UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): November 28, 2016

 

 

MICROBOT MEDICAL INC.

(Exact Name of Registrant as Specified in Charter)

 

 

 

Delaware   000-19871   94-3078125

(State or Other Jurisdiction

of Incorporation)

 

(Commission

File Number)

 

(I.R.S. Employer

Identification No.)

5 HaMada St.,

Yokneam 2069204, Israel

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: +972-4-8200-710

StemCells, Inc.

39899 Balentine Drive, Suite 200

Newark, CA 94560

(Former Name or Former Address, if Changed Since Last Report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


EXPLANATORY NOTE

This Current Report on Form 8-K of Microbot Medical Inc. (formerly known as StemCells, Inc.; the “Company”), replicates in its entirety the Current Report on Form 8-K earlier filed by the Company on the date hereof (the “Prior 8-K”), and is being filed for the sole purpose of specifying Items 4.01, 5.03 and 8.01 on the EDGARLink Online Form 8-K submission. These items were excluded from the EDGARLink Online Form 8-K submission in the Prior 8-K due to the nine item limit as specified in the Edgar Filer Manual of the Securities and Exchange Commission.


Item 1.01. Entry Into a Material Definitive Agreement.

StemCells, Inc., a Delaware corporation (the “ Company ”), entered into a letter agreement (the “ Letter Agreement ”) with Alpha Capital Anstalt (“ Alpha Capital ”), dated November 18, 2016 but effective November 28, 2016 pursuant to which Alpha Capital committed to make a cash investment into the Company, no later than December 31, 2016, in an amount equal to the difference between $4 million and the amount of cash released to the Company, by December 31, 2016, out of escrow (the “Escrow Release Amount”) pursuant to the Company’s previously announced asset sale transaction with BOCO Silicon Valley, Inc., a California corporation (the “ Commitment ”).

The Commitment was made to satisfy the closing condition of Microbot Medical Ltd., a company organized under the laws of the State of Israel (“ Microbot Israel ”), pursuant to the Merger Agreement (as defined in Item 2.01 below) to raise at least $4 million in a private placement prior to the closing of the Merger (as defined in Item 2.01 below), which closing condition was waived by the Company as a result of the Commitment.

If, on or prior to December 31, 2016, the Company raises at least $9 million of capital when combined with the Escrow Release Amount, the Commitment shall terminate. Furthermore, under certain circumstances if the Company raises capital in an amount less than $9.0 million, the Commitment will be reduced. Any such investment, which could be waived by the Company, would be based on a $34 million Company valuation negotiated by Alpha Capital and Microbot Israel prior to the date of the Merger Agreement.

The foregoing descriptions of the Commitment and the Letter Agreement are not complete and are subject to, and qualified in their entirety by the full text of the Letter Agreement, which is attached to this Current Report on Form 8-K as Exhibit 10.1, the terms of which are incorporated herein by reference.

The information set forth in Item 2.03 is incorporated by reference into this Item 1.01.

The information set forth in Item 5.02 with respect to the indemnification agreements is incorporated by reference into this Item 1.01.

 

Item 1.02. Termination of a Material Definitive Agreement.

The information set forth in Item 2.03 with respect to the termination of the Company’s outstanding 5.0% secured note held by Alpha Capital, in the principal amount of $2 million, is incorporated herein by reference in its entirety.

 

Item 2.01. Completion of Acquisition or Disposition of Assets.

On November 28, 2016, C&RD Israel Ltd., an Israeli corporation ( Merger Sub ) and a wholly owned subsidiary of the Company, completed its previously announced merger with and into Microbot Israel, with Microbot Israel surviving as a wholly-owned subsidiary of the Company (the “ Merger ”). The Merger was effected pursuant to an Agreement and Plan of Merger and Reorganization, dated August 15, 2016, by and among the Company, Microbot Israel and Merger Sub (the  “Merger Agreement” ).

Pursuant to the terms of the Merger Agreement, at the effective time of the Merger (the  “Effective Time” ), each outstanding share of Microbot capital stock was converted into the right to receive approximately 2.90 shares of Company common stock, par value $0.01 per share (the “ Common Stock ”), after giving effect to the Reverse Stock Split (as defined in Item 3.03 below) to be effected prior to the closing of the Merger (the  “Exchange Ratio” ), for an aggregate of 26,644,979 shares of Common Stock to be issued to former Microbot Israel shareholders. In addition, at the Effective Time, all outstanding options to purchase the ordinary shares of Microbot Israel were assumed by the Company and converted into options to purchase shares of the Common Stock, appropriately adjusted based on the Exchange Ratio. As of the Effective Time, former shareholders of Microbot Israel hold approximately 75.0% of the issued and outstanding shares of Common Stock on a fully-diluted basis, or in certain cases the right to receive Common Stock, and existing stockholders of the Company hold approximately 5.0% of the issued and outstanding shares of Common Stock on a fully-diluted basis. In addition, certain advisors and consultants (one of whom being a former shareholder of Microbot Israel and another being an affiliate of such shareholder) hold approximately or have the right to receive, an aggregate of


20.0% of the issued and outstanding shares of Common Stock on a fully-diluted basis, some of which are subject to restriction and risk of forfeiture in the event certain of the advisors do not continue to provide services to the Company post-Merger. No fractional shares of Common Stock will be issued in connection with the Merger. Instead, stockholders of record who otherwise would be entitled to receive fractional shares, will experience a rounding down of their fractional share to the nearest whole share.

On November 28, 2016, in connection with the Certificate of Amendment described below in Item 5.03 and prior to the completion of the Merger, the Company changed its name from “StemCells, Inc.” to “Microbot Medical Inc.”, and on November 29, 2016 the stock of the combined company began trading on the Nasdaq Global Market under the symbol “MBOT.”

The foregoing description of the Merger Agreement and the Merger is not complete and is subject to, and qualified in its entirety by, the full text of the Merger Agreement, which was attached as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the  “SEC” ) on August 15, 2016, the terms of which are incorporated herein by reference.

 

Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

As previously reported by the Company, on August 15, 2016, concurrently with the execution of the Merger Agreement, the Company issued a 5.0% secured note (the “ Secured Note ”) to Alpha Capital, in the principal amount of $2 million, for value received, payable upon the earlier of (i) 30 days following the consummation of the Merger and (ii) December 31, 2016. In addition, on August 15, 2016, the Company and Alpha Capital entered into a Security Agreement to secure the Company’s obligations under the Secured Note (the “ Security Agreement ”). The Company’s obligations under the Secured Note were secured by a first priority security interest in all of the Company’s intellectual property and certain other general assets, some of which are subject to release upon the proposed sale of the Company’s pre-Merger intellectual property and related assets to BOCO Silicon Valley, Inc., a California corporation, as previously disclosed by the Company in its Form 8-K filed with the SEC on November 15, 2016.

As of the Effective Time, the Company entered into a Securities Exchange Agreement (the “ Exchange Agreement ”) with Alpha Capital, providing for the issuance to Alpha Capital of a convertible promissory note by the Company (the “ Convertible Note ”) in a principal amount of $2,028,767, which is equal to the principal and accrued interest under the Secured Note, in exchange for (a) the full satisfaction, termination and cancellation of the Secured Note and (b) the release and termination of the Security Agreement and the first priority security interest granted thereunder.

The Convertible Note is convertible into the Company’s common stock any time after November 28, 2017 until the maturity date of November 28, 2019, based on a conversion price of $0.64, subject to adjustments as provided in the Convertible Note and the other terms and the conditions specified in the Convertible Note.

Pursuant to the terms of the Note, the Company is obligated to pay interest on the outstanding principal amount owed under the Note at a fixed rate per annum of 6.0%, payable at maturity or earlier conversion. The Exchange Agreement contains customary representations and warranties and usual and customary affirmative and negative covenants. The Convertible Note also contains certain customary events of default.

The above summaries of certain terms and conditions of the Exchange Agreement and the Convertible Note do not purport to be complete discussions and are qualified in their entirety by reference to the Exchange Agreement and the Convertible Note, copies of which are attached to this Current Report on Form 8-K as Exhibits 10.2 and 10.3, respectively.

 

Item 3.02. Unregistered Sales of Equity Securities

Pursuant to the Merger Agreement, in connection with the Merger, the Company issued of 26,644,979 shares of Common Stock to the existing shareholders of Microbot Israel and assumed options to purchase an aggregate of 2,614,916 shares of common stock to the existing optionholders of Microbot Israel. Additionally, the Company issued an aggregate


of 7,802,639 restricted shares of its Common Stock or rights to receive Common Stock, after giving effect to the Reverse Stock Split to certain advisors. The number of securities issued, the nature of the transaction, the nature and amount of consideration received by the Company are described in Item 2.01 of this Form 8-K, which is incorporated by reference into this Item 3.02. Such sales were exempt from registration under Section 4(a)(2) and Regulation D under the Securities Act of 1933, as amended (the “ Securities Act ”), and the rules promulgated thereunder.

 

Item 3.03. Material Modification to Rights of Security Holders.

As further described under Item 5.03 below, the Company has filed a Certificate of Amendment to its Restated Certificate of Incorporation, as amended, affecting a one for nine reverse stock split of the Common Stock (the  “Reverse Stock Split” ).

As a result of the Reverse Stock Split, each nine shares of Common Stock issued and outstanding immediately prior to the Reverse Stock Split were automatically combined into and became one share of Common Stock. No fractional shares of Common Stock were issued as a result of the Reverse Stock Split and any Company stockholders of record who otherwise would have been entitled to receive fractional shares, experienced a rounding up of their fractional share to the nearest whole share. Also, as a result of the Reverse Stock Split, the per share exercise price of, and the number of shares of Common Stock underlying, Company stock options, warrants and other derivative securities outstanding immediately prior to the Reverse Stock Split will be automatically proportionally adjusted based on the one for nine reverse split ratio in accordance with the terms of such options, warrants or other derivative securities, as the case may be.

After giving effect to the Reverse Stock Split and the Merger, the Company had approximately 36,254,240 shares of Common Stock issued and outstanding, which includes certain rights to receive shares of Common Stock or equivalent securities but excludes shares underlying outstanding stock options and warrants and the Convertible Note. The Reverse Stock Split did not alter the par value of the Common Stock or modify any voting rights or other terms of the Common Stock.

 

Item 4.01 Changes in Registrant’s Certifying Accountant.

Effective November 28, 2016, the Board of Directors of the Company dismissed Grant Thornton LLP (“ Grant Thornton ”) as its independent registered accountant and engaged Brightman Almagor Zohar & Co., a Member of Deloitte Touche Tohmatsu Limited (“ Deloitte ”) to serve as its independent registered accounting firm. Grant Thornton’s audit reports on the Company’s financial statements for the fiscal years ended December 31, 2015 and 2014 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. During the years ended December 31, 2015 and 2014 and during the subsequent interim period preceding the date of Grant Thornton’s dismissal, there were (i) no disagreements with Grant Thornton on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Grant Thornton would have caused Grant Thornton to make reference to the subject matter of the disagreements in connection with its reports and (ii) no reportable events (as that term is defined in Item 304(a)(1)(v) of Regulation S-K under the Securities Act).

Deloitte has been the independent registered accounting firm for Microbot Israel since 2014. Prior to engaging Deloitte, the Company did not consult with Deloitte regarding (i) the application of accounting principles to a specific completed or contemplated transaction, or the type of audit opinion that might be rendered on the Company’s financial statements, and neither a written report was provided to the Company nor oral advice was provided to the Company that Deloitte concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing, or financial reporting issue or (ii) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K under the Securities Act and the related instructions) or a reportable event (as described in Item 304(a)(1)(v) of Regulation S-K under the Securities Act).

The Company has requested Grant Thornton to furnish it with a letter addressed to the SEC stating whether it agrees with the statements made above by the Company. The Company has filed this letter as an exhibit to this 8-K.


Item 5.01 Changes in Control of Registrant.

The information set forth in Item 2.01 regarding the Merger and the information set forth in Item 5.02 regarding the Company’s Board of Directors is incorporated by reference into this Item 5.01.

 

Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

Director Departures

In accordance with the Merger Agreement, on November 28, 2016, effective immediately prior to the Effective Time of the Merger, each of Eric Bjerkholt, Ricardo Levy, Ph.D. and John Schwartz, Ph.D., resigned from the Company’s Board of Directors and any respective committees of the Board of Directors on which they served, which resignations were not the result of any disagreements with the Company relating to the Company’s operations, policies or practices.

Appointment of Directors

In accordance with the Merger Agreement, at the Effective Time, the Board of Directors and its committees were reconstituted, with Harel Gadot and Yoav Waizer appointed as Class I directors of the Company whose terms expire at the Company’s 2019 annual meeting of stockholders; Solomon Mayer and Scott Burell appointed as Class II directors of the Company whose terms expire at the Company’s 2017 annual meeting of stockholders; and Yoseph Bornstein and Moshe Shoham appointed as Class III directors of the Company whose terms expire at the Company’s 2018 annual meeting of stockholders. In addition, Scott Burell, Yoav Waizer and Yoseph Bornstein were appointed to the Company’s Audit Committee, Scott Burell and Yoseph Bornstein were appointed to the Company’s Compensation Committee and Moshe Shoham and Yoav Waizer were appointed to the Company’s Nominating and Governance Committee.

The biographies of the directors of the Company as of the Effective Time are as follows:

Harel Gadot , is a co-founder of Microbot Israel and has served as Chief Executive Officer since Microbot Israel was founded in November 2010. He has been the Chairman of Microbot Israel’s Board of Directors since July 2014. He also serves as the Chairman of XACT Robotics Ltd. since August 2013 and MEDX Xelerator LP since July 2016. From December 2007 to April 2010 Mr. Gadot was a Worldwide Group Marketing Director at Ethicon Inc., a Johnson and Johnson Company, where he was responsible for the global strategic marketing of the company. Mr. Gadot also held management positions, as well as leading regional strategic position for Europe, Middle-East and Africa, as well as in Israel, while at Johnson and Johnson. Mr. Gadot served as director for ConTIPI Ltd. from August 2010 until November 2013 when ConTIPI Ltd. was acquired by Kimberly-Clark Corporation. Mr. Gadot holds a B.Sc.in Business from Siena College, Loudonville NY, and an M.B.A. from the University of Manchester, UK. The Company believes that Mr. Gadot is qualified to serve as Chairman of the Board and as Chief Executive Officer of the Company due to his extensive experience in strategic marketing in the medical device industry.

Yoav Waizer , has served as a member of the Board of Directors of Microbot Israel since May 2015. Mr. Waizer is a Partner and Chief Executive Officer of Medica Venture Partners, a healthcare dedicated venture investing out of Israel in innovative capital-starved early stage and special situation companies, since November 2005. Prior to his Tenure at Medica, Mr. Waizer served as CFO & COO at Cedar Fund, a venture capital fund focuses on investing in Israel-related high-tech companies in the telecom, networking, Internet-infrastructure and enterprise software areas and prior to that Mr. Waizer was the CFO of Star Ventures Israel, the Israeli fund of Star Ventures, a $1 billion venture capital fund investing in all stages of development within the Telecom, Enterprise S/W, Wireless and Life Sciences sectors. Mr. Waizer is currently a director of InterCure Ltd., a company focused on investing in medical technology companies that is traded on the Tel Aviv Stock exchange. Mr. Waizer holds Master of Business Administration in Information Systems and B.Sc. in Accounting and Statistics, both from the Tel-Aviv University. The Company believes that Mr. Waizer is qualified to serve as a member of the Company’s board due to his extensive investment experience and extensive knowledge of the life sciences industry.


Moshe Shoham, D.Sc. , is a co-founder of Microbot Israel and has served as Chairman of Microbot Israel’s Scientific Advisor Board and as a Director since Microbot Israel was founded in November 2010. Prof. Shoham has been the head of the robotics laboratory at the Technion-Israel Institute of Technology, Department of Mechanical Engineering since October 1990 and has been a professor in the Department of Mechanical Engineering at the Technion-Israel Institute of Technology since October 1989. Prior to that, Dr. Shoham was the director of the robotic laboratory in the Department of Mechanical Engineering at Columbia University from September 1986 to September 1989. Dr. Shoham has served as a foreign member of the National Academy of Engineering in the United States since October 2014. In addition, Dr. Shoham founded Mazor Surgical Technologies Ltd., a publically traded medical device company in the field of surgical robotics, and has been its Chief Technology Officer since January 2003. Dr. Shoham earned B.Sc. in 1978, a M.Sc. in 1982 and a D.Sc. in 1986 from the Technion-Israel Institute of Technology. The Company believes that Dr. Shoham is qualified to serve as Chairman of Microbot Israel’s Scientific Advisory Board and as a member of the Company’s board due to his extensive knowledge of Microbot Medical’s technologies and the surgical robotics industry, and his extensive business and academic experience in the field of surgical robotics.

Yoseph Bornstein , is a co-founder of Microbot Israel and has been a member of the Board of Directors since Microbot Israel was founded in November 2010. Mr. Bornstein founded Shizim Ltd., a life science holding group in October 2000 and has served as its president since then. Mr. Bornstein is the Chairman of GCP Clinical Studies Ltd., a provider of clinical research services and educational programs in Israel since January 2002. He is the Chairman of Biotis Ltd., a service company for the bio-pharmaceutical industry, since June 2000. In addition, he is the Chairman of Dolphin Medical Ltd., a service company for the medical device industry, since April 2012 and the Chairman of ASIS Enterprises B.B.G. Ltd., a business August 2007. In October 1992, Mr. Bornstein founded Pharmateam Ltd., an Israeli company that specialized in representing international pharmaceutical companies which was sold in 2000. Mr. Bornstein is also a founder of a number of other privately held life-science companies. Mr. Bornstein served as the Biotechnology Committee Chairman of the Unites States-Israel Science & Technology Commission (the “ USISTF ”) from September 2002 to February 2005 as well as a consultant for USISTF from September 2002 to February 2005. He is also the founder of ILSI-Israel Life Science Industry Organization and ITTN-Israel Tech Transfer Organization. The Company believes that Mr. Bornstein is qualified to serve as a member of the Company’s board due to his extensive experience in, and knowledge of, the life sciences industry and international business.

Solomon Mayer , has served as a member of the Board of Directors of Microbot Israel since June 2014, as the designated director of Alpha Capital. Mr. Mayer has served as the President and Chief Executive Officer of Mooney Aviation Company since June 1999. He also serves as President of Chailife Line, an organization devoted to help restore normalcy to family life and better enable them to withstand the crises and challenges of serious pediatric illness. In addition, Mr. Mayer serves as a Director of the Laniado Hospital, International Medical Search Co. of New York, Blastgard International, Inc. and Ironwood Gold Corp. The Company believes that Mr. Mayer is qualified to serve as a member of the board of the Company due to his investment experience and extensive management experience as an executive and director of a variety of companies.

Scott R. Burell , has served as a member of the Board of Directors of Microbot Israel since the closing of the Merger on November 28, 2016. He is the Chief Financial Officer, Secretary and Treasurer of CombiMatrix Corporation, a family health-focused clinical molecular diagnostic laboratory specializing in pre-implantation genetic screening, prenatal diagnosis, miscarriage analysis, and pediatric developmental disorders, since November 2006. He successfully led the split-off of CombiMatrix in 2007 from its former parent, has led several successful public and private debt and equity financing transactions as well as CombiMatrix’s reorganization in 2010. Prior to this, Mr. Burell had served as CombiMatrix’s Vice President of Finance since November 2001 and as its Controller from February 2001 to November 2001. From May 1999 to first joining CombiMatrix in February 2001, Mr. Burell was the Controller for Network Commerce, Inc., a publicly traded technology and information infrastructure company located in Seattle. Prior to this, Mr. Burell spent 9 years with Arthur Andersen’s Audit and Business Advisory practice in Seattle. During his tenure in public accounting, Mr. Burell worked with many clients, both public and private, in the high-tech and healthcare markets, and was involved in numerous public offerings, spin-offs, mergers and acquisitions. Mr. Burell obtained his Washington state CPA license in 1992 and is a certified public accountant (currently inactive). He holds Bachelor of Science degrees in Accounting and Business Finance from Central Washington University. The Company believes Mr. Burell’s qualifications to serve on the board include his experience as an executive of a public life sciences company and knowledge of financial accounting in the medical technology field.


Named Executive Officer Departures

In accordance with the terms of the Merger Agreement, on November 28, 2016, Kenneth Stratton resigned from his position as the interim President, General Counsel and Secretary of the Company, effective immediately prior to the Effective Time of the Merger.

Mr. Stratton has received severance compensation and other benefits in accordance with the terms and provisions of a letter agreement entered into by the Company and Mr. Stratton, as well as a separation agreement and release of claims entered into by Mr. Stratton and the Company. The terms of the letter agreement and separation agreement entitled Mr. Stratton to a one-time lump sum payment of $141,667 and COBRA premiums for a period of twelve months following termination. In addition, Mr. Stratton was awarded a $48,000 transaction success fee in connection with the completion of the Merger as an incentive for his management of the business during the negotiations and the pre-closing period.

Appointment of Officers

In accordance with the Merger Agreement, immediately following the Effective Time of the Merger, on November 28, 2016, the Company’s Board of Directors appointed Harel Gadot as Chairman and Chief Executive Officer, and David Ben Naim as Chief Financial Officer.

Harel Gadot

The Company entered into an employment agreement (the “Gadot Agreement”) with Harel Gadot on November 28, 2016, to serve as the Company’s Chairman of the Board of Directors and Chief Executive Officer, on an indefinite basis subject to the termination provisions described in the Agreement. Pursuant to the terms of the Gadot Agreement, Mr. Gadot shall receive an annual base salary of $360,000. The salary will be reviewed on an annual basis by the Compensation Committee of the Company to determine potential increases taking into account such performance metrics and criteria as established by the Executive and the Company.

Mr. Gadot shall also be entitled to receive a target annual cash bonus of up to a maximum amount of 40% of base salary. Mr. Gadot shall be further entitled to a monthly automobile allowance and tax gross up on such allowance of $1,150, and shall be granted options to purchase shares of common stock of the Company representing 5% of the issued and outstanding shares of the Company, based on vesting and other terms to be determined by the Compensation Committee of the Board of Directors subsequent to the Effective Time.

In the event Mr. Gadot’s employment is terminated as a result of death, Mr. Gadot’s estate would be entitled to receive any earned annual salary, bonus, reimbursement of business expenses and accrued vacation, if any, that is unpaid up to the date of Mr. Gadot’s death.

In the event Mr. Gadot’s employment is terminated as a result of disability, Mr. Gadot would be entitled to receive any earned annual salary, bonus, reimbursement of business expenses and accrued vacation, if any, incurred up to the date of termination.

In the event Mr. Gadot’s employment is terminated by the Company for cause, Mr. Gadot would be entitled to receive any compensation then due and payable incurred up to the date of termination.

In the event Mr. Gadot’s employment is terminated by the Company without cause, he would be entitled to receive (i) any earned annual salary; (ii) 12 months’ pay and full benefits, (iii) a pro rata bonus equal to the maximum target bonus for that calendar year; (iv) the dollar value of unused and accrued vacation days; and (v) applicable premiums (inclusive of premiums for Mr. Gadot’s dependents) pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1986, as amended, for twelve (12) months from the date of termination for any benefits plan sponsored by the Company. In addition, 100% of any unvested portion of his stock options shall immediately vest and become exercisable.


The agreement contains customary non-competition and non-solicitation provisions pursuant to which Mr. Gadot agrees not to compete and solicit with the Company. Mr. Gadot also agreed to customary terms regarding confidentiality and ownership of intellectual property.

David Ben Naim

David Ben Naim , age 46, is the general manager of DBN Finance Services Ltd., a company which provides outsourcing financial services to public and private companies, since 2014. Through DBN Finance Services, Mr. Ben Naim has acted as the outsourced CFO for Emerald Medical Applications Corp. (OTC:MRLA), a digital health startup company engaged in the development, sale and service of imaging solutions, and Tempramed Inc., a private medical device company. Prior to that, Mr. Ben Naim served as Chief Financial Officer for several companies in the biomedical and technology industries. From July 2012 to September 2014, Mr. Ben Naim served as Chief Financial Officer for Insuline Medical Ltd. (TASE: INSL), an Israel-based company focused on improving performance of insulin treatment methods. From 2008 until 2011, Mr. Ben Naim served as Chief Financial Officer of Crow Technologies 1977 Ltd. (OTC:CRWTF), a company that designs, develops, manufactures and sells a broad range of security and alarm systems. From 2007 to 2008, Mr. Ben Naim served as Chief Financial Officer of Ilex Medical Ltd. (TASE:ILX), a leading company in the medical diagnostics field. From 2003 to 2007, Mr. Ben Naim was the Corporate Controller of Tadiran Telecom Ltd. He started his career in 1998 at Deloitte & Touche where he left in 2003 as an Audit Senior Manager. Mr. Ben Naim holds a B.A. in social sciences from Open University, Israel, a CPA license from Ramat Gan College, Israel, and an M.B.A. from Ono Academic College, Israel.

Microbot Israel entered into a services agreement (the “ Services Agreement ”) with DBN Finance Services effective October 31, 2016, to provide outsourced CFO services. Pursuant to the terms of the Services Agreement, DBN Finance Services will provide its services exclusively through Mr. David Ben Naim, who will serve as the principal financial and accounting officer of Microbot Israel and the Company. Mr. Ben Naim’s engagement will continue on an indefinite basis subject to the termination provisions described in the Agreement.

Pursuant to the Agreement, the Company shall pay the Service Provider a fixed fee of NIS15,000 plus VAT per month, and the Company shall reimburse DBN Finance Services for reasonable and customary out of pocket expenses incurred by it or Mr. Ben Naim connection with the performance of the duties under the Services Agreement. In addition, the Company shall maintain for the benefit of Mr. Ben Naim, a Directors and Officers insurance policy, according to the Company’s policy for other directors and officers of the Company.

Both the Company and DBN Finance Services shall have the right to terminate the Agreement for any reason or without reason at any time by furnishing the other party with a 30-day notice of termination. The Company shall further be entitled to terminate the Services Agreement for “cause” without notice, in which case neither DBN Finance Services nor Mr. Ben Naim shall be entitled to any compensation due to such early termination.

DBN Finance Services and Mr. Ben Naim agreed to customary provisions regarding confidentiality and intellectual property ownership. The Services Agreement also contains customary non-competition and non-solicitation provisions pursuant to which DBN Finance Services and Mr. Ben Naim agree not to compete and solicit with the Company during the term of the Agreement and for a period of twelve (12) months following the termination of the Agreement.

Indemnification Agreements

On July 22, 2016, the Company entered into indemnification agreements with each of its outgoing directors and executive officers, Eric Bjerkholt, R. Scott Greer, Ricardo Levy, Ph.D., Ian Massey, D.Phil., John Schwartz, Ph.D., Alan Trounson, Ph.D. and Irving Weissman, M.D., as well as with its newly appointed directors, Harel Gadot, Solomon Mayer, Yoseph Bornstein, Yoav Waizer, Moshe Shoham and Scott Burell. Pursuant to the indemnification agreements, the Company has agreed to indemnify and hold harmless these current and former


directors and officers to the fullest extent permitted by the Delaware General Corporation Law. The agreements generally cover expenses that a director or officer incurs or amounts that a director or officer becomes obligated to pay because of any proceeding to which he is made or threatened to be made a party or participant by reason of his service as a current or former director, officer, employee or agent of the Company, provided that he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. The agreements also provide for the advancement of expenses to the directors and officers subject to specified conditions. There are certain exceptions to the Company’s obligation to indemnify the directors and officers, and, with certain exceptions, with respect to proceedings that he initiates.

The foregoing description of the indemnification agreements is not complete and is subject to and qualified in its entirety by reference to the form of indemnification agreement, a copy of which is attached as Exhibit 10.2 hereto, and is incorporated herein by reference.

 

Item 5.03. Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

On November 28, 2016, immediately prior to the Effective Time of the Merger, as contemplated by the Merger Agreement and as approved by the Company’s stockholders at the special meeting of the Company’s stockholders held on October 26, 2016, the Company filed a Certificate of Amendment to its Restated Certificate of Incorporation, as amended, with the Secretary of State of the State of Delaware to (i) effect the Reverse Stock Split, (ii) change its name from “Stemcells, Inc.” to “Microbot Medical Inc.” and (iii) increase the number of authorized shares of the Common Stock from 200,000,000 to 220,000,000 shares (the “ Certificate of Amendment ”).

As a result of the Reverse Stock Split, the number of issued and outstanding shares of the Common Stock immediately prior to the Reverse Stock Split were reduced into a smaller number of shares, such that every nine shares of the Common Stock held by a stockholder immediately prior to the Reverse Stock Split were combined and reclassified into one share of the Common Stock. Immediately following the Reverse Stock Split and the Merger, there were approximately 36,254,240 shares of the Common Stock issued and outstanding, which includes certain rights to receive shares of Common Stock or equivalent securities but excludes shares underlying outstanding stock options and warrants and the Convertible Note.

No fractional shares were issued in connection with the Reverse Stock Split. Any fractional shares resulting from the Reverse Stock Split were rounded up to the nearest whole number.

The foregoing description of the Certificate of Amendment and the Reverse Stock Split are not complete and are subject to, and qualified in their entirety by, the full text of the Certificate of Amendment, which is attached to this Current Report on Form 8-K as Exhibit 3.1, the terms of which are incorporated herein by reference.

 

Item 8.01. Other Events.

On November 28, 2016, the Company issued a press release announcing the completion of the Merger, pursuant to the Merger Agreement. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K and incorporated herein by reference.

 

Item 9.01. Financial Statements and Exhibits.

(a) Financial Statements of Businesses Acquired

The financial statements of Microbot Israel required by this Item 9.01(a) for the fiscal years ended December 31, 2015 and 2014 and for the six months ended June 30, 2016 are incorporated herein by reference to the Company’s Proxy Statement on Schedule 14A filed with the SEC on September 27, 2016.


(b) Pro Forma Financial Information

The Company intends to file any pro forma financial information required by Item 9.01(b) as part of an amendment to this Current Report on Form 8-K not later than 71 calendar days after the date this Current Report on Form 8-K is required to be filed.

(d) Exhibits

 

Exhibit
Number
  Description
  3.1   Certificate of Amendment of the Restated Certificate of Incorporation of the Company
10.1   Letter Agreement between the Company and Alpha Capital Anstalt
10.2   Securities Exchange Agreement between the Company and Alpha Capital Anstalt
10.3   Convertible Promissory Note in favor of Alpha Capital Anstalt
10.4   Form of Indemnification Agreement, by and between the Company and each of its directors and officers.
10.5   Employment Agreement with Harel Gadot
10.6   Services Agreement with DBN Finance Services Ltd.
16.1   Letter from Grant Thornton LLP dated November 29, 2016
99.1   Press Release

Forward-Looking Statements

Statements contained in this Current Report on Form 8-K relating to the Company’s or management’s intentions, hopes, beliefs, expectations or predictions of the future, including statements relating to the combined company’s management and Board of Directors and any other statements about the Company’s management teams’ future expectations, beliefs, goals, plans or prospects are forward-looking statements. The Company’s actual results could differ materially from those projected in these forward-looking statements. These forward-looking statements are made on the basis of the current beliefs, expectations, and assumptions of management are not guarantees of performance and are subject to significant risks and uncertainty. These forward-looking statements should, therefore, be considered in light of various important factors, including those set forth in this proxy statement and those that are referred to or incorporated by reference into this proxy statement. In addition to the risk factors identified elsewhere, important factors that could cause actual results to differ materially from those described in forward-looking statements contained herein include, but are not limited to:

 

    any operational or cultural difficulties associated with the integration of the Company and Microbot Israel;

 

    potential adverse reactions or changes to business relationships resulting from the announcement or completion of the Merger;

 

    unexpected costs, charges or expenses resulting from the Merger;

 

    any difficulties associated with raising the capital necessary to effect the Company’s business plan subsequent to the Effective Time; and

 

    any changes in general economic and/or industry-specific conditions.


You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this proxy statement or, in the case of documents referred to in this proxy statement, as of the date of those documents. StemCells disclaims any obligation to publicly update or release any revisions to these forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this proxy statement or to reflect the occurrence of unanticipated events, except as required by law.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

MICROBOT MEDICAL INC.
By:  

/s/ Harel Gadot

 

Harel Gadot

Chairman and Chief Executive Officer

Date: November 29, 2016

Exhibit 3.1

CERTIFICATE OF AMENDMENT TO THE

RESTATED CERTIFICATE OF INCORPORATION OF

STEMCELLS, INC.

StemCells, Inc. (the “Corporation”), a corporation duly organized and existing under the General Corporation Law of the State of Delaware (the “DGCL”), hereby certifies that

 

1. Pursuant to the DGCL, upon the filing of this Certificate of Amendment to the Restated Certificate of Incorporation (the “Charter”), each nine shares of the Corporation’s common stock, par value $0.01 per share, issued and outstanding immediately prior to the Effective Time (the “Old Shares”) shall automatically be combined into one validly issued, fully paid and non-assessable share of common stock without any further action by the Corporation or the holder thereof, subject to the treatment of fractional share interests as described below (the “Reverse Stock Split”). The Corporation shall not issue fractional shares in connection with the Reverse Stock Split. Holders of Old Shares who would otherwise be entitled to receive a fraction of a share on account of the Reverse Stock Split shall have their fractional share rounded up to the nearest whole number as of the Effective Time.

 

2. Upon filing of this certificate of Amendment to the Charter, section ONE of the Charter is hereby amended to read in its entirety as set forth below:

The name of this corporation is “Microbot Medical Inc.”

 

3. Upon filing of this certificate of Amendment to the Charter, the first paragraph of section THREE of the Charter is hereby amended to read in its entirety as set forth below:

The total number of shares of stock that this Corporation shall have authority to issue is 221,000,000, consisting of 220,000,000 shares of Common Stock, with a par value of $0.01 per share (the “Common Stock”), and 1,000,000 shares of Undesignated Preferred Stock with a par value of $0.01 per share (the “Undesignated Preferred Stock”).

 

4. This Certificate of Amendment was duly adopted in accordance with Section 242 of the DGCL. The Board of Directors duly adopted resolutions setting forth and declaring advisable this Certificate of Amendment and directed that the proposed Amendment be considered by the stockholders of the Corporation. A meeting of stockholders was duly called upon notice in accordance with Section 222 of the DGCL and held on October 26, 2016, at which meeting the necessary number of shares were voted in favor of the proposed amendment. The stockholders of the Corporation duly adopted this Certificate of Amendment.

 

5. The remaining provisions of the Charter, including without limitation the remaining provisions of section THREE, are not affected by the aforementioned amendment and remain in full force and are not affected by this Certificate of Amendment.

IN WITNESS WHEREOF, StemCells, Inc. has caused this Certificate of Amendment to be signed by its President and General Counsel, Kenneth B. Stratton, on this 21 day of November, 2016.

 

STEMCELLS, INC.
By:  

/s/ Kenneth B. Stratton

  Name:   Kenneth B. Stratton
  Title:   President and General Counsel

Exhibit 10.1

MICROBOT MEDICAL LTD.

5 HAMADA ST.

YOKNEAM 2069204 ISRAEL

November 18, 2016

Alpha Capital Anstalt

Lettstrasse 32

Vaduz, Liechtenstein 9490

Gentlemen:

Reference is made to that Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), made and entered into as of August 15, 2016 by and among StemCells, Inc., a Delaware corporation (“Parent”), C&RD Israel Ltd., an Israeli corporation and wholly-owned subsidiary of Parent, and Microbot Medical Ltd., a company organized under the laws of the State of Israel (the “Company”). Capitalized terms used in this Agreement and not otherwise defined shall have the meanings ascribed to those terms in the Merger Agreement.

1. The Merger Agreement, among other things, provided for a closing condition (the “Closing Condition”) that the Company shall raise $4.0 million in equity (the “Private Placement”).

2. Pursuant to a letter agreement dated August 15, 2015, by and between the Company and Alpha Capital Anstalt (“Alpha” or “you”), among other things, Alpha agreed to fund the Private Placement at or prior to Closing.

3. The Company and Alpha have agreed to not consummate the Private Placement at or prior to Closing, in part due to the expected net proceeds from the post-Closing sale of certain intellectual property and related assets of Parent (the “Asset Sale”), and have further agreed to delay the consummation of the Private Placement until subsequent to the Closing, as hereinafter set forth.

4. Parent and the Company have agreed to waive the Closing Condition in reliance of the terms and conditions set forth in this Agreement.

5. Alpha agrees, by countersigning below, on or prior to December 31, 2016 (the “Funding Deadline”), to fund the Private Placement (i.e., proceeds of $4.0 million), at a pre-money valuation of US$34 million, provided , however , that in the event the Company receives cash proceeds from the Asset Sale prior to the Funding Deadline (the “Asset Sale Proceeds”), the amount Alpha is required to fund with respect to the Private Placement shall be reduced dollar-for-dollar by the amount so received from the Asset Sale. Furthermore, the amount Alpha is required to fund with respect to the Private Placement shall be increased dollar-for-dollar by the amount of Undisclosed Liabilities and any liabilities of Parent that may have resulted in the Net Cash to fall below zero based on the final Net Cash Schedule provided to the Company by Parent


at the Closing. “Undisclosed Liabilities” means the expenses and other liabilities incurred by Parent (or the Company on behalf of Parent) with respect to pre-Closing or Closing matters that were not included in the determination of Net Cash for the Net Cash Schedule. By way of example, if on December 5, 2016, the Company receives cash proceeds from the Asset Sale of $2.8 million, Alpha would invest $1.2 million in the Private Placement, which would satisfy Alpha’s obligations with respect to the Private Placement. If, however, in addition to the $2.8 million in proceeds from the Asset Sale, the Company received invoices on or before December 31, 2016 for $200,000 with respect to an Undisclosed Liability and the Net Cash Schedule at Closing showed positive Net Cash of $100,000, then Alpha would invest $1.3 million in the Private Placement ($4,000,000 - $2,800,000 + (200,000 – 100,000)). The amount Alpha is obligated to fund in the Private Placement pursuant to this paragraph 5 is referred to as the “Modified Funding Amount”.

Notwithstanding the foregoing, Alpha shall have no obligation to fund the Modified Funding Amount if and only to the extent Parent, subsequent to the Effective Time, raises equity from other sources that, when combined with the Asset Sale Proceeds, aggregates at least $9.0 million (the “Threshold Amount”); provided that if Parent so raises less than $9.0 million, Alpha’s obligation to fund shall be the lesser of (i) the Modified Funding Amount and (ii) the difference between the Threshold Amount and the amount actually raised (when combined with the Asset Sale Proceeds); provided further that the Company may in its sole discretion waive at any time Alpha’s obligations hereunder to fund the Private Placement, in which case Alpha’s obligations hereunder shall be terminated and of no further force and effect. By way of examples, if the Asset Sale Proceeds are $2.7 million and the Modified Funding Amount is $1.3 million, and (a) Parent raises $1.0 million in a public at-the-market offering, Alpha shall be obligated to fund $1.3 million; (b) Parent raises $5.3 million in a public at-the-market offering, Alpha shall be obligated to fund $1.0 million; and (c) Parent raises $7.0 million in a public at-the-market offering, Alpha shall have no obligation to fund the Private Placement. Alpha and the Company shall enter into definitive transaction documents to memorialize Alpha’s investment into Parent of the Modified Funding Amount based on documents substantially similar to the Securities Exchange Agreement entered into by and between the parties as of the Effective Time.

6. Alpha’s obligations pursuant to this Agreement are subject to the following conditions being met:

a. the Closing of the Merger shall have occured; and

b. other conditions customary for a transaction of this type, including the absence of any material adverse change with respect to the Parent or the Company since the date hereof.

7. Upon the Closing, the Company covenants to maintain the registration of the common stock of the Parent under Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the “Exchange Act”) and to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Parent after the date hereof pursuant to the Exchange Act even if the Parent is not then subject to the reporting requirements of the Exchange Act.


8. No party hereto shall be permitted to assign its rights or obligations under this Agreement without the prior written consent of the other party, except at and after Closing, the Company may assign any or all of its rights and obligations to Parent without the consent of Alpha. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns.

9. This Agreement shall be governed by the laws of the State of New York, without regard to principles of conflicts of laws. In the event of any litigation hereunder, each party hereto agrees to consent to the exclusive jurisdiction of the courts of the State of New York and of the United States located in the County of New York.

10. This Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, both written and oral, of such parties regarding the subject matter of this Agreement.

11. It is understood and agreed by the parties that money damages would not be a sufficient remedy for any breach of this Agreement by any party and each non-breaching party shall be entitled to seek specific performance and injunctive or other equitable relief (including attorneys’ fees and costs) as a remedy for any such breach, without the necessity of proving the inadequacy of money damages as a remedy. Each party hereby waives any requirement for the security or posting of any bond in connection with such remedies. This Agreement is not intended to, and does not, confer upon any other person any benefits, rights or remedies.

12. This Agreement may not be modified or amended in any manner without the prior written consent of all the parties hereto.

13. This Agreement may be executed and delivered in counterparts, which taken together shall constitute one instrument, and may be executed and delivered by facsimile and, as such, shall be treated as an original.

[R EMAINDER OF P AGE I NTENTIONALLY LEFT B LANK ; S IGNATURE P AGE F OLLOWS ]


Please sign where indicated below to confirm your agreement to all of the foregoing provisions.

 

Very truly yours,
MICROBOT MEDICAL LTD.
By:  

/s/ Harel Gadot

Name:   Harel Gadot
Title:   Chairman and Chief Executive Officer

 

Agreed to and accepted this
18 day of November 2016:
ALPHA CAPITAL ANSTALT
By:  

/s/ Nicola Feuerstein

Name:   Nicola Feuerstein
Title:   Director

Exhibit 10.2

SECURITIES EXCHANGE AGREEMENT

This Securities Exchange Agreement (this “ Agreement ”) is dated as of November 28, 2016, between Stemcells, Inc., a Delaware corporation (the “ Company ”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “ Purchaser ” and collectively, the “ Purchasers ”).

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Sections 3(a)(9) and 4(a)(2) of the Securities Act of 1933, as amended (the “ Securities Act ”), and/or Rule 506 promulgated thereunder, the Company desires to issue to each Purchaser, and each Purchaser, severally and not jointly, desires to exchange with 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 each Purchaser agree as follows:

ARTICLE I.

DEFINITIONS

1.1 Definitions . In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Debentures (as defined herein), and (b) the following terms have the meanings set forth in this Section 1.1:

Acquiring Person ” shall have the meaning ascribed to such term in Section 4.7.

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.

Closing ” means the closing of the purchase and sale of the Securities pursuant to Section 2.1.

Closing Date ” means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchasers’ obligations to exchange the Existing Debentures and Exchange Shares and (ii) the Company’s obligations to deliver the Debenture and Rights to Shares, in each case, have been satisfied or waived.

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, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

Company Counsel ” means Ruskin Moscou Faltischek, P.C., with offices located at 1425 RXR Plaza, East Tower, 15 th Floor, Uniondale, New York 11556, or such other counsel retained by the Company from time to time.

Conversion Price ” shall have the meaning ascribed to such term in the Debentures.

Debentures ” means the 6% Convertible Debentures due, subject to the terms therein, three (3) years from their date of issuance, issued by the Company to the Purchasers hereunder, in the form of Exhibit A attached hereto.

EGS ” means Ellenoff Grossman & Schole LLP, with offices located at 1345 Avenue of the Americas, New York, New York 10105-0302.

Effective Date ” means the earliest of the date that (a) all of the Underlying Shares have been sold pursuant to Rule 144 or may be sold pursuant to Rule 144 without the requirement for the Company to be in compliance with the current public information required under Rule 144 and without volume or manner-of-sale restrictions, (b) following the one year anniversary of the Closing Date provided that a holder of the Underlying Shares is not an Affiliate of the Company or (c) all of the Underlying Shares may be sold pursuant to an exemption from registration under Section 4(1) of the Securities Act without volume or manner-of-sale restrictions and Company Counsel has delivered to such holders a standing written unqualified opinion that resales may then be made by such holders of the Underlying Shares pursuant to such exemption which opinion shall be in form and substance reasonably acceptable to such holders.

Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

Exchange Shares ” shall mean the shares of Common Stock exchanged hereunder for Rights to Shares as set forth in the Right to Share Agreement.

Exempt Issuance ” means the issuance of (a) shares of Common Stock or options or other equity incentive compensation to eligible persons pursuant to any stock or option plan duly adopted for such purpose, by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose for services rendered to the Company, (b)

 

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securities upon the exercise or exchange of or conversion of any Securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities (other than in connection with stock splits or combinations) or to extend the term of such securities and (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person (or to the equityholders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Company and shall provide to the Company additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.

Existing Note ” means the 5.0% Secured Note held by Alpha Capital Anstalt and issued by Stemcells, Inc. on August 15, 2016, with a principal amount equal to $2,000,000.

Legend Removal Date ” shall have the meaning ascribed to such term in Section 4.1(c).

Liens ” means a lien, charge, pledge, 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).

Maximum Rate ” shall have the meaning ascribed to such term in Section 5.17.

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.

Public Information Failure ” shall have the meaning ascribed to such term in Section 4.3(b).

Public Information Failure Payments ” shall have the meaning ascribed to such term in Section 4.3(b).

Purchaser Party ” shall have the meaning ascribed to such term in Section 4.10.

 

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Required Approvals ” shall have the meaning ascribed to such term in Section 3.1(e).

Required Minimum ” means, as of any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuable in the future pursuant to the Transaction Documents, including any Underlying Shares issuable upon conversion in full of all Debentures and Rights to Shares (including Underlying Shares issuable as payment of interest on the Debentures), ignoring any conversion or exercise limits set forth therein, and assuming that the Conversion Price is at all times on and after the date of determination 75% of the then Conversion Price on the Trading Day immediately prior to the date of determination.

Rights to Shares ” shall mean those certain rights to receive shares of Common Stock issuable pursuant to the Right to Shares Agreement.

Right to Shares Agreement ” shall mean the Right To Shares Agreement entered into between the Company and the Purchasers signatory hereto pursuant to which the Right to Shares are issued, in the form of Exhibit B attached hereto.

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 ” means the Debentures, Rights to Shares and the Underlying Shares.

Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

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).

Subscription Amount ” means, as to each Purchaser, the principal and accrued but unpaid interest on the Existing Note as of the Closing Date.

Subsidiary ” means any subsidiary of the Company as set forth on Schedule 3.1(a) and shall, where applicable, also include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.

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 MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, OTCQB or OTCQX (or any successors to any of the foregoing).

 

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Transaction Documents ” means this Agreement, the Debentures, the Rights to Shares Agreement all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.

Transfer Agent ” means the current transfer agent of the Company and any successor transfer agent of the Company and any successor transfer agent of the Company.

Underlying Shares ” means the shares of Common Stock issued and issuable pursuant to the terms of the Debenture and/or issued and issuable pursuant to the Rights to Shares, without respect to any limitation or restriction on the conversion of the Debentures or the Rights to Shares Agreement.

Variable Rate Transaction ” shall have the meaning ascribed to such term in Section 4.13(b).

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 OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the “Pink Sheets” published by OTC Markets Group, 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 Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

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 exchange with the Purchasers, severally and not jointly, principal and accrued but unpaid interest in the Existing Note and/or Exchange Shares for Debentures and/or Rights to Shares. Each Purchaser shall deliver to the Company the Existing Note and Exchange Shares, as applicable, and the Company shall deliver to each Purchaser its respective Debenture and Rights to Shares, as applicable. Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of EGS or such other location as the parties shall mutually agree. Upon surrender and delivery of the Existing Note and the rights, covenants, agreements and obligations of the parties thereunder or contemplated thereby will terminate and be of no further force and effect, and all of the obligations of the Company under the Existing Note are hereby released, extinguished and terminated.

 

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2.2 Deliveries .

(a) On or prior to the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:

(i) this Agreement duly executed by the Company;

(ii) a certificate evidencing the formation and good standing of the Company and each of its material Subsidiaries, if any;

(iii) a certificate evidencing the Company’s and each material Subsidiary’s qualification as a foreign corporation and good standing;

(iv) a certificate, in the form acceptable to such Purchaser, executed by the Secretary of the Company and each material Subsidiary and dated as of the Closing Date, as to the resolutions of the Board of Directors authorizing the transactions contemplated under this Agreement;

(v) a duly executed and delivered Right to Share Agreement evidencing such Purchasers Right to Shares in an amount equal to the number of Exchange Shares set forth on such Purchaser’s signature page hereto; and

(vi) a Debenture with a principal amount equal to such Purchaser’s Subscription Amount, registered in the name of such Purchaser.

(b) On or prior to the Closing Date, each Purchaser shall deliver or cause to be delivered to the Company, as applicable, the following:

(i) this Agreement duly executed by such Purchaser; and

(ii) if applicable, surrender of Existing Note;

(iii) if applicable, the Exchange Shares; and

(iv) a release of security interest duly executed by the Purchaser in the form attached hereto as Exhibit C .

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 (or, to the extent representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) the Closing Date of the representations and warranties of the Purchasers contained herein (unless as of a specific date therein in which case they shall be accurate as of such date);

 

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(ii) all obligations, covenants and agreements of each Purchaser required to be performed at or prior to the Closing Date shall have been performed;

(iii) the delivery by each Purchaser of the items set forth in Section 2.2(b) of this Agreement; and

(iv) The filing of a UCC-3 Termination Statement with respect to the full release of the security interest under the Existing Note.

(b) The respective obligations of the Purchasers hereunder in connection with the Closing are subject to the following conditions being met:

(i) the accuracy in all material respects (or, to the extent representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) when made and on the Closing Date of the representations and warranties of the Company contained herein (unless as of a specific date therein in which case they shall be accurate as of such date);

(ii) all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed; and

(iii) the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

3.1 Representations and Warranties of the Company . The Company hereby makes the following representations and warranties to each Purchaser:

(a) Subsidiaries . The Company owns, directly or indirectly, all of the capital stock or other equity interests of the Subsidiary free and clear of any Liens (assuming the release of the Liens with respect to the Existing Note), and all of the issued and outstanding shares of capital stock of the Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.

(b) Organization and Qualification . The Company and the Subsidiary 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, 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 the Subsidiary is in violation nor default of any of the provisions of its respective certificate or articles of incorporation,

 

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bylaws or other organizational or charter documents. Each of the Company and the Subsidiary 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 to the Company’s knowledge 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 this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and each of the other 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, the Board of Directors or the Company’s stockholders in connection herewith or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction Document to which it is a party 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 by the Company of this Agreement and the other Transaction Documents to which it is a party, the issuance and sale of the Securities and the consummation by it of the 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, (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

 

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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) the filings required pursuant to Section 4.6 of this Agreement, (ii) the notice and/or application(s) to each applicable Trading Market for the issuance and sale of the Securities and the listing of the Underlying Shares for trading thereon in the time and manner required thereby and (iii) 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. The Underlying Shares, when issued in accordance with the terms of the Transaction Documents, will be 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. The Company has reserved from its duly authorized capital stock a number of shares of Common Stock for issuance of the Underlying Shares at least equal to the Required Minimum on the date hereof.

(g) Private Placement . Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market.

(h) Acknowledgment Regarding Purchasers’ Purchase of Securities . The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchasers’ purchase of the Securities. The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.

 

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3.2 Representations and Warranties of the Purchasers . Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein, in which case they shall be accurate as of such date):

(a) Organization; Authority . Such Purchaser is either an individual or an entity duly incorporated or formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership, limited liability company or similar 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, partnership, limited liability company or similar action, as applicable, on the part of such Purchaser. Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such 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 . Such 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 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 . At the time such Purchaser was offered the Securities, it was, and as of the date hereof it is, and on each date on which it converts any Debentures or exercises its right to Rights to Shares it will be 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.

(d) Experience of Such Purchaser . Such 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

 

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prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such 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) General Solicitation . Such Purchaser is not, to such Purchaser’s knowledge, purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

(f) Access to Information . Such Purchaser acknowledges that it has had the opportunity to review the Transaction Documents (including all exhibits and schedules thereto) and has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and risks of investing in the Securities; (ii) access to information about the Company and its financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment.

(g) Certain Transactions and Confidentiality . Other than consummating the transactions contemplated hereunder, such Purchaser has not directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, executed any purchases or sales, including Short Sales, of the securities of the Company during the period commencing as of the time that such Purchaser first received a term sheet (written or oral) from the Company or any other Person representing the Company setting forth the material terms of the transactions contemplated hereunder and ending immediately prior to the execution hereof. Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the representation set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement. Other than to other Persons party to this Agreement or to such Purchaser’s representatives, including, without limitation, its officers, directors, partners, legal and other advisors, employees, agents and Affiliates, 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). Notwithstanding the foregoing, for the avoidance of doubt, nothing contained herein shall constitute a representation or warranty, or preclude any actions, with respect to the identification of the availability of, or securing of, available shares to borrow in order to effect Short Sales or similar transactions in the future.

(h) The Purchaser is the legal and beneficial owner of the Existing Note, free and clear of any Liens whatsoever, and the Existing Note has not been assigned, transferred or otherwise hypothecated.

 

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The Company acknowledges and agrees that the representations contained in this Section 3.2 shall not modify, amend or affect such Purchaser’s right to rely on the Company’s representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction Document or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of the transactions contemplated hereby.

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 or in connection with a pledge as contemplated in Section 4.1(b), 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.

(b) The Purchasers agree 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:

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAS 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. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF 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.

 

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The Company acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of such pledge. At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities.

(c) Certificates evidencing the Underlying Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof): (i) while a registration statement covering the resale of such security is effective under the Securities Act, (ii) following any sale of such Underlying Shares pursuant to Rule 144, (iii) if such Underlying Shares are eligible for sale under Rule 144, without the requirement for the Company to be in compliance with the current public information required under Rule 144 as to such Underlying Shares and without volume or manner-of-sale restrictions or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). The Company shall cause its counsel to issue a legal opinion to the Transfer Agent if required by the Transfer Agent to effect the removal of the legend hereunder. If all or any portion of a Debenture is converted, or Rights to Shares is exercised, at a time when there is an effective registration statement to cover the resale of the Underlying Shares, or if such Underlying Shares may be sold under Rule 144 without the requirement for the Company to be in compliance with the current public information required under Rule 144 as to such Underlying Shares and without volume or manner-of-sale restrictions or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) then such Underlying Shares shall be issued free of all legends. The Company agrees that following the Effective Date or at such time as such legend is no longer required under this Section 4.1(c), it will, no later than the earlier of (i) three (3) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined below) following the delivery by a Purchaser to the Company or the Transfer Agent of a certificate representing Underlying Shares, as applicable, issued with a restrictive legend (such third Trading Day, the “ Legend Removal Date ”), deliver or cause to be delivered to such Purchaser a certificate representing such shares that is free from all restrictive and other legends. The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section 4. Certificates for Underlying Shares subject to legend removal hereunder shall be transmitted by the Transfer Agent to the Purchaser by crediting the account of the Purchaser’s prime broker with the Depository Trust Company System as directed by such Purchaser. As used herein, “ Standard Settlement Period ” means the standard settlement period, expressed in a number of Trading Days, on the Company’s

 

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primary Trading Market with respect to the Common Stock as in effect on the date of delivery of a certificate representing Underlying Shares, as applicable, issued with a restrictive legend.

(d) In addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, (i) as partial liquidated damages and not as a penalty, for each $1,000 of Underlying Shares (based on the average VWAP of the Common Stock for the twenty (20) trading days immediately prior to the date such Securities are submitted to the Transfer Agent) delivered for removal of the restrictive legend and subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading Day five (5) Trading Days after such damages have begun to accrue) for each Trading Day after the Legend Removal Date until such certificate is delivered without a legend and (ii) if the Company fails to (a) issue and deliver (or cause to be delivered) to a Purchaser by the Legend Removal Date a certificate representing the Securities so delivered to the Company by such Purchaser that is free from all restrictive and other legends and (b) if after the Legend Removal Date such Purchaser purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Purchaser of all or any portion of the number of shares of Common Stock, or a sale of a number of shares of Common Stock equal to all or any portion of the number of shares of Common Stock that such Purchaser anticipated receiving from the Company without any restrictive legend, then, an amount equal to the excess of such Purchaser’s total purchase price (including brokerage commissions and other out-of-pocket expenses, if any) for the shares of Common Stock so purchased (including brokerage commissions and other out-of-pocket expenses, if any) (the “ Buy-In Price ”) over the product of (A) such number of Underlying Shares that the Company was required to deliver to such Purchaser by the Legend Removal Date multiplied by (B) the lowest closing sale price of the Common Stock on any Trading Day during the period commencing on the date of the delivery by such Purchaser to the Company of the applicable Underlying Shares (as the case may be) and ending on the date of such delivery and payment under this clause (ii).

4.2 Acknowledgment of Dilution . The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its obligations under the Transaction Documents, including, without limitation, its obligation to issue the Underlying Shares pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against any Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company.

4.3 Furnishing of Information; Public Information .

(a) Until the earliest of the time that no Purchaser owns Securities, the Company covenants to maintain the registration of the Common Stock under Section 12(b) or 12(g) of the Exchange Act and to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act even if the Company is not then subject to the reporting requirements of the Exchange Act.

 

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(b) At any time during the period commencing from the six (6) month anniversary of the date hereof and ending at such time that all of the Securities may be sold without the requirement for the Company to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144, if the Company (i) shall fail for any reason to satisfy the current public information requirement under Rule 144(c) or (ii) has ever been an issuer described in Rule 144 (i)(1)(i) or becomes an issuer in the future, and the Company shall fail to satisfy any condition set forth in Rule 144(i)(2) (a “ Public Information Failure ”) then, in addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, by reason of any such delay in or reduction of its ability to sell the Securities, an amount in cash equal to two percent (2.0%) of the aggregate Subscription Amount of such Purchaser’s Securities on the day of a Public Information Failure and on every thirtieth (30 th ) day (pro rated for periods totaling less than thirty days) thereafter until the earlier of (a) the date such Public Information Failure is cured and (b) such time that such public information is no longer required for the Purchasers to transfer the Underlying Shares pursuant to Rule 144. The payments to which a Purchaser shall be entitled pursuant to this Section 4.3(b) are referred to herein as “ Public Information Failure Payments .” Public Information Failure Payments shall be paid on the earlier of (i) the last day of the calendar month during which such Public Information Failure Payments are incurred and (ii) the third (3 rd ) Business Day after the event or failure giving rise to the Public Information Failure Payments is cured. In the event the Company fails to make Public Information Failure Payments in a timely manner, such Public Information Failure Payments shall bear interest at the rate of 1.5% per month (prorated for partial months) until paid in full. Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Public Information Failure, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.

4.4 Integration . The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market such that it would require shareholder approval prior to the closing of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction.

4.5 Conversion and Exercise Procedures . Each of the form of Notice of Conversion included in the Debentures or Notice of Exercise set forth in the Right to Shares Agreement set forth the totality of the procedures required of the Purchasers in order to convert the Debentures or exercise the Rights to Shares. Without limiting the preceding sentences, no ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required in order to convert the Debentures or exercise the Rights to Shares. No additional legal opinion, other information or instructions shall be required of the Purchasers to convert their Debentures or exercise their Rights to Shares. The Company shall honor conversions of the Debentures and exercise of Rights to Shares and shall deliver Underlying Shares in accordance with the terms, conditions and time periods set forth in the Transaction Documents.

 

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4.6 Securities Laws Disclosure; Publicity . The Company shall file a Current Report on Form 8-K, including the Transaction Documents as exhibits thereto, with the Commission within the time required by the Exchange Act. From and after the Effective Date, the Company represents to the Purchasers that it shall have publicly disclosed all material, non-public information delivered to any of the Purchasers by the Company or any of its Subsidiaries, or any of their respective officers, directors, employees or agents in connection with the transactions contemplated by the Transaction Documents. In addition, effective upon such public disclosure, the Company acknowledges and agrees that any and all confidentiality or similar obligations under any agreement, whether written or oral, between the Company, any of its Subsidiaries or any of their respective officers, directors, agents, employees or Affiliates on the one hand, and any of the Purchasers or any of their Affiliates on the other hand, shall terminate. The Company and each Purchaser shall consult with each other in issuing any other press releases with respect to the transactions contemplated hereby, and neither the Company nor any Purchaser shall issue any such press release nor otherwise make any such public statement without the prior consent of the Company, with respect to any press release of any Purchaser, or without the prior consent of each 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. Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except: (a) as required by federal securities law in connection with the filing or disclosure of final Transaction Documents with the Commission and (b) to the extent such disclosure is required by law or Trading Market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure permitted under this clause (b).

4.7 Shareholder Rights Plan . No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that any Purchaser is an “ Acquiring Person ” under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Purchasers.

4.8 Non-Public Information . Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, which shall be disclosed pursuant to Section 4.6, the Company covenants and agrees that neither it, nor any other Person acting on its behalf will provide any Purchaser or its agents or counsel with any information that constitutes, or the Company reasonably believes constitutes, material non-public information, unless prior thereto such Purchaser shall have consented to the receipt of such information and agreed with the Company to keep such information confidential. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company. Except as may be governed by any existing confidentiality agreements with the Purchaser, to the extent that the Company delivers any material, non-public

 

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information to a Purchaser without such Purchaser’s consent, the Company hereby covenants and agrees that such purchaser shall not have any duty of confidentiality to Company, the Subsidiary, or any of their respective officers, directors, agents, employees or Affiliates, or a duty to the Company, and of its Subsidiaries or any of their respective officers, directors, agents, employees or Affiliates not to trade on the basis of, such material, non-public information, provided that the Purchaser shall remain subject to applicable law. To the extent that any notice provided pursuant to any Transaction Document constitutes, or contains, material, non-public information regarding the Company or any Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.

4.9 Tacking of the Debentures . The Company covenants that it will accept an opinion of Purchaser’s legal counsel that the holding period of the Debentures tack back to August 15, 2016, the holding period of the Existing Note, for Rule 144 purposes. The Company agrees not to take a position contrary to this paragraph.

4.10 Indemnification of Purchasers . Subject to the provisions of this Section 4.10, the Company will indemnify and hold each 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 the Purchaser Parties 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 Party, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Purchaser Party’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser Party may have with any such stockholder or any violations by such Purchaser Party of state or federal securities laws or any conduct by such Purchaser Party 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. Any 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 counsel, a material

 

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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 any Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (z) 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. The indemnification required by this Section 4.10 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or are incurred. The indemnity agreements contained herein shall be in addition to any cause of action or similar right of any Purchaser Party against the Company or others and any liabilities the Company may be subject to pursuant to law.

4.11 Reservation and Listing of Securities .

(a) The Company shall maintain a reserve of the Required Minimum from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents in such amount as may then be required to fulfill its obligations in full under the Transaction Documents.

(b) If, on any date, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock is less than the Required Minimum on such date, then the Board of Directors shall use commercially reasonable efforts to amend the Company’s certificate or articles of incorporation to increase the number of authorized but unissued shares of Common Stock to at least the Required Minimum at such time, as soon as possible and in any event not later than the 75th day after such date.

(c) The Company shall, if applicable: (i) in the time and manner required by the principal Trading Market, prepare and file with such Trading Market an additional shares listing application covering a number of shares of Common Stock at least equal to the Required Minimum on the date of such application, (ii) take all steps necessary to cause such shares of Common Stock to be approved for listing or quotation on such Trading Market as soon as possible thereafter, (iii) provide to the Purchasers evidence of such listing or quotation and (iv) maintain the listing or quotation of such Common Stock on any date at least equal to the Required Minimum on such date on such Trading Market or another Trading Market. The Company agrees to maintain the eligibility of the Common Stock for electronic transfer through the Depository Trust Company or another established clearing corporation, including, without limitation, by timely payment of fees to the Depository Trust Company or such other established clearing corporation in connection with such electronic transfer.

 

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4.12 [RESERVED]

4.13 Subsequent Equity Sales .

(a) From the date hereof until such time as no Purchaser holds any of the Debentures, the Company shall be prohibited from effecting or entering into an agreement to effect any issuance by the Company or any of its Subsidiaries of Common Stock or Common Stock Equivalents (or a combination of units thereof) involving a Variable Rate Transaction. “ Variable Rate Transaction ” means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into, or effects a transaction under, any agreement, including, but not limited to, an equity line of credit, whereby the Company may issue securities at a future determined price; provided , however , this Section 4.13(a) shall not prohibit the Company from entering into an at-the-market equity financing facility with a registered broker-dealer. Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.

(b) Notwithstanding the foregoing, this Section 4.13 shall not apply in respect of an Exempt Issuance, except that no Variable Rate Transaction shall be an Exempt Issuance.

4.14 Equal Treatment of Purchasers . No consideration (including any modification of any Transaction Document) shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of the Transaction Documents unless the same consideration is also offered to all of the parties to such Transaction Documents. Further, the Company shall not make any payment of principal or interest on the Debentures in amounts which are disproportionate to the respective principal amounts outstanding on the Debentures at any applicable time. For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.

4.15 Certain Transactions and Confidentiality . Each Purchaser, severally and not jointly with the other Purchasers, covenants that neither it, nor any Affiliate acting on its behalf or pursuant to any understanding with it will execute any purchases or sales, including Short Sales, of any of the Company’s securities during the period commencing with the execution of this Agreement and ending at such time that the transactions contemplated by this Agreement are first publicly announced as described in Section 4.6. Each Purchaser, severally and not jointly with the other Purchasers, covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company pursuant to the initial press release as described in Section 4.6, such Purchaser will maintain the confidentiality of the existence and terms of this transaction and the information included in the Transaction Documents.

 

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Notwithstanding the foregoing, and notwithstanding anything contained in this Agreement to the contrary, the Company expressly acknowledges and agrees that (i) no Purchaser makes any representation, warranty or covenant hereby that it will not engage in effecting transactions in any securities of the Company after the time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.6, (ii) no Purchaser shall be restricted or prohibited from effecting any transactions in any securities of the Company in accordance with applicable securities laws from and after the time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.6 and (iii) no Purchaser shall have any duty of confidentiality or duty not to trade in the securities of the Company to the Company or its Subsidiaries after the issuance of the initial press release as described in Section 4.6. Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the covenant set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement.

4.16 Form D; Blue Sky Filings . In the event the Company relies upon Regulation D to issue the Debentures and Rights to Shares, the Company agrees to timely file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof, promptly upon request of any Purchaser. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchasers at the Closing under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions promptly upon request of any Purchaser.

ARTICLE V.

MISCELLANEOUS

5.1 Termination . This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the Closing has not been consummated on or before November 29, 2016; provided , however , that such termination will not affect the right of any party to sue for any breach by any other party (or parties).

5.2 Fees and Expenses . At the Closing, the Company has agreed to reimburse Alpha Capital Anstalt (“ Alpha ”) the aggregate non-accountable sum of $25,000 for its legal fees and expenses with respect to the transactions contemplated in this Agreement as well as any other transactions as between the Company and Alpha through December 31, 2016. Accordingly, in lieu of the foregoing payments, the aggregate amount that Alpha is to pay for the Securities at the Closing shall be reduced by $25,000 in lieu thereof. The Company shall deliver to each Purchaser, prior to the Closing, a completed and executed copy of the Closing Statement, attached hereto as Annex A . 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

 

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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 (including, without limitation, any fees required for same-day processing of any instruction letter delivered by the Company and any conversion or exercise notice delivered by a Purchaser), stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers.

5.3 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 thereof 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.

5.4 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 or email attachment as set forth on the signature pages attached hereto at or 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 or email attachment as 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 (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. To the extent that any notice provided pursuant to any Transaction Document 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.

5.5 Amendments; Waivers . No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and Purchasers holding at least 67% in interest of the Debentures then outstanding or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought, provided that if any amendment, modification or waiver disproportionately and adversely impacts a Purchaser (or group of Purchasers), the consent of such disproportionately impacted Purchaser (or group of Purchasers) shall also be required. 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. Any proposed amendment or waiver that disproportionately, materially and adversely affects the rights and obligations of any Purchaser relative to the comparable rights and obligations of the other Purchasers shall require the prior written consent of such adversely affected Purchaser, Any amendment effected in accordance with accordance with this Section 5.5 shall be binding upon each Purchaser and holder of Securities and the Company.

 

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5.6 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.

5.7 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 that 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 “Purchasers.”

5.8 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 4.10.

5.9 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 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, partners, members, 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 action or Proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such 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 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 any party hereto 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 4.10, the prevailing party in such action or Proceeding shall be reimbursed by the non-prevailing party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or Proceeding.

5.10 Survival . The representations and warranties contained herein shall survive the Closing and the delivery of the Securities.

 

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5.11 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 each other party, it being understood that the 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.

5.12 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.

5.13 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 any 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 such 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; provided , however , that in the case of a rescission of a conversion of a Debenture, the applicable Purchaser shall be required to return any shares of Common Stock subject to any such rescinded conversion.

5.14 Replacement of Securities . If any certificate or instrument evidencing any 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.

5.15 Remedies . In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers 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 agree 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.

 

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5.16 Payment Set Aside . To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

5.17 Usury . To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any action or Proceeding that may be brought by any Purchaser in order to enforce any right or remedy under any Transaction Document. Notwithstanding any provision to the contrary contained in any Transaction Document, it is expressly agreed and provided that the total liability of the Company under the Transaction Documents for payments in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “ Maximum Rate ”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums in the nature of interest that the Company may be obligated to pay under the Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and applicable to the Transaction Documents is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective date thereof forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to any Purchaser with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied by such Purchaser to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at such Purchaser’s election.

5.18 Independent Nature of Purchasers’ Obligations and Rights . The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any Proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in its review and negotiation of the Transaction Documents. For reasons of administrative convenience only, each

 

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Purchaser and its respective counsel have chosen to communicate with the Company through EGS. EGS does not represent any of the Purchasers and only represents Alpha. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by any of the Purchasers.

5.19 Liquidated Damages . The Company’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled.

5.20 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.

5.21 Construction . The parties agree that each of them and/or their respective counsel have 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 thereto. In addition, each and every reference to share prices and shares of Common Stock in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.

5.22 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)

 

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IN WITNESS WHEREOF, the parties hereto have caused this Securities Exchange Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

MICROBOT MEDICAL INC.       Address for Notice:
By:  

/s/ Harel Gadot

      Fax:
  Name:   Harel Gadot      
  Title:   Chairman and CEO      
With a copy to (which shall not constitute notice):      
Ruskin Moscou Faltischek, P.C.      
1425 RXR Plaza      
East Tower, 15 th Floor      
Uniondale, NY 11556      
Attention: Stephen E. Fox, Esq.      

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 

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[PURCHASER SIGNATURE PAGES TO STEM SECURITIES EXCHANGE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Exchange 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 :   

/s/ Konrad Ackermann

Name of Authorized Signatory:   

Konrad Ackermann

Title of Authorized Signatory:   

Director

Email Address of Authorized Signatory:   

info@alphacapital.li

Facsimile Number of Authorized Signatory:   

 

Address for Notice to Purchaser:

Address for Delivery of Securities to Purchaser (if not same as address for notice):

Subscription Amount: Principal amount and interest surrendered: $ 2,028,767

Exchange Shares:

[SIGNATURE PAGES CONTINUE]

 

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Exhibit 10.3

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE 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. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

Original Issue Date: November 28, 2016

Original Conversion Price (subject to adjustment herein): $0.64

$2,028,767

6% CONVERTIBLE DEBENTURE

DUE NOVEMBER 28, 2019

THIS 6% CONVERTIBLE DEBENTURE is one or more of a series of duly authorized and validly issued 6% Convertible Debentures of Microbot Medical Inc. (formerly known as Stemcells, Inc.), a Delaware corporation (the “ Company ”), having its principal place of business at 5 Hamada Street, Yokneam 2069204 Israel, designated as its 6% Convertible Debenture due November 28, 2019 (this debenture, the “ Debenture ” and, collectively with the other debentures of such series, the “ Debentures ”).

FOR VALUE RECEIVED, the Company promises to pay to Alpha Capital Anstalt or its registered assigns (the “ Holder ”), or shall have paid pursuant to the terms hereunder, the principal sum of $2,028,767 on November 28, 2019 (the “ Maturity Date ”) or such earlier date as this Debenture is required or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture in accordance with the provisions hereof. This Debenture is subject to the following additional provisions:

Section 1 . Definitions . For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Exchange Agreement and (b) the following terms shall have the following meanings:

Alternate Consideration ” shall have the meaning set forth in Section 5(e).

 

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Bankruptcy Event ” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts, (g) the Company or any Significant Subsidiary thereof admits in writing that it is generally unable to pay its debts as they become due, (h) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

Beneficial Ownership Limitation ” shall have the meaning set forth in Section 4(d).

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.

Buy-In ” shall have the meaning set forth in Section 4(c)(v).

Change of Control Transaction ” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 33% of the voting securities of the Company (other than by means of conversion or exercise of the Debentures and the Securities issued together with the Debentures), (b) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 66% of the aggregate voting power of the Company or the successor entity of such transaction, (c) the Company sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior

 

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to such transaction own less than 66% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a three year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Original Issue Date (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the date hereof), or (e) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

Conversion ” shall have the meaning ascribed to such term in Section 4.

Conversion Date ” shall have the meaning set forth in Section 4(a).

Conversion Price ” shall have the meaning set forth in Section 4(b).

Conversion Schedule ” means the Conversion Schedule in the form of Schedule 1 attached hereto.

Conversion Shares ” means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with the terms hereof.

Debenture Register ” shall have the meaning set forth in Section 2(c).

Event of Default ” shall have the meaning set forth in Section 8(a).

Equity Conditions ” means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all liquidated damages and other amounts owing to the Holder in respect of this Debenture, (c)(i) there is an effective Registration statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the shares of Common Stock issuable pursuant to the Transaction Documents (and the Company believes, in good faith, that such effectiveness will continue uninterrupted for the foreseeable future) or (ii) all of the Conversion Shares issuable pursuant to the Transaction Documents (and shares issuable in lieu of cash payments of interest) may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions or current public information requirements as determined by the counsel to the Company as set forth in a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the Holder, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the shares then issuable pursuant to the Transaction Documents,

 

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(f) there is no existing Event of Default and no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default, (g) the shares issuable upon conversion in full of the Optional Redemption Amount) to the Holder would not violate the limitations set forth in Section 4(d) and Section 4(e) herein, (h) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated, (i) the applicable Holder is not in possession of any information provided by the Company, any of its Subsidiaries, or any of their officers, directors, employees, agents or Affiliates, that constitutes, or may constitute, material non-public information and (j) for each Trading Day in a period of 30 consecutive Trading Days prior to the applicable date in question, the daily trading volume for the Common Stock on the principal Trading Market exceeds $250,000 per Trading Day.

Exchange Agreement ” means the Securities Exchange Agreement, dated as of November 28, 2016 among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

Fundamental Transaction ” shall have the meaning set forth in Section 5(e).

Issuable Maximum ” shall have the meaning set forth in Section 4(e).

Late Fees ” shall have the meaning set forth in Section 2(d).

Mandatory Default Amount ” means the sum of (a) the greater of (i) the outstanding principal amount of this Debenture, plus all accrued and unpaid interest hereon, divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii) 130% of the outstanding principal amount of this Debenture, plus 100% of accrued and unpaid interest hereon, and (b) all other amounts, costs, expenses and liquidated damages due in respect of this Debenture.

New York Courts ” shall have the meaning set forth in Section 9(d).

Notice of Conversion ” shall have the meaning set forth in Section 4(a).

Optional Redemption ” shall have the meaning set forth in Section 6(a).

Optional Redemption Amount ” means the sum of (a) 120% of the then outstanding principal amount of the Debenture, (b) accrued but unpaid interest and (c) all liquidated damages and other amounts due in respect of the Debenture.

Optional Redemption Date ” shall have the meaning set forth in Section 6(a).

 

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Optional Redemption Notice ” shall have the meaning set forth in Section 6(a).

Optional Redemption Notice Date ” shall have the meaning set forth in Section 6(a).

Optional Redemption Period ” shall have the meaning set forth in Section 6(a).

Original Issue Date ” means the date of the first issuance of the Debentures, regardless of any transfers of any Debenture and regardless of the number of instruments which may be issued to evidence such Debentures.

Permitted Indebtedness ” means (a) the indebtedness evidenced by the Debentures, (b) the indebtedness existing on the Original Issue Date or described in the Company’s filings with the Securities and Exchange Commission, (c) lease obligations and purchase money indebtedness of up to $250,000, in the aggregate, incurred in connection with the acquisition of capital assets and lease obligations with respect to newly acquired or leased assets and (d) indebtedness that (i) is expressly subordinate to the Debentures pursuant to a written subordination agreement with the Purchasers that is acceptable to each Purchaser in its sole and absolute discretion and (ii) matures at a date later than the 91 st day following the Maturity Date.

Permitted Lien ” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Company) have been established in accordance with GAAP, (b) Liens imposed by law which were incurred in the ordinary course of the Company’s business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of the Company’s business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Company and its consolidated Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien, (c) Liens incurred in connection with Permitted Indebtedness under clauses (a), (b) and (d)/(e) thereunder, and (d) Liens incurred in connection with Permitted Indebtedness under clause (c) thereunder, provided that such Liens are not secured by assets of the Company or its Subsidiaries other than the assets so acquired or leased.

Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

Share Delivery Date ” shall have the meaning set forth in Section 4(c)(ii).

Successor Entity ” shall have the meaning set forth in Section 5(e).

 

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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 MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, OTCQB or OTCQX (or any successors to any of the foregoing).

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 OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the “Pink Sheets” published by 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 Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

Section 2 . Interest .

a) Payment of Interest in Cash or Kind . The Company shall pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture at the rate of 6% per annum, payable on each Conversion Date (as to that principal amount then being converted) and on the Maturity Date (each such date, an “ Interest Payment Date ”) (if any Interest Payment Date is not a Business Day, then the applicable payment shall be due on the next succeeding Business Day), in cash.

b) Interest Calculations . Interest shall be calculated on the basis of a 360-day year, consisting of twelve 30 calendar day periods, and shall accrue daily commencing on the Original Issue Date until payment in full of the outstanding principal, together with all accrued and unpaid interest, liquidated damages and other amounts which may become due hereunder, has been made.

c) Late Fee . All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law (the “ Late Fees ”) which shall accrue daily from the date such interest is due hereunder through and including the date of actual payment in full.

 

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d) Prepayment . Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder. The Company may prepay in cash any accrued but unpaid interest at any time without the prior written consent of the Holder.

Section 3 . Registration of Transfers and Exchanges .

a) Different Denominations . This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.

b) Investment Representations . This Debenture has been issued subject to certain investment representations of the original Holder set forth in the Exchange Agreement and may be transferred or exchanged only in compliance with the Exchange Agreement and applicable federal and state securities laws and regulations.

c) Reliance on Debenture Register . Prior to due presentment for transfer to the Company of this Debenture, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

Section 4 . Conversion .

a) Voluntary Conversion . At any time after the one-year anniversary of the Original Issue Date until this Debenture is no longer outstanding, this Debenture shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(d) and Section 4(e) hereof). The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “ Notice of Conversion ”), specifying therein the principal amount of this Debenture to be converted and the date on which such conversion shall be effected (such date, the “ Conversion Date ”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture, plus all accrued and unpaid interest thereon, has been so converted in which case the Holder shall surrender this Debenture as promptly as is reasonably practicable after such conversion without delaying the Company’s obligation to deliver the shares on the Share Delivery Date. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal

 

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to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver an objection to any Notice of Conversion within one (1) Business Day of delivery of such Notice of Conversion. 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 Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof.

b) Conversion Price . The conversion price in effect on any Conversion Date shall be equal to $0.64, subject to adjustment herein (the “ Conversion Price ”).

c) Mechanics of Conversion .

i. Conversion Shares Issuable Upon Conversion of Principal Amount . The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted by (y) the Conversion Price.

ii. Delivery of Conversion Shares Upon Conversion . Not later than the earlier of (i) three (3) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined below) after each Conversion Date (the “ Share Delivery Date ”), the Company shall deliver, or cause to be delivered, to the Holder (A) the Conversion Shares which, on or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Exchange Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Debenture and (B) a bank check in the amount of accrued and unpaid interest. On or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, the Company shall deliver any Conversion Shares required to be delivered by the Company under this Section 4(c) electronically through the Depository Trust Company or another established clearing corporation performing similar functions. As used herein, “ Standard Settlement Period ” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Conversion.

iii. Failure to Deliver Conversion Shares . If, in the case of any Notice of Conversion, such Conversion Shares are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event the Company

 

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shall promptly return to the Holder any original Debenture delivered to the Company and the Holder shall promptly return to the Company the Conversion Shares issued to such Holder pursuant to the rescinded Conversion Notice.

iv. Obligation Absolute; Partial Liquidated Damages . The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided , however , that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the Company posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Debenture, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason to deliver to the Holder such Conversion Shares pursuant to Section 4(c)(ii) by the 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 principal amount being converted, $10 per Trading Day (increasing to $20 per Trading Day on the fifth (5 th ) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Share Delivery Date until such Conversion Shares are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

 

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v. Compensation for Buy-In on Failure to Timely Deliver Conversion Shares Upon Conversion . In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such Conversion Shares by the Share Delivery Date pursuant to Section 4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm 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 Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “ Buy-In ”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(c)(ii). 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 conversion of this Debenture with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total 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 Conversion Shares upon conversion of this Debenture as required pursuant to the terms hereof.

vi. Reservation of Shares Issuable Upon Conversion . The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture and payment of interest on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Exchange Agreement) be issuable (taking into account the adjustments and restrictions of Section 5)

 

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upon the conversion of the then outstanding principal amount of this Debenture and payment of interest hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable.

vii. Fractional Shares . No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Debenture. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, 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 Conversion Price or round up to the next whole share.

viii. Transfer Taxes and Expenses . The issuance of Conversion Shares on conversion of this Debenture shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such Conversion Shares, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such Conversion Shares upon conversion in a name other than that of the Holder of this Debenture so converted and the Company shall not be required to issue or deliver such Conversion Shares unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Conversion Shares.

d) Holder’s Conversion Limitations . The Company shall not effect any conversion of this Debenture, and a Holder shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, 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 (such Persons, “ Attribution Parties ”)) 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 and Attribution Parties shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted principal amount of this Debenture beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Debentures or the Warrants) beneficially owned by the Holder or any of its Affiliates or Attribution Parties.

 

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Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 4(d) applies, the determination of whether this Debenture is convertible (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which principal amount of this Debenture is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Debenture may be converted (in relation to other securities owned by the Holder together with any Affiliates or Attribution Parties) and which principal amount of this Debenture is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph 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 4(d), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Company, or (iii) a more recent written 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 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 Debenture, 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 conversion of this Debenture held by the Holder. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(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 conversion of this Debenture held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(d) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61 st day after such notice is delivered to the Company. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein 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 Debenture.

 

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e) Issuance Limitations . Notwithstanding anything herein to the contrary, if the Company has not obtained Shareholder Approval, then the Company may not issue, upon conversion of this Debenture, a number of shares of Common Stock which, when aggregated with any shares of Common Stock issued on or after the Original Issue Date and prior to such Conversion Date in connection with the conversion of any Debentures issued pursuant to the Exchange Agreement, would exceed 7,247,222 shares of Common Stock (subject to adjustment for forward and reverse stock splits, recapitalizations and the like) (such number of shares, the “ Issuable Maximum ”). Each Holder shall be entitled to a portion of the Issuable Maximum equal to the quotient obtained by dividing (x) the original principal amount of the Holder’s Debenture by (y) the aggregate original principal amount of all Debentures issued on the Original Issue Date to all Holders. In addition, each Holder may allocate its pro-rata portion of the Issuable Maximum among Debentures held by it in its sole discretion. Such portion shall be adjusted upward ratably in the event a Holder no longer holds any Debentures and the amount of shares issued to the Holder pursuant to the Holder’s Debentures was less than the Holder’s pro-rata share of the Issuable Maximum.

Section 5 . Certain Adjustments .

a) Stock Dividends and Stock Splits . If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of interest on, the Debentures), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section 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. The Holder acknowledges and agrees that the Conversion Price in Section 4(b) takes into account the reverse stock split of the Company’s common stock on or immediately after the Original Issue Date.

 

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b) [Intentionally Omitted].

c) [Intentionally Omitted .].

d) [Intentionally Omitted .]

e) Fundamental Transaction . If, at any time while this Debenture 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 conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 4(d) and Section 4(e) on the conversion of this Debenture), 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 Debenture is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 4(d) and Section 4(e) on the conversion of this Debenture). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion 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

 

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conversion of this Debenture following such Fundamental Transaction. 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 Debenture and the other Transaction Documents (as defined in the Exchange Agreement) in accordance with the provisions of this Section 5(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 Debenture, deliver to the Holder in exchange for this Debenture a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Debenture which is convertible 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 conversion of this Debenture (without regard to any limitations on the conversion of this Debenture) prior to such Fundamental Transaction, and with a conversion price which applies the conversion 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 conversion price being for the purpose of protecting the economic value of this Debenture 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 Debenture and the other Transaction Documents 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 Debenture and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

f) Calculations . All calculations under this Section 5 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 5, 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 any treasury shares of the Company) issued and outstanding.

g) Notice to the Holder .

i. Adjustment to Conversion Price . Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

ii. Notice to Allow Conversion by Holder . If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common

 

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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 of 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 filed at each office or agency maintained for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Debenture Register, at least twenty (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 deliver such notice or any defect therein or in the delivery 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 convert this Debenture during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

Section 6 . Redemption; Forced Conversion at Maturity .

a) Optional Redemption at Election of Company . Subject to the provisions of this Section 6(a), at any time after the 12-month anniversary of the Effective Date, the Company may deliver a notice to the Holder (an “ Optional Redemption Notice ” and the date such notice is deemed delivered hereunder, the “ Optional Redemption Notice Date ”) of its irrevocable election to redeem some or all of the then outstanding principal amount of this Debenture for cash in an amount equal to the Optional Redemption Amount on the 30 th Trading Day following the Optional Redemption Notice Date (such date, the “ Optional Redemption Date ”, such 30 Trading Day period, the “ Optional Redemption

 

16


Period ” and such redemption, the “ Optional Redemption ”). The Optional Redemption Amount is payable in full on the Optional Redemption Date. The Company may only effect an Optional Redemption if each of the Equity Conditions shall have been met (unless waived in writing by the Holder) on each Trading Day during the period commencing on the Optional Redemption Notice Date through to the Optional Redemption Date and through and including the date payment of the Optional Redemption Amount is actually made in full. If any of the Equity Conditions shall cease to be satisfied at any time during the Optional Redemption Period, then the Holder may elect to nullify the Optional Redemption Notice by notice to the Company within 3 Trading Days after the first day on which any such Equity Condition has not been met (provided that if, by a provision of the Transaction Documents, the Company is obligated to notify the Holder of the non-existence of an Equity Condition, such notice period shall be extended to the third Trading Day after proper notice from the Company) in which case the Optional Redemption Notice shall be null and void, ab initio . The Company covenants and agrees that it will honor all Notices of Conversion tendered from the time of delivery of the Optional Redemption Notice through the date all amounts owing thereon are due and paid in full. The Company’s determination to pay an Optional Redemption in cash shall be applied ratably to all of the holders of the then outstanding Debentures based on their (or their predecessor’s) initial purchases of Debentures pursuant to the Exchange Agreement.

b) Redemption Procedure . The payment of cash pursuant to an Optional Redemption shall be payable on the Optional Redemption Date. If any portion of the payment pursuant to an Optional Redemption shall not be paid by the Company by the applicable due date, interest shall accrue thereon at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law until such amount is paid in full. Notwithstanding anything herein contained to the contrary, if any portion of the Optional Redemption Amount remains unpaid after such date, the Holder may elect, by written notice to the Company given at any time thereafter, to invalidate such Optional Redemption, ab initio , and, with respect to the Company’s failure to honor the Optional Redemption, the Company shall have no further right to exercise such Optional Redemption. Notwithstanding anything to the contrary in this Section 6, the Company’s determination to redeem in cash or its elections under Section 6(b) shall be applied ratably among the Holders of Debentures. The Holder may elect to convert the outstanding principal amount of the Debenture pursuant to Section 4 prior to actual payment in cash for any redemption under this Section 6 by the delivery of a Notice of Conversion to the Company.

c) Forced Conversion . Notwithstanding anything herein to the contrary, on the Maturity Date, the Company may, upon 30 Trading Days’ prior written notice to the Holder (a “ Forced Conversion Notice ” and the date such notice is delivered to the Holder, the “ Forced Conversion Notice Date ”), cause the Holder to convert all or part of the then outstanding principal amount of this Debenture plus, if so specified in the Forced Conversion Notice, accrued but unpaid interest, liquidated damages and other amounts owing to the Holder under this Debenture, it being agreed that the “Conversion Date” for

 

17


purposes of Section 4 shall be deemed to occur on the Maturity Date. The Company may not deliver a Forced Conversion Notice, and any Forced Conversion Notice delivered by the Company shall not be effective, unless all of the Equity Conditions are met (unless waived in writing by the Holder) on each Trading Day occurring from the Forced Conversion Notice Date through the Maturity Date. Any Forced Conversion shall be applied ratably to all Holders based on their initial purchases of Debentures pursuant to the Exchange Agreement, provided that any voluntary conversions by a Holder shall be applied against the Holder’s pro rata allocation, thereby decreasing the aggregate amount forcibly converted hereunder if only a portion of this Debenture is forcibly converted. For purposes of clarification, a Forced Conversion shall be subject to all of the provisions of Section 4, including, without limitation, the provision requiring payment of liquidated damages and limitations on conversions.

Section 7 . Negative Covenants . As long as any portion of this Debenture remains outstanding, unless the holders of at least 67% in principal amount of the then outstanding Debentures shall have otherwise given prior written consent, the Company shall not, and shall not permit any of the Subsidiaries to, directly or indirectly:

a) other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

b) other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

c) amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder;

d) repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock or Common Stock Equivalents other than as to (i) the Conversion Shares or Warrant Shares as permitted or required under the Transaction Documents and (ii) repurchases of Common Stock or Common Stock Equivalents of departing officers and directors of the Company, provided that such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during the term of this Debenture;

e) repay, repurchase or offer to repay, repurchase or otherwise acquire any indebtedness for borrowed money, other than the Debentures if on a pro-rata basis, other than regularly scheduled principal and interest payments as such terms are in effect as of the Original Issue Date, provided that such payments shall not be permitted if, at such time, or after giving effect to such payment, any Event of Default exist or occur;

 

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f) pay cash dividends or distributions on any equity securities of the Company;

g) enter into any transaction with any Affiliate of the Company which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval); or

h) enter into any agreement with respect to any of the foregoing.

Section 8 . Events of Default .

a) “ Event of Default ” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

i. any default in the payment of (A) the principal amount of any Debenture or (B) interest, liquidated damages and other amounts owing to a Holder on any Debenture, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of an interest payment or other default under clause (B) above, is not cured within 3 Trading Days;

ii. the Company shall fail to observe or perform any other covenant or agreement contained in the Debentures (other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (ix) below) or in any Transaction Document, which failure is not cured, if possible to cure, within the earlier to occur of (A) 5 Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) 10 Trading Days after the Company has become or should have become aware of such failure;

iii. a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);

iv. any representation or warranty made in this Debenture, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

 

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v. the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;

vi. the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $150,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

vii. the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five Trading Days;

viii. the Company shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in excess of 33% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);

ix. the Company shall fail for any reason to deliver Conversion Shares to a Holder prior to the fifth Trading Day after a Conversion Date pursuant to Section 4(c) or the Company shall provide at any time notice to the Holder, including by way of public announcement, of the Company’s intention to not honor requests for conversions of any Debentures in accordance with the terms hereof;

x. any Person shall breach any agreement delivered to the initial Holders pursuant to Section 2.2 of the Exchange Agreement;

xi. the electronic transfer by the Company of shares of Common Stock through the Depository Trust Company or another established clearing corporation is no longer available or is subject to a “chill”; or

xii. any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $150,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days;

 

20


b) Remedies Upon Event of Default . If any Event of Default occurs, the outstanding principal amount of this Debenture, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash at the Mandatory Default Amount. Commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration of this Debenture, the interest rate on this Debenture shall accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law. Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Debenture to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

Section 9 . Miscellaneous .

a) Notices . Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, by email attachment, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile number, email address, or address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 9(a). Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, by email attachment, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number, email address or address of the Holder appearing on the books of the Company, or if no such facsimile number or email attachment or address appears on the books of the Company, at the principal place of business of such Holder, as set forth in the Exchange Agreement. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment to the email address set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment to the email address 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, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.

 

21


b) Absolute Obligation . Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company. This Debenture ranks pari passu with all other Debentures now or hereafter issued under the terms set forth herein.

c) Lost or Mutilated Debenture . If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory to the Company.

d) Governing Law . All questions concerning the construction, validity, enforcement and interpretation of this Debenture 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 conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “ New York Courts ”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts 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 such New York Courts, or such New York Courts are improper or 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 Debenture 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 applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

 

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e) Waiver . Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture on any other occasion. Any waiver by the Company or the Holder must be in writing.

f) Severability . If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Debenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

g) Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief.  The remedies provided in this Debenture shall be cumulative and in addition to all other remedies available under this Debenture and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Debenture. The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to

 

23


all other available remedies, to an injunction restraining any such breach or any such threatened breach, without the necessity of showing economic loss and without any bond or other security being required. The Company shall provide all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Debenture.

h) Next Business Day . Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

i) Headings . The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit or affect any of the provisions hereof.

Section 10. Disclosure . Upon receipt or delivery by the Company of any notice in accordance with the terms of this Debenture, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries, the Company shall within four (4) Business Days after such receipt or delivery publicly disclose such material, nonpublic information on a Current Report on Form 8-K or otherwise. In the event that the Company believes that a notice contains material, non-public information relating to the Company or its Subsidiaries, the Company so shall indicate to the Holder contemporaneously with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to presume that all matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries.

*********************

(Signature Pages Follow)

 

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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above indicated.

 

MICROBOT MEDICAL INC. (F/K/A STEMCELLS, INC.)
By:  

/s/ Harel Gadot

  Name: Harel Gadot
  Title:   Chairman and CEO
Facsimile No. for delivery of Notices:                          

 

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ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the 6% Convertible Debenture due November 28, 2019 of Microbot Medical Inc., a Delaware corporation (the “ Company ”), into shares of common stock (the “ Common Stock ”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

 

Conversion calculations:   
   Date to Effect Conversion:
   Principal Amount of Debenture to be Converted:
   Payment of Interest:
   Number of shares of Common Stock to be issued:
   Signature:
   Name:
   Address for Delivery of Common Stock Certificates:
   Or
   DWAC Instructions:
   Broker No:                       
   Account No:                     

 

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Schedule 1

CONVERSION SCHEDULE

The 6% Convertible Debentures due on November 28, 2019 in the aggregate principal amount of $2,028,767 are issued by Microbot Medical Inc., a Delaware corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.

Dated:                     

 

Date of Conversion

(or for first entry,

Original Issue Date)

 

Amount of

Conversion

 

Aggregate

Principal

Amount

Remaining

Subsequent to

Conversion

(or original

Principal

Amount)

 

Company Attest

     
     
     
     
     
     
     
     
     

 

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Exhibit 10.4

INDEMNIFICATION AGREEMENT

INDEMNIFICATION AGREEMENT (“Agreement”), which provides for indemnification, expense advancement and other rights under the terms and conditions set forth, is made and entered into this [      ] day of November, 2016, between Microbot Medical Inc. (f/k/a StemCells, Inc.; the “Company”), and [                      ] (“Indemnitee”).

Recitals

WHEREAS , Indemnitee is serving as a director or an executive officer of the Company, and as such is performing a valuable service for the Company; and

WHEREAS , the Indemnitee has requested, and the Company has agreed, that Indemnitee is furnished with the indemnity, advancement, and other rights set forth in this Agreement.

Agreement

NOW, THEREFORE , in consideration of Indemnitee’s service to the Company, the parties hereto agree as follows:

1. Definitions. For purposes of this Agreement .

(a) “Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification or advancement of expenses is sought by Indemnitee.

(b) “Effective Date” means the date first above written.

(c) “Expenses” include all direct and indirect costs including, but not limited to, reasonable attorneys’ fees and expenses, judgments, fines, penalties and amounts paid in settlement and all other disbursements or expenses of the types customarily incurred in connection with investigating, prosecuting, defending (or preparing to investigate, prosecute, or defend) a Proceeding, or being or preparing to be a witness in a Proceeding.

(d) “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past two (2) years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party, or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.

(e) “Official Capacity” means Indemnitee’s corporate status as an officer or director and any other fiduciary capacity in which Indemnitee serves the Company, its subsidiaries and affiliates, or any other entity or enterprise (including an employee benefit plan) which Indemnitee serves in such capacity at the request of the Company’s CEO, its Board of Directors or any committee of its Board of Directors the Company. “Official Capacity” also refers to actions that Indemnitee takes or does not take while serving in such capacity.


(f) “Proceeding” includes any actual or threatened inquiry, investigation, action, suit, arbitration or other proceeding, whether civil, criminal, administrative, or investigative, whether or not initiated prior to the Effective Date, except a proceeding initiated by an Indemnitee pursuant to Section 6 to enforce his or her rights under this Agreement. “Proceeding” also includes any corporate internal investigation from and after the time in which the Indemnitee has received or is entitled to receive the warning mandated in Upjohn Co. v. United States, 449 U.S. 383 (1981).

2. Indemnification .

(a) General . Except as otherwise provided in this Agreement, the Company shall indemnify Indemnitee to the fullest extent permitted by the Delaware General Corporation Law (“DGCL”) as such law may from time to time be amended and to the fullest extent authorized or permitted by any amendments to or replacements of the DGCL adopted after the date of this Agreement that increase the extent to which a corporation may indemnify its officers and directors. Indemnitee shall be entitled to the indemnification provided in this Section if, by reason of his or her Official Capacity, Indemnitee is a party or is threatened to be made a party to any Proceeding or by reason of anything done or not done by Indemnitee in his or her Official Capacity. The Company shall indemnify Indemnitee against all Expenses paid in settlement by or on behalf of Indemnitee in any Proceeding, and Expenses actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding, if Indemnitee is determined to have met the standard of conduct set forth in Section 5(a).

(b) Exceptions and Limitation . Indemnitee is not entitled to indemnification:

 

  i. to the extent such indemnification of Expenses is expressly prohibited by Delaware law or the public policies of Delaware, the United States of America, or agencies of any governmental authority in any jurisdiction governing the matter in question;

 

  ii. in connection with any Proceeding, or part thereof (including claims and permissive counterclaims) initiated by Indemnitee, except a judicial proceeding pursuant to Section 6 to enforce rights under this Agreement, unless the Proceeding (or part thereof) was authorized by the Board of Directors of the Company;

 

  iii. with respect to any claim, issue, or matter as to which Delaware law expressly prohibits such indemnification by reason of any adjudication of liability of Indemnitee to the Company, unless and only to the extent that the Delaware Court of Chancery, or the court in which such action or suit was brought, determines upon application that, despite an adjudication of liability but in view of all the circumstances of the case, Indemnitee is entitled to indemnification for such Expenses as such court deems proper.

 

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3. Advancement of Expenses .

(a) General . Except as otherwise provided in this Agreement, the Company shall advance Expenses to Indemnitee to the fullest extent permitted by the Delaware General Corporation Law as such law may from time to time be amended, and such advancement shall be made as soon as reasonably practicable, but in any event no later than thirty (30) days, after the receipt by the Company of a written statement or statements requesting such advances from time to time, whether prior to or after final disposition of any Proceeding. Indemnitee shall be entitled to the advancement provided in this Section if by reason of his or her Official Capacity, Indemnitee is a party or is threatened to be made a party to any Proceeding or by reason of anything done or not done by Indemnitee in his or her Official Capacity. The Company shall advance to Indemnitee Expenses actually and reasonably incurred by Indemnitee in connection with such Proceeding.

(b) Undertaking in Connection with Request for Advancement . As a condition precedent to the Company’s advancement of Expenses to Indemnitee, Indemnitee shall provide the Company with (a) a written claim for Expenses incurred or paid by an Indemnitee in respect of the Proceeding as Indemnitee incurs them and (b) an undertaking, in substantially the form attached as Exhibit 1, by or on behalf of Indemnitee to reimburse such amount if it is finally determined, after all appeals to a court of competent jurisdiction are exhausted, that Indemnitee is not entitled to be indemnified against such Expenses by the Company as provided by this Agreement or otherwise. Indemnitee’s undertaking to reimburse any such amounts is not required to be secured. In making a written claim for advancement, Indemnitee need not submit to the Company information that counsel for Indemnitee deems is privileged and exempt from compulsory disclosure in any proceeding.

4. Indemnification for Expenses of Successful Party . Notwithstanding the limitations of any other provisions of this Agreement, to the extent that Indemnitee is successful on the merits or otherwise in defense of any Proceeding, or in defense of any claim, issue or matter therein, including, without limitation, the dismissal of any action without prejudice, or if it is ultimately determined that Indemnitee is otherwise entitled to be indemnified against Expenses, Indemnitee shall be Indemnified against all Expenses actually and reasonably incurred in connection therewith, including the cancellation of any obligation to repay advances for expenses incurred in defense of the claim. If Indemnitee is partially successful on the merits or otherwise in defense of any Proceeding, such indemnification shall be apportioned appropriately to reflect the degree of success.

5. Determination of Entitlement to Indemnification .

(a) Standard of Conduct . Indemnitee shall be entitled to indemnification pursuant to this Agreement only upon a determination that Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal action or proceeding, had no reasonable cause to believe that Indemnitee’s conduct was unlawful.

(b) Application for Indemnification . To obtain indemnification, Indemnitee shall submit to the Company a written request, including therein or therewith such

 

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documentation and information as is reasonably available to Indemnitee and as is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification following the final disposition of the Proceeding. The Company shall, as soon as reasonably practicable after receipt of such a request for indemnification, advise the board of directors that Indemnitee has requested indemnification. Any delay in providing the request will not relieve the Company from its obligations under this Agreement.

(c) Manner of Determining Eligibility . Upon written request of the Indemnitee for indemnification, the entitlement of Indemnitee to such requested indemnification shall be determined by:

 

  i. the Board of Directors of the Company by a majority vote of Disinterested Directors, whether or not such majority constitutes a quorum; or

 

  ii. a committee of Disinterested Directors designated by majority vote of such Disinterested Directors, whether or not such majority constitutes a quorum; or

 

  iii. if there are no Disinterested Directors or, if such Disinterested Directors so direct, Independent Counsel in a written opinion to the board of directors, or designated committee of the Board, with a copy to Indemnitee, which Independent Counsel shall be selected by majority vote of the Company’s directors at a meeting at which a quorum is present, or a majority vote of the Disinterested Directors, or Committee of Disinterested Directors; or

 

  iv. if so directed by the Company’s Board, the Company’s stockholders, by a majority vote of those in attendance at a meeting at which a quorum is present.

(d) Payment of Costs of Determining Eligibility . The Company shall pay all costs associated with its determination of Indemnitee’s eligibility for indemnification.

(e) Presumptions and Effect of Certain Proceedings .

 

  i.

In making a determination with respect to entitlement to indemnification hereunder, the person, persons or entity making such determination shall, to the fullest extent not prohibited by law, start with a presumption that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 5(b) of this Agreement’ provided , however , that such presumption shall not limit the Company from making a determination of eligibility or entitlement to indemnification pursuant to the terms of this Agreement. The Secretary of the Company shall, promptly upon receipt of Indemnitee’s request for indemnification, advise in writing the Board of Directors or such other person or persons empowered to make the

 

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  determination requested in Section 5(c), and the Company shall thereafter promptly make such determination or initiate the appropriate process for making such determination.

 

  ii. If the determination as to whether Indemnitee is entitled to indemnification shall not have made within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall, to the fullest extent not prohibited by law, be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 60-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto; and provided, further, that the foregoing provisions of this Section 5(e)(ii) shall not apply (i) if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 5(c)(iv) of this Agreement and if (A) within fifteen (15) days after receipt by the Company of the request for such determination the Board has resolved to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within seventy-five (75) days after such receipt and such determination is made thereat, or (B) a special meeting of stockholders is called within fifteen (15) days after such receipt for the purpose of making such determination, such meeting is held for such purpose within sixty (60) days after having been so called and such determination is made thereat, or (ii) if the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 5(c)(iii) of this Agreement.

 

  iii. The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that Indemnitee’s conduct was unlawful.

 

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6. Remedies of Indemnitee .

(a) In the event that (i) a determination is made pursuant to Section 5 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses, to the fullest extent permitted by applicable law, is not timely made pursuant to Section 3, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 5(b) or (c) within sixty (60) days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 4 within fifteen (15) business days after receipt by the Company of written request therefor, (v) payment of indemnification pursuant to Section 2 is not made within fifteen (15) business days after a determination has been made that Indemnitee is entitled to indemnification, or (vi) the Company or any other person or entity takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or proceeding designed to deny, or to recover from, Indemnitee the benefits provided or intended to be provided to Indemnitee hereunder, Indemnitee shall be entitled to seek an adjudication by the Delaware Court of Chancery of Indemnitee’s right to such indemnification or advancement of Expenses. The Company shall not oppose Indemnitee’s right to seek any such adjudication.

(b) In the event that a determination shall have been made pursuant to Section 5 of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding commenced pursuant to this Section 6, shall be conducted in all respects as a de novo trial on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding commenced pursuant to this Section 6, Indemnitee shall be presumed to be entitled to indemnification under this Agreement and the Company shall have the burden of proving by a preponderance of the evidence that Indemnitee’ has acted in bad faith and in a manner not in the best interests of or opposed to the best interests of the Company, and, in respect of a criminal Proceeding, by clear and convincing evidence that Indemnitee acted without a reasonable belief that Indemnitee’s conduct was not criminal. The Company may not refer to or introduce into evidence any determination pursuant to Section 5 of this Agreement adverse to Indemnitee for any purpose. If Indemnitee commences a judicial proceeding pursuant to this Section, Indemnitee shall not be required to reimburse the Company for any advances pursuant to Section 2 until a final determination is made with respect to Indemnitee’s entitlement to indemnification (as to which all rights of appeal have been exhausted or lapsed).

(c) Neither the failure of the Company (including by its directors or Independent Counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or Independent Counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or constitute evidence that Indemnitee has not met the applicable standard of conduct. If a determination shall have been made pursuant to Section 5 that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding commenced pursuant to this Section 6, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.

(d) The Company will be precluded from asserting in any judicial proceeding commenced pursuant to this section that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court that the Company is bound by all the provisions of this Agreement.

 

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(e) The Company shall indemnify and hold harmless Indemnitee to the fullest extent permitted by law and this Agreement against all Expenses and, if requested by Indemnitee, shall (within ten (10) days after the Company’s receipt of such written request) advance to Indemnitee, to the fullest extent permitted by applicable law and this Agreement, such Expenses that are incurred by Indemnitee in connection with any judicial proceeding brought by Indemnitee to enforce Indemnitee’s rights under, or to recover damages for breach of, this Agreement or any other indemnification agreement or provision of the Certificate of Incorporation, or the Company’s By-laws now or hereafter in effect.

(f) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding as to which advancement or indemnity is sought.

7. Continuation of Obligation of Company . All agreements and obligations of the Company contained in this Agreement shall continue during the period of Indemnitee’s Official Capacity and shall continue thereafter with respect to any Proceedings based on or arising out of Indemnitee’s Official Capacity. This Agreement will be binding upon all successors and assigns of the Company (including any transferee of all or substantially all of its assets and any successor by purchase, merger, consolidation or operation of law). The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by written agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

8. Notification and Defense of Claim . Promptly after receipt by Indemnitee of notice of any Proceeding, Indemnitee shall notify the Company in writing of the existence thereof; but Indemnitee’s failure so to notify the Company will not relieve the Company from any liability that it may have to Indemnitee. Notwithstanding any other provision of this Agreement, with respect to any such Proceeding of which Indemnitee notifies the Company:

(a) Except as otherwise provided in this Section 8(a), to the extent that it may wish, the Company may, separately or jointly with any other indemnifying party, assume the defense of the Proceeding. After notice from the Company to Indemnitee of its election to assume the defense of the Proceeding, the Company shall not be liable to Indemnitee under this Agreement for any Expenses subsequently incurred by Indemnitee except as otherwise provided below. Indemnitee shall have the right to employ Indemnitee’s own counsel in such Proceeding, but the fees and expenses of such counsel incurred after notice from the Company of its assumption of the defense thereof shall be at the expense of Indemnitee unless (i) the employment of counsel by Indemnitee has been authorized by the Company, (ii) Indemnitee shall have reasonably determined that there is a conflict of interest between the Company and Indemnitee in the conduct of the defense of the Proceeding, and such determination is supported by an opinion of qualified legal counsel addressed to the Company, or (iii) the Company shall not within sixty (60) calendar days of receipt of notice from Indemnitee in fact have employed counsel to assume the defense of the Proceeding.

 

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(b) The Company is not entitled to assume the defense of any Proceeding brought by or on behalf of the Company, or as to which Indemnitee shall have made the determination provided for in subparagraph (a)(ii) above.

(c) Regardless of whether the Company has assumed the defense of a Proceeding, the Company shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any Proceeding effected without the Company’s written consent, and the Company shall not settle any Proceeding in any manner that would impose any penalty or limitation on, or require any payment from, Indemnitee without Indemnitee’s written consent. Neither the Company nor Indemnitee may unreasonably withhold its consent to any proposed settlement.

(d) Until the Company receives notice of a Proceeding from Indemnitee, the Company shall have no obligation to indemnify or advance Expenses to Indemnitee as to Expenses incurred prior to Indemnitee’s notification of Company.

9. Separability; Prior Indemnification Agreements .

(a) If any provision of this Agreement is held to be invalid, illegal, or unenforceable for any reason whatsoever, (i) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal, or unenforceable, that are not by themselves invalid, illegal or unenforceable) will not in any way be affected or impaired thereby, and (ii) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraph of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) are to be construed so as to give effect to the intent of the parties that the Company provide protection to Indemnitee to the fullest enforceable extent provided for in this Agreement.

(b) Indemnitee’s rights of indemnification and to receive advancement of Expenses under this Agreement are not exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Certificate of Incorporation, the Company’s Bylaws, any other agreement, a vote of stockholders or a resolution of directors, or otherwise. The entry by Indemnitee into this Agreement, and the terms of this Agreement do not, change, limit, or affect in any respect, or terminate, any other agreements between Indemnitee and the Company.

10. Nonattribution of Actions of Any Indemnitee to Any Other Indemnitee . For purposes of determining whether Indemnitee is entitled to indemnification or advancement of Expenses by the Company under this Agreement or otherwise, no action or inaction of any other indemnitee or group of indemnitees may be attributed to Indemnitee.

11. Insurance . In all policies of director and officer liability insurance purchased by Company, the Company shall cause Indemnitee to be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of

 

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the Company’s officers and directors (other than in the case of an independent director liability insurance policy if Indemnitee is not an independent or outside director). Company shall promptly notify Indemnitee of any good faith determination not to provide such coverage or of any lapse or termination of any such policy.

12. Headings; References; Pronouns . The headings of the sections of this Agreement are inserted for convenience only; they do not constitute part of this Agreement or affect the meaning thereof. References herein to section numbers are to sections of this Agreement. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular, or plural as appropriate.

13. Other Provisions .

(a) This Agreement shall be interpreted and enforced in accordance with the laws of Delaware.

(b) This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Signatures delivered by facsimile or other electronic means shall be deemed as an original.

(c) This Agreement is not an employment agreement between the Company and Indemnitee, and nothing in this Agreement obligates the Company to continue Indemnitee in Indemnitee’s Official Capacity.

(d) Upon a payment to Indemnitee under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of Indemnitee to recover against any person for such liability, and Indemnitee shall execute all documents and instruments required and shall take such other actions as may be necessary to secure such rights, including the execution of such documents as may be necessary for the Company to bring suit to enforce such rights.

(e) No supplement, modification, or amendment of this Agreement will be binding unless executed in writing signed by both parties hereto. No waiver of any of the provision of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar). A waiver made in a signed writing on one occasion is effective only in that instance and does not constitute a waiver on any future occasion or instance.

(f) The Company agrees to stipulate in any court or before any arbitrator that the Company is bound by all the provisions of this Agreement and is precluded from making any assertions to the contrary.

(g) Indemnitee’s rights under this Agreement shall extend to Indemnitee’s spouse, members of Indemnitee’s immediate family, and Indemnitee’s representative(s), guardian(s), conservator(s), estate, executor(s), administrator(s), and trustee(s), (all of whom are referred to as “Related Parties”), as the case may be, to the extent a Related Party or a Related Party’s property is subject to a Proceeding by reason of Indemnitee’s Official Capacity.

 

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(h) To the extent that Indemnitee (i) pays Expenses that the Company is obligated to but does not advance, or (ii) incurs expense, liability, or loss for which the Company is obligated to indemnify Indemnitee, Indemnitee will be subrogated to the Company’s rights of recovery against any insurance carrier or other source to the same extent as if the Company had paid such Expense, liability, or loss or advanced such expense under this Agreement.

[R EMAINDER OF P AGE I NTENTIONALLY LEFT B LANK ; S IGNATURE P AGE F OLLOWS ]

 

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IN WITNESS WHEREOF , the parties hereto have executed this Agreement on and as of the day and year first above written.

 

MICROBOT MEDICAL INC.
By:  

 

Name:  

 

Title:  

 

 

[Indemnitee]

 

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EXHIBIT 1

UNDERTAKING TO REPAY INDEMNIFICATION EXPENSES

I [                      ], agree to reimburse the Company for all expenses advanced to me or for my benefit by the Company for my defense in any civil or criminal action, suit, or Proceeding, in the event and to the extent that it shall ultimately be determined that I am not entitled to be indemnified by the Company for such expenses.

 

Signature:  

 

Typed Name:  

 

Office:  

 

 

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Exhibit 10.5

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT (the “Agreement”), effective as of November 28, 2016 (the “Effective Date”), by and between Microbot Medical, Inc. (formerly known as StemCells, Inc.), a corporation organized and existing under the laws of the State of Delaware (the “Company”), and Harel Gadot (the “Executive”).

WITNESSETH:

WHEREAS, pursuant to the Consulting Agreement, dated March 7, 2011 (the “Consulting Agreement”), between Microbot Medical Ltd., an Israeli corporation (“Microbot Israel”), and MEDX Ventures Group LLC (“MEDX”), the Executive, through MEDX, provides services to Microbot Israel; and

WHEREAS, on the Effective Date, Microbot Israel consummated a transaction whereby, among other things, a wholly-owned subsidiary of the Company merged with and into Microbot Israel, with Microbot Israel as the surviving entity and a wholly-owned subsidiary of the Company (the “Merger Transaction”); and

WHEREAS, (a) Microbot Israel, MEDX and the Executive wish to terminate the Consulting Agreement and (b) the Company and the Executive wish to enter into a direct employment relationship in replacement thereof; and

WHEREAS, the Company is desirous of securing the Executive’s continued services and Executive is willing to provide such services, upon the terms and subject to the conditions hereinafter set forth.

NOW, THEREFORE, for and in consideration of the mutual covenants contained herein, the parties hereto agree as follows:

1. EMPLOYMENT OF EXECUTIVE . The Company hereby employs the Executive, and the Executive hereby accepts said employment, all pursuant to the terms and conditions of this Agreement.

2. DUTIES . The Executive shall render, as an employee, professional services as the Chairman of the Board of Directors (the “Board”) and Chief Executive Officer of the Company, shall perform such additional duties consistent with being a Chairman of the Board of Directors and chief executive officer of a public corporation and as may be assigned to the Executive by the Board from time to time, and shall comply with such reasonable policies, standards and regulations of the Company as are from time to time established by the Board (collectively, “Duties”). The Executive agrees to devote such time and effort to the performance of his Duties as the Executive deems necessary and reasonable, except for customary vacations and reasonable absences due to illness or other incapacity as set forth herein, and to perform all of his Duties to the best of his professional ability. Nothing contained herein shall be construed so as to prohibit or prevent the Executive from engaging in charitable causes, sitting on the boards of directors or as chairman of other entities, or managing his and his family’s personal


finances. Provided that the Company has a replacement for the chief executive officer position, during the period ending on the two (2) year anniversary of this Agreement, Executive shall have the option to resign as chief executive officer of the Company (but not as Chairman) and instead be appointed President of the Company with such duties and powers as are commonly incident to the office of the president (but not as chief executive officer of the Company) of a public company and such additional duties and powers as the Board may from time to time designate (in either case, the “Position”). For so long as the Executive is in the Position, the Company shall nominate the Executive to the Board and for so long as the Executive is a Board member, shall be Chairman of the Board.

3. TERM . The Executive shall be employed until terminated pursuant to the termination provisions set out in Section 12 of this Agreement (the “Term”).

4. PLACE OF EMPLOYMENT . The Company shall provide the Executive with an executive office no greater then twenty-five (25) miles from Executive’s primary residence (the “Residence”), which is currently located at Hingham, Massachusetts. Notwithstanding the foregoing, the Executive understands and agrees that the Position requires travel from time to time on behalf of the Company, including to the Company’s offices in Israel, to fulfill the Duties.

5. COMPENSATION . For all services rendered to the Company, the Company shall provide Executive as total compensation a sum computed as set forth in this Section 5.

(a) Base Salary . The Company shall pay the Executive a base salary at the rate of Three Hundred Sixty Thousand Dollars ($360,000.00) per year (the “Base Salary”) in accordance with the customary payroll practices of the Company applicable to senior executives. During the Term, the compensation committee of the Board, or, if there be no such compensation committee, the entire Board other than the Executive (in either case, the “Compensation Committee”), shall review the Executive’s Base Salary on an annual basis and may provide for such increases thereto as it may determine, taking into account such performance metrics and criteria of the Executive and of the Company in the Compensation Committee’s sole discretion.

(b) Automobile Allowance . During the Term, Executive shall receive an automobile allowance in the amount of Seven Hundred Dollars ($700) plus an additional Four Hundred Fifty Dollars ($450) for automobile-related expenses and a tax gross-up per month.

(c) Discretionary Annual Bonuses . For each calendar year during the Term, Executive shall be eligible to receive a bonus (the “Target Bonus”) up to a maximum amount of forty percent (40%) of his Base Salary for performance at the maximum level; provided, however, that Executive must be employed in the Position as of December 31st of the year to which the Target Bonus relates in order to be paid the Target Bonus. The calculation of the Target Bonus shall be based upon corporate performance factors established and assessed by the Compensation Committee that will take into account the performance of Executive based on the achievement of Executive’s objectives agreed to with the Compensation Committee for a particular year. The Target Bonus shall be paid in a lump sum cash payment as soon as reasonably practicable following December 31st of the year to which the Target Bonus relates. Upon the closing of the Merger Transaction, the Executive shall be paid a one-time bonus of Fifty Thousand Dollars ($50,000).

 

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(d) CEO Option Grant . As soon as reasonably practicable following the Effective Date, the Company shall grant to the Executive options to purchase shares of the common stock of the Company, representing five percent (5%) of the issued and outstanding shares of the Company as of the closing and the Merger Transaction (the “CEO Option Grant”), subject to tax, Section 409A and Section 162(m) considerations and limitations set forth in the incentive plan governing the CEO Option Grant, it being understood that in the event any such limitations would cause the number of options provided for in this Section 5(d) to be reduced, the Company and the Executive shall determine in good faith a reasonable alternative or substitute so that the Executive receives as closely as possible the CEO Option Grant as provided herein. The Company shall deliver an award agreement to Executive that sets forth the terms and conditions of the CEO Option Grant (the “CEO Award Agreement”), based on the recommendations and approval of the Compensation Committee of the Board, including vesting and term.

6. VACATION/SICK TIME . The Executive shall be entitled to vacation time in accordance with the Company’s policies in effect from time to time, with full pay, of five (5) weeks twenty-five (25) working days), during each year of Executive’s employment. The scheduling of any vacation shall be coordinated with the Company so that the staffing needs of the Company are met to the extent reasonable possible. The Executive may accumulate up to one (1) year of unused vacation time; any unused vacation time above such limit, as shall be calculated at the end of each calendar year, shall be forfeited, subject to applicable law. The Executive shall be granted sick time in accordance with the Company’s policy in effect from time to time.

7. REIMBURSEMENT OF BUSINESS EXPENSES . The Company shall reimburse Executive for expenses reasonably incurred during the course of Executive’s employment. Such reimbursement shall be made in accordance with Company policies in effect from time to time upon presentation of receipts and such other additional substantiation and justification satisfactory to the Company for expenses actually incurred in connection with the foregoing.

8. ADDITIONAL BENEFITS . The Executive shall be eligible to participate in the Company’s benefits plans available to its employees from time to time in accordance with the terms and conditions of such plans. The Company reserves the right to alter, amend, replace or discontinue the benefit plans it makes available to its employees (including the Executive), at any time, with or without notice.

9. COMPANY PROPERTY DEFINED . The Executive acknowledges and understands that Company files, customer files, legal files, legal research files, form files, forms, examples, samples, and all briefs and memoranda, intellectual property and other work product or property, and all copies thereof (the “Company Property”) are the sole and exclusive property of the Company; and the Company Property shall remain in the possession of the Company and shall constitute the property of the Company irrespective of who prepared the Company

 

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Property. The Executive shall not remove, photocopy, photograph or in any other manner duplicate or remove said Company Property other than in the performance of his Duties for or on behalf of the Company. The provisions of this Section 9 shall survive the termination of this Agreement and the Executive’s employment with the Company.

10. DISPOSITION OF PROPERTY UPON TERMINATION OF EMPLOYMENT . In the event the employment of the Executive with the Company is terminated, the Executive shall promptly return to the Company all Company Property in his possession or control, and the Executive shall have no right, title or interest in the same. The provisions of this Section 10 shall survive the termination of this Agreement and the Executive’s employment with the Company.

11. OWNERSHIP OF PATENTS AND INTELLECTUAL PROPERTY. Any work prepared for the Company during the course of the Executive’s employment by the Company that is eligible for copyright, patent and/or trademark protection under the laws of the United States or any other country and any proprietary know-how developed by Executive while rendering services for the Company will vest in the Company. Executive hereby grants, transfers and assigns all right, title and interest in such work and all copyrights, patents and trademarks in such work and all renewals and extensions thereof to the Company, all of which shall be deemed a work for hire for the Company under the U.S. Copyright Act to the fullest extent permitted under the law, and Executive shall provide all assistance reasonably requested by the Company in the establishment, preservation and enforcement of the Company’s copyright, patents and trademarks in such work, such assistance to be provided at the Company’s expense but without any additional compensation to Executive. If the Company cannot, after reasonable effort, secure Executive’s signature on any documents needed to apply for or prosecute any patent, copyright, trademark or other right or protection relating to an invention, whether because of Executive’s physical or mental incapacity or for any other reason whatsoever, Executive hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as Executive’s agent and attorney-in-fact, to act for and on Executive’s behalf and in Executive’s name and stead for the purpose of executing and filing any such application or applications and taking all other lawfully permitted actions to further the prosecution and issuance of patents, copyrights, trademarks or similar protections thereon, with the same legal force and effect as if executed by Executive. The provisions of this Section 11 shall survive the termination of this Agreement and the Executive’s employment with the Company.

12. TERMINATION OF EMPLOYMENT . The employment of the Executive may be terminated as follows:

(a) Termination on Notice. Subject to the remaining clauses of this Section 12, either party shall have the right to terminate Executive’s employment under this Agreement at any time for any reason or no reason upon two (2) months prior written notice. In the event that the Company or Executive gives notice to terminate pursuant to the foregoing sentence, the Company may elect to have Executive cease working immediately so long as the Company continues to pay Executive’s Base Salary in accordance with the provisions of Section (5)(a) for the entire two (2) month notice period (such payment, the “Continuation Pay”). In the event the Company elects to have Executive immediately cease working during the two (2) month notice period as provided in the foregoing sentence and Executive finds alternative employment that is

 

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not in violation of any provision herein, including, without limitation, Section 13 hereof, Executive may accept and engage in the alternative employment without forfeiting the Continuation Pay.

(b) Termination by the Company for Cause . The Company may terminate this Agreement and the Executive’s employment hereunder for Cause (as defined below), effective upon delivery of written notice (the “Termination Notice”) to the Executive given at any time during the Term. For purposes of this Agreement, “Cause” shall mean the Executive’s: (i) conviction of any felony or any other crime involving dishonesty or moral turpitude; (ii) commission of any act of fraud or dishonesty, or theft of or maliciously intentional damage to the property of the Company or any of its subsidiaries or affiliates; (iii) willful or intentional breach of his fiduciary duties to the Company; or (iv) breach of any material provision of this Agreement. Notwithstanding the foregoing, prior to any termination by the Company of the Executive’s employment for Cause, the Executive shall first have an opportunity to cure or remedy such act of default within ten (10) days following the Termination Notice, or if the remedy cannot reasonably be cured or remedied within such ten (10) day period but can reasonably be cured or remedied within forty five (45) days following the Termination Notice, the Executive may cure or remedy such act of default with forty five (45) days provided that the Executive diligently pursues such cure or remedy promptly following the Termination Notice, and in either such case such Termination Notice shall then become null and void.

(c) Termination by the Executive for Good Reason . The Executive may terminate this Agreement and Executive’s employment hereunder with Good Reason (as defined below) effective upon delivery of a Termination Notice to the Company given at any time during the Term. For purposes of this Agreement, “Good Reason” shall mean: (i) the material reduction of the Executive’s title (other than as specifically provided in Section 2), authority, duties and responsibilities or the assignment to the Executive of duties materially inconsistent with the Executive’s Position at that time; (ii) any reduction in Base Salary of the Executive; or (iii) breach of any material provision of this Agreement by the Company. Notwithstanding the foregoing, prior to any termination by the Executive of the Executive’s employment for Good Reason, the Company shall first have an opportunity to cure or remedy such act of default within ten (10) days following the Termination Notice, or if the remedy cannot reasonably be cured or remedied within such ten (10) day period but can reasonably be cured or remedied within forty five (45) days following the Termination Notice, the Company may cure or remedy such act of default with forty five (45) days provided that the Company diligently pursues such cure or remedy promptly following the Termination Notice, and in either such case such Termination Notice shall then become null and void.

(d) Termination by Death . If the Executive dies while employed under this Agreement, this Agreement shall terminate immediately and the Company shall pay to the Executive’s estate any earned Base Salary, Target Bonus, reimbursement of business expenses and accrued vacation, if any, that is unpaid up to the date of his death.

(e) Termination by Disability . The Company may terminate this Agreement as a result of any mental or physical disability or illness which results in (a) the Executive being unable to substantially perform his duties for a continuous period of 150 days or for periods aggregating 180 days within any period of 365 days or (b) the Executive being subject to a

 

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permanent or indefinite inability to perform essential functions based on the reasonable opinion of a qualified medical provider chosen in good faith by the Company. Termination will be effective on the date designated by the Company, and the Executive will be paid his annual Base Salary, Target Bonus, reimbursement of business expenses, accrued vacation, if any, and benefits as set out in Section 8 through the date of termination.

(f) Payment upon Termination for Cause or without Good Reason. Upon Executive’s termination of employment for Cause, or if Executive shall terminate without Good Reason, Executive shall forfeit the right to receive any and all further payments hereunder, other than the right to receive any compensation then due and payable to the Executive pursuant to Section 5 hereof through to the date of termination.

(g) Payment Upon Termination without Cause or for Good Reason . In the event of the termination of the Executive’s employment by the Company without Cause or upon the Executive’s voluntary termination of his employment for Good Reason, (i) all amounts of Base Salary accrued but unpaid as of the termination date shall be paid by the Company within thirty (30) days following the date of termination, (ii) an amount equal to the Executive’s Base Salary on the date of termination for a period of twelve (12) months shall be paid by the Company in twelve (12) equal monthly installments, (iii) 100% of any such unvested portion of the CEO Option Grant shall immediately vest and become exercisable and shall remain exercisable for the periods specified in each such option; (iv) a pro rata bonus equal to the maximum Target Bonus for that calendar year; (v) the dollar value of unused and accrued vacation days; and (vi) applicable premiums (inclusive of premiums for Executive’s dependents) shall be paid by the Company pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1986, as amended, for twelve (12) months from the date of termination for any benefits plan sponsored by the Company.

(h) Deferred Compensation . This Agreement is intended to comply with or be exempt from Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and will be interpreted, administered and operated in a manner consistent with that intent. Notwithstanding anything herein to the contrary, if at the time of the Executive’s separation from service with the Company he is a “specified employee” as defined in Section 409A of the Code (and the regulations thereunder) and any payments or benefits otherwise payable hereunder as a result of such separation from service are subject to Section 409A of the Code, then the Company will defer the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to the Executive) until the date that is six months following the Executive’s separation from service with the Company (or the earliest date as is permitted under Section 409A of the Code), and the Company will pay any such delayed amounts in a lump sum at such time. If any other payments of money or other benefits due to the Executive hereunder could cause the application of an accelerated or additional tax under Section 409A of the Code, such payments or other benefits shall be deferred if deferral will make such payment or other benefits compliant under Section 409A of the Code, or otherwise such payment or other benefits shall be restructured, to the extent possible, in a manner, determined by the Company, that does not cause such an accelerated or additional tax. To the extent any reimbursements or in-kind benefits due to the Executive under this Agreement constitute “deferred compensation” under Section 409A of the Code, any such reimbursements or in-kind benefits shall be paid to the Executive in a manner consistent with

 

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Treas. Reg. Section 1.409A-3(i)(1)(iv). Each payment made under this Agreement shall be designated as a “separate payment” within the meaning of Section 409A of the Code. References to “termination of employment” and similar terms used in this Agreement are intended to refer to “separation from service” within the meaning of Section 409A of the Code to the extent necessary to comply with Section 409A of the Code. Whenever a payment under this Agreement may be paid within a specified period, the actual date of payment within the specified period shall be within the sole discretion of the Company. In no event may the Executive, directly or indirectly, designate the calendar year of any payment to be made under this Agreement. Any provision in this Agreement providing for any right of offset or set-off by the Company shall not permit any offset or set-off against payments of “non-qualified deferred compensation” for purposes of Section 409A of the Code or other amounts or payments to the extent that such offset or set-off would result in any violation of Section 409A or adverse tax consequences to the Executive under Section 409A.

(i) Parachute Payments . In the event that the severance and other benefits provided to the Executive pursuant to this Agreement (A) constitute “parachute payments” within the meaning of Section 280G of the Code and (B) but for this Section 12, such severance and benefits would be subject to the excise tax imposed by Section 4999 of the Code, then the Executive’s severance benefits under this Section shall be payable either: (y) in full, or (z) as to such lesser amount which would result in no portion of such severance and other benefits being subject to excise tax under Section 4999 of the Code, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by the Executive on an after-tax basis, of the greatest amount of severance benefits under this Agreement. Unless the Company and the Executive otherwise agree in writing, any determination required under this Section 12(i) shall be made in writing by independent public accountants reasonably agreed to by the Company and the Executive (the “Accountants”), whose determination shall be conclusive and binding upon the Executive and the Company for all purposes. For purposes of making the calculations required by this Section 12(i), the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Section 280G and 4999 of the Code. The Company and the Executive shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 12(i).

13. RESTRICTIVE COVENANTS.

(a) Noncompetition . During the Term and for the twelve (12) month period immediately following the termination of employment, regardless of the reason for such termination and regardless whether this Agreement has terminated or expired (the “Restricted Period”), he shall not, directly or indirectly: (i) engage in, manage, operate, control, supervise, or participate in the management, operation, control or supervision of any company or entity that competes with any business of the Company or any of its subsidiaries (a “Competitor”, as further defined below) or serve as an employee, consultant or in any other capacity for a Competitor; (ii) have any ownership or financial interest, directly, or indirectly, in any Competitor including, without limitation, as an individual, partner, shareholder (other than as a shareholder of a

 

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publicly-owned corporation in which the Executive owns less than five percent (5%) of the outstanding shares of such corporation), officer, director, employee, principal, agent or consultant; or (iii) serve as a representative of any Competitor. For the purposes of this Agreement, “Competitor” shall further mean any company or entity, whether located in the United States, the State of Israel or elsewhere, that engages in the research, design, or development of: (i) shunts for the treatment of hydrocephalus and Normal Pressure Hydrocephalus; or (ii) self-propelling, semi-disposable endoscopes for use in colonoscopy procedures.

(b) Non-Solicitation; No-Hire . Executive acknowledges and agrees that during the Restricted Period he shall not, directly or indirectly, other than in connection with carrying out his duties hereunder, (i) solicit or induce any employee or consultant of the Company (or any individual who was an employee or consultant of the Company at any time during the 12-month period preceding any such solicitation or inducement) to (A) terminate his or her employment or relationship with the Company, and/or (B) work for the Executive or any Competitor, or (ii) hire, or be involved in the process of any business, entity or division in hiring, any employee or consultant of the Company (or any individual who was an employee or consultant of the Company at any time during the 12-month period preceding any such hiring).

(c) Non-Solicitation of Clients . Executive acknowledges and agrees that during the Restricted Period he shall not, directly or indirectly, solicit, take away or divert, or attempt to solicit, take away or divert, the business or patronage of any client or customer of the Company with the intention or for the purpose of providing services that compete with the services provided by the Company at the time of Executive’s termination.

(d) Disparaging Comments . Executive agrees not to make critical, negative or disparaging remarks about the Company or its management, business or employment practices; provided that nothing in this Section 13(d) shall be deemed to prevent the Executive from responding fully and accurately to any question, inquiry or request for information when required by applicable law or legal process, or to enforce this Agreement. The Company and its officers and directors shall not make critical, negative or disparaging remarks about the Executive; provided that nothing in this Section 13(d) shall be deemed to prevent the Company or its officers or directors from (i) responding fully and accurately to any question, inquiry or request for information when required by applicable law or legal process, (ii) complying with the disclosure requirements under the federal securities laws or any applicable stock exchange or quotation system, or (iii) to enforce this Agreement.

(e) Confidentiality . The Executive acknowledges and agrees that the Company’s business is highly competitive and that the Executive will be involved in and become aware of the Company’s trade secrets, materials, know-how (whether or not in writing), technology, product information and intellectual property belonging to the Company (“Trade Secrets”) and all confidential matters (whether available in written, electronic form or orally) relating to the Company and its business (including without limitation its strategies, models, business and marketing plans, pricing, sales and revenue information, financial performance, etc.), and personal and other confidential information relating to its owners, directors, officers, investors, shareholders, executives and employees (the “Confidential Information”), all of which

 

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have been developed at great investment of time and resources by the Company so as to engender substantial good will, and all of which are and will remain the exclusive property of the Company. Therefore, the Executive agrees that during the period of his employment with the Company and at all times thereafter, Executive shall not disclose, shall keep secret, shall retain in strictest confidence and shall not use for his benefit or the benefit of others, except in connection with the business and affairs of the Company, any Trade Secret or Confidential Information.

(f) Acknowledgement . Executive agrees and acknowledges that each restrictive covenant in this Section 13 is reasonable as to duration, terms and geographical area and that the same protects the legitimate interests of the Company, imposes no undue hardship on Executive, and is not injurious to the public.

(g) Survival . All of the restrictive covenants contained in this Section 13 shall be binding on the assigns, executors, administrators and other legal representatives of the Executive, and shall survive the termination of this Agreement and Executive’s employment.

14. INJUNCTIVE RELIEF . The Executive acknowledges that the precise value of the covenants in Section 13 are difficult to evaluate and that no accurate measure of liquidated damages could possibly be established and therefore, in the event of a breach or threatened breach of such provisions, the Company shall be entitled to temporary and permanent injunctive relief (without the position of a bond or other security) restraining Executive from such breach or threatened breach. Notwithstanding anything to the contrary herein, if any applicable law or governmental entity shall reduce the time period or scope during which the Executive shall be prohibited from engaging in any competitive or soliciting activity described in Section 13, the period of time or scope, as the case may be, for which the Executive shall be prohibited shall be reduced to the maximum time or scope permitted by law.

15. NOTICES . Any notice required or permitted to be given pursuant to the provisions of this Agreement shall be sufficient if in writing, and if personally delivered to the party to be notified or if sent by registered or certified mail to said party at the following addresses:

 

If to the Company:    Microbot Medical Inc.
   5 Hamada Street
   Yokneam 20692, Israel
   Attn: Board of Directors
With a copy to:    Ruskin Moscou Faltischek, P.C.
   1425 RXR Plaza
   East Tower, 15 th Floor
   Uniondale, New York 11556
   Attn: Stephen E. Fox, Esq.
If to the Executive:    Harel Gadot
   5 Village Lane
   Hingham, Massachusetts 02043

 

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16. SEVERABILITY . In the event any portion of this Agreement is held to be invalid or unenforceable, the invalid or unenforceable portion or provision shall not affect any other provision hereof and this Agreement shall be construed and enforced as if the invalid provision had not been included.

17. BINDING EFFECT . This Agreement shall inure to the benefit of and shall be binding upon the Company and upon any person, firm or entity with which the Company may be merged or consolidated or which may acquire all or substantially all of the Company’s assets through sale, lease, liquidation or otherwise. The rights and benefits of Executive are personal to him and no such rights or benefits shall be subject to assignment or transfer by Executive.

18. GOVERNING LAW, VENUE, INTERPRETATION OF LANGUAGE . The parties agree that this Agreement shall be governed by the laws of the State of Massachusetts, without regard to conflict of laws principles, and that venue for any action between the parties that arises out of this Agreement shall be in Suffolk County, State of Massachusetts. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.

19. AMENDMENT AND MODIFICATION . All terms, conditions and provisions of this Agreement shall remain in full force and effect unless modified, changed, altered or amended, in writing, executed by both parties.

20. INDEPENDENT LEGAL ADVICE . The Executive acknowledges that he has been advised to seek independent legal counsel in respect of the Agreement and the matters contemplated herein. To the extent that he declines to receive independent legal counsel in respect of the Agreement, he waives the right, should a dispute later develop, to rely on his lack of independent legal counsel to avoid his obligations, to seek indulgences from the Company or to otherwise attack the integrity of the Agreement and the provisions thereof, in whole or in part.

21. COUNTERPARTS . This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories. Delivery of an executed counterpart of this Agreement electronically or by facsimile shall be effective as delivery of an original executed counterpart of this Agreement.

22. ENTIRE AGREEMENT . This Agreement constitutes the entire agreement between the parties and supersedes and replaces any prior agreement, including but not limited to the Consulting Agreement, which for all purposes shall be deemed terminated and of no further force and effect; and there are no other agreements between the parties with respect to the subject matter contained herein except as set forth herein.

[Signatures follow on next page]

 

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IN WITNESS WHEREOF, the parties hereto have set their hands and seals effective on the day and year first above written.

 

Microbot Medical, Inc.

/s/ David Ben Naim

Name:   David Ben Naim
Title:   CFO

/s/ Harel Gadot

Harel Gadot
Solely for purposes of Section 22:
MEDX Ventures Group LLC
By:  

/s/ Harel Gadot

Name:   Harel Gadot
Title:  
Microbot Medical Ltd.
By:  

/s/ Harel Gadot

Name:   Harel Gadot
Title:   Chairman and Chief Executive Officer

 

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Exhibit 10.6

SERVICES AGREEMENT

THIS SERVICES AGREEMENT (this “ Agreement ”) effective as of October     , 2016 by and between Microbot Medical Ltd., an Israeli corporation (the “ Company “) and David DBN Finance Services (2011) Ltd. (the “ Service Provider ”) and entered into effect on the Effective Date (as defined in section 8.1 below).

WHEREAS, the Service Provider is interested in providing the Services (as defined below) to the Company, its parent company which is expected to be StemCells, Inc., a Delaware corporation (the “ Parent Company ”), and the Parent Company’s and the Company’s subsidiaries (if any), through the Approved Employee (as defined below), and the Company is interested in receiving the Services from the Service Provider, all under the terms set forth below in this Agreement;

AND WHEREAS , the parties agree that the Services shall be provided to the Company by the Service Provider / the Approved Employee on an independent contractor basis, absent an employment relationship between the Company and the Service Provider/ the Approved Employee;

AND WHEREAS , this Agreement is entered into in reliance upon, inter alia, the declarations of the Service Provider that the Services are provided solely on an independent contractor basis and that no claim shall be submitted by the Service Provider or anyone on its or his behalf contradicting such declaration.

NOW THEREFORE , in consideration of the mutual premises, covenants and understandings contained herein, the parties agree as follows:

 

1. Representations and Warranties; Previous Terms and Conditions

 

  1.1. The Service Provider represents and warrants to the Company that it is free to provide the Company, and declares that the Approved Employee (as defined hereinafter) is free to provide the Company, on behalf of the Service Provider, the Services upon the terms contained in this Agreement, that the Approved Employee has the necessary know-how, expertise, skills and experience to perform the Services, and that there are no contracts and/or restrictive covenants preventing full performance of the Service Provider’s duties and obligations under this Agreement, including the provision of the Services through the Approved Employee.

 

  1.2. The Service Provider will notify the Company immediately if anything occurs or comes to its attention which would or might prevent the Service Provider and/or the Approved Employee from providing the Services at the level required by the Company.

Notwithstanding the aforesaid, the Service Provider and the Approved Employee shall be entitled to undertake or accept any other paid employment or occupation or engage in or be associated with, directly or indirectly, any other business duties or pursuits (the “ Additional Work ”); provided that (a) the Additional Work does not create a conflict with the Company’s interests, (b) the Additional Work is not for or on behalf of, directly or indirectly, a competitor of the Company, (c) the Additional Work would not result in a breach of the fiduciary duties of the Service Provider/Approved Employee as the Chief Financial Officer of the


Company and (d) the Additional Work shall not preclude the Service Provider and/or the Approved Employee from providing the Services to the Company pursuant to Section 3.

 

2. The Services

 

  2.1. The Service Provider agrees and undertakes to provide to the Company all of the services normally expected of, and the services functionally equivalent to the position of, a principal financial and accounting officer of a United States public company listed on the Nasdaq stock market, which may include being named as the Company’s Controller and/or Chief Financial Officer in the Company’s discretion (the “ Services ”).

 

  2.2. The Service Provider agrees and undertakes to provide the Services exclusively through Mr. David Ben Naim (the “ Approved Employee ”). The Approved Employee shall, until notified by the Company to the contrary, be the principal financial and accounting officer of the Company and at the discretion of the Company shall serve as the Controller and/or Chief Financial Officer of the Company.

 

  2.3. The Approved Employee hereby consents to being, and may be, named as the Company’s principal financial and accounting officer (which may include the title(s) of Controller and/or Chief Financial Officer) in the Company’s filings from time to time with the United States Securities and Exchange Commission and with any stock exchange the Company’s securities are then listed. In furtherance of such positions with the Company of the Approved Employee and as part of the Services, but not by way of limitation, the Approved Employee shall, if required by the Company (a) provide to the Company such personal information as is necessary and appropriate for the Company to satisfy its reporting obligations under applicable United States securities laws and stock exchange rules and requirements, and (b) certify the Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q of the Company, and all other required filings, pursuant to Rule 13a-14(a) or 15d-14(a), and Rule 13a-14(b) or 15d-14(b), in each case promulgated under the United States Securities Exchange Act of 1934, as amended.

 

3. Duties of Service Provider

 

  3.1. The Service Provider, through the Approved Employee, undertakes to perform its duties and obligations under this Agreement with the highest degree of professionalism.

 

  3.2. The Service Provider shall ensure that the Approved Employee shall devote his know-how, expertise, skills, experience and best efforts to the performance of the Services, and shall act to promote the Company’s business and affairs and shall perform and discharge the Services faithfully, with devotion, honesty and fidelity.

 

  3.3. The Service Provider shall follow, and shall cause the Approved Employee to follow, the instructions of the Company’s CEO, any other executive officer of the Company and/or the Company’s Board of Directors. Neither the Service Provider nor the Approved Employee is an agent of the Company for any purpose whatsoever and shall not have any right or authority to bind the Company or create any obligations, express or implied, on behalf of or in the name of the Company, unless as specifically set forth in this Agreement or expressly authorized in writing to do so.

 

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4. Compensation

As sole consideration for the Services, Service Provider shall be entitled to the following:

 

  4.1. During the Term (as defined below), the Company shall pay the Service Provider fixed fee in an amount of NIS 15,000 plus VAT per month (the “Monthly Fees”).

 

  4.2. The Monthly Fees for each month during the Term (as defined below) shall be payable within 10 days following the beginning of the immediately following month, together with applicable VAT, against receipt by the Company of a duly issued tax invoice. All payments under this Agreement include all taxes, duties, levies, deductions or similar governmental charges (hereinafter referred to as “ Taxes ”). The Consultant shall pay all Taxes associated with the Services. The Company will pay any required withholding tax and provide the Consultant a certificate for such amount.

 

  4.3. In addition, the Company shall reimburse Service Provider for reasonable and customary out of pocket expenses incurred by the Service Provider and/or Approved Employee in connection with the performance of his duties under this Agreement, all in accordance with the Company’s policies as determined by the Company’s Board of Directors from time to time and subject to the Company’s pre-approval in writing of such expenses that exceed $200. As a condition to reimbursement, the Service Provider shall provide the Company with all invoices, receipts and other evidence of expenditures as required by the Company’s relevant policies.

 

5. Insurance and indemnification

Following the closing of the transaction with the Parent Company, the Company shall maintain for the benefit of the Approved Employee a Directors and Officers insurance policy, according to the Company’s policy for other directors and officers of the Company.

 

6. Taxes

The Service Provider shall bear any and all taxes imposed in connection with any payments made to it pursuant to this Agreement. In the event that pursuant to any law or regulation, tax is required to be withheld at source from any payment made to Service Provider, Company shall withhold said tax at the rate set forth in the certification issued by the appropriate taxing authority and provided to Company by Service Provider, or in the absence of such certification, at the rate determined by law.

 

7. Status of the Parties

 

  7.1. The parties expressly declare and confirm that no employer - employee relationship shall exist between the Company and any of Service Provider’s employees, including the Approved Employee and/or anyone on Service Provider’s behalf. Consequently, neither the Service Provider nor the Approved Employee shall be entitled to any benefits or privileges made available to employees of the Company.

 

  7.2.

The Service Provider declares and represents that it has made, and shall continue to make, all mandatory and other payments in connection with the employment of

 

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  the Approved Employee. Said payments shall include, without limitation, income tax, National Insurance, social benefits (including without limitation, pension insurance and disability insurance) and related payments and any and all other payments to any governmental or other relevant authority in connection with the employment of the Approved Employee.

 

  7.3. Without derogating from the above, on the day a demand or claim contradictory to section 7.2 or this agreement shall be filed to court, the parties agree and undertake that the “salary” to which the Approved Employee is entitled for its services as employee of Company hereunder shall be equal to 60% (sixty percent) of the Monthly Fee, and the Service Provider undertakes in such event to immediately repay and return to Company any amounts received hereunder in excess of said 60% (sixty percent) throughout the entire term for which the employer employee relationship are related to (“Excess Payment”).

 

  7.4. The aforementioned Excess Payment shall be returned along with linkage differentials and interest from the date of payment of each amount by the Company to the Service Provider and up to the date upon which actual return and payment of the funds is made, and all based on the Consumer Price Indices known at the relevant dates.

 

  7.5. Without derogating from the Company’s right to receive the Excess Payment according to section 7.3, 7.4 above the Company shall be entitled to offset any amounts due to it, from any amounts payable to the Service Provider.

 

  7.6. The Service Provider further undertakes to fully indemnify the Company for such loss cost, payment, expense or damage caused to the Company as a result of such claim and/or decision, including, but not limited to, reasonable legal expenses, reasonable legal services’ fees,

 

  7.7. The Service Provider hereby waives any claim that the statute of limitations has expired in connection with its obligation to return the Excess Payment together with linkage differentials and interest under applicable law.

 

8. Term and Termination

 

  8.1. The Service Provider’s engagement will commence on October [    ], 2016 (the: “ Effective Date ”) and shall continue until terminated by either Party in accordance with Sections 8.2 or 8.3 hereunder (such term shall be referred to in this agreement as the “ Term ”).

 

  8.2. Either party may terminate this Agreement for any reason or without reason at any time by furnishing the other party with a 30 day notice of termination (the: “ Notice of Termination ”). Unless the Company has waived its right to receive any and/or all of Service Provider’s services under this Agreement during the Notice Period, or any part thereof, Service Provider shall be obligated to continue to discharge and perform all of its duties and obligations under this Agreement, and to ensure that the Approved Employee continues to perform said duties and obligations on its behalf and that he shall take all steps, satisfactory to Company, to ensure the orderly transition to any person or entity designated by Company of all matters handled by the Service Provider through the Approved Employee during the course of the provision of the Services.

 

  8.3. Without derogating from the above, the Company shall be entitled to terminate this Agreement for Cause (as defined below) forthwith, and without prior notice, and the Service Provider or the Approved Employee shall not be entitled to any compensation whatsoever due to such early termination.

 

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For Purposes hereof, “ Cause ” shall mean: (i) the willful malfeasance or gross negligence in the performance of the Service Provider’s and/or the Approved Employee’s obligations under this Agreement; (ii) the commission by the Service Provider and/or the Approved Employee of a felony, or other criminal conduct involving fraud, dishonesty, theft or misappropriation; (iii) the material breach by the Service Provider and/or the Approved Employee of any applicable duty of loyalty to the Company or unauthorized use or disclosure, misappropriation, destruction or diversion of any material tangible or intangible asset or corporate opportunity of the Company, or other material tortuous or unlawful conduct which is injurious to Company or an affiliate thereof; (iv) the Service Provider’s or the Approved Employee’s conviction of, or plea of “guilty” or “no contest” to, a felony or any crime involving moral turpitude; or (v) any action or omission of the Service Provider performed under a conflict of interests.

 

  8.4. Upon termination of this Agreement or at such other time as directed by the Company, the Service Provider and the Approved Employee shall immediately return to the Company all assets in their possession or control, kept either on paper or in electronic format, which belong to, or have been entrusted to them by the Company. The Service Provider and the Approved Employee shall neither have, nor retain, any proprietary interest in such assets. The provisions of this Section 8.5 shall survive the termination of this Agreement.

 

9. No Conflicting Obligations

During the Term and thereafter, the Service Provider and the Approved Employee has not disclosed and shall not disclose to the Company any confidential information or material belonging to a third party, unless the Service Provider and/or the Approved Employee has first received the written approval of such third party and presents such approval to the Company. The provisions of this Section 9 shall survive the termination of this Agreement.

 

10. Confidentiality

As a condition to this Agreement, the Service Provider and the Approved Employee shall sign a Confidentiality, Non-Competition, Non-Solicitation, and Intellectual Property Rights Undertaking a copy of which is attached hereto as Exhibit “A” .

 

11. General

 

  11.1. The Service Provider shall not assign or authorize transfer of the whole or any part of this Agreement to any third party without prior written consent of the Company. The Company may assign this Agreement to any affiliate or subsidiary thereof, including to the Parent Company and any other counterparty to a change of control transaction involving the Company.

 

  11.2. All disputes with respect to this Agreement shall be determined in accordance with the laws of the State of Israel and the competent courts in Tel-Aviv, Israel shall have exclusive jurisdiction of any such dispute.

 

  11.3. This Agreement contains and sets forth the entire agreement and understanding between the parties with respect to the subject matter contained herein, and as such supersedes all prior discussions, agreements, representations and understandings in this regard.

 

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  11.4. This Agreement shall not be modified, except by an instrument in writing signed by both parties.

 

  11.5. Each notice and/or demand given by one party to the other pursuant to this Agreement shall be given in writing and shall be sent by email, by registered mail or delivered by hand to the other party at the address as follows:

If to Company: Microbot Medical Ltd., 5 HaMada St., Yokneam 2069204, Israel

Company’s email address: harel@microbotmedical.com

If to Service Provider: 25 Dovnov St., Holon, Israel

Service Provider’s email address                                          

and such notice and/or demand shall be deemed given at the expiration of three (3) days from the date of mailing by registered mail or immediately if delivered by hand or by email. Such address shall be effective unless notice of a change in address is provided by registered mail to the other party.

 

  11.6. The captions contained herein are for the convenience of the parties only and shall not affect the construction or interpretation of any provision hereof.

In witness whereof, the parties have executed this Agreement as of the date set forth above:

 

The Company:     Service Provider:

/s/ Harel Gadot

   

/s/ David Ben Naim

Microbot Medical Ltd.     David DBN Finance Services Ltd .
By:   Harel Gadot     By:   David Ben Naim
Title:   CEO     Title:   CEO

 

6


Exhibit “A”

To the Services Agreement by and between

Microbot Medical Ltd. and the Service Provider whose name is set forth herein

Name of Service Provider: David DBN Finance Services Ltd. and Mr. David Ben Naim, jointly and severally.

 

1. General

Capitalized terms herein shall have the meanings ascribed to them in the Services Agreement effective as of October      2016 by and between Microbot Medical Ltd. (the: “ Company ”) and Service Provider to which this Exhibit is attached (the “ Agreement ”). For purposes of any undertaking of the Service Provider toward the Company, the term Company shall include any subsidiary, parent company and affiliate of the Company and the term Service Provider shall include the Individual whose name is set forth hereinabove. The Service Provider’s obligations and representations and the Company’s rights under this Exhibit shall apply as of the date Service Provider began to provide Services to the Company, regardless of the date of execution of the Agreement.

 

2. Confidentiality; Proprietary Information

 

  2.1. Proprietary Information ” means confidential and proprietary information concerning the business and financial activities of the Company and/or Company’s products, including patents, patent applications, trademarks, copyrights and other intellectual property, and information relating to the same, technologies and products (actual or planned), inventions, research and development activities, inventions, trade secrets and industrial secrets, and also confidential commercial information such as investments, investors, consultants, customers, suppliers, marketing plans, financial information etc., all the above - whether documentary, written, oral or computer generated. Proprietary Information shall also include information of the same nature which the Company may obtain or receive from third parties.

 

  2.2. Proprietary Information shall be deemed to include any and all proprietary information disclosed by or on behalf of the Company and irrespective of form but excluding information that (i) Service Provider proved that was known to him prior to Service Provider’s association with the Company; (ii) is or shall become part of the public knowledge except as a result of the breach of the Agreement or this Exhibit by Service Provider;

 

  2.3. Service Provider recognizes that the Company received and will receive confidential or proprietary information from third parties, subject to a duty on the Company’s part to maintain the confidentiality of such information and to use it only for certain limited purposes. In connection with such duties, such information shall be deemed Proprietary Information hereunder, mutatis mutandis .

 

  2.4. Service Provider agrees that all Proprietary Information and ownership rights in connection therewith are and shall remain at all times the sole property of the Company and its assigns. At all times, both during Service Provider’s engagement with the Company and after the termination of the engagement between the parties, Service Provider will keep in confidence and trust all Proprietary Information, and will not use or disclose any Proprietary Information or anything relating to it without the written consent of the Company.

 

7


  2.5. Upon the Company’s request and upon termination of Service Provider’s engagement with the Company, for any reason whatsoever, Service Provider will promptly deliver to the Company all documents and materials of any nature containing Proprietary Information, pertaining to Consultant’s engagement with the Company, and will not take or retain any documents or materials or copies thereof containing any Proprietary Information.

 

  2.6. In the event that the Service Provider becomes compelled by law, rule or regulation, or legal or administrative process or proceeding, to disclose any of the Proprietary Information, the Service Provider shall, to the extent permitted by law, promptly provide the Company with written notice of such disclosure so that the Company shall have the opportunity to seek a protective order or other appropriate remedy. The Service Provider shall cooperate with the Company in seeking such protective order or other appropriate remedy. In the event that such protective order or other remedy is not obtained, the Service Provider shall furnish only that portion of the Proprietary Information which the Service Provider is advised by legal counsel is legally compelled, and the Service Provider agrees to use its collective commercially reasonable efforts to continue to preserve the confidentiality of the Proprietary Information.

 

  2.7. Service Provider’s undertakings set forth in Section 1 through Section 5 of this Exhibit “A” shall remain in full force and effect during the Term of the Agreement and after termination of the Agreement or any renewal thereof.

 

3. Disclosure and Assignment of Inventions

 

  3.1. Inventions ” means any and all inventions, improvements, designs, concepts, techniques, methods, systems, processes, computer software programs, databases, mask works and trade secrets, whether or not patentable, copyrightable or protectible as trade secrets; “ Company Inventions ” means any Inventions that are made or conceived or first reduced to practice or created by Service Provider, whether alone or jointly with others, during the period of Service Provider’s engagement with the Company, and which are: (i) developed using equipment, supplies, facilities or Proprietary Information of the Company, and (ii) conceived or developed in the course of work performed by Service Provider for the Company.

 

  3.2. The Service Provider undertakes and covenants it will promptly disclose in confidence to the Company all Company Inventions. Service Provider agrees and undertakes not to disclose to the Company any confidential information and/or any intellectual property rights of any third party and, in the framework of its engagement with the Company, not to make any use of any confidential information and/or any intellectual property rights of any third party.

 

  3.3. Service Provider hereby irrevocably transfers and assigns to the Company, without additional consideration to the Service Provider, the entire right, title and interest in all worldwide patents, patent applications, copyrights, mask works, trade secrets and other intellectual property rights in any Company Invention, and any and all moral rights that it may have in or with respect to any Company Invention. This assignment applies to all Company Inventions created before, on and after the date of the Agreement, and also includes the right to sue for and recover damages for any past, present and/or future infringement of any of the Inventions.

 

8


It is hereby clarified that Service Provider waives any right he may have to royalties or any other payment from the Company with regard to the assigned Inventions.

 

  3.4. Service Provider agrees to assist the Company, at the Company’s expense and provided that Service Provider is compensated for the time incurred in rendering such assistance, in every proper way to obtain for the Company and enforce patents, copyrights, mask work rights, and other legal protections for the Company Inventions in any and all countries. Service Provider will execute any documents that the Company may reasonably request for use in obtaining or enforcing such patents, copyrights, mask work rights, trade secrets and other legal protections. Such obligation shall continue beyond the termination of Service Provider’s engagement with the Company. Service Provider hereby irrevocably designates and appoints the Company and its authorized officers and agents as Service Provider’s agent and attorney in fact, coupled with an interest to act for and on Service Provider’s behalf and in Service Provider’s stead to execute and file any document needed to apply for or prosecute any patent, copyright, trademark, trade secret, any applications regarding same or any other right or protection relating to any Proprietary Information (including Company Inventions), and to do all other lawfully permitted acts to further the prosecution and issuance of patents, copyrights, trademarks, trade secrets or any other right or protection relating to any Proprietary Information (including Company Inventions), with the same legal force and effect as if executed by Service Provider.

 

4. Non-Competition/Solicitation

In order to enable the Company to effectively protect its Proprietary Information, Service Provider agrees and undertakes as follows:

 

  4.1. It will not, so long as the Agreement is in effect and for a period of twelve (12) months following termination of the Agreement, for any reason whatsoever, directly or indirectly, in any capacity whatsoever, engage in, become financially interested in, be employed by, or provide services to any business or venture that is engaged in any activities of the Company including in the field of shunts and endoscopes.

 

  4.2. During his engagement with the Company and for a period of twelve (12) months following termination of this engagement for whatever reason, Service Provider will not, directly or indirectly, including personally or in any business in which Service Provider may be an officer or director or consultant, solicit for employment any person who is employed by the Company, or any person retained by the Company as a consultant, advisor or the like (for purposes hereof, a “ Company Consultant ”), or was retained as an employee of the Company or a Company Consultant during the twelve (12) months preceding termination of Service Provider’s engagement with the Company.

 

5. Intent of Parties

The Service Provider recognizes and agrees: (i) that this Exhibit is necessary and essential to protect the business of Company and to realize and derive all the benefits, rights and expectations of conducting Company’s business; (ii) that the area and

 

9


duration of the protective covenants contained herein are in all things reasonable; and (iii) that good and valuable consideration exists under the Agreement, for Service Provider’s agreement to be bound by the provisions of this Exhibit. The provisions of this Exhibit shall survive the termination of the Agreement.

Signatures:

 

The Company:     Service Provider:

/s/ Harel Gadot

   

/s/ David Ben Naim

Microbot Medical Ltd.     David DBN Finance Services Ltd .
By:   Harel Gadot     By:   David Ben Naim
Title:   CEO     Title:   CEO

 

10

Exhibit 16.1

 

LOGO

November 29, 2016

 

U.S. Securities and Exchange Commission

Office of the Chief Accountant

100 F Street, NE

Washington, DC 20549

  

Grant Thornton LLP

101 California Street, Suite 2700

San Francisco, CA 94111

 

T 415.986.3900

F 415.986.3916

www.GrantThornton.com

  
  
  
  
  

 

Re: Microbot Medical Inc.

File No. 000-19871

Dear Sir or Madam:

We have read Item 4.01 of Form 8-K of Microbot Medical Inc. dated November 29, 2016, and agree with the statements concerning our Firm contained therein.

Very truly yours,

 

LOGO

Grant Thornton LLP

U.S. member firm of Grant Thornton International Ltd

Exhibit 99.1

 

LOGO

Microbot Medical Closes Merger Transaction; Initiates Trading on NASDAQ as ‘MBOT’

Innovative Company is Advancing Transformational Micro-Robotic Technologies to Treat and Diagnose Various Medical Conditions

Hingham, MA – November 28, 2016 – Microbot Medical Ltd., a medical device company specializing in the research, design and development of transformational micro-robotic medical technologies, today announced that it has closed its merger transaction with StemCells, Inc. (Nasdaq: STEM), pursuant to which Microbot became a wholly-owned subsidiary of StemCells, Inc. StemCells will be renamed Microbot Medical Inc. and will begin trading on NASDAQ under the symbol ‘MBOT’ on November 29, 2016.

“Microbot Medical’s founding principle is to improve the quality of life of millions of patients globally by advancing micro-robotic technologies to perform surgical procedures within the human body , and offer physicians and their patients less invasive and more precise solutions. Our vision, which helped guide the development of multiple products based on our unique ViRob and TipCAT micro-robotic technology platforms, is becoming a reality as our lead product candidates for Cerebrospinal Fluid (CSF) and Gastrointestinal (GI) Disorders continue to progress,” commented Harel Gadot, Chairman and Chief Executive Officer of Microbot Medical.

“The completion of this merger is a significant milestone and enables us to capitalize on Microbot Medical’s unique core capabilities and fund our next generation of micro-robotic medical products. We anticipate FDA submission for these products in the near future, and once commercialized, our robust pipeline is expected to deliver a succession of new product launches and applications driving our short, mid and long term revenue prospects,” concluded Mr. Gadot.

Following the completion of the merger and one–for-nine reverse stock split, there are approximately 39 million shares of common stock outstanding. Under the terms of the merger agreement with StemCells, the shareholders of Microbot Medical, and certain advisors and consultants with respect to the merger, received shares of StemCells common stock representing approximately 95% of the outstanding shares of StemCells calculated on a fully diluted basis. Stockholders of StemCells prior to the merger have retained approximately 5% of the company.


Microbot’s leadership includes Mr. Gadot, a co-founder who previously served as a Worldwide Group Marketing Director at Johnson & Johnson’s surgical device company Ethicon Inc. Additionally, Prof. Moshe Shoham, an inventor of Microbot’s technologies and a co-founder of the Company will remain on the Board of Directors and the company’s Scientific Advisory Board. Professor Shoham also founded Mazor Robotics Ltd. (Nasdaq GM: MZOR; TASE: MZOR). The current members of the Board of Directors of Microbot Medical will serve on the Board of Directors of the company, with the addition of Scott Burell, a seasoned public company executive who currently serves as Chief Financial Officer, Secretary and Treasurer of CombiMatrix Corporation (Nasdaq: CBMX). The Company’s corporate headquarters will be located in Hingham, Massachusetts and Yokneam, Israel.

About Microbot Medical Inc.

Microbot Medical is a medical device company specializing in the design and development of transformational micro-robotic medical technologies. The Company is primarily focused on leveraging its micro-robotic technologies with the goal of allowing more physicians to treat more patients while improving surgical outcomes for patients. The Company is currently developing its first two product candidates: the Self Cleaning Shunt, or SCS, for the treatment of hydrocephalus and Normal Pressure Hydrocephalus, or NPH; and TipCAT, a self-propelling, semi-disposable endoscope that is being developed initially for use in colonoscopy procedures. Further information about Microbot Medical is available at http://www.microbotmedical.com.

Safe Harbor

Statements pertaining to future financial and/or operating results, future growth in research, technology, clinical development, and potential opportunities for Microbot Medical Inc. and its subsidiaries, along with other statements about the future expectations, beliefs, goals, plans, or prospects expressed by management constitute forward-looking statements. Any statements that are not historical fact (including, but not limited to statements that contain words such as “will,” “believes,” “plans,” “anticipates,” “expects” and “estimates”) should also be considered to be forward-looking statements. Forward-looking statements involve risks and uncertainties, including, without limitation, risks inherent in the development and/or commercialization of potential products, uncertainty in the results of clinical trials or regulatory approvals, need and ability to obtain future capital, and maintenance of intellectual property rights. Actual results may differ materially from the results anticipated in these forward-looking statements and as such should be evaluated together with the many uncertainties that affect the businesses of Microbot Medical Inc. particularly those mentioned in the cautionary statements found in Microbot Medical Inc.’s filings with the Securities and Exchange Commission. Microbot Medical Inc. disclaims any intent or obligation to update these forward-looking statements.

Investor Contacts:

EVC Group

Michael Polyviou/Doug Sherk - Investors

mpolyviou@evcgroup.com; dsherk@evcgroup.com

212-850-6020; 415-652-9100

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