatives
and were reclassified from equity to liabilities. As a result of this
change in accounting principle, on January 1, 2009 we recorded these liabilities
at their value of $6,759,791. At that date we also recorded a
cumulative catch up adjustment of $284,327 to reduce the accumulated deficit and
a $7,044,118 decrease to additional paid-in capital. The adjustment
to the accumulated deficit (the cumulative income effect of the accounting
change) was calculated for the decrease in the fair value of the warrants from
the date of their issuance through January 1, 2009.
These
warrant liabilities will be marked to fair value from January 1, 2009 going
forward resulting in the recognition of gain or loss in our statement of
operations for changes in their fair value. In the twelve
months ended December 31, 2009 we recognized a gain from the change in the fair
value of these warrant obligations of $83,348.
In the first quarter the
Company converted, redeemed or modified more than 70% of the warrants
outstanding at the beginning of the year which had price protection features.
These changes removed the price protection features. In 2009 we were not able to
account for these as equity and so treated as long term
liabilities. The Company expects these changes to significantly
reduce its derivative liability.
Note
9. Subsequent Events
During
the first quarter of 2010, the Company entered into a series of transactions
resulting in securing what management believes provides sufficient financing to
fund operations through the first quarter of 2011. On March 16, 2010, the
Company had cash on hand of $7.5 million and working capital of $6.4
million.
|
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
Not
applicable.
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
Based on
management’s evaluation (with the participation of our CEO and Chief Financial
Officer (CFO)), as of the end of the period covered by this report, our CEO and
CFO have concluded that our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the Exchange Act)), are effective to provide reasonable assurance that
information required to be disclosed by us in reports that we file or submit
under the Exchange Act is recorded, processed, summarized, and reported within
the time periods specified in SEC rules and forms, and is accumulated and
communicated to management, including our principal executive officer and
principal financial officer, as appropriate, to allow timely decisions regarding
required disclosure.
Changes
in Internal Control Over Financial Reporting
There
were no changes to our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during
the period covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
Management
Report on Internal Control Over Financial Reporting
Management
of Neuralstem, Inc. is responsible for establishing and maintaining adequate
internal control over financial reporting, as defined in Rules 13a-15(f)
and 15d-15(f) under the Securities Exchange Act of 1934. Internal control over
financial reporting is a process designed by, or under the supervision of, the
Company’s principal executive and principal financial officers to provide
reasonable assurance to the Company’s management and board of directors
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. Internal control over financial reporting includes those
policies and procedures that:
|
|
·
|
pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of the
Company;
|
|
|
·
|
provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company
are being made only in accordance with authorizations of management and
directors of the Company; and
|
|
|
·
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that
could have a material effect on the financial
statements.
|
Because
of inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risks that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. A control system, no matter how well
designed and operated, can provide only reasonable, but not absolute, assurance
that the control system’s objectives will be met. The design of a control system
must reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs.
Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2009. In making this assessment, management
used the criteria set forth in
Internal Control-Integrated Framework
issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO
”)
as a guide. The Company
sought in its evaluation to determine whether there were any “significant
deficiencies” or “material weakness” in its internal control over financial
reporting, or whether it had identified any acts of fraud involving management
or other employees. Based on the above evaluation, the Company’s chief executive
officer and chief financial officer have concluded that as of December 31,
2009, the Company’s internal control over financial reporting were
effective.
This
annual report does not include an attestation report of the Company’s
independent registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to
attestation by the Company’s independent registered public accounting firm
pursuant to temporary rules of the Securities and Exchange Commission that
permit the Company to provide only the management’s report in this annual
report.
Inherent
Limitations on Effectiveness of Controls
Our
management, including the CEO and CFO, does not expect that our disclosure
controls or our internal control over financial reporting will prevent or detect
all error and all fraud. A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance that the control
system’s objectives will be met. The design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Further, because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance
that misstatements due to error or fraud will not occur or that all control
issues and instances of fraud, if any, have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty and that breakdowns can occur because of simple error or mistake.
Controls can also be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the controls. The
design of any system of controls is based in part on certain assumptions about
the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions. Projections of any evaluation of controls effectiveness to future
periods are subject to risks. Over time, controls may become inadequate because
of changes in conditions or deterioration in the degree of compliance with
policies or procedures.
|
Item 9B.
|
Other
Information
|
The
information contained herein is being disclosed in this annual Report as it
either: (i) was not required to be disclosed on Form 8-K at the time of
occurrence, or (ii) has occurred within 4 days of the filing of this Annual
Report.
|
|
·
|
During
the first quarter of 2010, and subsequent to the date of the balance sheet
included in this Annual Report, we completed a series of transactions
resulting in us receiving gross proceeds for the exercise of our Series A,
B, C and D warrants of $7.3 million. For a further description
of those transactions, please refer to the Sections of this Annual Report
contained in:
|
|
|
·
|
Item
5. – Section entitled “
Recent Sale of Unregistered
Securities
”
|
|
|
·
|
Item
7. — Section entitled “
Management’s Discussion and
Analysis of Financial Conditions and Results of Operations – Liquidity and
Capital Resources
.”
|
See also
the notes to our financial statements.
|
|
·
|
On
March 31, 2010, our Compensation Committee determined 2009 bonuses for our
executive officers. For a further description of the bonuses,
refer to the section of this Annual Report contained in Item
11. Executive
Compensation.
|
PART III
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
|
Directors
Our board
of directors consists of four members. Our bylaws provide for a staggered board
consisting of 3 groups. The following sets forth our current directors,
information concerning their ages and background, and information concerning
their respective groups.
Class
I Directors
The
following directors are Class I directors and will serve until our 2012 annual
meeting:
|
Name
|
|
Principal Occupation
|
|
Age
|
|
Director
Since
|
|
Scott
Ogilvie
(1)
|
|
CEO
and President of Gulf Enterprises International, Ltd.
Director
of Neuralstem, Inc.
|
|
55
|
|
2007
|
(1) Mr.
Ogilvie qualifies as an independent director within the meaning of the NYSE Amex
rules and regulations.
Class
II Directors
The
following directors are Class II directors and will serve until our 2011 annual
meeting:
|
Name
|
|
Principal Occupation
|
|
Age
|
|
Director
Since
|
|
I.
Richard Garr
|
|
Chief
Executive Officer, President, General Counsel and Director of Neuralstem,
Inc.
|
|
57
|
|
1996
|
|
|
|
|
|
|
|
|
|
Karl
Johe, Ph.D
|
|
Chief
Scientific Officer, Chairman of the Board and Director of Neuralstem,
Inc.
|
|
49
|
|
1996
|
Class
III Directors
The
following directors are Class III directors and will serve until our 2010 annual
meeting:
|
Name
|
|
Principal Occupation
|
|
Age
|
|
Director
Since
|
|
William Oldaker
(1)
|
|
Partner
at Oldaker Group LLC
Director
of Neuralstem, Inc.
|
|
68
|
|
2007
|
(1) Mr.
Oldaker qualifies as an independent director within the meaning of the NYSE Amex
rules and regulations.
Mr. I. Richard
Garr, JD
, age 57
,
has been
a director and our Chief Executive Officer since 1996. Mr. Garr was
previously an attorney with Beli, Weil & Jacobs, the B&G Companies, and
Circle Management Companies. Mr. Garr is a graduate of Drew University (1976)
and the Columbus School of Law, The Catholic University of America (1979).
Additionally, he was a founder and current Board member of the First Star
Foundation, a children’s charity focused on abused children’s issues; a founder
of The Starlight Foundation Mid Atlantic chapter, which focuses on helping
seriously ill children; and is a past Honorary Chairman of the Brain Tumor
Society. In evaluating Mr. Garr’s specific experience, qualifications,
attributes and skills in connection with his appointment to our board, we took
into account his broad experience in Neural Stem Cells. He is among
the longest serving executives in the field.
Mr. Karl Johe,
Ph.D.,
age 49, has been a director, Chairman of the Board and our Chief
Scientific Officer since 1996. Dr. Johe has over 15 years of research and
laboratory experience. Dr. Johe is the sole inventor of Neuralstem’s granted
stem cell patents and is responsible for the strategic planning and development
of our therapeutic products. Dr. Johe received his Bachelor of Arts Degree in
Chemistry and a Master’s Degree from the University of Kansas. Dr. Johe received
his doctorate from the Albert Einstein College of Medicine of Yeshiva
University. From 1993 to January 1997, Dr. Johe served as a Staff Scientist at
the Laboratory of Molecular Biology of the National Institute of Neurological
Disease and Stroke in Bethesda, Maryland. While holding this position, Dr. Johe
conducted research on the isolation of neural stem cells, the elucidation of
mechanisms directing cell type specification of central nervous system stem
cells and the establishment of an in vitro model of mammalian neurogenesis. In
evaluating Dr. Johe’s specific experience, qualifications, attributes and skills
in connection with his appointment to our board, we took into account his
extensive experience in international science and business
communities. He is also multilingual.
Mr. William
Oldaker,
age 68, has served on our board of directors since April
12, 2007. Mr. Oldaker is a founder and partner in the Washington, D.C. law firm
of Oldaker Group LLC. Prior to founding the firm in 1993, Mr. Oldaker was a
partner in the Washington office of the law firm of Manatt, Phelps and Phillips
from 1987 to 1993. In 2004, Mr. Oldaker was a founder of
Washington First Bank in Washington, D.C. and serves as a member of
the board of directors. He previously served as a director of Century National
Bank, from 1982 until its acquisition in 2001. Mr. Oldaker was appointed by
President Clinton to serve as a commissioner on the National Bioethics Advisory
Commission, a post he held until 2001. He is a member of the Colorado, D.C. and
Iowa Bar Associations, the Bar Association for the Court of Appeals, D.C., and
the Bar of the United States Supreme Court. He is also a partner in The National
Group, a consulting firm. In evaluating Mr. Oldaker’s specific experience,
qualifications, attributes and skills in connection with his appointment to our
board, we took into account his extensive experience with managing and
developing federal government regulations and expertise in the legislative
process. He also was a founding member, and has served on the board of directors
of a bank for almost thirty years.
Mr. Scott V.
Ogilvie
, age 55, has served on our board of directors since April 12,
2007. Mr. Ogilvie is President of AFIN International, Inc., a private
equity/business advisory firm, which he founded in 2006. Prior to
December 31, 2009, he was CEO of Gulf Enterprises International, Ltd, (“Gulf”) a
company that brings strategic partners, expertise and investment capital to the
Middle East and North Africa. He held this position since August of 2006. Mr.
Ogilvie previously served as Chief Operating Officer of CIC Group, Inc., an
investment manager, a position he held from 2001 to 2007. He began his career as
a corporate and securities lawyer with Hill, Farrer & Burrill, and has
extensive public and private corporate board experience in finance, real estate,
and technology companies. Mr. Ogilvie currently serves on the board of directors
of Neuralstem, Inc. (NYSE AMEX:CUR), Innovative Card Technologies, Inc.
(OTCBB:INVC) and Preferred Voice Inc, (OTCBD:PRFV). In evaluating Mr. Ogilvie’s
specific experience, qualifications, attributes and skills in connection with
his appointment to our board, we took into account his prior work in both
public and private organizations regarding corporate finance, securities and
compliance and international business development.
Executive
Officers and Significant Employees
The
following sets forth our current executive officers and information concerning
their age and background:
|
Name
|
|
Position
|
|
Age
|
|
Position Since
|
|
I.
Richard Garr
|
|
Chief
Executive Officer, President, General Counsel
|
|
57
|
|
1996
|
|
|
|
|
|
|
|
|
|
Karl
Johe, Ph.D.
|
|
Chief
Scientific Officer
|
|
49
|
|
1996
|
|
|
|
|
|
|
|
|
|
John
Conron
|
|
Chief
Financial Officer
|
|
59
|
|
4/1/2007
|
I. Richard
Garr
– See Bio in the “
Directors
”
section
Karl Johe,
Ph.D.
– See Bio in the “
Directors
”
section
Mr. John
Conron
has served as our Chief Financial Officer since April 1, 2007. Mr.
Conron, a Certified Public Accountant, has over 30 years of experience in the
field of corporate finance. Since 2003, Mr. Conron has been consulting early
stage companies by providing critical outsource CFO functions such as
implementation of accounting systems, creation and monitoring of internal
controls, Sarbanes Oxley compliance, audit preparation, financial modeling and
strategic planning. Prior to his work as a consultant, Mr. Conron worked for
Cyberstar, Inc., a wholly owned subsidiary of Loral Space & Communications,
Inc., where he held the position of CFO from 2000 to 2003. Mr. Conron joined
Cyberstar from Transworld Telecommunications, Inc., a Qualcom spin-off which
offered telecommunication services in Russia, where he served as
CFO. Mr. Conron also served as CFO and on the board of directors of
Mercury Communications in London. Mercury was the European subsidiary of Cable
& Wireless.
Family
Relationships
There are
no family relationships between any director, executive officer, or person
nominated or chosen by the registrant to become a director or executive
officer.
Compliance
with Section 16(a) of the Exchange Act
Section
16(a) of the Exchange Act requires our officers, directors, and stockholders
owning more than ten percent of our common stock, to file reports of ownership
and changes in ownership with the SEC and to furnish us with copies of such
reports. Based solely on our review of Form 3, 4 and 5’s, the following table
provides information regarding any of the reports which were filed late during
the fiscal year ended December 31, 2009:
|
Name
of Reporting Person
|
|
Type
of Report Filed Late
|
|
No. of Transactions
Reported Late
|
|
|
|
|
|
|
|
William
Oldaker
|
|
Form
4 - Statement of Change in Beneficial Ownership
|
|
1
|
Code
of Ethics
We have
adopted a "Code of Ethics” that applies to our officer, directors and
employees. We have also adopted a “Finance Code of Professional
Conduct” that applies to our principal executive officer, principal financial
officer, principal accounting officer or controller, or persons performing
similar functions, and any persons who participate in our financial reporting
process. A copy of our codes can be viewed on our website at
www.neuralstem.com
.
The codes
incorporate our guidelines designed to deter wrongdoing and to promote honest
and ethical conduct and compliance with applicable laws and regulations. The
codes also incorporate our expectations of our officers, directors and employees
that enable us to provide accurate and timely disclosure in our filings with the
SEC and other public communications. In addition, the codes incorporate
guidelines pertaining to topics such as complying with applicable laws, rules,
and regulations; reporting violations; and maintaining accountability for
adherence to the codes.
We intend
to disclose future amendments to certain provisions of our codes, or waivers of
such provisions on our web site within four business days following the date of
such amendment or waiver.
Committees
We have
established 3 corporate governance committees comprising of the: (i) Audit
Committee; (ii) Compensation Committee; and (iii) Nomination and Corporate
Governance Committee. The committee membership and the function of each of the
committees are described below.
|
Director
|
|
Audit Committee
|
|
Nomination
and Corporate
Governance
Committee
|
|
Compensation
Committee
|
|
William
Oldaker
|
|
Chair
|
|
Member
|
|
Member
|
|
Scott
Ogilvie
|
|
Member
|
|
Chair
|
|
Chair
|
|
|
|
|
|
|
|
|
Audit
Committee
We have a
designated audit committee in accordance with section 3(a)(58)(A) of the
Exchange Act. The members of the Audit Committee are Messrs Ogilvie and Oldaker.
The Audit Committee assists our board in fulfilling its responsibility for the
oversight of the quality and integrity of our accounting, auditing, and
reporting practices, and such other duties as directed by the board. The
committee's purpose is to oversee our accounting and financial reporting
processes, the audits of our financial statements, the qualifications of our
public accounting firm engaged by us as our independent auditor to prepare or
issue an audit report on our financial statements, and the performance of our
internal audit function and independent auditor. The committee reviews and
assesses the qualitative aspects of financial reporting to shareholders, our
processes to manage business and financial risk, and compliance with significant
applicable legal, ethical, and regulatory requirements. The committee is
directly responsible for the appointment (subject to shareholder ratification),
compensation, retention, and oversight of our independent auditor.
Our board
of directors has determined that Mr. Ogilvie is an “audit committee financial
expert” within the meaning of SEC rules. An audit committee financial
expert is a person who can demonstrate the following
attributes: (1) an understanding of generally accepted
accounting principles and financial statements; (2) the ability to assess
the general application of such principles in connection with the accounting for
estimates, accruals and reserves; (3) experience preparing, auditing,
analyzing or evaluating financial statements that present a breadth and level of
complexity of accounting issues that are generally comparable to the breadth and
complexity of issues that can reasonably be expected to be raised by the
company’s financial statements, or experience actively supervising one or more
persons engaged in such activities; (4) an understanding of internal
controls and procedures for financial reporting; and (5) an understanding
of audit committee functions.
Nomination
and Corporate Governance Committee
The
Nomination and Corporate Governance Committee reviews and evaluates the
effectiveness of our executive development and succession planning processes, as
well as provides active leadership and oversight of these processes, and
oversight of our corporate governance policies. The Nomination and Corporate
Governance Committee also evaluates and recommends nominees for membership on
our board of directors and its committees. Messrs Ogilvie and Oldaker are the
members of the Nomination Committee.
There has
been no material change to the procedures by which security holders may
recommend nominees to our board of directors since we last provided such
disclosure in our definitive proxy statement filed with the SEC in connection
with our 2008 annual meeting.
We
do not have a formal policy with regard to the consideration of diversity in
identifying Director nominees, but the Nominating and Corporate Governance
Committee strives to nominate Directors with a variety of complementary skills
so that, as a group, the Board will possess the appropriate talent, skills, and
expertise to oversee our businesses.
Compensation
Committee
The
Compensation Committee's role is to discharge our board’s responsibilities
relating to compensation of our executives and to oversee and advise the board
of directors on the adoption of policies that govern our compensation and
benefit programs. Messrs Ogilvie and Oldaker are the members of the Compensation
Committee.
Leadership
Structure
The Board
does not have a policy regarding the separation of the roles of Chief Executive
Officer and Chairman of the Board as the Board believes it is in the best
interests of the Company to make that determination based on the position and
direction of the Company and the membership of the Board. At present, the
positions of Chairman and Chief Executive Officer are held by different
individuals. This structure makes the best use of the Chief Executive
Officer's and Chairman’s respective knowledge of the Company and its industry,
as well as fostering greater communication between the Company's management and
the Board.
Risk
Oversight
The
Company has a risk management program overseen by the Chief Executive Officer.
Material risks are identified and prioritized by management, and each
prioritized risk is referred to a Board Committee or the full Board for
oversight. For example, strategic risks are referred to the full Board while
financial risks are referred to the Audit Committees. The Board regularly
reviews information regarding the Company's liquidity and operations, as well as
the risks associated with each, and annually reviews the Company's risk
management program as a whole. Also, the Compensation Committee periodically
reviews the most important risks to the Company to ensure that compensation
programs do not encourage excessive risk-taking.
Independent
Directors
Our board
of directors has determined that Messrs Ogilvie and Oldaker are each
“independent” as that term is defined by the NYSE Amex. Messrs Ogilvie
and Oldaker are the sole members of our: (i) Audit Committee; (ii) Compensation
Committee; and (iii) Nomination and Corporate Governance Committee.
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
Executive
Compensation
Summary
Compensation
The
following table sets forth information for our most recently completed fiscal
year concerning the compensation of (i) the Principal Executive Officer
(PEO) and (ii) all other executive officers of Neuralstem, Inc. who earned
over $100,000 in salary and bonus during the last most recently completed fiscal
year ended December 31, 2009(together the “Named Executive Officers”).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonequity
|
|
|
Non-
qualified
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
|
|
Incentive
|
|
|
deferred
|
|
|
|
|
|
|
|
|
Name and
|
|
|
|
|
|
|
Bonus
|
|
|
Awards
|
|
|
Option
|
|
|
Plan
|
|
|
compensation
|
|
|
All other
|
|
|
|
|
|
principal
|
|
|
|
Salary
|
|
|
($)
|
|
|
($)
|
|
|
Award
|
|
|
compensation
|
|
|
earning
|
|
|
Compensation
|
|
|
Total
|
|
|
position
|
|
Year
|
|
($)
|
|
|
(d)
|
|
|
(e)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
|
(3)
|
|
|
(3)
|
|
|
(f)(2)
|
|
|
(g)
|
|
|
(h)
|
|
|
(i)(1)
|
|
|
(j)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I.
Richard Garr
|
|
2009
|
|
$
|
407,000
|
|
|
|
52,584
|
|
|
|
157,754
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
48,688
|
|
|
$
|
666,026
|
|
|
Chief
Executive
|
|
2008
|
|
$
|
436,750
|
|
|
|
33,917
|
|
|
|
312,033
|
|
|
|
3,437,056
|
|
|
|
|
|
|
|
|
|
|
|
88,523
|
|
|
$
|
4,308,279
|
|
|
President,
General Counsel (“PEO”)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Karl
Johe
|
|
2009
|
|
$
|
422,100
|
|
|
|
204,508
|
|
|
|
68,169
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
|
$
|
700,777
|
|
|
Chief
Scientific Officer
|
|
2008
|
|
$
|
427,250
|
|
|
|
341,700
|
|
|
|
-
|
|
|
|
3,437,056
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
|
$
|
4,212,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
Conron
|
|
2009
|
|
$
|
225,000
|
|
|
|
7,481
|
|
|
|
22,444
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
|
$
|
260,925
|
|
|
Chief
Financial Officer
|
|
2008
|
|
$
|
208,750
|
|
|
|
18,750
|
|
|
|
60,000
|
|
|
|
1,125,581
|
|
|
|
|
|
|
|
|
|
|
|
4,500
|
|
|
$
|
1,417,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
Hazel
|
|
2009
|
|
$
|
180,000
|
|
|
|
15,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
$
|
195,000
|
|
|
Senior
Vice President of Research
|
|
2008
|
|
$
|
100,000
|
|
|
|
7,500
|
|
|
|
-
|
|
|
|
179,411
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
$
|
286,911
|
|
(1) Includes
automobile allowance, perquisites and other personal
benefits.
(2) For
additional information regarding the valuation of Option Awards, refer to Note 2
of our financial statements in the section captioned “Stock Options
(3) On
March 30, 2010 the Compensation Committee made incentive bonus awards for 2009.
The 2009 incentive bonus plan awards will made in both fully paid, fully vested
common stock and cash. The common stock proportion of 2009 executive management
bonuses will be awarded in the form of 253,931 fully paid; fully vested; shares
of common stock. The stock award will be restricted. The shares will not be
tradable by the recipients for five years unless there is a “change of control”
or termination of employment. The share awards will be based on the
closing price of the shares on March 29, 2010. The shares awarded will be
provided by the 2007 Stock Option Plan. The restricted common shares will be
awarded as follows (assuming $2.05 per share):
|
|
|
2009 Equity Award Calculation
|
|
|
|
|
Bonus
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
Present Value
|
|
|
Proportion
|
|
|
Equity Pool
|
|
|
Shares
|
|
|
Chairman
and Chief Science Officer
|
|
$
|
272,677
|
|
|
|
25
|
%
|
|
$
|
68,169
|
|
|
|
33,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief
Executive Officer
|
|
$
|
210,338
|
|
|
|
75
|
%
|
|
$
|
157,754
|
|
|
|
76,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief
Financial Officer
|
|
$
|
29,925
|
|
|
|
75
|
%
|
|
$
|
22,444
|
|
|
|
10,948
|
|
|
|
|
2009 Cash Award Calculation
|
|
|
|
|
Base
|
|
|
Cash
|
|
|
Cash
|
|
|
|
|
Salary
|
|
|
Proportion
|
|
|
Award
|
|
|
Chairman
and Chief Science Officer
|
|
$
|
272,677
|
|
|
|
75
|
%
|
|
|
204,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief
Executive Officer
|
|
$
|
210,338
|
|
|
|
25
|
%
|
|
|
52,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief
Financial Officer
|
|
$
|
29,925
|
|
|
|
25
|
%
|
|
|
7,481
|
|
Employment
Agreements and Arrangements and Change-In-Control Arrangements
Employment
Agreement with I. Richard Garr
We have a
written employment agreement with Mr. Garr, our Chief Executive Officer and
General Counsel. Pursuant to the agreement, as in effective, Mr. Garr is
entitled to an annual salary of $407,000 paid semi-monthly of which $30,000 is
paid in connection with Mr. Garr’s duties as general
counsel. In addition, the agreement provides for certain
performance bonuses as determined from time to time by our Compensation
Committee. Mr. Garr’s employment agreement also provides for a $500 monthly
automobile allowance and the reimbursement of reasonable business expenses. The
term of the agreement is until October 31, 2012.
Mr.
Garr’s employment agreement also provides for severance (“Termination
Provisions”) in an amount equal to the greater of: (i) the aggregate
compensation remaining on his contract; or (ii) $1,000,000, in the event Mr.
Garr is terminated for any reason. In the event of termination, the agreement
also provides for the immediate vesting of 100% of stock options granted to Mr.
Garr during his term of employment. These termination provisions apply whether
employee is terminated for “cause” or “without cause.” Additionally, in the
event employee voluntarily terminates his employment following a change in
control and material reassignment of duties, he will also be entitled to the
termination provisions under the contract. In the event of early termination,
the Termination Provisions will require us to make a substantial payment to the
employee. By way of example, such payments would be approximately as
follows:
|
Officer
|
|
Termination
Date
|
|
Salary
(1)
|
|
|
Auto
(2)
|
|
|
Accelerated Vesting
of Options
(3)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I
Richard Garr
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/09
|
|
$
|
1,153,170
|
|
|
$
|
17,000
|
|
|
$
|
1,548,000
|
|
|
$
|
2,718,170
|
|
|
|
|
03/31/10
|
|
$
|
1,051,419
|
|
|
$
|
15,500
|
|
|
$
|
1,548,000
|
|
|
$
|
2,614,919
|
|
|
|
|
6/30/10
|
|
$
|
1,000,000
|
|
|
|
—
|
|
|
$
|
1,548,000
|
|
|
$
|
2,548,000
|
|
|
|
|
After
7/1/10
|
|
$
|
1,000,000
|
|
|
|
—
|
|
|
$
|
1,548,000
|
|
|
$
|
2,548,000
|
|
|
(1)
|
Assumes
an annual salary of $407,000. Does not include annual bonus or
salary increase.
|
|
(2)
|
Executive
is entitled to a $500 per month automobile
allowance.
|
|
(3)
|
Derived
from in the money stock options as of 12/31/09 using a market value of
$1.79 for the Company’s common
stock.
|
Mr.
Garr’s agreement contains non-solicitation, and confidentiality and
non-competition covenants. The agreement may be terminated by either party with
or without cause and without prior notice subject to the termination provisions
as discussed.
Employment
Agreement with Karl Johe, Ph.D.
We have a
written employment agreement with Mr. Johe, our Chief Scientific Officer.
Pursuant to the agreement, as in effective, Mr. Johe is entitled to an annual
salary of $422,100 paid semi-monthly. In additional, the agreement
provides for certain performance bonuses as determined from time to time by our
Compensation Committee. Mr. Johe’s employment agreement also provides
for a $500 monthly automobile allowance and the reimbursement of reasonable
business expenses. The term of the agreement is until October 31,
2012.
Mr.
Johe’s employment agreement also provides for severance (“Termination
Provisions”) in an amount equal to the greater of: (i) the aggregate
compensation remaining on his contract; or (ii) $1,000,000, in the event Mr.
Johe is terminated for any reason. In the event of termination, the agreement
also provides for the immediate vesting of 100% of stock options granted to Mr.
Johe during his term of employment. These termination provisions apply whether
employee is terminated for “cause” or “without cause.” Additionally, in the
event employee voluntarily terminates his employment following a change in
control and material reassignment of duties, he will also be entitled to the
termination provisions under the contract. In the event of early termination,
the Termination Provisions will require us to make a substantial payment to the
employee. By way of example, such payments would be approximately as
follows:
|
Officer
|
|
Termination
Date
|
|
Salary
(1)
|
|
|
Auto
(2)
|
|
|
Accelerated Vesting
of Options
(3)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Karl
Johe, Ph.D
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/09
|
|
$
|
1,195,950
|
|
|
$
|
17,000
|
|
|
$
|
1,548,000
|
|
|
$
|
2,760,950
|
|
|
|
|
03/31/10
|
|
$
|
1,090,425
|
|
|
$
|
15,500
|
|
|
$
|
1,548,000
|
|
|
$
|
2,653,425
|
|
|
|
|
6/30/10
|
|
$
|
1,000,000
|
|
|
|
—
|
|
|
$
|
1,548,000
|
|
|
$
|
2,548,000
|
|
|
|
|
After
7/1/10
|
|
$
|
1,000,000
|
|
|
|
—
|
|
|
$
|
1,548,000
|
|
|
$
|
2,548,000
|
|
|
(1)
|
Assumes
an annual salary of $422,100. Does not include annual bonus or
salary increase.
|
|
(2)
|
Executive
is entitled to a $500 per month automobile
allowance.
|
|
(3)
|
Derived
from in the money stock options as of 12/31/09 using a market value of
$1.79 for the Company’s common
stock.
|
Mr.
Johe’s agreement contains non-solicitation, and confidentiality and
non-competition covenants. The agreement may be terminated by either party with
or without cause and without prior notice subject to the termination provisions
as discussed.
Employment
Agreement with John Conron.
We have a
written employment agreement with Mr. Conron, our Chief Financial
Officer. Pursuant to the agreement, as in effect, Mr. Conron is
entitled to an annual salary of $225,000. In addition, the agreement
provides for certain performance bonuses as determined from time to time by our
Compensation Committee. Mr. Conron’s employment agreement
also provides for a $500 monthly automobile allowance.
Employment
Arrangement with Thomas Hazel
We have a
written employee agreement with Mr. Hazel, our Senior Vice President of
Research. We pay Mr. Hazel an annual salary of $180,000 in
connection with his employment.
Outstanding
Equity Awards at Fiscal Year-End
The
following table provides information concerning unexercised options; stock that
has not vested; equity incentive; and awards for each Named Executive Officer
outstanding as of the end of the last completed fiscal year ending December 31,
2009.
|
Name
(a)
|
|
|
|
Number of
securities
underlying
unexercised
options
(#)
exercisable
(b)
|
|
|
Number of
securities
underlying
unexercised
options
(#)
unexercisable
(c)
|
|
|
Equity
incentive
plan
awards:
Number of
securities
underlying
unexercised
unearned
options
(#)
(d)
|
|
|
Option
exercise
price
($)
(e)
|
|
Option
expiration
date
(f)
|
|
Number
of shares
or units
of stock
that have
not
vested
(#)
(g)
|
|
|
Market
value of
shares of
units of
stock that
have not
vested
($)
(h)
|
|
|
Equity
incentive
plan
award:
Number
of un-
earned
shares,
units or
other
rights that
have not
vested
(#)
(i)
|
|
|
Equity
incentive
plan
awards:
Market or
payout
value of
unearned
shares,
units or
other
rights that
have not
vested
($)
(j)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I.
Richard Garr
|
|
(1)
|
|
|
1,200,000
|
|
|
|
0
|
|
|
|
|
|
|
$
|
0.50
|
|
7/28/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
|
|
700,000
|
|
|
|
1,400,000
|
|
|
|
|
|
|
$
|
3.66
|
|
1/1/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Karl
Johe
(3)
|
|
(4)
|
|
|
1,200,000
|
|
|
|
0
|
|
|
|
|
|
|
$
|
0.50
|
|
7/28/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5)
|
|
|
|
|
|
|
333,333
|
|
|
|
|
|
|
$
|
3.01
|
|
10/31/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6)
|
|
|
700,000
|
|
|
|
1,400,000
|
|
|
|
|
|
|
$
|
3.66
|
|
1/1/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
Conron
|
|
(7)
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
$
|
3.15
|
|
4/1/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8)
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
$
|
2.60
|
|
4/1/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9)
|
|
|
333,333
|
|
|
|
666,667
|
|
|
|
|
|
|
$
|
2.60
|
|
4/1/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
On
July 28, 2005, we granted our CEO an option to purchase 1,200,000 common
shares. The option was granted under our 2005 Stock
Plan. The option vests annually over 4 years at a rate of
300,000 per year. The applicable vesting dates are July 28,
2006, 2007, 2008 and 2009. The only vesting condition is Mr.
Garr’s continued employment.
|
|
(2)
|
On
January 21, 2008, we granted our CEO an option to purchase 2,100,000
common shares. The grant has an effective date of January 1,
2008. The option was granted under our 2007 Stock
Plan. The option vests at a rate of 700,000 per 14 month
period. The applicable vesting dates are February 28, 2009,
April 30, 2010, and June 30, 2011. The only vesting condition
is Mr. Garr’s continued employment.
|
|
(3)
|
Outstanding
equity awards for Mr. Johe do not include warrants to purchase an
aggregate of 3,000,000 common shares that were issued on June 5,
2007. For a further description of the transaction, please
refer to the section of this report entitled “
Transactions with Related
Persons, Promoters and Certain Control
Persons
.”
|
|
(4)
|
On
July 28, 2005, we granted our CSO an option to purchase 1,200,000 common
shares. The option was granted under our 2005 Stock
Plan. The option vests annually over 4 years at a rate of
300,000 per year. The applicable vesting dates are July 28,
2006, 2007, 2008 and 2009. The only vesting condition is Mr.
Johe’s continued employment.
|
|
(5)
|
On
September 20, 2007, we granted our Chairman and Chief Scientific Officer,
an option to purchase an aggregate of 333,333 shares of our common stock
at a price per share of $3.01 pursuant to our 2005 Stock Plan. The option
expires 5 years from the date when they become
exercisable. The option vests on October 31,
2010. The option is immediately exercisable upon an event which
would result in an acceleration of Mr. Johe’s stock option grants under
his employment agreement.
|
|
(6)
|
On
January 21, 2008, we granted our CSO an option to purchase 2,100,000
common shares. The grant has an effective date of January 1,
2008. The option was granted under our 2007 Stock
Plan. The option vests at a rate of 700,000 per 14 month
period. The applicable vesting dates are February 28, 2009,
April 30, 2010, and June 30, 2011. The only vesting condition
is Mr. Johe’s continued employment.
|
|
(7)
|
In
April of 2007, we granted our CFO an option to purchase 100,000 common
shares pursuant to his employment contract. The option is fully
vested as of December 31, 2008.
|
|
(8)
|
On
April 1, 2008, we granted our CFO an option to purchase 50,000 common
shares. The grant was made pursuant to Mr. Conron’s employment
agreement. The option was fully vested at the grant
date.
|
|
(9)
|
On
April 1, 2008, we granted our CFO an option to purchase 1,000,000 common
shares. The option vests at an annual rate of 333,333 per
year. The vesting dates are April 1, 2009, 2010 and
2011. The only vesting condition is Mr. Conron’s continued
employment.
|
Director
Compensation
The
following table summarizes the compensation for our board of directors for the
fiscal year ended December 31, 2009:
|
Name
|
|
Fees Earned
or Paid in
Cash
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
(g)
|
|
|
(h)
|
|
|
William
Oldaker
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent
Director(1)
|
|
|
20,000
|
|
|
|
|
|
|
$
|
10,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,959
|
|
|
Audit
Committee(2)
|
|
|
5,000
|
|
|
|
|
|
|
$
|
2,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,740
|
|
|
Compensation
Committee(2)
|
|
|
5,000
|
|
|
|
|
|
|
$
|
2,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,740
|
|
|
Nomination
Committee(2)
|
|
|
5,000
|
|
|
|
|
|
|
$
|
2,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott
Ogilvie
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent
Director(1)
|
|
|
20,000
|
|
|
|
|
|
|
$
|
10,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,959
|
|
|
Audit
Committee(2)
|
|
|
5,000
|
|
|
|
|
|
|
$
|
2,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,740
|
|
|
Compensation
Committee(2)
|
|
|
5,000
|
|
|
|
|
|
|
$
|
2,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,740
|
|
|
Nomination
Committee(2)
|
|
|
5,000
|
|
|
|
|
|
|
$
|
2,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,740
|
|
|
|
(1)
|
On
July 2, 2009, pursuant to our adopted director compensation plan, we
issued to each of Messrs Ogilvie and Oldaker options to purchase 20,000
shares of our common stock. The options were issued pursuant to our
2007 Stock Plan. The exercise price per share is $1.17 and will
expire 10 years from the date of grant. The individual grants vest
on July 2, 2010.
|
|
|
(2)
|
On
July 2, 2009, pursuant to our adopted director compensation plan, we
issued to each of Messrs Ogilvie and Oldaker, options to purchase 15.000
shares of our common stock (5,000 shares per each committee on which they
serve). The options were issued pursuant to our 2007 Stock Plan. The
exercise price per share is $1.17 and the options vest on July 2,
2010.
|
Director
Compensation Plan
Our
Compensation Committee has adopted a formal outside director compensation plan
to assist us in attracting and retaining qualified directors. Under
our plan, each eligible director shall receive:
Option
Grants
First
Year Grant
.
Upon joining the
board, individual will receive options to purchase 45,000 common shares. The
options shall vest as follows: (i) 25,000 shall vest on the one month
anniversary of joining the Board; and (ii) 20,000 shall vest quarterly over a
one year period commencing on the date such Director joins the Board. For
purpose of the First Year option grant, all current eligible directors will be
considered “First Year” directors and be eligible for such grant;
Annual
Grant
.
Starting on the
first year anniversary of service, and each subsequent anniversary thereafter,
each eligible director will be granted options to purchase 20,000 shares of
common stock. These Annual Grants will vest quarterly during the year;
and
Committee
Grant
.
Each Director
will receive options to purchase an additional 5,000 shares for each committee
on which he or she serves. These Committee Grants will vest quarterly during the
year.
The
exercise price for the options to be granted to the independent directors shall
be the market price of the stock on each applicable grant date. The options
shall expire 7 years from the grant date. The option will be granted pursuant to
our 2005 Stock Plan, or as directed by the Board of Directors.
Cash
Compensation
Board
Retention Amount
.
Each director
shall receive a $20,000 annual board retainer. The retainer shall be payable
quarterly commencing on January 1, 2008.
Committee
Retainer
.
In addition to
the Board Retention Amount, each director serving on a committee shall receive
an additional $5,000 per committee on which he serves.
|
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
Securities
Authorized for Issuance Under Equity Compensation Plans
Information
regarding shares authorized for issuance under equity compensation plans
approved and not approved by stockholders required by this Item is incorporated
by reference from Item 5 of this Annual Report from the section entitled
“
Equity Compensation Plan
Information
.”
Security
Ownership of Certain Beneficial Owners and Management
The
following table sets forth, as of March 9, 2010, information regarding
beneficial ownership of our capital stock by:
|
·
|
each
person, or group of affiliated persons, known by us to be the beneficial
owner of 5% or more of any class of our voting
securities;
|
|
·
|
each
of our current directors and
nominees;
|
|
·
|
each
of our current named executive officers;
and
|
|
·
|
all
current directors and named executive officers as a
group.
|
Beneficial
ownership is determined according to the rules of the SEC. Beneficial ownership
means that a person has or shares voting or investment power of a security and
includes any securities that person or group has the right to acquire within 60
days after the measurement date. This table is based on information supplied by
officers, directors and principal stockholders. Except as otherwise indicated,
we believe that each of the beneficial owners of the common stock listed below,
based on the information such beneficial owner has given to us, has sole
investment and voting power with respect to such beneficial owner’s shares,
except where community property laws may apply.
|
|
|
Common Stock
|
|
|
Name and Address of Beneficial Owner(1)
|
|
Shares
|
|
|
Shares
Underlying
Convertible
Securities(2)
|
|
|
Total
|
|
|
Percent of
Class(2)
|
|
|
Directors
and named executive officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I.
Richard Garr
|
|
|
1,413,195
|
|
|
|
2,600,000
|
|
|
|
4,013,195
|
|
|
|
9.77
|
%
|
|
Karl
Johe, Ph.D
|
|
|
1,705,484
|
|
|
|
2,600,000
|
|
|
|
4,305,484
|
|
|
|
10.48
|
%
|
|
Scott
Ogilvie
|
|
|
—
|
|
|
|
121,250
|
|
|
|
121,250
|
|
|
|
*
|
%
|
|
William
Oldaker
|
|
|
79,300
|
|
|
|
181,250
|
|
|
|
260,550
|
|
|
|
*
|
%
|
|
John
Conron
|
|
|
51,364
|
|
|
|
816,666
|
|
|
|
868,030
|
|
|
|
2.11
|
%
|
|
All
directors and executive officers as a group
(5 persons)
|
|
|
3,249,343
|
|
|
|
6,319,166
|
|
|
|
9,568,509
|
|
|
|
23.29
|
%
|
|
(1)
|
Except
as otherwise indicated, the persons named in this table have sole voting
and investment power with respect to all shares of common stock shown as
beneficially owned by them, subject to community property laws where
applicable and to the information contained in the footnotes to this
table. Unless otherwise indicated, the address of the beneficial owner is
c/o Neuralstem, Inc. 9700 Great Seneca Highway, Rockville,
MD.
|
|
(2)
|
Pursuant
to Rules 13d-3 and 13d-5 of the Exchange Act, beneficial ownership
includes any shares as to which a shareholder has sole or shared voting
power or investment power, and also any shares which the shareholder has
the right to acquire within 60 days, including upon exercise of common
shares purchase options or warrant. There are 33,751,300 shares of common
stock issued and outstanding as of March 9,
2009.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
Transactions
with Related Persons, Promoters and Certain Control Persons
Summarized
below are certain transactions and business relationships between Neuralstem and
persons who are or were an executive officer, director or holder of more than
five percent of any class of our securities since January 1, 2008 or which have
been proposed since December 31, 2009.
Information
regarding disclosure of an employment relationship or transaction involving an
executive officer and any related compensation solely resulting from that
employment relationship or transaction is incorporated by reference from
Item 11 of this Annual Report.
Information
regarding disclosure of compensation to a director is incorporated by reference
from Item 11 of this Annual Report.
Information
regarding the identification of each independent director is incorporated by
reference from Item 10 of this Annual Report
On
February 9, 2009, our compensation committee awarded Messrs Garr and Conron 2008
discretionary cash bonuses in the amount of $312,033 and $60,000,
respectively. Both individuals voluntarily agreed to defer such
bonuses until such later date as our cash position increased. On
December 28, 2009, we requested that Messrs Garr and Conron exchange their
respective obligations for restricted common shares in a private
placement. As a result of the exchange, Mr. Garr received 189,111
restricted shares and Mr. Conron received 36,364 restricted shares as payment in
full of their respective obligations. The purchase price per
share was $1.65. The transaction was unanimously approved by our
audit committee as well as our disinterested board members.
Director
Independence
Information
regarding director independence required by this Item is incorporated by
reference from Item. 10 of this Annual Report from the section entitled “
Director
Independence
.”
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
The
following table summarizes the approximate aggregate fees billed to us or
expected to be billed to us by our independent auditors for our 2009 and 2008
fiscal years:
|
Type
of Fees
|
|
2009
|
|
|
2008
|
|
|
Audit
Fees
|
|
|
|
|
|
|
|
Stegman
& Company
|
|
$
|
69,256
|
|
|
$
|
66,426
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit
Related Fees
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
Fees
|
|
|
|
|
|
|
|
|
|
Stegman
& Company
|
|
|
6,000
|
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
All
Other Fees
|
|
|
|
|
|
|
|
|
|
Total
Fees
|
|
$
|
75,256
|
|
|
$
|
78,426
|
|
Pre-Approval
of Independent Auditor Services and Fees
Our audit
committee reviewed and pre-approved all audit and non-audit fees for services
provided by Stegman & Company and has determined that the provision of such
services to us during fiscal 2009 and in connection with the audit of our 2009
fiscal year financials is compatible with and did not impair independence. It is
the practice of the audit committee to consider and approve in advance all
auditing and non-auditing services provided to us by our independent auditors in
accordance with the applicable requirements of the SEC. Stegman & Company
did not provide us with any services, other than those listed
above.
PART IV
|
ITEM 15.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
|
|
|
1.
|
Financial
Statements: See “Index to Financial Statements” in Part II,
Item 8 of this Form 10-K.
|
|
|
2.
|
Exhibits:
The exhibits listed in the accompanying index to exhibits are filed or
incorporated by reference as part of this
Form 10-K.
|
Certain
of the agreements filed as exhibits to this Form 10-K contain
representations and warranties by the parties to the agreements that have been
made solely for the benefit of the parties to the agreement. These
representations and warranties:
|
|
·
|
may
have been qualified by disclosures that were made to the other parties in
connection with the negotiation of the agreements, which disclosures are
not necessarily reflected in the
agreements;
|
|
|
·
|
may
apply standards of materiality that differ from those of a reasonable
investor; and
|
|
|
·
|
were
made only as of specified dates contained in the agreements and are
subject to later developments.
|
Accordingly,
these representations and warranties may not describe the actual state of
affairs as of the date they were made or at any other time, and investors should
not rely on them as statements of fact.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
NEURALSTEM,
INC
|
|
|
|
|
Dated:
March 30, 2010
|
By:
|
/S/
I Richard Garr
|
|
|
|
I
Richard Garr
President
and Chief Executive
Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
following capacities and on the dates indicated.
|
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ I. Richard Garr
|
|
President,
Chief Executive Officer, General Counsel and Director
|
|
March
30, 2010
|
|
I.
Richard Garr
|
|
(Principal
executive officer)
|
|
|
|
|
|
|
|
/s/ John Conron
|
|
Chief
Financial Officer (Principal financial and accounting
officer)
|
|
March
30, 2010
|
|
John
Conron
|
|
|
|
|
|
|
|
|
|
/s/ Karl Johe
|
|
Chairman
of the Board and Director
|
|
March
30, 2010
|
|
Karl
Johe
|
|
|
|
|
|
|
|
|
|
/s/ William Oldaker
|
|
Director
|
|
March
30, 2010
|
|
William
Oldaker
|
|
|
|
|
|
|
|
|
|
/s/ Scott Ogilvie
|
|
Director
|
|
March
30, 2010
|
|
Scott
Ogilvie
|
|
|
|
|
INDEX
TO EXHIBITS
|
|
|
|
|
|
|
Incorporated by Reference
|
|
Exhibit
No.
|
|
Description
|
|
Filed
Herewith
|
|
Form
|
|
Exhibit
No.
|
|
File No.
|
|
Filing Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.01(i)
|
|
Amended
and Restated Certificate of Incorporation of Neuralstem, Inc. filed on
9/29/05
|
|
|
|
10-K
|
|
3.01(i)
|
|
001-33672
|
|
3/31/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.02(i)
|
|
Certificate
of Amendment to Certificate of Incorporation of Neuralstem, Inc. filed on
5/29/08
|
|
|
|
DEF
14A
|
|
Appendix
I
|
|
001-33672
|
|
4/24/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.03(ii)
|
|
Amended
and Restated Bylaws of Neuralstem, Inc. adopted on July 16,
2007
|
|
|
|
10-QSB
|
|
3.2(i)
|
|
333-132923
|
|
8/14/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.01**
|
|
Amended
and Restated 2005 Stock Plan adopted on June 28, 2007
|
|
|
|
10-QSB
|
|
4.2(i)
|
|
333-132923
|
|
8/14/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.02**
|
|
Non-qualified
Stock Option Agreement between Neuralstem, Inc. and Richard Garr dated
July 28, 2005
|
|
|
|
SB-2
|
|
4.4
|
|
333-132923
|
|
6/21/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.03**
|
|
Non-qualified
Stock Option Agreement between Neuralstem, Inc. and Karl Johe dated July
28, 2005
|
|
|
|
SB-2
|
|
4.5
|
|
333-132923
|
|
6/21/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.04
|
|
Private
Placement Memorandum for March 2006 offering
|
|
|
|
SB-2
|
|
4.12
|
|
333-132923
|
|
6/21/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.05
|
|
Form
of Placement Agent Warrant issued in connection with the March 2006
offering
|
|
|
|
SB-2
|
|
4.13
|
|
333-132923
|
|
6/21/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.06
|
|
Form
of Series A Warrant ($1.50) issued in connection with the March 2006
offering
|
|
|
|
SB-2
|
|
4.14
|
|
333-132923
|
|
6/21/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.07
|
|
Form
of Series B Warrant ($2.00) issued in connection with the March 2006
offering
|
|
|
|
SB-2
|
|
4.15
|
|
333-132923
|
|
6/21/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.08
|
|
Form
of Subscription Agreement for March 2006 offering
|
|
|
|
SB-2
|
|
4.16
|
|
333-132923
|
|
7/26/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.09
|
|
Form
of Securities Purchase Agreement dated March 15, 2007
|
|
|
|
8-K
|
|
4.1
|
|
333-132923
|
|
3/16/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.10
|
|
Form
of Common Stock Purchase Warrant dated March 15, 2007 (Series
C)
|
|
|
|
8-K
|
|
4.2
|
|
333-132923
|
|
3/16/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.11
|
|
Form
of Registration Rights Agreement dated March 15, 2007
|
|
|
|
8-K
|
|
4.3
|
|
333-132923
|
|
3/16/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.12**
|
|
Neuralstem,
Inc. 2007 Stock Plan
|
|
|
|
10-QSB
|
|
4.21
|
|
333-132923
|
|
8/14/07
|
|
4.13
|
|
Form
of Common Stock Purchase Warrant Issued to Karl Johe on June 5,
2007
|
|
|
|
10-KSB
|
|
4.22
|
|
333-132923
|
|
3/27/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.14
|
|
Form
of Registration Rights Agreement entered into on February 19, 2008 between
the Company and CJ CheilJedang Corporation
|
|
|
|
8-K
|
|
10.20
|
|
001-33672
|
|
2/25/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.15
|
|
Form
of Placement Agent Warrant Issued to Midtown Partners & Company on
December 18, 2008
|
|
|
|
8-K
|
|
4.1
|
|
001-33672
|
|
12/18/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.16
|
|
Form
of Consultant Common Stock Purchase Warrant issued on January 5,
2009
|
|
|
|
S-3/A
|
|
10.1
|
|
333-157079
|
|
02/3/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.17
|
|
Form
of Series D, E and F Warrants
|
|
|
|
8-K
|
|
4.01
|
|
001-33672
|
|
7/1/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.18
|
|
Form
of Placement Agent Warrant
|
|
|
|
8-K
|
|
4.02
|
|
001-33672
|
|
7/1/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.19
|
|
Form
of December 29, 2009 Securities Purchase Agreement
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.20
|
|
Form
of Consultant Warrant Issued January 8, 2010
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.21
|
|
Form
of Replacement Warrant Issued January 29, 2010
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.22
|
|
Form
of Replacement Warrant Issued March of 2010
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.23
|
|
Form
of employee and consultant option grant
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.01**
|
|
Employment
Agreement with I. Richard Garr dated January 1, 2007 and amended as of
November 1, 2005
|
|
|
|
SB-2
|
|
10.1
|
|
333-132923
|
|
6/21/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.02**
|
|
Amended
terms to the Employment Agreement of I Richard Garr dated January 1,
2008
|
|
|
|
10-K
|
|
10.02
|
|
001-33672
|
|
3/31/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.03**
|
|
Employment
Agreement with Karl Johe dated January 1, 2007 and amended as of November
1, 2005
|
|
|
|
SB-2
|
|
10.1
|
|
333-132923
|
|
6/21/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.04**
|
|
Amended
terms to the Employment Agreement of Karl Johe dated January 1,
2009
|
|
|
|
10-K
|
|
10.04
|
|
001-33672
|
|
3/31/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.01
|
|
Neuralstem
Code of Ethics
|
|
|
|
SB-2
|
|
14.1
|
|
333-132923
|
|
6/21/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.02
|
|
Neuralstem
Financial Code of Profession Conduct adopted on May 16,
2007
|
|
|
|
8-K
|
|
14.2
|
|
333-132923
|
|
6/6/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
Consent
of Stegman & Company
|
|
*
|
|
|
|
|
|
|
|
|
|
31.1
|
|
Certification
of the Principal Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.2
|
|
Certification
of the Principal Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.1
|
|
Certification
of Principal Executive Officer Pursuant to 18 U.S.C. §
1350
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.2
|
|
Certification
of Principal Financial Officer Pursuant to 18 U.S.C. §
1350
|
|
*
|
|
|
|
|
|
|
|
|
**Management
contracts or compensation plans or arrangements in which directors or executive
officers are eligible to participate.
SECURITIES
PURCHASE AGREEMENT
This
Securities Purchase Agreement (this “
Agreement
”) is dated
as of
December
__
,
2009, between Neuralstem, Inc., a Delaware corporation (the “
Company
”), and the
purchaser identified on the signature pages hereto (including its successors and
assigns, the “
Purchaser
”).
WHEREAS,
the Company has granted Purchaser an Option (as defined herein) to negotiate a
license for certain technology and/or products currently owned by the
Company.
WHEREAS,
as consideration for the Option, the Purchaser has agreed to purchase up to $1.5
million of the Company’s newly-issued shares of Common Stock.
WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant to
Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”),
and Rule 506 promulgated thereunder, the Company desires to issue and sell to
the Purchaser, and the Purchaser, desires to purchase from the Company,
securities of the Company as more fully described in this
Agreement.
NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration the receipt and adequacy of which
are hereby acknowledged, the Company and Purchaser agree as
follows:
ARTICLE
I.
DEFINITIONS
1.1
Definitions
. In
addition to the terms defined elsewhere in this Agreement, for all purposes of
this Agreement, the following terms have the meanings set forth in this Section
1.1:
“
Action
” shall have
the meaning ascribed to such term in Section 3.1(j).
“
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. With
respect to a Purchaser, any investment fund or managed account that is managed
on a discretionary basis by the same investment manager as such Purchaser will
be deemed to be an Affiliate of such Purchaser.
“
Beneficial Ownership
Limit
” shall have the mean ascribed to such term in Section
4.3.
“
Business Day
” means
any day except Saturday, Sunday, any day which is a federal legal holiday in the
United States or any day on which banking institutions in the State of New York
are authorized or required by law or other governmental action to
close.
“
Closing
” means the
closing of the purchase and sale of the Securities pursuant to Section
2.1.
“
Closing Date
” means
the Trading Day when all of the Transaction Documents have been executed and
delivered by the applicable parties thereto, and all conditions precedent to (i)
the Purchaser’s obligations to pay the Subscription Amount and (ii) the
Company’s obligations to deliver the Securities have been satisfied or
waived.
“
Commission
” means the
Securities and Exchange Commission.
“
Common Stock
” means
the common stock of the Company, par value $.01 per share, and any other class
of securities into which such securities may hereafter be reclassified or
changed into.
“
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, rights, options,
warrants 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.
“
Company Counsel
”
means SLR.
“
Disclosure Schedules
”
means the Disclosure Schedules of the Company delivered concurrently
herewith.
“
Exchange Act
” means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“
FDA
” shall mean the
United States Food and Drug Administration.
“
GAAP
” shall have the
meaning ascribed to such term in Section 3.1(h).
“
Indebtedness
” shall
means (a) any liabilities for borrowed money or amounts owed in excess of
$250,000 (other than trade accounts payable incurred in the ordinary course of
business), (b) all guaranties, endorsements and other contingent obligations in
respect of Indebtedness of others, whether or not the same are or should be
reflected in the Company’s balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business; and (c) the present
value of any lease payments in excess of $250,000 due under leases required to
be capitalized in accordance with GAAP. Neither the Company nor any
Subsidiary is in default with respect to any Indebtedness.
“
Intellectual Property
Rights
” shall have the meaning ascribed to such term in Section
3.1(o).
“
Knowledge of the
Company
” means the actual knowledge of the Company as opposed to implied
or ascribed knowledge.
“
Liens
” means a lien,
charge, security interest, encumbrance, right of first refusal, preemptive right
or other restriction.
“
Material Adverse
Effect
” shall have the meaning assigned to such term in Section
3.1(b).
“
Material Permits
”
shall have the meaning ascribed to such term in Section 3.1(m).
“
Option
” shall mean
that certain Exclusive Option Agreement of even date with this Agreement
executed by the parties.
“
Option Period
” shall
mean a period of time as set forth in the Option.
“
Per Share Purchase
Price
” shall equal $2.32.
“
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.
“
Proceeding
” means an
action, claim, suit, investigation or proceeding (including, without limitation,
an informal investigation or partial proceeding, such as a deposition), whether
commenced or threatened.
“
Product
” shall mean
technology owned by the Company for transplantation into patients for all
indications for which necessary approval from the FDA.
“
Purchaser Party
”
shall have the meaning ascribed to such term in Section 4.5.
“
Registration Rights
Agreement
” means the Registration Rights Agreement, dated the date
hereof, among the Company and the Purchaser, in the form of
Exhibit
A
attached hereto.
“
Registration
Statement
” means a registration statement meeting the requirements set
forth in the Registration Rights Agreement and covering the resale by the
Purchaser of the Shares.
“
Required Approvals
”
shall have the meaning ascribed to such term in Section 3.1(e).
“
Rule 144
” means Rule
144 promulgated by the Commission pursuant to the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such
Rule.
“
SEC Reports
” shall
have the meaning ascribed to such term in Section 3.1(h).
“
Securities
” means the
Shares.
“
Securities Act
” means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“
Shares
” means the
shares of Common Stock issued or issuable to the Purchaser pursuant to this
Agreement.
“
Short Sales
” means
all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange
Act (but shall not be deemed to include the location and/or reservation of
borrowable shares of Common Stock).
“SLG”
means the Silvestre Law Group, P.C.
“
Subscription Amount
”
means the aggregate amount to be paid for Shares purchased hereunder as
specified below the Purchaser’s name on the signature page of this Agreement and
next to the heading “Subscription Amount,” in United States dollars and in
immediately available funds.
“
Subsidiary
” means any
subsidiary of the Company as set forth on
Schedule 3.1(a)
, and
shall, where applicable, include any subsidiary of the Company formed or
acquired after the date hereof.
“
Trading Day
” means a
day on which the New York Stock Exchange is open for trading.
“
Trading Market
” means
the following markets or exchanges on which the Common Stock is listed or quoted
for trading on the date in question: the American Stock Exchange, the Nasdaq
Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the
New York Stock Exchange or the OTC Bulletin Board.
“
Transaction
Documents
” means this Agreement, the Option, the Registration Rights
Agreement and any other documents or agreements executed in connection with the
transactions contemplated hereunder.
“
Transfer Agent
” means
American Stock Transfer & Trust Company, with a mailing address of 59 Maiden
Lane New York, NY 10038 and a facsimile number of (718) 921 8116, and any
successor transfer agent of the Company.
ARTICLE
II.
PURCHASE
AND SALE
2.1
Closing
. On
the Closing Date, upon the terms and subject to the conditions set forth herein,
substantially concurrent with the execution and delivery of this Agreement by
the parties hereto, the Company agrees to sell, and the Purchaser agrees to
purchase up to $1.5 million of Shares. The Purchaser shall
deliver to the Company, via wire transfer or a certified check, immediately
available funds equal to its Subscription Amount and the Company shall deliver
to the Purchaser the Shares as determined pursuant to Section
2.2(a), and the Company and the Purchaser shall deliver the other items set
forth in Section 2.2 deliverable at the Closing. Upon satisfaction of
the covenants and conditions set forth in Sections 2.2 and 2.3, the Closing
shall occur at the offices of LRS, or such other location as the parties shall
mutually agree.
2.2
Deliveries
.
(a) On
or prior to the Closing Date, the Company shall deliver or cause to be delivered
to the Purchaser the following:
(i) this
Agreement duly executed by the Company;
(ii) the
Option duly executed by the Company in substantially the form as attached hereto
as
Exhibit
B
;
(iii) a
non-revocable letter from the Company to the Transfer Agent, instructing the
Transfer Agent to issue a certificate evidencing a number of Shares equal to the
Purchaser’s Subscription Amount divided by the Per Share Purchase Price,
registered in the name of such Purchaser; and
(iv)
the Registration Rights Agreement duly executed by the
Company.
(b) On
or prior to the Closing Date, Purchaser shall deliver or cause to be delivered
to the Company (except as noted) the following:
(i) this
Agreement duly executed by such Purchaser;
(ii) the
Option duly executed by the Purchaser in substantially the form as attached
hereto as
Exhibit
B
;
(iii) the
Purchaser’s Subscription Amount by wire transfer to the Company;
and
(iv) the
Registration Rights Agreement duly executed by such Purchaser.
2.3
Closing
Conditions
.
(a) The
obligations of the Company hereunder in connection with the Closing are subject
to the following conditions being met:
(i) the
accuracy in all material respects on the Closing Date of the representations and
warranties of the Purchaser contained herein;
(ii) all
obligations, covenants and agreements of the Purchaser required to be performed
at or prior to the Closing Date shall have been performed; and
(iii) the
delivery by Purchaser of the items set forth in Section 2.2(b) of this
Agreement.
(b) The
obligations of the Purchaser hereunder in connection with the Closing are
subject to the following conditions being met:
(i) the
accuracy in all material respects on the Closing Date of the representations and
warranties of the Company contained herein;
(ii) all
obligations, covenants and agreements of the Company required to be performed at
or prior to the Closing Date shall have been performed;
(iii) the
delivery by the Company of the items set forth in Section 2.2(a) of this
Agreement;
(iv) there
shall have been no Material Adverse Effect with respect to the Company since the
date hereof; and
(v) from
the date hereof to the Closing Date, trading in the Common Stock shall not have
been suspended by the Commission or the Company’s principal Trading Market
(except for any suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to the Closing), and, at any
time prior to the Closing Date, trading in securities generally as reported by
Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall
not have been established on securities whose trades are reported by such
service, or on any Trading Market, nor shall a banking moratorium have been
declared either by the United States or New York State authorities nor shall
there have occurred any material outbreak or escalation of hostilities or other
national or international calamity of such magnitude in its effect on, or any
material adverse change in, any financial market which, in each case, in the
reasonable judgment of each Purchaser, makes it impracticable or inadvisable to
purchase the Securities at the Closing.
ARTICLE
III.
REPRESENTATIONS
AND WARRANTIES
3.1
Representations and
Warranties of the Company
.
Except as
set forth in the Disclosure Schedules and as provided for below, which
Disclosure Schedules shall be deemed a part hereof and shall qualify any
representation or otherwise made herein to the extent of the disclosure
contained in the corresponding section of the Disclosure
Schedules. For purposes of this Agreement, any statement, facts,
representations, or admissions contained in the SEC Reports, are deemed to be
included in the Disclosure Schedule and all such information is deemed to be
fully disclosed to the Purchaser notwithstanding any wording to the contrary in
the following representations and warranties of the Company. The
Company hereby makes the following representations and warranties to the
Purchaser subject to the qualifications contained in this
paragraph:
(a)
Subsidiaries
. All
of the direct and indirect subsidiaries of the Company are set forth on
Schedule
3.1(a)
. The Company owns, directly or indirectly, all of the
capital stock or other equity interests of each Subsidiary free and clear of any
Liens, and all of the issued and outstanding shares of capital stock of each
Subsidiary are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights to subscribe for or purchase
securities. If the Company has no subsidiaries, then all other
references to the Subsidiaries or any of them in the Transaction Documents shall
be disregarded.
(b)
Organization and
Qualification
. The Company and each of the Subsidiaries is an
entity duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
(as applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently
conducted. Neither the Company nor any Subsidiary is in violation or
default of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter
documents. Each of the Company and the Subsidiaries is duly qualified
to conduct business and is in good standing as a foreign corporation or other
entity in each 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, as the case may be, could not
have or reasonably be expected to result in (i) a material adverse effect on the
legality, validity or enforceability of any Transaction Document, (ii) a
material adverse effect on the results of operations, assets, business,
prospects or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
Company’s ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a “
Material Adverse
Effect
”) and no Proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail such
power and authority or qualification.
(c)
Authorization;
Enforcement
. The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by each
of the Transaction Documents and otherwise to carry out its obligations
hereunder and thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company and no further action is required by
the Company, its board of directors or its stockholders in connection therewith
other than in connection with the Required Approvals. Each
Transaction Document has been (or upon delivery will have been) duly executed by
the Company and, when delivered in accordance with the terms hereof and thereof,
will constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms except (i) as limited by
general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
(d)
No
Conflicts
. The execution, delivery and performance of the
Transaction Documents by the Company, the issuance and sale of the Securities
and the consummation by the Company of the other transactions contemplated
hereby and thereby do not and will not (i) conflict with or violate any
provision of the Company’s or any Subsidiary’s certificate or articles of
incorporation, bylaws or other organizational or charter documents, or (ii)
conflict with, or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, result in the creation of any Lien
upon any of the properties or assets of the Company or any Subsidiary, or give
to others any rights of termination, amendment, acceleration or cancellation
(with or without notice, lapse of time or both) of, any agreement, credit
facility, debt or other instrument (evidencing a Company or Subsidiary debt or
otherwise) or other understanding to which the Company or any Subsidiary is a
party or by which any property or asset of the Company or any Subsidiary is
bound or affected, or (iii) subject to the Required Approvals, conflict with or
result in a violation of any law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or governmental authority to which the
Company or a Subsidiary is subject (including federal and state securities laws
and regulations), or by which any property or asset of the Company or a
Subsidiary is bound or affected; except in the case of each of clauses (ii) and
(iii), such as could not have or reasonably be expected to result in a Material
Adverse Effect.
(e)
Filings, Consents and
Approvals
. The Company is not required to obtain any consent,
waiver, authorization or order of, give any notice to, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other than
(i) filings required pursuant to Section 4.4 of this Agreement, (ii) the filing
with the Commission of the Registration Statement, (iii) application(s) to each
applicable Trading Market for the listing of the Securities for trading thereon
in the time and manner required thereby and (iv) the filing of Form D with the
Commission and such filings as are required to be made under applicable state
securities laws (collectively, the “
Required
Approvals
”).
(f)
Issuance of the
Securities
. The Securities are duly authorized and, when
issued and paid for in accordance with the applicable Transaction Documents,
will be duly and validly issued, fully paid and nonassessable, free and clear of
all Liens imposed by the Company other than restrictions on transfer provided
for in the Transaction Documents.
(g)
Capitalization
. The
capitalization of the Company is as set forth in its most recent quarterly
report filed on Form 10-Q with the Securities and Exchange Commission on
November 17, 2009, other than Common Stock issued pursuant to the exercise of
employee stock options under the Company’s stock option plans, the issuance of
shares of Common Stock to employees pursuant to the Company’s employee stock
purchase plans, the issuance of stock options to purchase Common Stock pursuant
to the Company’s employee stock plans, and pursuant to the conversion or
exercise of Common Stock Equivalents outstanding as of the date of the most
recently filed periodic report under the Exchange Act.
(h)
SEC Reports; Financial
Statements
. The Company has filed all reports, schedules,
forms, statements and other documents required to be filed by the Company under
the Securities Act and the Exchange Act, including pursuant to Section 13(a) or
15(d) thereof, for the two years preceding the date hereof (or such shorter
period as the Company was required by law or regulation to file such material)
(the foregoing materials, including the exhibits thereto and documents
incorporated by reference therein, being collectively referred to herein as the
“
SEC Reports
”)
on a timely basis or has received a valid extension of such time of filing and
has filed any such SEC Reports prior to the expiration of any such
extension. As of their respective dates, the SEC Reports complied in
all material respects with the requirements of the Securities Act and the
Exchange Act, as applicable, and none of the SEC Reports, when filed, contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the
SEC Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. Such financial statements
have been prepared in accordance with United States generally accepted
accounting principles applied on a consistent basis during the periods involved
(“
GAAP
”),
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as of and
for 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,
immaterial, year-end audit adjustments.
(i)
Material
Changes; Undisclosed Events, or Developments
. Since the date
of the latest audited financial statements included within the SEC Reports,
except as specifically disclosed in a subsequent SEC Report filed prior to the
date hereof, (i) there has been no event, occurrence or development that has had
or that could reasonably be expected to result in a Material Adverse Effect,
(ii) the Company has not altered its method of accounting, (iii) the Company has
not declared or made any dividend or distribution of cash or other property to
its stockholders or purchased, redeemed or made any agreements to purchase or
redeem any shares of its capital stock and (iv) the Company has not issued any
equity securities to any officer, director or Affiliate, except pursuant to
existing Company stock option plans. The Company does not have
pending before the Commission any request for confidential treatment of
information.
(j)
Litigation
. To
the knowledge of the Company, and except as disclosed in the SEC Reports, there
is no action, suit, inquiry, notice of violation, proceeding or investigation
pending or threatened against or affecting the Company, any
Subsidiary or any of their respective properties before or by any court,
arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “
Action
”) which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Securities or (ii) could, if there were an
unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect. To the knowledge of the Company, there has not been,
and not is any not pending or contemplated, any investigation by the Commission
involving the Company or any current or former director or officer of the
Company.
(k)
Labor
Relations
. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company which could reasonably be expected to result in a Material Adverse
Effect. None of the Company’s or its Subsidiaries’ employees is a
member of a union that relates to such employee’s relationship with the Company
or such Subsidiary, and neither the Company nor any of its Subsidiaries is a
party to a collective bargaining agreement, and the Company and its Subsidiaries
believe that their relationships with their employees are good. To
the knowledge of the Company, no executive officer is, or is now expected to be,
in violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement or non-competition agreement, or
any other contract or agreement or any restrictive covenant in favor of any
third party, and the continued employment of each such executive officer does
not subject the Company or any of its Subsidiaries to any liability with respect
to any of the foregoing matters. The Company and its Subsidiaries are
in compliance with all U.S. federal, state, local and foreign laws and
regulations relating to employment and employment practices, terms and
conditions of employment and wages and hours, except where the failure to be in
compliance could not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.
(l)
Compliance
. Neither
the Company nor any Subsidiary (i) is in default under or in violation of (and
no event has occurred that has not been waived that, with notice or lapse of
time or both, would result in a default by the Company or any Subsidiary under),
nor has the Company or any Subsidiary received notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound (whether or not such default or
violation has been waived), (ii) is in violation of any order of any court,
arbitrator or governmental body, or (iii) is or has been in violation of any
statute, rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its business
and all such laws that affect the environment, except in each case as could not
have or reasonably be expected to result in a Material Adverse
Effect.
(m)
Regulatory
Permits
. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not reasonably be expected to result in a Material
Adverse Effect (“
Material Permits
”),
and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material
Permit.
(n)
Title to
Assets
. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them and good and
marketable title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear of all
Liens, except for Liens as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made of
such property by the Company and the Subsidiaries and Liens for the payment of
federal, state or other taxes, the payment of which is neither delinquent nor
subject to penalties. Any real property and facilities held under
lease by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases with which the Company and the Subsidiaries
are in compliance.
(o)
Patents and
Trademarks
. To the knowledge of the Company, the Company and
the Subsidiaries have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names, trade secrets,
inventions, copyrights, licenses and other intellectual property rights and
similar rights necessary or material for use in connection with their respective
businesses as described in the SEC Reports and which the failure to so have
could have a Material Adverse Effect (collectively, the “
Intellectual Property
Rights
”). Neither the Company nor any Subsidiary has received
a notice (written or otherwise) that any of the Intellectual Property Rights
used by the Company or any Subsidiary violates or infringes upon the rights of
any Person. To the knowledge of the Company, all such Intellectual
Property Rights are enforceable and there is no existing infringement by another
Person of any of the Intellectual Property Rights. The Company and
its Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties, except where
failure to do so could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
(p)
Tax
Status
. Except for matters that would not, individually or in
the aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company and each Subsidiary has filed all necessary federal, state
and foreign income and franchise tax returns and has paid or accrued all taxes
shown as due thereon, and the Company has no knowledge of a tax deficiency which
has been asserted or threatened against the Company or any
Subsidiary.
3.2
Representations and
Warranties of the Purchaser
. The
Purchaser hereby represents and warrants as of the date hereof and as of the
Closing Date to the Company as follows:
(a)
Organization;
Authority
. Purchaser is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization with full right, corporate or partnership power and authority to
enter into and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations hereunder and thereunder.
The execution and delivery of the Transaction Documents and performance by such
Purchaser of the transactions contemplated by the Transaction Documents have
been duly authorized by all necessary corporate or similar action on the part of
such Purchaser. Each Transaction Document to which it is a party has
been duly executed by Purchaser, and when delivered by Purchaser in accordance
with the terms hereof, will constitute the valid and legally binding obligation
of the Purchaser, enforceable against it in accordance with its terms, except
(i) as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies and (iii) insofar as indemnification and contribution
provisions may be limited by applicable law.
(b)
Own
Account
. The Purchaser understands that the Securities are
“restricted securities” and have not been registered under the Securities Act or
any applicable state securities law and is acquiring the Securities as principal
for its own account and not with a view to or for distributing or reselling such
Securities or any part thereof in violation of the Securities Act or any
applicable state securities law, has no present intention of distributing any of
such Securities in violation of the Securities Act or any applicable state
securities law and has no direct or indirect arrangement or understandings with
any other persons to distribute or regarding the distribution of such Securities
(this representation and warranty not limiting such Purchaser’s right to sell
the Securities pursuant to the Registration Statement or otherwise in compliance
with applicable federal and state securities laws) in violation of the
Securities Act or any applicable state securities law. Such Purchaser
is acquiring the Securities hereunder in the ordinary course of its
business.
(c)
Purchaser
Status
. Purchaser is either: (i) an “accredited investor” as
defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities
Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under
the Securities Act. Such Purchaser is not required to be registered
as a broker-dealer under Section 15 of the Exchange Act.
(d)
Experience of Such
Purchaser
. The Purchaser, either alone or together with its
representatives, has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Securities, and has so evaluated the merits
and risks of such investment. The Purchaser is able to bear the
economic risk of an investment in the Securities and, at the present time, is
able to afford a complete loss of such investment.
(e)
Short Sales
and Confidentiality Prior
To The Date Hereof
. Other than consummating the transactions
contemplated hereunder, the Purchaser has not, nor has any Person acting on
behalf of or pursuant to any understanding with such Purchaser, directly or
indirectly executed any purchases or sales, including Short Sales, of the
securities of the Company during the period commencing from the time that the
Purchaser and Company first discussed the terms of the Option or any other
Person representing the Company setting forth the material terms of the
transactions contemplated hereunder until the date hereof
(“
Discussion Time
”)
. Other than to other Persons party
to this Agreement, such Purchaser has maintained the confidentiality of all
disclosures made to it in connection with this transaction (including the
existence and terms of this transaction).
ARTICLE
IV.
OTHER
AGREEMENTS OF THE PARTIES
4.1
Transfer
Restrictions
.
(a) The
Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other
than pursuant to an effective registration statement or Rule 144, to the Company
or to an Affiliate of a Purchaser, the Company may require the transferor
thereof to provide to the Company an opinion of counsel selected by the
transferor and reasonably acceptable to the Company, the form and substance of
which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such transferred Securities
under the Securities Act. As a condition of transfer, any such
transferee shall agree in writing to be bound by the terms of this Agreement and
shall have the rights of a Purchaser under this Agreement and the Registration
Rights Agreement.
(b) The
Purchaser agrees to the imprinting, so long as is required by this Section 4.1,
of a legend on any of the Securities in the following form:
THIS
SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN
WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE
501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH
SECURITIES.
4.2
Securities Laws Disclosure;
Publicity
. The Company shall issue a Current Report on Form
8-K, disclosing the material terms of the transactions contemplated hereby, and
filing the Transaction Documents as exhibits thereto within the required period
of time following the Closing. The Company and the Purchaser shall
consult with each other in issuing any other press releases with respect to the
transactions contemplated hereby, and neither the Company nor the Purchaser
shall issue any such press release or otherwise make any such public statement
without the prior consent of the Company, with respect to any press release of
the Purchaser, or without the prior consent of the Purchaser, with respect to
any press release of the Company, which consent shall not unreasonably be
withheld or delayed, except if such disclosure is required by law, in which case
the disclosing party shall promptly provide the other party with prior notice of
such public statement or communication.
4.3
Limitation on Ownership
& Representation
.
(a) During
the term of the Option (or in the event the parties enter into a licensing
agreement as contemplated in the Option, during the duration of said licensing
agreement), Purchaser shall not: (i) seek to secure board representation; (ii)
enter into any voting agreement or grant a proxy to any third party with respect
to any Common Stock owned by the Purchaser; or (iii) acquire any of the
Company’s Common Stock or Common Stock Equivalents, to the extent that after
giving effect to purchase, the Purchaser (together any of Purchaser’s
Affiliates, and any other person or entity acting as a group together with such
Purchaser or any of such Purchaser’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 Purchaser and its Affiliates shall include the number
of shares of Common Stock issuable upon exercise of and Common Stock
Equivalents. For purposes of this Section 4.3, 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
Purchaser that the Company is not representing to such Purchaser that such
calculation is in compliance with Section 13(d) of the Exchange Act and such
Purchaser is solely responsible for any schedules required to be filed in
accordance therewith. To the extent that the limitation
contained in this Section 4.3 applies, the determination shall be in the sole
discretion of the Company. 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 4.3, in determining the
number of outstanding shares of Common Stock, parties may rely on the number of
outstanding shares of Common Stock as reflected in (x) the Company’s most recent
Form 10-Q or Form 10-K, as the case may be, (y) a more recent public
announcement by the Company or (z) any other notice by the Company or the
Company’s Transfer Agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of the Purchaser, the
Company shall within two Trading Days confirm orally and in writing to the
Purchaser the number of shares of Common Stock then outstanding. In any
case, the number of outstanding shares of Common Stock shall specifically
exclude and any Common Shares issuable upon the exercise of an Common Stock
Equivalents then issued and outstanding. The “
Beneficial Ownership
Limitation
” shall be 4.99% of the number of shares of the Common Stock
outstanding immediately before the purchase of any additional shares of the
Company’s equity securities.
(b) In
the event Purchaser breaches any of the covenants and agreements contained in
Section 4.3(a), Purchaser acknowledges that monetary remedies would not be
sufficient and acknowledges that any such violation or threatened
violation will cause irreparable injury to the other party and that, in addition
to any other remedies that may be available, in law, in equity or otherwise, the
Company shall be entitled to the following remedies, cumulatively: (i) the
obtaining of injunctive relief against the threatened breach or the continuation
of any such breach, without the necessity of proving actual damages; (ii) the
termination of the Option (or license if the parties have entered into a
licensing agreement as contemplated in the Option, the termination of the
license); and (iii) a determination by the Company, in its sole discretion, that
any votes cast by the Purchaser, Affiliates acting on its behalf, or assigns
with regard to the Common Shares then owned, are improper, void and of no force
or effect, which determination will be binding on the Purchaser.
4.4
Use of
Proceeds
. The Company shall use the net proceeds from the sale
of the Securities hereunder for working capital purposes.
4.5
Indemnification of
Purchaser
. Subject to the provisions of this Section
4.5, the Company will indemnify and hold Purchaser and its directors, officers,
shareholders, members, partners, employees and agents (and any other Persons
with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling persons (each, a
“
Purchaser
Party
”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against Purchaser
in any capacity, or any of them or their respective Affiliates, by any
stockholder of the Company who is not an Affiliate of such Purchaser, with
respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of Purchaser’s representations,
warranties or covenants under the Transaction Documents or any agreements or
understandings such Purchaser may have with any such stockholder or any
violations by the Purchaser of state or federal securities laws or any conduct
by such Purchaser which constitutes fraud, gross negligence, willful misconduct
or malfeasance). If any action shall be brought against any Purchaser
Party in respect of which indemnity may be sought pursuant to this Agreement,
such Purchaser Party shall promptly notify the Company in writing, and the
Company shall have the right to assume the defense thereof with counsel of its
own choosing reasonably acceptable to the Purchaser Party. Purchaser
Party shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Purchaser Party except to the extent that (i)
the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company has failed after a reasonable period of time to assume
such defense and to employ counsel or (iii) in such action there is, in the
reasonable opinion of such separate counsel, a material conflict on any material
issue between the position of the Company and the position of such Purchaser
Party, in which case the Company shall be responsible for the reasonable fees
and expenses of no more than one such separate counsel. The Company
will not be liable to Purchaser Party under this Agreement (i) for any
settlement by Purchaser Party effected without the Company’s prior written
consent, which shall not be unreasonably withheld or delayed; or (ii) to the
extent, but only to the extent that a loss, claim, damage or liability is
attributable to any Purchaser Party’s breach of any of the representations,
warranties, covenants or agreements made by such Purchaser Party in this
Agreement or in the other Transaction Documents.
4.6
Short Sales and
Confidentiality After The Date Hereof.
The Purchaser covenants that
neither it nor any Affiliate acting on its behalf or pursuant to any
understanding with it will execute any Short Sales during the period commencing
at the Discussion Time and ending at the expiration of the Option Period or in
the event a licensing agreement is reached between the parties, at the
termination of the licensing period.
4.7
Delivery of Securities After
Closing
. The Company shall deliver, or cause to be delivered,
the Securities purchased by the Purchaser within 15 Trading Days of the Closing
Date.
ARTICLE
V.
MISCELLANEOUS
5.1
Fees and
Expenses
. Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall pay all
Transfer Agent fees, stamp taxes and other taxes and duties levied in connection
with the delivery of any Securities to the Purchaser.
5.2
Entire
Agreement
. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and
schedules.
5.3
Notices
. Any
and all notices or other communications or deliveries required or permitted to
be provided hereunder shall be in writing and shall be deemed given and
effective on the earliest of (a) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth on
the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a
Trading Day, (b) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number set
forth on the signature pages attached hereto on a day that is not a Trading Day
or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the 2
nd
Trading
Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service, or (d) upon actual receipt by the party to whom such
notice is required to be given. The address for such notices and
communications shall be as set forth on the signature pages attached
hereto.
5.4
Amendments;
Waivers
. No provision of this Agreement may be waived or
amended except in a written instrument signed by the Company and the Purchaser
or, in the case of a waiver, by the party against whom enforcement of any such
waived provision is sought. No waiver 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 subsequent default 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.
5.5
Headings
. The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof.
5.6
Successors and
Assigns
. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of each Purchaser (other
than by merger). Any Purchaser may assign any or all of its rights
under this Agreement to any Person to whom such Purchaser assigns or transfers
any Securities, provided such transferee agrees in writing to be bound, with
respect to the transferred Securities, by the provisions of the Transaction
Documents that apply to the “Purchaser.”
5.7
No Third-Party
Beneficiaries
. This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person, except as otherwise set forth in Section 4.8.
5.8
Governing
Law
. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
Delaware, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the state of Delaware. Each party hereby irrevocably submits
to the exclusive jurisdiction of the state and federal courts sitting in the
state of Delaware for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction Documents),
and hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is improper or is an
inconvenient venue for such proceeding. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) 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 contained herein shall be deemed to limit in any way
any right to serve process in any other manner permitted by law. If
either party shall commence an action or proceeding to enforce any provisions of
the Transaction Documents, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its reasonable attorneys’
fees and other costs and expenses incurred with the investigation, preparation
and prosecution of such action or proceeding.
5.9
Survival
. The
representations and warranties contained herein shall survive the Closing and
the delivery of the Shares.
5.10
Execution
. This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a “.pdf” format data file, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if
such facsimile or “.pdf” signature page were an original thereof.
5.11
Severability
. If
any term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction to be invalid, illegal, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their commercially
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
5.12
Rescission and Withdrawal
Right
. Notwithstanding anything to the contrary contained in
(and without limiting any similar provisions of) any of the other Transaction
Documents, whenever Purchaser exercises a right, election, demand or option
under a Transaction Document and the Company does not timely perform its related
obligations within the periods therein provided, then the Purchaser may rescind
or withdraw, in its sole discretion from time to time upon written notice to the
Company, any relevant notice, demand or election in whole or in part without
prejudice to its future actions and rights.
5.13
Replacement of
Securities
. If any certificate or instrument evidencing the
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
thereof (in the case of mutilation), or in lieu of and substitution therefor, a
new certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction. The
applicant for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs (including customary indemnity)
associated with the issuance of such replacement Securities.
5.14
Remedies
. In
addition to being entitled to exercise all rights provided herein or granted by
law, including recovery of damages, the Purchaser and the Company will be
entitled to specific performance under the Transaction Documents. The
parties agree that monetary damages may not be adequate compensation for any
loss incurred by reason of any breach of obligations contained in the
Transaction Documents and hereby agrees to waive and not to assert in any action
for specific performance of any such obligation the defense that a remedy at law
would be adequate.
5.15
Construction
. The
parties agree that each of them and/or their respective counsel has reviewed and
had an opportunity to revise the Transaction Documents and, therefore, the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of the Transaction Documents or any amendments hereto.
5.16
Waiver of
Jury Trial
. In any action, suit or
proceeding in any jurisdiction brought by any party against any other party, the
parties each knowingly and intentionally, to the greatest extent permitted by
applicable law, hereby absolutely, unconditionally, irrevocably and expressly
waives forever trial by jury.
(Signature
Pages Follow)
IN WITNESS WHEREOF, the parties hereto
have caused this Securities Purchase Agreement to be duly executed by their
respective authorized signatories as of the date first indicated
above.
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NEURALSTEM,
INC.
|
Address for Notice:
9700
Great Seneca Highway
Rockville,
Maryland 20850
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By:
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Attn:
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Name:
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e-mail:
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Title:
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Tel:
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Fax:
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With
a copy to (which shall not constitute notice):
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[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE
PAGE FOR PURCHASER FOLLOWS]
[PURCHASER
SIGNATURE PAGES TO NEURALSTEM
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 above):
Subscription
Amount:
$:
Shares:
#:
EIN
Number:
[SIGNATURE
PAGES CONTINUE]
NEITHER
THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF
THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES.
COMMON
STOCK PURCHASE WARRANT
NEURALSTEM,
INC.
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Warrant
Shares: _______
|
Initial
Exercise Date:
[_______]
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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 the date hereof (the “
Initial Exercise
Date
”) and on or prior to the close of business on the ten year
anniversary of the Initial Exercise Date (the “
Termination Date
”)
but not thereafter, to subscribe for and purchase from Neuralstem, Inc., a
Delaware corporation (the “
Company
”), up to
______ 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
.
“
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. With
respect to a Holder, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Holder will be deemed
to be an Affiliate of such Holder.
“
Board of Directors
”
means the board of directors of the Company.
“
Business Day
” means
any day except any Saturday, any Sunday, any day which is a federal legal
holiday in the United States or any day on which banking institutions in the
State of New York are authorized or required by law or other governmental action
to close.
“
Commission
” means the
Securities and Exchange Commission.
“
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 into.
“
Exchange Act
” means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“
Market Price
” means:
(a) the closing price reported on the Company’s Trading Market on the Trading
Day immediately preceding any applicable measuring date, (b) if no trading
occurs on the Trading Day immediately preceding any applicable measurement date,
then the closing bid price reported on such Trading Market, (c) if the Company’s
Common Shares are not then listed on a Trading Market, the price offered by any
acquirer in a Fundamental Transaction, or (d) in all other cases, the fair
market value of a share of Common Stock as determined in good faith by the
Company’s Board of Directors at their sole and absolute discretion.
“
Rule 144
” means Rule
144 promulgated by the Commission pursuant to the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such
Rule.
“
Securities Act
” means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“
Trading Day
” means a
day on which the New York Stock Exchange is open for trading.
“
Trading Market
” means
the following markets or exchanges on which the Common Stock is listed or quoted
for trading on the date in question: the American Stock Exchange, the Nasdaq
Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the
New York Stock Exchange, and the OTC Bulletin Board.
“
Transfer Agent
” means
American Stock Transfer and Trust Company, the current transfer agent of the
Company with a mailing address of 59 Maiden Lane, New York, New York 10038 and a
facsimile number of (718) 921-8336, and any successor transfer agent of the
Company.
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 (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; and, within 3 Business 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 Business 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 1 Business Day of
receipt of such notice. In the event of any dispute or discrepancy,
the records of the Company 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 $1.70
,
subject to adjustment hereunder (the “
Exercise
Price
”).
c)
Cashless
Exercise
. If at any time after (i) the one year anniversary of
the date of the Initial Exercise Date and (ii) the completion of the
then-applicable holding period required by Rule 144, or any successor provision
then in effect, this Warrant may also be exercised 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 Market Price on the Business Day immediately preceding the date of
such election;
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(B) =
the Exercise Price of this Warrant, as adjusted; and
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|
(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.
|
Notwithstanding
anything herein to the contrary, and provided this Warrant is then in the money,
on the Termination Date this Warrant shall be automatically exercised via
cashless exercise pursuant to this Section 2(c).
d)
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 person or entity 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 (A) exercise of the remaining,
nonexercised portion of this Warrant beneficially owned by the Holder or any of
its Affiliates and (B) 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(d), 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(d) 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(d), 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 (x) the Company’s most recent
periodic or annual report, as the case may be, (y) a more recent public
announcement by the Company or (z) any other 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(d), 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(d) shall continue to
apply. Any such increase or decrease will not be effective until the
61
st
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(c) 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.
e)
Mechanics of
Exercise
.
i.
Delivery of Certificates
Upon Exercise
. Certificates for shares purchased hereunder
shall be by physical delivery to the address specified by the Holder in the
Notice of Exercise within 15 Business Days from the delivery to the Company of
the Notice of Exercise Form, surrender of this Warrant (if required) and payment
of the aggregate Exercise Price as set forth above (the “
Warrant Share Delivery
Date
”). This Warrant shall be deemed to have been exercised on
the date the Exercise Price is received by the Company. 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
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(e)(v) prior to the issuance of such shares, have been
paid.
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 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.
iii.
Rescission
Rights
. If the Company fails to cause the transfer agent of
the Company to transmit to the Holder a certificate or the certificates
representing the Warrant Shares pursuant to Section 2(e)(i) by the Warrant Share
Delivery Date, then, the Holder will have the right to rescind such
exercise.
iv.
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.
v.
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.
vi.
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
.
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)
Fundamental
Transaction
. If, at any time while this Warrant is outstanding, (i) the
Company effects any merger or consolidation of the Company with or into another
Person, (ii) the Company effects any sale of all or substantially all of its
assets in one or a series of related transactions, (iii) any tender offer or
exchange offer (whether by the Company or another Person) is completed pursuant
to which holders of Common Stock are permitted to tender or exchange their
shares for other securities, cash or property or (iv) the Company effects any
reclassification 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 “
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, 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 merger, consolidation or
disposition of assets by a holder of the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such event. 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. To the extent necessary to effectuate the foregoing
provisions, any successor to the Company or surviving entity in such Fundamental
Transaction shall issue to the Holder a new warrant consistent with the
foregoing provisions and evidencing the Holder’s right to exercise such warrant
into Alternate Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this Section 3(b)
and insuring that this Warrant (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction. Notwithstanding anything to the contrary, in the event of a
Fundamental Transaction that is (1) an all cash transaction, or (2) a “Rule
13e-3 transaction” as defined in Rule 13e-3 under the Exchange Act, the Company
or any successor entity shall pay at the Holder’s option, exercisable at any
time concurrently with or within 30 days after the consummation of the
Fundamental Transaction, an amount of cash, per share, equal to the (A) Market
Price, less (B) the Exercise Price, on the date the Fundamental Transaction is
consummated. In the event the product of the forgoing is negative, no
payment by the Company shall be required.
c)
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.
d)
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 setting forth a brief
statement of the facts requiring such adjustment. Notwithstanding the
forgoing, in the event the Company makes a public disclosure with regard to the
Exercise Price adjustment, such disclosure shall be deemed notice to the
Holders.
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, of 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. The Holder is
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.
Notwithstanding the forgoing, in the event the Company makes a public disclosure
with regard to the subject matter of this Section 3(d)(ii), such disclosure
shall be deemed notice to the Holders.
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 (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, may be exercised by a new holder for the purchase of Warrant
Shares without having a new Warrant issued. Notwithstanding the
foregoing, upon request by Holder, the Company will issue a new Warrant or
Warrants in the names of any assignee(s) of Holder at no charge to Holder or the
assignee(s).
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) and 4(d), 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.
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
eligible for resale
without volume or manner-of-sale restrictions pursuant to Rule 144
, the Company may require, as a
condition of allowing such transfer
, that
the Holder or transferee of this
Warrant,
as the case may
be,
may be required by the
Company to provide an opinion of counsel with regard to such assignment or
transfer.
Section
5.
Demand Registration
Rights
. The Company shall prepare and file an appropriate
registration statement covering the shares underlying this Warrant, with the
Securities and Exchange Commission within ninety (90) days of receipt of notice
of demand from Holder. The Company shall exercise reasonable, good
faith efforts to cause such registration statement to be deemed effective as
soon as reasonably practicable after filing and shall use its best efforts to
keep such registration statement continuously effective under the Securities Act
until all securities covered by such registration statement have been sold, or
may be sold without volume or manner-of-sale restrictions pursuant to Rule
144. The Company shall have the right to postpone the filing of a
registration statement for a period not to exceed thirty (30) days, which right
Company would be permitted to exercise only under circumstances customarily
entitling issuers to postpone demand registrations, as mutually agreed upon
between the parties. The Holder shall only have one (1) demand right
under this section. This demand registration right and the Company’s
obligation to maintain any registration statement filed hereunder effective
shall automatically terminate when all the shares underlying this Warrant have
been sold or may be sold without volume or manner of sale restrictions pursuant
to Rule 144. In the event any portion of this Warrant is transferred
or assigned, the Holder acknowledges that the right to demand registration shall
require the consent of the Holders then holding a majority of the Warrant shares
then outstanding.
Section
6
.
Miscellaneous
.
a)
No Rights as Stockholder
Until Exercise
. 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 as set forth in Section 2(e)(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, 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).
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)
Governing Law and
Venue
. All questions concerning the construction, validity, enforcement
and interpretation of this Warrant shall be governed by and construed and
enforced in accordance with the internal laws of the State of Delaware, without
regard to the principles of conflicts of law thereof. Each party
agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Warrant (whether brought
against a party hereto or its respective affiliates, directors, officers,
shareholders, employees or agents) shall be commenced exclusively in the state
and federal courts sitting in the state of Maryland. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the state of Maryland for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein, and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or
proceeding is improper or is an inconvenient venue for such
proceeding. Each party hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
other manner permitted by law. If either party shall commence
an action or proceeding to enforce any provisions of this Warrant, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its reasonable attorneys’ fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or
proceedings or questions concerning the construction, validity, enforcement and
interpretation of this Warrant.
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 Holder’s rights, powers or remedies,
notwithstanding the fact that all rights hereunder terminate on the Termination
Date. If the Company willfully and knowingly fails to comply with any
provision of this Warrant, which results in any material damages to the Holder,
the Company shall pay to Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys’ fees,
including those of appellate proceedings, incurred by Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its rights, powers
or remedies hereunder.
h)
Notices
. Any
and all notices or other communications or deliveries required or permitted to
be provided hereunder shall be in writing and shall be deemed given and
effective on the earliest of (a) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth on
the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a
Trading Day, (b) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number set
forth on the signature pages attached hereto on a day that is not a Trading Day
or later than 5:30 p.m. (New York City time) on any Trading Day, the date of the
public disclosure if such notice is communicated via public disclosure (d) the
second Trading Day following the date of mailing, if sent by U.S. nationally
recognized overnight courier service, or (e) upon actual receipt by the party to
whom such notice is required to be given. The address for such
notices and communications shall be: (i) if to Holder, at its address
of records as contained in the Warrant Register, and (ii) if to Company, at its
corporate headquarters.
i)
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.
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 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 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 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
Pages Follow)
IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officer thereunto duly authorized as of the date first above
indicated.
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NEURALSTEM,
INC.
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By:
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Name:
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Title:
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NOTICE
OF EXERCISE
TO: NEURALSTEM,
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
[ ] 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 by the physical delivery of a certificate
to:
_______________________________
_______________________________
_______________________________
(4) [If required by
applicable regulations]
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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_____________________________
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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.
NEITHER
THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF
THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES.
COMMON
STOCK PURCHASE WARRANT
NEURALSTEM,
INC.
|
Warrant
Shares: 400,000
|
Initial
Issue Date: January 29,
2010
|
THIS
COMMON STOCK PURCHASE WARRANT (the “
Warrant
”) certifies
that, for value received, Vicis Capital Master Fund (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 date hereof (the “
Initial Exercise
Date
”) and on or prior to the close of business on the one (1) year
anniversary of the Initial Exercise Date (the “
Termination Date
”)
but not thereafter, to subscribe for and purchase from Neuralstem, Inc., a
Delaware corporation (the “
Company
”), up to
400,000 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
. In
addition to the terms defined elsewhere in this Warrant, the following terms
have the meanings set forth below:
“
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.
“
Board of Directors
”
means the board of directors of the Company.
“
Business Day
” means
any day except any Saturday, any Sunday, any day which is a federal legal
holiday in the United States or any day on which banking institutions in the
State of New York are authorized or required by law or other governmental action
to close.
“
Commission
” means the
United States Securities and Exchange Commission.
“
Common Stock
” means
the common stock of the Company, par value $0.01 per share, and any other class
of securities into which such securities may hereafter be reclassified or
changed.
“
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, rights, options,
warrants 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.
“
Company
” means
Neuralstem, Inc.
“
Exchange Act
” means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“
Filing Date
” means,
with respect to the Initial Registration Statement required hereunder, the 45th
calendar day following the Initial Issuance Date and, with respect to any
additional Registration Statements which may be required pursuant to Section
3(c), the earliest practical date on which the Company is permitted by SEC
Guidance to file such additional Registration Statement related to the
Registrable Securities.
“
Initial Registration
Statement
” means the initial Registration Statement filed pursuant to
this Agreement.
“
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.
“
Proceeding
” means an
action, claim, suit, investigation or proceeding (including, without limitation,
an informal investigation or partial proceeding, such as a deposition), whether
commenced or threatened.
“
Registrable
Securities
” means all Warrant Shares (assuming on the date of
determination the Warrants are exercised in full without regard to any exercise
limitations therein); provided, however, that the Company shall not be required
to maintain the effectiveness, or file another Registration Statement hereunder
with respect to any Registrable Securities that are not subject to the current
public information requirement under Rule 144 and that are eligible for resale
without volume or manner-of-sale restrictions without current public information
pursuant to Rule 144 promulgated by the Commission pursuant to a written opinion
letter to such effect, addressed, delivered and acceptable to the transfer agent
of the Company and the affected Holders.
“
Registration
Statement
” means any registration statement and any additional
registration statements and required or contemplated by Section 5.
“
Rule 144
” means Rule
144 promulgated by the Commission pursuant to the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such
Rule.
“
Securities Act
” means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“
Trading Day
” means a
day on which the principal Trading Market is open for trading.
“
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).
“
Transfer Agent
” means
American Stock Transfer, with a mailing address of 59 Maiden Lane, Plaza Level,
New York, New York 10038, and any successor transfer agent of the
Company.
“
Warrant Shares
” means
the shares of Common Stock issuable upon exercise of the Warrant.
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, subject to the restrictions contained in
Section 2(e), 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; and, within three (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 of,
if available, pursuant to the cashless exercise procedure specified in Section
2(c) below. 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 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
$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) =
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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) =
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the
Exercise Price of this Warrant, as adjusted hereunder;
and
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(X) =
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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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“
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 Holder and reasonably acceptable to the
Company, the fees and expenses of which shall be paid by the
Company.
Notwithstanding
anything herein to the contrary, on the Termination Date, this Warrant shall be
automatically exercised via cashless exercise pursuant to this Section
2(c).
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 Withdrawal Agent Commission (“
DWAC
”) system 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 Form, (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
”). This Warrant shall be deemed to have been exercised on
the first date on which all of the foregoing have been delivered to the
Company. 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. If the Company fails for any reason to deliver to
the Holder certificates evidencing the Warrant Shares subject to a Notice of
Exercise by the Warrant Share Delivery Date, the Company shall pay to the
Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of
Warrant Shares subject to such exercise (based on the VWAP of the Common Stock
on the date of the applicable Notice of Exercise), $10 per Trading Day
(increasing to $20 per Trading Day on the fifth Trading Day after such
liquidated damages begin to accrue) for each Trading Day after such Warrant
Share Delivery Date until such certificates are delivered or Holder rescinds
such exercise.
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 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.
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 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.
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
.
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(i)
|
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 61
st
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.
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(ii)
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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, until such time as the Company receives approval
from its primary Trading Market for the listing of the Warrant
Shares.
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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)
[INTENTIONALLY
DELETED]
c)
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 Holders) 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.
d)
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
Holders) evidences of its indebtedness or assets (including cash and cash
dividends) or rights or warrants to subscribe for or purchase any security other
than the Common Stock), 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 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.
e)
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, (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, (v) the Company, directly or indirectly, in one or more related
transactions consummates a stock or share purchase agreement or other business
combination (including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with another Person whereby such other Person
acquires more than 50% of the outstanding shares of Common Stock (not including
any shares of Common Stock held by the other Person or other Persons making or
party to, or associated or affiliated with the other Persons making or party to,
such stock or share purchase agreement or other business combination) (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 anything to the contrary, in the event
of a Fundamental Transaction that is (1) an all cash transaction, (2) a “Rule
13e-3 transaction” as defined in Rule 13e-3 under the Exchange Act, or (3) a
Fundamental Transaction involving a person or entity not traded on a national
securities exchange, including, but not limited to, the Nasdaq Global Select
Market, the Nasdaq Global Market, or the Nasdaq Capital Market, the Company or
any Successor Entity (as defined below) shall, at the Holder’s option,
exercisable at any time concurrently with, or within 30 days after, the
consummation of the Fundamental Transaction, purchase this Warrant from the
Holder by paying to the Holder an amount of cash equal to the Black Scholes
Value of the remaining unexercised portion of this Warrant on the date of the
consummation of such Fundamental Transaction. “
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, L.P. (“
Bloomberg
”)
determined as of the day of consummation of the applicable Fundamental
Transaction for pricing purposes and reflecting (A) a risk-free interest rate
corresponding to the U.S. Treasury rate for a period equal to the time between
the date of the public announcement of the applicable Fundamental Transaction
and the Termination Date, (B) an expected volatility equal to the greater of
100% and the 100 day volatility obtained from the HVT function on Bloomberg as
of the Trading Day immediately following the public announcement of the
applicable Fundamental Transaction, (C) the underlying price per share used in
such calculation shall be the sum of the price per share being offered in cash,
if any, plus the value of any non-cash consideration, if any, being offered in
such Fundamental Transaction and (D) a remaining option time equal to the time
between the date of the public announcement of the applicable Fundamental
Transaction and the Termination Date. The Company shall cause any
successor entity in a Fundamental Transaction in which the Company is not the
survivor (the “
Successor Entity
”) to
assume in writing all of the obligations of the Company under this Warrant in
accordance with the provisions of this Section 3(e) pursuant to written
agreements in form and substance reasonably satisfactory to the Holder and
approved by the Holder (without unreasonable delay) prior to such Fundamental
Transaction and shall, at the option of the holder of this Warrant, deliver to
the Holder in exchange for this Warrant a security of the Successor Entity
evidenced by a written instrument substantially similar in form and substance to
this Warrant which is exercisable for a corresponding number of shares of
capital stock of such Successor Entity (or its parent entity) equivalent to the
shares of Common Stock acquirable and receivable upon exercise of this Warrant
(without regard to any limitations on the exercise of this Warrant) prior to
such Fundamental Transaction, and with an exercise price which applies the
exercise price hereunder to such shares of capital stock (but taking into
account the relative value of the shares of Common Stock pursuant to such
Fundamental Transaction and the value of such shares of capital stock, such
number of shares of capital stock and such exercise price being for the purpose
of protecting the economic value of this Warrant immediately prior to the
consummation of such Fundamental Transaction), and which is reasonably
satisfactory in form and substance to the Holder. Upon the occurrence of any
such Fundamental Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Warrant referring to the “Company” shall
refer instead to the Successor Entity), and may exercise every right and power
of the Company and shall assume all of the obligations of the Company under this
Warrant with the same effect as if such Successor Entity had been named as the
Company herein.
f)
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.
g)
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 setting forth a brief
statement of the facts requiring such adjustment. Notwithstanding the foregoing,
the filing of a Current Report on Form 8-K with the SEC with regard to the
forgoing will be deemed notice to the Holder.
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 10 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. Notwithstanding the foregoing, the filing of a Current Report
on Form 8-K with the SEC with regard to the forgoing will be deemed notice to
the Holder.
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 set forth on the first page of this Warrant and shall
be identical with this Warrant except as to the number of Warrant Shares
issuable pursuant thereto.
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)
Representation by the
Holder
. The Holder, by the acceptance hereof, represents and
warrants that it is acquiring this Warrant and, upon any exercise hereof, will
acquire the Warrant Shares issuable upon such exercise, for its own account and
not with a view to or for distributing or reselling such Warrant Shares or any
part thereof in violation of the Securities Act or any applicable state
securities law, except pursuant to sales registered or exempted under the
Securities Act.
Section
5.
Registration
Rights
(a) On
or prior to each Filing Date, the Company shall prepare and file with the
Commission a Registration Statement covering the resale of all or such maximum
portion of the Warrant Shares as permitted by SEC Guidance (provided that, the
Company shall use diligent efforts to advocate with the Commission for the
registration of all of the Warrant Shares in accordance with the SEC Guidance,
including without limitation, the Manual of Publicly Available Telephone
Interpretations D.29) that are not then registered on an effective Registration
Statement for an offering to be made on a continuous basis pursuant to Rule
415. Subject to the terms of this Section 5, the Company shall use
its best efforts to cause a Registration Statement to be declared effective
under the Securities Act as promptly as possible after the filing thereof, and
shall use its best efforts to keep such Registration Statement continuously
effective under the Securities Act until all Registrable Securities covered by
such Registration Statement have been sold, or may be sold without volume or
manner-of-sale restrictions pursuant to Rule 144, without the requirement for
the Company to be in compliance with the current public information requirement
under Rule 144, as determined by the counsel to the Company pursuant to a
written opinion letter to such effect, addressed and acceptable to the transfer
agent of the Company and the affected Holders (the “
Effectiveness
Period
”).
(b) If:
(i) the Initial Registration Statement is not filed on or prior to its Filing
Date or (ii) after the effective date of a Registration Statement, such
Registration Statement ceases for any reason to remain continuously effective as
to all Registrable Securities included in such Registration Statement, or the
Holders are otherwise not permitted to utilize the Prospectus therein to resell
such Registrable Securities, for more than 45 consecutive calendar days or more
than an aggregate of 60 calendar days (which need not be consecutive calendar
days) during any 12-month period (any such failure or breach being referred to
as an “
Event
”,
and for purposes of clauses (i), the date on which such Event occurs, and for
purpose of clause (ii) the date on which such 45 or 60 calendar day period, as
applicable, is exceeded being referred to as “
Event Date
”), then,
in addition to any other rights the Holders may have hereunder or under
applicable law, on each such Event Date and on each monthly anniversary of each
such Event Date (if the applicable Event shall not have been cured by such date)
until the applicable Event is cured, the Company shall pay to each Holder an
amount in non-registered Common Stock, as partial liquidated damages and not as
a penalty, equal to 1.0% of the aggregate Exercise Price of the then outstanding
Warrant. For purposes of calculating the partial liquidated damages,
the aggregate Exercise Price shall be the value of the unexercised portion of
the Warrant multiplied by the Exercise Price. If the Company fails to
pay any partial liquidated damages pursuant to this Section in full within
thirty days after the date payable, the Company will pay interest thereon at a
rate of 18% per annum in the form of un-registered Common Stock (or such lesser
maximum amount that is permitted to be paid by applicable law) to the Holder,
accruing daily from the date such partial liquidated damages are due until such
amounts, plus all such interest thereon, are paid in full. The partial
liquidated damages pursuant to the terms hereof shall apply on a daily pro rata
basis for any portion of a month prior to the cure of an Event.
(c) If
during the Effectiveness Period, the number of Registrable Securities at any
time exceeds 100% of the number of shares of Common Stock then registered in a
Registration Statement, then the Company shall file as soon as reasonably
practicable, but in any case prior to the applicable Filing Date, an additional
Registration Statement covering the resale by the Holders of not less than the
number of such Registrable Securities.
Section
6
.
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).
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
. All
questions concerning the construction, validity, enforcement and interpretation
of the Transaction Documents shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, without regard to
the principles of conflicts of law thereof. Each party agrees that
all legal proceedings concerning the interpretations, enforcement and defense of
the transactions contemplated by this Agreement and any other Transaction
Documents (whether brought against a party hereto or its respective affiliates,
directors, officers, shareholders, employees or agents) shall be commenced
exclusively in the state and federal courts sitting in the City of New York.
Each party hereby irrevocably submits to the exclusive jurisdiction of the state
and federal courts sitting in the City of New York, borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or is an inconvenient venue for such
proceeding. Each party hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) 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 contained herein shall be deemed to limit in any way
any right to serve process in any other manner permitted by law. If
either party shall commence an action or proceeding to enforce any provisions of
the Transaction Documents, then, in addition to the obligations of the Company
under Section 4.8, the prevailing party in such action or proceeding shall be
reimbursed by the other party for its reasonable attorneys’ fees and other costs
and expenses incurred with the investigation, preparation and prosecution of
such action or proceeding.
Restrictions
. The
Holder acknowledges that the Warrant Shares acquired upon the exercise of this
Warrant, if not registered, and the Holder does not utilize cashless exercise,
will have restrictions upon resale imposed by state and federal securities
laws.
f)
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 Holder’s rights, powers or
remedies. Without limiting any other provision of this Warrant or the
Purchase Agreement, if the Company willfully and knowingly fails to comply with
any provision of this Warrant, which results in any material damages to the
Holder, the Company shall pay to Holder such amounts as shall be sufficient to
cover any costs and expenses including, but not limited to, reasonable
attorneys’ fees, including those of appellate proceedings, incurred by Holder in
collecting any amounts due pursuant hereto or in otherwise enforcing any of its
rights, powers or remedies hereunder.
g)
Notices
. Any
and all notices or other communications or deliveries required or permitted to
be provided hereunder shall be in writing and shall be deemed given and
effective on the earliest of: (a) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth on
the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a
Trading Day, (b) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number set
forth on the signature pages attached hereto on a day that is not a Trading Day
or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second
(2nd) Trading Day following the date of mailing, if sent by U.S. nationally
recognized overnight courier service or (d) upon actual receipt by the party to
whom such notice is required to be given. The address for such
notices and communications shall be: (i) for the Company, at the Company’s
headquarters as stated on the cover of the Company’s filings with the SEC; and
(ii) for Holder, at the address as set forth on the Warrant
Register.
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
. 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.
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 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.
k)
Amendment
. This
Warrant may be modified or amended or the provisions hereof waived with the
written consent of the Company and Holders holding Warrants at least equal to
67% of the Warrant Shares issuable upon exercise of all then outstanding
Warrants.
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.
********************
(Signature
Pages Follow)
IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officer thereunto duly authorized as of the date first above
indicated.
|
NEURALSTEM,
INC.
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By:
|
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Name: Richard
Garr
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Title: Chief
Executive Officer
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NOTICE
OF EXERCISE
TO:
NEURALSTEM, 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):
o
in lawful money of the
United States; or
o
[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:
______________________________________________________________________________________________
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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Holder’s
Address:
|
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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.
NEITHER
THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF
THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES.
COMMON
STOCK PURCHASE WARRANT
NEURALSTEM,
INC.
|
Warrant
Shares:
_______
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Initial
Exercise Date: March [___],
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 the date hereof (the
“
Initial Exercise
Date
”) and on or prior to the close of business on the five year
anniversary of the Initial Exercise Date (the “
Termination Date
”)
but not thereafter, to subscribe for and purchase from Neuralstem, Inc., a
Delaware corporation (the “
Company
”), up to
______
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
. In
addition to the terms defined elsewhere in this Warrant, the following terms
have the meanings set forth below:
“
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.
“
Board of Directors
”
means the board of directors of the Company.
“
Business Day
” means
any day except any Saturday, any Sunday, any day which is a federal legal
holiday in the United States or any day on which banking institutions in the
State of New York are authorized or required by law or other governmental action
to close.
“
Commission
” means the
United States Securities and Exchange Commission.
“
Common Stock
” means
the common stock of the Company, par value $0.01 per share, and any other class
of securities into which such securities may hereafter be reclassified or
changed.
“
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, rights, options,
warrants 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.
“
Company
” means
Neuralstem, Inc.
“
Exchange Act
” means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“
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.
“
Proceeding
” means an
action, claim, suit, investigation or proceeding (including, without limitation,
an informal investigation or partial proceeding, such as a deposition), whether
commenced or threatened.
“
Rule 144
” means Rule
144 promulgated by the Commission pursuant to the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such
Rule.
“
Securities Act
” means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“
Trading Day
” means a
day on which the principal Trading Market is open for trading.
“
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).
“
Transfer Agent
” means
American Stock Transfer, with a mailing address of 59 Maiden Lane, Plaza Level,
New York, New York 10038, and any successor transfer agent of the
Company.
“
Warrant Shares
” means
the shares of Common Stock issuable upon exercise of the Warrant.
“
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 for trading 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 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 Sheets, LLC (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 Purchasers of a majority in interest of
the Shares 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
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 Form 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 such 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 Form within 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.
b)
Exercise
Price
. The exercise price per share of the Common Stock under
this Warrant shall be
$2.13
, subject to adjustment
hereunder (the “
Exercise
Price
”).
c)
Cashless
Exercise
. If at any time after one year from the Closing there
is no effective registration statement registering, 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” 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:
|
|
(A) =
|
the
VWAP 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.
|
Notwithstanding
anything herein to the contrary, on the Termination Date, this Warrant shall be
automatically exercised via cashless exercise pursuant to this Section
2(c).
d)
Holder’s
Restrictions
.
i. 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, such Holder
(together with such Holder’s Affiliates, and any other person or entity acting
as a group together with such Holder or any of such 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 such 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 (A) exercise of the
remaining, nonexercised portion of this Warrant beneficially owned by such
Holder or any of its Affiliates and (B) 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 such Holder or any of its
affiliates. Except as set forth in the preceding sentence, for purposes of
this Section 2(d), 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 such Holder that such calculation is in compliance with Section
13(d) of the Exchange Act and such 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(d) applies, the
determination of whether this Warrant is exercisable (in relation to other
securities owned by such 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 such Holder together with any Affiliates) and of which
portion of this Warrant is exercisable, in each case subject 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(d), 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 (x)
the Company’s most recent Form 10-QSB or Form 10-KSB, as the case may be, (y) a
more recent public announcement by the Company or (z) any other notice by the
Company or the Company’s 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 such
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 such 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 Beneficial
Ownership Limitation provisions of this Section 2(d) may be waived by such
Holder, at the election of such Holder, upon not less than 61 days’ prior notice
to the Company to change the Beneficial Ownership Limitation to 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, and the
provisions of this Section 2(d) shall continue to apply. Upon such a
change by a Holder of the Beneficial Ownership Limitation from such 4.99%
limitation to such 9.99% limitation, the Beneficial Ownership Limitation may not
be further waived by such Holder. 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(d) 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.
ii. Notwithstanding
anything contained herein this Warrant to the contrary, 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, pursuant to Section 2 or otherwise, until
such time as the Company receives approval from its primary Trading Market for
the listing of the Warrant Shares.
e)
Mechanics of
Exercise
.
i.
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 Agent Commission (“
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 3 Trading Days from the delivery to the Company of the
Notice of Exercise Form, surrender of this Warrant (if required) 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. 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
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(e)(vi) prior to the issuance of such shares, have been paid. If the
Company fails for any reason to deliver to the Holder certificates evidencing
the Warrant Shares subject to a Notice of Exercise by the second Trading Day
following the Warrant Share Delivery Date, the Company shall pay to such Holder,
in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant
Shares subject to such exercise (based on the VWAP of the Common Stock on the
date of the applicable Notice of Exercise), $10 per Trading Day (increasing to
$20 per Trading Day on the fifth Trading Day after such liquidated damages begin
to accrue) for each Trading Day after such Warrant Share Delivery Date until
such certificates are delivered.
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 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.
iii.
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(e)(ii) 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 its transfer agent to transmit to the Holder a certificate or 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 (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 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.
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 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.
f)
Call
Provision
. Subject to the provisions of Section 2(d) and this
Section 2(f), if, after the Initial Exercise Date, (i) the VWAP for each of 10
consecutive Tading Days (the “
Measurement Period
,”)
exceeds $5.00 (subject to adjustment for forward and reverse stock splits,
recapitalizations, stock dividends and the like after the Initial Exercise
Date), (ii) the average daily minimum volume for such Measurement Period exceeds
100,000 shares of Common Stock per Trading Day (subject to adjustment for
forward and reverse stock splits, recapitalizations, stock dividends and the
like after the Initial Exercise Date), (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, and (iv) there is an effective
Registration Statement pursuant to which the Holder is permitted to utilize the
prospectus thereunder to resell all of the shares issuable pursuant to the
Transaction Documents (and the Company believes, in good faith, that such
effectiveness will continue uninterrupted for the foreseeable future) then, the
Company may, within 1 Business 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 $.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 10
th
Business Day after the date the Call Notice is given to the Holder (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) the Registration Statement shall be effective as to all Warrant
Shares and the prospectus thereunder available for use by the Holder for the
resale of all such Warrant Shares, and (3) the Common Stock shall be listed or
quoted for trading on the Trading Market, and (4) there is a sufficient number
of authorized shares of Common Stock for issuance of all Securities under the
Transaction Documents, and (5) the issuance of the shares shall not cause a
breach of any provision of 2(d) herein. 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.
Section
3
.
Certain
Adjustments
.
a)
Stock Dividends and
Splits
. If the Company, at any time while this Warrant is outstanding:
(A) pays a stock dividend or otherwise make 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), (B) subdivides outstanding shares of Common Stock into a larger number
of shares, (C) combines (including by way of reverse stock split) outstanding
shares of Common Stock into a smaller number of shares, or (D) 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 Holders) entitling them to subscribe for or purchase shares of
Common Stock at a price per share less than the VWAP at 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 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 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 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.
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
Holders of the Warrants) evidences of its indebtedness or assets (including cash
and cash dividends) or rights or warrants to subscribe for or purchase any
security other than the Common Stock (which shall be subject to Section 3(b)),
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 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, (A) the
Company effects any merger or consolidation of the Company with or into another
Person, (B) the Company effects any sale of all or substantially all of its
assets in one or a series of related transactions, (C) any tender offer or
exchange offer (whether by the Company or another Person) is completed pursuant
to which holders of Common Stock are permitted to tender or exchange their
shares for other securities, cash or property, or (D) the Company effects any
reclassification 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 “
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, 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 merger, consolidation or
disposition of assets by a holder of the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such event. 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. To the extent necessary to effectuate the foregoing
provisions, any successor to the Company or surviving entity in such Fundamental
Transaction shall issue to the Holder a new warrant consistent with the
foregoing provisions and evidencing the Holder’s right to exercise such warrant
into Alternate Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this Section 3(e)
and insuring that this Warrant (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction. Notwithstanding anything to the contrary, in the event of a
Fundamental Transaction that is (1) an all cash transaction, (2) a “Rule 13e-3
transaction” as defined in Rule 13e-3 under the Securities Exchange Act of 1934,
as amended, or (3) a Fundamental Transaction involving a person or entity not
traded on a national securities exchange, the Nasdaq Global Select Market, the
Nasdaq Global Market, or the Nasdaq Capital Market, the Company or any successor
entity shall pay at the Holder’s option, exercisable at any time concurrently
with or within 30 days after the consummation of the Fundamental Transaction, an
amount of cash equal to the value of this Warrant as determined in accordance
with the Black-Scholes option pricing formula using an expected volatility equal
to the 100 day historical price volatility obtained from the HVT function on
Bloomberg L.P. as of the trading day immediately prior to the public
announcement of the Fundamental Transaction.
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)
Voluntary Adjustment By
Company
. The Company may at any time during the term of this Warrant
reduce the then current Exercise Price to any amount and for any period of time
deemed appropriate by the Board of Directors of the Company.
g)
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 provide to the Holder a notice
setting forth the Exercise Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. For purpose of
providing notice, if the Company makes a public disclosure of such adjustment in
the SEC Reports, notice shall be deemed to have been given.
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, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; (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. The Holder is
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.
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 and to the provisions of Section 4.1 of the Purchase
Agreement, 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 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.
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,
comply with the provisions of Section 5.7 of the
Purchase Agreement.
Section
5
.
Miscellaneous
.
a)
No Rights as Shareholder
Until Exercise
. This Warrant does not entitle the Holder to
any voting rights or other rights as a shareholder of the Company prior to the
exercise hereof as set forth in Section 2(e)(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, 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).
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 (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 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
. All
questions concerning the construction, validity, enforcement and interpretation
of this Warrant shall be determined in accordance with the provisions of the
Purchase Agreement.
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 Holder’s rights, powers or remedies,
notwithstanding the fact that all rights hereunder terminate on the Termination
Date. If the Company willfully and knowingly fails to comply with any
provision of this Warrant, which results in any material damages to the Holder,
the Company shall pay to Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys’ fees,
including those of appellate proceedings, incurred by Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its rights, powers
or remedies hereunder.
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 notice
provisions of the Purchase Agreement.
i)
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.
j)
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.
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 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.
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.
********************
IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officer thereunto duly authorized as of the date first above
indicated.
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NEURALSTEM,
INC.
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By:
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Name:
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Title:
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NOTICE
OF EXERCISE
TO: NEURALSTEM,
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:
_______________________________
_______________________________
_______________________________
(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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Holder’s
Address:
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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.
NEURALSTEM,
INC.
STOCK
PLAN
STOCK
OPTION AGREEMENT
Unless
otherwise defined herein, the terms defined in the Neuralstem, Inc [____] Stock
Plan (“Plan”) shall have the same defined meanings in this Option
Agreement.
The
Optionee has been granted an Option to purchase Common Stock (“Shares”) of the
Company, subject to the terms and conditions of the Plan and this Option
Agreement, as follows:
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Optionee
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[____]
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Grant
Number
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[ ]
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Date
of Grant
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[ ]
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Vesting
Commencement Date
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[
Date ]
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Exercise
Price per Share
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Total
Number of Shares
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[ ]
shares
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Total
Exercise Price
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$[ ]
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Type
of Option:
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¨
Incentive
Stock Option
1
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¨
Nonstatutory
Stock Option
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Term/Expiration
Date:
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[
XXX years from grant ][in no event longer than 10
years]
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Vesting
Schedule
:
So long
as Optionee is an Employee, Consultant or Member of the Board (collectively a
“Service Provider”), this Option shall be exercisable, in whole or in part,
according to the following vesting schedule (“Vesting Schedule”):
[ Description
of vesting terms ]
In the
event Optionee ceases to be a Service Provider, this Option shall immediately
cease vesting and the unvested portion will laps.
1
Notwithstanding the initial status as an ISO, upon the occurrence of certain
events as provided for in the Code, ISO qualification may
terminate.
Termination
Period
:
This
Option shall be exercisable after Optionee ceases to be a Service Provider as
follows:
(i)
Resignation
— Option shall remain exercisable until the Expiration Date;
(ii)
Termination
for Cause
– Option shall terminate immediately. For purposes
of this Option, cause shall be determined at the sole discretion of management
unless Service Provider is a party to an employment agreement defining such
term. In such event, “Cause” will have the definition provided for in
the agreement.
(iii)
Death or
Disability
—Option shall remain exercisable for a period of 24 months from
the occurrence. For purposes of this Option, “Disability" means total
and permanent disability as defined in Section 22(e)(3) of the
Code.
1.
Grant of
Option
. The Committee of the Company hereby grants to the
Optionee named in the Notice of Grant (the "Optionee"), an option (the "Option")
to purchase the number of Shares set forth in the Notice of Grant, at the
exercise price per Share set forth in the Notice of Grant (the "Exercise
Price"), and subject to the terms and conditions of the Plan, which is
incorporated herein by reference. Subject to Section 10.1 of the
Plan, in the event of a conflict between the terms and conditions of the Plan
and this Option Agreement, the terms and conditions of the Plan shall
prevail.
If
designated in the Notice of Grant as an Incentive Stock Option ("ISO"), this
Option is intended to qualify as an Incentive Stock Option as defined in
Section 422 of the Code. Nevertheless, to the extent that it
exceeds the $100,000 rule of Code Section 422(d), this Option shall be treated
as a Nonstatutory Stock Option ("NSO").
2.
Exercise of
Option
.
(a)
Right to
Exercise
. This Option shall be exercisable during its term in
accordance with the Vesting Schedule set out in the Notice of Grant and with the
applicable provisions of the Plan and this Option Agreement.
(b)
Method of
Exercise
. This Option shall be exercisable by delivery of an
exercise notice in the form attached as Exhibit A (the “Exercise Notice”) which
shall state the election to exercise the Option, the number of Shares, with
respect to which the Option is being exercised, and such other representations
and agreements as may be required by the Company. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares. This Option shall be deemed to be exercised upon receipt by
the Company of such fully executed Exercise Notice accompanied by the aggregate
Exercise Price.
No Shares
shall be issued pursuant to the exercise of an Option unless such issuance and
such exercise comply with Applicable laws. Assuming such compliance,
for income tax purposes the Shares shall be considered transferred to the
Optionee on the date on which the Option is exercised with respect to such
Shares.
3.
Optionee's
Representations
. In the event the Shares have not been
registered under the Securities Act of 1933, as amended, at the time this Option
is exercised, the Optionee shall, if required by the Company, concurrently with
the exercise of all or any portion of this Option, deliver to the Company his or
her Investment Representation Statement in the form attached hereto as
Exhibit B.
4.
Lock-Up
Period
. Optionee hereby agrees that, if so requested by the
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise
transfer any Shares or other securities of the Company during the 180-day period
(or such other period as may be requested in writing by the Managing Underwriter
and agreed to in writing by the Company) (the "Market Standoff Period")
following the effective date of a registration statement of the Company filed
under the Securities Act. Such restriction shall apply only to
the first registration statement of the Company to become effective under the
Securities Act that includes securities to be sold on behalf of the Company to
the public in an underwritten public offering under the Securities
Act. The Company may impose stop-transfer instructions with respect
to securities subject to the foregoing restrictions until the end of such Market
Standoff Period.
5.
Method of
Payment
. Payment of the aggregate Exercise Price shall be by
any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash
or check;
(b) consideration
received by the Company by way of cashless exercise; or
(c) surrender
of other Shares which, (i) in the case of Shares acquired upon exercise of an
option, have been owned by the Optionee for more than six (6) months on the date
of surrender, and (ii) have a Fair Market Value on the date of surrender equal
to the aggregate Exercise Price of the Exercised Shares.
6.
Restrictions on
Exercise
. This Option may not be exercised until such time as
the Plan has been approved by the stockholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any Applicable
Law.
7.
Non-Transferability of
Option
. This Option may not be transferred in any manner
otherwise than by will or by the laws of descent or distribution and may be
exercised during the lifetime of Optionee only by Optionee. The terms
of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
8.
Term of
Option
. This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.
9.
Tax
Consequences
. Set forth below is a brief summary as of the
date of this Option of some of the federal tax consequences of exercise of this
Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO
CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING
THIS OPTION OR DISPOSING OF THE SHARES.
(a)
Exercise of
ISO
. If this Option qualifies as an ISO, there will be no
regular federal income tax liability upon the exercise of the Option, although
the excess, if any, of the Fair Market Value of the Shares on the date of
exercise over the Exercise Price will be treated as an adjustment to the
alternative minimum tax for federal tax purposes and may subject the Optionee to
the alternative minimum tax in the year of exercise. In order to
retain the favorable income tax treatment of ISOs, the ISOs must be exercised on
or before three months after retirement.
(b)
Exercise of Nonstatutory
Stock Option
. There may be a regular federal income tax
liability upon the exercise of a Nonstatutory Stock Option. The
Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the Fair Market Value
of the Shares on the date of exercise over the Exercise Price. If
Optionee is an Employee or a former Employee, the Company will be required to
withhold from Optionee's compensation or collect from Optionee and pay to the
applicable taxing authorities an amount in cash equal to a percentage of this
compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
(c)
Disposition of
Shares
. In the case of an NSO, if Shares are held for at least
one year, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes. In the case
of an ISO, if Shares transferred pursuant to the Option are held for at least
one year after exercise and of at least two years after the Date of Grant, any
gain realized on disposition of the Shares will also be treated as long-term
capital gain for federal income tax purposes. If Shares purchased
under an ISO are disposed of within one year after exercise or two years after
the Date of Grant, any gain realized on such disposition will be treated as
compensation income (taxable at ordinary income rates) to the extent of the
difference between the Exercise Price and the lesser of (1) the Fair Market
Value of the Shares on the date of exercise, or (2) the sale price of the
Shares. Any additional gain will be taxed as capital gain, short-term
or long-term depending on the period that the ISO Shares were held.
(d)
Notice of Disqualifying
Disposition of ISO Shares
. If the Option granted to Optionee
herein is an ISO, and if Optionee sells or otherwise disposes of any of the
Shares acquired pursuant to the ISO on or before the later of (1) the date
two years after the Date of Grant, or (2) the date one year after the date
of exercise, the Optionee shall immediately notify the Company in writing of
such disposition. Optionee agrees that Optionee may be subject to
income tax withholding by the Company on the compensation income recognized by
the Optionee.
10.
Entire Agreement; Governing
Law
. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and
Optionee with respect to the subject matter hereof, and may not be modified
adversely to the Optionee's interest except by means of a writing signed by the
Company and Optionee. This agreement is governed by the internal
substantive laws but not the choice of law rules of Delaware.
11.
No Guarantee of Continued
Service
. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF
SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A
SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED,
BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE
FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS
CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT
CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE
PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT
INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.
Optionee
acknowledges receipt of a copy of the Plan and represents that he or she is
familiar with the terms and provisions thereof, and hereby accepts this Option
subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to
accept as binding, conclusive and final all decisions or interpretations of the
Committee upon any questions arising under the Plan or this
Option. Optionee further agrees to notify the Company upon any change
in the residence address indicated below.
[This
Space Intentionally Left Blank]
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OPTIONEE:
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Neuralstem,
Inc.
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Signature
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By
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Title
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Residence
Address
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[Signature
Page to Option Agreement]
EXHIBIT
A
NEURALSTEM,
INC.
[_____]
STOCK PLAN
EXERCISE
NOTICE
Neuralstem,
Inc.
Attention: ___________
1.
Exercise of
Option
. Effective as of today, ___________, 20__, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_________ shares of the Common Stock (the "Shares") of Neuralstem,
Inc. (The "Company") under and pursuant to the [_____] Stock Plan
(the "Plan") and the Stock Option Agreement dated ____________, 20[__] (the
"Option Agreement").
2.
Delivery of
Payment
. Purchaser herewith delivers to the Company the full
purchase price of the Shares, as set forth in the Option Agreement.
3.
Representations
of Optionee
. Optionee acknowledges that Optionee has received,
read and understood the Plan and the Option Agreement and agrees to abide by and
be bound by their terms and conditions.
4.
Rights as
Stockholder
. Until the issuance of the Shares (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Shares shall be
issued to the Optionee as soon as practicable after the Option is
exercised. No adjustment shall be made for a dividend or other right
for which the record date is prior to the date of issuance except as provided in
Section 5.3 of the Plan.
5.
Tax
Consultation
. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any
tax consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice. The Company specifically disavows any tax advice
stemming from any information which it may provide Optionee.
6.
Restrictive Legends and
Stop-Transfer Orders
.
(a)
Legends
. Optionee
understands and agrees that the Company shall cause the legends set forth below
or legends substantially equivalent thereto, to be placed upon any
certificate(s) evidencing ownership of the Shares together with any other
legends that may be required by the Company or by state or federal securities
laws:
THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE
OPINION OF COMPANY COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE
THEREWITH.
THE
SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON
TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS
SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF
THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE
ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE
BINDING ON TRANSFEREES OF THESE SHARES.
(b)
Stop-Transfer
Notices
. Optionee agrees that, in order to ensure compliance
with the restrictions referred to herein, the Company may issue appropriate
"stop transfer" instructions to its transfer agent, if any, and that, if the
Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c)
Refusal to
Transfer
. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.
7.
Successors and
Assigns
. The Company may assign any of its rights under this
Agreement to single or multiple assignees, and this Agreement shall inure to the
benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon
Optionee and his or her heirs, executors, administrators, successors and
assigns.
8.
Interpretation
. Any
dispute regarding the interpretation of this Agreement shall be submitted by
Optionee or by the Company forthwith to the Committee which shall review such
dispute at its next regular meeting. The resolution of such a dispute
by the Committee shall be final and binding on all parties.
9.
Governing Law;
Severability
. This Agreement is governed by the internal
substantive laws but not the choice of law rules, of Delaware.
10.
Entire
Agreement
. The Plan and Option Agreement are incorporated
herein by reference. This Agreement, the Plan, the Option Agreement
and the Investment Representation Statement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee.
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Submitted
by:
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Accepted
by:
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Neuralstem,
Inc.
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Signature
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By
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Title
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Address
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Address
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Date
Received
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EXHIBIT
B
INVESTMENT
REPRESENTATION STATEMENT
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COMPANY:
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Neuralstem,
Inc.
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In
connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee
is aware of the Company's business affairs and financial condition and has
acquired sufficient information about the Company to reach an informed and
knowledgeable decision to acquire the Securities. Optionee is
acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee
acknowledges and understands that the Securities constitute "restricted
securities" under the Securities Act and have not been registered under the
Securities Act in reliance upon a specific exemption there from, which exemption
depends upon, among other things, the bona fide nature of Optionee's investment
intent as expressed herein. In this connection, Optionee understands
that, in the view of the Securities and Exchange Commission, the statutory basis
for such exemption may be unavailable if Optionee's representation was
predicated solely upon a present intention to hold these Securities for the
minimum capital gains period specified under tax statutes, for a deferred sale,
for or until an increase or decrease in the market price of the Securities, or
for a period of one year or any other fixed period in the
future. Optionee further understands that the Securities must be held
indefinitely unless they are subsequently registered under the Securities Act or
an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing
the Securities will be imprinted with a legend which prohibits the transfer of
the Securities unless they are registered or such registration is not required
in the opinion of counsel satisfactory to the Company, and any other legend
required under applicable state securities laws.
(c) Optionee
is familiar with the provisions of Rule 144, each promulgated under the
Securities Act, which, in substance, permit limited public resale of "restricted
securities" acquired, directly or indirectly from the issuer thereof, in a
non-public offering subject to the satisfaction of certain
conditions. For so long as the Company is subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Securities may be resold, subject to the satisfaction of certain of the
conditions specified by Rule 144.
(d) Optionee
further understands that in the event all of the applicable requirements of
Rule 144 are not satisfied, registration under the Securities Act,
compliance with Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rules 144 is not exclusive,
the Staff of the Securities and Exchange Commission has expressed its opinion
that persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales, and that such persons and their
respective brokers who participate in such transactions do so at their own
risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
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Signature
of Optionee:
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Date:__________________________,
19___
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Exhibit
23
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby
consent to the incorporation by reference in the Registration Statements filed
by Neuralstem, Inc. on Forms S-3 (Nos. 333-142451, 333-150574, 333-153387, and
333-157079) and on Form S-8 (No. 333-152801) of our report dated March 30, 2010
with respect to the audit of the balance sheets of Neuralstem, Inc. as of
December 31, 2009 and 2008, and the related statements of operations,
stockholders’ equity, and cash flows for the years then ended, which appears in
the Annual Report on Form 10-K of Neuralstem, Inc. for the year ended December
31, 2009.
Baltimore,
Maryland
March 30,
2010
Exhibit
31.1
Certification
of Chief Executive Officer
under
Section 302 of the Sarbanes-Oxley Act
I, I.
Richard Garr, certify that:
(1)
I have reviewed this annual report on Form 10-K of Neuralstem,
Inc.;
(2) Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
(3) Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
(4) The
registrant’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a. Designed
such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
b. Designed
such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c. Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d. Disclosed
in this report any change in the registrant’s internal control over financial
reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
(5) The
registrant’s other certifying officers and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of registrant’s board of directors
(or persons performing the equivalent functions):
a. all
significant deficiencies and material weaknesses in the design or operation of
internal controls over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize, and
report financial information; and
b. any fraud, whether or
not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date:
March 30, 2010
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/s/ I. Richard Garr
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I.
Richard Garr
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Chief
Executive Officer
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Exhibit
31.2
Certification
of Chief Financial Officer
under
Section 302 of the Sarbanes-Oxley Act
I, John
Conron, certify that:
(1)
I have reviewed this annual report on Form 10-K of Neuralstem,
Inc.;
(2) Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
(3) Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
(4) The
registrant’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a. Designed
such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
b. Designed
such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c. Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d. Disclosed
in this report any change in the registrant’s internal control over financial
reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
(5) The
registrant’s other certifying officers and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of registrant’s board of directors
(or persons performing the equivalent functions):
a. all significant
deficiencies and material weaknesses in the design or operation of internal
controls over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize, and report
financial information; and
b. any fraud, whether or
not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date:
March 30, 2010
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/s/ John Conron
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John
Conron
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Chief
Financial Officer
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(Principal
Accounting Officer)
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Exhibit
32.1
Certification
Pursuant to 18 U.S.C. Section 1350,
As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In
connection with the Neuralstem, Inc. (the “Company”) Annual Report on Form 10-K
for the year ended December 31, 2009 as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), I, I. Richard Garr, Chief
Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the
best of my knowledge:
(1). The
Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended; and
(2). The
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
Date:
March 30, 2010
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/s/ I. Richard Garr
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I.
Richard Garr
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Chief
Executive Officer
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Exhibit
32.2
Certification
Pursuant to 18 U.S.C. Section 1350,
As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In
connection with the Neuralstem, Inc. (the “Company”) Annual Report on Form 10-K
for the year ended December 31, 2009 as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), I, John Conron, Chief Financial
Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of
my knowledge:
(1). The
Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended; and
(2). The
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
Date:
March 30, 2010
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/s/ John Conron
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John
Conron
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Chief
Financial Officer
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(Principal
Accounting Officer)
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