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): December 28, 2006
BTHC III, INC.
(Exact name of registrant as specified in Charter)
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DELAWARE
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0-51891
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20-4494098
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(State or other jurisdiction
Of incorporation)
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(Commission
File Number)
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(IRS Employer
Identification No.)
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2595 Jason Court
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Oceanside, CA
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92056
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(Address of principal executive offices)
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(Zip Code)
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Registrant
s telephone number, including area code:
(972) 233-0330
12890 Hilltop Road
Argyle, TX 76226
(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 (see General
Instruction A.2. below):
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Item 1.01
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Entry into a Material Definitive Agreement.
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On
December 28, 2006, BTHC III, Inc., a Delaware corporation (the Registrant or BTHC)
entered into a Share Exchange Agreement (the Exchange Agreement) by and among International Stem
Cell Corporation, a California corporation (International Stem Cell or ISC), Halter Financial
Investments, LP and the shareholders of International Stem Cell by and through the Shareholder
Representative named therein (the ISC Shareholders). Pursuant to the terms of the Exchange
Agreement, the Registrant issued 33,111,502 shares of its common stock, par value $0.001 per
share (the BTHC Common Stock) in exchange for all of the issued and outstanding stock of
International Stem Cell (the Share Exchange) held by the ISC Shareholders. After giving effect
to the Share Exchange, the ISC Shareholders owned 93.7% of the Registrants issued and outstanding shares.
The issuance of the shares of BTHC Common Stock to the ISC Shareholders in the Share Exchange
is intended to be exempt from registration under the Securities Act of 1933, as amended (the
Securities Act), pursuant to Section 4(2) thereof. As such, the shares of BTHC Common Stock
issued in the Share Exchange may not be offered or sold unless they are registered under the
Securities Act, or an exemption from the registration requirements of the Securities Act is
available. No registration statement covering these securities has been filed with the United
States Securities and Exchange Commission (SEC) or with any state securities commission in
respect of the Share Exchange.
The foregoing description of the Exchange Agreement does not purport to be complete and is
qualified in its entirety by reference to the Exchange Agreement, which is attached hereto as
Exhibit 2.1 and incorporated by reference.
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Item 2.01
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Completion of Acquisition or Disposition of Assets.
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The information provided in Item 1.01 of this Current Report on Form 8-K is incorporated
hereby by reference. In addition, pursuant to Item 2.01(f) of Form 8-K, we are providing below the
information that would be required if we were filing a Form 10-SB. References to we, us or
our throughout this Current Report on Form 8-K refer to BTHC, International Stem Cell and
Lifeline Cell Technology, LLC (Lifeline) together, unless the context indicates otherwise.
Changes Resulting from the Share Exchange
As a result of the Share Exchange, International Stem Cell became our wholly-owned subsidiary
and the Registrant ceased being a shell company as such term is defined in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended (the Exchange Act).
We intend to carry on International Stem Cells business. International Stem Cell is
headquartered in Oceanside, California, and has a research facility in Walkersville, Maryland. The
contents of International Stem Cells website are not part of this Current Report on Form 8-K and
should not be relied upon with respect thereto.
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Pre-exchange stockholders of our company will not be required to exchange their existing BTHC
stock certificates for certificates of International Stem Cell, since all outstanding shares are in
book-entry form only.
Accounting Treatment
The Share Exchange is being accounted for as a reverse merger, since as a result of the
Shares Exchange the shareholders of International Stem Cell now own a majority of the outstanding
shares of BTHC Common Stock. International Stem Cell is deemed to be the acquirer in
the Share Exchange for accounting purposes and, consequently, the assets and liabilities and the historical operations that
will be reflected in the financial statements will be those of International Stem Cell and will be
recorded at the historical cost basis of International Stem Cell. As a result of the Share
Exchange, there was a change in control of the Registrant, however, the Registrant will continue to
be a small business issuer, as defined under the Exchange Act.
Election to Board of Directors; Appointment of Officers
In connection with the Share Exchange, Kenneth Aldrich was appointed to the Board of Directors
of the Registrant (the Board of Directors or the Board) and will serve as the Chairman of the
Board. Jeff Krstich and William B. Adams were appointed as the Chief Executive Officer and Chief
Financial Officer of the Registrant, respectively. Jeffrey Janus was appointed as the President of
the Registrant and Chief Executive Officer of Lifeline, ISCs wholly-owned subsidiary.
Registration Rights
In connection with the Share Exchange, we assumed the obligation to register (i) up to
12,000,000 shares of common stock issued by International Stem Cell in a private placement (the
ISC Private Placement); (ii) up to 2,400,000 shares of BTHC Common Stock underlying a warrant
issued to the placement agent for the ISC Private Placement (the Warrant Shares) and; (iii)
1,629,623 shares underlying warrants held by ISC shareholders (the ISC Warrant Shares). The
registration statement (the Registration Statement) is required to be filed by February 27, 2007.
Lock-Up Agreements
In connection with the ISC Private Placement, the former officers and directors of
International Stem Cell entered into lock-up agreements. Each lock-up agreement provides that
the shares of BTHC Common Stock issued to the ISC officers and directors in the Share Exchange may
not be, directly or indirectly, sold, subject to a contract for sale or otherwise transferred for a
period of 180 days following the effective date of a Registration Statement.
Pursuant to the terms of the Financial Advisory Agreement, dated October 18, 2006, between ISC
and Halter Financial Group, L. P. (HFG), HFG agreed that without the prior written consent of ISC,
it will not sell, transfer or otherwise dispose of greater than 1/12th of its holdings in BTHC
every 30 days commencing on December 28, 2006. However, in the
event HFG does not sell or otherwise dispose of all of the allotted
number of BTHC shares that may be sold in a given 30 day period, HFG may sell such unsold
shares at any time thereafter.
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Description of International Stem Cells Business
BUSINESS OVERVIEW
International Stem Cell was incorporated in the state of California in June 2006 for the
purpose of restructuring the business of Lifeline, which was organized in the state of California
in August 2001. Lifeline is a wholly-owned subsidiary of International Stem Cell and all of ISCs
operations are conducted through Lifeline. International Stem Cell is
a biotechnology company currently
focused on developing therapeutic products and research products.
In the area of therapeutic product development, our objective is to create an unlimited source
of human cells for use in the treatment of several diseases including diabetes, liver disease and
retinal disease through cell transplant therapy. In furtherance of this objective, ISC is
currently developing (i) stem cells that are comparable in function to, but distinct in derivation
from, embryonic stem cells from which cells for human transplant can be derived, (ii) techniques to
cause those cells to be differentiated into the specific cell types required for transplant, and
(iii) manufacturing protocols to produce these cells without contamination with animal by-products
in compliance with U.S. Food and Drug Administration (FDA) requirements. While ISCs cell lines
are comparable to embryonic cell lines because they have the potential to become any cell in the
human body through differentiation, the development of our cell lines does not require the use of
fertilized eggs or the destruction of any embryos created through fertilization.
Incidental to the research being conducted in the development of therapeutic products, we have
developed research products (specialized cell systems, media and reagents for use in stem cell and
other medical research) which we have commercialized and are selling to academic institutions,
governmental entities and commercial research companies. The sale of these research products
provides us with revenue to support the development of therapeutic products.
According to the National Institutes of Health, research on stem cells is advancing knowledge
about how an organism develops from a single cell and how healthy cells replace damaged cells in
adult organisms. This area of science is also leading scientists to investigate the possibility of
cell-based therapies to treat disease, which is often referred to as regenerative or reparative
medicine. A potential application of human stem cells is the generation of cells and tissues that
may be used for cell-based therapies. Today, donated organs and tissues are often used to replace
ailing or destroyed tissue, but the need for transplantable tissues and organs far outweighs the
available supply. Stem cells, directed to differentiate into specific cell types, offer the
possibility of a renewable source of replacement cells and tissues to treat diseases including
diabetes, liver disease and retinal disease.
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Stem cells are undifferentiated primary cells that have the potential to become any tissues
and organs of the body. However, stem cell therapies have technical, ethical and legal hurdles to
overcome before they will be able to be used to effect tissue and organ repair. To realize the
promise of cell-based therapies for the treatment of diseases, scientists must be able to
manipulate stem cells so that they possess the necessary characteristics for successful
differentiation, transplantation and engraftment. The following is a list of some of the major
steps in successful cell-based treatments that scientists will have to learn to precisely control
to ready such treatments for clinical use. To be useful for transplant purposes, stem cells must
be reproducibly made to:
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proliferate extensively and generate sufficient quantities of tissue;
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differentiate into the desired cell type(s);
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survive in the recipient after transplant;
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integrate into the surrounding tissue after transplant;
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function appropriately;
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avoid harming the recipient; and
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avoid or reduce the problem of immune rejection.
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We believe that the market for our products will be substantial given the current limited supply
of human cells required to make transplants possible, the need for cells that will not be rejected,
and the need for cells produced without contamination by animal by-products. Addressing these core
issues will provide an excellent opportunity for the commercialization of our products.
In addition to the work we are doing to develop cells for therapeutic cell transplant, we are
engaged in the development, production and sale of specialty research products. This portion of
our business is focused on the needs of stem cell researchers for specialized cells, media and
reagents used in the development of therapeutic products.
FREQUENTLY ASKED QUESTIONS ABOUT STEM CELLS
What are Stem Cells?
Cells are the basic living units that make up a human being. Stem cells have two important
characteristics that distinguish them from other types of cells. First, they are unspecialized
cells that renew themselves for long periods of time. Second, under certain physiologic or
experimental conditions, they can be induced to become cells with special functions such as the
beating cells of the heart muscle or the insulin-producing cells of the pancreas. Scientists
currently work with two kinds of stem cells from animals and humans:
embryonic stem cells
and
adult stem cells,
which have different functions and characteristics. We are developing a third
category of stem cells that we believe will have the therapeutic advantages as embryonic stem cells
without the difficulties discussed herein.
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What are Embryonic Stem Cells?
Embryonic stem cells are derived from embryos that develop from eggs that have been fertilized
in vitrotypically in an in vitro fertilization clinicwhich are donated for research purposes
with informed consent of the donors. They are not derived from eggs fertilized in a womans body.
The embryos from which human embryonic stem cells are derived are typically four or five days old
and are a hollow microscopic ball of cells called the
blastocyst.
Embryonic stem cells are grown
in a laboratory through a process known as cell culture.
Human embryonic stem cells, or hES cells, are isolated by transferring the inner cell mass
into a laboratory culture dish that contains a nutrient broth known as a culture medium. The cells
then divide and spread over the surface of the dish. Over the course of several days, the cells of
the inner cell mass proliferate and begin to crowd the culture dish. When this occurs, they are
removed and plated into several fresh culture dishes. The process of replating the cells is
repeated many times and for many months. After six months or so, the original small cluster of
cells of the inner cell mass yields millions of embryonic stem cells. Once cell lines are
established, or even before that stage, batches of them can be frozen and shipped to other
laboratories for further culture and experimentation.
Why are embryonic stem cells important?
Embryonic stem cells are of interest because of their ability to be differentiated, or develop
into virtually any other cell made by the human body. In theory, if stem cells can be grown and
their development directed in culture, it would be possible to grow cells for the treatment of
specific diseases. The first potential applications of human embryonic stem cell technology may be
in the area of drug discovery. The ability to grow pure populations of specific cell types offers
a proving ground for chemical compounds that may have medical importance in that it may ultimately
permit the rapid screening of chemicals. Treating specific cell types and measuring their response
may offer an expedited methodology to ascertain chemicals that can be used to treat the diseases
that involve those specific cell types.
The study of human development may also benefit from embryonic stem cell research in that
understanding the events that occur at the first stages of development has potential clinical
significance for preventing or treating birth defects, infertility and pregnancy loss. The
earliest stages of human development have been difficult or impossible to study. Human embryonic
stem cells offer insights into developmental events that cannot be studied directly in humans in
utero or fully understood through the use of animal models.
What are Adult Stem Cells?
An adult stem cell is an undifferentiated cell found among differentiated cells in a tissue or
organ. An adult stem cell can renew itself and can differentiate to yield the major specialized
cell types of the tissue or organ. These cells can be isolated from many tissues, including the
brain. The most common places to obtain these cells are from the bone marrow that is located in
the center of some bones and from umbilical cord blood obtained at birth.
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Why Not Use Stem Cells Derived from Adults?
There are several approaches now in human clinical trials that utilize mature stem cells (such
as blood-forming cells, neuron-forming cells and cartilage-forming cells). However, adult
stem cells are limited in their inability to proliferate in culture. Unlike embryonic stem
cells, which have a capacity to reproduce indefinitely in the laboratory, adult stem cells are
difficult to grow in the lab and their potential to reproduce diminishes with age. Therefore,
obtaining clinically significant amounts of adult stem cells may prove to be difficult.
What is Therapeutic Cloning?
Cloning is simply using the natural process of cell division to make exact copies of a cell.
Cloning to make cells creates many identical cells called a cell line and cloning to make cells
for medical use is generally called therapeutic cloning. Therapeutic cloning is not the same
thing as cloning an entire animal, which is called reproductive cloning. Therapeutic cloning
never creates a complete human being. We work only in the field of therapeutic cloning.
Why is Stem Cell Research Controversial?
The sources of some types of stem cells cause social and religious controversy. Some
scientists obtain stem cells from aborted fetal tissue, causing opposition from those opposed to
abortion. Another controversial source of stem cells are the residual frozen human fertilized eggs
(embryos) that remain after vitro fertilization procedures. A final controversial source of stem
cells are those obtained from very early stage embryos created by therapeutic cloning because this
process of obtaining stem cells results in the destruction of these early-stage embryos.
Is Stem Cell Research Banned in the United States?
Embryonic stem cell research, in general, is not banned in the United States. Work by private
organizations is not restricted except by the restrictions applicable to all human research. In
addition, Proposition 71 in California, which voters approved in November 2006, specifically allows
state funds to be used for stem cell research.
Why Not Use the Currently Approved Embryonic Stem Cells Lines?
The human embryonic stem cell lines approved by President George W. Bush were all produced
using animal protein. We believe that this will likely make them unsuitable for human therapeutic
purposes and perhaps even for research into human disease. We have developed technologies to
create human embryonic stem cell lines that will be free of non-human materials.
How Will Stem Cells from International Stem Cell be Different?
Our research is based on perfecting proprietary techniques for deriving stem cells through a
technology, based on parthenogenesis, which could result in the creation of human cells that have
the same capacity to become other cells just as do embryonic stem cells. However, this process,
would not use fertilized human eggs or cause the destruction of such eggs. From the stem cells we
create, we will conduct the research to develop specialized cells (such as liver, pancreatic and
retinal cells) needed for transplantation. We do not obtain stem cells from fetal tissue from
abortion clinics and our technology does not require the use of discarded frozen human embryos. We
do not anticipate using such sources in the future.
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ETHICAL ISSUES
The use of embryonic stem cells derived from fertilized human eggs has created an ethical
debate in the United States and around the world. However, since no fertilized human eggs are used
in creating our cells and no fertilized human embryo is being created or destroyed, our hope is
that our success in perfecting parthenogenesis will resolve many of the current ethical
controversies that surround traditional embryonic stem cell research.
We also own the worldwide rights to use in our chosen therapeutic fields, a technology known
as Somatic Cell Nuclear Transfer to create human stem cells. The Presidents Council on Bioethics,
as reported in the publication Reproduction and Responsibility The Regulation of New
Biotechnologies, 2004, has agreed on a series of recommendations for the use of such technology,
addressed to both the government and to the relevant scientific and medical practitioners for
professional self-scrutiny. In addition, countries such as the United Kingdom have made similar
recommendations. Although we have chosen for now to pursue our own proprietary technology, we have
implemented the relevant recommendations from this study into our research practices and will
continue to adhere to internationally accepted standards regarding the use of this technology in
obtaining and using human embryonic stem cells for our therapeutic research.
OUR TECHNOLOGY
With the assistance of our Chief Scientist, Dr. Elena Revazova, we are perfecting a
proprietary patent pending process, based on parthenogenesis, for the creation of new stem cell
lines that we believe will have all the beneficial characteristics of traditional embryonic stem
cells. Our technology allows embryonic-like stem cells to be created without the use of fertilized
embryos or fertilized human eggs (called oocytes). This process results in the creation of
embryonic-like stem cells that because of their DNA complement, have the potential to become cells
that will not be rejected by some patients. These cells could be used to create stem cell banks
in which cells could be stored and matched to a patients immune system when needed for
transplantation. Though not currently our primary area of focus, Somatic Cell Nuclear Transfer, a
process to which we also hold a license, can use a patients own cells to create stem cells having
the same genetic makeup as the patient, thus avoiding immune rejection, the most common cause of
transplant failure. This technology, however, is not currently our primary area of focus.
OUR PRODUCTS
Specialty Research Products
A critical element for any researcher seeking to develop a therapeutic cell from either a
human embryonic stem cell or an adult stem cell is causing the stem cell to change
(differentiate) into the specific cell needed for a particular therapy. The challenge is to
discover the proper set of culture conditions (combinations of proteins, salts, temperatures and
hundreds of other environmental factors) to change stem cells into the specific cell types that can
be used to cure specific diseases; then develop the procedures needed to produce such cells on
demand as needed for human therapy. This process is driven in large part by the media and
the other added chemicals (called reagents) used to develop the cells. The type of media
and reagents used can dictate what kind of cells will be produced and is critical to the process of
developing cell transplants from differentiated stem cells.
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Our research products consist of cells, growth media and related cell-based products essential
to the process of creating and differentiating stem cells. The customers for these products are
academic research centers, government research centers, and corporations engaged in developing
cell-based therapies.
Our first specialty research product called a Cell System, was launched in limited release
in January 2006. Seven additional products have been developed since that date and in December
2006 we launched all eight of these product systems at the American Society of Cell Biology
Conference which was held in San Diego, California.
Our research products include:
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Fibrolife
TM
a serum-free human fibroblast medium.
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Human fibroblast cells for use as feeder layers to grow human
embryonic stem cells (eliminates contamination from mouse cells).
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Two types of low serum human endothelial media
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VascuLife
TM
VEGF
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VascuLife
TM
EnGS.
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Human endothelial cells. (Endothelial cells form blood vessels).
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Line of adult neural stem cells with the ability to produce neurons
that can survive in low-oxygen and low glucose conditions, a product useful for the
discovery of drugs for the treatment of strokes.
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Two types of media for the culture of the adult neural cells
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NeuralLife
TM
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NSC
expansion medium kit
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NeuralLife
TM
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NSC
differentiation medium kit.
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Products such as these are essential to the development of our own proprietary therapeutic
products and are a natural adjunct to that endeavor. The sale of these products to other stem
cell-related researchers and businesses is expected to benefit us in several ways: (1) it provides
revenue to help support our therapeutic research, (2) it may provide us with an opportunity to
preview stem cell work being conducted throughout the world, and (3) if our products are adopted by
a successful producer of therapeutic cells, we have the potential of becoming a supplier in a much
broader market than research.
Further, because of the process by which therapeutic products are developed and submitted to
the FDA for approval, the media and reagents used in developing cells for clinical trials tend to a
large degree to become baked in to the final therapeutic product. Because of a reluctance or
legal inability to change the process of creating the therapeutic product once it has been
approved, if another company uses our media and reagents to develop an FDA approved
product, we may become the sole approved supplier of these media and reagents for the
manufacture of that product.
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Our human cell culture products also consist of standardized living cells, including fully
functional adult cells and (non-embryonic) stem cell lines. The cells are provided frozen in vials
containing approximately 500,000 cells each, or are plated into flasks. Each Cell System will be
quality tested for the expression of specific markers (to assure the cells are the correct type)
for proliferation rate, viability, morphology and for the absence of pathogens. Each Cell System
will have associated donor information.
In addition to our Cell System, pursuant to the terms of a License Agreement with Advanced
Cell Technology, Inc. (Advanced Cell Technology), we will manufacture and sell embryonic stem
cell products developed by Advanced Cell Technology. The first products we expect to release are
(i) medium optimized for the growth of human embryonic stem cells, and (ii) pre-coated tissue
culture plates for the serum-free and feeder-layer-free culture of embryonic stem cells.
Our long term plans for additional product offerings based on the technology licensed from
Advanced Cell Technology include:
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Stem cells derived functional human liver cells provided in plates or frozen (a
byproduct of therapeutic research). These cells must have active and inducible enzyme
systems, they must have a correct morphology, they must express albumin and they must
attach to the cell culture dish.
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Stem cells derived functional islet cells provided in plates or frozen. These cells
must produce and express insulin in response to glucose.
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A complete line of reagents for the culture and differentiation of embryonic stem
cells.
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Therapeutic Products
We have already used human stem cells to create retinal cells known as retinal pigment
epithelial, or RPE. We are currently expanding these cells as part of pre-clinical trials,
resulting in animal implantation in 2007.
We are in the process of developing specialized liver cells for use in the treatment of liver
disease and pancreatic islet cells to treat diabetes as the third target.
OUR MARKETS
Therapeutic Market
Retinal Diseases
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Diseases involving retinal degeneration include age-related macular
degeneration (AMD) and retinitis pigmentosa (RP). These diseases are characterized by the
death of critical photoreceptor cell called rods and cones. Photoreceptor death is due to an
abnormality and/or to disruption or death of supportive cells called retinal pigment epithelial
(RPE) cells. The use of hES cells may prove beneficial in the treatment of AMD and RP as
retinal cell transplant therapy has been shown to be clinically feasible for the treatment of AMD
and RP and the differentiation procedures to derive human retinal cells from hES cells have been
worked out. We are working toward the manufacture of these cells for therapeutic use.
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According to a 2004 study on
Blindness and Blinding Diseases in the U.S.
published by the
University of Washington, approximately 13,000,000 Americans have
signs of AMD, over 10,000,000
suffer visual loss and over 200,000 are legally blind from the disease. The occurrence of AMD
increases with a patients age. According to the same study, approximately 6,300,000 people are
projected to develop AMD in 2030, compared to 1,700,000 in 1995.
Because the therapeutic use of retinal cells is one of the more advanced applications in stem
cell therapy and we have already produced human retinal pigment epithelial cells from human
embryonic stem cell lines, we are focusing on retinal cells as our first therapeutic market target.
Our goal is to manufacture retinal cells derived from hES cells to replace the limited supply of
donor derived cells for therapeutic use. We will collaborate with academic research and other
research institutions to develop FDA-approved therapeutic methodologies for producing retinal cells
for therapeutic use.
Diabetes
Another area of focus is on diabetes. According to the American Diabetes
Association, approximately 20,800,000 people, or 7% of the U.S. population, have some form of
diabetes, and the National Institutes of Health estimates that there are as many as 2,500,000
people suffering from Type 1 Diabetes (Insulin Dependent Diabetes Mellitus). Normally, certain
cells in the pancreas, called the islet ß cells, produce insulin which promotes the uptake of the
sugar glucose by cells in the human body. Degeneration of pancreatic islet ß cells results in a
lack of insulin in the bloodstream which results in diabetes. Although diabetics can be treated
with daily injections of insulin, these injections enable only intermittent glucose control.
The transplantation of insulin producing cells called islet cells from one person to another
has been shown to relieve the suffering and serious side effects caused by current therapies. As
the primary source of islet cells today is organ donations, available supply is extremely limited.
Therefore, our objective in the field of diabetes therapy is to increase the availability of
pancreatic islet cells by inducing stem cells derived from our parthenogenic cell lines to grow and
become islets or the individual cells found in the islets.
Liver Disease
According to the American Liver Foundation, chronic liver disease (including
hepatitis C) is the third most common cause of death due to chronic diseases in persons 35 to 64
years of age. In the United States diseases such as cirrhosis and hepatitis were ranked as the
12th leading cause of death in 2000. The only effective treatment currently available for people
with liver failure is full or partial organ transplantation. Unfortunately, as with islets, the
demand for organs far exceeds the number of organs available. According to the United Network for
Organ Sharing, there are currently more than 17,000 persons on the wait list for a liver
transplant.
Liver cell transplantation has been used in early stage clinical trials to treat patients with
liver failure caused by acute or chronic disease and in patients with genetically caused metabolic
defects. This therapy has proven to be especially useful as a bridge to keep patients alive
until they can receive a whole liver transplant, as well as an alternative to whole-organ
transplantation
in specific cases. The procedure involves supplementing a patients liver function by
injecting a donors liver cells (obtained from livers donated from brain dead, heart beating
donors) into a patients liver or spleen where the liver cells remain and function. Our objective
is to provide an alternate source of liver cells for the treatment of liver disease through cell
transplant therapy.
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Research Market
The research market for cell systems is made up of scientists performing basic research and
applied research in the biological sciences. Basic research involves the study of cell biology,
and the biochemical pathways to human disease. Applied research involves drug discovery, vaccine
development, clinical research including cell engineering, and cell transplantation.
The domestic market can be broken into three segments. These include: (i) academic
researchers in universities and privately-funded research organizations; (ii) government
institutions such as the National Institutes of Health, the U.S. Army, the U.S. Environmental
Protection Agency and others; and (iii) industrial organizations such as pharmaceutical companies
and consumer product companies. Management believes that the combined academic and government
market comprises approximately 40% of the total market and that the industrial segment comprises
approximately 60% of the remaining market.
We believe the following are the main drivers in the research market for commercial cell
systems:
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The need for experimental human cells which are more predictive of human biology
than non-human cells or genetically modified cell lines.
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The desire to lower the cost of drug development in the pharmaceutical industry. We
believe that human cell systems may provide a platform for screening toxic drugs early
in the development process, thus avoiding late stage failures in clinical trials and
reducing costs.
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The need to eliminate animal products in research reagents that may contaminate
future therapeutic products.
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The need for experimental control. Serum-free defined media provides the benefit of
experimental control because there are fewer undefined components.
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The need for consistency in experiments that can be given by quality controlled
products.
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The need to eliminate the necessity to formulate media in-house, obtain tissue or
perform cell isolations.
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The need to reduce animal testing in the consumer products industry.
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Our internal projections for the global market for human cell systems for use in basic
research are several hundred million dollars annually with an anticipated growth rate between 10%
and 20%.
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INTELLECTUAL PROPERTY
Patents
We have filed patent applications covering our proprietary technology to create stem cells
without the use of fertilized eggs or transferred DNA. In addition, we have obtained the exclusive
worldwide licenses to a portfolio of patents and patent applications from Advanced Cell Technology.
Our patent portfolio consists of 30 families of patents consisting of over 130 separate
patents (including international filings) and patent applications in the field of stem cell
culture. We also have an exclusive license to the only patent issued by the U.S. Patent &
Trademark Office for the creation of human embryonic stem cells, or hES cells using nuclear
transfer technology for human therapeutic use. Of these, eight are issued patents and a majority
of the patents and applications have been filed in the United States and in foreign countries
through the Patent Corporation Treaty or by direct country filings in those jurisdictions deemed
significant to our operations.
The patentability of human cells in countries throughout the world reflects widely differing
governmental attitudes. In the United States, hundreds of patents covering human embryonic stem
cells have already been granted, including those on which we rely. In certain countries in Europe,
the European Patent Office currently appears to take the position that hES cells themselves are not
patentable, while the United Kingdom has decided that some types of hES cells can be patented. As
a result, we plan to file internationally wherever feasible and focus our research strategy on
cells that best fit the United States and United Kingdom Patent Offices definitions of patentable
cells.
License Agreements
In May 2005, we entered into three exclusive license agreements with Advanced Cell Technology
for the production of therapeutic products in the fields of diabetes, liver disease, retinal
disease, and the creation of research products in all fields. The license agreements give us
access to all aspects of Advanced Cell Technologys human cell patent portfolio as it existed on
that date, plus a combination of exclusive and non-exclusive rights to future developments. A
significant feature of the licensed technology is that it allows us to isolate and differentiate
hES stem cells directly from a blastocyst. The hES cells can be immediately differentiated into
stem cells capable of expansion and differentiation into islet cells, liver cells, and retinal
cells.
Pursuant to the terms of our agreements with Advanced Cell Technology, in exchange for
worldwide therapeutic rights to Advanced Cell Technologys portfolio of patents and patent applications in the fields of diabetes, liver disease
and retinal disease, we are required to make payments of $75,000 in May 2007, $112,500 in May 2008
and annual payments thereafter of $150,000, plus milestone payments linked to the launch of
therapeutic products (not research products) ranging from $250,000 at first launch to $1 million
upon reaching sales of $10 million, with a maximum of $1.75 million in the aggregate. The
agreements also require us to pay royalties on sales and meet minimum research and development
requirements. The agreements continue until expiration of the last valid claim within the licensed
patent rights. Advanced Cell Technology is required to defend any patent infringement claims.
Either party may terminate the agreements for an uncured breach, or we may terminate the agreements
at any time with 30 days notice.
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The agreements with Advanced Cell Technology further provide that any technology either
party currently owns, develops or licenses in the future will be licensed to the other party for
use in their specific therapeutic field. This arrangement gives Advanced Cell Technology and us
continuing access to future discoveries made or licensed by either party.
Exclusive License Agreement Number One, as amended
, covers patent rights and technology that
are relevant to:
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the research, development, manufacture and sale of human and non-human animal
cells for commercial research; and
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the manufacture and selling of hES cells for therapeutic and diagnostic use in
the treatment of human diabetes, liver diseases, retinal diseases and retinal
degenerative diseases.
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Exclusive License Agreement Number Two, as amended
, covers patent rights and technology that
are relevant to:
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the research, development, manufacture and sale of human and non-human animal
cells and defined animal cell lines for commercial research;
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the manufacture and selling of human cells for therapeutic and diagnostic use in
the treatment of human diabetes, liver diseases, retinal diseases and retinal
degenerative diseases; and
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the use of defined animal cell lines in the process of manufacturing and selling
human cells for therapeutic and diagnostic use in the treatment of human diabetes,
liver diseases and retinal diseases.
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Exclusive License Agreement Number Three, as amended
, covers patent rights and technology
relevant to the research, development, manufacture and sale of human cells for cell therapy in the
treatment of therapeutic and diagnostic use in the treatment of human diabetes and liver diseases,
and retinal diseases and retinal degenerative diseases.
Research Agreements
Dr. Revazova, our Chief Scientist, is currently conducting basic research at the Scientific
Center for Obstetrics, Gynecology and Perinatology of the Russian Academy of Medical Sciences in
Moscow, Russia (the Institute). This laboratory contains all of the necessary equipment and
scientific resources to complete our preliminary research in parthenogenesis and Somatic Cell
Nuclear Transfer technology. Through a research agreement, Dr. Revazova continues to conduct
research into the creation and characterization of embryonic stem cells. The Institute provides
Dr. Revazova access to the equipment and technicians needed to create and fully characterize human
parthenogenic and embryonic stem cells. This includes equipment for immunofluorescence,
karyotyping, gene expression, and equipment for molecular biology and cell biology. In addition,
through our relationship with the Institute, we have access to expert Russian scientists from the
Russian Academy of Sciences. Under the terms of the
agreement, we retain all intellectual property rights in the United States and the Institute
retains such rights in Russia. We share equally in any royalty payments from the rest of the
world, but we retain control of all marketing and distribution anywhere in the world, except
Russia. This agreement expires at the end December 2006, and is expected to be renewed for an
additional one year term prior to expiration.
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COMPETITION
The development of therapeutic and diagnostic agents for human disease is intensely
competitive. Pharmaceutical companies currently offer a number of pharmaceutical products to treat
diabetes, liver diseases, retinal disease and other diseases for which our technologies may be
applicable. Many pharmaceutical and biotechnology companies are investigating new drugs and
therapeutic approaches for the same purposes, which may achieve new efficacy profiles, extend the
therapeutic window for such products, alter the prognosis of these diseases, or prevent their
onset. We believe that our theraputic products, when and if successfully developed, will compete
with these products principally on the basis of improved and extended efficacy and safety and their
overall economic benefit to the health care system. We believe that our most significant
competitors will be fully integrated pharmaceutical companies and more established biotechnology
companies. Smaller companies may also be significant competitors, particularly through
collaborative arrangements with large pharmaceutical or biotechnology companies. Some of our
primary competitors in the development of stem cell therapies are Geron Corporation, Genzyme
Corporation, StemCell Technologies Inc., Advanced Cell Technology, Aastrom Biosciences, Inc. and
ViaCell, Inc., most of which have substantially greater resources and experience. In the field of
research products, our primary competitors for stem cells, media and reagents are Chemicon,
Invitrogen Corp., StemCell Technologies Inc. and Specialty Media. These companies primarily
provide standard media that have not been optimized for human embryonic stem cell growth.
SALES AND MARKETING
To date, sales of our research products have been modest and derived primarily through word of
mouth, but we intend to develop a sales force to market our research and our cell therapy and
diagnostic products in the U.S. Because of the nature of the markets in which we participate, we
believe that a modest size sales force will be sufficient. We also anticipate partnering with
large biotech and pharmaceutical companies for the marketing and sales of some, but not necessarily
all, of our stem cell based therapeutic products.
GOVERNMENT REGULATION
Regulation by governmental authorities in the United States and other countries is a
significant factor in the development, manufacture and marketing of our proposed therapeutic
products and in our ongoing research and product development activities. The nature and extent to
which such regulation applies to us will vary depending on the nature of any products which may be
developed by us. We anticipate that many, if not all, of our proposed products will require
regulatory approval by governmental agencies prior to commercialization. In particular, human
therapeutic products are subject to rigorous preclinical and clinical testing and other approval
procedures of the FDA, and similar regulatory authorities in European and other
countries. Various governmental statutes and regulations also govern or influence testing,
manufacturing, safety, labeling, storage and recordkeeping related to such products and their
marketing. The process of obtaining these approvals and the subsequent compliance with appropriate
statutes and regulations require the expenditure of substantial time and money, and there can be no
guarantee that approvals will be granted.
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FDA Approval Process
Prior to commencement of clinical studies involving humans, preclinical testing of new
pharmaceutical products is generally conducted on animals in the laboratory to evaluate the
potential efficacy and safety of the product candidate. The results of these studies are submitted
to the FDA as a part of an Investigational New Drug (IND) application, which must become effective
before clinical testing in humans can begin. Typically, human clinical evaluation involves a
time-consuming and costly three-phase process. In Phase 1, clinical trials are conducted with a
small number of people to assess safety and to evaluate the pattern of drug distribution and
metabolism within the body. In Phase 2, clinical trials are conducted with groups of patients
afflicted with a specific disease in order to determine preliminary efficacy, optimal dosages and
expanded evidence of safety. In some cases, an initial trial is conducted in diseased patients to
assess both preliminary efficacy and preliminary safety and patterns of drug metabolism and
distribution, in which case it is referred to as a Phase 1-2 trial. In Phase 3, large-scale,
multi-center, comparative trials are conducted with patients afflicted with a target disease in
order to provide enough data to demonstrate the efficacy and safety required by the FDA. The FDA
closely monitors the progress of each of the three phases of clinical testing and may, at its
discretion, re-evaluate, alter, suspend, or terminate the testing based upon the data which have
been accumulated to that point and its assessment of the risk/benefit ratio to the patient.
Monitoring of all aspects of the study to minimize risks is a continuing process. All adverse
events must be reported to the FDA.
The results of the preclinical and clinical testing on a non-biologic drug and certain
diagnostic drugs are submitted to the FDA in the form of a New Drug Application (NDA) for
approval prior to commencement of commercial sales. In the case of vaccines or gene and cell
therapies, the results of clinical trials are submitted as a Biologics License Application (BLA).
In responding to a NDA or BLA, the FDA may grant marketing approval, request additional
information or refuse to approve if the FDA determines that the application does not satisfy its
regulatory approval criteria. There can be no assurance that approvals will be granted on a timely
basis, if at all, for any of our proposed products.
European and Other Regulatory Approval
Whether or not FDA approval has been obtained, approval of a product by comparable regulatory
authorities in Europe and other countries will likely be necessary prior to commencement of
marketing the product in such countries. The regulatory authorities in each country may impose
their own requirements and may refuse to grant an approval, or may require additional data before
granting it, even though the relevant product has been approved by the FDA or another authority.
As with the FDA, the regulatory authorities in the European Union (EU) and other developed
countries have lengthy approval processes for pharmaceutical products. The process for gaining
approval in particular countries varies, but generally follows a
similar sequence to that described for FDA approval. In Europe, the European Committee for
Proprietary Medicinal Products provides a mechanism for EU-member states to exchange information on
all aspects of product licensing. The EU has established a European agency for the evaluation of
medical products, with both a centralized community procedure and a decentralized procedure, the
latter being based on the principle of licensing within one member country followed by mutual
recognition by the other member countries.
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Other Regulations
We are also subject to various United States federal, state, local and international laws,
regulations and recommendations relating to safe working conditions, laboratory and manufacturing
practices and the use and disposal of hazardous or potentially hazardous substances, including
radioactive compounds and infectious disease agents, used in connection with our research work. We
cannot accurately predict the extent of government regulation which might result from future
legislation or administrative action.
PROPERTIES
We have established our primary research facility in 8,215 square feet of leased office and
laboratory space in Oceanside, California. Our lease for this facility expires in August 2011, with
a five year option to renew at our discretion. The facility has over $1,000,000 of improvements
which include clean rooms, segregated rooms for biohazard control and containment of human donor
tissue. We believe that this facility is well suited to meet our research and development needs.
We have a 3,240 square foot laboratory in Walkersville, Maryland. Our lease for this facility
expires in March 2009, with a three year renewal option. This laboratory is being used to develop
and manufacture our research products, as well as for sales and marketing and general
administration. The Walkersville facility contains a 2,000 square foot manufacturing laboratory
space with two clean rooms and is fitted with the necessary water purification, refrigeration,
labeling equipment and standard manufacturing equipment to manufacture, package, store and
distribute media products. There is a 500 square foot quality control and cell culture laboratory
outfitted with the necessary cell isolation equipment, incubators, microscopes and standard cell
culture equipment necessary to isolate and culture cells and conduct quality control tests to
produce superior cell culture products. The manufacturing and quality control laboratories also
serve as product development laboratories, and 300 square feet are devoted to administration, sales
and marketing. This area contains the computers, communication equipment and the file systems
necessary to establish technical offices, sales and marketing offices, finance and human resources.
Equipment monitoring and security systems are in place.
EMPLOYEES
In addition to our four executive officers, we utilize the services of eight full-time and
nine part-time staff members or consultants.
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RISK FACTORS
The following summarizes material risks relating to us that you should carefully consider. Any of
the following risks, if they actually occur, would likely harm our business, financial condition
and results of operations.
Our business is at an early stage of development and we may not develop products that can be
commercialized.
Our business is at an early stage of development. We do not have any products in late-stage
clinical trials. We are still in the early stages of identifying and conducting research on
potential products. Our potential products will require significant research and development and
preclinical and clinical testing prior to regulatory approval in the United States and other
countries. We may not be able to obtain regulatory approvals, enter clinical trials for any of our
product candidates, or commercialize any products. Our product candidates may prove to have
undesirable and unintended side effects or other characteristics adversely affecting their safety,
efficacy or cost-effectiveness that could prevent or limit their use. Any product using any of our
technology may fail to provide the intended therapeutic benefits, or achieve therapeutic benefits
equal to or better than the standard of treatment at the time of testing or production.
We have a history of operating losses and do not expect to be profitable in the near future.
We have not generated any profits since our entry into the biotechnology business and have
incurred significant operating losses. We expect to incur additional operating losses for the
foreseeable future and, as we increase our research and development activities, we expect our
operating losses to increase significantly. We do not have any sources of significant revenues and
may not have any in the foreseeable future.
We will need additional capital to conduct our operations and develop our products and our ability
to obtain the necessary funding is uncertain.
We need to obtain significant additional capital resources from sources including equity
and/or debt financings, license arrangements, grants and/or collaborative research arrangements in
order to develop products. We believe that we have sufficient working capital to finance
operations through the third quarter of 2008. Thereafter, we will need to raise additional working
capital. Our current burn rate is approximately $250,000 per month excluding capital expenditures.
The timing and degree of any future capital requirements will depend on many factors, including:
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the accuracy of the assumptions underlying our estimates for capital needs in
2007 and beyond;
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scientific progress in our research and development programs;
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the magnitude and scope of our research and development programs and our ability
to establish, enforce and maintain strategic arrangements for research,
development, clinical testing, manufacturing and marketing;
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our progress with preclinical development and clinical trials;
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the time and costs involved in obtaining regulatory approvals;
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the costs involved in preparing, filing, prosecuting, maintaining, defending and
enforcing patent claims; and
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the number and type of product candidates that we pursue.
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Additional financing through strategic collaborations, public or private equity financings or
other financing sources may not be available on acceptable terms, or at all. Additional equity
financing could result in significant dilution to our stockholders. Further, if additional funds
are obtained through arrangements with collaborative partners, these arrangements may require us to
relinquish rights to some of our technologies, product candidates or products that we would
otherwise seek to develop and commercialize on our own. If sufficient capital is not available, we
may be required to delay, reduce the scope of or eliminate one or more of our product lines, any of
which could have a material adverse affect on our financial condition or business prospects.
Clinical trials are subject to extensive regulatory requirements, very expensive, time-consuming
and difficult to design and implement. Our products may fail to achieve necessary safety and
efficacy endpoints during clinical trials.
Human clinical trials can be very expensive and difficult to design and implement, in part
because they are subject to rigorous regulatory requirements. The clinical trial process is also
time consuming. We estimate that clinical trials of our product candidates will take at least
several years to complete. Furthermore, failure can occur at any stage of the trials, and we could
encounter problems that cause us to abandon or repeat clinical trials. The commencement and
completion of clinical trials may be delayed by several factors, including:
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unforeseen safety issues;
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determination of dosing issues;
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lack of effectiveness during clinical trials;
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slower than expected rates of patient recruitment;
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inability to monitor patients adequately during or after treatment; and
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inability or unwillingness of medical investigators to follow our clinical
protocols.
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In addition, we or the FDA may suspend our clinical trials at any time if it appears that we
are exposing participants to unacceptable health risks or if the FDA finds deficiencies in our IND
submissions or the conduct of these trials.
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Patents obtained by other persons may result in infringement claims against us that are costly to
defend and which may limit our ability to use the disputed technologies and prevent us from
pursuing research and development or commercialization of potential products.
A number of pharmaceutical, biotechnology and other companies, universities and research
institutions have filed patent applications or have been issued patents relating to cell therapy,
stem cells, and other technologies potentially relevant to or required by our expected products.
We cannot predict which, if any, of such applications will issue as patents or the claims that
might be allowed. We are aware that a number of companies have filed applications relating to stem
cells. We are also aware of a number of patent applications and patents claiming use of stem cells
and other modified cells to treat disease, disorder or injury.
If third party patents or patent applications contain claims infringed by either our licensed
technology or other technology required to make and use our potential products and such claims are
ultimately determined to be valid, there can be no assurance that we would be able to obtain
licenses to these patents at a reasonable cost, if at all, or be able to develop or obtain
alternative technology. If we are unable to obtain such licenses at a reasonable cost, we may not
be able to develop some products commercially. There can be no assurance that we will not be
obliged to defend ourselves in court against allegations of infringement of third party patents.
Patent litigation is very expensive and could consume substantial resources and create significant
uncertainties. An adverse outcome in such a suit could subject us to significant liabilities to
third parties, require disputed rights to be licensed from third parties, or require us to cease
using such technology.
We may not be able to adequately protect against piracy of intellectual property in foreign
jurisdictions.
Considerable research in the areas of stem cells, cell therapeutics and regenerative medicine
is being performed in countries outside of the United States, and a number of our competitors are
located in those countries. The laws protecting intellectual property in some of those countries
may not provide adequate protection to prevent our competitors from misappropriating our
intellectual property.
Our competition includes fully integrated biotechnology and pharmaceutical companies that have
significant advantages over us.
The market for therapeutic stem cell products is highly competitive. We expect that our most
significant competitors will be fully integrated pharmaceutical companies and more established
biotechnology and stem cell companies. These companies are developing stem cell-based products and
they have significantly greater capital resources in research and development,
manufacturing, testing, obtaining regulatory approvals, and marketing capabilities. Many of these
potential competitors are further along in the process of product development and also operate
large, company-funded research and development programs. As a result, our competitors may develop
more competitive or affordable products, or achieve earlier patent protection or product
commercialization than we are able to achieve. Competitive products may render any products or
product candidates that we develop obsolete.
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If we fail to meet our obligations under our license agreements, we may lose our rights to key
technologies on which our business depends.
Our business depends in part on licenses from third parties. These third party license
agreements impose obligations on us, such as payment obligations and obligations to diligently
pursue development of commercial products under the licensed patents. If a licensor believes that
we have failed to meet our obligations under a license agreement, the licensor could seek to limit
or terminate our license rights, which could lead to costly and time-consuming litigation and,
potentially, a loss of the licensed rights. During the period of any such litigation, our ability
to carry out the development and commercialization of potential products could be significantly and
negatively affected. If our license rights were restricted or ultimately lost, our ability to
continue our business based on the affected technology platform could be severely adversely
affected.
Restrictive and extensive government regulation could slow or hinder our production of a cellular
product.
The research and development of stem cell therapies is subject to and restricted by extensive
regulation by governmental authorities in the United States and other countries. The process of
obtaining FDA and other necessary regulatory approvals is lengthy, expensive and uncertain. We may
fail to obtain the necessary approvals to continue our research and development, which would hinder
our ability to manufacture or market any future product.
Research in the field of nuclear transfer and embryonic stem cells is currently subject to strict
government regulations, and our operations could be restricted or outlawed by any legislative or
administrative efforts impacting the use of nuclear transfer technology or human embryonic
material.
Our business is focused on human cell therapy, which includes the production of human
differentiated cells from stem cells and involves human oocytes and may involve the use of nuclear
transfer technology embryonic material. Nuclear transfer technology, commonly known as therapeutic
cloning, and research utilizing embryonic stem cells is controversial, and currently subject to
intense scrutiny, particularly in the area of nuclear transfer of human cells and the use of human
embryonic material. Cloning for research purposes is unlawful in many states and this type of
prohibition may expand into other states, including some where we now operate.
Although current federal law only restricts the use of federal funds for hES cell research,
there can be no assurance that our operations will not be restricted by any future legislative or
administrative efforts by politicians or groups opposed to the development of hES call technology
or nuclear transfer technology, or that such efforts might not be extended to include our
parthenogenic technology. Further, there can be no assurance that legislative or administrative
restrictions directly or indirectly delaying, limiting or preventing the use of hES technology,
nuclear transfer technology, the use of human embryonic material, or the sale, manufacture or use
of products or services derived from nuclear transfer technology or other hES technology will not
be adopted in the future or extend to include our parthenogenetic processes. For example, Senate
bill S-658, which remains in committee and may or may not become law, has provisions in it which
may be interpreted to prohibit the specific technology known as Somatic Nuclear Cell Transfer, the
rights to which we have licensed.
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Restrictions on the use of human embryonic stem cells, and the ethical, legal and social
implications of that research, could prevent us from developing or gaining acceptance for
commercially viable products in these areas.
Although our stem cells are derived from unfertilized human eggs through a process that can
produce cells suitable for therapy, but are believed to be incapable of producing a human being,
such cells are nevertheless often referred to as embryonic stem cells. Because the use of human
embryonic stem cells gives rise to ethical, legal and social issues regarding the appropriate use
of these cells, our research related to human parthenogenic stem cells could become the subject of
adverse commentary or publicity and some political and religious groups may still raise opposition
to our technology and practices. In addition, many research institutions, including some of our
scientific collaborators, have adopted policies regarding the ethical use of human embryonic
tissue, which, if applied to our procedures, may have the effect of limiting the scope of research
conducted using our stem cells, thereby impairing our ability to conduct research in this field.
In some states, use of embryos as a source of stem cells is prohibited.
To the extent we utilize governmental grants in the future, the governmental entities involved may
retain certain rights in technology that we develop using such grant money and we may lose the
revenues from such technology if we do not commercialize and utilize the technology pursuant to
established government guidelines.
Certain of our and our licensors research has been or is being funded in part by government
grants. In connection with certain grants, the governmental entity involved retains rights in the
technology developed with the grant. These rights could restrict our ability to fully capitalize
upon the value of this research by reducing total revenues that might otherwise be available since
such governmental rights may give it the right to practice the invention without payment of
royalties.
We rely on parthenogenesis, cell differentiation and other stem cell technologies that we may not
be able to successfully develop, which may prevent us from generating revenues, operating
profitably or providing investors any return on their investment.
We have concentrated our research on our parthenogenesis, cell differentiation and stem cell
technologies, and our ability to operate profitably will depend on being able to successfully
implement or develop these technologies for human applications. These are emerging technologies
with, as yet, limited human applications. We cannot guarantee that we will be able to successfully
implement or develop our nuclear transfer, parthenogenesis, cell differentiation and other stem
cell technologies or that these technologies will result in products or services with any
significant commercial utility. We anticipate that the commercial sale of such products or
services, and royalty/licensing fees related to our technology, would be our primary sources of
revenues.
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The outcome of pre-clinical, clinical and product testing of our products is uncertain, and if we
are unable to satisfactorily complete such testing, or if such testing yields unsatisfactory
results, we will be unable to commercially produce our proposed products.
Before obtaining regulatory approvals for the commercial sale of any potential human products,
our products will be subjected to extensive pre-clinical and clinical testing to demonstrate their
safety and efficacy in humans. We cannot assure you that the clinical trials of our products, or
those of our licensees or collaborators, will demonstrate the safety and efficacy of such products
at all, or to the extent necessary to obtain appropriate regulatory approvals, or that the testing
of such products will be completed in a timely manner, if at all, or without significant increases
in costs, program delays or both, all of which could harm our ability to generate revenues. In
addition, our prospective products may not prove to be more effective for treating disease or
injury than current therapies. Accordingly, we may have to delay or abandon efforts to research,
develop or obtain regulatory approval to market our prospective products. The failure to
adequately demonstrate the safety and efficacy of a therapeutic product under development could
delay or prevent regulatory approval of the product and could harm our ability to generate
revenues, operate profitably or produce any return on an investment in us.
If we are unable to keep up with rapid technological changes in our field or compete effectively,
we will be unable to operate profitably.
We are engaged in activities in the biotechnology field, which is characterized by extensive
research efforts and rapid technological progress. If we fail to anticipate or respond adequately
to technological developments, our ability to operate profitably could suffer. We cannot assure
you that research and discoveries by other biotechnology, agricultural, pharmaceutical or other
companies will not render our technologies or potential products or services uneconomical or result
in products superior to those we develop or that any technologies, products or services we develop
will be preferred to any existing or newly-developed technologies, products or services.
We may not be able to protect our proprietary technology, which could harm our ability to operate
profitably.
The biotechnology and pharmaceutical industries place considerable importance on obtaining
patent and trade secret protection for new technologies, products and processes. Our success will
depend, to a substantial degree, on our ability to obtain and enforce patent protection for our
products, preserve any trade secrets and operate without infringing the proprietary rights of
others. We cannot assure you that:
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we will succeed in obtaining any patents, obtain them in a timely manner, or that
the breadth or degree of protection that any such patents will protect our interests;
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the use of our technology will not infringe on the proprietary rights of others;
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patent applications relating to our potential products or technologies will result
in the issuance of any patents or that, if issued, such patents will afford adequate
protection to us or will not be challenged, invalidated or infringed; or
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patents will not be issued to other parties, which may be infringed by our potential
products or technologies.
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We are aware of certain patents that have been granted to others and certain patent
applications that have been filed by others with respect to nuclear transfer and other stem cell
technologies. The fields in which we operate have been characterized by significant efforts by
competitors to establish dominant or blocking patent rights to gain a competitive advantage, and by
considerable differences of opinion as to the value and legal legitimacy of competitors purported
patent rights and the technologies they actually utilize in their businesses.
Our business is highly dependent upon maintaining licenses with respect to key technology.
Many of the key patents we utilize are licensed to us by Advanced Cell Technology, which has
licensed some of these from other parties, including the University of Massachusetts. These
licenses are subject to termination under certain circumstances (including, for example, our
failure to make minimum royalty payments or to timely achieve development and commercialization
benchmarks). The loss of any of such licenses, or the conversion of such licenses to non-exclusive
licenses, could harm our operations and/or enhance the prospects of our competitors. Although our
licenses with Advanced Cell Technology allow us to cure any defaults under the underlying licenses
to them and to take over the patents and patents pending in the event of default by Advanced Cell
Technology, the cost of such remedies could be significant and we might be unable to adequately
maintain these patent positions. If so, such inability could have a material adverse affect on our
business.
Certain of such licenses also contain restrictions (
e.g.
, limitations on our ability to grant
sublicenses) that could materially interfere with our ability to generate revenue through the
licensing or sale to third parties of important and valuable technologies that we have, for
strategic reasons, elected not to pursue directly. The possibility exists that in the future we
will require further licenses to complete and/or commercialize our proposed products. There can be
no assurance that we will be able to acquire any such licenses on a commercially viable basis.
Certain of our technology is not protectable by patent which leaves us vulnerable to theft of our
technology.
Certain parts of our know-how and technology are not patentable. To protect our proprietary
position in such know-how and technology, we intend to require all employees, consultants, advisors
and collaborators to enter into confidentiality and invention ownership agreements with us. There
can be no assurance, however, that these agreements will provide meaningful protection for our
trade secrets, know-how or other proprietary information in the event of any unauthorized use or
disclosure. Further, in the absence of patent protection, competitors who independently develop
substantially equivalent technology may harm our business.
We depend on our collaborators to help us develop and test our proposed products, and our ability
to develop and commercialize products may be impaired or delayed if collaborations are
unsuccessful.
Our strategy for the development, clinical testing and commercialization of our proposed
products requires that we enter into collaborations with corporate partners, licensors, licensees
and others. We are dependent upon the subsequent success of these other parties in performing
their respective responsibilities and the continued cooperation of our partners. Our
collaborators may not cooperate with us or perform their obligations under our agreements with
them. We cannot control the amount and timing of our collaborators resources that will be devoted
to our research and development activities related to our collaborative agreements with them. Our
collaborators may choose to pursue existing or alternative technologies in preference to those
being developed in collaboration with us.
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Under agreements with collaborators, we may rely significantly on such collaborators to, among
other things:
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design and conduct advanced clinical trials in the event that we reach clinical trials;
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fund research and development activities with us;
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pay us fees upon the achievement of milestones; and
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market with us any commercial products that result from our collaborations.
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The development and commercialization of potential products will be delayed if collaborators
fail to conduct these activities in a timely manner, or at all. In addition, our collaborators
could terminate their agreements with us and we may not receive any development or milestone
payments. If we do not achieve milestones set forth in the agreements, or if our collaborators
breach or terminate their collaborative agreements with us, our business may be materially harmed.
Our reliance on the activities of our non-employee consultants, research institutions, and
scientific contractors, whose activities are not wholly within our control, may lead to delays in
development of our proposed products.
We rely extensively upon and have relationships with scientific consultants at academic and
other institutions, some of whom conduct research at our request, and other consultants with
expertise in clinical development strategy or other matters. These consultants are not our
employees and may have commitments to, or consulting or advisory contracts with, other entities
that may limit their availability to us. We have limited control over the activities of these
consultants and, except as otherwise required by our collaboration and consulting agreements to the
extent they exist, can expect only limited amounts of their time to be dedicated to our activities.
These research facilities may have commitments to other commercial and non-commercial
entities. We have limited control over the operations of these laboratories and can expect only
limited amounts of time to be dedicated to our research goals.
We may be subject to litigation that will be costly to defend or pursue and uncertain in its
outcome.
Our business may bring us into conflict with our licensees, licensors or others with whom we
have contractual or other business relationships, or with our competitors or others whose interests
differ from ours. If we are unable to resolve those conflicts on terms that are satisfactory to
all parties, we may become involved in litigation brought by or against us. That litigation is
likely to be expensive and may require a significant amount of managements time
and attention, at the expense of other aspects of our business. The outcome of litigation is
always uncertain, and in some cases could include judgments against us that require us to pay
damages, enjoin us from certain activities, or otherwise affect our legal or contractual rights,
which could have a significant adverse effect on our business.
25
We may not be able to obtain third-party patient reimbursement or favorable product pricing, which
would reduce our ability to operate profitably.
Our ability to successfully commercialize certain of our proposed products in the human
therapeutic field may depend to a significant degree on patient reimbursement of the costs of such
products and related treatments at acceptable levels from government authorities, private health
insurers and other organizations, such as health maintenance organizations. We cannot assure you
that reimbursement in the United States or foreign countries will be available for any products we
may develop or, if available, will not be decreased in the future, or that reimbursement amounts
will not reduce the demand for, or the price of, our products with a consequent harm to our
business. We cannot predict what additional regulation or legislation relating to the health care
industry or third-party coverage and reimbursement may be enacted in the future or what effect such
regulation or legislation may have on our business. If additional regulations are overly onerous
or expensive, or if health care related legislation makes our business more expensive or burdensome
than originally anticipated, we may be forced to significantly downsize our business plans or
completely abandon our business model.
Our products may be expensive to manufacture, and they may not be profitable if we are unable to
control the costs to manufacture them.
Our products may be significantly more expensive to manufacture than other therapeutic
products currently on the market today. We hope to substantially reduce manufacturing costs
through process improvements, development of new science, increases in manufacturing scale and
outsourcing to experienced manufacturers. If we are not able to make these, or other improvements,
and depending on the pricing of the product, our profit margins may be significantly less than that
of most therapeutic products on the market today. In addition, we may not be able to charge a high
enough price for any cell therapy product we develop, even if they are safe and effective, to make
a profit. If we are unable to realize significant profits from our potential product candidates,
our business would be materially harmed.
To be successful, our proposed products must be accepted by the health care community, which
can be very slow to adopt or unreceptive to new technologies and products.
Our proposed products
and those developed by our collaborative partners, if approved for marketing, may not achieve
market acceptance since hospitals, physicians, patients or the medical community in general may
decide not to accept and utilize these products. The products that we are attempting to develop
represent substantial departures from established treatment methods and will compete with a number
of more conventional therapies manufactured and marketed by major pharmaceutical companies. The
degree of market acceptance of any of our developed products will depend on a number of factors,
including:
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our establishment and demonstration to the medical community of the clinical
efficacy and safety of our proposed products;
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our ability to create products that are superior to alternatives currently on the
market;
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our ability to establish in the medical community the potential advantage of our
treatments over alternative treatment methods; and
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reimbursement policies of government and third-party payors.
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If the healthcare community does not accept our products for any of the foregoing reasons, or
for any other reason, our business would be materially harmed.
We depend on key personnel for our continued operations and future success, and a loss of certain
key personnel could significantly hinder our ability to move forward with our business plan.
Because of the specialized nature of our business, we are highly dependent on our ability to
identify, hire, train and retain highly qualified scientific and technical personnel for the
research and development activities we conduct or sponsor. The loss of one or more key executive
officers, or scientific officers, particularly Mr. Krstich, Mr. Janus and Dr. Revazova, would be
significantly detrimental to us. In addition, recruiting and retaining qualified scientific
personnel to perform research and development work is critical to our success. Our anticipated
growth and expansion into areas and activities requiring additional expertise, such as clinical
testing, regulatory compliance, manufacturing and marketing, will require the addition of new
management personnel and the development of additional expertise by existing management personnel.
There is intense competition for qualified personnel in the areas of our present and planned
activities, and there can be no assurance that we will be able to continue to attract and retain
the qualified personnel necessary for the development of our business. The failure to attract and
retain such personnel or to develop such expertise would adversely affect our business.
We may have no product liability insurance, which may leave us vulnerable to future claims we will
be unable to satisfy.
The testing, manufacturing, marketing and sale of human therapeutic products entail an
inherent risk of product liability claims, and we cannot assure you that substantial product
liability claims will not be asserted against us. In the event we are forced to expend significant
funds on defending product liability actions, and in the event those funds come from operating
capital, we will be required to reduce our business activities, which could lead to significant
losses. We cannot assure you that adequate insurance coverage will be available in the future on
acceptable terms, if at all, or that, if available, we will be able to maintain any such insurance
at sufficient levels of coverage or that any such insurance will provide adequate protection
against potential liabilities. Whether or not a product liability insurance policy is obtained or
maintained in the future, any product liability claim could harm our business or financial
condition.
The sale or issuance of a substantial number of shares may adversely affect the market price for
BTHC Common Stock.
The future sale of a substantial number of shares of BTHC Common Stock in the public market,
or the perception that such sales could occur, could significantly and negatively affect the market
price for BTHC Common Stock. We expect that we will likely issue a substantial
number of shares of our capital stock in financing transactions in order to fund our
operations and the growth of our business. Under these arrangements, we may agree to register the
shares for resale soon after their issuance. We may also continue to pay for certain goods and
services with equity, which would dilute our current stockholders. Also, sales of the shares
issued in this manner could negatively affect the market price of our stock.
27
We do not intend to pay cash dividends on BTHC Common Stock in the foreseeable future.
Any payment of cash dividends will depend upon our financial condition, results of operations,
capital requirements and other factors and will be at the discretion of the Board of Directors. We
do not anticipate paying cash dividends on BTHC Common Stock in the foreseeable future.
Furthermore, we may incur additional indebtedness that may severely restrict or prohibit the
payment of dividends.
Limitations on director and officer liability and indemnification of our officers and directors by
us may discourage stockholders from bringing suit against a director.
Our certificate of incorporation and bylaws provide, with certain exceptions as permitted by
governing state law, that a director or officer shall not be personally liable to us or our
stockholders for breach of fiduciary duty as a director, except for acts or omissions which involve
intentional misconduct, fraud or knowing violation of law, or unlawful payments of dividends.
These provisions may discourage stockholders from bringing suit against a director for breach of
fiduciary duty and may reduce the likelihood of derivative litigation brought by stockholders on
our behalf against a director. In addition, our certificate of incorporation and bylaws may
provide for mandatory indemnification of directors and officers to the fullest extent permitted by
governing state law.
Stock prices for biotechnology companies have historically tended to be very volatile.
Stock prices and trading volumes for many biotechnology companies fluctuate widely for a
number of reasons, including but not limited to the following factors, some of which may be
unrelated to their businesses or results of operations:
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clinical trial results;
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the amount of cash resources and such companys ability to obtain additional
funding;
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announcements of research activities, business developments, technological
innovations or new products by competitors;
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entering into or terminating strategic relationships;
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changes in government regulation;
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disputes concerning patents or proprietary rights;
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changes in our revenues or expense levels;
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public concern regarding the safety, efficacy or other aspects of the products or
methodologies we are developing;
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reports by securities analysts;
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activities of various interest groups or organizations;
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status of the investment markets.
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This market volatility, as well as general domestic or international economic, market and
political conditions, could materially and adversely affect the market price of BTHC Common Stock.
The application of the penny stock rules to BTHC Common Stock could limit the trading and
liquidity of the BTHC Common Stock, adversely affect the market price of BTHC Common Stock and
increase stockholder transaction costs to sell those shares.
As long as the trading price of BTHC Common Stock is below $5.00 per share, the open-market
trading of BTHC Common Stock will be subject to the penny stock rules, unless we otherwise
qualify for an exemption from the penny stock definition. The penny stock rules impose
additional sales practice requirements on certain broker-dealers who sell securities to persons
other than established customers and accredited investors (generally those with assets in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse). These
regulations, if they apply, require the delivery, prior to any transaction involving a penny stock,
of a disclosure schedule explaining the penny stock market and the associated risks. Under these
regulations, certain brokers who recommend such securities to persons other than established
customers or certain accredited investors must make a special written suitability determination
regarding such a purchaser and receive such purchasers written agreement to a transaction prior to
sale. These regulations may have the effect of limiting the trading activity of BTHC Common Stock,
reducing the liquidity of an investment in BTHC Common Stock and increasing the transaction costs
for sales and purchases of BTHC Common Stock as compared to other securities.
The market price for BTHC Common Stock may be particularly volatile given our status as a
relatively unknown company with a limited operating history and lack of profits which could lead to
wide fluctuations in our share price. The price at which stockholders purchase shares of BTHC
Common Stock may not be indicative of the price of the BTHC Common Stock that will prevail in the
trading market.
The market for BTHC Common Stock may be characterized by significant price volatility when
compared to seasoned issuers, and we expect that our stock price could continue to be more volatile
than a seasoned issuer for the indefinite future. The potential volatility in our share price is
attributable to a number of factors. First, there has been no trading in BTHC Common Stock. As a
consequence of this lack of liquidity, any future trading of shares by our stockholders may
disproportionately influence the price of those shares in either direction. Second, we are a
speculative or risky investment due to our limited operating history and lack of profits to date,
and uncertainty of future market acceptance for our potential products. As a consequence of this
enhanced risk, more risk averse investors may, under the fear of losing all or most of their
investment in the event of negative news or lack of progress, be more inclined to
sell their shares on the market more quickly and at greater discounts than would be the case
with the stock of a seasoned issuer. Many of these factors will be beyond our control and may
decrease the market price of BTHC Common Stock, regardless of our operating performance. We cannot
make any predictions or projections as to what the prevailing market price for BTHC Common Stock
will be at any time or as to what effect that the sale of shares or the availability of shares for
sale at any time will have on the prevailing market price.
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In addition, the market price of BTHC Common Stock could be subject to wide fluctuations in
response to:
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quarterly variations in our revenues and operating expenses;
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announcements of new products or services by us;
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fluctuations in interest rates;
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significant sales of BTHC Common Stock;
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the operating and stock price performance of other companies that investors may deem
comparable to us; and
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news reports relating to trends in our markets or general economic conditions.
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CAUTIONARY LANGUAGE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This Current Report on Form 8-K contains forward-looking statements that involve risks and
uncertainties, many of which are beyond the Registrants control. The Registrants actual results
could differ materially and adversely from those anticipated in such forward-looking statements as
a result of certain factors, including those set forth below and elsewhere in this Current Report on Form 8-K.
Important factors that may cause actual results to differ include:
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adverse economic conditions;
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inability to raise sufficient additional capital to operate our business;
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unexpected costs and operating deficits, and lower than expected sales and revenues;
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adverse results of any legal proceedings;
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inability to procure the key components of our products or the failure to obtain
acceptable quality key components on a cost-effective basis;
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the volatility of our operating results and financial condition;
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inability to attract or retain qualified senior management personnel, including
research and development personnel; and
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other specific risks that may be alluded to in this Current Report on Form 8-K.
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All statements, other than statements of historical facts, included in this Current Report on
Form 8-K regarding the Registrants strategy, future operations, financial position, estimated
revenue or losses, projected costs, prospects and plans and objectives of management are
forward-looking statements. When used in this Current Report on Form 8-K, the words will,
may, believe, anticipate, intend, estimate, expect, project, plan and similar
expressions are intended to identify forward-looking statements, although not all forward-looking
statements contain such identifying words. All forward-looking statements speak only as of the
date of this Current Report on Form 8-K.
MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion of our financial condition and results of operations should be read
in conjunction with our financial statements and related notes included under Item 9.01(a) of this
Current Report on Form 8-K. The information in this Current Report Form 8-K contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other
than statements of historical fact made in this registration statement are forward looking. In
particular, the statements herein regarding industry prospects and future results of operations or
financial position are forward-looking statements. Forward-looking statements reflect managements
current expectations and are inherently uncertain. Our actual results may differ significantly from
managements expectations. This discussion should not be construed to imply that the results
discussed herein will necessarily continue into the future, or that any conclusion reached herein
will necessarily be indicative of actual operating results in the future. Such discussion
represents only the best present assessment of our management.
BTHC III, Inc. was incorporated on June 7, 2005 as a Delaware corporation to effect the
reincorporation of BTHC III, LLC, a Texas limited liability company, mandated by a plan of
reorganization which is included in the Form 10-SB filed with the SEC on May 24, 2006. In accordance
with the confirmed plan of reorganization on December 28, 2006, pursuant to the terms of the Exchange
Agreement, BTHC acquired all of the outstanding capital stock of ISC. The Share Exchange is accounted for
herein as a reverse merger. In the Share Exchange, BTHC is considered the legal acquirer and ISC is
considered the accounting acquirer. ISC was incorporated on June 16, 2006 as a California corporation
to effect the reorganization of Lifeline Technology, LLC, a California limited liability company.
As a result of the reorganization, Lifeline is the wholly-owned subsidiary of ISC.
As ISC is considered the account acquirer, we have included in this Current Report Form 8-K the
financial statements of ISC for the period of inception to the nine-months ended September 30, 2006
and the financial statements of Lifeline, which was the operating company until the incorporation of
ISC, for the fiscal years ended December 31, 2004 and 2005 and for the nine-month periods ended
September 30, 2005 and September 30, 2006. The financial results of operation discussed below are
those of ISC and Lifeline.
RESULTS OF OPERATIONS
For the years ended December 31, 2005 and December 31, 2004
Revenues
Lifeline is a development stage company and has generated nominal revenues, none in the year
ended December 31, 2004 and $158 during the year ended December 31, 2005.
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General and Administrative Expenses
General and administrative expenses were $461,634 for the year ended December 31, 2005 as
compared to $197,579 for the preceding year. The primary reason for the increase was Lifelines
continued expansion over the past year. Increases in consulting fees in the year ended December
31, 2005 over the previous year of $58,729, in legal and accounting fees of $69,086, and patent
license fees of $37,500 accounted for most of the increase.
Research and Development
Research and development expenses were $804,191 for the year ended December 31, 2005 as
compared to $585,494 for the preceding year. The increase was the result of expanded research and development
operations. The staffing cost for Lifelines commitments under the research agreement in Russia
increased by $163,051 and consulting increased by $32,379, for a total increase of $195,430 in 2005
over 2004.
Other
Other expenses increased slightly to $82,870 for the year ended December 31, 2005 as compared
to $68,682 for the preceding year most of which was the result of a $26,000 increase from the
imputed interest on the $400,000 note payable.
For the nine months ended September 30, 2006 and September 30, 2005
Revenues
Lifeline is a development stage company and has generated nominal revenues, none in the nine
months ended September 30, 2005 and $1,745 during the nine months ended September 30, 2006.
General and Administrative Expenses
General and administrative expenses were $1,584,729 for the nine months ended September 30,
2006 as compared to $309,920 for the nine months ended September 30, 2005. The growth of Lifeline
accounted for the increased cost in 2006 over 2005, including warrants issued for services of
$808,000, consulting fees increases of $101,000 for investment banking services, the
establishment of the office in Oceanside, legal fees of $56,000, and professional fees of $72,000
relating mainly to the first audit and to recruiting fees.
Research and Development
Research and development expenses were $735,499 for the nine months ended September 30, 2006
as compared to $540,303 for the nine months ended September 30, 2005. The primary reasons for the
greater expenditure were increased patent license fees of $75,000 and payroll and payroll costs of
$83,000.
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Other
Other expenses increased to $204,704 for the nine months ended September 30, 2006 as compared
to $52,119 for the nine months ended September 30, 2005, most of which was the result of a $55,000
increase in interest expense due to imputed interest on the $400,000 note payable and a $93,000
charge resulting from a settlement with American Stem Cell.
LIQUIDITY AND CAPITAL RESOURCES
ISC
raised $11,205,950 in the ISC Private Placement. Management believes that there is
sufficient working capital to finance operations through the third quarter of 2008, however,
significant additional capital resources are required from sources including equity and/or debt
financings, license arrangements, grants and/or collaborative research arrangements in order to
develop products. Thereafter, additional working capital will need to be raised. The current
burn rate is approximately $250,000 per month excluding capital expenditures. The timing and
degree of any future capital requirements will depend on many factors, including:
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the accuracy of the assumptions underlying our estimates for capital needs in
2007 and beyond;
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scientific progress in our research and development programs;
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the magnitude and scope of our research and development programs and our ability
to establish, enforce and maintain strategic arrangements for research,
development, clinical testing, manufacturing and marketing;
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our progress with preclinical development and clinical trials;
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the time and costs involved in obtaining regulatory approvals;
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the costs involved in preparing, filing, prosecuting, maintaining, defending and
enforcing patent claims; and
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the number and type of product candidates that we pursue.
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Additional financing through strategic collaborations, public or private equity financings or
other financing sources may not be available on acceptable terms, or at all. Additional equity
financing could result in significant dilution to our stockholders. Further, if additional funds
are obtained through arrangements with collaborative partners, these arrangements may require us to
relinquish rights to some of our technologies, product candidates or products that we would
otherwise seek to develop and commercialize on our own. If sufficient capital is not available, we
may be required to delay, reduce the scope of or eliminate one or more of our product lines.
CRITICAL ACCOUNTING POLICIES
The financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. Note 1 of the Notes to Financial Statements describes the
significant accounting policies used in the preparation of the financial statements. Certain of
these significant accounting policies are considered to be critical accounting policies, as
defined below.
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A critical accounting policy is defined as one that is both material to the presentation of
our financial statements and requires management to make difficult, subjective or complex judgments
that could have a material effect on our financial condition and results of operations.
Specifically, critical accounting estimates have the following attributes: (1) we are required to
make assumptions about matters that are highly uncertain at the time of the estimate; and (2)
different estimates we could reasonably have used, or changes in the estimate that are reasonably
likely to occur, would have a material effect on our financial condition or results of operations.
Estimates and assumptions about future events and their effects cannot be determined with
certainty. We base our estimates on our limited historical experience and on various other
assumptions believed to be applicable and reasonable under the circumstances. These estimates may
change as new events occur, as additional information is obtained and as our operating environment
changes. As we have recently begun operations we have not had any changes, but would include any
changes in the financial statements as soon as they became known. Based on a critical assessment of
our accounting policies and the underlying judgments and uncertainties affecting the application of
those policies, management believes that our financial statements are fairly stated in accordance
with accounting principles generally accepted in the United States, and present a meaningful
presentation of our financial condition and results of operations. We believe the following
critical accounting policies reflect our more significant estimates and assumptions used in the
preparation of our financial statements:
Use of Estimates
These financial statements have been prepared in accordance with accounting principles
generally accepted in the United States and, accordingly, require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash Equivalents
The company considers all highly liquid investments with a maturity of three months or less
when purchased to be cash equivalents.
Short-Term Investments
Management determines the appropriate classification of marketable securities at the time of
purchase, and has classified all short-term investments as available-for-sale. Such securities are
stated at fair value, with the unrealized gains and losses reported as a separate component of
equity. Fair value is determined based on quoted market prices.
Property and Equipment
Property and equipment are stated at cost. The provision for depreciation and amortization is
computed using the straight-line method over the estimated useful lives of the
assets, which generally range from three to five years. The costs of major remodeling and
leasehold improvements are capitalized and depreciated over the shorter of the remaining term of
the lease or the life of the asset.
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Long-Lived Asset Impairment
We review long-lived assets for impairment when events or changes in business conditions
indicate that their carrying value may not be recovered. We consider assets to be impaired and
write them down to fair value if expected associated cash flows are less than the carrying
amounts. Fair value is the present value of the associated cash flows. We have determined that no
material long-lived assets are impaired at September 30, 2006.
Recent Accounting Pronouncements
In October 2006, the Emerging Issues Task Force (EITF) issued EITF 06-3, How Taxes
Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income
Statement (That is, Gross versus Net Presentation) to clarify diversity in practice on the
presentation of different types of taxes in the financial statements. EITF concluded
that, for taxes within the scope of the issue, a company may adopt a policy of presenting taxes
either gross within revenue or net. That is, it may include charges to customers for taxes within
revenues and the charge for the taxes from the taxing authority within cost of sales, or,
alternatively, it may net the charge to the customer and the charge from the taxing authority. If
taxes subject to EITF 06-3 are significant, a company is required to disclose its accounting policy
for presenting taxes and the amounts of such taxes that are recognized on a gross basis. The
guidance in this consensus is effective for the first interim reporting period beginning after
December 15, 2006 (the first quarter of our fiscal year 2007). We do not expect the adoption of
EITF 06-3 will have a material impact on our results of operations, financial position or cash
flow.
In September 2006, the SEC issued Staff
Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements (SAB 108). SAB 108 provides guidance on the
consideration of the effects of prior year misstatements in quantifying current year misstatements
for the purpose of a materiality assessment. SAB 108 establishes an approach that requires
quantification of financial statement errors based on the effects on each of the companys balance
sheets, statements of operations and related financial statement disclosures. SAB 108 permits
existing public companies to record the cumulative effect of initially applying this approach in
the first year ending after November 15, 2006 by recording the necessary correcting adjustments to
the carrying values of assets and liabilities as of the beginning of that year with the offsetting
adjustment recorded to the opening balance of retained earnings. Additionally, the use of the
cumulative effect transition method requires detailed disclosure of the nature and amount of each
individual error being corrected through the cumulative adjustment and how and when it arose. The
company is currently evaluating the impact SAB 108 may have on its results of operations and
financial condition.
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In September 2006, the Financial Accounting Standards Board (the FASB) issued SFAS No. 158, Employers accounting for Defined Benefit
Pension and Other Post Retirement Plans. SFAS No. 158 requires employers
to recognize in its statement of financial position an asset or liability based on the
retirement plans over or under funded status. SFAS No. 158 is effective for fiscal years ending
after December 15, 2006. The company is currently evaluating the effect that the application of
SFAS No. 158 will have on its results of operations and financial condition.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines the fair
value, establishes a framework for measuring fair value and expands disclosures about fair value
measurements. This statement is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal years. Early adoption is
encouraged, provided that the company has not yet issued financial statements for that fiscal year,
including any financial statements for an interim period within that fiscal year. The company is
currently evaluating the impact SFAS 157 may have on its financial condition or results of
operations.
In July 2006, the FASB released FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting
and reporting for uncertainties in income tax law. This interpretation prescribes a comprehensive
model for the financial statement recognition, measurement, presentation and disclosure of
uncertain tax positions taken or expected to be taken in income tax returns. This statement is
effective for fiscal years beginning after December 15, 2006. The company is currently evaluating
the impact FIN 48 may have on its financial condition or results of operations.
In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets, which provides an approach to simplify efforts to obtain hedge-like (offset)
accounting. SFAS No. 156 amends FASB Statement No. 140, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities, with respect to the accounting for
separately recognized servicing assets and servicing liabilities. SFAS No. 156 (1) requires an
entity to recognize a servicing asset or servicing liability each time it undertakes an obligation
to service a financial asset by entering into a servicing contract in certain situations; (2)
requires that a separately recognized servicing asset or servicing liability be initially measured
at fair value, if practicable; (3) permits an entity to choose either the amortization method or
the fair value method for subsequent measurement for each class of separately recognized servicing
assets or servicing liabilities; (4) permits at initial adoption a one-time reclassification of
available-for-sale securities to trading securities by an entity with recognized servicing rights,
provided the securities reclassified offset the entitys exposure to changes in the fair value of
the servicing assets or liabilities; and (5) requires separate presentation of servicing assets and
servicing liabilities subsequently measured at fair value in the balance sheet and additional
disclosures for all separately recognized servicing assets and servicing liabilities. SFAS No. 156
is effective for all separately recognized servicing assets and liabilities as of the beginning of
an entitys fiscal year that begins after September 15, 2006, with earlier adoption permitted in
certain circumstances. SFAS No. 156 also describes the manner in which it should be initially
applied. The company does not believe that SFAS No. 156 will have a material impact on its
financial position, results of operations or cash flows.
36
In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial
Instruments, which amends SFAS No. 133, Accounting for Derivatives Instruments and Hedging
Activities and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities. SFAS No. 155 amends SFAS No. 133 to narrow the scope exception for
interest-only and principal-only strips on debt instruments to include only such strips
representing rights to receive a specified portion of the contractual interest or principle cash
flows. SFAS No. 155 also amends SFAS No. 140 to allow qualifying special-purpose entities to hold a
passive derivative financial instrument pertaining to beneficial interests that itself is a
derivative instrument. The company is currently evaluating SFAS No. 155 but cannot determine
the future impact as the company does not have any Derivatives Instruments and Hedging Activities, but may implement them in the future.
In November 2005, the FASB issued FSP FAS 115-1 and FAS 124-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments, which clarifies when an investment is considered impaired, whether the impairment is
other-than-temporary, and the measurement of an impairment loss. It also includes accounting
considerations subsequent to the recognition of the other-than-temporary impairment and requires
certain disclosures about unrealized losses that have not been recognized as other-than-temporary
impairments. FSP 115-1 and 124-1 are effective for all reporting periods beginning after December
15, 2005. The company does not anticipate that the implementation of these statements will have a
significant impact on its financial position, results of operations or cash flows.
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections. SFAS No. 154 is a replacement of Accounting Principles Board Opinion No. 20 and SFAS No.
3. SFAS No. 154 provides guidance on the accounting for and reporting of accounting changes and
error corrections. It establishes retrospective application as the required method for reporting a
change in accounting principle. SFAS No. 154 provides guidance for determining whether
retrospective application of a change in accounting principle is impracticable and for reporting a
change when retrospective application is impracticable. SFAS No. 154 also addresses the reporting
of a correction of an error by restating previously issued financial statements. SFAS No 154 is
effective for accounting changes and corrections of errors made in fiscal years beginning after
December 15, 2005. The company does not believe that it will have a material impact on its
financial position, results of operations or cash flows.
In December 2004, the FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions. The amendments made by SFAS No. 153 are based on the principle that exchanges of
nonmonetary assets should be measured based on the fair value of the assets exchanged. Further,
the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive
assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have
commercial substance. Previously, Opinion 29 required that the accounting for an exchange of a
productive asset for a similar productive asset or an equivalent interest in the same or similar
productive asset should be based on the recorded amount of the asset relinquished. Opinion 29
provided an exception to its basic measurement principle (fair value) for exchanges of similar
productive assets. The FASB believes that exception required that some nonmonetary exchanges,
although commercially
substantive, be recorded on a carryover basis. By focusing the exception on exchanges that
lack commercial substance, the FASB believes this statement produces financial reporting that more
faithfully represents the economics of the transactions. SFAS No. 153 is effective for nonmonetary
asset exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier application is
permitted for nonmonetary asset exchanges occurring in fiscal periods beginning after the date of
issuance. The provisions of SFAS No. 153 shall be applied prospectively. The company has evaluated
the impact of the adoption of SFAS No. 153, and does not believe the impact will be significant to the
companys overall results of operations or financial position.
37
In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment. SFAS
123(R) will provide investors and other users of financial statements with more complete and
neutral financial information by requiring that the compensation cost relating to share-based
payment transactions be recognized in financial statements. That cost will be measured based on
the fair value of the equity or liability instruments issued. SFAS 123(R) covers a wide range of
share-based compensation arrangements including share options, restricted share plans,
performance-based awards, share appreciation rights, and employee share purchase plans. SFAS
123(R) replaces FASB Statement No. 123, Accounting for Stock-Based Compensation, and supersedes
APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123, as originally issued in
1995, established as preferable a fair-value-based method of accounting for share-based payment
transactions with employees. However, that statement permitted entities the option of continuing
to apply the guidance in Opinion 25, as long as the footnotes to financial statements disclosed
what net income would have been had the preferable fair-value-based method been used. Public
entities (other than those filing as small business issuers) will be required to apply SFAS 123(R)
as of the first interim or annual reporting period that begins after June 15, 2005. SFAS 123(R) is
applicable for ASC effective the first interim period that starts after July 1, 2005. The company
has evaluated the impact of the adoption of SFAS 123(R), and cannot determine the future impact as
the company does not have any Share Based Payment compensations programs, but may implement them
in the future.
In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43,
Chapter 4. The amendments made by SFAS No. 151 clarify that abnormal amounts of idle facility
expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current
period charges and require the allocation of fixed production overheads to inventory based on the
normal capacity of the production facilities. The guidance is effective for inventory costs
incurred during fiscal years beginning after June 15, 2005. Earlier application is permitted for
inventory costs incurred during fiscal years beginning after November 23, 2004. The company has
evaluated the impact of the adoption of SFAS No. 151, and does not believe the impact will be
significant to the companys overall results of operations or financial position since the company
does not currently have any manufacturing operations or inventory.
In March 2004, the FASB approved the consensus reached on the EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments. The objective of EITF 03-1 is to provide guidance for identifying impaired
investments. EITF 03-1 also provides new disclosure requirements for investments that are deemed to
be temporarily impaired. The accounting provisions of EITF 03-1 are effective for all reporting
periods beginning after June 15, 2004, while the disclosure
requirements for certain investments are effective for annual periods ending after December
15, 2003, and for other investments such disclosure requirements are effective for annual periods
ending after June 15, 2004.
38
In December 2003, the SEC issued SAB No. 104,
Revenue Recognition. SAB No. 104 supersedes SAB No. 101, Revenue Recognition in Financial
Statements. SAB No. 104, which was effective upon issuance, rescinded certain guidance contained
in SAB No. 101 related to multiple element revenue arrangements, and replaced such guidance with
that contained in EITF 00-21, Accounting for Revenue Arrangements with Multiple Deliverables.
Additionally, SAB No. 104 rescinded the SECs Revenue Recognition in Financial Statements
Frequently Asked Questions and Answers issued with SAB No. 101. The revenue recognition principles
of SAB No. 101 remain largely unchanged by the issuance of SAB No. 104, and therefore the adoption
of SAB No. 104 did not have a material effect on the companys results of operations or financial
condition.
In January 2003, the FASB issued FIN 46, Consolidation of
Variable Interest Entities. In December 2003, FIN 46 was replaced by FIN 46(R) Consolidation of Variable Interest Entities. FIN 46(R) clarifies the
application of Accounting Research Bulletin No. 51, Consolidated Financial Statements, to certain
entities in which equity investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46(R) requires an enterprise to
consolidate a variable interest entity if that enterprise will absorb a majority of the entitys
expected losses, is entitled to receive a majority of the entitys expected residual returns, or
both. FIN 46(R) is effective for entities being evaluated under FIN 46(R) for consolidation no
later than the end of the first reporting period that ends after March 15, 2004. The company does
not currently have any variable interest entities that will be impacted by adoption of FIN 46(R).
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial ownership of BTHC Common
Stock as of December 28, 2006, by (i) each person who is known by us to beneficially own 5% or
more of BTHC Common Stock, (ii) each of our directors and executive officers, and (iii) all
executive officers and directors as a group. In general, a person is deemed to be a beneficial
owner of a security if that person has or shares the power to vote or direct the voting of such
security, or the power to dispose or to direct the disposition of such security. A person is also
deemed to be a beneficial owner of any securities of which the person has the right to acquire
beneficial ownership within 60 days. To the best of our knowledge, all persons named have sole
voting and investment power with respect to such shares, except as otherwise noted. Unless
otherwise specified, the address for each of the following persons is 2595 Jason Court, Oceanside,
CA 92056.
39
|
|
|
|
|
|
|
|
|
|
|
Amount of
|
|
|
Percent of
|
|
|
|
Beneficial
|
|
|
Beneficial
|
|
Name of Beneficial Owner
|
|
Ownership
|
|
|
Ownership (1)
|
|
Directors and Officers:
|
|
|
|
|
|
|
|
|
Jeff Krstich Chief Executive Officer (2)
|
|
|
136,000
|
|
|
|
*
|
|
William B. Adams Chief Financial Officer (3)
|
|
|
2,116,685
|
|
|
|
6.20
|
%
|
Kenneth C. Aldrich Chairman (4)
|
|
|
3,166,132
|
|
|
|
9.24
|
%
|
Jeffrey Janus President and CEO of Lifeline
Cell Technology (4)
|
|
|
2,160,807
|
|
|
|
6.39
|
%
|
Timothy P. Halter (5)(6)
|
|
|
1,547,000
|
|
|
|
4.53
|
%
|
Halter Financial Investments, LP (7)
|
|
|
1,547,000
|
|
|
|
4.53
|
%
|
5% Holders:
|
|
|
|
|
|
|
|
|
Gregory Keller (8)
|
|
|
2,377,179
|
|
|
|
6.99
|
%
|
William Peeples (9)
|
|
|
2,779,174
|
|
|
|
8.17
|
%
|
All Executive Officers and Directors as a
group (5 persons)
|
|
|
8,972,624
|
|
|
|
22.23
|
%
|
|
|
|
*
|
|
Less than 1%.
|
|
(1)
|
|
Based on 35,321,495 shares currently outstanding plus shares issuable under derivative securities
which are exercisable within 60 days of the date hereof.
|
|
(2)
|
|
Includes options to purchase up to 136,000 shares of BTHC Common Stock under options
exercisable within 60 days of this filing. Mr. Krstich also holds options to purchase an additional
900,000 shares which are not currently exercisable.
|
|
(3)
|
|
Includes options to purchase up to 106,000 shares of BTHC Common Stock under options
exercisable within 60 days of this filing.
|
|
(4)
|
|
Mr. Aldrichs shares are held, in part, through YKA Partners, a California limited
partnership. Mr. Aldrich is the investment manager of YKA Partners and controls the disposition of
these shares. The address for YKA Partners is 157 Surfview Drive, Pacific Palisades, CA 90272.
|
|
(5)
|
|
Mr. Halter is a director. He also is a member of Halter Financial Investments, GP, LLC, the
general partner of Halter Financial Investments L.P. Mr. Halters address is 12890 Hilltop Road,
Argyle, TX 76226.
|
|
(6)
|
|
Mr. Halter is deemed to beneficially own the shares owned by Halter Financial Investments, L.P.
|
|
(7)
|
|
Halter Financial Investments, L.P.s address is 12890 Hilltop Road, Argyle, TX 76226.
|
|
(8)
|
|
The address for Mr. Keller is 771 Via Manana, Santa Barbara, CA, 93108.
|
|
(9)
|
|
The address for Mr. Peeples is 877 Gwyne Ave., Santa Barbara, CA 93111.
|
DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The
names, ages and positions of our directors and executive officers as
of December 28,
2006, are as follows:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
Kenneth C. Aldrich
|
|
|
68
|
|
|
Chairman of the Board
|
Jeff Krstich
|
|
|
58
|
|
|
Chief Executive Officer
|
Jeffrey Janus
|
|
|
50
|
|
|
President and Chief Executive Officer of
Lifeline Cell Technology, LLC
|
William B. Adams
|
|
|
63
|
|
|
Chief Financial Officer
|
Timothy Halter
|
|
|
40
|
|
|
Director
|
40
Officers and Directors
Kenneth C. Aldrich
,
our Chairman of the Board of Directors and a Co-Founder of International
Stem Cell, joined the predecessor to International Stem Cell at its formation in 2001. He has been
active in venture capital investing and private equity since 1975. He began his career as an
attorney with the Los Angeles-based firm of OMelveny &
Myers in 1965. Mr. Aldrich then worked in the
investment banking and real estate businesses until 1975.
Mr. Aldrich is currently Managing Director of Convergent Ventures, an early-stage life
sciences investment company. Through that entity and predecessor companies, he has provided
early-stage funding for a variety of biomedical and technology start-ups, including WaveTec Vision
Systems, an ophthalmic device company (as Director and CEO), Neurion Pharmaceuticals, Inc., a drug
discovery and evaluation company (as Director and co-founder), and Orfid Corporation, a developer
of organic transistors (as a founder and financial advisor). He is also an active member of Tech
Coast Angels and a director of Next Estate Communications, the worlds largest issuer of prepaid
debit cards. Mr. Aldrich holds degrees, with honors, from both Harvard University and Harvard Law
School.
Jeff Krstich
,
our Chief Executive Officer, joined International Stem Cell in early 2006.
Previously he had been a senior executive in the healthcare industry for over 30 years with
experience in Biotech, Diagnostics and Medical Device companies. From 2003 until joining
International Stem Cell in 2006, he was Senior Vice President of Pathology Partners Inc., a medical
products company, and was involved in the recapitalization and sale of that company to CARIS Ltd.
From 2002 to 2003 he was President of MarketStar HealthCare, a subsidiary of Omnicom (NYSE: OMC).
Prior to that he was Director of Sales at Biogen (Nasdaq: BIIB), a biotechnology company, where he
served from 1996 to 2002. A former Navy Test Pilot and veteran of Vietnam and Gulf Storm, he has
M.B.A. and a B.S. degree in engineering from the United States Naval Academy.
Jeffrey
Janus
,
has been the President of International Stem
Cell and the Chief Executive Officer of Lifeline, ISCs
wholly-owned subsidiary since 2003. He has over 16 years of experience commercializing human
cell-based products for research use. Mr. Janus was one of the early founders of the
Clonetics
Ò
brand of human cell systems, the worlds leading commercial line of
human cell culture products. Clonetics was acquired by BioWhitaker, which was subsequently
acquired by Cambrex Corporation (Rutherford, NJ). Mr. Janus served Clonetics and its successor
companies from 1989 to 2002 coordinating in-house teams of research scientists, product managers
and outside collaborators to develop and launch over 40 human cell systems consisting of over 200
individual products.
41
William B. Adams
, our Chief Financial Officer, is a Certified Public Accountant who joined
Lifeline as a founder at its inception in 2001. He previously served in the accounting firm
of Ernst & Ernst from 1966 to 1973. He co-founded Dimensional Planning Group, Inc., a
management planning company in 1973 and was Vice President until 1976. From 1976 until present he
formed and owns WB Adams Accountancy Corporation. Mr. Adams graduated with a BS from California
State University Long Beach. He is on the Ernst & Young alumni board in Los Angeles and is also on
the board of the Los Angeles Area Council of the Boy Scouts of America.
Timothy
Halter,
since 1995, Mr. Halter has been the president and the sole stockholder of
Halter Financial Group, Inc. (HFI), a Dallas, Texas based consulting firm specializing in the area of
mergers, acquisitions and corporate finance. In September 2006, Mr. Halter and other minority
partners formed HFI. HFI conducts no business operations. Mr. Halter currently serves as a
director of DXP Enterprises, Inc., a public corporation (Nasdaq: DXPE), and is an officer and
director of Nevstar Corporation, a Nevada corporation, Robcor Properties, Inc., a Florida
corporation, and Bronze Marketing, Inc., a Nevada corporation.
Key Employees
Elena
Revazova, Ph.D.,. M.D.
, our Chief Scientist, has worked for us since 2001 and, from 1998
to 2001, at the offices of one of our co-founders at the Keller Facial Surgery Clinic, Santa
Barbara California. Prior to then, from 1992 to 1997, she was the Head of the Department of
Experimental Models, Institute of Experimental and Clinical Oncology, Academy of Medical Science in
Moscow, Russia; and from 1975 to 1991, she was a Senior Research Scientist in the Department of
Experimental Models, Institute of Experimental and Clinical Oncology, Academy of Medical Science in
Moscow Russia.
Dr. Revazova is one of the worlds experts in creating immortal cell lines without the
introduction of cancer-causing factors and has written or co-authored over 57 patents in the field
and for 22 heirs administered a collection of over 150 different cell lines. She has personally
created or supervised the creation and patenting of over 50 different cell models that include
stomach, colon, liver, renal, lung, muscle and skin cells and has also created stable human cell
lines from tumors of various organs and tissues, including the esophagus, stomach, colon, liver,
lung, larynx, uterus and breast. Since coming to the United States, Dr. Revazova has created
approximately 40 human cell lines and several animal lines.
Jeremy Hammond
, our Director of Quality Control, heads our efforts in the areas of product
development, quality control and manufacturing scale-up within regulatory guidelines for cell
culture products. He has over 20 years of direct experience in developing human cell-based
products including serum-containing and serum-free media formulations and purified human cells. He
has expertise in the culture of human embryonic stem cells and methods of cell manufacturing.
Hoyt Matthai
, our Director of Manufacturing, has over 20 years of experience and knowledge
directing and establishing manufacturing facilities and operations for the production of cell
culture products and medical devices for pharmaceutical, in vitro
diagnostic and research
use. Mr. Matthai is using his experience to establish our manufacturing
operations and control systems (documentation and environmental) needed for both research grade and
therapeutic grade products. Mr. Matthai has previously been the Director of
Manufacturing at the American Type Tissue Culture, the primary cell repository for the
U.S. Government.
42
Alexa
Dillberger
is our Director of Sales and Marketing. Ms.
Dillberger has spent the last 25 years
leading large pharmaceutical companies and biotech start-ups to bring the highest quality products
to market. Ms. Dillberger led Technical Sales for Cambrex, formerly Clonetics, for over 11 years
managing national accounts, negotiating contracts and developing the marketing programs for these
leading cell-based companies. Ms. Dillberger holds a B.S. degree in Biochemistry, with a minor in
Microbiology, from California Polytechnic University.
Scientific Advisors
Gregory S. Keller, M.D.
, a Co-Founder and Scientific Advisor, is Co-Director of Facial Plastic
Surgery, Division of Head and Neck Surgery at the University of California, Los Angeles. He has
been involved in medical product development and applications for 26 years, and holds numerous
patents on emerging medical technologies that have successfully transitioned to active medical
products. Dr. Keller has been involved in cell technologies and their applications for the past
ten years.
Hans S. Keirstead, Ph.D.
, our Principal Independent Scientific Advisor, is one of the leaders
in the development of stem cell therapy and will be guiding International Stem Cells retinal
studies. Canadian-born neuroscientist Dr. Keirstead received his Ph.D. from the University of
British Columbia in Vancouver, Canada and in 2000, Dr. Keirstead became an Assistant Professor in
the Reeve-Irvine Research Center at the University of California, Irvine. The Reeve-Irvine
Research Center, founded by actor Christopher Reeve and philanthropist Joan Irvine, is a leading
center for spinal cord injury research. Dr. Keirstead directs a 20-person research team
investigating the cellular biology and treatment of spinal cord trauma, research that also has
significance for multiple sclerosis and other diseases of the nervous system.
Bernard M. Wagner, M.D.
, a Scientific Advisor, is an Emeritus Research Professor of Pathology,
New York University Medical Center and Emeritus Clinical Professor of Pathology, College of
Physicians & Surgeons, Columbia University, New York. He is a Diplomat of the American Board of
Pathology and Diplomat (Hon.), of the American College of Veterinary Pathologists. Dr. Wagner is
also a Fellow of the Royal College of Pathologists (London); Fellow, Academy of Toxicologic
Sciences; Fellow, New York Academy of Medicine; Member, Committee of Toxicology, National Academy
of Sciences; Qualified Expert, European Council, Safety Assessment; Member Executive Committee,
Board of Directors, American Registry of Pathology, Armed Forces Institute of Pathology; Member,
GRAS Expert Panel (FDA); and Fellow of American Academy of Arts and Sciences. Currently, he is a
senior consultant for Roche and consultant for ICOS Corp.
Michael Karas, M.D., Ph.D, M.B.A.
, a Scientific Advisor, received his M.D. degree from Russian
State Medical University in Moscow in 1985. In Russia, he worked on physiology of adaptation to
extreme conditions such as high altitude. In 1991, he immigrated to Israel, where he earned a
Ph.D. in biochemistry on signal transduction of insulin-like growth factors. Dr. Karas moved to
the United States in 1997, and joined the Diabetes Branch of the National Institute of Diabetes and
digestive and Kidney Diseases as a research fellow. In 2000, he joined
Cambrex Corp., where he led the Cell Engineering Group. In 2004, after earning his M.B.A. in
Finance from John Hopkins University, Dr. Karas joined the agrochemical division of FMC
Corporation, where he is leading the program of developing novel platform technologies for the
delivery of active ingredients.
43
Employment Agreements
International Stem Cell has entered into employment agreements with Messrs. Krstich, Janus,
Adams and Aldrich. Under the terms of these employment agreements, Messrs. Krstich and Janus have
agreed to devote their full time and attention, and Messrs. Adams and Aldrich have agreed to devote
substantially all of their time and attention, to the business of ISC. The employment
agreements contain covenants (i) restricting the executive from engaging in any activities
competitive with the business of ISC, (ii) prohibiting the executive from disclosing confidential
information regarding ISC and (iii) requiring that all intellectual property developed by the
executive and relating to the business of ISC constitutes the sole and exclusive property of ISC.
After completion of the Share Exchange, the Board of Directors intends to review these employment
agreements and determine whether to enter into new employment agreements with such executives. In
addition, it is expected that similar employment contracts will be entered into with other key,
executive and non-executive personnel as determined by the BTHC Board of Directors.
The foregoing description of the employment agreements does not purport to be complete and is
qualified in its entirety by references to the employment agreements, which are attached hereto as
Exhibits 10.1, 10.2, 10.3 and 10.4 and incorporated by reference.
Nominating Covenant
There is an obligation, for a period of two year period ending on November 7, 2007, if so
requested by the placement agent in the ISC Private Placement, to nominate and use its best efforts
to elect a designee of the placement agent acting on behalf of the investors, who is independent
and has relevant business experience, to serve on the Registrants Board of Directors and as a
member of either its Audit or Compensation Committee, or, at the option of the placement agent, as
a non-voting adviser to the Registrants Board of Directors. The Registrants officers, directors
and principal stockholders have agreed to vote their shares of BTHC Common Stock in favor of such
designee. As of the date of this Current Report on Form 8-K, the Placement Agent has not yet
exercised its right to designate such a person.
Board Committees
The Registrant presently does not have an audit committee, compensation committee or
nominating committee or committee performing similar functions, as the management of the Registrant
believes that until this point it has been premature at the early stage of the Registrants
management and business development to form an audit, compensation or nominating committee.
However, the new management of the Registrant plans to form audit, compensation and nominating
committees in the near future. The Registrant envisions that the audit committee will be primarily
responsible for reviewing the services performed by the Registrants independent auditors and
evaluating its accounting policies and system of internal
controls. The Registrant envisions that the compensation committee will be primarily
responsible for reviewing and approving the Registrants salary and benefits policies (including
stock options) and other compensation of the Registrants executive officers. Until these
committees are established, these decisions will continue to be made by the Board of Directors.
Although the Board of Directors has not established any minimum qualifications for director
candidates, when considering potential director candidates, the Board of Directors considers the
candidates character, judgment, skills and experience in the context of the needs of the
Registrant and the Board of Directors.
44
The Registrant does not have an audit committee charter or a charter governing the nominating
process. Other than Mr. Halter, the members of the Board of Directors, who perform the functions of a nominating
committee, are not independent because they are also officers of the Registrant. The determination
of independence of directors has been made using the definition of independent director contained
under Rule 4200(a)(15) of the Rules of National Association of Securities Dealers. There has not
been any defined policy or procedure requirements for stockholders to submit recommendations or
nomination for directors. The Board of Directors does not believe that a defined policy with
regard to the consideration of candidates recommended by stockholders is necessary at this time
because, given the early stages of the Registrants development, a specific nominating policy would
be premature and of little assistance until the Registrants business operations are at a more
advanced level.
The Board of Directors does not currently provide a process for shareholders to send
communications to the Board of Directors because management of the Registrant believes that until
this point it has been premature to develop such a process given the limited liquidity of the
common stock of the Registrant. However, the new management of the Registrant may establish a
process for shareholder communications in the future.
Indebtedness of Directors and Executive Officers
None of our directors or executive officers or their respective associates or affiliates is
indebted to us.
Family Relationships
There are no family relationships among our directors and executive officers.
Legal Proceedings
As of the date of this Current Report on Form 8-K, there is no material proceeding to which
any of our directors, executive officers, affiliates or stockholders is a party adverse to us.
45
INTERNATIONAL STEM CELL CORPORATION 2006 EQUITY PARTICIPATION PLAN
Background
Effective as of November 17, 2006, the Board of Directors of International Stem Cell
unanimously approved the International Stem Cell Corporation 2006 Equity Participation Plan (the
Participation Plan), pursuant to which 15,000,000 shares of BTHC Common Stock are
reserved for issuance under the Participation Plan. The purpose of the Participation Plan is
to enable the Registrant to offer directors, officers and other key employees and consultants of
the Registrant and its subsidiaries and affiliates equity-based compensation, thereby attracting,
retaining, and rewarding these participants and strengthening the mutuality of interests between
these participants and the Registrants stockholders. The Participation Plan permits the
Registrant to keep pace with changing developments in management compensation and make the
Registrant competitive with those companies that offer stock incentives to attract and retain
directors and key employees. After approval and adoption by the Board of Directors of
International Stem Cell, the Participation Plan was approved by the shareholders of International
Stem Cell. The approval by the shareholders of International Stem Cell of the Participation Plan
permits stock options and awards restricted by certain performance criteria as described below to
qualify for deductibility under Section 162(m) of the Internal Revenue Code of 1986, as amended
(the Internal Revenue Code).
A summary of the principal features of the Participation Plan is provided below, but is
qualified in its entirety by reference to the full text of the Participation Plan that is attached
to this Current Report on Form 8-K as Exhibit 10.15.
Shares Available
The Participation Plan reserves 15,000,000 shares of BTHC Common Stock for awards, subject to
the adjustments described below. If there is a lapse, expiration, termination, or cancellation of
any option or right prior to the issuance of shares or the payment of the equivalent thereunder, or
if shares are issued and thereafter are reacquired by the Registrant pursuant to rights reserved
upon issuance thereof, with respect to the Participation Plan, those shares may again be used for
new awards under the Participation Plan. The Registrant will deduct any shares exchanged by an
optionee in payment of the exercise price of any stock option, or any shares retained by the
Registrant pursuant to a participants tax withholding election, from the shares available under
the Participation Plan.
Administration
The Participation Plan is administered by the Registrants Board of Directors or any Committee
of the Board of Directors to which the Board of Directors has delegated any responsibility for the
implementation, interpretation or administration of the Participation Plan (the Administrator).
Members of the Administrator will satisfy requirements under Rule 16b-3 under the Exchange Act, The
Nasdaq Stock Market and the Internal Revenue Service with respect to plans intending to be
qualified under Section 162(m) of the Internal Revenue Code by the end of the transition period
applicable to newly public companies. Among the Administrators powers are the authority to
construe and interpret the Participation Plan, establish rules, regulations, policies and
procedures for its operation, select directors, officers and other key employees and consultants of
the Registrant and its subsidiaries and affiliates to receive awards, and determine the form,
amount, and other terms and conditions of awards. The
Administrator also has the power to modify or waive restrictions on awards, to amend awards,
and to grant extensions and accelerations of awards.
46
Eligibility of Participation
Directors, officers and other key employees and consultants of the Registrant or any of its
affiliates are eligible to participate in the Participation Plan. The selection of eligible
participants is within the discretion of the Administrator. The estimated number of individuals
who are currently eligible to participate in the Participation Plan is approximately 23, among
directors, officers, other employees and consultants of the Registrant and its affiliates.
Types of Awards
The Participation Plan provides for the grant of stock options, including incentive stock
options and non-qualified stock options, restricted stock and other equity-based awards.
Awards may be granted singly, in combination, or in tandem, as determined by the
Administrator. The Board of Directors may amend or terminate the Participation Plan at any time,
except as limited by the terms of the Participation Plan.
Stock Option Grants
The Administrator may grant options qualifying as incentive stock options under the Internal
Revenue Code and nonqualified stock options. The term of an option will be fixed by the
Administrator, but will not exceed ten years (or five years in the case of an incentive stock
option granted to a person beneficially owning shares representing 10% or more of the total
combined voting power of all classes of stock of the Registrant, referred to as a 10% stockholder).
The option price for any option will not be less than the fair market value of BTHC Common Stock
on the date of grant (or 110% of the fair market value in the case of an incentive stock option
granted to a 10% stockholder). Generally, the fair market value will be the closing price of the
BTHC Common Stock on the applicable trading market. Payment for shares purchased upon exercise of
a stock option must be made in full at the time of purchase. Payment may be made (i) in cash; (ii)
in a cash equivalent acceptable to the Administrator; (iii) by the transfer to the Registrant of
shares owned by the participant for at least six months on the date of transfer; (iv) with a
full-recourse promissory note until such time as the Registrant has a class of equity securities
registered under Section 12 of the Securities Act; (v) if the BTHC Common Stock is traded on an
established securities market, the Administrator may approve payment of the exercise price by a
broker-dealer or by the option holder with cash advanced by the broker-dealer if the exercise
notice is accompanied by the option holders written irrevocable instructions to deliver the BTHC
Common Stock acquired upon exercise of the option to the broker-dealer; or (vi) any other method
acceptable to the Administrator and in compliance with applicable laws.
47
Restricted Stock
The Administrator is authorized to grant restricted stock. Restricted stock is a grant of
shares of BTHC Common Stock which may not be sold or disposed of and which shall be subject to such
risks of forfeiture and other restrictions as the Administrator may impose. Unless
otherwise determined by the Administrator, the purchase price for any restricted stock grant
will be 85% of the fair market value of BTHC Common Stock on the date of grant or at the time the
purchase is consummated (or 100% of the fair market value in the case of restricted stock granted
to a 10% stockholder). Generally, the fair market value will be the closing price of the BTHC
Common Stock on the applicable trading market. Payment for shares purchased pursuant to a
restricted stock grant may be made in (i) cash at the time of purchase; (ii) at the discretion of
the Administrator, according to a deferred payment or other similar arrangement with the
participant; or (iii) in any other form of legal consideration that may be acceptable to the
Administrator in its discretion. A participant granted restricted stock generally has all of the
rights of a stockholder of the Registrant, unless otherwise determined by the Administrator.
Maximum Awards
No employee may receive in any calendar year awards relating to more than 5,000,000 shares.
This limitation applies following the date on which the Registrant has a class of equity securities
registered under Section 12 of the Securities Act and upon the earlier of (i) a material
modification of the Participation Plan; (ii) the first meeting of stockholders at which directors
are elected and which occurs after the close of the third calendar year following the calendar year
during which occurs the first registration of the Registrants equity securities under Section 12
of the Securities Act; and (iii) such date as is required to comply with Section 162(m) of the
Internal Revenue Code and regulations thereunder.
Adjustments
The number and class of shares available under the Participation Plan and the terms of
outstanding awards may be adjusted by the Administrator to prevent dilution or enlargement of
rights in the event of various changes in the capitalization of the Registrant. The Administrator
will, as it deems appropriate and equitable, have the right to:
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proportionately adjust the number and types of shares of BTHC Common Stock (or
other securities), exercise price, or performance standards of any or all benefits;
and
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make provision for a cash payment, acceleration or for substitution or exchange
of any or all stock options, in connection with any extraordinary dividend or
distribution, reclassification, recapitalization, stock split, reverse stock split,
reorganization, merger, combination, consolidation, split-up, spin-off,
combination, repurchase or exchange of BTHC Common Stock or securities of the
Registrant, or similar, unusual or extraordinary corporate transaction or a sale of
substantially all of the assets of the Registrant.
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48
Amendment of the Participation Plan
The Board of Directors has the right and power to amend the Participation Plan, without the
consent of the participants. However, the Board of Directors may not amend the Participation Plan
in a manner which would impair or adversely affect the rights of the holder of an award without the
holders consent. The Registrant will obtain stockholder approval if (i) the
amendment increases the number of shares reserved under the Participation Plan; (ii) the
amendment increases the maximum amount of shares that may be subject to awards to a participant in
a year; (iii) if the amendment changes the class of employees eligible to receive Incentive Stock
Options; or (iv) if the Internal Revenue Code or any other applicable statute, rule or regulation,
including, but not limited to, those of any securities exchange, requires shareholder approval with
respect to the Participation Plan or the amendment.
Termination of the Participation Plan
The Participation Plan may be terminated at any time by the Board of Directors. Termination
will not in any manner impair or adversely affect any benefit outstanding at the time of
termination. The Participation Plan will expire on the earliest to occur of: (i) November 17,
2016; (ii) the date on which all shares available for issuance under the Participation Plan have
been issued as fully vested shares; or (ii) the date determined by the Board pursuant to its
authority under the Participation Plan.
Administrators Right to Modify Benefits
Any stock option granted may be converted, modified, forfeited, or canceled, in whole or in
part, by the Administrator if and to the extent permitted in the Participation Plan, or applicable
agreement entered into in connection with an award or with the consent of the participant to whom
the award was granted.
Federal Tax Treatment
The Participation Plan is not qualified under the provisions of section 401(a) of the Internal
Revenue Code and is not subject to any of the provisions of the Employee Retirement Income Security
Act of 1974.
Nonqualified Stock Options
On exercise of a nonqualified stock option granted under the Participation Plan, an optionee
will recognize ordinary income equal to the excess, if any, of the fair market value on the date of
exercise of the shares of stock acquired on exercise of the option over the exercise price. If the
optionee is an employee of the Registrant, that income will be subject to the withholding of
Federal income tax. The optionees tax basis in those shares will be equal to their fair market
value on the date of exercise of the option, and his holding period for those shares will begin on
that date.
If an optionee pays for shares of stock on exercise of an option by delivering shares of BTHC
Common Stock, the optionee will not recognize gain or loss on the shares delivered, even if their
fair market value at the time of exercise differs from the optionees tax basis in them. The
optionee, however, otherwise will be taxed on the exercise of the option in the manner described
above as if he had paid the exercise price in cash. If a separate identifiable stock certificate
is issued for that number of shares equal to the number of shares delivered on exercise of the
option, the optionees tax basis in the shares represented by that certificate will be equal to his
tax basis in the shares delivered, and his holding period for those shares will include his holding
period for the shares delivered. The optionees tax basis and holding period for the
additional shares received on exercise of the option will be the same as if the optionee had
exercised the option solely in exchange for cash.
49
The Registrant will be entitled to a deduction for Federal income tax purposes equal to the
amount of ordinary income taxable to the optionee, provided that amount constitutes an ordinary and
necessary business expense for the Registrant and is reasonable in amount, and either the employee
includes that amount in income or the Registrant timely satisfies its reporting requirements with
respect to that amount.
Incentive Stock Options
The Participation Plan provides for the grant of stock options that qualify as incentive
stock options as defined in section 422 of the Internal Revenue Code. Under the Internal Revenue
Code, an optionee generally is not subject to tax upon the grant or exercise of an incentive stock
option. In addition, if the optionee holds a share received on exercise of an incentive stock
option for at least two years from the date the option was granted and at least one year from the
date the option was exercised, which we refer to as the Required Holding Period, the difference, if
any, between the amount realized on a sale or other taxable disposition of that share and the
holders tax basis in that share will be long-term capital gain or loss.
If, however, an optionee disposes of a share acquired on exercise of an incentive stock option
before the end of the Required Holding Period, which we refer to as a Disqualifying Disposition,
the optionee generally will recognize ordinary income in the year of the Disqualifying Disposition
equal to the excess, if any, of the fair market value of the share on the date the incentive stock
option was exercised over the exercise price. If, however, the Disqualifying Disposition is a sale
or exchange on which a loss, if realized, would be recognized for Federal income tax purposes, and
if the sales proceeds are less than the fair market value of the share on the date of exercise of
the option, the amount of ordinary income recognized by the optionee will not exceed the gain, if
any, realized on the sale. If the amount realized on a Disqualifying Disposition exceeds the fair
market value of the share on the date of exercise of the option, that excess will be short-term or
long-term capital gain, depending on whether the holding period for the share exceeds one year.
An optionee who exercises an incentive stock option by delivering shares of stock acquired
previously pursuant to the exercise of an incentive stock option before the expiration of the
Required Holding Period for those shares is treated as making a Disqualifying Disposition of those
shares. This rule prevents pyramiding or the exercise of an incentive stock option (that is,
exercising an incentive stock option for one share and using that share, and others so acquired, to
exercise successive incentive stock options) without the imposition of current income tax.
For purposes of the alternative minimum tax, the amount by which the fair market value of a
share of stock acquired on exercise of an incentive stock options exceeds the exercise price of
that option generally will be an adjustment included in the optionees alternative minimum taxable
income for the year in which the option is exercised. If, however, there is a Disqualifying
Disposition of the share in the year in which the option is exercised, there will be no adjustment
with respect to that share. If there is a Disqualifying Disposition in a later year, no income
with respect to the Disqualifying Disposition is included in the optionees alternative
minimum taxable income for that year. In computing alternative minimum taxable income, the tax
basis of a share acquired on exercise of an incentive stock option is increased by the amount of
the adjustment taken into account with respect to that share for alternative minimum tax purposes
in the year the option is exercised.
50
We are not allowed an income tax deduction with respect to the grant or exercise of an
incentive stock option or the disposition of a share acquired on exercise of an incentive stock
option after the Required Holding Period. However, if there is a Disqualifying Disposition of a
share, we are allowed a deduction in an amount equal to the ordinary income includible in income by
the optionee, provided that amount constitutes an ordinary and necessary business expense for the
Registrant and is reasonable in amount, and either the employee includes that amount in income or
the Registrant timely satisfies its reporting requirements with respect to that amount.
Restricted Stock Awards
Generally, the recipient of a restricted stock award will recognize ordinary compensation
income at the time the restricted stock is received equal to the excess, if any, of the fair market
value of the restricted stock received over any amount paid by the recipient in exchange for the
restricted stock. If, however, the restricted stock is non-vested when it is received under the
Participation Plan (for example, if the employee is required to work for a period of time in order
to have the right to sell the stock), the recipient generally will not recognize income until the
restricted stock becomes vested, at which time the recipient will recognize ordinary compensation
income equal to the excess, if any, of the fair market value of the restricted stock on the date it
becomes vested over any amount paid by the recipient in exchange for the restricted stock. A
recipient may, however, file an election with the Internal Revenue Service, within 30 days of his
receipt of the restricted stock award, to recognize ordinary compensation income, as of the date
the recipient receives the award, equal to the excess, if any, of the fair market value of the
restricted stock on the date the award is granted over any amount paid by the recipient in exchange
for the restricted stock.
The recipients basis for the determination of gain or loss upon the subsequent disposition of
shares acquired as restricted stock awards will be the amount paid for such shares plus any
ordinary income recognized either when the restricted stock is received or when the restricted
stock becomes vested. Upon the disposition of any restricted stock received as a restricted stock
award under the Participation Plan, the difference between the sale price and the recipients basis
in the shares will be treated as a capital gain or loss and generally will be characterized as
long-term capital gain or loss if the shares have been held for more the one year from the date as
of which he would be required to recognize any compensation income.
The Registrant will be entitled to a deduction for federal income tax purposes equal to the
amount of ordinary income that the employee is required to recognize at the time so recognized by
the employee, whether upon vesting or grant, if the employee makes the election described above.
51
Section 409A
Section 409A of the Internal Revenue Code, enacted as part of the American Jobs Creation Act
of 2004, imposes certain new requirements applicable to nonqualified deferred compensation plans,
including new rules relating to the timing of deferral elections and elections with regard to the
form and timing of benefit distributions, prohibitions against the acceleration of the timing of
distributions, and the times when distributions may be made, as well as rules that generally
prohibit the funding of nonqualified deferred compensation plans in offshore trusts or upon the
occurrence of a change in the employers financial health. These new rules generally apply with
respect to deferred compensation that becomes earned and vested on or after January 1, 2005. If a
nonqualified deferred compensation plan subject to Section 409A fails to meet, or is not operated
in accordance with, these new requirements, then all compensation deferred under the plan is or
becomes immediately taxable to the extent that it is not subject to a substantial risk of
forfeiture and was not previously taxable. The tax imposed as a result of these new rules would be
increased by interest at a rate equal to the rate imposed upon tax underpayments plus one
percentage point, and an additional tax equal to 20% of the compensation which is required to be
included in income. Some of the awards to be granted under the Participation Plan may constitute
deferred compensation subject to the Section 409A requirements. It is the Registrants intention
that any award agreement that will govern awards subject to Section 409A will comply with these new
rules.
Section 162 Limitations
The Omnibus Budget Reconciliation Act of 1993 added Section 162(m) to the Internal Revenue
Code, which generally disallows a public companys tax deduction for compensation to covered
employees in excess of $1 million in any tax year beginning on or after January 1, 1994.
Compensation that qualifies as performance-based compensation is excluded from the $1 million
deductibility cap, and therefore remains fully deductible by the Registrant that pays it. The
Registrant intends that options granted to employees whom the Administrator expects to be covered
employees at the time a deduction arises in connection with such options will (and that other
awards may be structured in a manner that may) qualify as such performance-based compensation, so
that such options will not be subject to the Section 162(m) deductibility cap of $1 million and
that other performance-based awards under the Participation Plan may be structured so as not to be
subject to that limitation. Future changes in Section 162(m) or the regulations thereunder may
adversely affect the Registrants ability to ensure that options and other awards under the
Participation Plan will qualify as performance-based compensation that is fully deductible by us
under Section 162(m).
Other Information
As the administration of the Participation Plan involves discretionary choices by the
Administrator, awards to be granted under the Participation Plan in 2007 are not now determinable.
52
EXECUTIVE COMPENSATION
The following table shows information concerning the compensation paid by us for the last
fiscal years to our Chief Executive Officer and our other most highly-compensated executive
officers:
Summary
Compensation Table(1)(2)
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Non-
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Equity
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Incentive
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Nonqualified
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Plan
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Deferred
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All Other
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Stock
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Option
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Compensa-
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Compensa-
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Compen-
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Salary
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Bonus
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Awards
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Awards
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tion
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tion Earnings
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sation
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Total
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Name and Principal Position
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Year
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($)
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($)
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($)
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($)
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($)
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($)
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($)
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($)
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Kenneth C. Aldrich
Chairman of the Board
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2006
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$
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180,000
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$
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233,750
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2005
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-0-
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2004
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-0-
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Jeff Krstich
Chief Executive Officer and Director (1)
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2006
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$
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220,000
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$
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935,000
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2005
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-0-
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2004
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-0-
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Jeffrey Janus
President and Chief Executive Officer of Lifeline Cell
Technology
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2006
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$
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220,000
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$
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233,750
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2005
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$
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100,000
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2004
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$
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100,000
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William B. Adams
Director and Chief Financial Officer
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2006
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$
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180,000
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$
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233,750
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2005
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-0-
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2004
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-0-
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(1)
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The 2006 numbers are annualized and reflect the salary that would have been received if the full
amount of compensation had actually been paid.
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(2)
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Mr. Aldrich and Mr. Adams were not paid a salary in from 2004 through the third quarter of 2006.
However, they accrued a management fee in the amount of $10,000 per month
through June 1, 2006 and thereafter a fee of $20,000 per month until they signed
their employment agreements on December 2006. The management fee was payable to
SeaCreat Capital, Inc., a corporation controlled by Mr. Adams and Mr. Aldrich.
As of September 30, 2006, $474,984 was owed to SeaCreat Capital, Inc.
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(3)
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Mr. Krstich joined ISC in 2006 and thus received no compensation in prior years.
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53
Outstanding Equity Awards at Fiscal Year-End
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Option Awards
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Stock Awards
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Equity
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Equity
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Incentive
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Incentive
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Plan
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Plan
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Awards:
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Awards:
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Number
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Market or
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Equity
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of
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Payout
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Incentive
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Number
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Market
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Unearned
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Value of
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Plan
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of
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Value of
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Shares or
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Unearned
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Awards:
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Shares
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Shares or
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Units
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Shares,
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Number of
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Number of
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Number of
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or Units
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Units of
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or Other
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Units or
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Securities
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Securities
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Securities
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of Stock
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Stock
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Rights
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Other
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Underlying
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Underlying
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Underlying
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That
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That
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That
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Rights
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Unexercised
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Unexercised
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Unexercised
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Option
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Have
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Have
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Have
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That Have
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Options
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Options
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Unearned
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Exercise
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Option
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Not
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Not
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Not
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Not
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(#)
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(#)
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Options
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Price
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Expiration
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Vested
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Vested
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Vested
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Vested
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Name
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|
Exercisable
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Unexercisable
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(#)
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($)
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Date
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(#)
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|
($)
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(#)
|
|
|
($)
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|
Kenneth Aldrich
Chairman
|
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|
100,000
|
|
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150,000
|
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|
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$
|
1.00
|
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|
|
2016
|
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Jeff Krstich
Chief
Executive Officer
and Director
|
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100,000
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900,000
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|
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$
|
1.00
|
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|
2016
|
|
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|
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Jeffrey Janus
Co-Founder and
Chairman of the
Board
|
|
|
100,000
|
|
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|
150,000
|
|
|
|
|
|
|
$
|
1.00
|
|
|
|
2016
|
|
|
|
|
|
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|
|
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|
|
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William B. Adams
Co-Founder,
Director and Chief
Financial Officer
|
|
|
100,000
|
|
|
|
150,000
|
|
|
|
|
|
|
$
|
1.00
|
|
|
|
2016
|
|
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENTS
Except
with respect to the Exchange Agreement and the transactions described below, none of the
Registrants directors or officers, nor any incoming director, nor any person who beneficially
owns, directly or indirectly, shares carrying more than 10% of the voting rights attached to the
Registrants outstanding shares, nor any of the Registrants promoters, nor any relative or spouse
of any of the foregoing persons has any material interest, direct or indirect, in any transaction
for the past two years or in any presently proposed transaction to which the Registrant was or is
to be party. None of the Registrants directors or officers, nor any incoming director are indebted
to the Registrant.
In connection with the Exchange Agreement, ISC entered into a Financial Advisory Agreement,
dated October 18, 2006 (the FAA) with HFG pursuant to which ISC
paid $450,000 to HFG. The FAA expires on October 18, 2007. The foregoing description of the FAA
does not purport to be complete and is qualified in its entirety by reference to the FAA, which is
to this Current Report on Form 8-K as Exhibit 10.5.
As of September 30, 2006, ISC had the following obligations to related parties:
|
|
|
|
|
Management fee
|
|
$
|
474,984
|
|
SeaCrest Capital
|
|
|
20,762
|
|
SeaCrest Partners
|
|
|
14,925
|
|
YKA Partners
|
|
|
34,382
|
|
Gregory Keller
|
|
|
23,601
|
|
Janus Biologics, LLC
|
|
|
30,656
|
|
|
|
|
|
|
|
$
|
599,310
|
|
|
|
|
|
The management fee is an accrued obligation which is payable to Mr. Adams and Mr.
Aldrich, who are officers and directors of ICS. The management fee relates to the management of
the Lifeline from inception at a rate of $10,000 per month plus accrued interest at 10% per annum
on the unpaid balance. Effective June 1, 2006 the management fee was increased to $20,000 per
month. When Mr. Adams and Aldrich became employees of International Stem Cell on December 1, 2006,
accrual of the management fee ceased.
SeaCreast Capital and SeaCreast Partners are controlled by Mr. Adams and Mr. Aldrich and the
amounts payable represent advances to Lifeline for operating expenses. YKA Partners is controlled
by Mr. Aldrich and the amounts represent advances to the Company for operating expenses. Mr.
Gregory Keller is an affiliate and the amounts payable to him represent advances to the Company for
operating expenses. Janus Biologics, LLC is controlled by Jeffrey Janus who is the President of
International Stem Cell and the amounts represent advances to the Company for operating expenses.
54
DESCRIPTION OF SECURITIES
General
The following summary describes the material terms of our capital stock and is subject to, and
qualified by, applicable law and the provisions of our certificate of incorporation and
bylaws. We have incorporated these organizational documents by reference as exhibits
to this Current Report on Form 8-K.
Our
certificate of incorporation authorizes us to issue 50,000,000 shares of capital stock,
of which 40,000,000 shares are designated BTHC Common Stock and 10,000,000 shares are designated
preferred stock.
BTHC Common Stock
Voting Rights
Holders of BTHC Common Stock are entitled to one vote per share. Subject to any voting rights
granted to holders of any preferred stock, the affirmative vote of a majority of the shares present
in person or by proxy and entitled to vote on the subject matter, other than the election of
directors, will generally be required to approve matters voted on by our stockholders. Directors
will be elected by plurality of the votes of the shares present in person or represented by a proxy
at the meeting entitled to vote on the election of directors. Our certificate of incorporation
does not provide for cumulative voting.
Dividends
Subject to the rights of holders of any outstanding preferred stock, the holders of
outstanding shares of BTHC Common Stock will share ratably on a per share basis in any dividends
declared from time to time by our Board of Directors.
Other Rights
Subject to the rights of holders of any outstanding preferred stock, upon our liquidation,
dissolution or winding up, we will distribute any assets legally available for distribution to our
stockholders, ratably among the holders of BTHC Common Stock outstanding at that time.
Preferred Stock
Our Board of Directors, without stockholder approval, may issue preferred stock in one or more
series from time to time and fix or alter the designations, relative rights, priorities,
preferences, qualifications, limitations and restrictions of the shares of each series, to the
extent that those are not fixed in our certificate of incorporation.
The rights, preferences, limitations and restrictions of different series of preferred stock
may differ with respect to dividend rates, amounts payable on liquidation, voting rights,
conversion rights, redemption provisions, sinking fund provisions and other matters. Our Board of
Directors may authorize the issuance of preferred stock that ranks senior to BTHC Common
Stock with respect to the payment of dividends and the distribution of assets on liquidation.
In addition, our Board of Directors can fix the limitations and restrictions, if any, upon the
payment of dividends on BTHC Common Stock to be effective while any shares of preferred stock are
outstanding.
55
Warrants
The Placement Agent in the ISC Private Placement was issued warrants (the Placement Agents
Warrants) to purchase up to 2,400,000 shares of BTHC Common Stock at an exercise price of $1.00
per share and which are exercisable for a period of five years, commencing after the final closing of the ISC
Private Placement. The Placement Agents Warrants contain provisions for cashless exercise and the
shares issued upon exercise are required to be registered. The holders of the Placement Agents
Warrants have no voting, dividend or other stockholder rights unless and until the exercise of such
warrants. The number of warrant shares are subject to a weighted average adjustment to protect
against any dilution upon the occurrence of certain corporate events in which shares are issued or
agreed to be issued at a price less than the exercise price of the warrants.
In connection with the Share Exchange, the Registrant assumed warrants to purchase 1,629,623
shares of common stock held by investors in ISC. These warrants have exercise prices ranging from
$.80 to $1.00 per share and expire at various times from 2009 to 2016.
ANTI-TAKEOVER EFFECTS OF CERTIFICATE OF INCORPORATION, BYLAWS
The Delaware General Corporation Law (the DGCL), our certificate of incorporation and our
bylaws contain provisions, summarized below, that may delay, defer or inhibit a future acquisition
of us that stockholders might consider in their best interest, including takeover attempts that
might result in a premium over the market price for the shares held by stockholders.
Issuance of Preferred Stock
The issuance of preferred stock pursuant to the Board of Directors authority described above
may adversely affect the rights of the holders of BTHC Common Stock. For example, preferred stock
issued by us may rank prior to BTHC Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares of BTHC Common
Stock. Accordingly, the ability of our Board of Directors to issue undesignated preferred stock
may discourage bids for BTHC Common Stock or may otherwise adversely affect the market price of
BTHC Common Stock. We have no present intention to issue shares of preferred stock.
Advance Notice Requirements
Our bylaws impose advance notice requirements for stockholder proposals and nominations of
directors to be considered at meetings of stockholders.
Our certificate of incorporation permits our Board of Directors to amend, alter or repeal our
bylaws, except to the extent otherwise provided therein, without the assent or vote of
stockholders.
56
MARKET PRICE AND DIVIDENDS ON COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Trading Information
The BTHC Common Stock is quoted on the OTC Bulletin Board under the trading symbol BTCH.OB.
At this time there is no active trading market in our stock and trading cannot commence until a
Certificate of Compliance is filed with the United States Bankruptcy Court for the Northern
District of Texas, Dallas Division.
Transfer Agent
The transfer agent and registrar for BTHC Common Stock is Securities Transfer Company, Inc.,
2591 Dallas Parkway, Frisco, Texas 75034; telephone: (469) 630-0100.
Holders of Record
After giving effect to the Share Exchange, there were approximately 800 holders of record of
BTHC Common Stock.
Dividends
We have not paid any dividends on BTHC Common Stock and we do not intend to pay any dividends
on BTHC Common Stock in the foreseeable future.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Delaware law, a Delaware corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that the person is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys fees), judgments, fines, and amounts paid
in settlement actually and reasonably incurred by the person in connection with such action, suit
or proceeding if the person acted in good faith and in a manner the person reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe that the persons conduct was unlawful.
In the case of a derivative action, a Delaware corporation may indemnify any such person
against expenses, including attorneys fees, actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if the person acted in good faith
and in a manner the person reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification will be made in respect on any claim, issue or matter
as to which such person will have been adjudged to be liable to the corporation unless, and only to
the extent, that the Court of Chancery of the State of Delaware or any other court in which such
action or suit was brought determines that such person is fairly and reasonably entitled to
indemnity for such expense.
57
Delaware law permits a corporation to include in its certificate of incorporation a provision
eliminating or limiting a directors personal liability to a corporation or its stockholders for
monetary damages for breaches of fiduciary duty as a director. Delaware Law provides, however,
that a corporation cannot eliminate or limit a directors liability for (i) any breach of the
directors duty of loyalty to the corporation or its stockholders; (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of law; (iii) the
unlawful purchase or redemption of stock or payment of unlawful purchase or redemption of stock or
payment of unlawful dividends; or (iv) for any transaction from which the director derived an
improper personal benefit. Furthermore, such provision cannot eliminate or limit the liability of
a director for any act or omission occurring prior to the date when such provision became
effective.
Our certificate of incorporation provides that we will indemnify our directors to the fullest
extent permitted by Delaware law and may indemnify our officers and any other person whom we have
the power to indemnify against any liability, reasonable expense or other matter whatsoever.
Under Delaware law, a corporation may also purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any liability asserted
against such person and incurred by such person in any such capacity, or arising out of such
persons status as such, whether or not the corporation would have the power to indemnify such
person against such liability.
The Board of Directors of the Registrant has agreed to indemnify each of its officers and
directors to the fullest extent permitted by Delaware law. We believe that these limitations on
liability are essential to attracting and retaining qualified persons as directors and executive
officers. We currently do not have insurance insuring directors and officers against liability;
however, we are in the process of acquiring such insurance.
|
|
|
Item 3.02
|
|
Unregistered Sales of Equity Securities.
|
In connection with the Share Exchange, we issued 33,111,502 shares of BTHC Common Stock to the ISC
Shareholders. The issuance of these shares was exempt from registration, in part pursuant to
Regulation S and Regulation D under the Securities Act and in part pursuant to Section 4(2) of the
Securities Act.
58
|
|
|
Item 4.01
|
|
Changes in Registrants Certifying Accountant.
|
On December 28, 2006, upon the closing of the Share Exchange, we terminated S.W. Hatfield,
CPA (SWH), as our independent registered public accounting firm. Vasques & Company audited our
financial statements for the fiscal year ended December 31, 2005. The reason for the replacement
of SWH was that, following the Share Exchange, the former shareholders of International Stem Cell
own a majority of the outstanding shares of BTHC Common Stock. International Stem Cell is our
primary business unit, and the current independent registered public accountants of International
Stem Cell is the firm of Vasques &
Company. We believe that it is in our best interest to have Vasques & Company continue to
work with our business, and we therefore retained Vasques & Company as our new independent
registered public accounting firm effective as of December 28, 2006. Vasques & Company is
located at 801 South Grand Avenue, Suite 400 Los Angeles, California 90017, California.
The appointment of Vasques & Company was recommended and approved by our Board of Directors.
During our two most recent fiscal years, and the subsequent interim periods, prior to December 2006 , we
did not consult Vasques & Company regarding either: (i) the application of accounting principles
to a specified transaction, completed or proposed, or the type of audit opinion that might be
rendered on the Registrants financial statements, or (ii) any matter that was either the subject
of a disagreement as defined in Item 304(a)(1)(iv) of Regulation S-K or a reportable event as
described in Item 304(a)(1)(v) of Regulation S-K.
SWHs report on our financial statements for the fiscal year ended December 31,
2005, did not contain any adverse opinion or disclaimer of opinion and was not qualified as audit
scope or accounting principles.
During the most recent fiscal year ended December 31, 2005, (i) there were no disagreements
between us and SWH on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure which, if not resolved to the satisfaction of
SWH, would have caused SWH to make reference to the subject matter of
the disagreement in connection with its reports and (ii) there were no reportable events, as
described in Item 304(a)(1)(iv) of Regulation S-B of the Exchange Act. The decision to replace SWH
was not the result of any disagreement between us and SWH on any matter of accounting principle or
practice, financial statement disclosure or audit procedure. Our Board of Directors deemed it in
our best interest to change independent auditors following the closing of the Share Exchange.
We furnished SWH with a copy of this Current Report on Form 8-K prior to filing this Current
Report on Form 8-K with the SEC. We also requested that SWH furnish a letter addressed to the SEC
stating whether it agrees with the statements made in this Current Report on Form 8-K. A copy of
SWHs letter to the SEC is filed with this Report on Form 8-K as Exhibit 16.1.
|
|
|
Item 5.01
|
|
Changes in Control of Registrant.
|
Please see Item 2.01 (Completion of Acquisition or Disposition of Assets) of this Current
Report on Form 8-K, which is incorporated herein by reference.
|
|
|
Item 5.02
|
|
Departure of Directors or Principal Officers; Election of Directors; Appointment of
Principal Officers.
|
In connection with the Share Exchange, Kenneth Aldrich was appointed to the Board of Directors
and will serve as the Chairman of the Board. Jeff Krstich and William B. Adams were appointed as
the Chief Executive Officer and Chief Financial Officer of the Registrant, respectively. Jeffrey Janus was appointed as the President of the Registrant and Chief Executive Officer of Lifeline.
59
|
|
|
Item 5.06
|
|
Change in Shell Company Status.
|
As a result of the consummation of the Share Exchange as described in Item 1.01 (Entry Into a
Material Definitive Agreement) and Item 2.01 (Completion of Acquisition or Disposition of Assets)
above, which descriptions are in their entirety incorporated by reference in this Item 5.06, we
ceased being a shell company as such term is defined in Rule 12b-2 under the Exchange Act.
We have relocated our principal executive offices to those of International Stem Cell at 2595
Jason Court, Oceanside, California 92056. Our telephone number is (760) 940-6383, our fax number
is (310) 573-9699 and our website is located at www.internationalstemcell.com.
|
|
|
Item 9.01
|
|
Financial Statements and Exhibits.
|
(a)
|
|
Financial statements of business acquired.
|
The financial statements of International Stem Cell for the period beginning July 16, 2006
(inception) through September 30, 2006, are incorporated herein by reference to Exhibit 99.1 to
this Current Report on Form 8-K.
The financial statements of Lifeline Cell Technology, LLC for the periods ended December 31,
2005 and 2006, are incorporated herein by reference to Exhibit 99.2 to this Current Report on Form
8-K.
The financial statements of Lifeline Cell Technology, LLC for the nine-month periods ended
September 30, 2005 and 2006, are incorporated herein by reference to Exhibit 99.3 to this Current
Report on Form 8-K.
(b)
|
|
Pro Forma Financial Information.
|
The pro-forma financial statements of the acquired business are incorporated herein by
reference to Exhibit 99.4 to this Current Report on Form 8-K.
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
2.1
|
|
|
Share
Exchange Agreement, dated as of December 28, 2006, by and among
BTHC III, Inc., a Delaware corporation (the Company), Halter Financial
Investments, L.P., a Texas limited partnership, International Stem Cell
Corporation, a California corporation (International Stem Cell), and
the Shareholders of International Stem Cell by and through the Shareholder
Representative.
|
|
3.1
|
|
|
Certificate
of Incorporation of the Registrant (incorporated by reference to Exhibit 3.4 of the
Companys
Form 10-SB
filed on April 4, 2006).
|
|
3.2
|
|
|
Bylaws
of the Registrant (incorporated by reference to Exhibit 3.5 of the
Companys
Form 10-SB
filed on April 4, 2006).
|
|
4.1
|
|
|
Form
of Lifeline Warrant.
|
60
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
4.2
|
|
|
Form
of Lifeline Warrant held by ISC Bridge lenders.
|
|
4.3
|
|
|
Placement Agents Warrant
|
|
10.1
|
|
|
Employment Agreement, dated December 1, 2006, by and between International
Stem Cell and Kenneth C. Aldrich.
|
|
10.2
|
|
|
Employment Agreement, dated November 1, 2006, by and between International
Stem Cell and William B. Adams.
|
|
10.3
|
|
|
Employment Agreement, dated March 27, 2006, by and between International
Stem Cell and Jeff Krstich.
|
|
10.4
|
|
|
Employment
Agreement, dated October 31, 2006, by and between International Stem
Cell and Jeffrey Janus.
|
|
10.5
|
|
|
Advisory Agreement, dated as of October 18, 2006, by and between
International Stem Cell and Halter Financial Group, L.P.
|
|
10.6
|
|
|
Consulting Agreement, effective as of September 1, 2006, by and between
International Stem Cell and Capital Group Communications, Inc.
|
|
10.7
|
|
|
Lifeline/ASC Final Settlement Agreement, effective as of June 30, 2006, by
and between each of the American Stem Cell Corporation Parties (which
include American Stem Cell Corporation Kenneth Swaisland, Ken Sorensen,
Milton Datsopoulos, Michael McClain, Array Capital, Catalytix LDC,
Catalytix Life Sciences Hedge, Avion Holdings, Inc., jointly and
severally) and the Lifeline Parties (which include Lifeline Cell
Technology, LLC (Lifeline), Jeffrey
Janus, William B. Adams, Kenneth C. Aldrich, jointly and severally).
|
|
10.8
|
|
|
Promissory Note, dated as of June 30, 2006, by Lifeline in favor of
American Stem Cell Corporation.
|
|
10.9
|
|
|
First Amendment to Exclusive License Agreement (ACT IP), dated as of
August 1, 2005, by and between Advanced Cell, Inc. and Lifeline.
|
61
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
10.10
|
|
|
First Amendment to Exclusive License Agreement (UMass IP), dated as of
August 1, 2005, by and between Advanced Cell, Inc. and Lifeline.
|
|
10.11
|
|
|
First Amendment to Exclusive License Agreement (Infigen IP), dated as of
August 1, 2005, by and between Advanced Cell, Inc. and Lifeline.
|
|
10.12
|
|
|
Exclusive License Agreement (Infigen IP), dated as of May 14, 2004, by and
between Advanced Cell Technology, Inc and PacGen Cellco, LLC (predecessor
company of Lifeline).
|
|
10.13
|
|
|
Exclusive License Agreement (ACT IP), dated as of May 14, 2004, by and
between Advanced Cell Technology, Inc. and PacGen Cellco, LLC (predecessor
company of Lifeline).
|
|
10.14
|
|
|
Exclusive License Agreement (UMass IP), dated as of May 14, 2004, by and
between Advanced Cell Technology, Inc. and PacGen Cellco, LLC (predecessor
company of Lifeline).
|
|
10.15
|
|
|
International Stem Cell Corporation 2006 Equity Participation Plan.
|
|
14.1
|
|
|
Code of Ethics
|
|
16.1
|
|
|
Letter from S.W. Hatfield, CPA.
|
|
21.1
|
|
|
Subsidiaries of the Company.
|
|
99.1
|
|
|
Financial Statements of International Stem Cell as of and for the period
beginning June 16, 2006 (inception) and ending September 30, 2006.
|
|
99.2
|
|
|
Financial Statements of Lifeline as of and for the years ended December
31, 2005 and December 31, 2004.
|
|
99.3
|
|
|
Financial Statements of Lifeline as of and for the nine months ended
September 30, 2006 and September 30, 2005 (unaudited).
|
|
99.4
|
|
|
Pro forma unaudited consolidated balance sheet of International Stem Cell
as at September 30, 2006, pro forma unaudited consolidated statement of
operations for the nine months ended September 30, 2006, and pro forma
unaudited consolidated statement of operations for the year ended December
31, 2005.
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62
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.
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BTHC III, INC.
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Dated: December 28, 2006
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By:
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/s/ Jeff Krstich
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Name:
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Jeff Krstich
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Title:
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Chief Executive Officer
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EXHIBIT INDEX
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Exhibit
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Number
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Description
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2.1
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Share
Exchange Agreement, dated as of December 28, 2006, by and among
BTHC III, Inc., a Delaware corporation (the Company), Halter Financial
Investments, L.P., a Texas limited partnership, International Stem Cell
Corporation, a California corporation (International Stem Cell), and
the Shareholders of International Stem Cell by and through the Shareholder
Representative.
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3.1
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Certificate
of Incorporation of the Registrant (incorporated by reference to Exhibit 3.4 of the
Companys
Form 10-SB
filed on April 4, 2006).
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3.2
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Bylaws
of the Registrant (incorporated by reference to Exhibit 3.5 of the
Companys
Form 10-SB
filed on April 4, 2006).
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4.1
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Form
of Lifeline Warrant.
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4.2
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Form
of Lifeline Warrant held by ISC Bridge lenders.
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4.3
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Placement Agents Warrant
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10.1
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Employment Agreement, dated December 1, 2006, by and between International
Stem Cell and Kenneth C. Aldrich.
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10.2
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Employment Agreement, dated November 1, 2006, by and between International
Stem Cell and William B. Adams.
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10.3
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Employment Agreement, dated March 27, 2006, by and between International
Stem Cell and Jeff Krstich.
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10.4
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Employment
Agreement, dated October 31, 2006, by and between International Stem
Cell and Jeffrey Janus.
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10.5
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Advisory Agreement, dated as of October 18, 2006, by and between
International Stem Cell and Halter Financial Group, L.P.
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10.6
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Consulting Agreement, effective as of September 1, 2006, by and between
International Stem Cell and Capital Group Communications, Inc.
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10.7
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Lifeline/ASC Final Settlement Agreement, effective as of June 30, 2006, by
and between each of the American Stem Cell Corporation Parties (which
include American Stem Cell Corporation Kenneth Swaisland, Ken Sorensen,
Milton Datsopoulos, Michael McClain, Array Capital, Catalytix LDC,
Catalytix Life Sciences Hedge, Avion Holdings, Inc., jointly and
severally) and the Lifeline Parties (which include Lifeline Cell
Technology, LLC (Lifeline), Jeffrey
Janus, William B. Adams, Kenneth C. Aldrich, jointly and severally).
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10.8
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Promissory Note, dated as of June 30, 2006, by Lifeline in favor of
American Stem Cell Corporation.
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10.9
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First Amendment to Exclusive License Agreement (ACT IP), dated as of
August 1, 2005, by and between Advanced Cell, Inc. and Lifeline.
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10.10
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First Amendment to Exclusive License Agreement (UMass IP), dated as of
August 1, 2005, by and between Advanced Cell, Inc. and Lifeline.
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10.11
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First Amendment to Exclusive License Agreement (Infigen IP), dated as of
August 1, 2005, by and between Advanced Cell, Inc. and Lifeline.
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10.12
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Exclusive License Agreement (Infigen IP), dated as of May 14, 2004, by and
between Advanced Cell Technology, Inc and PacGen Cellco, LLC (predecessor
company of Lifeline).
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10.13
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Exclusive License Agreement (ACT IP), dated as of May 14, 2004, by and
between Advanced Cell Technology, Inc. and PacGen Cellco, LLC (predecessor
company of Lifeline).
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10.14
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Exclusive License Agreement (UMass IP), dated as of May 14, 2004, by and
between Advanced Cell Technology, Inc. and PacGen Cellco, LLC (predecessor
company of Lifeline).
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10.15
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International Stem Cell Corporation 2006 Equity Participation Plan.
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14.1
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Code of Ethics
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16.1
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Letter from S.W. Hatfield, CPA.
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21.1
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Subsidiaries of the Company.
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99.1
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Financial Statements of International Stem Cell as of and for the period
beginning June 16, 2006 (inception) and ending September 30, 2006.
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99.2
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Financial Statements of Lifeline as of and for the years ended December
31, 2005 and December 31, 2004.
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99.3
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Financial Statements of Lifeline as of and for the nine months ended
September 30, 2006 and September 30, 2005 (unaudited).
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99.4
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Pro
forma unaudited consolidated balance sheet of International Stem Cell
as at September 30, 2006, pro forma unaudited consolidated statement of
operations for the nine months ended September 30, 2006, and pro forma
unaudited consolidated statement of operations for the year ended December
31, 2005.
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Exhibit 2.1
SHARE EXCHANGE AGREEMENT
This
SHARE EXCHANGE AGREEMENT (this
Agreement
), dated
as of December 28, 2006, is
by and among BTHC III, Inc., a Delaware corporation (
Parent
), Halter Financial
Investments, L.P., a Texas limited partnership (the
Stockholder
), International Stem Cell
Corporation, a California corporation (the
Company
), and the Shareholders of the Company
by and through the Shareholder Representative (the
Shareholders
).
RECITALS
WHEREAS,
the Company has 33,111,502 shares of common stock (the
Company
Stock
) outstanding, all of which are held by the Shareholders.
WHEREAS, each of the Shareholders is the record and beneficial owner of the number of shares
of Company Stock set forth opposite such Shareholders name on
Exhibit A
attached hereto,
and each of the Shareholders has agreed to transfer all of his, her or its shares of Company Stock
in exchange for the number of newly issued shares of Common Stock, par value $0.001 per share, of
Parent (the
Parent Stock
) listed opposite such Shareholders name on
Exhibit A
attached hereto, which in the aggregate amount to a total of 33,111,502 shares of
Parent Stock (the
Shares
).
WHEREAS, the Stockholder is a majority shareholder of the Company and Timothy Halter, a member
of Halter Financial Investments, GP, LLC, the general partner of the Stockholder is the sole
officer and director of Parent.
WHEREAS, the exchange of Company Stock for Parent Stock is intended to constitute a
reorganization within the meaning of Sections 351 and 368(a)(1)(B) of the Internal Revenue Code of
1986, as amended (the
Code
), or such other tax free reorganization exemptions that may be
available under the Code.
WHEREAS, the Boards of Directors of Parent and the Company have approved the transactions
contemplated hereby.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein and for
other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged,
the parties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE I
THE EXCHANGE
SECTION 1.01.
Exchange
.
(a)
Shares
. Subject to the terms and conditions of this Agreement, on the
Closing Date (as defined in Section 1.02), each of the Shareholders shall sell, transfer,
convey, assign and deliver to Parent its Company Stock free and clear of all Liens (as
defined below) in exchange for the number of authorized but unissued shares of Parent
Stock listed on
Exhibit A
attached hereto, opposite such Shareholders name.
(b)
Derivative Securities
. Subject to the terms and conditions of this
Agreement, on the Closing Date, each outstanding derivate security set forth in Section
3.02 of the Company Disclosure Schedule shall upon the same terms and conditions set forth
therein, without any further action, represent the right to acquire Parent Common Stock.
SECTION 1.02.
Closing
. The closing (the
Closing
) of the transactions
contemplated hereby (the
Transactions
) shall take place at the offices of Katten Muchin
Rosenman LLP on the date hereof (the
Closing Date
) at 10:00 a.m., it being understood and
agreed that the closing shall be deemed to occur simultaneously with the execution of this
Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE SHAREHOLDER REPRESENTATIVE
The Shareholder Representative, on behalf of himself and, based solely upon the representation
and warranties of each Shareholder in the subscription agreement whereby each became a shareholder
of the Company, each other Shareholder represents and warrants to Parent, as follows:
SECTION 2.01.
Good Title
. Each Shareholder is the record and beneficial owner, and
has good title to its Company Stock, with the right and authority to sell and deliver such Company
Stock. Upon delivery of any certificate or certificates duly assigned, representing the same as
herein contemplated and/or upon registering of Parent as the new owner of such Company Stock in the
share register of the Company, Parent will receive good title to such Company Stock, free and clear
of all liens, security interests, pledges, equities and claims of any kind, voting trusts,
Shareholder agreements and other encumbrances (collectively,
Liens
).
SECTION 2.02.
Power and Authority
. Each Shareholder that is an entity has the legal
power and authority to execute and deliver this Agreement and to perform its obligations hereunder.
All acts required to be taken by the Shareholders to enter into this Agreement and to carry out
the Transactions have been properly taken. This Agreement constitutes a legal, valid and binding
obligation of the Shareholder, enforceable against such Shareholder in accordance with the terms
hereof.
2
SECTION 2.03.
Purchase Entirely for Own Account.
The Parent Stock proposed to be
acquired by each Shareholder hereunder will be acquired for investment for its own account, and not
with a view to the resale or distribution of any part thereof, and the Shareholder has no present
intention of selling or otherwise distributing the Parent Stock, except in compliance with
applicable securities laws.
SECTION 2.04.
Available Information
. Each Shareholder has such knowledge and
experience in financial and business matters that it is capable of evaluating the merits and risks
of investment in Parent.
SECTION 2.05.
Non-Registration
. Each Shareholder understands that the Parent Stock has
not been registered under the Securities Act of 1933, as amended (the
Securities Act
),
and, if issued in accordance with the provisions of this Agreement, will be issued by reason of a
specific exemption from the registration provisions of the Securities Act which depends upon, among
other things, the bona fide nature of the investment intent and the accuracy of the Shareholders
representations as expressed herein.
SECTION 2.06.
Restricted Securities
. Each Shareholder understands that the Parent
Stock is characterized as restricted securities under the Securities Act inasmuch as this
Agreement contemplates that, if acquired by such Shareholder pursuant hereto, the Parent Stock
would be acquired in a transaction not involving a public offering. Each Shareholder further
acknowledges that if the Parent Stock is issued to such Shareholder in accordance with the
provisions of this Agreement, such Parent Stock may not be resold without registration under the
Securities Act or the existence of an exemption therefrom. Each Shareholder represents that it is
familiar with Rule 144 promulgated under the Securities Act, as presently in effect, and
understands the resale limitations imposed thereby and by the Securities Act.
SECTION 2.07.
Legends
. It is understood that the Parent Stock will bear the following
legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE SECURITIES ACT),
OR UNDER APPLICABLE STATE SECURITIES LAWS. SUCH SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT PURPOSES AND MAY NOT BE OFFERED FOR SALE,
SOLD, DELIVERED AFTER SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AND EFFECTIVE REGISTRATION STATEMENT FILED BY THE
ISSUER WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION COVERING
SUCH SECURITIES UNDER THE SECURITIES ACT OR OPINION OF COUNSEL
SATISFACTORY TO THE ISSUE THAT SUCH REGISTRATION IS NOT REQUIRED.
It is further understood that the Parent Stock will bear any legend required by the blue
sky laws of any state to the extent such laws are applicable to the securities represented by the
certificate so legended.
3
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the written disclosure schedule prepared and delivered to Parent
simultaneously with the execution hereof (the
Company Disclosure Schedule
), the Company
represents and warrants to Parent as follows:
SECTION 3.01.
Organization, Standing and Power
. Each of the Company and its
subsidiaries (
Company Subsidiaries
) is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is organized and has the corporate power
and authority and possesses all governmental franchises, licenses, permits, authorizations and
approvals necessary to enable it to own, lease or otherwise hold its properties and assets and to
conduct its businesses as presently conducted, other than such franchises, licenses, permits,
authorizations and approvals the lack of which, individually or in the aggregate, has not had and
would not reasonably be expected to have a material adverse effect on the Company, a material
adverse effect on the ability of the Company to perform its obligations under this Agreement or on
the ability of the Company to consummate the Transactions (a
Company Material Adverse
Effect
). The Company and each Company Subsidiary is duly qualified to do business in each
jurisdiction where the nature of its business or its ownership or leasing of its properties make
such qualification necessary except where the failure to so qualify would not reasonably be
expected to have a Company Material Adverse Effect. The Company has delivered to Parent true and
complete copies of the Certificate of Incorporation and Bylaws of the Company (the
Company
Charter Documents
), and the comparable charter documents of each Company Subsidiary, in each
case as amended through the date of this Agreement.
SECTION 3.02.
Capital Structure
. The authorized capital stock of the Company consists
of 50,000,000 shares of common stock which, 33,111,502 shares are issued and outstanding
and 15,000,000 shares are reserved for issuance under the Companys 2006 Stock Option Plan. Except as
set forth above, no shares of capital stock or other voting securities of the Company are issued,
reserved for issuance or outstanding. Except as specified in the Company Disclosure Schedule, the
Company is the sole record and beneficial owner of all of the issued and outstanding capital stock
of each Company Subsidiary. All outstanding shares of the capital stock of the Company and each
Company Subsidiary are duly authorized, validly issued, fully paid and nonassessable and not
subject to or issued in violation of any purchase option, call option, right of first refusal,
preemptive right, subscription right or any similar right. Except as set forth in this Section
3.02 and in Section 3.02 of the Company Disclosure Schedule, there are not any bonds, debentures,
notes or other indebtedness of Company or any Company Subsidiary having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on any matters on which
holders of Company Stock or the common stock of any Company Subsidiary may vote (
Voting
Company Debt
). Except as set forth above or in the Company Disclosure Schedule, as of the
date of this Agreement, there are not any options, warrants, rights, convertible or exchangeable
securities, phantom stock rights, stock appreciation rights, stock-based performance units,
commitments, Contracts, arrangements or undertakings of any kind to which the Company or any
Company Subsidiary is a party or by which any of them is bound (i) obligating the Company or any
Company Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other equity interests in, or any
4
security convertible or exercisable for or exchangeable into any capital stock of or other
equity interest in, the Company or any Company Subsidiary or any Voting Company Debt, (ii)
obligating the Company or any Company Subsidiary to issue, grant, extend or enter into any such
option, warrant, call, right, security, commitment, Contract, arrangement or undertaking or (iii)
that give any person the right to receive any economic benefit or right similar to or derived from
the economic benefits and rights occurring to holders of the capital stock of the Company or of any
Company Subsidiary. Except as set forth in the Company Disclosure Schedule, as of the date of this
Agreement, there are not any outstanding contractual obligations of the Company to repurchase,
redeem or otherwise acquire any shares of capital stock of Parent.
SECTION 3.03.
Authority; Execution and Delivery; Enforceability
. The Company has all
requisite corporate power and authority to execute and deliver this Agreement and to consummate the
Transactions. The execution and delivery by the Company of this Agreement and the consummation by
the Company of the Transactions have been duly authorized and approved by the Board of Directors of
the Company and no other corporate proceedings on the part of the Company are necessary to
authorize this Agreement and the Transactions. When executed and delivered, this Agreement will be
enforceable against the Company in accordance with its terms.
SECTION 3.04.
No Conflicts; Consents
.
(a) Except as set forth in the Company Disclosure Schedule, the execution and
delivery by the Company of this Agreement does not, and the consummation of the
Transactions and compliance with the terms hereof and thereof will not, conflict with, or
result in any violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of any
obligation or to loss of a material benefit under, or result in the creation of any Lien
upon any of the properties or assets of the Company or any Company Subsidiary under, any
provision of (i) the Company Charter Documents or the comparable charter or organizational
documents of any Company Subsidiary, (ii) any material contract, lease, license,
indenture, note, bond, agreement, permit, concession, franchise or other instrument (a
Contract
) to which the Company or any Company Subsidiary is a party or by which
any of their respective properties or assets is bound or (iii) subject to the filings and
other matters referred to in Section 3.04(b), any material judgment, order or decree
(
Judgment
) or material Law (as defined below in this Section 3.04(a)) applicable
to the Company or any Company Subsidiary or their respective properties or assets, other
than, in the case of clauses (ii) and (iii) above, any such items that, individually or in
the aggregate, have not had and would not reasonably be expected to have a Company
Material Adverse Effect. For purposes of this Agreement,
Law
means any domestic
or foreign federal, state or local statute, law (whether statutory or common law),
ordinance, rule, administrative interpretation, regulation, order, writ, injunction,
directive, judgment, decree, policy, guideline or other requirement.
(b) Except as set forth in the Company Disclosure Schedule and except for required
filings with the Securities and Exchange Commission (the
SEC
) and applicable
blue sky or state securities commissions, no material consent, approval, license,
permit, order or authorization (
Consent
) of, or registration, declaration or
5
filing with, or permit from, any Governmental Entity (as defined in this Section
3.04(b)) is required to be obtained or made by or with respect to the Company or any
Company Subsidiary in connection with the execution, delivery and performance of this
Agreement or the consummation of the Transactions. For purposes of this Agreement,
Governmental Entity
means any United States or foreign government, any state or
other political subdivision thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government, or any
other authority, agency, department, board, commission or instrumentality of the United
States, any state of the United States or any political subdivision thereof or any foreign
jurisdiction, and any court, tribunal or arbitrator(s) of competent jurisdiction, and any
United States or foreign governmental or non-governmental self-regulatory organization,
agency or authority.
SECTION 3.05.
Taxes
.
(a) Each of the Company and each Company Subsidiary has timely filed, or has caused
to be timely filed on its behalf, all Tax Returns (as defined in this Section 3.05)
required to be filed by it, and all such Tax Returns are true, complete and accurate,
except to the extent any failure to file or any inaccuracies in any filed Tax Returns,
individually or in the aggregate, have not had and would not reasonably be expected to
have a Company Material Adverse Effect. All Taxes (as defined in this Section 3.05) shown
to be due on such Tax Returns, or otherwise owed, have been timely paid, except to the
extent that any failure to pay, individually or in the aggregate, has not had and would
not reasonably be expected to have a Company Material Adverse Effect. There are no unpaid
taxes in any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such claim.
(b) The Company Financial Statements (as defined in Section 3.14) reflect an adequate
reserve for all Taxes payable by the Company and the Company Subsidiaries (in addition to
any reserve for deferred Taxes to reflect timing differences between book and Tax items)
for all Taxable periods and portions thereof through the date of such financial
statements. No deficiency with respect to any Taxes has been proposed, asserted or
assessed against the Company or any Company Subsidiary, and no requests for waivers of the
time to assess any such Taxes are pending, except to the extent any such deficiency or
request for waiver, individually or in the aggregate, has not had and would not reasonably
be expected to have a Company Material Adverse Effect.
(c) For purposes of this Agreement:
Taxes
includes all forms of taxation, whenever created or imposed, and whether of
the United States or elsewhere, and whether imposed by a local, municipal, governmental, state,
foreign, federal or other Governmental Entity, or in connection with any agreement with respect to
Taxes, including all interest, penalties and additions imposed with respect to such amounts.
6
Tax Return
means all federal, state, local, provincial and foreign Tax returns,
declarations, statements, reports, schedules, forms and information returns and any amended Tax
return relating to Taxes.
SECTION 3.06.
Benefit Plans
.
(a) Except as set forth in the Company Disclosure Schedule, the Company does not have
or maintain any collective bargaining agreement or any bonus, pension, profit sharing,
deferred compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance, disability, death benefit,
hospitalization, medical or other plan, arrangement or understanding (whether or not
legally binding) providing benefits to any current or former employee, officer or director
of the Company or any Company Subsidiary (collectively,
Company Benefit Plans
).
Except as set forth in the Company Disclosure Schedule, as of the date of this Agreement
there are not any severance or termination agreements or arrangements between the Company
or any Company Subsidiary and any current or former employee, officer or director of the
Company or any Company Subsidiary, nor does the Company or any Company Subsidiary have any
general severance plan or policy.
(b) Since September 30, 2006, there has not been any adoption or amendment in any
material respect by the Company or any Company Subsidiary of any Company Benefit Plan.
SECTION 3.07.
Litigation
. There is no action, suit, inquiry, notice of violation,
proceeding (including any partial proceeding such as a deposition) or investigation pending or
threatened in writing against or affecting the Company, any Company Subsidiary or any of their
respective properties before or by any court, arbitrator, governmental or administrative agency,
regulatory authority (federal, state, county, local or foreign), stock market, stock exchange or
trading facility (
Action
) which (i) adversely affects or challenges the legality,
validity or enforceability of any of this Agreement or the Shares or (ii) could, if there were an
unfavorable decision, individually or in the aggregate, have or reasonably be expected to result in
a Company Material Adverse Effect. Neither the Company nor any Company Subsidiary, nor any
director or officer thereof (in his or her capacity as such), is or has been the subject of any
Action involving a claim or violation of or liability under federal or state securities laws or a
claim of breach of fiduciary duty.
SECTION 3.08.
Compliance with Applicable Laws
. The Company and the Company
Subsidiaries are in compliance with all applicable Laws, including those relating to occupational
health and safety and the environment, except for instances of noncompliance that, individually and
in the aggregate, have not had and would not reasonably be expected to have a Company Material
Adverse Effect. Except as set forth in the Company Disclosure Schedule, the Company has not
received any written communication during the past two years from a Governmental Entity that
alleges that the Company is not in compliance in any material respect with any applicable Law.
This Section 3.08 does not relate to matters with respect to Taxes, which are the subject of
Section 3.05.
7
SECTION 3.09.
Brokers; Schedule of Fees and Expenses
. No broker, investment banker,
financial advisor or other person is entitled to any brokers, finders, financial advisors or
other similar fee or commission in connection with the Transactions based upon arrangements made by
or on behalf of the Company.
SECTION 3.10.
Contracts
. Except as disclosed in the Company Disclosure Schedule,
there are no Contracts (as defined in this Section 3.10) that are material to the business,
properties, assets, condition (financial or otherwise), results of operations or prospects of the
Company and its subsidiaries taken as a whole. Neither the Company nor any Company Subsidiary is
in violation of or in default under (nor does there exist any condition which upon the passage of
time or the giving of notice would cause such a violation of or default under) any Contract to
which it is a party or by which it or any of its properties or assets is bound, except for
violations or defaults that would not, individually or in the aggregate, reasonably be expected to
result in a Company Material Adverse Effect. For purposes of this Agreement,
Contract
means any lease, license, contract, subcontract, indenture, note, option, or other agreement,
instrument or obligation, oral or written, to which the Company is a party or by which the Company
or any of its properties or assets may be bound.
SECTION 3.11.
Title to Properties
. Except as set forth in the Company Disclosure
Schedule, the Company and the Company Subsidiaries do not own any real property. Each of the
Company and the Company Subsidiaries has sufficient title to, or valid leasehold interests in, all
of its properties and assets used in the conduct of its businesses. All such assets and
properties, other than assets and properties in which the Company or any of the Company
Subsidiaries has leasehold interests, are free and clear of all Liens other than those set forth in
the Company Disclosure Schedule and except for Liens that, in the aggregate, do not and will not
materially interfere with the ability of the Company and the Company Subsidiaries to conduct
business as currently conducted.
SECTION 3.12.
Intellectual Property
. The Company and the Company Subsidiaries own, or
are validly licensed or otherwise have the right to use, all patents, patent rights, trademarks,
trademark rights, trade names, trade name rights, service marks, service mark rights, copyrights
and other proprietary intellectual property rights and computer programs (collectively,
Intellectual Property Rights
) which are material to the conduct of the business of the
Company and the Company Subsidiaries taken as a whole. The Company Disclosure Schedule sets forth
a description of all Intellectual Property Rights which are material to the conduct of the business
of the Company and the Company Subsidiaries taken as a whole. There are no claims pending or, to
the knowledge of the Company, threatened that the Company or any of the Company Subsidiaries is
infringing or otherwise adversely affecting the rights of any person with regard to any
Intellectual Property Right. To the knowledge of the Company, no person is infringing the rights
of the Company or any of the Company Subsidiaries with respect to any Intellectual Property Right.
SECTION 3.13.
Labor Matters
. There are no collective bargaining or other labor union
agreements to which the Company or any of the Company Subsidiaries is a party or by which any of
them is bound. No material labor dispute exists or, to the knowledge of the Company, is imminent
with respect to any of the employees of the Company.
8
SECTION 3.14.
Financial Statements
. The Company has delivered to Parent its audited
consolidated financial statements for the fiscal years ended December 31, 2005 and 2004 and
unaudited financial statements for the nine-month period ended September 30, 2006 (collectively,
the
Company Financial Statements
). The Company Financial Statements have been prepared
in accordance with U.S. generally accepted accounting principles (
GAAP
) applied on a
consistent basis throughout the periods indicated, except, in the case of the financial statements
for the fiscal quarter ended September 30, 2006, for the omission of footnotes. The Company
Financial Statements fairly present in all material respects the financial condition and operating
results of the Company, as of the dates, and for the periods, indicated therein. The Company does
not have any material liabilities or obligations, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent to September 30, 2006, and (ii)
obligations under contracts and commitments incurred in the ordinary course of business and not
required under GAAP to be reflected in the Company Financial Statements, which, in both cases,
individually and in the aggregate would not be reasonably expected to result in a Company Material
Adverse Effect.
SECTION 3.15.
Insurance
. The Company and the Company Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks and in such amounts
as are prudent and customary in the businesses in which the Company and the Company Subsidiaries
are engaged and in the geographic areas where they engage in such businesses. The Company has no
reason to believe that it will not be able to renew its and the Company Subsidiaries existing
insurance coverage as and when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business on terms consistent with market for the
Companys and the Company Subsidiaries respective lines of business.
SECTION 3.16.
Transactions With Affiliates and Employees
. Except as set forth in the
Company Disclosure Schedule and the Company Financial Statements, none of the officers or directors
of the Company and, to the knowledge of the Company, none of the employees of the Company are
presently a party to any transaction with the Company or any subsidiary (other than for services as
employees, officers and directors), including any Contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any entity in which any officer, director, or any
such employee has a substantial interest or is an officer, director, trustee or partner.
SECTION 3.17.
Internal Accounting Controls
. The Company and its subsidiaries
maintain a system of internal accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with managements general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only
in accordance with managements general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences. The Company has established
disclosure controls and procedures for the Company and designed such disclosure controls and
procedures to ensure that material information relating to the Company, including the Company
Subsidiaries, is made known to the officers by others within those entities. The Companys
9
officers have evaluated the effectiveness of the Companys controls and procedures. Since
December 31, 2005, there have been no significant changes in the Companys internal controls or, to
the Companys knowledge, in other factors that could significantly affect the Companys internal
controls.
SECTION 3.18.
No Additional Agreements
. The Company does not have any agreement or
understanding with any Shareholders with respect to the transactions contemplated by this Agreement
other than as specified in this Agreement.
SECTION 3.19.
Investment Company
. The Company is not, and is not an affiliate of, and
immediately following the Closing will not have become, an investment company within the meaning
of the Investment Company Act of 1940, as amended.
SECTION 3.20.
Disclosure
. The Company confirms that neither it nor any person acting
on its behalf has provided the Stockholder or any Shareholder or their respective agents or counsel
with any information that the Company believes constitutes material, non-public information except
insofar as the existence and terms of the proposed transactions hereunder may constitute such
information and except for information that will be disclosed by Parent under a current report on
Form 8-K filed within one business days after the Closing. The Company understands and confirms
that the Shareholders will rely on the foregoing representations and covenants in effecting
transactions in securities of the Company. All disclosure provided to the Shareholders regarding
the Company, its business and the transactions contemplated hereby, furnished by or on behalf of
the Company (including the Companys representations and warranties set forth in this Agreement)
are true and correct and do not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
SECTION 3.21.
Absence of Certain Changes or Events
. Except as disclosed in the
Company Financial Statements or in the Company Disclosure Schedule, from September 30, 2006 to the
date of this Agreement, the Company has conducted its business only in the ordinary course, and
during such period there has not been:
(a) any change in the assets, liabilities, financial condition or operating results
of the Company or any Company Subsidiary, except changes in the ordinary course of
business that have not caused, in the aggregate, a Company Material Adverse Effect;
(b) any damage, destruction or loss, whether or not covered by insurance, that would
have a Company Material Adverse Effect;
(c) any waiver or compromise by the Company or any Company Subsidiary of a valuable
right or of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim, or encumbrance or payment of
any obligation by the Company or any Company Subsidiary, except in the ordinary course of
business and the satisfaction or discharge of which would not have a Company Material
Adverse Effect;
10
(e) any material change to a material Contract by which the Company or any Company
Subsidiary or any of its respective assets is bound or subject;
(f) any mortgage, pledge, transfer of a security interest in, or lien, created by the
Company or any Company Subsidiary, with respect to any of its material properties or
assets, except liens for Taxes not yet due or payable and liens that arise in the ordinary
course of business and do not materially impair the Companys or such Company Subsidiarys
ownership or use of such property or assets;
(g) any loans or guarantees made by the Company or any Company Subsidiary to or for
the benefit of its employees, officers or directors, or any members of their immediate
families, other than travel advances and other advances made in the ordinary course of its
business;
(h) any alteration of the Companys method of accounting or the identity of its
auditors;
(i) any declaration or payment of dividend or distribution of cash or other property
to Shareholders or any purchase, redemption or agreements to purchase or redeem any shares
of Company Stock; or
(j) any arrangement or commitment by the Company or any Company Subsidiary to do any
of the things described in this Section 3.21.
SECTION 3.22.
No Undisclosed Events, Liabilities, Developments or Circumstances
. No
event, liability, development or circumstance has occurred or exists, or is contemplated to occur
with respect to the Company, its subsidiaries or their respective business, properties, prospects,
operations or financial condition, that would be required to be disclosed by the Company under
applicable securities laws on a registration statement on Form S-1 filed with the SEC relating to
an issuance and sale by the Company of the Company Stock and which has not been publicly announced.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND
THE STOCKHOLDER
Parent and the Stockholder severally represent and warrant as follows to each of the
Shareholders, the Shareholder Representative and the Company that, except as set forth in the
reports, schedules, forms, statements and other documents filed by Parent with the SEC and publicly
available prior to the date of the Agreement (the
Filed Parent SEC Documents
):
SECTION 4.01.
Organization, Standing and Power
. Parent is duly organized, validly
existing and in good standing under the laws of the State of Delaware and has full corporate power
and authority and possesses all governmental franchises, licenses, permits, authorizations and
approvals necessary to enable it to own, lease or otherwise hold its properties and assets and to
conduct its businesses as presently conducted, other than such franchises, licenses, permits,
authorizations and approvals the lack of which, individually or in the
11
aggregate, has not had and would not reasonably be expected to have a material adverse effect
on Parent, a material adverse effect on the ability of Parent to perform its obligations under this
Agreement or on the ability of Parent to consummate the Transactions (a
Parent Material
Adverse Effect
). Parent is duly qualified to do business in each jurisdiction where the
nature of its business or its ownership or leasing of its properties make such qualification
necessary and where the failure to so qualify would reasonably be expected to have a Parent
Material Adverse Effect. Parent has delivered to the Company true and complete copies of the
Certificate of Incorporation of Parent, as amended to the date of this Agreement (as so amended,
the
Parent Charter
), and the Bylaws of Parent, as amended to the date of this Agreement
(as so amended, the
Parent Bylaws
).
SECTION 4.02.
Subsidiaries; Equity Interests
. Parent does not own, directly or
indirectly, any capital stock, membership interest, partnership interest, joint venture interest or
other equity interest in any person.
SECTION 4.03.
Capital Structure
. The authorized capital stock of Parent consists of
40,000,000 shares of Parent Stock, par value $0.001 per share, and 10,000,000 shares of preferred
stock, par value $0.001 per share. As of the date hereof
(i) 2,209,993 shares of Parent Stock are
issued and outstanding, (ii) no shares of preferred stock are outstanding and (iii) no shares of
Parent Stock or preferred stock are held by Parent in its treasury. Except as set forth above, no
shares of capital stock or other voting securities of Parent were issued, reserved for issuance or
outstanding. All outstanding shares of the capital stock of Parent are, and all such shares that
may be issued prior to the date hereof will be when issued, duly authorized, validly issued, fully
paid and nonassessable and not subject to or issued in violation of any purchase option, call
option, right of first refusal, preemptive right, subscription right or any similar right under any
provision of the General Corporation Law of the State of Delaware, the Parent Charter, the Parent
Bylaws or any Contract to which Parent is a party or otherwise bound. There are not any bonds,
debentures, notes or other indebtedness of Parent having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which holders of Parent
Stock may vote (
Voting Parent Debt
). Except as set forth above, as of the date of this
Agreement, there are not any options, warrants, rights, convertible or exchangeable securities,
phantom stock rights, stock appreciation rights, stock-based performance units, commitments,
Contracts, arrangements or undertakings of any kind to which Parent is a party or by which it is
bound (i) obligating Parent to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock or other equity interests in, or any security convertible or
exercisable for or exchangeable into any capital stock of or other equity interest in, Parent or
any Voting Parent Debt, (ii) obligating Parent to issue, grant, extend or enter into any such
option, warrant, call, right, security, commitment, Contract, arrangement or undertaking or (iii)
that give any person the right to receive any economic benefit or right similar to or derived from
the economic benefits and rights occurring to holders of the capital stock of Parent. As of the
date of this Agreement, there are not any outstanding contractual obligations of Parent to
repurchase, redeem or otherwise acquire any shares of capital stock of Parent. Except as set
forth in Section 4.25 below, Parent is not a party to any agreement granting any securityholder of
Parent the right to cause Parent to register shares of the capital stock or other securities of
Parent held by such securityholder under the Securities Act. The stockholder list provided to the
Company is a current stockholder list generated by its stock transfer agent, and
such list accurately reflects all of the issued and outstanding shares of the Parents Common
Stock.
12
SECTION 4.04.
Authority; Execution and Delivery; Enforceability
. The execution and
delivery by Parent of this Agreement and the consummation by Parent of the Transactions have been
duly authorized and approved by the Board of Directors of Parent and no other corporate proceedings
on the part of Parent are necessary to authorize this Agreement and the Transactions. This
Agreement constitutes a legal, valid and binding obligation of Parent, enforceable against Parent
in accordance with the terms hereof.
SECTION 4.05.
No Conflicts; Consents
.
(a) The execution and delivery by Parent of this Agreement, does not, and the
consummation of Transactions and compliance with the terms hereof and thereof will not,
conflict with, or result in any violation of or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a material benefit under, or to increased,
additional, accelerated or guaranteed rights or entitlements of any person under, or
result in the creation of any Lien upon any of the properties or assets of Parent under,
any provision of (i) the Parent Charter or the Parent Bylaws, (ii) any material Contract
to which Parent is a party or by which any of its properties or assets is bound or (iii)
subject to the filings and other matters referred to in Section 4.05(b), any material
Judgment or material Law applicable to Parent or its properties or assets, other than, in
the case of clauses (ii) and (iii) above, any such items that, individually or in the
aggregate, have not had and would not reasonably be expected to have a Parent Material
Adverse Effect.
(b) Except for the filing of the Certificate of Compliance with the United States.
Bankruptcy Court for the Northern District of Texas, Dallas Division, no Consent of, or
registration, declaration or filing with, or permit from, any Governmental Entity is
required to be obtained or made by or with respect to Parent in connection with the
execution, delivery and performance of this Agreement or the consummation of the
Transactions, other than the (A) filing with the SEC of a Form 8-K and (B) filing with the
SEC of reports under Sections 13 and 16 of the Exchange Act of 1934, as amended (the
Exchange Act
), and (C) filings under state blue sky laws, as may be required
in connection with this Agreement and the Transactions.
SECTION 4.06.
SEC Documents; Undisclosed Liabilities
.
(a) Parent has filed all reports, schedules, forms, statements and other documents
required to be filed by Parent with the SEC since April 4, 2006, pursuant to Sections
13(a), 14 (a) and 15(d) of the Exchange Act (the
Parent SEC Documents
).
(b) As of its respective filing date, each Parent SEC Document complied in all
material respects with the requirements of the Exchange Act and the rules and regulations
of the SEC promulgated thereunder applicable to such Parent SEC Document, and did not
contain any untrue statement of a material fact or omit to state a
13
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made, not
misleading. Except to the extent that information contained in any Parent SEC Document
has been revised or superseded by a later filed Parent SEC Document, none of the Parent
SEC Documents contains any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not misleading. The
consolidated financial statements of Parent included in the Parent SEC Documents comply as
to form in all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in accordance
with GAAP (except, in the case of unaudited statements, as permitted by the rules and
regulations of the SEC) applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto) and fairly present the consolidated financial
position of Parent and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods shown (subject, in
the case of unaudited statements, to normal year-end audit adjustments).
(c) Except as set forth in the Filed Parent SEC Documents, Parent has no liabilities
or obligations of any nature (whether accrued, absolute, contingent or otherwise) required
by GAAP to be set forth on a balance sheet of Parent or in the notes thereto. To the best
knowledge of the Parent, Parent is not aware of any financial and contractual obligations
and liabilities (including any obligations to issue capital stock or other securities of
Parent) due after the date hereof. As of the date hereof, Parent has total liabilities of
less than $5,000, all of which liabilities shall be paid off at or prior to the Closing
and shall in no event remain liabilities of Parent, the Company or the Shareholders
following the Closing.
SECTION 4.07.
Absence of Certain Changes or Events
. Except as disclosed in the Filed
Parent SEC Documents, from the date of the most recent audited financial statements included in the
Filed Parent SEC Documents to the date of this Agreement, Parent has conducted its business only in
the ordinary course, and during such period there has not been:
(a) any change in the assets, liabilities, financial condition or operating results
of Parent from that reflected in the Parent SEC Documents, except changes in the ordinary
course of business that have not caused, in the aggregate, a Parent Material Adverse
Effect;
(b) any damage, destruction or loss, whether or not covered by insurance, that would
have a Parent Material Adverse Effect;
(c) any waiver or compromise by Parent of a valuable right or of a material debt owed
to it;
(d) any satisfaction or discharge of any lien, claim, or encumbrance or payment of
any obligation by Parent, except in the ordinary course of business and the satisfaction
or discharge of which would not have a Parent Material Adverse Effect;
14
(e) any material change to a material Contract by which Parent or any of its assets
is bound or subject;
(f) any material change in any compensation arrangement or agreement with any
employee, officer, director or stockholder;
(g) any resignation or termination of employment of any officer of Parent;
(h) any mortgage, pledge, transfer of a security interest in, or lien, created by
Parent, with respect to any of its material properties or assets, except liens for Taxes
not yet due or payable and liens that arise in the ordinary course of business and do not
materially impair Parents ownership or use of such property or assets;
(i) any loans or guarantees made by Parent to or for the benefit of its employees,
officers or directors, or any members of their immediate families, other than travel
advances and other advances made in the ordinary course of its business;
(j) any declaration, setting aside or payment or other distribution in respect of any
of Parents capital stock, or any direct or indirect redemption, purchase, or other
acquisition of any of such stock by Parent;
(k) any alteration of Parents method of accounting or the identity of its auditors;
(l) any issuance of equity securities to any officer, director or affiliate, except
pursuant to existing Parent stock option plans; or
(m) any arrangement or commitment by Parent to do any of the things described in this
Section 4.07.
SECTION 4.08.
Taxes
.
(a) Parent has timely filed, or has caused to be timely filed on its behalf, all Tax
Returns required to be filed by it, and all such Tax Returns are true, complete and
accurate, except to the extent any failure to file or any inaccuracies in any filed Tax
Returns, individually or in the aggregate, have not had and would not reasonably be
expected to have a Parent Material Adverse Effect. All Taxes shown to be due on such Tax
Returns, or otherwise owed, has been timely paid, except to the extent that any failure to
pay, individually or in the aggregate, has not had and would not reasonably be expected to
have a Parent Material Adverse Effect.
(b) The most recent financial statements contained in the Filed Parent SEC Documents
reflect an adequate reserve for all Taxes payable by Parent (in addition to any reserve
for deferred Taxes to reflect timing differences between book and Tax items) for all
Taxable periods and portions thereof through the date of such financial statements. No
deficiency with respect to any Taxes has been proposed, asserted or assessed against
Parent, and no requests for waivers of the time to assess any such Taxes are pending,
except to the extent any such deficiency or request for waiver,
individually or in the aggregate, has not had and would not reasonably be expected to
have a Parent Material Adverse Effect.
15
(c) There are no Liens for Taxes (other than for current Taxes not yet due and
payable) on the assets of Parent. Parent is not bound by any agreement with respect to
Taxes.
SECTION 4.09.
Absence of Changes in Benefit Plans
. From the date of the most recent
audited financial statements included in the Filed Parent SEC Documents to the date of this
Agreement, there has not been any adoption or amendment in any material respect by Parent of any
collective bargaining agreement or any bonus, pension, profit sharing, deferred compensation,
incentive compensation, stock ownership, stock purchase, stock option, phantom stock, retirement,
vacation, severance, disability, death benefit, hospitalization, medical or other plan, arrangement
or understanding (whether or not legally binding) providing benefits to any current or former
employee, officer or director of Parent (collectively,
Parent Benefit Plans
). As of the
date of this Agreement there are not any employment, consulting, indemnification, severance or
termination agreements or arrangements between Parent and any current or former employee, officer
or director of Parent, nor does Parent have any general severance plan or policy.
SECTION 4.10.
ERISA Compliance; Excess Parachute Payments
. Parent does not, and since
its inception never has, maintained, or contributed to any employee pension benefit plans (as
defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended
(
ERISA
), employee welfare benefit plans (as defined in Section 3(1) of ERISA) or any
other Parent Benefit Plan for the benefit of any current or former employees, consultants, officers
or directors of Parent.
SECTION 4.11.
Litigation
. Except as disclosed in the Filed Parent SEC Documents ,
there is no Action which (i) adversely affects or challenges the legality, validity or
enforceability of any of this Agreement or the Shares or (ii) could, if there were an unfavorable
decision, individually or in the aggregate, have or reasonably be expected to result in a Parent
Material Adverse Effect. Neither Parent nor any subsidiary, nor any director or officer thereof
(in his or her capacity as such), is or has been the subject of any Action involving a claim or
violation of or liability under federal or state securities laws or a claim of breach of fiduciary
duty.
SECTION 4.12.
Compliance with Applicable Laws
. Except as disclosed in the Filed
Parent SEC Documents, Parent is in compliance with all applicable Laws, including those relating to
occupational health and safety and the environment, except for instances of noncompliance that,
individually and in the aggregate, have not had and would not reasonably be expected to have a
Parent Material Adverse Effect. Except as set forth in the Filed Parent SEC Documents, Parent has
not received any written communication during the past two years from a Governmental Entity that
alleges that Parent is not in compliance in any material respect with any applicable Law. Parent
is in compliance with all effective requirements of the Sarbanes-Oxley Act of 2002, as amended, and
the rules and regulations thereunder, that are applicable to it, except where such noncompliance
could not have or reasonably be expected to result in a
Parent Material Adverse Effect. This Section 4.12 does not relate to matters with respect to
Taxes, which are the subject of Section 4.08.
16
SECTION 4.13.
Contracts
. Except as disclosed in the Filed Parent SEC Documents, there
are no Contracts that are material to the business, properties, assets, condition (financial or
otherwise), results of operations or prospects of Parent taken as a whole. Parent is not in
violation of or in default under (nor does there exist any condition which upon the passage of time
or the giving of notice would cause such a violation of or default under) any Contract to which it
is a party or by which it or any of its properties or assets is bound, except for violations or
defaults that would not, individually or in the aggregate, reasonably be expected to result in a
Parent Material Adverse Effect.
SECTION 4.14.
Title to Properties
. Parent does not own or lease any real property.
SECTION 4.15.
Intellectual Property
. Parent does not own, or has a valid license or
right to use any Intellectual Property Rights. There are no claims pending or, to the knowledge of
Parent, threatened that Parent is infringing or otherwise adversely affecting the rights of any
person with regard to any Intellectual Property Right. To the knowledge of Parent, no person is
infringing the rights of Parent with respect to any Intellectual Property Right.
SECTION 4.16.
Labor Matters
. There are no collective bargaining or other labor union
agreements to which Parent is a party or by which it is bound. No material labor dispute exists
or, to the knowledge of Parent, is imminent with respect to any of the employees of Parent.
SECTION 4.17.
Market Makers
. Parent has one market maker for its common shares and
such market maker has obtained all permits and made all filings necessary in order for such market
maker to continue as market makers of Parent.
SECTION 4.18.
Transactions With Affiliates and Employees
. Except as set forth in the
Filed Parent SEC Documents and for the Financial Advisory Agreement by and between Halter Financial
Group, L.P. and the Company, dated October 18, 2006, none of the officers or directors of Parent
and, to the knowledge of Parent, none of the employees of Parent is presently a party to any
transaction with Parent or any subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the knowledge of
Parent, any entity in which any officer, director, or any such employee has a substantial interest
or is an officer, director, trustee or partner.
SECTION 4.19.
Internal Accounting Controls
. Parent maintains a system of internal
accounting controls sufficient to provide reasonable assurance that (i) transactions are executed
in accordance with managements general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to assets is permitted
only in accordance with managements general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences. Parent has established
17
disclosure controls and procedures for Parent and designed such disclosure controls and
procedures to ensure that material information relating to Parent is made known to the officers by
others within those entities. Parents officers have evaluated the effectiveness of Parents
controls and procedures. Since December 31, 2005, there have been no significant changes in
Parents internal controls or, to Parents knowledge, in other factors that could significantly
affect Parents internal controls.
SECTION 4.20.
No Liabilities
. Parent has no unsatisfied judgments liens or tax liens
on its assets. Further, Parent has no liability related to the Assignment and Assumption
Agreement, dated November 7, 2006, by and between Parent and Bronze Marketing, Inc., a Nevada
corporation (the Assignee), Sutor Steel Technology Co., Ltd., a British Virgin Islands
corporation (Sutor), and the stockholders of Sutor (the Sutor Stockholders) pursuant to which
Parent has agreed to assign to Assignee all the rights, obligations and duties of Parent under that
certain Share Exchange Agreement (Share Exchange Agreement), dated September 7, 2006, by and
among Parent, Sutor and the Sutor Stockholders.
SECTION 4.21.
Application of Takeover Protections
. Parent has taken all necessary
action, if any, in order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Parent Charter, the Parent Bylaws or the laws of its state of
incorporation that is or could become applicable to the Shareholders as a result of the
Shareholders and Parent fulfilling their obligations or exercising their rights under this
Agreement, including, without limitation, the issuance of the Shares and the Shareholders
ownership of the Shares.
SECTION 4.22.
No Additional Agreements
. Parent does not have any agreement or
understanding with the Shareholders with respect to the transactions contemplated by this Agreement
other than as specified in this Agreement.
SECTION 4.23.
Investment Company
. Parent is not, and is not an affiliate of, and
immediately following the Closing will not have become, an investment company within the meaning
of the Investment Company Act of 1940, as amended.
SECTION 4.24.
Disclosure
. Parent confirms that neither it nor any person acting on
its behalf has provided any of its stockholders, any of the Shareholders or their respective agents
or counsel with any information that Parent believes constitutes material, non-public information
except insofar as the existence and terms of the proposed transactions hereunder may constitute
such information and except for information that will be disclosed by Parent under a current report
on Form 8-K filed within one business days after the Closing. Parent understands and confirms that
the Shareholders will rely on the foregoing representations and covenants in effecting transactions
in securities of Parent. All disclosure provided to the Shareholders regarding Parent, its
business and the transactions contemplated hereby, furnished by or on behalf of Parent (including
Parents representations and warranties set forth in this Agreement) are true and correct and do
not contain any untrue statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under which they were
made, not misleading.
18
SECTION 4.25.
Certain Registration Matters
. Except as specified in the Filed Parent
SEC Documents and except for registration rights granted to affiliates of Timothy Halter, Parent
has not granted or agreed to grant to any person any rights (including piggy-back registration
rights) to have any securities of Parent registered with the SEC or any other governmental
authority that have not been satisfied.
SECTION 4.26.
Listing and Maintenance Requirements
. Parent is, and has no reason to
believe that it will not in the foreseeable future continue to be, in compliance with the listing
and maintenance requirements for continued listing of the Parent Stock on the trading market on
which the Parent Stock is currently listed or quoted. The issuance and sale of the Shares under
this Agreement does not contravene the rules and regulations of the trading market on which the
Parent Stock is currently listed or quoted, and no approval of the Shareholders of Parent is
required for Parent to issue and deliver to the Shareholders the Shares contemplated by this
Agreement.
SECTION 4.27.
No Undisclosed Events, Liabilities, Developments or Circumstances
. No
event, liability, development or circumstance has occurred or exists, or is contemplated to occur
with respect to Parent, its subsidiaries or their respective business, properties, prospects,
operations or financial condition, that would be required to be disclosed by Parent under
applicable securities laws on a registration statement on Form S-1 filed with the SEC relating to
an issuance and sale by Parent of the Parent Stock and which has not been publicly announced.
SECTION 4.28.
Trading
. Parent Stock is currently quoted for trading on the
Over-the-Counter Bulletin Board, and Parent has received no notice that it is subject to being
delisted therefrom.
ARTICLE V
DELIVERIES
SECTION 5.01.
Deliveries of the Shareholder Representative
.
(a) Concurrently herewith, the Shareholder Representative is delivering to Parent
(i) this Agreement executed by the Shareholder Representative together with the
Company Disclosure Schedule;
(ii) certificates representing its Company Stock; and
(iii) documentation executed by the Shareholder Representative necessary to
effect the transfer of the Company Stock held by the Shareholders to Parent.
SECTION 5.02.
Deliveries of Parent
.
(a) Concurrently herewith, Parent is delivering:
19
(i) to the Shareholder Representative and to the Company, a copy of this
Agreement executed by Parent, together with the Parent Disclosure Schedule;
(ii) to the Company, a certificate from Parent, signed by its Secretary or
Assistant Secretary certifying that the attached copies of the Parent Charter,
Parent Bylaws and resolutions of the Board of Directors of Parent approving the
Agreement and the Transactions are all true, complete and correct and remain in full
force and effect;
(iii) to the Company, a written consent of the Board of Directors authorizing
and approving (1) the amendment of the Parent Charter to change Parents name to
International Stem Cell Corporation and increasing the total number of authorized shares
of Parent Stock to 220,000,000 shares; (2) the amendment of the Parent Bylaws; and
(3) the adoption of a Stock Option Plan, approved by the Company;
(iv) to the Company, in connection with the matters set froth in Section
5.02(a)(iii) hereof, a duly executed Information Statement on Schedule 14C (the
Information Statement
) which shall be filed prior to the Form 8-K related
to the Transactions;
(v) to the Company, evidence of the appointment of Kenneth Aldrich as the
Chairman of the Board of Directors of Parent and election of each of Jeff Krstich,
as the Chief Executive Officer; Jeffery Janus as the President and
William B. Adams as the Chief Financial Officer of
Parent, effective upon execution of this Agreement by Parent;
(vi) to the Company, a letter of resignation executed by Timothy Halter
providing that Mr. Halter shall resign from the Board of Directors effective upon
the tenth day after the mailing of the Schedule 14f-1;
(vii) to the Company, an irrevocable letter of instruction to the transfer
agent for the Parent Stock instructing such transfer agent to issue new shares of
Parent Stock issued to such Shareholders as set forth on
Exhibit A
attached
hereto, in book-entry form. It being understood that as a result of the name change
and the related change in CUSIP Number, the share certificates representing the
Shares shall not be issued until the name change of Parent is
effective;
(viii) to
the Company, the SEC Edgar Filing Codes for Parent; and
(ix) to the Company, a certificate from Parent, signed by its authorized
officer certifying that the representations and warranties contained
in Article IV of this Agreement are true and accurate in all
material respects, as of the date hereof, with the same effect as
though expressly made at the Closing, and that Parent has performed
in all material respects all agreements and covenants and complied
in all material respects with all conditions contained in this
Agreement, as of the date hereof.
20
SECTION 5.03.
Deliveries of the Company
.
(a) Concurrently herewith, the Company is delivering to Parent:
(i) this Agreement executed by Company;
(ii) a certificate from the Company, signed by its authorized officer
certifying that the attached copies of the Company Charter Documents and resolutions
of the Board of Directors of the Company approving the Agreement and the
Transactions are all true, complete and correct and remain in full
force and effect; and
(iii) a
certificate from the
Company, signed by its authorized officer certifying that the
representation and warranties contained in Article III hereof
are true and accurate in all material respects, as of the date
hereof, with the same effect as though expressly made at the
Closing, and that the Company has performed in all material
respects all agreements and covenants and complied in all
material respects with all conditions contained in the
Agreement, as of the date hereof.
SECTION 5.04.
Deliveries of the Stockholder
.
(a) Concurrently herewith, the Stockholder is delivering to the Company:
(i) this Agreement executed by the Stockholder;
(ii) a written consent authorizing and approving (1) the amendment of the
Parent Charter to change of Parents name to International Stem Cell, Inc. and
increasing the total number of authorized shares of Parent Stock to 200,000,000
shares; (2) the amendment of the Parent Bylaws; and (3) the adoption of a Stock
Option Plan, approved by the Company.
ARTICLE VI
CONDITIONS TO CLOSING
SECTION 6.01.
Stockholder and Company Conditions Precedent
. The obligations of the
Shareholders and the Company to enter into this Agreement and complete the Closing is subject, at
the option of the Shareholders and the Company, to the fulfillment on or prior to the Closing Date
of the following conditions.
(a)
Representations and Covenants
. The representations and warranties of
Parent contained in this Agreement shall be true in all material respects on and as of the
Closing Date with the same force and effect as though made on and as of the Closing Date.
Parent shall have performed and complied in all material respects with all covenants and
agreements required by this Agreement to be performed or complied with by Parent on or
prior to the Closing Date. Parent shall have delivered to the Shareholders and the
Company, a certificate, dated the Closing Date, to the foregoing effect.
(b)
Litigation
. No action, suit or proceeding shall have been instituted
before any court or governmental or regulatory body or instituted or threatened by any
governmental or regulatory body to restrain, modify or prevent the carrying out of the
Transactions or to seek damages or a discovery order in connection with such Transactions,
or which has or may have, in the reasonable opinion of the Company or any Shareholders, a
materially adverse effect on the assets, properties, business, operations or condition
(financial or otherwise) of Parent or the Company.
21
(c)
No Material Adverse Change
. There shall not have been any occurrence,
event, incident, action, failure to act, or transaction since December 31, 2005 which has
had or is reasonably likely to cause a Parent Material Adverse Effect.
(d)
Post-Closing Capitalization
. At, and immediately after, the Closing, the
authorized capitalization, and the number of issued and outstanding shares of the capital
stock of the Company and Parent, on a fully-diluted basis, shall be as specified in
Schedule 6.01(d)
attached hereto.
(e)
SEC Reports
. Parent shall have filed all reports and other documents
required to be filed by Parent under the U.S. federal securities laws through the Closing
Date.
(f)
OTCBB Quotation
. Parent shall have maintained its status as a company
whose common stock is quoted on the Over-the-Counter Bulletin Board and no reason shall
exist as to why such status shall not continue immediately following the Closing.
(g)
Deliveries of Parent
. The deliveries specified in Section 5.02 shall
have been made by Parent.
(h)
Deliveries of the Stockholder
. The deliveries specified in Section 5.04
shall have been made by the Stockholder.
(i)
No Suspensions of Trading in Parent Stock; Listing
. Trading in the
Parent Stock shall not have been suspended by the SEC or any trading market (except for
any suspensions of trading of not more than one trading day solely to permit dissemination
of material information regarding Parent) at any time since the date of execution of this
Agreement, and the Parent Stock shall have been at all times since such date listed for
trading on a trading market.
SECTION 6.02.
Parent Conditions Precedent
. The obligations of Parent to enter into
and complete the Closing is subject, at the option of Parent, to the fulfillment on or prior to the
Closing Date of the following conditions, any one or more of which may be waived by Parent in
writing.
(a)
Representations and Covenants
. The representations and warranties of the
Shareholders and the Company contained in this Agreement shall be true in all material
respects on and as of the Closing Date with the same force and effect as though made on
and as of the Closing Date. The Shareholders and the Company shall have performed and
complied in all material respects with all covenants and agreements required by this
Agreement to be performed or complied with by the Shareholders and the Company on or prior
to the Closing Date. The Company shall have delivered to Parent, if requested, a
certificate, dated the Closing Date, to the foregoing effect.
(b)
Litigation
. No action, suit or proceeding shall have been instituted
before any court or governmental or regulatory body or instituted or threatened by any
governmental or regulatory body to restrain, modify or prevent the carrying out of the
Transactions or to seek damages or a discovery order in connection with such
Transactions, or which has or may have, in the reasonable opinion of Parent, a
materially adverse effect on the assets, properties, business, operations or condition
(financial or otherwise) of Parent.
22
(c)
No Material Adverse Change
. There shall not have been any occurrence,
event, incident, action, failure to act, or transaction since December 31, 2005 which has
had or is reasonably likely to cause a Company Material Adverse Effect.
(d)
Deliveries
. The deliveries specified in Section 5.01 and Section 5.03
shall have been made by the Shareholder Representative and the Company, respectively.
(e)
Audited Financial Statements and Form 10 Disclosure
. The Company shall
have provided Parent and the Shareholders with reasonable assurances that Parent will be
able to comply with its obligation to file a current report on Form 8-K within one (1)
business days following the Closing containing the requisite audited consolidated
financial statements of the Company and the requisite Form 10-type disclosure regarding
the Company.
(f)
Post-Closing Capitalization
. At, and immediately after, the Closing, the
authorized capitalization, and the number of issued and outstanding shares of the capital
stock of the Company and Parent, on a fully-diluted basis, shall be as specified in
Schedule 6.01(d
) attached hereto.
ARTICLE VII
COVENANTS
SECTION 7.01.
Preparation of the 14f-1 Notice; Information Statement; Blue Sky Laws
.
(a) As soon as possible following the date of this Agreement and in any event, within
one business day hereafter, the Company and Parent shall prepare and file with the SEC the
14f-1 Notice in connection with the consummation of this Agreement. Parent shall cause
the 14f-1 Notice to be mailed to the Parents stockholders as promptly as practicable
thereafter.
(b) As soon as possible following the date of this Agreement and in any event, within
one business day hereafter, the Company and Parent shall prepare and file with the SEC the
Information Statement on Schedule 14C in connection with the matters set forth in Sections
5.02(a)(iii) and 5.04(b) of this Agreement. Parent shall cause the 14f-1 Notice together
with the Information Statement to be mailed to Parents stockholders as promptly as
practicable thereafter.
(c) Parent shall take any action (other than qualifying to do business in any
jurisdiction in which it is not now so qualified) required to be taken under any
applicable state securities laws in connection with the issuance of Parent Stock in
connection with this Agreement.
23
SECTION 7.02.
Public Announcements
. Parent and the Company will consult with each
other before issuing, and provide each other the opportunity to review and comment upon, any press
release or other public statements with respect to the Agreement and the Transactions and shall not
issue any such press release or make any such public statement prior to such consultation, except
as may be required by applicable Law, court process or by obligations pursuant to any listing
agreement with any national securities exchange.
SECTION 7.03.
Fees and Expenses
. All fees and expenses incurred in connection with
this Agreement shall be paid by the party incurring such fees or expenses, whether or not this
Agreement is consummated.
SECTION 7.04.
Continued Efforts
. Each party hereto shall use commercially reasonable
efforts to (i) take all action reasonably necessary to consummate the Transactions, and (ii) take
such steps and do such acts as may be necessary to keep all of its representations and warranties
true and correct as of the Closing Date with the same effect as if the same had been made, and this
Agreement had been dated, as of the Closing Date.
SECTION 7.05.
Conduct of Business
. During the period from the date hereof through the
Closing Date, Parent and the Company shall carry on their respective businesses in the ordinary and
usual course consistent with past practice.
SECTION 7.06.
Exclusivity
. Parent shall not (i) solicit, initiate, or encourage the
submission of any proposal or offer from any person relating to the acquisition of any capital
stock or other voting securities of Parent, or any assets of Parent (including any acquisition
structured as a merger, consolidation, share exchange or other business combination), (ii)
participate in any discussions or negotiations regarding, furnish any information with respect to,
assist or participate in, or facilitate in any other manner any effort or attempt by any person to
do or seek any of the foregoing, or (iii) take any other action that is inconsistent with the
Transactions and that has the effect of avoiding the Closing contemplated hereby. Parent shall
notify the Company immediately if any person makes any proposal, offer, inquiry, or contact with
respect to any of the foregoing.
SECTION 7.07.
Filing of 8-K and Press Release
. Parent shall file, within one business
day of the Closing Date, a current report on Form 8-K and attach as exhibits all relevant
agreements with the SEC disclosing the terms of this Agreement and other requisite disclosure
regarding the Transactions and including the requisite audited consolidated financial statements of
the Company and the requisite Form 10 disclosure regarding the Company. In addition, Parent shall
issue a press release prior to 9:30 a.m. (New York Time) on the business day following the Closing
Date, announcing the closing of the Transactions.
SECTION 7.08.
Furnishing of Information
. As long as the Stockholder owns the Shares,
Parent covenants to timely file (or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed by Parent after the date hereof pursuant
to the Exchange Act. As long the Stockholder owns Shares, if Parent is not required to file
reports pursuant to such laws, it will prepare and furnish to the Stockholder and make publicly
available in accordance with Rule 144(c) promulgated by the SEC pursuant to the Securities Act,
such information as is required for the Stockholder to sell the Shares under Rule 144. Parent
further
covenants that it will take such further action as any holder of Shares may reasonably
request, all to the extent required from time to time to enable such person to sell the Shares
without registration under the Securities Act within the limitation of the exemptions provided by
Rule 144.
24
SECTION 7.09.
Integration
. The Company shall not, and shall use its best efforts to
ensure that no affiliate of the Company shall, 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 Shares in a manner that would require the
registration under the Securities Act of the acquisition of the Shares by the Shareholders pursuant
to the Agreement, or that would be integrated with the offer or sale of the Shares for purposes of
the rules and regulations of any trading market in a manner that would require stockholder approval
of the sale of the securities to the Shareholders.
SECTION 7.10.
Limitation on Issuance of Future Priced Securities
. During the six
months following the Closing, Parent shall not issue any Future Priced Securities as such term is
described by NASD IM-4350-1.
SECTION 7.11.
Non-Public Information
. Each of the Company and Parent covenant and
agree that neither it nor any other person acting on their behalf will provide any person
information that the Company or Parent believes constitutes material non-public information, unless
prior thereto such person shall have executed a written agreement regarding the confidentiality and
use of such information. Each of the Company and Parent understands and confirms that each
Shareholder shall be relying on the foregoing representations in effecting transactions in
securities of Parent.
SECTION 7.12.
Listing of Securities
. Parent agrees, (i) if Parent applies to have the
Parent Stock traded on any other trading market, it will include in such application the Shares,
and will take such other action as is necessary or desirable to cause the Shares to be listed on
such other trading market as promptly as possible, and (ii) it will take all action reasonably
necessary to continue the listing and trading of Parent Stock on a trading market and will comply
in all material respects with Parents reporting, filing and other obligations under the bylaws or
rules of the trading market.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.01.
Indemnification of Company and the Shareholders
. Each of Parent and the
Stockholder shall indemnify and hold the Company and each of the Shareholders and their directors,
officers, shareholders, partners, employees and agents (each, a
Company Indemnified
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 (collectively,
Losses
) that any
such Company Indemnified Party may suffer or incur as a result of or relating to any
misrepresentation, breach or inaccuracy of any representation, warranty, covenant or agreement made
by Parent or the Stockholder in this Agreement or any of the documents
25
contemplated herein. In addition to the indemnity contained herein, Parent will reimburse
each Company Indemnified Party for its reasonable legal and other expenses (including the cost of
any investigation, preparation and travel in connection therewith) incurred in connection
therewith, as such expenses are incurred.
SECTION 8.02.
Indemnification of Parent and the Stockholder
. The Company shall
indemnify and hold Parent and the Stockholder and their directors, officers, shareholders,
partners, employees and agents (each, an
Parent Indemnified Party
) harmless from any and
all Losses that any such Parent Indemnified Party may suffer or incur as a result of or relating to
any misrepresentation, breach or inaccuracy of any representation, warranty, covenant or agreement
made by the Company in this Agreement or any of the documents contemplated herein
SECTION 8.03.
Indemnification Procedure
. A party (an
Indemnified Party
)
seeking indemnification shall give prompt notice to the other party (the
Indemnifying
Party
) of any claim for indemnification arising under this Article VIII. The Indemnifying
Party shall have the right to assume and to control the defense of any such claim with counsel
reasonably acceptable to such Indemnified Party, at the Indemnifying Partys own cost and expense,
including the cost and expense of reasonable attorneys fees and disbursements in connection with
such defense, in which event the Indemnifying Party shall not be obligated to pay the fees and
disbursements of separate counsel for such in such action. In the event, however, that such
Indemnified Partys legal counsel shall determine that defenses may be available to such
Indemnified Party that are different from or in addition to those available to the Indemnifying
Party, in that there could reasonably be expected to be a conflict of interest if such Indemnifying
Party and the Indemnified Party have common counsel in any such proceeding, or if the Indemnified
Party has not assumed the defense of the action or proceedings, then such Indemnifying Party may
employ separate counsel to represent or defend such Indemnified Party, and the Indemnifying Party
shall pay the reasonable fees and disbursements of counsel for such Indemnified Party. No
settlement of any such claim or payment in connection with any such settlement shall be made
without the prior consent of the Indemnifying Party which consent shall not be unreasonably
withheld.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01.
Notices
. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed given upon receipt by
the parties at the following addresses (or at such other address for a party as shall be specified
by like notice):
If to Parent, to:
BTHC III, Inc.
12890 Hilltop Road
Argyle, Texas 76226
Attention: Timothy Halter
Facsimile: (972) 233-0300
26
If to the Company or the Shareholder Representative, to:
International Stem Cell Corporation
2595 Jason Court
Oceanside, California 92056
Attention: Jeff Krstich
Facsimile: (760) 940-6387
with a copy to:
Katten Muchin Rosenman, LLP
2029 Century Park East, Suite 2600
Los Angeles, California 90067
Attention: Eric A. Klein
Facsimile: (310) 712-8234
SECTION 9.02.
Amendments; Waivers; No Additional Consideration
. No provision of this
Agreement may be waived or amended except in a written instrument signed by the Company, Parent and
the Shareholders holding a majority of the Shares. 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 either party to exercise any right hereunder
in any manner impair the exercise of any such right. No consideration shall be offered or paid to
any Shareholder to amend or consent to a waiver or modification of any provision of any transaction
document unless the same consideration is also offered to all Shareholders who then hold Shares.
SECTION 9.03.
Replacement of Securities
. If any certificate or instrument evidencing
any Shares is mutilated, lost, stolen or destroyed, Parent shall issue or cause to be issued in
exchange and substitution for and upon cancellation thereof, or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to Parent of such loss, theft or destruction and customary and reasonable indemnity,
if requested. The applicants for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs associated with the issuance of such replacement Shares.
If a replacement certificate or instrument evidencing any Shares is requested due to a mutilation
thereof, Parent may require delivery of such mutilated certificate or instrument as a condition
precedent to any issuance of a replacement.
SECTION 9.04.
Remedies
. In addition to being entitled to exercise all rights provided
herein or granted by law, including recovery of damages, each of the Shareholders, Parent and the
Company will be entitled to specific performance under this Agreement. The parties agree that
monetary damages may not be adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at law would be adequate.
27
SECTION 9.05.
Independent Nature of Shareholders Obligations and Rights
. The
obligations of each Shareholder under this Agreement are several and not joint with the obligations
of any other Shareholder, and no Shareholder shall be responsible in any way for the performance of
the obligations of any other Shareholder under this Agreement. The decision of each Shareholder to
acquire Shares pursuant to this Agreement was been made by such Shareholder independently of any
other Shareholder. Nothing contained herein, and no action taken by any Shareholder pursuant
hereto, shall be deemed to constitute the Shareholders as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Shareholders are in any way
acting in concert or as a group with respect to such obligations or the transactions contemplated
herein. Each Shareholder shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement, and it shall not be
necessary for any other Shareholder to be joined as an additional party in any proceeding for such
purpose.
SECTION 9.06.
Limitation of Liability
. Notwithstanding anything herein to the
contrary, each of Parent and the Company acknowledge and agree that the liability of a Shareholder
arising directly or indirectly, under any transaction document of any and every nature whatsoever
shall be satisfied solely out of the assets of such Shareholder, and that no trustee, officer,
other investment vehicle or any other affiliate of such Shareholder or any investor, shareholder or
holder of shares of beneficial interest of such Shareholder shall be personally liable for any
liabilities of such Shareholder.
SECTION 9.07.
Interpretation; Disclosure Letters
. When a reference is made in this
Agreement to a Section, such reference shall be to a Section of this Agreement unless otherwise
indicated. Whenever the words include, includes or including are used in this Agreement,
they shall be deemed to be followed by the words without limitation.
SECTION 9.08.
Severability
. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule or Law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full force and effect so
long as the economic or legal substance of the Transactions contemplated hereby is not affected in
any manner materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the parties as closely
as possible in an acceptable manner to the end that Transactions contemplated hereby are fulfilled
to the extent possible.
SECTION 9.09.
Counterparts; Facsimile Execution
. This Agreement may be executed in
one or more counterparts, all of which shall be considered one and the same agreement and shall
become effective when one or more counterparts have been signed by each of the parties and
delivered to the other parties. Facsimile execution and delivery of this Agreement is legal, valid
and binding for all purposes.
SECTION 9.10.
Entire Agreement; Third Party Beneficiaries
. This Agreement, taken
together with the Company Disclosure Schedule, the Parent Disclosure Schedule and the exhibits and
schedules attached hereto, (i) constitute the entire agreement, and supersede all prior agreements
and understandings, both written and oral, among the parties with respect to the
Transactions and (ii) are not intended to confer upon any person other than the parties any
rights or remedies.
28
SECTION 9.11.
Governing Law
. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof.
SECTION 9.12.
Assignment
. Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in part, by operation of law or
otherwise by any of the parties without the prior written consent of the other parties. Any
purported assignment without such consent shall be void. Subject to the preceding sentences, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.
[
Signature Page Follows
]
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The parties hereto have executed and delivered this Share Exchange Agreement as of the date
first above written.
Parent:
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BTHC III, INC., a Delaware corporation
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By:
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Name: Timothy Halter
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Title: CEO and President
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The Stockholder:
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HALTER FINANCIAL INVESTMENTS, L.P.,
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a Texas limited partnership
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By:
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Halter Financial Investments, GP, LLC,
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the general partner
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By:
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Name: Timothy Halter
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Title: Member
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The Company:
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INTERNATIONAL STEM CELL CORPORATION,
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a California corporation
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By:
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Name: Jeff Krstich
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Title: Chief Executive Officer
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The Shareholder Representative:
[
Signature Page to Share Exchange Agreement
]
Exhibit 4.3
NEITHER THE WARRANTS REPRESENTED BY THIS CERTIFICATE NOR THE
SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. NEITHER THE WARRANTS NOR SUCH
SHARES MAY BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT, OR AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT.
WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
THIS CERTIFIES that, for value received, ___(the Holder), is entitled to
subscribe for and purchase from ___, a ___corporation (the Company), upon the terms and
conditions set forth herein, at any time or from time to time after the date hereof, and before
5:00 p.m. on ___ ___, 2011, Pacific Standard time (the Exercise Period), ___(___) shares of
common stock, par value $.001 per share, of the Company (Common Stock), at an exercise price of
$1.00 per share (the Exercise Price). This Warrant is being issued in connection with the Holder
acting as placement agent in connection with the sale of up to 12,000,000 shares of Common Stock
pursuant to a Confidential Private Placement Memorandum dated August 3, 2006, of International Stem
Cell Corporation. As used herein, the term this Warrant shall mean and include this Warrant and
any Warrant or Warrants hereafter issued as a consequence of the exercise or transfer of this
Warrant in whole or in part.
The number of shares of Common Stock issuable upon exercise of the Warrants (the Warrant
Shares) and the Exercise Price may be adjusted from time to time as hereinafter set forth.
1. This Warrant may be exercised during the Exercise Period, as to the whole or any lesser
number of the respective whole Warrant Shares, as follows:
(a) by the surrender of this Warrant (with the form of election at the end hereof duly
executed) to the Company at its office as set forth in the form of election attached hereto, or at
such other place as is designated in writing by the Company, together with a certified or bank
cashiers check payable to the order of the Company in an amount equal to the Exercise Price
multiplied by the number of respective Warrant Shares for which this Warrant is being exercised;
or
(b) by surrender of this Warrant (with the notice of cashless exercise at the end hereof duly
executed) to the Company at its office as set forth in the notice of cashless exercise attached
hereto, or at such other place as is designated in writing by the Company, in which event the
Company shall issue to the Holder the number of Warrant Shares determined as follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be issued to the Holder.
Y = the number of Warrant Shares with respect to which this Warrant is being
exercised.
A = the closing sale price of the Common Stock for the trading day
immediately prior to the date of exercise.
B = the Exercise Price.
2. Upon each exercise of the Holders rights to purchase Warrant Shares, either pursuant to
Section 1(a) or (b) above, the Holder shall be deemed to be the holder of record of the Warrant
Shares issuable upon such exercise, notwithstanding that the transfer books of the Company shall
then be closed or certificates representing such Warrant Shares shall not then have been actually
delivered to the Holder. For purposes of Rule 144 promulgated under the Securities Act of 1933, as
amended (the Act), it is intended, understood and acknowledged that the Warrant Shares issued in
a cashless exercise transaction pursuant to Section 1(b) above shall be deemed to have been
acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date of the Warrant. As soon as practicable after each such exercise of
this Warrant and payment of the Exercise Price, the Company shall issue and deliver to the Holder a
certificate or certificates for the Warrant Shares issuable upon such exercise, registered in the
name of the Holder or its designee. If this Warrant should be exercised in part only, the Company
shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant
evidencing the right of the Holder to purchase the balance of the Warrant Shares (or portions
thereof) subject to purchase hereunder.
3. Any Warrants issued upon the transfer or exercise in part of this Warrant shall be numbered
and shall be registered in a Warrant Register as they are issued. The Company shall be entitled to
treat the registered holder of any Warrant on the Warrant Register as the owner in fact thereof for
all purposes and shall not be bound to recognize any equitable or other claim to or interest in
such Warrant on the part of any other person, and shall not be liable for any registration or
transfer of Warrants which are registered or to be registered in the name of a fiduciary or the
nominee of a fiduciary unless made with the actual knowledge that a fiduciary or nominee is
committing a breach of trust in requesting such registration or transfer, or with the knowledge of
such facts that its participation therein amounts to bad faith. This Warrant shall be transferable
only on the books of the Company upon delivery thereof duly endorsed by the Holder or by his duly
authorized attorney or representative, or accompanied by proper evidence of succession, assignment,
or authority to transfer. In all cases or transfer by an attorney, executor, administrator,
guardian, or other legal representative, duly authenticated evidence of his or its authority shall
be produced. Upon any registration of transfer, the Company shall deliver a new Warrant or
Warrants to the person entitled thereto. This Warrant may be exchanged, at the option of the
Holder thereof, for another Warrant, or other Warrants of different denominations, of like tenor
and representing in the aggregate the right to purchase a like number of Warrant Shares (or
portions thereof), upon surrender to the Company or its duly authorized agent. Notwithstanding the
foregoing, the Company shall have no obligation to cause Warrants to be transferred on its books to
any person if, in the opinion of counsel to the Company, such transfer does not comply with the
provisions of the Act and the rules and regulations thereunder.
2
4. The Company shall at all times reserve and keep available out of its authorized and
unissued Common Stock, solely for the purpose of providing for the exercise of the rights to
purchase all Warrant Shares granted pursuant to the Warrants, such number of shares of Common Stock
as shall, from time to time, be sufficient therefor. The Company covenants that all shares of
Common Stock issuable upon exercise of this Warrant, upon receipt by the Company of the full
Exercise Price therefor if such exercise is pursuant to Section 1(a) above, or upon receipt by the
Company of the notice of cashless exercise duly executed if such exercise is pursuant to Section
1(b) above, shall be validly issued, fully paid, non-assessable, and free of preemptive rights.
5. (a) In case the Company shall at any time after the date the Warrants were first issued (i)
declare a dividend on the outstanding Common Stock payable in shares of its capital stock, (ii)
subdivide the outstanding Common Stock, (iii) combine the outstanding Common Stock into a smaller
number of shares, or (iv) issue any shares of its capital stock by reclassification of the Common
Stock (including any such reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation), then, in each case, the Exercise Price, and the number
of Warrant Shares issuable upon exercise of this Warrant, in effect at the time of the record date
for such dividend or of the effective date of such subdivision, combination, or reclassification,
shall be proportionately adjusted so that the Holder after such time shall be entitled to receive
the aggregate number and kind of shares which, if such Warrant had been exercised immediately prior
to such time, he would have owned upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination, or reclassification. Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) In case the Company shall issue or fix a record date for the issuance to all holders of
Common Stock of rights, options, or warrants to subscribe for or purchase Common Stock (or
securities convertible into or exchangeable for Common Stock) at a price per share (or having a
conversion or exchange price per share, if a security convertible into or exchangeable for Common
Stock) less than the Exercise Price per share of Common Stock on such record date, then, in each
case, the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding on such record date plus the number of shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock so to be offered (or the
aggregate initial conversion or exchange price of the convertible or exchangeable securities so to
be offered) would purchase at such current Exercise Price and the denominator of which shall be the
number of shares of Common Stock outstanding on such record date plus the number of additional
shares of Common Stock to be offered for subscription or purchase (or into which the convertible or
exchangeable securities so to be offered are initially
3
convertible or exchangeable). Such
adjustment shall become effective at the close of business on such record date;
provided
,
however
, that, to the extent the shares of Common Stock (or securities convertible into or
exchangeable for shares of Common Stock) are not delivered, the Exercise Price shall be readjusted
after the expiration of such rights, options, or warrants (but only with respect to Warrants
exercised after such expiration), to the Exercise Price which would then be in effect had the
adjustments made upon the issuance of such rights, options, or warrants been made upon the basis of
delivery of only the number of shares of Common Stock (or securities convertible into or
exchangeable for shares of Common Stock) actually issued. In case any subscription price may be
paid in a consideration part or all of which shall be in a form other
than cash, the value of such consideration shall be as determined in good faith by the board
of directors of the Company, whose determination shall be conclusive absent manifest error. Shares
of Common Stock owned by or held for the account of the Company or any majority-owned subsidiary
shall not be deemed outstanding for the purpose of any such computation.
(c) In case the Company shall distribute to all holders of Common Stock (including any such
distribution made to the stockholders of the Company in connection with a consolidation or merger
in which the Company is the continuing corporation) evidences of its indebtedness or assets (other
than cash dividends or distributions and dividends payable in shares of Common Stock), or rights,
options, or warrants to subscribe for or purchase Common Stock, or securities convertible into or
exchangeable for shares of Common Stock (excluding those with respect to the issuance of which an
adjustment of the Exercise Price is provided pursuant to Section 5(b) hereof), then, in each case,
the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior
to the record date for the determination of stockholders entitled to receive such distribution by a
fraction, the numerator of which shall be the Exercise Price per share of Common Stock on such
record date, less the fair market value (as determined in good faith by the board of directors of
the Company, whose determination shall be conclusive absent manifest error) of the portion of the
evidences of indebtedness or assets so to be distributed, or of such rights, options, or warrants
or convertible or exchangeable securities, applicable to one share, and the denominator of which
shall be such current Exercise Price per share of Common Stock. Such adjustment shall be made
whenever any such distribution is made, and shall become effective on the record date for the
determination of shareholders entitled to receive such distribution.
(d) In case the Company shall issue shares of Common Stock or rights, options, or warrants to
subscribe for or purchase Common Stock, or securities convertible into or exchangeable for Common
Stock (excluding shares, rights, options, warrants, or convertible or exchangeable securities
issued or issuable (i) in any of the transactions with respect to which an adjustment of the
Exercise Price is provided pursuant to Sections 5(a), 5(b) or 5(c) above or (ii) upon exercise of
the Warrant), at a price per share (determined, in the case of such rights, options, warrants, or
convertible or exchangeable securities, by dividing (x) the total amount received or receivable by
the Company in consideration of the sale and issuance of such rights, options, warrants, or
convertible or exchangeable securities, plus the minimum aggregate consideration payable to the
Company upon exercise, conversion, or exchange thereof, by (y) the maximum number of shares covered
by such rights, options, warrants, or convertible or
4
exchangeable securities) lower than the
Exercise Price per share of Common Stock in effect immediately prior to such issuance, then the
Exercise Price shall be reduced on the date of such issuance to a price (calculated to the nearest
cent) determined by multiplying the Exercise Price in effect immediately prior to such issuance by
a fraction, (iii) the numerator of which shall be an amount equal to the sum of (A) the number of
shares of Common Stock outstanding immediately prior to such issuance plus (B) the quotient
obtained by dividing the consideration received by the Company upon such issuance by such current
Exercise Price, and (iv) the denominator of which shall be the total number of shares of Common
Stock outstanding immediately after such issuance. For the purposes of such adjustments, the
maximum number of shares which the holders of any such rights, options, warrants, or convertible or
exchangeable securities shall be entitled to initially subscribe for or purchase or convert or
exchange such securities into shall be deemed to be issued and outstanding as of the date of such
issuance, and the consideration
received by the Company therefor shall be deemed to be the consideration received by the
Company for such rights, options, warrants, or convertible or exchangeable securities, plus the
minimum aggregate consideration or premiums stated in such rights, options, warrants, or
convertible or exchangeable securities to be paid for the shares covered thereby. No further
adjustment of the Exercise Price shall be made as a result of the actual issuance of shares of
Common Stock on exercise of such rights, options, or warrants or on conversion or exchange of such
convertible or exchangeable securities. On the expiration or the termination of such rights,
options, or warrants, or the termination of such right to convert or exchange, the Exercise Price
shall be readjusted (but only with respect to Warrants exercised after such expiration or
termination) to such Exercise Price as would have obtained had the adjustments made upon the
issuance of such rights, options, warrants, or convertible or exchangeable securities been made
upon the basis of the delivery of only the number of shares of Common Stock actually delivered upon
the exercise of such rights, options, or warrants or upon the conversion or exchange of any such
securities; and on any change of the number of shares of Common Stock deliverable upon the exercise
of any such rights, options, or warrants or conversion or exchange of such convertible or
exchangeable securities or any change in the consideration to be received by the Company upon such
exercise, conversion, or exchange, including, but not limited to, a change resulting from the
anti-dilution provisions thereof, the Exercise Price, as then in effect, shall forthwith be
readjusted (but only with respect to Warrants exercised after such change) to such Exercise Price
as would have been obtained had an adjustment been made upon the issuance of such rights, options,
or warrants not exercised prior to such change, or securities not converted or exchanged prior to
such change, on the basis of such change. In case the Company shall issue shares of Common Stock
or any such rights, options, warrants, or convertible or exchangeable securities for a
consideration consisting, in whole or in part, of property other than cash or its equivalent, then
the price per share and the consideration received by the Company for purposes of the first
sentence of this Section 5(d) shall be as determined in good faith by the board of directors of the
Company, whose determination shall be conclusive absent manifest error. Shares of Common Stock
owned by or held for the account of the Company or any majority-owned subsidiary shall not be
deemed outstanding for the purpose of any such computation.
5
(e) No adjustment in the Exercise Price shall be required if such adjustment is less than
$.05;
provided
,
however
, that any adjustments which by reason of this Section 5 are
not required to be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 5 shall be made to the nearest cent or to the
nearest one-thousandth of a share, as the case may be.
(f) In any case in which this Section 5 shall require that an adjustment in the Exercise Price
be made effective as of a record date for a specified event, the Company may elect to defer, until
the occurrence of such event, issuing to the Holder, if the Holder exercised this Warrant after
such record date, the shares of Common Stock, if any, issuable upon such exercise over and above
the shares of Common Stock, if any, issuable upon such exercise on the basis of the Exercise Price
in effect prior to such adjustment;
provided
,
however
, that the Company shall
deliver to the Holder a due bill or other appropriate instrument evidencing the Holders right to
receive such additional shares upon the occurrence of the event requiring such adjustment.
(g) Upon each adjustment of the Exercise Price as a result of the calculations made in
Sections 5(b), 5(c) or 5(d) hereof, this Warrant shall thereafter evidence the right to purchase,
at the adjusted Exercise Price, that number of shares (calculated to the nearest thousandth)
obtained by dividing (A) the product obtained by multiplying the number of shares purchasable upon
exercise of this Warrant prior to adjustment of the number of shares by the Exercise Price in
effect prior to adjustment of the Exercise Price by (B) the Exercise Price in effect after such
adjustment of the Exercise Price.
(h) Whenever there shall be an adjustment as provided in this Section 5, the Company shall
promptly cause written notice thereof to be sent by registered mail, postage prepaid, to the
Holder, at its address as it shall appear in the Warrant Register, which notice shall be
accompanied by an officers certificate setting forth the number of Warrant Shares purchasable upon
the exercise of this Warrant and the Exercise Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment and the computation thereof, which officers
certificate shall be conclusive evidence of the correctness of any such adjustment absent manifest
error.
6. (a) In case of any consolidation with or merger of the Company with or into another
corporation (other than a merger or consolidation in which the Company is the surviving or
continuing corporation), or in case of any sale, lease, or conveyance to another corporation of the
property and assets of any nature of the Company as an entirety or substantially as an entirety,
such successor, leasing, or purchasing corporation, as the case may be, shall (i) execute with the
Holder an agreement providing that the Holder shall have the right thereafter to receive upon
exercise of this Warrant solely the kind and amount of shares of stock and other securities,
property, cash, or any combination thereof receivable upon such consolidation, merger, sale, lease,
or conveyance by a holder of the number of shares of Common Stock for which this Warrant; might
have been exercised immediately prior to such consolidation, merger, sale, lease, or conveyance and
(ii) make effective provision in its certificate of incorporation or otherwise, if necessary, to
effect such agreement. Such agreement shall provide for adjustments which shall be as nearly
equivalent as practicable to the adjustments in Section 5.
6
(b) In case of any reclassification or change of the shares of Common Stock issuable upon
exercise of this Warrant (other than a change in par value or from no par value to a specified par
value, or as a result of a subdivision or combination, but including any change in the shares into
two or more classes or series of shares), or in case of any consolidation or merger of another
corporation into the Company in which the Company is the continuing corporation and in which there
is a reclassification or change (including a change to the right to receive cash or other property)
of the shares of Common Stock (other than a change in par value, or from no par value to a
specified par value, or as a result of a subdivision or combination, but including any change in
the shares into two or more classes or series of shares), the Holder shall have the right
thereafter to receive upon exercise of this Warrant solely the kind and amount of shares of stock
and other securities, property, cash, or any combination thereof receivable upon such
reclassification, change, consolidation, or merger by a holder of the number of shares of Common
Stock for which this Warrant might have been exercised immediately prior to such reclassification,
change, consolidation, or merger. Thereafter, appropriate provision shall be made for adjustments
which shall be as nearly equivalent as practicable to the adjustments in Section 5.
(c) The above provisions of this Section 6 shall similarly apply to successive
reclassifications and changes of shares of Common Stock and to successive consolidations, mergers,
sales, leases or conveyances.
7. In case at any time the Company shall propose:
(a) to pay any dividend or make any distribution on shares of Common Stock in shares of
Common Stock or make any other distribution (other than regularly scheduled cash dividends
which are not in a greater amount per share than the most recent such cash dividend) to all
holders of Common Stock; or
(b) to issue any rights, warrants, or other securities to all holders of Common Stock
entitling them to purchase any additional shares of Common Stock or any other rights,
warrants, or other securities; or
(c) to effect any reclassification or change of outstanding shares of Common Stock, or
any consolidation, merger, sale, lease, or conveyance of property, described in Section 6;
or
(d) to effect any liquidation, dissolution, or winding-up of the Company; or
(e) to take any other action which would cause an adjustment to the Exercise Price;
7
then, and in any one or more of such cases, the Company shall give written notice thereof, by
registered mail, postage prepaid, to the Holder at the Holders address as it shall appear in the
Warrant Register, mailed at least 15 days prior to (i) the date as of which the holders of record
of shares of Common Stock to be entitled to receive any such dividend, distribution, rights,
warrants, or other securities are to be determined, (ii) the date on which any such
reclassification, change of outstanding shares of Common Stock, consolidation, merger, sale, lease,
conveyance of property, liquidation, dissolution, or winding-up is expected to become effective,
and the date as of which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares for securities or other property, if any, deliverable upon such
reclassification, change of outstanding shares, consolidation, merger, sale, lease, conveyance of
property, liquidation, dissolution, or winding-up, or (iii) the date of such action which would
require an adjustment to the Exercise Price.
8. (a) If at any time prior to the expiration of the Exercise Period, the Company shall file a
registration statement (other than a registration statement on Form S-4, Form S-8 or any successor
form) with the U.S. Securities and Exchange Commission (the Commission) while any Registrable
Securities (as hereinafter defined) are outstanding, the Company shall give all the then holders of
any Registrable Securities (the Eligible Holders) at least 30 days prior written notice of the
filing of such registration statement. If requested by any Eligible Holder in writing within 20
days after receipt of any such notice, the Company shall, at the Companys sole expense (other than
the fees and disbursements of counsel for the Eligible Holders and the underwriting discounts, if
any, payable in respect of the Registrable Securities sold by any
Eligible Holder), register or qualify all or, at each Eligible Holders option, any portion of
the Registrable Securities of any Eligible Holders who shall have made such request, concurrently
with the registration of such other securities, all to the extent requisite to permit the public
offering and sale of the Registrable Securities through the facilities of all appropriate
securities exchanges and the over-the-counter market, and will use its best efforts through its
officers, directors, auditors, and counsel to cause such registration statement to become effective
as promptly as practicable. Notwithstanding the foregoing, if the managing underwriter of any such
offering shall advise the Company in writing that, in its opinion, the distribution of all or a
portion of the Registrable Securities requested to be included in the registration concurrently
with the securities being registered by the Company would materially adversely affect the
distribution of such securities by the Company for its own account, then any Eligible Holder who
shall have requested registration of his or its Registrable Securities shall delay the offering and
sale of such Registrable Securities (or the portions thereof so designated by such managing
underwriter) for such period, not to exceed 90 days (the Delay Period), as the managing
underwriter shall request, provided that no such delay shall be required as to any Registrable
Securities if any securities of the Company are included in such registration statement and
eligible for sale during the Delay Period for the account of any person other than the Company and
any Eligible Holder unless the securities included in such registration statement and eligible for
sale during the Delay Period for such other person shall have been reduced pro rata to the
reduction of the Registrable Securities which were requested to be included and eligible for sale
during the Delay Period in such registration. As used herein, Registrable Securities shall mean
the Warrants and the Warrant Shares which, in each case, have not been previously sold pursuant to
a registration statement or Rule 144 promulgated under the Act.
8
(b) If, at any time prior to the expiration of the Exercise Period, the Company shall receive
a written request, from Eligible Holders who in the aggregate own (or upon exercise of all Warrants
then outstanding or issuable would own) 50% of the total number of shares of Common Stock then
included (or upon such exercises would be included) in the Registrable Securities (the Majority
Holders), to register the sale of all or part of such Registrable Securities, the Company shall,
as promptly as practicable, prepare and file with the Commission a registration statement
sufficient to permit the public offering and sale of the Registrable Securities through the
facilities of all appropriate securities exchanges and the over-the-counter market, and will use
its best efforts through its officers, directors, auditors, and counsel to cause such registration
statement to become effective as promptly as practicable;
provided
,
however
, that
the Company shall only be obligated to file one such registration statement for which all expenses
incurred in connection with such registration (other than the fees and disbursements of counsel for
the Eligible Holders and underwriting discounts, if any, payable in respect of the Registrable
Securities sold by the Eligible Holders) shall be borne by the Company. The Company shall not be
obligated to effect any registration of its securities pursuant to this Section 8(b) within six
months after the effective date of a previous registration statement prepared and filed in
accordance with Sections 8(a) or 8(b). Within three business days after receiving any request
contemplated by this Section 8(b), the Company shall give written notice to all the other Eligible
Holders, advising each of them that the Company is proceeding with such registration and offering
to include therein all or any portion of any such other Eligible Holders Registrable Securities,
provided that the Company receives a written request to do so from such Eligible Holder within 30
days after receipt by him or it of the Companys notice.
(c) In the event of a registration pursuant to the provisions of this Section 8, the Company
shall use its best efforts to cause the Registrable Securities so registered to be registered or
qualified for sale under the securities or blue sky laws of such jurisdictions as the Eligible
Holder or such holders may reasonably request;
provided
,
however
, that the Company
shall not be required to qualify to do business in any state by reason of this Section 8(c) in
which it is not otherwise required to qualify to do business.
(d) The Company shall keep effective any registration or qualification contemplated by this
Section 8 and shall from time to time amend or supplement each applicable registration statement,
preliminary prospectus, final prospectus, application, document, and communication for such period
of time as shall be required to permit the Eligible Holders to complete the offer and sale of the
Registrable Securities covered thereby. The Company shall in no event be required to keep any such
registration or qualification in effect for a period in excess of nine months from the date on
which the Eligible Holders are first free to sell such Registrable Securities;
provided
,
however
, that, if the Company is required to keep any such registration or qualification in
effect with respect to securities other than the Registrable Securities beyond such period, the
Company shall keep such registration or qualification in effect as it relates to the Registrable
Securities for so long as such registration or qualification remains or is required to remain in
effect in respect of such other securities.
9
(e) In the event of a registration pursuant to the provisions of this Section 8, the Company
shall furnish to each Eligible Holder such number of copies of the registration statement and of
each amendment and supplement thereto (in each case, including all exhibits), such reasonable
number of copies of each prospectus contained in such registration statement and each supplement or
amendment thereto (including each preliminary prospectus), all of which shall conform to the
requirements of the Act and the rules and regulations thereunder, and such other documents, as any
Eligible Holder may reasonably request to facilitate the disposition of the Registrable Securities
included in such registration.
(f) In the event of a registration pursuant to the provisions of this Section 8, the Company
shall furnish each Eligible Holder of any Registrable Securities so registered with an opinion of
its counsel (reasonably acceptable to the Eligible Holders) to the effect that (i) the registration
statement has become effective under the Act and no order suspending the effectiveness of the
registration statement, preventing or suspending the use of the registration statement, any
preliminary prospectus, any final prospectus, or any amendment or supplement thereto has been
issued, nor has the Commission or any securities or blue sky authority of any jurisdiction
instituted or threatened to institute any proceedings with respect to such an order, (ii) the
registration statement and each prospectus forming a part thereof (including each preliminary
prospectus), and any amendment or supplement thereto, complies as to form with the Act and the
rules and regulations thereunder, and (iii) such counsel has no knowledge of any material
misstatement or omission in such registration statement or any prospectus, as amended or
supplemented. Such opinion shall also state the jurisdictions in which the Registrable Securities
have been registered or qualified for sale pursuant to the provisions of Section 8(c).
(g) In the event of a registration pursuant to the provision of this Section 8, the Company
shall enter into a cross-indemnity agreement and a contribution agreement, each in customary form,
with each underwriter, if any, and, if requested, enter into an underwriting
agreement containing conventional representations, warranties, allocation of expenses, and
customary closing conditions, including, but not limited to, opinions of counsel and accountants
cold comfort letters, with any underwriter who acquires any Registrable Securities.
(h) In the event of a registration pursuant to the provisions of this Section 8:
(i) each Eligible Holder shall furnish to the Company in writing such appropriate information
(relating to such Eligible Holder and the intention of such Eligible Holder as to proposed methods
of sale or other disposition of their shares of Common Stock) and the identity of and compensation
to be paid to any proposed underwriters to be employed in connection therewith as the Company, any
underwriter, or the Commission or any other regulatory authority may request;
(ii) the Eligible Holders shall enter into the usual and customary form of underwriting
agreement agreed to by the Company and any underwriter with respect to any such offering, if
required, and such underwriting agreement shall contain the customary rights of indemnity between
the Company, the underwriters, and such Eligible Holders;
10
(iii) each Eligible Holder shall agree that he shall execute, deliver and/or file with or
supply the Company, any underwriters, the Commission and/or any state or other regulatory authority
such information, documents, representations, undertakings and/or agreements necessary to carry out
the provisions of the registration covenants contained in this Section 8 and/or to effect the
registration or qualification of his or its Registrable Securities under the Act and/or any of the
laws and regulations of any state of governmental instrumentality;
(iv) the Companys obligation to include any Registrable Securities in a registration
statement shall be subject to the written agreement of each holder thereof to offer such securities
in the same manner and on the same terms and conditions as the other securities of the same class
are being offered pursuant to the registration statement, if such shares are being underwritten;
(v) in the event that all the Registrable Securities have not been sold on or prior to the
expiration of the period specified in Section 8(d) above, the Company may de-register by
post-effective amendment any Registrable Securities covered by the registration statement, but not
sold on or prior to such date. The Company agrees that it will notify each holder of Registrable
Securities of the filing and effective date of such post-effective amendment; and
(vi) each Eligible Holder agrees that upon notification by the Company that the prospectus in
respect to any public offering covered by the provisions hereof is in need of revision, such
Eligible Holder shall immediately upon receipt of such notification (x) cease to offer or sell any
securities of the Company which must be accompanied by such prospectus, (y) return all such
prospectuses in such Eligible Holders hands to the Company, and (z) not offer or sell any
securities of the Company until such Holder has been provided with a current prospectus and the
Company has given such Eligible Holder notification permitting such Eligible Holder to resume
offers and sales.
(i) The Company agrees that until all the Registrable Securities have been sold under a
registration statement or pursuant to Rule 144 under the Act, it shall keep current in filing all
reports, statements and other materials required to be filed with the Commission to permit holders
of the Registrable Securities to sell such securities under Rule 144.
(j) Except for rights granted to holders of the Warrants, the Company will not, without the
written consent of the Majority Holders, grant to any persons the right to request the Company to
register any securities of the Company, provided that the Company may grant such registration
rights to other persons so long as such rights are subordinate or pari passu to the rights of the
Eligible Holders.
11
9. (a) Subject to the conditions set forth below, the Company agrees to indemnify and hold
harmless each Eligible Holder, its officers, directors, partners, employees, agents and counsel,
and each person, if any, who controls any such person within the meaning of Section 15 of the Act
or Section 20(a) of the Securities Exchange Act of 1934, as amended (the Exchange Act), from and
against any and all loss, liability, charge, claim, damage, and expense whatsoever (which shall
include, for all purposes of this Section 9, but not be limited to, attorneys fees and any and all
reasonable expense whatsoever incurred in investigating, preparing, or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all amounts paid in
settlement of any claim or litigation), as and when incurred, arising out of, based upon, or in
connection with: (i) any untrue statement or alleged untrue statement of a material fact contained
(A) in any registration statement, preliminary prospectus, or final prospectus (as from time to
time amended and supplemented), or any amendment or supplement thereto, relating to the sale of any
of the Registrable Securities, or (B) in any application or other document or communication (in
this Section 9 collectively called an application) executed by or on behalf of the Company or
based upon written information furnished by or on behalf of the Company filed in any jurisdiction
in order to register or qualify any of the Registrable Securities under the securities or blue sky
laws thereof or filed with the Commission or any securities exchange; or (ii) any omission or
alleged omission to state a material fact required to be stated in any document referenced in
clause (A) or (B) above or necessary to make the statements therein not misleading, unless such
statement or omission was made in reliance upon and in conformity with written information
furnished to the Company with respect to such Eligible Holder by or on behalf of such person
expressly for inclusion in any registration statement, preliminary prospectus, or final prospectus,
or any amendment or supplement thereto, or in any application, as the case may be; or (iii) any
breach of any representation, warranty, covenant, or agreement of the Company contained in this
Warrant. The foregoing agreement to indemnify shall be in addition to any liability the Company
may otherwise have, including liabilities arising under this Warrant.
If any action is brought against any Eligible Holder or any of its officers, directors,
partners, employees, agents, or counsel, or any controlling persons of such person (an indemnified
party) in respect of which indemnity may be sought against the Company pursuant to the foregoing
paragraph, such indemnified party or parties shall promptly notify the Company in writing of the
institution of such action (but the failure so to notify shall not relieve the Company from any
liability other than pursuant to this Section 9(a), except to the extent it may have been
prejudiced in any material respect by such failure) and the Company shall promptly assume the
defense of such action, including the employment of counsel (reasonably
satisfactory to such indemnified party or parties) and payment of expenses. Such indemnified
party or parties shall have the right to employ its or their own counsel in any such case, but the
fees and expenses of such counsel shall be at the expense of such indemnified party or parties
unless the employment of such counsel shall have been authorized in writing by the Company in
connection with the defense of such action or the Company shall not have promptly employed counsel
reasonably satisfactory to such indemnified party or parties to have charge of the defense of such
action or such indemnified party or parties shall have reasonably concluded that there may be one
or more legal defenses available to it or them or to other indemnified parties which
12
are different
from or additional to those available to the Company, in any of which events such fees and expenses
shall be borne by the Company and the Company shall not have the right to direct the defense of
such action on behalf of the indemnified party or parties. Anything in this Section 10 to the
contrary notwithstanding, the Company shall not be liable for any settlement of any such claim or
action effected without its written consent, which shall not be unreasonably withheld. The Company
shall not, without the prior written consent of each indemnified party that is not released as
described in this sentence, settle or compromise any action, or permit a default or consent to the
entry of judgment in or otherwise seek to terminate any pending or threatened action, in respect of
which indemnity may be sought hereunder (whether or not any indemnified party is a party thereto),
unless such settlement, compromise, consent, or termination includes an unconditional release of
each indemnified party from all liability in respect of such action. The Company agrees promptly
to notify the Eligible Holders of the commencement of any litigation or proceedings against the
Company or any of its officers or directors in connection with the sale of any Registrable
Securities or any preliminary prospectus, prospectus, registration statement, or amendment or
supplement thereto, or any application relating to any sale of any Registrable Securities.
(b) The Holder agrees to indemnify and hold harmless the Company, each director of the
Company, each officer of the Company who shall have signed any registration statement covering
Registrable Securities held by the Holder, each other person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, and its or their
respective counsel, to the same extent as the foregoing indemnity from the Company to the Holder in
Section 9(a), but only with respect to statements or omissions, if any, made in any registration
statement, preliminary prospectus, or final prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, or in any application, in reliance upon and
in conformity with written information furnished to the Company with respect to the Holder by or on
behalf of the Holder expressly for inclusion in any such registration statement, preliminary
prospectus, or final prospectus, or any amendment or supplement thereto, or in any application, as
the case may be. If any action shall be brought against the Company or any other person so
indemnified based on any such registration statement, preliminary prospectus, or final prospectus,
or any amendment or supplement thereto, or in any application, and in respect of which indemnity
may be sought against the Holder pursuant to this Section 9(b), the Holder shall have the rights
and duties given to the Company, and the Company and each other person so indemnified shall have
the rights and duties given to the indemnified parties, by the provisions of Section 9(a).
(c) To provide for just and equitable contribution, if (i) an indemnified party makes a claim
for indemnification pursuant to Section 9(a) or 9(b) (subject to the limitations thereof) but it is
found in a final judicial determination, not subject to further appeal, that such
indemnification may not be enforced in such case, even though this Agreement expressly
provides for indemnification in such case, or (ii) any indemnified or indemnifying party seeks
contribution under the Act, the Exchange Act or otherwise, then the Company (including for this
purpose any contribution made by or on behalf of any director of the Company, any officer of the
Company who signed any such registration statement, any controlling person of the Company,
13
and its
or their respective counsel), as one entity, and the Eligible Holders of the Registrable Securities
included in such registration in the aggregate (including for this purpose any contribution by or
on behalf of an indemnified party), as a second entity, shall contribute to the losses,
liabilities, claims, damages, and expenses whatsoever to which any of them may be subject, on the
basis of relevant equitable considerations such as the relative fault of the Company and such
Eligible Holders in connection with the facts which resulted in such losses, liabilities, claims,
damages, and expenses. The relative fault, in the case of an untrue statement, alleged untrue
statement, omission, or alleged omission, shall be determined by, among other things, whether such
statement, alleged statement, omission, or alleged omission relates to information supplied by the
Company or by such Eligible Holders, and the parties relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement, alleged statement, omission, or
alleged omission. The Company and the Holder agree that it would be unjust and inequitable if the
respective obligations of the Company and the Eligible Holders for contribution were determined by
pro rata or per capita allocation of the aggregate losses, liabilities, claims, damages, and
expenses (even if the Holder and the other indemnified parties were treated as one entity for such
purpose) or by any other method of allocation that does not reflect the equitable considerations
referred to in this Section 9(c). In no case shall any Eligible Holder be responsible for a
portion of the contribution obligation imposed on all Eligible Holders in excess of its pro rata
share based on the number of shares of Common Stock owned (or which would be owned upon exercise of
the Registrable Securities) by it and included in such registration as compared to the number of
shares of Common Stock owned (or which would be owned upon exercise of the Registrable Securities)
by all Eligible Holders and included in such registration. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent misrepresentation. For purposes
of this Section 9(c), each person, if any, who controls any Eligible Holder within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act and each officer, director, partner,
employee, agent, and counsel of each such Eligible Holder or control person shall have the same
rights to contribution as such Eligible Holder or control person and each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, each officer of the Company who shall have signed any such registration statement, each
director of the Company, and its or their respective counsel shall have the same rights to
contribution as the Company, subject in each case to the provisions of this Section 9(c). Anything
in this Section 9(c) to the contrary notwithstanding, no party shall be liable for contribution
with respect to the settlement of any claim or action effected without its written consent. This
Section 9(c) is intended to supersede any right to contribution under the Act, the Exchange Act, or
otherwise.
10. The issuance of any shares or other securities upon the exercise of this Warrant, and the
delivery of certificates or other instruments representing such shares or other securities, shall
be made without charge to the Holder for any tax or other charge in respect of such issuance. The
Company shall not, however, be required to pay any tax which may be payable in
respect of any transfer involved in the issue and delivery of any certificate in a name other
than that of the Holder and the Company shall not be required to issue or deliver any such
certificate unless and until the person or persons requesting the issue 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.
14
11. Certificates evidencing the Warrant Shares issued upon exercise of the Warrants shall bear
the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT, OR AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT.
12. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction, or
mutilation of any Warrant (and upon surrender of any Warrant if mutilated), and upon reimbursement
of the Companys reasonable incidental expenses, the Company shall execute and deliver to the
Holder thereof a new Warrant of like date, tenor and denomination.
13. The Holder of any Warrant shall not have, solely on account of such status, any rights of
a stockholder of the Company, either at law or in equity, or to any notice of meetings of
stockholders or of any other proceedings of the Company, except as provided in this Warrant.
14. Any notice or other communication required or permitted to be given hereunder shall be in
writing and shall be mailed by certified mail, return receipt requested or sent by Federal Express,
Express Mail, or similar overnight delivery or courier service or delivered (in person or by
telecopy, telex, or similar telecommunications equipment) against receipt to the party to whom it
is to be given, if sent to the Company, at: 157 Surfview Drive, Pacific Palisades, California
90272, Attention: Chief Executive Officer; or if sent to the Holder, at the Holders address as it
shall appear on the Warrant Register; or to such other address as the party shall have furnished in
writing in accordance with the provisions of this Section 14. Any notice or other communication
given by certified mail shall be deemed given at the time of certification thereof, except for a
notice changing a partys address which will be deemed given at the time of receipt thereof. Any
notice given by other means permitted by this Section 14 shall be deemed given at the time of
receipt thereof.
15. This Warrant shall be binding upon the Company and its successors and assigns and shall
inure to the benefit of the Holder and its successors and assigns.
16. This Warrant shall be construed in accordance with the laws of the State of California
applicable to contracts made and performed within such State, without regard to principles of
conflicts of law.
[Remainder of page intentionally left blank; signature page follows.]
15
17. The Company irrevocably consents to the jurisdiction of the courts of the State of
California and of any federal court located in such State in connection with any action or
proceeding arising out of or relating to this Warrant, any document or instrument delivered
pursuant to, in connection with or simultaneously with this Warrant, or a breach of this Warrant or
any such document or instrument. In any such action or proceeding, the Company waives personal
service of any summons, complaint or other process.
Dated: _____ __, 2006
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[COMPANY]
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By:
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Name:
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Title:
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FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the attached Warrant.)
FOR VALUE RECEIVED, ___hereby sells, assigns, and transfers unto
___a Warrant to purchase shares of Common Stock, par value $.001 per share, of
[COMPANY] (the Company), together with all right, title, and interest therein, and does hereby
irrevocably constitute and appoint ___attorney to transfer such Warrant on the
books of the Company, with full power of substitution.
Dated: ________________________
Signature_________________________
NOTICE
The signature on the foregoing Assignment must correspond to the name as written upon the face
of this Warrant in every particular, without alteration or enlargement or any change whatsoever.
17
ELECTION TO EXERCISE
The undersigned hereby exercises its rights to purchase ___Warrant Shares covered
by the within Warrant and tenders payment herewith in the amount of $ ___in accordance
with the terms thereof, and requests that certificates for such securities be issued in the name
of, and delivered to:
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the Warrant Shares covered by the within
Warrant, that a new Warrant for the balance of the Warrant Shares covered by the within Warrant be
registered in the name of, and delivered to, the undersigned at the address stated below.
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Dated:
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(Print)
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Address:
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(Signature)
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To:
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[COMPANY]
157 Surfview Drive
Pacific Palisades, California 90272
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NOTICE OF CASHLESS EXERCISE
(To be executed upon exercise of Warrant
pursuant to Section 1(b))
The undersigned hereby irrevocably elects to exchange its Warrant for ___Warrant
Shares pursuant to the cashless exercise provisions of the within Warrant, as provided for in
Section 1(b) of such Warrant, and requests that a certificate or certificates for such Warrant
Shares be issued in the name of, and delivered to:
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the Warrant Shares which the undersigned is
entitled to purchase in accordance with the within Warrant, that a new Warrant for the balance of
the Warrant Shares covered by the within Warrant be registered in the name of, and delivered to,
the undersigned at the address stated below.
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Dated:
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(Signature)
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(Signature must conform in all respects to the
name of the Holder as specified on the face of
the Warrant)
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19
Exhibit 10.12
EXCLUSIVE LICENSE AGREEMENT (Infigen IP)
This Exclusive License Agreement (Agreement) is made and entered into this 14
th
day of May, 2004 (the Effective Date), by and between Advanced Cell Technology, Inc., a Delaware
corporation with offices located at One Innovation Drive, Worcester, Massachusetts 01605
(LICENSOR), and PacGen Cellco, LLC, a California limited liability company with offices located
at 157 Surfview Drive, Pacific Palisades, CA 90272 (LICENSEE) (LICENSOR and LICENSEE sometimes
hereinafter referred to individually as a Party and collectively as the Parties).
WITNESSETH
WHEREAS, LICENSOR has licensed with sublicenseable interest the PATENT RIGHTS (as defined
below) and KNOW-HOW (as defined below); and
WHEREAS, LICENSEE desires to obtain an exclusive worldwide license under LICENSORs rights in
such technology in the FIELD; and
WHEREAS, LICENSOR is willing to grant such a license to LICENSEE upon the terms and conditions
set forth below; and
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein,
the Parties hereto agree as follows:
ARTICLE 1 DEFINITIONS
For the purposes of this Agreement, the following words and phrases shall have the following
meanings:
1.1 AFFILIATE shall mean, with respect to any PERSON, any other PERSON which directly or
indirectly controls, is controlled by, or is under common control with, such PERSON. A PERSON
shall be regarded as in control of another PERSON if it owns, or directly or indirectly controls,
at least fifty percent (50%) of the voting stock or other ownership interest of the other PERSON,
or if it directly or indirectly possesses the power to direct or cause the direction of the
management and policies of the other PERSON by any means whatsoever.
1.2 FIELD shall mean the research, development, manufacture and selling of human cells for
cell therapy in the treatment of human (a) diabetes and (b) liver diseases; but FIELD shall exclude
applications involving the use of cells in the treatment of tumors where the primary use of the
cells is the destruction or reduction of tumors and does not involve regeneration of tissue or
organ function.
1.3 KNOW-HOW means all compositions of matter, techniques and data and other
know-how and technical information including inventions (whether or not patentable),
improvements and developments, practices, methods, concepts, trade secrets, documents, computer
data, computer code, apparatus, clinical and regulatory strategies, test data, analytical and
quality control data, formulation, manufacturing, patent data or descriptions, development
information, drawings, specifications, designs, plans, proposals and technical data and manuals and
all other proprietary information that is owned or controlled by LICENSOR as of the Effective Date
that relates to cloning technology or to any of the subject matter described in or claimed by the
PATENT RIGHTS and is relevant to the FIELD. By way of illustration, but not in limitation, KNOW-HOW
shall include commercial rights to any existing potential research products, including reagents,
developed by LICENSOR in the course of its in-house research. An example of this is the
proprietary culture medium developed by LICENSOR in the course of the development of LICENSORs
proprietary ooplasmic transfer technology.
1.4 LICENSED PROCESS means any process or method, the research, development, use, practice,
sale, offer for sale, import or export of which cannot be performed without (i) infringing, in
whole or in part, one or more VALID CLAIMS of the PATENT RIGHTS, or (ii) using or incorporating
some portion of the LICENSED TECHNOLOGY.
1.5 LICENSED PRODUCT means any product that cannot be developed, manufactured, used,
imported, exported, or sold without (i) infringing, in whole or in part, one or more VALID CLAIMS
of the PATENT RIGHTS, or (ii) using or incorporating some portion of the LICENSED TECHNOLOGY.
1.6 LICENSED SERVICES means any service, the developing, using, performing, selling,
offering for sale, importing or exporting of which by LICENSEE would, but for the licenses granted
to LICENSEE in
Article 2
of this Agreement, infringe a VALID CLAIM of the PATENT RIGHTS in
the country in which any such service is so developed, used, performed, sold, offered for sale,
imported or exported by LICENSEE.
1.7 LICENSED TECHNOLOGY shall mean, collectively, the licensed PATENT RIGHTS and licensed
KNOW-HOW.
1.8 NET SALES shall mean the amount billed or invoiced by LICENSEE for the sale or provision
of LICENSED PRODUCTS or LICENSED PROCESSES or LICENSED SERVICES less:
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discounts, credits, allowances and rebates allowed;
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b)
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sales, tariff duties, use and other taxes or governmental
charges directly imposed with reference to particular sales;
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c)
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special packaging, transportation and insurance costs incurred
and directly related to the sale of LICENSED PRODUCTS;
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d)
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amounts allowed or credited on returns; and
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e)
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uncollected accounts.
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2
1.9 NEURONAL & HEART FIELD OPTION means an option described in
Section 15.18
hereof
for LICENSEE to negotiate terms for license to the LICENSED TECHNOLOGY for the field of diseases
related to heart or neurodegenerative diseases
1.10 PATENT RIGHTS means (a) the patent applications and patents identified on
Exhibit
A
attached hereto and any patents that issue on said applications and (b) any divisions,
continuations, extensions, reissues or reexaminations of any of the patents identified in the
foregoing clause (a). The Parties agree that
Exhibit A
may be revised from time to time
after the Effective Date to reflect changes thereto that result from the course of patent
prosecution.
1.11 PERSON shall mean an individual, corporation, partnership, limited liability company,
trust, business trust, association, joint stock company, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization, governmental authority or any other form of entity not
specifically listed herein.
1.12 TERM has the meaning set forth in
Section 9.1
.
1.13 TERRITORY means the entire world.
1.14 VALID CLAIM means a claim of any issued and unexpired patent within the PATENT RIGHTS
which has not lapsed, become abandoned or been held permanently revoked, invalid, or unenforceable
by a decision of a court or administrative or government authority or agency of competent
jurisdiction from which no appeal can be or has been taken within the time allowed for such appeal,
or a claim of a pending patent application included within the Licensed PATENT RIGHTS, which claim
was filed in good faith and has not been abandoned or finally disallowed without the possibility of
appeal or refiling of such application.
Additional terms may be defined throughout this Agreement.
ARTICLE 2 GRANT
2.1 LICENSOR hereby grants to LICENSEE, and LICENSEE hereby accepts, subject to the terms and
conditions hereof, a royalty bearing, exclusive, as to LICENSORs rights, license in the TERRITORY
in the FIELD and under the LICENSED TECHNOLOGY to (a) research, develop, make, have made, use,
sell, offer for sale, import and export LICENSED PRODUCTS, (b) research, develop, use, practice,
sell, offer for sale, import and export LICENSED PROCESSES and (c) develop, use, perform, sell,
offer for sale, import and export LICENSED SERVICES. By way of example, but not in limitation,
LICENSEE shall have the right to use LICENSED TECHNOLOGY within the FIELD for the following
purpose: to produce human embryonic stem (ES) cells and to produce from those mammalian embryonic
cells, differentiated cells for human cell therapy within the FIELD, and to produce pluripotent
cells including ES cells, differentiated human cells for cell therapy within the FIELD.
3
2.2 LICENSEE shall have the right to contract with third parties to (a) provide LICENSED
PRODUCT marketing and distribution services to LICENSEE on behalf of LICENSEE, (b) provide LICENSED
SERVICES marketing services to LICENSEE on behalf of LICENSEE or (c) manufacture for LICENSEE
LICENSED PRODUCTS for sale by LICENSEE or a third party pursuant to the foregoing clause (a).
2.3 LICENSEE shall not have the right to grant sublicenses.
2.4 Within thirty (30) business days of the Effective Date, LICENSOR shall provide and
transfer to LICENSEE, in writing where practicable, all information and data relating to the
LICENSED TECHNOLOGY as may be reasonably necessary and requested to allow LICENSEE to exploit the
licenses granted hereunder. LICENSOR shall work with LICENSEE in good faith to provide the
necessary training for up to a total of 60 days, at LICENSORs facilities, necessary to allow
LICENSEE to utilize the LICENSED TECHNOLOGY. LICENSEE shall pay to LICENSOR all reasonable and
customary expenses other than normal operating expenses incurred by LICENSOR in providing such
training and technology transfer, including but not limited to fees incurred to request documents
from patent counsel or the United States Patent and Trademark Office.
2.5 Notwithstanding anything stated herein, nothing in this Agreement shall be construed as
preventing LICENSOR from practicing the LICENSED TECHNOLOGY within the FIELD for non-commercial
in-house research purposes.
2.6 Notwithstanding anything stated herein, nothing in this Agreement shall be construed as
preventing LICENSOR from practicing the LICENSED TECHNOLOGY within the FIELD for non-commercial
in-house research purposes. In the event that LICENSOR requests that LICENSEE deliver to LICENSOR
the LICENSED TECHNOLOGY or LICENSED PRODUCTS in the FIELD for research purposes, LICENSEE shall
make the LICENSED TECHNOLOGY or LICENSED PRODUCTS available to LICENSOR on commercially reasonable
terms. In the event LICENSOR requires the use of collaborators in its research, LICENSEE shall
also make such LICENSED TECHNOLOGY OR LICENSED PRODUCTS available to such collaborator if LICENSEE,
in its sole but reasonable discretion is satisfied that providing such items to a collaborator will
not endanger its exclusive commercial control of such items or result in their use by a competitor.
4
ARTICLE 3 LICENSEE OBLIGATIONS
RELATING TO COMMERCIALIZATION
3.1 LICENSEE shall use its commercially reasonable and diligent efforts to bring one or more
LICENSED PRODUCTS, LICENSED PROCESSES or LICENSED SERVICES to market through an active and diligent
program for exploitation of the PATENT RIGHTS and to continue active, diligent marketing efforts
for one or more LICENSED PRODUCTS, LICENSED PROCESSES or LICENSED SERVICES throughout the TERM of
this Agreement.
3.2 LICENSEE shall maintain minimum R&D requirements to maintain exclusivity under this
Agreement
.
Commencing 30 months following the Effective Date hereof and until the launch of the
first human cell-based therapeutic product, LICENSEE shall be required to invest a minimum of
$400,000 per year in research and development of the FIELD covered by this Agreement or other
agreements with LICENSOR affecting the FIELD in order to maintain the exclusive license rights
granted hereunder. In the event LICENSEE fails to perform this minimum expenditure in R&D in the
FIELD during the course of a calendar year during the above-mentioned period, the license under
this Agreement shall become nonexclusive and such minimum expenditure for research and development
shall be reduced to $200,000 per year.
3.3 LICENSEE shall maintain complete and accurate records of LICENSED PRODUCTS, LICENSED
PROCESSES and LICENSED SERVICES that are made, used, sold or performed by LICENSEE under this
Agreement. Not later than April 1
st
of each year following the Effective Date, LICENSEE
shall furnish LICENSOR with a summary report on the progress of its efforts during the prior year
to develop and commercialize LICENSED PRODUCTS, LICENSED PROCESSES or LICENSED SERVICES, including
without limitation research and development efforts, efforts to obtain regulatory approval,
marketing efforts (including LICENSED PRODUCTS, LICENSED PROCESSES and LICENSED SERVICES made,
used, sold or performed) and sales figures, provided that such reports shall be deemed Confidential
Information (as defined in
Section 10.1
herein) subject to the provisions of
Article
10
of this Agreement.
3.4 In the event that LICENSOR determines that LICENSEE has not fulfilled its obligations
under this
Article 3
, LICENSOR shall furnish LICENSEE with written notice of such
determination. Within thirty (30) days after receipt of such notice, LICENSEE shall (i) fulfill
the relevant obligation, (ii) negotiate with LICENSOR a mutually acceptable schedule of revised
obligations, or (3) if LICENSEE disputes the alleged failure to fulfill its obligations, it shall
promptly seek appropriate judicial determination of the matter and diligently pursue such action to
a final determination with all appropriate speed; failing which, LICENSOR shall have the right,
immediately upon written notice to LICENSEE, to terminate this Agreement as provided in
Section
9.2
hereof.
ARTICLE 4 CONSIDERATION
4.1
Initial Payment
. In partial consideration of the license granted to LICENSEE
from LICENSOR in
Article 2
of this Agreement, LICENSEE agrees to pay a License Fee to
LICENSOR $25,000 in a convertible promissory note in the form attached hereto as
Exhibit C
.
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4.2
Royalties
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a)
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In partial consideration of the license in the FIELD granted by
LICENSOR to LICENSEE in
Article 2
of this Agreement, LICENSEE agrees to
pay to LICENSOR an earned royalty equal to six percent (6%) of the NET SALES in
the FIELD made, used, sold, imported, exported or performed by LICENSEE in the
TERRITORY.
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b)
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No multiple royalties shall be payable because any LICENSED
PRODUCT, LICENSED PROCESS or LICENSED SERVICE in the FIELD, its manufacture,
use, lease, sale or performance are or shall be covered by more than one patent
or patent application within the PATENT RIGHTS.
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c)
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The obligation of LICENSEE to pay royalties hereunder shall
terminate for each country in the TERRITORY concurrently with the expiration or
termination of the last applicable VALID CLAIM within the PATENT RIGHTS in such
country in which the LICENSED PRODUCT, LICENSED PROCESS or LICENSED SERVICE is,
(as applicable), used, practiced, performed, sold, offered for sale, imported,
exported or manufactured.
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4.3
Minimum Royalties
.
Within 2 business days from the Effective Date hereof,
LICENSEE shall pay to LICENSOR a minimum royalty fee of $25,000 in cash or by wire transfer. In
addition, commencing 12 months following the Effective Date, LICENSEE shall pay to LICENSOR
additional minimum royalty fees equal to the difference between total Royalties actually paid in
the preceding 12 months and the following minimum amounts:
At 12 months, $5,000
At 24 months, $5,000
At 36 months, $5,000
Annually thereafter, $10,000.
4.4
Stacking Royalties
. With the exception of minimum royalties due to LICENSOR, if
LICENSEE or its Affiliates are required to pay royalties relating to any additional intellectual
property from LICENSOR in order to exercise its rights hereunder to make, have made, use or sell
any Product, then LICENSEE shall have the right to credit a pro-rated portion of such royalty
payments against the royalties owing to LICENSOR under
Section 4.2
of this Agreement with
respect to sales of such Product such that in no event shall the total of royalty payments that
are due to LICENSOR in such royalty period exceed the payments payable under
Section 4.2
above. Prorations shall be made in the same manner as specified for combination products under
Section 4.7
below.
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4.5
Milestone Payments.
Upon the launch of a commercial therapeutic product based on
the LICENSED TECHNOLOGY, LICENSEE shall pay additional Milestone Payments totaling $1,750,000 on
the following schedule:
$250,000 within 30 days following the launch of the first commercial Product;
$500,000 upon reaching $5,000,000 in sales;
$1,000,000 upon reaching $10,000,000 in sales.
4.6
Stacking Milestone Payments.
The milestone payments shall be in addition to any
royalties specified elsewhere in this
Article 4
. If LICENSEE is obligated to pay or has
paid to LICENSOR similar Milestone Payments under another license agreement with respect to the
FIELD, then LICENSEE shall have the right to pro-rate such Milestone Payments against the Milestone
Payments owing to LICENSOR under this Agreement such that in no event shall the total of all
Milestone Payments due from LICENSEE to LICENSOR exceed the payments payable under Section 4.5.
Pro-rating of payments shall be made in the ratio of the minimum royalties payable under this
Agreement to the minimum royalties payable under any other agreement covered hereby under which
Milestone Payments are owed.
4.7
Combination Product
. In the event a Product is sold in a combination product with
other devices or biologically active components, NET SALES, for purposes of royalty payments on
the combination product, shall be calculated by multiplying the NET SALES of that combination by
the fraction A/B, where A is the gross selling price of the Product sold separately and B is the
gross selling price of the combination product. In the event that no such separate sales are made
by LICENSEE or its Affiliates, NET SALES for royalty determination shall be calculated by
multiplying NET SALES of the combination by the fraction C/(C+D), where C is the fully allocated
cost of the Product and D is the fully allocated cost of such other biologically active components.
4.8
Payments in U.S. Currency
. All payments due under this Agreement shall be paid in
cash to LICENSOR and all payments shall be made in United States currency. Conversion of foreign
currency to U.S. dollars shall be made at the conversion rate reported in
The Wall Street
Journal
on the last working day of the calendar quarter to which the payment relates.
4.9
Taxes
. Subject to the limits of
Section 1.8
hereof, all payments due
hereunder shall be paid in full without deduction of taxes or other fees which may be imposed by
any government and which shall be paid by LICENSEE; provided, however, that any withholding tax
required to be withheld by LICENSEE on royalty payments under the laws of any country in the
TERRITORY on behalf of LICENSOR will be timely paid by LICENSEE to the appropriate governmental
authority, and LICENSEE will furnish LICENSOR with proof of payment of such tax. Any such tax
actually withheld may be deducted from royalty payments due to LICENSOR under this Agreement. If
at any time legal restrictions prevent the prompt remittance of part or all of any payments owed by
LICENSEE to LICENSOR hereunder with respect to any country in the TERRITORY, payment shall be made
through any lawful means or methods that may be available, and as LICENSEE shall reasonably
determine is appropriate.
7
4.10
Overdue Payments
. Any payments to be made by LICENSEE hereunder that are not
paid on or before the date such payments are due under this Agreement shall bear interest, to the
extent permitted by law, at two percentage points above the Prime Rate of interest as reported in
The Wall Street Journal
on the date payment is due, with interest calculated based on the
number of days that payment is delinquent.
ARTICLE 5 REPORTS AND RECORDS
5.1 LICENSEE shall keep full, true and accurate books of account containing all particulars
that may be necessary for the purpose of showing the amounts payable to LICENSOR hereunder and to
enable the reports provided under
Section 5.2
to be verified. Said books of account shall
be kept at LICENSEEs principal place of business. Said books and the supporting data shall be
open upon reasonable advance notice (but not less than five (5) business days notice and no more
frequently than once per calendar year) for three (3) years following the end of the calendar year
to which they pertain, to the inspection of LICENSOR or its agents for the purpose of verifying
LICENSEEs royalty statement or compliance in other respects with this Agreement. If any such
audit determines an error in any royalty payment, LICENSEE shall pay to LICENSOR, within thirty
(30) days of the discovery of the error, (a) all deficiencies in royalty payments, (b) interest on
such deficiencies from the date such royalty was due until the date paid at the rate set forth in
Section 4.10
above, and (c) if such error is in excess of five percent (5%) of any royalty
payment, the cost of the audit. In all other cases, the costs of the audit shall be paid for by
LICENSOR. All information disclosed pursuant to an audit shall be treated as Confidential
Information (as defined in
Section 10.1
herein) and shall not be disclosed to any third
party or used for any purpose other than to determine the correctness of LICENSEEs royalty
statement or compliance in other respects with this Agreement.
5.2 After the first commercial sale of a LICENSED PRODUCT or LICENSED PROCESS, LICENSED
SERVICE, LICENSEE, within forty-five (45) days after March 31, June 30, September 30 and December
31 of each year, shall deliver to LICENSOR a true and accurate report, giving such particulars of
the business conducted by LICENSEE during the preceding three-month period under this Agreement as
shall be pertinent to a royalty accounting hereunder. Without limiting the generality of the
foregoing, these reports shall include at least the following:
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a)
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the number of LICENSED PRODUCTS manufactured and sold by
LICENSEE;
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b)
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total billings and the amounts actually received for LICENSED
PRODUCTS sold by LICENSEE;
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c)
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an accounting for all LICENSED PROCESSES or LICENSED SERVICES
used in the provision of services to others or sold by LICENSEE;
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d)
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the deductions applicable as provided in
Section 1.9
;
and
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e)
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the names and addresses of all parties making LICENSED PRODUCTS
on behalf of LICENSEE.
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8
The reports shall provide the above-identified information by product, process, or service
type.
5.3 With each such report submitted, LICENSEE shall pay to LICENSOR the royalties due and
payable for such three-month period. If no royalties shall be due, LICENSEE shall so report.
ARTICLE 6 PATENT PROSECUTION
LICENSOR shall be solely responsible for the continued prosecution of pending patent
applications included in the PATENT RIGHTS and the issuance of such applications after allowance,
to the extent that it has such prosecution rights. The prosecution, filing and maintenance of all
patents and applications shall be the primary responsibility of LICENSOR, to the extent that it has
such prosecution rights. LICENSEE agrees to cooperate fully with LICENSOR, as requested by
LICENSOR and at LICENSORs expense, in the preparation, filing, prosecution, and maintenance of the
patent applications and patents included in the PATENT RIGHTS.
ARTICLE 7 PROSECUTION OF INFRINGERS
AND DEFENSE OF PATENT RIGHTS
The Parties agree to notify each other in writing of any actual or threatened infringement by
a third party of the PATENT RIGHTS or of any claim of invalidity, unenforceability, or
non-infringement of the PATENT RIGHTS. LICENSOR shall have the sole responsibility to prosecute or
defend such claims, as applicable. LICENSEE shall, if requested, provide reasonable assistance to
LICENSOR in connection with the prosecution or defense of such claims.
ARTICLE 8 INDEMNIFICATION
8.1
Indemnification of the LICENSOR
. LICENSEE shall be responsible for and shall
indemnify, defend, and hold harmless LICENSOR, its agents, attorneys, representatives, third party
beneficiaries and their respective heirs, executors, successors and assigns (collectively, the
LICENSOR Indemnitees) from and against all liabilities of any kind whatsoever, including legal
expenses and reasonable attorneys fees, incurred or imposed upon any of the LICENSOR Indemnitees
in connection with or as a consequence of any claims (including third party claims), suits,
actions, demands or judgments arising out of the death of or injury to any person or persons or out
of any damage to property resulting from the development, production,
9
manufacture, sale, use, performance, rendering, consumption or advertisement of the LICENSED
PRODUCT(s) and/or LICENSED PROCESS(es), LICENSED SERVICE(s), or arising from any obligation, act or
omission performed or failed to be performed hereunder, or from a breach of any representation or
warranty of LICENSEE hereunder unless and to the extent that such liability arises solely from any
action of LICENSOR or any of its Affiliates. If the exercise of LICENSEEs rights under this
Agreement in any country in the TERRITORY is the subject of a bona fide claim by a third party,
filed in a court of competent jurisdiction after the date hereof, that the exercise of such rights
infringes or conflicts with any intellectual property rights of such third party (a Third Party
Infringement Claim), then LICENSEE shall not have any of the rights granted herein in such country
and shall have no obligation to pay LICENSOR any further payments under
Article 4
of this
Agreement with respect to any country of the TERRITORY until such claim is resolved by proper
adjudication or settlement permitting LICENSEE to exercise LICENSEEs rights under this Agreement
in the applicable country of the TERRITORY. Notwithstanding anything herein to the contrary,
LICENSOR covenants that it will not (a) assert or bring any suit, action, claim or other proceeding
against LICENSEE based on, in whole or in part, LICENSEEs exercise of LICENSEEs rights, in
accordance with the terms and conditions of this Agreement, with respect to the LICENSED TECHNOLOGY
and/or (b) join in any third party suit, action, claim or other proceeding against LICENSEE based
on, in whole or in part, any intellectual property rights (including without limitation, patent
rights and/or know how) owned by the applicable third party, so long as LICENSEE is not in
violation of this Agreement.
8.2
Indemnification of the LICENSEE
. LICENSOR shall be responsible for and shall
indemnify, defend, and hold harmless LICENSEE and the officers, directors, shareholders, employees,
agents, attorneys, representatives, and Affiliates, and their respective heirs, executors,
successors and assigns. (the LICENSEE Indemnitees) from and against all liabilities of any kind
whatsoever, including legal expenses and reasonable attorneys fees, incurred or imposed upon any
of the LICENSEE Indemnitees in connection with or as a consequence of any claims (including third
party claims), suits, actions, demands or judgments arising out of, directly or indirectly, or in
any way relating to: (a) any breach by LICENSOR of any representation, warranty, covenant or
obligation set forth in this Agreement; or (b) arising from LICENSORs ownership, management,
control, use or disposition of the LICENSED TECHNOLOGY unless and to the extent that such liability
arises solely from any action of LICENSEE or any of its Affiliates after the Effective Date.
8.3
Demands for Third Party Claims
. Each indemnified Party hereunder (an Indemnified
Party) agrees that promptly upon its discovery of facts giving rise to a claim for indemnity under
this Agreement, including the receipt of any demand, assertion, claim, action or proceeding,
judicial or otherwise, by any third party (being referred to herein as a Claim), with respect to
any matter as to which it claims to be entitled to indemnity under the provisions of this
Agreement, it will give prompt notice thereof in writing to the Indemnifying Party (the
Indemnifying Party), together with a statement of such information respecting any of the
foregoing as it shall have. Such notice shall include a formal demand for indemnification under
this Agreement.
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8.4
Right to Contest and Defend
. The Indemnifying Party shall contest and defend, at
its sole cost and expense, by all appropriate legal proceedings any Claim with respect to which it
is called upon to indemnify the Indemnified Party under the provisions of this Agreement; provided,
that notice of the intention to so contest shall be delivered by the Indemnifying Party to the
Indemnified Party as soon as reasonably possible after (but no later than twenty [20] days from)
the date of receipt by the Indemnifying Party of notice by the Indemnified Party of the assertion
of the Claim. Any such contest may be conducted in the name and on behalf of the Indemnifying Party
or the Indemnified Party as may be appropriate. Such contest shall be conducted by reputable
counsel employed by the Indemnifying Party, but the Indemnified Party shall have the right but not
the obligation to participate in such proceedings and to be represented by counsel of its own
choosing at its sole cost and expense. The Indemnifying Party shall have full authority to
determine all action to be taken with respect thereto; provided, however, that the Indemnifying
Party will not have the authority to subject the Indemnified Party to any obligation whatsoever
(whether financial or the imposition of equitable or injunctive relief), other than the performance
of purely ministerial tasks or obligations not involving material expense (for which the
Indemnified Party shall be reimbursed). If the Indemnifying Party does not elect to contest any
such Claim, the Indemnifying Party shall be bound by the result obtained with respect thereto by
the Indemnified Party.
8.5
Cooperation
. If requested by the Indemnifying Party, the Indemnified Party agrees
to cooperate with the Indemnifying Party and its counsel in contesting any Claim that the
Indemnifying Party elects to contest or, if appropriate, in making any counterclaim against the
PERSON asserting the Claim, or any cross-complaint against any PERSON, and the Indemnifying Party
will reimburse the Indemnified Party for any expenses incurred by it in so cooperating.
8.6
Right to Participate
. The Indemnified Party agrees to afford the Indemnifying
Party and its counsel the opportunity to be present at, and to participate in, conferences with any
PERSON, including governmental authorities, asserting any Claim against the Indemnified Party or
conferences with representatives of or counsel for such PERSON.
8.7
Payment of Damages
. The Indemnifying Party shall pay to the Indemnified Party in
immediately available funds any amounts to which the Indemnified Party may become entitled by
reason of the provisions of this Agreement, such payment to be made within five (5) days after any
such amounts are finally determined either by mutual agreement of the Parties hereto or pursuant to
the final non-appealable judgment of a court of competent jurisdiction.
8.8
Independent Indemnities
. The Parties acknowledge and agree that each of the
indemnities under
Sections 8.1 and 8.2
may be relied upon independently.
11
8.9
Insurance.
LICENSEE and LICENSOR mutually agree to maintain insurance or
self-insurance that is reasonably adequate to fulfill any potential obligation to the Indemnified
Parties. LICENSEE and LICENSOR shall continue to maintain such insurance or self-insurance
during the term of this Agreement and after the expiration or termination of this Agreement for a
period of five (5) years. Each Party shall provide to the other Party, upon request, proof of any
such insurance policy maintained by such Party.
ARTICLE 9 TERMINATION
9.1 The term of this Agreement (TERM) shall commence on the Effective Date and continue
until the expiration of the last VALID CLAIM within the PATENT RIGHTS to expire , unless sooner
terminated as provided in this
Article 9
; provided that LICENSEEs obligation to pay
royalties on NET SALES in any country will terminate pursuant to
Subsection 4.2(c)
(subject
to LICENSEEs obligations under
Section 9.4
herein).
9.2 If either Party commits a material breach of a material term of this Agreement (including
any failure to make any payment due under this Agreement), the non-breaching Party shall have the
right to terminate this Agreement effective on thirty (30) days prior written notice to the Party
in breach, unless such breach is cured prior to the expiration of such thirty (30) day period.
9.3 LICENSEE shall have the right to terminate this Agreement at any time on thirty (30) days
prior notice to LICENSOR, and upon payment of all amounts due LICENSOR through the effective date
of the termination.
9.4. Notwithstanding anything herein to the contrary, in the event that this Agreement is
terminated by LICENSOR pursuant to
Section 9.2
or by LICENSEE pursuant to
Sections 9.2
or 9.3
, LICENSEE shall retain a license to rights granted in
Article 2
to the extent
reasonably necessary to sell any LICENSED PRODUCTS existing or under production and to perform
LICENSED PROCESSES or LICENSED SERVICES related to such LICENSED PRODUCTS or that are in process,
subject to the terms of this Agreement (including without limitation the obligation to pay
royalties under
Article 4
), provided that LICENSEE shall complete and sell all such
work-in-progress and inventory within six (6) months after the effective date of termination.
9.5 Upon the expiration of the TERM of this Agreement LICENSEE shall have a fully paid-up,
non-exclusive, irrevocable, royalty free license under the rights granted in
Article 2
.
9.6 Nothing herein shall be construed to release either Party from any obligation that accrued
prior to expiration or any termination of this Agreement. The following provisions shall survive
any termination or any expiration of the TERM of this Agreement: this
Section 9.6 and
Articles/Sections 1, 4, 5, 8, 9.4, 10, 11, 12, 13, 15.1, 15.2, 15.5, 15.6, 15.7, 15.8, 15.10, 15.15
and 15.16
, and any other provision which by its nature is intended to survive any such
termination.
12
ARTICLE 10 CONFIDENTIALITY AND NON-DISCLOSURE
10.1
Confidential Information; Non-Disclosure
. Confidential Information shall mean
any technical, business, financial, customer or other information disclosed by one Party (the
Disclosing Party) to the other Party (the Receiving Party) pursuant to this Agreement which is
marked Confidential or Proprietary, or which, under all of the given circumstances, ought
reasonably to be treated as confidential information of the Disclosing Party. Such information may
be disclosed in oral, visual or written form (including magnetic, optical or other media). Except
as expressly provided in
Section 10.2
below, each Partys Confidential Information
specifically includes without limitation the respective Partys business plans and business
practices, the terms of this Agreement, scientific knowledge, research and development or know-how,
processes, inventions, techniques, formulae, products and product plans, business operations,
customer requirements, designs, sketches, photographs, drawings, specifications, reports, studies,
findings, data, plans or other records, biological materials, software, margins, payment terms and
sales forecasts, volumes and activities, designs, computer code, technical information, costs,
pricing, financing, business opportunities, personnel, and information of LICENSOR or LICENSEE
relating to the LICENSED PROCESSES, LICENSED PRODUCTS or LICENSED SERVICES whether or not such
information is marked or identified provided that the Disclosing Party provides notice in writing
reasonably identifying such Confidential Information within 30 days of disclosure. Except to the
extent expressly authorized by this Agreement or by other prior written consent by the Disclosing
Party, the Receiving Party, during the term of this Agreement, and thereafter, shall: (i) treat as
confidential all Confidential Information of the other Party; (ii) use Confidential Information
only for exercising the rights and fulfilling the obligations set forth in this Agreement, (iii)
implement reasonable procedures to prohibit the disclosure, unauthorized duplication, misuse or
removal of the Disclosing Partys Confidential Information; (iv) not disclose Confidential
Information to any third party, and (v) only disclose the Confidential Information to (a) those of
its employees who have a need to know Confidential Information in order to exercise the rights and
fulfill the obligations set forth in this Agreement and (b) legal and professional advisors and
existing and potential investors and their legal and professional advisors, each of which is bound
by a written agreement (or in the case of attorneys or other professional advisors, formal ethical
duties) requiring such advisors and investors to treat, hold and maintain such Confidential
Information in accordance with the terms and conditions of this Agreement, or (c) recipients of
offering documents in connection with any offering of securities where such disclosure is, in the
opinion of counsel for the Disclosing Party, reasonably required to comply with the investment
disclosure laws of any applicable jurisdiction. Without limiting the foregoing, the Receiving Party
shall protect the Disclosing Partys Confidential Information using at least the same procedures
and degree of care that it uses to prevent the disclosure of its own confidential information of
like importance, but in no event less than reasonable care.
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10.2
Exceptions
. The Receiving Party shall have no obligation or liability to the
Disclosing Party with regard to any Confidential Information of the Disclosing Party: (i) that
was publicly known and available at the time it was disclosed or becomes publicly known and
available through no fault, action, or inaction of the Receiving Party; (ii) was known to the
Receiving Party, without restriction, at the time of disclosure as shown by the files of the
Receiving Party in existence at the time of disclosure; (iii) is disclosed with the prior written
approval of the Disclosing Party; (iv) was independently developed by the Receiving Party without
any use of the disclosing partys Confidential Information, provided, that the Receiving Party can
demonstrate such independent development by documented evidence prepared contemporaneously with
such independent development; (v) is disclosed pursuant to the order or requirement of a court,
administrative agency, or other governmental body, provided that the Receiving Party shall provide
prompt notice thereof and reasonable assistance to the Disclosing Party to enable the Disclosing
Party to seek a protective order or otherwise prevent such disclosure, and provided further that
such disclosure is limited to the extent necessary to comply with such order and the information
shall otherwise be treated as Confidential Information; or (vi) that is provided to the Receiving
Party by an independent third party without violating any confidentiality obligation to the
Disclosing Party.
10.3
Injunctive Relief
. LICENSOR and LICENSEE acknowledge and agree that any breach
of the confidentiality obligations imposed by this Article 10 will constitute immediate and
irreparable harm to the Disclosing Party and/or its successors and assigns, which cannot adequately
and fully be compensated by money damages and will warrant, in addition to all other rights and
remedies afforded by law, injunctive relief, specific performance, and/or other equitable relief.
The Disclosing Partys rights and remedies hereunder are cumulative and not exclusive. The
Disclosing Party shall also be entitled to receive from the Receiving Party the costs of enforcing
this
Article 10
, including reasonable attorneys fees and expenses of litigation.
10.4
Termination
. Upon termination or expiration of this Agreement, or upon the
request of the Disclosing Party at any time, the Receiving Party shall promptly return to the
Disclosing Party, at its request, all copies of Confidential Information received from the
Disclosing Party, and shall return or destroy, and document the destruction of, all summaries,
abstracts, extracts, or other documents which contain any Confidential Information of the
Disclosing Party in any form. Notwithstanding the foregoing to the contrary, LICENSEE shall have
no obligation (even upon a request by LICENSOR) to return or destroy any KNOW-HOW (including
tangible embodiments of KNOW-HOW) during the TERM of this Agreement.
10.5
Survival
. The obligations of LICENSOR and LICENSEE under this
Article 10
shall survive any expiration or termination of this Agreement.
ARTICLE 11 PAYMENTS, NOTICES, AND OTHER COMMUNICATIONS
Any payment, notice or other communication pursuant to this Agreement shall be in writing and
sent by certified first class mail, postage prepaid, return receipt requested, or by nationally
recognized overnight carrier addressed to the Parties at the following addresses or such other
addresses as such Party furnishes to the other Party in accordance with this paragraph.
Such notices, payments, or other communications shall be effective upon receipt.
14
In the case of LICENSOR:
Advanced Cell Technology, Inc.
One Innovation Drive
Worcester, MA 01605
Attention: Michael D. West, Ph.D., President
With a copy to:
Pierce Atwood
One Monument Square
Portland, ME 04101
Attention: William L. Worden, Esq.
In the case of LICENSEE:
PacGen Cellco, LLC.
157 Surfview Drive
Pacific Palisades, CA 90272
Attention: Kenneth Aldrich
With a copy to:
Gray Cary Ware & Freidenrich
4365 Executive Drive, Suite 1100
San Diego, CA 92121-2133
Attention: Lisa Haile
ARTICLE 12 RESPRESENTATIONS AND WARRANTIES OF LICENSOR
As an inducement to LICENSEE to enter into and perform this Agreement, LICENSOR represents and
warrants to LICENSEE as follows:
12.1
Title to LICENSED TECHNOLOGY; Encumbrances
. LICENSOR has good and valid title or
valid licenses (with the right of sublicense) to the LICENSED TECHNOLOGY.
12.2
No Violations
. The execution, delivery and performance of this Agreement by
LICENSOR and the consummation by LICENSOR of the transactions contemplated hereby does not,: (a)
violate any statute, ordinance, rule or regulation applicable to LICENSOR or by which any of the
LICENSED TECHNOLOGY may be bound; (b) violate any order, judgment or decree of any court or of any
Governmental Authority or regulatory body, agency or authority applicable to LICENSOR or by which
any of the LICENSED TECHNOLOGY may be bound; (c) require any filing by LICENSOR with, or require
LICENSOR to obtain any permit, consent or approval of, or require LICENSOR to give any notice to,
any Governmental Authority or regulatory body, agency or authority; or (d) result in a violation or
breach by LICENSOR of,
conflict with, constitute a default by LICENSOR (or give rise to any right of termination,
cancellation, payment or acceleration) under or result in the creation of any Encumbrance upon any
of the LICENSED TECHNOLOGY.
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12.3
Litigation
. Except as set forth in
Exhibit C
, there is no action, suit,
proceeding at law or in equity, arbitration or administrative or other proceeding by or before (or
any investigation by) any governmental or other instrumentality or agency, pending, or threatened,
against or affecting the LICENSED TECHNOLOGY, and LICENSOR does not know of any valid basis for any
such action, proceeding or investigation. To the knowledge of LICENSOR, there are no such suits,
actions, claims, proceedings or investigations pending or threatened, seeking to prevent or
challenge the transactions contemplated by this Agreement.
12.4
Disclosure
. Neither these representations and warranties made by LICENSOR
pursuant to this Agreement nor any of the exhibits, schedules or certificates attached hereto or
delivered in accordance with the terms hereof knowingly contains any misstatement of fact or omits
any statement of fact necessary in order to make the statements contained herein and therein not
misleading in light of the circumstances under which they were made.
12.5
Copies of Documents
. LICENSOR has caused to be made available for inspection and
copying by LICENSEE and its advisers, true, complete and correct copies of all documents in
LICENSORs possession referred to in any schedule attached hereto.
12.6
Brokers or Finders Fees
. No agent, broker, person or firm acting on behalf of
LICENSOR is, or will be, entitled to any fee, commission or brokers or finders fees for which the
LICENSEE may be liable in connection with this Agreement or any of the transactions contemplated
hereby.
12.7
LICENSED TECHNOLOGY
.
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(a)
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Except as set forth on
Exhibit D
, LICENSOR, LICENSOR is
not aware of any interference, infringement, misappropriation, or other
conflict with any intellectual property rights of third parties, and LICENSOR
has never received any charge, complaint, claim, demand, or notice alleging any
such interference, infringement, misappropriation, or violation (including any
claim that LICENSOR must license or refrain from using any intellectual
property rights of any third party). To the knowledge of LICENSOR, no third
party has interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any of the LICENSED TECHNOLOGY.
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(b)
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Exhibit A
identifies each patent or registration which
has been issued to LICENSOR with respect to any of the LICENSED TECHNOLOGY and
identifies each pending patent application or application for registration
which LICENSOR has made with respect to any of the LICENSED
TECHNOLOGY. LICENSOR has made available to LICENSEE correct and complete copies
of all such patents, registrations and applications (as amended to-date) in
LICENSORs possession and has made available to LICENSEE correct and complete
copies of all other written documentation in LICENSORs possession evidencing
ownership and prosecution (if applicable) of each such item.
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(c)
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Exhibit A
identifies each item of LICENSED TECHNOLOGY
that LICENSOR uses pursuant to license, sublicense, agreement, or permission.
LICENSOR has made available to LICENSEE correct and complete copies of all such
licenses, sublicenses, agreements, patent prosecution files and permissions (as
amended to-date) in LICENSORs possession. With respect to each item of
LICENSED TECHNOLOGY required to be identified in
Exhibit A
and to the
knowledge of LICENSOR: (i) the license, sublicense, agreement, or permission
covering the item is legal, valid, binding, enforceable, and in full force and
effect; (ii) the license, sublicense, agreement, or permission will continue to
be legal, valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions contemplated
hereby; (iii) no Party to the license, sublicense, agreement, or permission is
in breach or default, and no event has occurred which with notice or lapse of
time would constitute a breach or default or permit termination, modification,
or acceleration thereunder; (iv) no party to the license, sublicense,
agreement, or permission has repudiated any provision thereof; (v) the
underlying item of LICENSED TECHNOLOGY is not subject to any outstanding lien
or encumbrance, injunction, judgment, order, decree, ruling, or charge; (vi) no
action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand is pending or is threatened which challenges the legality, validity, or
enforceability of the underlying item of LICENSED TECHNOLOGY; and (vii)
LICENSOR has not granted any sublicense or similar right to the LICENSED
TECHNOLOGY within the FIELD.
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12.8
Survival of Representations and Warranties
.
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(a)
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Except as otherwise provided herein, notwithstanding any
investigation at any time made by or on behalf of any Party hereto, the
representations and warranties set forth herein and in any certificate
delivered in connection herewith with respect to any of those representations
and warranties will survive the Effective Date until the longer to occur of:
(i) two (2) years or (ii) the expiration of the applicable statutes of
limitation, including all periods of extension and tolling whereupon they will
terminate and expire.
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(b)
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After a representation and warranty has expired, as provided in
Subsection 12.8(a)
, no claim for claims or costs may be made or
prosecuted by any Person who would have been entitled to claims or costs on the basis of that
representation and warranty prior to its termination and expiration, provided
that no claim presented in writing for claims or costs to the Person or Persons
from which or whom those damages are sought on the basis of that representation
and warranty prior to its termination and expiration will be affected in any way
by that termination and expiration.
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12.9 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, LICENSOR, ITS DIRECTORS,
OFFICERS, EMPLOYEES, AND AFFILIATES MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY KIND,
EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR
A PARTICULAR PURPOSE, VALIDITY OF PATENT RIGHTS, ISSUED OR PENDING, AND THE ABSENCE OF LATENT OR
OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE. NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A
REPRESENTATION MADE OR WARRANTY GIVEN BY LICENSOR THAT THE PRACTICE BY LICENSEE OF THE LICENSE
GRANTED HEREUNDER SHALL NOT INFRINGE THE PATENT RIGHTS OF ANY THIRD PARTY.
ARTICLE 13REPRESENTATIONS AND WARRANTIES OF LICENSEE.
LICENSEE represents and warrants to LICENSOR as follows:
13.1
Existence and Good Standing: Power and Authority
. LICENSEE is a limited liability
company duly organized, validly existing and in good standing under the laws of the state of
California. LICENSEE has full corporate power and authority to make, execute, deliver and perform
this Agreement, to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement by LICENSEE and the
consummation by it of the transactions contemplated hereby, have been duly authorized and approved
by all required corporate action of LICENSEE and no other action on the part of LICENSEE is
necessary to authorize the execution, delivery and performance of this Agreement by LICENSEE and
the consummation of the transaction contemplated hereby. This Agreement has been duly executed and
delivered by LICENSEE and is a valid and binding obligation of LICENSEE enforceable against it in
accordance with its terms, except to the extent that its enforceability may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the
enforcement of creditors rights generally and by general equitable principles.
18
13.2
Authorization and Validity of Agreement
. LICENSEE has full power and authority,
including full corporate power and authority, to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby. Without limiting the
foregoing, the execution, delivery and performance of this Agreement by LICENSEE and the
consummation by it of the transactions contemplated hereby, have been duly
authorized and approved by the members and managers of LICENSEE, and no other action on the
part of LICENSEE or its officers, directors or shareholder is necessary to authorize the execution,
delivery and performance of this Agreement by LICENSEE and the consummation of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by LICENSEE and is a
valid and binding obligation of LICENSEE enforceable against it in accordance with its terms,
except to the extent that its enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the enforcement of creditors rights
generally and by general equitable principles.
13.3
Consents and Approvals; No Violations
. The execution, delivery and performance of
this Agreement by LICENSEE and the consummation by LICENSEE of the transactions contemplated hereby
will not, with or without the giving of notice or the lapse of time or both: (a) violate, conflict
with, or result in a breach or default under any provision of the organizational documents of
LICENSEE; (b) violate any statute, ordinance, rule or regulation applicable to LICENSEE, (c)
violate any order, judgment or decree of any court or of any governmental or regulatory body,
agency or authority applicable to LICENSEE or by which any of the LICENSED TECHNOLOGY may be bound;
or (d) require any filing by LICENSEE with, or require LICENSEE to obtain any permit, consent or
approval of, or require LICENSEE to give any notice to, any governmental or regulatory body, agency
or authority, except filings, if any, which may be required under the Blue Sky laws of
Massachusetts or as may be required in the future to comply with governmental regulations governing
the production and sale of products by LICENSEE as it conducts its business.
13.4
Survival of Representations and Warranties
.
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(a)
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Except as otherwise provided herein, notwithstanding any
investigation at any time made by or on behalf of any Party hereto, the
representations and warranties set forth herein and in any certificate
delivered in connection herewith with respect to any of those representations
and warranties will survive the Effective Date until the longer to occur of:
(i) two (2) years or (ii) the expiration of the applicable statutes of
limitation, including all periods of extension and tolling whereupon they will
terminate and expire.
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(b)
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After a representation and warranty has expired, as provided in
Subsection 13.4(a)
, no claim for claims or costs may be made or
prosecuted by any Person who would have been entitled to claims or costs on the
basis of that representation and warranty prior to its termination and
expiration, provided that no claim presented in writing for claims or costs to
the Person or Persons from which or whom those damages are sought on the basis
of that representation and warranty prior to its termination and expiration
will be affected in any way by that termination and expiration.
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19
ARTICLE 14 LIMITATION OF LIABILITY
EXCEPT FOR ANY LIABILITY TO ANY THIRD PARTIES PURSUANT TO ARTICLE 8 OR TO A PARTY PURSUANT TO
ARTICLES 12 AND 13 OF THIS AGREEMENT, IN NO EVENT SHALL LICENSOR OR LICENSEE OR THEIR, ITS
DIRECTORS, OFFICERS, EMPLOYEES OR AFFILIATES BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES OF
ANY KIND, INCLUDING ECONOMIC DAMAGE OR INJURY TO PROPERTY AND LOST PROFITS, REGARDLESS OF WHETHER
LICENSOR OR LICENSEE SHALL BE ADVISED, SHALL HAVE OTHER REASON TO KNOW, OR IN FACT SHALL KNOW OF
THE POSSIBILITY OF SUCH DAMAGES.
ARTICLE 15 MISCELLANEOUS PROVISIONS
15.1 CORPORATE PARTNERSHIPS. In the event LICENSEE enters into a corporate partnership for
the joint development of any of the LICENSED TECHNOLOGY, then payments required hereunder shall not
include funds provided for sponsored research or equity investments by any third party so long as
such payments do not constitute a majority of funds transferred by such third party. However if
the sponsored research involves fees in excess of industry standard reimbursement for FTEs or any
equity investment in excess of fair market value, LICENSEE shall pay to LICENSOR a royalty on such
excess fees calculated at the rates specified herein.
15.2 LICENSEE REVERSE LICENSE TO LICENSOR. LICENSEE agrees to license to LICENSOR on a
non-exclusive basis for therapeutic uses in the treatment of blood and cardiovascular diseases the
rights to any technology it currently owns or has licensed or develops or licenses in the future
that is applicable to such diseases (excluding however the use of proprietary techniques now or
hereafter developed by LICENSEE for the enhanced vascularization of transplanted cells or tissues).
Such license shall provide for royalty payments at the same rate as LICENSEES royalty payments to
LICENSOR hereunder as provided in Section 4.2(a). Such license will be sublicensable only once in
a given field of use; or for the purpose of having products produced, made, or distributed; or in
connection with a merger or consolidation of LICENSOR into another company or a sale of all or
substantially all of the assets of LICENSOR. LICENSEE shall also have no obligations hereunder with
respect to technology licenses it has or may acquire if such licenses restrict sublicensing in a
manner inconsistent with this subparagraph. Such Reverse License shall not apply to any rights
acquired by LICENSEE under Section 15.18 hereof.
15.3 FUTURE TECHNOLOGY LICENSES. LICENSOR acknowledges that it is continuing to develop
cell-based technology, the existence or significance of which it may not have disclosed to
LICENSEE. Therefore, LICENSOR further agrees that in the event any of its technology now perfected
or pending as of the date of this agreement but not specifically enumerated herein would inhibit or
adversely affect the commercial use by LICENSEE of the PATENT RIGHTS in the field, LICENSOR shall
waive any claim of infringement to the extent
20
necessary to permit LICENSEE to continue the use of the PATENT RIGHTS under this Agreement.
In addition, LICENSOR agrees to license to LICENSEE on a non-exclusive basis for uses in the
FIELDS, including any rights acquired under Section 15.18 hereof, the rights to any technology it
currently owns or has licensed or develops or licenses in the future that is applicable to such
FIELDS (but specifically excluding applications involving the use of cells in the treatment of
tumors where the primary use of the cells is the destruction or reduction of tumors and does not
involve regeneration of tissue or organ function). Such license shall provide for royalty payments
at the same rate as LICENSEES royalty to LICENSOR hereunder as provided in Section 4.2(a). Such
license will be sublicensable only once in a given field of use; or for the purpose of having
products produced, made, or distributed; or in connection with a merger or consolidation of
LICENSEE into another company or a sale of all or substantially all of the assets of LICENSEE.
LICENSOR shall also have no obligations hereunder with respect to technology licenses it has or may
acquire if such licenses restrict sublicensing in a manner inconsistent with this subparagraph.
15.4 LICENSEE shall comply with all local, state, federal and international laws and
regulations relating to the development, manufacture, use, provision, and sale of LICENSED
PRODUCTS, LICENSED PROCESSES and LICENSED SERVICES. Without limiting the generality of the
foregoing, LICENSEE agrees to comply with the following:
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a)
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LICENSEE shall obtain all necessary approvals from the FDA,
USDA, or any similar governmental authorities of any foreign jurisdiction in
which LICENSEE intends to make, use, or sell LICENSED PRODUCTS or to perform
LICENSED PROCESSES or LICENSED SERVICES.
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b)
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LICENSEE shall comply fully with any and all applicable local,
state, federal and international laws and regulations relating to the LICENSED
PRODUCTS, LICENSED PROCESSES and LICENSED SERVICES, and the PATENT RIGHTS, in
the TERRITORY, including without limitation all export or import regulations
and rules now in effect or as may be issued from time to time by any
governmental authority which has jurisdiction relating to the export of
LICENSED PRODUCTS, LICENSED PROCESSES or LICENSED SERVICES and any technology
relating thereto. LICENSEE hereby gives written assurance that it will comply
with all such import or export laws and regulations (including without
limitation all Export Administration Regulations of the United States
Department of Commerce), that it bears sole responsibility for any violation of
such laws and regulations, and that it will indemnify, defend, and hold
LICENSOR harmless (in accordance with
Article 8
) for the consequences
of any such violation.
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21
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c)
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To the extent that any invention claimed in the PATENT RIGHTS
has been partially funded by the United States Government, and only to the
extent required by applicable laws and regulations, LICENSEE agrees that any
LICENSED PRODUCTS used or sold in the United States will be manufactured
substantially in the United States or its territories. Current law provides
that if a domestic manufacturer is not commercially feasible under the
circumstances, LICENSOR may seek a waiver of this requirement from the relevant
federal agency on behalf of LICENSEE and, upon LICENSEES request, shall
cooperate with LICENSEE in seeking such a waiver.
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15.5 LICENSEE shall not create or incur or cause to be incurred or to exist any lien,
encumbrance, pledge, charge, restriction or other security interest of any kind upon the PATENT
RIGHTS, but may cause to be incurred or to exist a lien, encumbrance, pledge, charge, restriction
or other security interest on its rights to the LICENSED TECHNOLOGY hereunder, provided such
security interest does not affect LICENSORs rights to the LICENSED TECHNOLOGY, or any of
LICENSORs rights under this Agreement.
15.6 Neither Party shall originate any publicity, news release or other public announcement
(Announcements), written or oral, relating to this Agreement or the existence of an arrangement
between the Parties, without the prior written approval of the other Party, which approval shall
not be unreasonably withheld or delayed, except as otherwise required by law. The foregoing
notwithstanding, LICENSOR and LICENSEE shall have the right to make such Announcements without the
consent of the other Party in any prospectus, offering memorandum, or other document or filing
required by applicable securities laws or other applicable law or regulation, provided that such
Party shall have given the other Party at least ten (10) days prior written notice of the proposed
text for the purpose of giving the other Party the opportunity to comment on such text.
15.7 No implied licenses are granted pursuant to the terms of this Agreement. No licensed
rights shall be created by implication or estoppel.
15.8 Nothing herein shall be deemed to constitute either Party as the agent or representative
of the Party, or both parties as joint venturers or partners for any purpose. Each Party shall be
an independent contractor, not an employee or partner of the other Party, and the manner in which
each Party renders its services under this Agreement shall be within its sole discretion. Neither
Party shall be responsible for the acts or omissions of the other Party, nor shall either Party
have authority to speak for, represent or obligate the other Party in any way without prior written
authority from the other Party.
15.9 To the extent commercially feasible, and consistent with prevailing business practices
and applicable law, all LICENSED PRODUCTS sold pursuant to this Agreement will be marked with the
number of each issued patent that applies to such LICENSED PRODUCTS.
15.10 This Agreement shall be construed, governed, interpreted and applied in accordance with
the laws of the State of California, U.S.A. without regard to principles of conflicts of law
thereof, except that questions affecting the construction and effect of any patent shall be
determined by the law of the country in which the patent was granted.
22
15.11 The Parties hereto acknowledge that this Agreement sets forth the entire Agreement and
understanding of the Parties hereto as to the subject matter hereof, and shall not be subject to
any change or modification except by the execution of a written instrument signed by the Parties
hereto.
15.12 The provisions of this Agreement are severable, and in the event that any provision of
this Agreement shall be determined to be invalid or unenforceable under any controlling body of the
law, such invalidity or unenforceability shall not in any way affect the validity or enforceability
of the remaining provisions hereof.
15.13 The failure of either Party to assert a right hereunder or to insist upon compliance
with any term or condition of this Agreement shall not constitute a waiver of that right or excuse
a similar subsequent failure to perform any such term or condition by the other Party.
15.14 This Agreement may not be assigned by LICENSEE without the prior written consent of
LICENSOR, which consent shall be granted or denied in LICENSORs sole discretion. LICENSOR may not
assign this Agreement without the consent of LICENSEE, which consent shall not be unreasonably
withheld or delayed, except that LICENSOR may assign this Agreement to an affiliate or to a
successor in connection with the merger, consolidation, or sale of all or substantially all of its
assets or that portion of its business to which this Agreement relates. Notwithstanding the
foregoing to the contrary, this restriction on the assignment by LICENSEE of this Agreement shall
not prevent the assignment of this Agreement in connection with a sale of all or substantially all
of the assets of LICENSEE, so long as the purchaser of the assets agrees to assume to any and all
outstanding liabilities to LICENSOR under this Agreement, including but not limited to any
outstanding amounts under the promissory note referred to in
Section 4.1
.
15.15 This Agreement has been prepared jointly and no rule of strict construction shall be
applied against either Party. In this Agreement, the singular shall include the plural and vice
versa and the word including shall be deemed to be followed by the phrase without limitation.
The section headings contained in this Agreement are inserted for convenience only and shall not
affect in any way the meaning or interpretation of this Agreement.
15.16 This Agreement may be executed in counterparts, each of which together shall constitute
one and the same Agreement.
15.17 All rights and licenses granted under or pursuant to this Agreement by LICENSOR to
LICENSEE are, and shall otherwise be deemed to be, for purposes of Paragraph 365(n) of the U.S.
Bankruptcy Code (the Code), licenses to rights in intellectual property as defined in the Code.
The Parties hereto agree that LICENSEE, as a LICENSEE of such rights under this Agreement, shall
retain and may fully exercise all of its rights and elections under the Code. The Parties hereto
further agree that, in the event of the commencement of a bankruptcy
proceeding by or against LICENSOR including a proceeding under the Code, LICENSEE shall be
entitled to a complete duplicate of (or complete access to, as appropriate) any such intellectual
property and all embodiments of such intellectual property, including the PATENT RIGHTS and
KNOW-HOW, and the same, if not already in LICENSEEs possession, shall be promptly delivered to
LICENSEE upon any such commencement of a bankruptcy proceeding upon written request therefore by
LICENSEE.
23
15.18 In addition to the other rights granted herein, LICENSOR hereby grants to LICENSEE a 90
day right of negotiation with respect to any technology that would constitute LICENSED TECHNOLOGY
if the FIELD included diseases related either to the heart or to neuro degenerative diseases (the
Added Fields) prior to LICENSOR entering into any license relating to either of such Added
Fields) with a third party. Such a 90 day period shall commence on the earlier of the 12 month
anniversary of the Effective Date, or such date when LICENSOR notifies LICENSEE that it has opened
negotiations with a third party or that a third party has made inquiry about such a license. If
following the expiration of any such 90-day negotiation period LICENSEE and LICENSOR have not
entered into a license for an Added Field, LICENSOR shall be free to enter into an exclusive or
non-exclusive license for such Added Field with any third party. If LICENSOR enters into a
non-exclusive license for an Added Field with a third party following the 90-day negotiating period
hereunder, LICENSOR shall offer a non-exclusive license to LICENSEE on comparable terms as those
entered into with such third party. LICENSEE shall then have 30 days to enter into such a
nonexclusive license. If LICENSEE does not enter into such a license within said 30-day period,
LICENSOR shall have no further obligations relating to the Added Field.
[Reminder of this page intentionally left blank]
24
IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the EFFECTIVE DATE.
ADVANCED CELL TECHNOLOGY, INC.
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By:
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/S/ MICHAEL D. WEST
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Printed Name: Michael D. West, Ph.D.
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Title: President & Chief Executive Officer
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PACGEN CELLCO, LLC
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By:
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/S/ KENNETH ALDRICH
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Printed Name: Kenneth Aldrich
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Title: Managing Member
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25
EXHIBIT A
PATENT RIGHTS
(Reference Section 1.10)
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Serial No.
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Filing Date
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Patent No.
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CO
|
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Issue Date
|
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Title
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Assignee
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348,769
6,107,543
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US
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1994-12-02
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Culture of Totipotent
Embryonic Inner Cells Mass
Cells and Production of Bovine
Animals
|
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Infigen
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|
|
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|
|
|
|
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01115354.1
EP 1149898
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EP
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1994-12-23
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Embryonic Stem Cells as
Nuclear Donors and Nuclear
Transfer Techniques to Produce
Chimeric and Transgenic
Animals
|
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Infigen
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|
|
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|
|
|
|
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PCT/US01/18576
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WO
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2001-06-07
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Identification and Use of
Molecular Markers Indicating
Cellular Reprogramming
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Infigen
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PCT/US98/04345
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WO
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1998-03-05
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Method of Cloning Animals
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Infigen
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|
|
|
|
|
|
|
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EP 0973871
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|
EP
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1998-03-05
|
|
Method of Cloning Animals
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|
Infigen
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|
|
|
|
|
|
|
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031,815
5,453,366
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US
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1993-03-15
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Method of Cloning Bovine
Embryos
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|
Infigen
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|
|
|
|
|
|
|
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239,922
6,011,197
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US
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1999-01-28
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Method of Cloning Bovines
Using Reprogrammed
Non-Embryonic Bovine Cells
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|
Infigen
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|
|
|
|
|
|
|
|
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PCT/US99/26710
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WO
|
|
1999-11-12
|
|
Method of Cloning Porcine
Animals
|
|
Infigen
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|
|
|
|
|
|
|
|
|
PCT/US01/23781
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|
WO
|
|
2001-07-27
|
|
Method of Cloning Porcine
Animals
|
|
Infigen
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|
|
|
|
|
|
|
|
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199,138
6,258,998
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|
US
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1998-11-24
|
|
Method of Cloning Porcine
Animals
|
|
Infigen
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|
|
|
|
|
|
|
|
|
EP 1131409
|
|
EP
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1999-11-12
|
|
Method of Cloning Porcine
Animals
|
|
Infigen
|
|
|
|
|
|
|
|
|
|
473,794
5,843,754
|
|
US
|
|
1995-06-06
|
|
Parthenogenic Bovine Oocyte
Activation
|
|
Infigen
|
|
|
|
|
|
|
|
|
|
016,703
5,496,720
|
|
US
|
|
1993-02-10
|
|
Parthenogenic Oocyte Activation
|
|
Infigen
|
|
|
|
|
|
|
|
|
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176,395
6,077,710
|
|
US
|
|
1998-10-21
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|
Parthenogenic Oocyte Activation
|
|
Infigen
|
|
|
|
|
|
|
|
|
|
610,744
6,194,202
|
|
US
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1996-03-04
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|
Parthenogenic Oocyte Activation
|
|
Infigen
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|
|
|
|
|
|
|
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|
09/573,044
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|
US
|
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2000-05-15
|
|
Use of embryonic stem cells as
nuclear donors during nuclear
transfer and use of said
techniques to produce chimeric
and transgenic animals
|
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Infigen
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26
EXHIBIT B
THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR UNDER THE SECURITIES LAWS OF APPLICABLE
STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
FORM OF
CONVERTIBLE PROMISSORY NOTE
OF
PACGEN CELLCO LLC
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$25,000.00
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Made as of May 14, 2004
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For value received,
PacGen CellCo LLC
, a California limited liability company (the Company),
with principal offices at 157 Surfview Drive, Pacific Palisades, CA 90272, hereby promise to pay to
Advanced Cell Technology, Inc., a Delaware corporation (Holder), or its registered assigns, the
principal sum of Twenty Five Thousand Dollars ($25,000) (the Principal Amount).
Unless earlier paid or converted, the unpaid Principal Amount shall be due and payable on June
1, 2007 (the Maturity Date). On the Maturity Date, the principal shall be (i) repaid by the
Company in cash to the Holder
or
(ii) at the Holders election, converted into shares of
Common Stock (as defined below) at the conversion rate set forth in Subsection 2(a) below based on
a determination of the Conversion Price as of the Maturity Date made not later than 60 days
following the Maturity Date by the Companys Board of Managers, acting in good faith.
This Note is issued pursuant to that certain Exclusive License Agreement dated as of
May 14,
2004
(the License Agreement), by and among the Company and Holder, and is subject to the
provisions thereof.
The following is a statement of the rights of Holder and the conditions to which this Note is
subject, and to which Holder hereof, by the acceptance of this Note, agrees:
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1.
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Definitions.
The following definitions shall apply for all purposes of this
Note:
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27
Common Stock
means shares of or units of or other interests (as the case may be)
of common equity of the Company or its successors or assigns
Company
means the Company as defined above and includes any corporation, which
shall succeed to or assume the obligations of the Company under this Note.
Conversion Price
means (i) in the case of a First Equity Financing, the price paid
per share for the equity securities issued in such First Equity Financing; or (ii)
in the case of an Acquisition Event (as defined below) the value of one share or
unit of Common Stock based upon the portion of the aggregate sale price or merger or
consolidation consideration which is available to the Companys common equity
holders in connection with such Acquisition Event; or (iii) on the Maturity, the
value of one share or unit of Common Stock as determined in good faith by the Board
of Managers.
First Equity Financing
means a sale or series thereof, subsequent to the date of
this Note, by the Company of equity securities in which the Company receives
aggregate cash proceeds of at least $5,000,000 (not including conversion of the this
Note) as result of investments made by one or more bona fide third party
institutional or strategic investors in exchange for the sale of shares of capital
stock of the Company.
Holder
means any person who shall at the time be the registered holder of this
Note.
Maturity Date
means the date on which this Note is either repaid or converted in
whole in accordance with the terms hereunder.
Note
means this Secured Convertible Promissory Note.
Series A Preferred Stock
means the class of equity securities issued by the
Company in the First Equity Financing.
The principal sum outstanding under this Note shall bear no interest unless not repaid at the
Maturity Date, in which event it shall thereafter bear interest at a rate equal to the lesser of
(a) ten percent (10%) per annum, or (b) the maximum non-usurious rate allowed under the laws of the
State of California.
28
a) Automatic Conversions. This Note shall be automatically converted into that number of
shares of Series A Preferred Stock equal to the quotient of (a) the aggregate principal amount of
this Note then outstanding divided by (b) the Conversion Price, under the following conditions:
i) Upon the consummation of the First Equity
Financing;
ii) Immediately prior to the closing of any merger, sale or other consolidation of the Company
or of any sale of all or substantially all assets of the Company which occurs prior to the First
Equity Financing (an Acquisition Event). Notwithstanding the above, and only in the event that a
conversion resulting from such Acquisition Event would result in a security not traded on a
national stock exchange (including NASDAQ and NASDAQ small cap), upon written notice to the Company
not later than 5 days after the consummation of the Acquisition Event and notice of the Acquisition
Event to the Holder of the Note, the Holder may elect to receive payment in cash of the entire
outstanding principal of this Note.
b.
Conversion Mechanics
. Upon the effective date of any elective or automatic
conversion of this Note, the outstanding principal of this Note shall be deemed converted into
shares of Series A Preferred Stock or Common Stock automatically as of such effective date without
any further action by the Holder and whether or not the Note is surrendered to the Company or its
transfer agent. However, the Company shall not be obligated to issue certificates evidencing the
shares of the Series A Preferred Stock or Stock issuable upon such elective or automatic conversion
unless such Note is either delivered to the Company or its transfer agent, or the Holder notifies
the Company or its transfer agent that such Note has been lost, stolen or destroyed and executes an
agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in
connection with such Note.
4. Reservation of Stock.
If at any time the number of shares of Common Stock or other
securities issuable upon conversion of this Note shall not be sufficient to effect the conversion
of this Note, the Company will take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock or other securities issuable upon conversion of this
Note (and any securities of the Company that the Common Stock may convert into) as shall be
sufficient for such purpose.
5. Covenants of the Company.
The Company covenants to, and agrees with the Holder that prior
to the Maturity Date, so long as the Notes are outstanding, with the following:
a) Organization, Standing Power. The Company is a limited liability company duly organized,
validly existing and in good standing under the California Limited Liability Company Act (the
CLLCA). The Company has all requisite power and authority to conduct its business as now being
conducted under the CLLCA.
29
b)
Authority; Enforceability; No Conflict
.
The Company has all requisite power and
authority under the CLLCA to issue this Note and to carry out its obligations
hereunder. The issuance of this Note by the Company has been duly and validly authorized by
all requisite proceedings on the part of the Company. This Note when executed and delivered by the
Company is a valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except that (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium, rehabilitation, liquidation, conservatorship, receivership
or other similar laws now or hereafter in effect relating to creditors rights generally and (ii)
the remedy of specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which any proceeding
therefor may be brought. The execution and delivery of this Note by the Company does not, and the
consummation by the Company of the transaction contemplated hereby and thereby will not result in
or constitute: (i) a default, breach or violation of or under the limited liability agreement of
the Company, (ii) the California Limited Liability Company Act or any applicable law or (iii) any
material agreement to which the Company is a party.
6. No Rights or Liabilities as Shareholder.
This Note does not by itself entitle the Holder
to any voting rights or other rights as a shareholder of the Company. In the absence of conversion
of this Note, no provisions of this Note, and no enumeration herein of the rights or privileges of
the Holder, shall cause the Holder to be a shareholder of the Company for any purpose.
7. No Impairment.
The Company will not, by amendment of its limited liability agreement, or
through reorganization, consolidation, merger, dissolution, issue or sale of securities, sale of
assets or any other voluntary action, willfully avoid or seek to avoid the observance or
performance of any of the terms of this Note, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder under this Note against wrongful
impairment. Without limiting the generality of the foregoing, the Company will take all such action
as may be necessary or appropriate in order that the Company may duly and validly issue fully paid
and nonassessable shares of Common Stock upon the conversion of this Note.
8. Prepayment.
The Company may at any time, without penalty, prepay in whole or in part the
unpaid balance of this Note. All payments will first be applied to the repayment of accrued fees
and expenses, if any, then to accrued interest, if any, until all then outstanding accrued interest
has been paid, and then shall be applied to the repayment of principal.
9. Notice.
The Company shall give the Holder of this Note at least ten (10) days notice of
any Acquisition Event.
10. Waiver and Amendment.
Any provision of this Note may be amended, waived or modified only
upon written consent of the Company and the Holder of the Note.
11. Waiver of Notice and Fees.
The Company and all endorsers of this Note hereby waive
notice, presentment, protest and notice of dishonor.
30
12. Transfer.
This Note and any rights hereunder may not be assigned, conveyed or
transferred, in whole or in part, without the Companys prior written consent, which consent shall
not be unreasonably withheld. The rights and obligations of the Company and the Holder under this
Note and the License Agreement shall be binding upon and benefit their respective permitted
successors, assigns, heirs, administrators and transferees. However, this Note and the loans
evidenced hereby may be transferred in whole or in part only by registration of such transfer on
the register maintained for such purpose by or on behalf of the Company.
13. Governing Law.
This Note shall be governed by and construed under the internal laws of
the State of Delaware, without reference to principles of conflict of laws or choice of laws.
14. Securities Law Representations.
This Note is issued to the Holder in reliance upon the
Holders representation to the Company, which by such Holders execution of this Note Holder hereby
confirms, that the Note will be acquired for investment for such Holders own account, not as a
nominee or agent, and not with a view to the sale or distribution of any part thereof, and that
such Holder has no present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Note, such Holder further represents that such Holder has
no contract, undertaking, agreement or arrangement with any person to sell, transfer, of grant
participations to such person or to any third person, with respect to this Note.
15. Headings.
The headings and captions used in this Note are used only for convenience and
are not to be considered in construing or interpreting this Note. All references in this Note to
sections and exhibits shall, unless otherwise provided, refer to sections hereof and exhibits
attached hereto, all of which exhibits are incorporated herein by this reference.
16. Severability.
If one or more provisions of this Note are held to be unenforceable under
applicable law, such provision(s) shall be excluded from this Note and the balance of the Note
shall be interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
17. Entire Agreement; Successors and Assigns.
This Note constitutes the entire contract
between the Company and the Holder relative to the subject matter hereof. Any previous agreement
between the Company and the Holder is superseded by this Agreement. Subject to the exceptions
specifically set forth in this Note, the terms and conditions of this Note shall inure to the
benefit of and be binding upon the respective executors, administrators, heirs, successors and
assigns of the Parties.
[Remainder of this page intentionally left blank]
31
IN WITNESS WHEREOF
, the Company has caused this Note to be signed in its name as of the date
first above written.
PACGEN CELLCO LLC
ACCEPTED AND AGREED TO:
ADVANCED CELL
TECHNOLOGY, INC.
EXHIBIT C
(Reference Section 12.3)
None
EXHIBIT D
(Reference Section 12.7)
None
Exhibit 10.13
EXCLUSIVE LICENSE AGREEMENT (ACT IP)
This Exclusive License Agreement (Agreement) is made and entered into this 14
th
day of May, 2004 (the Effective Date), by and between Advanced Cell Technology, Inc., a Delaware
corporation with offices located at One Innovation Drive, Worcester, Massachusetts 01605
(LICENSOR), and PacGen Cellco, LLC, a California limited liability company with offices located
at 157 Surfview Drive, Pacific Palisades, CA 90272 (LICENSEE) (LICENSOR and LICENSEE sometimes
hereinafter referred to individually as a Party and collectively as the Parties).
WITNESSETH
WHEREAS, LICENSOR owns or has licensed with sublicenseable interest the PATENT RIGHTS (as
defined below) and KNOW-HOW (as defined below); and
WHEREAS, LICENSEE desires to obtain an exclusive worldwide license under LICENSORs rights in
such technology in the FIELD; and
WHEREAS, LICENSOR is willing to grant such a license to LICENSEE upon the terms and conditions
set forth below; and
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein,
the Parties hereto agree as follows:
ARTICLE 1 DEFINITIONS
For the purposes of this Agreement, the following words and phrases shall have the following
meanings:
1.1 AFFILIATE shall mean, with respect to any PERSON, any other PERSON which directly or
indirectly controls, is controlled by, or is under common control with, such PERSON. A PERSON
shall be regarded as in control of another PERSON if it owns, or directly or indirectly controls,
at least fifty percent (50%) of the voting stock or other ownership interest of the other PERSON,
or if it directly or indirectly possesses the power to direct or cause the direction of the
management and policies of the other PERSON by any means whatsoever.
1.2 FIELD shall mean (1) the research, development, manufacture and selling of human and
non-human animal cells for commercial research use, including small molecule and other drug testing
and basic research and (2) the manufacture and selling of human cells for therapeutic and
diagnostic use in the treatment of human (a) diabetes and (b) liver diseases; but FIELD shall
exclude applications involving the use of cells in the treatment of tumors where the primary use of
the cells is the destruction or reduction of tumors and does not involve regeneration of tissue or
organ function.
1.3 KNOW-HOW means all compositions of matter, techniques and data and other
know-how and technical information including inventions (whether or not patentable),
improvements and developments, practices, methods, concepts, trade secrets, documents, computer
data, computer code, apparatus, clinical and regulatory strategies, test data, analytical and
quality control data, formulation, manufacturing, patent data or descriptions, development
information, drawings, specifications, designs, plans, proposals and technical data and manuals and
all other proprietary information that is owned or controlled by LICENSOR as of the Effective Date
that relates to cloning technology or to any of the subject matter described in or claimed by the
PATENT RIGHTS and is relevant to the FIELD. By way of illustration, but not in limitation, KNOW-HOW
shall include commercial rights to any existing potential research products, including reagents,
developed by LICENSOR in the course of its in-house research. An example of this is the
proprietary culture medium developed by LICENSOR in the course of the development of LICENSORs
proprietary ooplasmic transfer technology.
1.4 LICENSED PROCESS means any process or method, the research, development, use, practice,
sale, offer for sale, import or export of which cannot be performed without (i) infringing, in
whole or in part, one or more VALID CLAIMS of the PATENT RIGHTS, or (ii) using or incorporating
some portion of the LICENSED TECHNOLOGY.
1.5 LICENSED PRODUCT means any product that cannot be developed, manufactured, used,
imported, exported, or sold without (i) infringing, in whole or in part, one or more VALID CLAIMS
of the PATENT RIGHTS, or (ii) using or incorporating some portion of the LICENSED TECHNOLOGY.
1.6 LICENSED SERVICES means any service, the developing, using, performing, selling,
offering for sale, importing or exporting of which by LICENSEE would, but for the licenses granted
to LICENSEE in
Article 2
of this Agreement, infringe a VALID CLAIM of the PATENT RIGHTS in
the country in which any such service is so developed, used, performed, sold, offered for sale,
imported or exported by LICENSEE.
1.7 LICENSED TECHNOLOGY shall mean, collectively, the licensed PATENT RIGHTS and licensed
KNOW-HOW.
1.8 NET SALES shall mean the amount billed or invoiced by LICENSEE for the sale or provision
of LICENSED PRODUCTS or LICENSED PROCESSES or LICENSED SERVICES less:
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a)
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discounts, credits, allowances and rebates allowed;
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b)
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sales, tariff duties, use and other taxes or governmental
charges directly imposed with reference to particular sales;
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c)
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special packaging, transportation and insurance costs incurred
and directly related to the sale of LICENSED PRODUCTS;
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d)
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amounts allowed or credited on returns; and
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e)
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uncollected accounts.
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2
1.9 NEURONAL & HEART FIELD OPTION means an option described in
Section 15.18
hereof
for LICENSEE to negotiate terms for license to the LICENSED TECHNOLOGY for the field of diseases
related to heart or neurodegenerative diseases
1.10 PATENT RIGHTS means (a) the patent applications and patents identified on
Exhibit
A
attached hereto and any patents that issue on said applications and (b) any divisions,
continuations, extensions, reissues or reexaminations of any of the patents identified in the
foregoing clause (a). The Parties agree that
Exhibit A
may be revised from time to time
after the Effective Date to reflect changes thereto that result from the course of patent
prosecution.
1.11 PERSON shall mean an individual, corporation, partnership, limited liability company,
trust, business trust, association, joint stock company, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization, governmental authority or any other form of entity not
specifically listed herein.
1.12 TERM has the meaning set forth in
Section 9.1
.
1.13 TERRITORY means the entire world.
1.14 VALID CLAIM means a claim of any issued and unexpired patent within the PATENT RIGHTS
which has not lapsed, become abandoned or been held permanently revoked, invalid, or unenforceable
by a decision of a court or administrative or government authority or agency of competent
jurisdiction from which no appeal can be or has been taken within the time allowed for such appeal,
or a claim of a pending patent application included within the Licensed PATENT RIGHTS, which claim
was filed in good faith and has not been abandoned or finally disallowed without the possibility of
appeal or refiling of such application.
Additional terms may be defined throughout this Agreement.
ARTICLE 2 GRANT
2.1 LICENSOR hereby grants to LICENSEE, and LICENSEE hereby accepts, subject to the terms and
conditions hereof, a royalty bearing, exclusive license in the TERRITORY in the FIELD and under the
LICENSED TECHNOLOGY to (a) research, develop, make, have made, use, sell, offer for sale, import
and export LICENSED PRODUCTS, (b) research, develop, use, practice, sell, offer for sale, import
and export LICENSED PROCESSES and (c) develop, use, perform, sell, offer for sale, import and
export LICENSED SERVICES. By way of example, but not in limitation, LICENSEE shall have the right
to use LICENSED TECHNOLOGY within the FIELD to produce mammalian embryonic stem (ES) cells and to
produce from those mammalian embryonic cells, differentiated cells for human therapeutic purposes
or for commercial research purposes, including drug screening assays, and to produce
pluripotent cells including ES cells, differentiated human cells for human diagnostic and
therapeutic purposes and/or for commercial research purposes, including drug screening assays.
3
2.2 LICENSEE shall have the right to sublicense the rights granted in
Section 2.1
to
third parties in connection with contracting with such third parties to (a) provide LICENSED
PRODUCT marketing and distribution services to LICENSEE on behalf of LICENSEE, (b) provide LICENSED
SERVICES marketing services to LICENSEE on behalf of LICENSEE or (c) manufacture for LICENSEE
LICENSED PRODUCTS for sale by LICENSEE or a third party pursuant to the foregoing clause (a).
2.3 LICENSEE shall have the right to grant sublicenses beyond the scope of those described in
Subsections 2.2 (a), (b), and (c)
without the express prior written approval of LICENSOR,
however, LICENSOR shall be given at least 30 days prior written notice of an intent to sublicense
and at least 30 days to comment on the text of the proposed sublicense agreement. In any case,
such sublicenses shall meet the following conditions:
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a)
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the sublicensee shall not have the right to grant further
sublicenses;
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b)
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the sublicense shall not be assignable without prior written
approval by LICENSEE and LICENSOR; and
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c)
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the sublicense shall include fair consideration.
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2.4 Within thirty (30) business days of the Effective Date, LICENSOR shall provide and
transfer to LICENSEE, in writing where practicable, all information and data relating to the
LICENSED TECHNOLOGY as may be reasonably necessary and requested to allow LICENSEE to exploit the
licenses granted hereunder. LICENSOR shall work with LICENSEE in good faith to provide the
necessary training for up to a total of 60 days, at LICENSORs facilities, necessary to allow
LICENSEE to utilize the LICENSED TECHNOLOGY. LICENSEE shall pay to LICENSOR all reasonable and
customary expenses other than normal operating expenses incurred by LICENSOR in providing such
training and technology transfer, including but not limited to fees incurred to request documents
from patent counsel or the United States Patent and Trademark Office.
2.5 Notwithstanding anything stated herein, nothing in this Agreement shall be construed as
preventing LICENSOR from practicing the LICENSED TECHNOLOGY within the FIELD for non-commercial
in-house research purposes.
2.6 Notwithstanding anything stated herein, nothing in this Agreement shall be construed as
preventing LICENSOR from practicing the LICENSED TECHNOLOGY within the FIELD for non-commercial
in-house research purposes. In the event that LICENSOR requests that LICENSEE deliver to LICENSOR
the LICENSED TECHNOLOGY or LICENSED PRODUCTS in the FIELD for research purposes, LICENSEE shall
make the LICENSED TECHNOLOGY or LICENSED PRODUCTS available to LICENSOR on commercially reasonable
terms. In the event LICENSOR requires the use of collaborators in its research,
LICENSEE shall also make such LICENSED TECHNOLOGY OR LICENSED PRODUCTS available to such
collaborator if LICENSEE, in its sole but reasonable discretion is satisfied that providing such
items to a collaborator will not endanger its exclusive commercial control of such items or result
in their use by a competitor.
4
ARTICLE 3 LICENSEE OBLIGATIONS
RELATING TO COMMERCIALIZATION
3.1 LICENSEE shall use its commercially reasonable and diligent efforts to bring one or more
LICENSED PRODUCTS, LICENSED PROCESSES or LICENSED SERVICES to market through an active and diligent
program for exploitation of the PATENT RIGHTS and to continue active, diligent marketing efforts
for one or more LICENSED PRODUCTS, LICENSED PROCESSES or LICENSED SERVICES throughout the TERM of
this Agreement.
3.2 LICENSEE shall maintain minimum R&D requirements to maintain exclusivity under this
Agreement
.
Commencing 30 months following the Effective Date hereof and until the launch of the
first human cell-based therapeutic product, LICENSEE shall be required to invest a minimum of
$400,000 per year in research and development of the FIELD covered by this Agreement or other
agreements with LICENSOR affecting the FIELD in order to maintain the exclusive license rights
granted hereunder. In the event LICENSEE fails to perform this minimum expenditure in R&D in the
FIELD during the course of a calendar year during the above-mentioned period, the license under
this Agreement shall become nonexclusive and such minimum expenditure for research and development
shall be reduced to $200,000 per year.
3.3 LICENSEE shall maintain complete and accurate records of LICENSED PRODUCTS, LICENSED
PROCESSES and LICENSED SERVICES that are made, used, sold or performed by LICENSEE under this
Agreement. Not later than April 1
st
of each year following the Effective Date, LICENSEE
shall furnish LICENSOR with a summary report on the progress of its efforts during the prior year
to develop and commercialize LICENSED PRODUCTS, LICENSED PROCESSES or LICENSED SERVICES, including
without limitation research and development efforts, efforts to obtain regulatory approval,
marketing efforts (including LICENSED PRODUCTS, LICENSED PROCESSES and LICENSED SERVICES made,
used, sold or performed) and sales figures, provided that such reports shall be deemed Confidential
Information (as defined in
Section 10.1
herein) subject to the provisions of
Article
10
of this Agreement.
3.4 In the event that LICENSOR determines that LICENSEE has not fulfilled its obligations
under this
Article 3
, LICENSOR shall furnish LICENSEE with written notice of such
determination. Within thirty (30) days after receipt of such notice, LICENSEE shall (i) fulfill
the relevant obligation, (ii) negotiate with LICENSOR a mutually acceptable schedule of revised
obligations, or (3) if LICENSEE disputes the alleged failure to fulfill its obligations, it
shall promptly seek appropriate judicial determination of the matter and diligently pursue such
action to a final determination with all appropriate speed; failing which, LICENSOR shall have the
right, immediately upon written notice to LICENSEE, to terminate this Agreement as provided in
Section 9.2
hereof.
5
ARTICLE 4 CONSIDERATION
4.1
Initial Payment
. In partial consideration of the license granted to LICENSEE from
LICENSOR in
Article 2
of this Agreement, LICENSEE agrees to pay as a License Fee to
LICENSOR $225,000 in a convertible promissory note in the form attached hereto as
Exhibit
B
.
4.2
Royalties
.
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a)
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In partial consideration of the license in the FIELD granted by
LICENSOR to LICENSEE in
Article 2
of this Agreement, LICENSEE agrees to
pay to LICENSOR an earned royalty equal to the following percentages of the NET
SALES in the FIELD made, used, sold, imported, exported or performed by
LICENSEE in the TERRITORY.
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(i) 6% on therapeutics,
(ii) 3% on diagnostics, and
(iii) 10% on commercial research use.
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b)
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No multiple royalties shall be payable because any LICENSED
PRODUCT, LICENSED PROCESS or LICENSED SERVICE in the FIELD, its manufacture,
use, lease, sale or performance are or shall be covered by more than one patent
or patent application within the PATENT RIGHTS.
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c)
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The obligation of LICENSEE to pay royalties or Sublicense
Income (as defined in
Section 4.5
herein) hereunder shall terminate for
each country in the TERRITORY concurrently with the expiration or termination
of the last applicable VALID CLAIM within the PATENT RIGHTS in such country in
which the LICENSED PRODUCT, LICENSED PROCESS or LICENSED SERVICE is, (as
applicable), used, practiced, performed, sold, offered for sale, imported,
exported or manufactured.
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4.3
Minimum Royalties
.
Within 2 business days from the Effective Date hereof,
LICENSEE shall pay to LICENSOR a minimum royalty fee of $175,000 in cash or by wire transfer. In
addition, commencing 12 months following the Effective Date, LICENSEE shall pay to LICENSOR
additional minimum royalty fees equal to the difference between total Royalties actually paid in
the preceding 12 months and the following minimum amounts:
At 12 months, $10,000
At 24 months, $25,000
At 36 months, $40,000
Annually thereafter, $50,000.
6
4.4
Stacking Royalties
. With the exception of minimum royalties due to LICENSOR, if
LICENSEE, its Affiliates or sublicensees are required to pay royalties relating to any additional
intellectual property from LICENSOR in order to exercise its rights hereunder to make, have made,
use or sell any Product, then LICENSEE shall have the right to credit a pro-rated portion of such
royalty payments against the royalties owing to LICENSOR under
Section 4.2
of this
Agreement with respect to sales of such Product such that in no event shall the total of royalty
payments that are due to LICENSOR in such royalty period exceed the payments payable under
Subsection 4.2(a) above. Prorations shall be made in the same manner as specified for combination
products under
Section 4.9
below.
4.5
Sublicense Income
. LICENSEE shall pay to LICENSOR a total of Thirty Three percent
(33%) of all Sublicense Income. Sublicense Income means consideration that LICENSEE receives for
the sublicense of rights that are granted LICENSEE under
Article 2
, including without
limitation license fees, milestone payments, equity payments, up front fees, success fees, and
license maintenance fees.
4.6
Stacking Sublicense Income.
The fees payable on Sublicense Income under
Section 4.5
above shall be in addition to any royalties specified elsewhere in this
Article 4
, but if LICENSEE is obligated to pay or has paid to LICENSOR similar fees on
Sublicense Income under another license agreement with respect to the FIELD, then LICENSEE shall
have the right to pro-rate such fees against the fees owing to LICENSOR under this Agreement such
that in no event shall the total of fees due from LICENSEE, as a result of Sublicense Income, to
LICENSOR exceed the payments payable under
Section 4.5
. Pro-rating of payments shall be
made in the ratio of the minimum royalties payable under this Agreement to the minimum royalties
payable under any other agreement covered hereby under which fees on Sublicense Income are owed.
4.7
Milestone Payments.
Upon the launch of a commercial therapeutic product based on
the LICENSED TECHNOLOGY, LICENSEE shall pay additional Milestone Payments totaling $1,750,000 on
the following schedule:
$250,000 within 30 days following the launch of the first commercial Product;
$500,000 upon reaching $5,000,000 in sales from one or both Product Fields;
$1,000,000 upon reaching $10,000,000 in sales from one or both Product Fields.
4.8
Stacking Milestone Payments.
The milestone payments shall be in addition to any
royalties specified elsewhere in this
Article 4
, but shall not apply to diagnostic,
commercial research, or any other non-therapeutic uses. If LICENSEE is obligated to pay or has
paid to LICENSOR similar Milestone Payments under another license agreement with respect to the
FIELD, then LICENSEE shall have the right to pro-rate such Milestone Payments against the
7
Milestone Payments owing to LICENSOR under this Agreement such that in no event shall the
total of all Milestone Payments due from LICENSEE to LICENSOR exceed the amounts stated in
Section 4.7
. Pro-rating of payments shall be made in the ratio of the minimum royalties
payable under this Agreement to the minimum royalties payable under any other agreement covered
hereby under which Milestone Payments are owed.
4.9
Combination Product
. In the event a Product is sold in a combination product with
other devices or biologically active components, NET SALES, for purposes of royalty payments on
the combination product, shall be calculated by multiplying the NET SALES of that combination by
the fraction A/B, where A is the gross selling price of the Product sold separately and B is the
gross selling price of the combination product. In the event that no such separate sales are made
by LICENSEE, its Affiliates or permitted sublicensees, NET SALES for royalty determination shall be
calculated by multiplying NET SALES of the combination by the fraction C/(C+D), where C is the
fully allocated cost of the Product and D is the fully allocated cost of such other biologically
active components.
4.10
Payments in U.S. Currency
. All payments due under this Agreement shall be paid
in cash to LICENSOR and all payments shall be made in United States currency. Conversion of
foreign currency to U.S. dollars shall be made at the conversion rate reported in
The Wall
Street Journal
on the last working day of the calendar quarter to which the payment relates.
4.11
Taxes
. Subject to the limits of
Section 1.8
hereof, all payments due
hereunder shall be paid in full without deduction of taxes or other fees which may be imposed by
any government and which shall be paid by LICENSEE; provided, however, that any withholding tax
required to be withheld by LICENSEE on royalty payments under the laws of any country in the
TERRITORY on behalf of LICENSOR will be timely paid by LICENSEE to the appropriate governmental
authority, and LICENSEE will furnish LICENSOR with proof of payment of such tax. Any such tax
actually withheld may be deducted from royalty payments due to LICENSOR under this Agreement. If
at any time legal restrictions prevent the prompt remittance of part or all of any payments owed by
LICENSEE to LICENSOR hereunder with respect to any country in the TERRITORY, payment shall be made
through any lawful means or methods that may be available, and as LICENSEE shall reasonably
determine is appropriate.
4.12
Overdue Payments
. Any payments to be made by LICENSEE hereunder that are not
paid on or before the date such payments are due under this Agreement shall bear interest, to the
extent permitted by law, at two percentage points above the Prime Rate of interest as reported in
The Wall Street Journal
on the date payment is due, with interest calculated based on the
number of days that payment is delinquent.
8
ARTICLE 5 REPORTS AND RECORDS
5.1 LICENSEE shall keep full, true and accurate books of account containing all particulars
that may be necessary for the purpose of showing the amounts payable to LICENSOR hereunder and to
enable the reports provided under
Section 5.2
to be verified. Said books of account shall
be kept at LICENSEEs principal place of business. Said books and the supporting data shall be
open upon reasonable advance notice (but not less than five (5) business days notice and no more
frequently than once per calendar year) for three (3) years following the end of the calendar year
to which they pertain, to the inspection of LICENSOR or its agents for the purpose of verifying
LICENSEEs royalty and Sublicense Income statement or compliance in other respects with this
Agreement. If any such audit determines an error in any royalty or Sublicense Income payment,
LICENSEE shall pay to LICENSOR, within thirty (30) days of the discovery of the error, (a) all
deficiencies in royalty or Sublicense Income payments, (b) interest on such deficiencies from the
date such royalty or Sublicense Income payment was due until the date paid at the rate set forth in
Section 4.10
above, and (c) if such error is in excess of five percent (5%) of any royalty
or Sublicense Income payment, the cost of the audit. In all other cases, the costs of the audit
shall be paid for by LICENSOR. All information disclosed pursuant to an audit shall be treated as
Confidential Information (as defined in
Section 10.1
herein) and shall not be disclosed to
any third party or used for any purpose other than to determine the correctness of LICENSEEs
royalty and Sublicense Income statement or compliance in other respects with this Agreement.
5.2 After the first commercial sale of a LICENSED PRODUCT, LICENSED PROCESS, or LICENSED
SERVICE, LICENSEE, within forty-five (45) days after March 31, June 30, September 30 and December
31 of each year, shall deliver to LICENSOR a true and accurate report, giving such particulars of
the business conducted by LICENSEE and its permitted sublicensees during the preceding three-month
period under this Agreement as shall be pertinent to a royalty and Sublicense Income accounting
hereunder. Without limiting the generality of the foregoing, these reports shall include at least
the following:
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a)
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the number of LICENSED PRODUCTS manufactured and sold by
LICENSEE and all sublicensees;
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b)
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total billings and the amounts actually received for LICENSED
PRODUCTS sold by LICENSEE and all sublicensees;
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c)
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an accounting for all LICENSED PROCESSES or LICENSED SERVICES
used in the provision of services to others or sold by LICENSEE;
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d)
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the deductions applicable as provided in
Section 1.8
;
and
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e)
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the names and addresses of all parties making LICENSED PRODUCTS
on behalf of LICENSEE.
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The reports shall provide the above-identified information by product, process, or service
type.
9
5.3 With each such report submitted, LICENSEE shall pay to LICENSOR the royalties and
Sublicense Income due and payable for such three-month period. If no royalties or Sublicense
Income shall be due, LICENSEE shall so report.
ARTICLE 6 PATENT PROSECUTION
6.1 LICENSOR shall be solely responsible for the continued prosecution of pending patent
applications included in the PATENT RIGHTS and the issuance of such applications after allowance.
The prosecution, filing and maintenance of all patents and applications shall be the primary
responsibility of LICENSOR. LICENSEE agrees to cooperate fully with LICENSOR, as requested by
LICENSOR and at LICENSORs expense, in the preparation, filing, prosecution, and maintenance of the
patent applications and patents included in the PATENT RIGHTS. With respect to Australia, Canada,
Europe, Mexico, Japan and Israel, LICENSEE shall pay to LICENSOR on or before the due date one half
(1/2) of any future annuity and maintenance fees with respect to filings stemming from applications
10/227,282, PCT/US02/26945 and 60/539,796, provided LICENSOR notifies LICENSEE of the amount of
such payments due at least 30 days prior to their due date.
ARTICLE 7 PROSECUTION OF INFRINGERS
AND DEFENSE OF PATENT RIGHTS
The Parties agree to notify each other in writing of any actual or threatened infringement by
a third party of the PATENT RIGHTS or of any claim of invalidity, unenforceability, or
non-infringement of the PATENT RIGHTS. LICENSOR shall have the sole responsibility to prosecute or
defend such claims, as applicable. LICENSEE shall, if requested, provide reasonable assistance to
LICENSOR in connection with the prosecution or defense of such claims.
ARTICLE 8 INDEMNIFICATION
8.1
Indemnification of the LICENSOR
. LICENSEE shall be responsible for and shall
indemnify, defend, and hold harmless LICENSOR, its agents, attorneys, representatives, third party
beneficiaries and their respective heirs, executors, successors and assigns (collectively, the
LICENSOR Indemnitees) from and against all liabilities of any kind whatsoever, including legal
expenses and reasonable attorneys fees, incurred or imposed upon any of the LICENSOR Indemnitees
in connection with or as a consequence of any claims (including third party claims), suits,
actions, demands or judgments arising out of the death of or injury to any person or persons or out
of any damage to property resulting from the development, production, manufacture, sale, use,
performance, rendering, consumption or advertisement of the
10
LICENSED PRODUCT(s), LICENSED PROCESS(es), and/or LICENSED SERVICE(s), or arising from any
obligation, act or omission performed or failed to be performed hereunder, or from a breach of any
representation or warranty of LICENSEE hereunder unless and to the extent that such liability
arises solely from any action of LICENSOR or any of its Affiliates. If the exercise of LICENSEEs
rights under this Agreement in any country in the TERRITORY is the subject of a bona fide claim by
a third party, filed in a court of competent jurisdiction after the date hereof, that the exercise
of such rights infringes or conflicts with any intellectual property rights of such third party (a
Third Party Infringement Claim), then LICENSEE shall not have any of the rights granted herein in
such country and shall have no obligation to pay LICENSOR any further payments under
Article
4
of this Agreement with respect to any country of the TERRITORY until such claim is resolved
by proper adjudication or settlement permitting LICENSEE to exercise LICENSEEs rights under this
Agreement in the applicable country of the TERRITORY. Notwithstanding anything herein to the
contrary, LICENSOR covenants that it will not (a) assert or bring any suit, action, claim or other
proceeding against LICENSEE based on, in whole or in part, LICENSEEs exercise of LICENSEEs
rights, in accordance with the terms and conditions of this Agreement, with respect to the LICENSED
TECHNOLOGY and/or (b) join in any third party suit, action, claim or other proceeding against
LICENSEE based on, in whole or in part, any intellectual property rights (including without
limitation, patent rights and/or know how) owned by the applicable third party, so long as LICENSEE
is not in violation of this Agreement.
8.2
Indemnification of the LICENSEE
. LICENSOR shall be responsible for and shall
indemnify, defend, and hold harmless LICENSEE and the officers, directors, shareholders, employees,
agents, attorneys, representatives, and Affiliates, and their respective heirs, executors,
successors and assigns. (the LICENSEE Indemnitees) from and against all liabilities of any kind
whatsoever, including legal expenses and reasonable attorneys fees, incurred or imposed upon any
of the LICENSEE Indemnitees in connection with or as a consequence of any claims (including third
party claims), suits, actions, demands or judgments arising out of, directly or indirectly, or in
any way relating to: (a) any breach by LICENSOR of any representation, warranty, covenant or
obligation set forth in this Agreement; or (b) arising from LICENSORs ownership, management,
control, use or disposition of the LICENSED TECHNOLOGY unless and to the extent that such liability
arises solely from any action of LICENSEE or any of its Affiliates after the Effective Date.
8.3
Demands for Third Party Claims
. Each indemnified Party hereunder (an Indemnified
Party) agrees that promptly upon its discovery of facts giving rise to a claim for indemnity under
this Agreement, including the receipt of any demand, assertion, claim, action or proceeding,
judicial or otherwise, by any third party (being referred to herein as a Claim), with respect to
any matter as to which it claims to be entitled to indemnity under the provisions of this
Agreement, it will give prompt notice thereof in writing to the Indemnifying Party (the
Indemnifying Party), together with a statement of such information respecting any of the
foregoing as it shall have. Such notice shall include a formal demand for indemnification under
this Agreement.
11
8.4
Right to Contest and Defend
. The Indemnifying Party shall contest and defend, at
its sole cost and expense, by all appropriate legal proceedings any Claim with respect to which it
is called upon to indemnify the Indemnified Party under the provisions of this Agreement; provided,
that notice of the intention to so contest shall be delivered by the Indemnifying Party to the
Indemnified Party as soon as reasonably possible after (but no later than twenty [20] days from)
the date of receipt by the Indemnifying Party of notice by the Indemnified Party of the assertion
of the Claim. Any such contest may be conducted in the name and on behalf of the Indemnifying Party
or the Indemnified Party as may be appropriate. Such contest shall be conducted by reputable
counsel employed by the Indemnifying Party, but the Indemnified Party shall have the right but not
the obligation to participate in such proceedings and to be represented by counsel of its own
choosing at its sole cost and expense. The Indemnifying Party shall have full authority to
determine all action to be taken with respect thereto; provided, however, that the Indemnifying
Party will not have the authority to subject the Indemnified Party to any obligation whatsoever
(whether financial or the imposition of equitable or injunctive relief), other than the performance
of purely ministerial tasks or obligations not involving material expense (for which the
Indemnified Party shall be reimbursed). If the Indemnifying Party does not elect to contest any
such Claim, the Indemnifying Party shall be bound by the result obtained with respect thereto by
the Indemnified Party.
8.5
Cooperation
. If requested by the Indemnifying Party, the Indemnified Party agrees
to cooperate with the Indemnifying Party and its counsel in contesting any Claim that the
Indemnifying Party elects to contest or, if appropriate, in making any counterclaim against the
PERSON asserting the Claim, or any cross-complaint against any PERSON, and the Indemnifying Party
will reimburse the Indemnified Party for any expenses incurred by it in so cooperating.
8.6
Right to Participate
. The Indemnified Party agrees to afford the Indemnifying
Party and its counsel the opportunity to be present at, and to participate in, conferences with any
PERSON, including governmental authorities, asserting any Claim against the Indemnified Party or
conferences with representatives of or counsel for such PERSON.
8.7
Payment of Damages
. The Indemnifying Party shall pay to the Indemnified Party in
immediately available funds any amounts to which the Indemnified Party may become entitled by
reason of the provisions of this Agreement, such payment to be made within five (5) days after any
such amounts are finally determined either by mutual agreement of the Parties hereto or pursuant to
the final non-appealable judgment of a court of competent jurisdiction.
8.8
Independent Indemnities
. The Parties acknowledge and agree that each of the
indemnities under
Sections 8.1 and 8.2
may be relied upon independently.
8.9
Insurance.
LICENSEE and LICENSOR mutually agree to maintain insurance or
self-insurance that is reasonably adequate to fulfill any potential obligation to the Indemnified
Parties. LICENSEE and LICENSOR shall continue to maintain such insurance or self-insurance
during the term of this Agreement and after the expiration or termination of this Agreement
for a period of five (5) years. Each Party shall provide to the other Party, upon request, proof
of any such insurance policy maintained by such Party.
12
ARTICLE 9 TERMINATION
9.1 The term of this Agreement (TERM) shall commence on the Effective Date and continue
until the expiration of the last VALID CLAIM within the PATENT RIGHTS to expire , unless sooner
terminated as provided in this
Article 9
; provided that LICENSEEs obligation to pay
royalties or Sublicense Income on NET SALES in any country will terminate pursuant to
Subsection 4.2(c)
(subject to LICENSEEs obligations under
Section 9.4
herein).
9.2 If either Party commits a material breach of a material term of this Agreement (including
any failure to make any payment due under this Agreement), the non-breaching Party shall have the
right to terminate this Agreement effective on thirty (30) days prior written notice to the Party
in breach, unless such breach is cured prior to the expiration of such thirty (30) day period.
9.3 LICENSEE shall have the right to terminate this Agreement at any time on thirty (30) days
prior notice to LICENSOR, and upon payment of all amounts due LICENSOR through the effective date
of the termination.
9.4. Notwithstanding anything herein to the contrary, in the event that this Agreement is
terminated by LICENSOR pursuant to
Section 9.2
or by LICENSEE pursuant to
Sections 9.2
or 9.3
, LICENSEE shall retain a license to rights granted in
Article 2
to the extent
reasonably necessary to sell any LICENSED PRODUCTS existing or under production and to perform
LICENSED PROCESSES or LICENSED SERVICES related to such LICENSED PRODUCTS or that are in process,
subject to the terms of this Agreement (including without limitation the obligation to pay
royalties under
Article 4
), provided that LICENSEE shall complete and sell all such
work-in-progress and inventory within six (6) months after the effective date of termination.
9.5 Upon the expiration of the TERM of this Agreement LICENSEE shall have a fully paid-up,
non-exclusive, irrevocable, royalty free license under the rights granted in
Article 2
.
9.6 Nothing herein shall be construed to release either Party from any obligation that accrued
prior to expiration or any termination of this Agreement. The following provisions shall survive
any termination or any expiration of the TERM of this Agreement: this
Section 9.6 and
Articles/Sections 1, 4, 5, 8, 9.4, 10, 11, 12, 13, 15.1, 15.2, 15.5, 15.6, 15.7, 15.8, 15.10, 15.15
and 15.16
, and any other provision which by its nature is intended to survive any such
termination.
13
ARTICLE 10 CONFIDENTIALITY AND NON-DISCLOSURE
10.1
Confidential Information; Non-Disclosure
. Confidential Information shall mean
any technical, business, financial, customer or other information disclosed by one Party (the
Disclosing Party) to the other Party (the Receiving Party) pursuant to this Agreement which is
marked Confidential or Proprietary, or which, under all of the given circumstances, ought
reasonably to be treated as confidential information of the Disclosing Party. Such information may
be disclosed in oral, visual or written form (including magnetic, optical or other media). Except
as expressly provided in
Section 10.2
below, each Partys Confidential Information
specifically includes without limitation the respective Partys business plans and business
practices, the terms of this Agreement, scientific knowledge, research and development or know-how,
processes, inventions, techniques, formulae, products and product plans, business operations,
customer requirements, designs, sketches, photographs, drawings, specifications, reports, studies,
findings, data, plans or other records, biological materials, software, margins, payment terms and
sales forecasts, volumes and activities, designs, computer code, technical information, costs,
pricing, financing, business opportunities, personnel, and information of LICENSOR or LICENSEE
relating to the LICENSED PROCESSES, LICENSED PRODUCTS or LICENSED SERVICES whether or not such
information is marked or identified provided that the Disclosing Party provides notice in writing
reasonably identifying such Confidential Information within 30 days of disclosure. Except to the
extent expressly authorized by this Agreement or by other prior written consent by the Disclosing
Party, the Receiving Party, during the term of this Agreement, and thereafter, shall: (i) treat as
confidential all Confidential Information of the other Party; (ii) use Confidential Information
only for exercising the rights and fulfilling the obligations set forth in this Agreement, (iii)
implement reasonable procedures to prohibit the disclosure, unauthorized duplication, misuse or
removal of the Disclosing Partys Confidential Information; (iv) not disclose Confidential
Information to any third party, and (v) only disclose the Confidential Information to (a) those of
its employees who have a need to know Confidential Information in order to exercise the rights and
fulfill the obligations set forth in this Agreement and (b) legal and professional advisors and
existing and potential investors and their legal and professional advisors, each of which is bound
by a written agreement (or in the case of attorneys or other professional advisors, formal ethical
duties) requiring such advisors and investors to treat, hold and maintain such Confidential
Information in accordance with the terms and conditions of this Agreement, or (c) recipients of
offering documents in connection with any offering of securities where such disclosure is, in the
opinion of counsel for the Disclosing Party, reasonably required to comply with the investment
disclosure laws of any applicable jurisdiction. Without limiting the foregoing, the Receiving Party
shall protect the Disclosing Partys Confidential Information using at least the same procedures
and degree of care that it uses to prevent the disclosure of its own confidential information of
like importance, but in no event less than reasonable care.
14
10.2
Exceptions
. The Receiving Party shall have no obligation or liability to the
Disclosing Party with regard to any Confidential Information of the Disclosing Party: (i) that was
publicly known and available at the time it was disclosed or becomes publicly known and
available through no fault, action, or inaction of the Receiving Party; (ii) was known to the
Receiving Party, without restriction, at the time of disclosure as shown by the files of the
Receiving Party in existence at the time of disclosure; (iii) is disclosed with the prior written
approval of the Disclosing Party; (iv) was independently developed by the Receiving Party without
any use of the disclosing partys Confidential Information, provided, that the Receiving Party can
demonstrate such independent development by documented evidence prepared contemporaneously with
such independent development; (v) is disclosed pursuant to the order or requirement of a court,
administrative agency, or other governmental body, provided that the Receiving Party shall provide
prompt notice thereof and reasonable assistance to the Disclosing Party to enable the Disclosing
Party to seek a protective order or otherwise prevent such disclosure, and provided further that
such disclosure is limited to the extent necessary to comply with such order and the information
shall otherwise be treated as Confidential Information; or (vi) that is provided to the Receiving
Party by an independent third party without violating any confidentiality obligation to the
Disclosing Party.
10.3
Injunctive Relief
. LICENSOR and LICENSEE acknowledge and agree that any breach
of the confidentiality obligations imposed by this
Article 10
will constitute immediate and
irreparable harm to the Disclosing Party and/or its successors and assigns, which cannot adequately
and fully be compensated by money damages and will warrant, in addition to all other rights and
remedies afforded by law, injunctive relief, specific performance, and/or other equitable relief.
The Disclosing Partys rights and remedies hereunder are cumulative and not exclusive. The
Disclosing Party shall also be entitled to receive from the Receiving Party the costs of enforcing
this
Article 10
, including reasonable attorneys fees and expenses of litigation.
10.4
Termination
. Upon termination or expiration of this Agreement, or upon the
request of the Disclosing Party at any time, the Receiving Party shall promptly return to the
Disclosing Party, at its request, all copies of Confidential Information received from the
Disclosing Party, and shall return or destroy, and document the destruction of, all summaries,
abstracts, extracts, or other documents which contain any Confidential Information of the
Disclosing Party in any form. Notwithstanding the foregoing to the contrary, LICENSEE shall have
no obligation (even upon a request by LICENSOR) to return or destroy any KNOW-HOW (including
tangible embodiments of KNOW-HOW) during the TERM of this Agreement.
10.5
Survival
. The obligations of LICENSOR and LICENSEE under this
Article 10
shall survive any expiration or termination of this Agreement.
ARTICLE 11 PAYMENTS, NOTICES, AND OTHER COMMUNICATIONS
Any payment, notice or other communication pursuant to this Agreement shall be in writing and
sent by certified first class mail, postage prepaid, return receipt requested, or by nationally
recognized overnight carrier addressed to the Parties at the following addresses or such other
addresses as such Party furnishes to the other Party in accordance with this paragraph.
Such notices, payments, or other communications shall be effective upon receipt.
15
In the case of LICENSOR:
Advanced Cell Technology, Inc.
One Innovation Drive
Worcester, MA 01605
Attention: Michael D. West, Ph.D., President
With a copy to:
Pierce Atwood
One Monument Square
Portland, ME 04101
Attention: William L. Worden, Esq.
In the case of LICENSEE:
PacGen Cellco, LLC.
157 Surfview Drive
Pacific Palisades, CA 90272
Attention: Kenneth Aldrich
With a copy to:
Gray Cary Ware & Freidenrich
4365 Executive Drive, Suite 1100
San Diego, CA 92121-2133
Attention: Lisa Haile
ARTICLE 12 RESPRESENTATIONS AND WARRANTIES OF LICENSOR
As an inducement to LICENSEE to enter into and perform this Agreement, LICENSOR represents and
warrants to LICENSEE as follows:
12.1
Title to LICENSED TECHNOLOGY; Encumbrances
. LICENSOR has good and valid title or
valid licenses (with the right of sublicense) to the LICENSED TECHNOLOGY.
12.2
No Violations
. The execution, delivery and performance of this Agreement by
LICENSOR and the consummation by LICENSOR of the transactions contemplated hereby does not,: (a)
violate any statute, ordinance, rule or regulation applicable to LICENSOR or by which any of the
LICENSED TECHNOLOGY may be bound; (b) violate any order, judgment or decree of any court or of any
Governmental Authority or regulatory body, agency or authority applicable to LICENSOR or by which
any of the LICENSED TECHNOLOGY may be bound; (c) require any filing by LICENSOR with, or require
LICENSOR to obtain any permit, consent or approval of, or require LICENSOR to give any notice to,
any Governmental Authority or regulatory body, agency or authority; or (d) result in a violation or
breach by LICENSOR of,
conflict with, constitute a default by LICENSOR (or give rise to any right of termination,
cancellation, payment or acceleration) under or result in the creation of any Encumbrance upon any
of the LICENSED TECHNOLOGY.
16
12.3
Litigation
. Except as set forth in Exhibit C, there is no action, suit,
proceeding at law or in equity, arbitration or administrative or other proceeding by or before (or
any investigation by) any governmental or other instrumentality or agency, pending, or threatened,
against or affecting the LICENSED TECHNOLOGY, and LICENSOR does not know of any valid basis for any
such action, proceeding or investigation. To the knowledge of LICENSOR, there are no such suits,
actions, claims, proceedings or investigations pending or threatened, seeking to prevent or
challenge the transactions contemplated by this Agreement.
12.4
Disclosure
. Neither these representations and warranties made by LICENSOR
pursuant to this Agreement nor any of the exhibits, schedules or certificates attached hereto or
delivered in accordance with the terms hereof knowingly contains any misstatement of fact or omits
any statement of fact necessary in order to make the statements contained herein and therein not
misleading in light of the circumstances under which they were made.
12.5
Copies of Documents
. LICENSOR has caused to be made available for inspection and
copying by LICENSEE and its advisers, true, complete and correct copies of all documents in
LICENSORs possession referred to in any schedule attached hereto.
12.6
Brokers or Finders Fees
. No agent, broker, person or firm acting on behalf of
LICENSOR is, or will be, entitled to any fee, commission or brokers or finders fees for which the
LICENSEE may be liable in connection with this Agreement or any of the transactions contemplated
hereby.
12.7
LICENSED TECHNOLOGY
.
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(a)
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Except as set forth on Exhibit D, LICENSOR, LICENSOR is not
aware of any interference, infringement, misappropriation, or other conflict
with any intellectual property rights of third parties, and LICENSOR has never
received any charge, complaint, claim, demand, or notice alleging any such
interference, infringement, misappropriation, or violation (including any claim
that LICENSOR must license or refrain from using any intellectual property
rights of any third party). To the knowledge of LICENSOR, no third party has
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any of the LICENSED TECHNOLOGY.
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(b)
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Exhibit A identifies each patent or registration which has been
issued to LICENSOR with respect to any of the LICENSED TECHNOLOGY and
identifies each pending patent application or application for registration
which LICENSOR has made with respect to any of the LICENSED
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TECHNOLOGY. LICENSOR has made available to LICENSEE correct and complete copies
of all such patents, registrations and applications (as amended to-date) in
LICENSORs possession and has made available to LICENSEE correct and complete
copies of all other written documentation in LICENSORs possession evidencing
ownership and prosecution (if applicable) of each such item.
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(c)
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Exhibit A identifies each item of LICENSED TECHNOLOGY that is
assigned to LICENSOR or that LICENSOR uses pursuant to license, sublicense,
agreement, or permission. LICENSOR has made available to LICENSEE correct and
complete copies of all such licenses, sublicenses, agreements, patent
prosecution files and permissions (as amended to-date) in LICENSORs
possession. With respect to each item of LICENSED TECHNOLOGY required to be
identified in Exhibit A and to the knowledge of LICENSOR: (i) the license,
sublicense, agreement, or permission covering the item is legal, valid,
binding, enforceable, and in full force and effect; (ii) the license,
sublicense, agreement, or permission will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby; (iii) no
Party to the license, sublicense, agreement, or permission is in breach or
default, and no event has occurred which with notice or lapse of time would
constitute a breach or default or permit termination, modification, or
acceleration thereunder; (iv) no party to the license, sublicense, agreement,
or permission has repudiated any provision thereof; (v) the underlying item of
LICENSED TECHNOLOGY is not subject to any outstanding lien or encumbrance,
injunction, judgment, order, decree, ruling, or charge; (vi) no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand is
pending or is threatened which challenges the legality, validity, or
enforceability of the underlying item of LICENSED TECHNOLOGY; and (vii)
LICENSOR has not granted any sublicense or similar right to the LICENSED
TECHNOLOGY within the FIELD.
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12.8
Survival of Representations and Warranties
.
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(a)
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Except as otherwise provided herein, notwithstanding any
investigation at any time made by or on behalf of any Party hereto, the
representations and warranties set forth herein and in any certificate
delivered in connection herewith with respect to any of those representations
and warranties will survive the Effective Date until the longer to occur of:
(i) two (2) years or (ii) the expiration of the applicable statutes of
limitation, including all periods of extension and tolling whereupon they will
terminate and expire.
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18
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(b)
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After a representation and warranty has expired, as provided in
Subsection 12.8(a)
, no claim for claims or costs may be made or
prosecuted by any Person who would have been entitled to claims or costs on the
basis of that representation and warranty prior to its termination and
expiration, provided that no claim presented in writing for claims or costs to
the Person or Persons from which or whom those damages are sought on the basis
of that representation and warranty prior to its termination and expiration
will be affected in any way by that termination and expiration.
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12.9 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, LICENSOR, ITS DIRECTORS,
OFFICERS, EMPLOYEES, AND AFFILIATES MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY KIND,
EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR
A PARTICULAR PURPOSE, VALIDITY OF PATENT RIGHTS, ISSUED OR PENDING, AND THE ABSENCE OF LATENT OR
OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE. NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A
REPRESENTATION MADE OR WARRANTY GIVEN BY LICENSOR THAT THE PRACTICE BY LICENSEE OF THE LICENSE
GRANTED HEREUNDER SHALL NOT INFRINGE THE PATENT RIGHTS OF ANY THIRD PARTY.
ARTICLE 13REPRESENTATIONS AND WARRANTIES OF LICENSEE.
LICENSEE represents and warrants to LICENSOR as follows:
13.1
Existence and Good Standing: Power and Authority
. LICENSEE is a limited liability
company duly organized, validly existing and in good standing under the laws of the state of
California. LICENSEE has full corporate power and authority to make, execute, deliver and perform
this Agreement, to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement by LICENSEE and the
consummation by it of the transactions contemplated hereby, have been duly authorized and approved
by all required corporate action of LICENSEE and no other action on the part of LICENSEE is
necessary to authorize the execution, delivery and performance of this Agreement by LICENSEE and
the consummation of the transaction contemplated hereby. This Agreement has been duly executed and
delivered by LICENSEE and is a valid and binding obligation of LICENSEE enforceable against it in
accordance with its terms, except to the extent that its enforceability may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the
enforcement of creditors rights generally and by general equitable principles.
13.2
Authorization and Validity of Agreement
. LICENSEE has full power and authority,
including full corporate power and authority, to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
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Without limiting the foregoing, the execution, delivery and performance of this Agreement by
LICENSEE and the consummation by it of the transactions contemplated hereby, have been duly
authorized and approved by the members and managers of LICENSEE, and no other action on the part of
LICENSEE or its officers, directors or shareholder is necessary to authorize the execution,
delivery and performance of this Agreement by LICENSEE and the consummation of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by LICENSEE and is a
valid and binding obligation of LICENSEE enforceable against it in accordance with its terms,
except to the extent that its enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the enforcement of creditors rights
generally and by general equitable principles.
13.3
Consents and Approvals; No Violations
. The execution, delivery and performance of
this Agreement by LICENSEE and the consummation by LICENSEE of the transactions contemplated hereby
will not, with or without the giving of notice or the lapse of time or both: (a) violate, conflict
with, or result in a breach or default under any provision of the organizational documents of
LICENSEE; (b) violate any statute, ordinance, rule or regulation applicable to LICENSEE, (c)
violate any order, judgment or decree of any court or of any governmental or regulatory body,
agency or authority applicable to LICENSEE or by which any of the LICENSED TECHNOLOGY may be bound;
or (d) require any filing by LICENSEE with, or require LICENSEE to obtain any permit, consent or
approval of, or require LICENSEE to give any notice to, any governmental or regulatory body, agency
or authority, except filings, if any, which may be required under the Blue Sky laws of
Massachusetts or as may be required in the future to comply with governmental regulations governing
the production and sale of products by LICENSEE as it conducts its business.
13.4
Survival of Representations and Warranties
.
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(a)
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Except as otherwise provided herein, notwithstanding any
investigation at any time made by or on behalf of any Party hereto, the
representations and warranties set forth herein and in any certificate
delivered in connection herewith with respect to any of those representations
and warranties will survive the Effective Date until the longer to occur of:
(i) two (2) years or (ii) the expiration of the applicable statutes of
limitation, including all periods of extension and tolling whereupon they will
terminate and expire.
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(b)
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After a representation and warranty has expired, as provided in
Subsection 13.4(a)
, no claim for claims or costs may be made or
prosecuted by any Person who would have been entitled to claims or costs on the
basis of that representation and warranty prior to its termination and
expiration, provided that no claim presented in writing for claims or costs to
the Person or Persons from which or whom those damages are sought on the basis
of that representation and warranty prior to its termination and expiration
will be affected in any way by that termination and expiration.
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20
ARTICLE 14 LIMITATION OF LIABILITY
EXCEPT FOR ANY LIABILITY TO ANY THIRD PARTIES PURSUANT TO ARTICLE 8 OR TO A PARTY PURSUANT TO
ARTICLES 12 AND 13 OF THIS AGREEMENT, IN NO EVENT SHALL LICENSOR OR LICENSEE OR THEIR, ITS
DIRECTORS, OFFICERS, EMPLOYEES OR AFFILIATES BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES OF
ANY KIND, INCLUDING ECONOMIC DAMAGE OR INJURY TO PROPERTY AND LOST PROFITS, REGARDLESS OF WHETHER
LICENSOR OR LICENSEE SHALL BE ADVISED, SHALL HAVE OTHER REASON TO KNOW, OR IN FACT SHALL KNOW OF
THE POSSIBILITY OF SUCH DAMAGES.
ARTICLE 15 MISCELLANEOUS PROVISIONS
15.1 CORPORATE PARTNERSHIPS. In the event LICENSEE enters into a corporate partnership for
the joint development of any of the LICENSED TECHNOLOGY, and LICENSEE sublicenses the LICENSED
TECHNOLOGY to a third party, then payments required hereunder shall not include funds provided for
sponsored research or equity investments by any third party so long as such payments do not
constitute a majority of funds transferred by such third party. However if the sponsored research
involves fees in excess of industry standard reimbursement for FTEs or any equity investment in
excess of fair market value, LICENSEE shall pay to LICENSOR a royalty on such excess fees
calculated at the rates specified herein.
15.2 LICENSEE REVERSE LICENSE TO LICENSOR. LICENSEE agrees to license to LICENSOR on a
non-exclusive basis for therapeutic uses in the treatment of blood and cardiovascular diseases the
rights to any technology it currently owns or has licensed or develops or licenses in the future
that is applicable to such diseases (excluding however the use of proprietary techniques now or
hereafter developed by LICENSEE for the enhanced vascularization of transplanted cells or tissues).
Such license shall provide for royalty payments at the same rate as LICENSEES royalty payments to
LICENSOR hereunder as provided in Section 4.2(a). Such license will be sublicensable only once in
a given field of use; or for the purpose of having products produced, made, or distributed; or in
connection with a merger or consolidation of LICENSOR into another company or a sale of all or
substantially all of the assets of LICENSOR. LICENSEE shall also have no obligations hereunder with
respect to technology licenses it has or may acquire if such licenses restrict sublicensing in a
manner inconsistent with this subparagraph. Such Reverse License shall not apply to any rights
acquired by LICENSEE under Section 15.18 hereof.
21
15.3 FUTURE TECHNOLOGY LICENSES. LICENSOR acknowledges that it is continuing to develop
cell-based technology, the existence or significance of which it may not
have disclosed to LICENSEE. Therefore, LICENSOR further agrees that in the event any of its
technology now perfected or pending as of the date of this agreement but not specifically
enumerated herein would inhibit or adversely affect the commercial use by LICENSEE of the PATENT
RIGHTS in the field, LICENSOR shall waive any claim of infringement to the extent necessary to
permit LICENSEE to continue the use of the PATENT RIGHTS under this Agreement. In addition,
LICENSOR agrees to license to LICENSEE on a non-exclusive basis for uses in the FIELDS, including
any rights acquired under Section 15.18 hereof, the rights to any technology it currently owns or
has licensed or develops or licenses in the future that is applicable to such FIELDS (but
specifically excluding applications involving the use of cells in the treatment of tumors where the
primary use of the cells is the destruction or reduction of tumors and does not involve
regeneration of tissue or organ function). Such license shall provide for royalty payments at the
same rate as LICENSEES royalty to LICENSOR hereunder as provided in Section 4.2(a). Such license
will be sublicensable only once in a given field of use; or for the purpose of having products
produced, made, or distributed; or in connection with a merger or consolidation of LICENSEE into
another company or a sale of all or substantially all of the assets of LICENSEE. LICENSOR shall
also have no obligations hereunder with respect to technology licenses it has or may acquire if
such licenses restrict sublicensing in a manner inconsistent with this subparagraph.
15.4 LICENSEE shall comply with all local, state, federal and international laws and
regulations relating to the development, manufacture, use, provision, and sale of LICENSED
PRODUCTS, LICENSED PROCESSES and LICENSED SERVICES. Without limiting the generality of the
foregoing, LICENSEE agrees to comply with the following:
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a)
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LICENSEE shall obtain all necessary approvals from the FDA,
USDA, or any similar governmental authorities of any foreign jurisdiction in
which LICENSEE intends to make, use, or sell LICENSED PRODUCTS or to perform
LICENSED PROCESSES or LICENSED SERVICES.
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b)
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LICENSEE shall comply fully with any and all applicable local,
state, federal and international laws and regulations relating to the LICENSED
PRODUCTS, LICENSED PROCESSES and LICENSED SERVICES, and the PATENT RIGHTS, in
the TERRITORY, including without limitation all export or import regulations
and rules now in effect or as may be issued from time to time by any
governmental authority which has jurisdiction relating to the export of
LICENSED PRODUCTS, LICENSED PROCESSES or LICENSED SERVICES and any technology
relating thereto. LICENSEE hereby gives written assurance that it will comply
with all such import or export laws and regulations (including without
limitation all Export Administration Regulations of the United States
Department of Commerce), that it bears sole responsibility for any violation of
such laws and regulations, and that it will indemnify, defend, and hold
LICENSOR harmless (in accordance with
Article 8
) for the consequences
of any such violation.
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c)
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To the extent that any invention claimed in the PATENT RIGHTS
has been partially funded by the United States Government, and only to the
extent required by applicable laws and regulations, LICENSEE agrees that any
LICENSED PRODUCTS used or sold in the United States will be manufactured
substantially in the United States or its territories. Current law provides
that if a domestic manufacturer is not commercially feasible under the
circumstances, LICENSOR may seek a waiver of this requirement from the relevant
federal agency on behalf of LICENSEE and, upon LICENSEES request, shall
cooperate with LICENSEE in seeking such a waiver.
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15.5 LICENSEE shall not create or incur or cause to be incurred or to exist any lien,
encumbrance, pledge, charge, restriction or other security interest of any kind upon the PATENT
RIGHTS, but may cause to be incurred or to exist a lien, encumbrance, pledge, charge, restriction
or other security interest on its rights to the LICENSED TECHNOLOGY hereunder, provided such
security interest does not affect LICENSORs rights to the LICENSED TECHNOLOGY, or any of
LICENSORs rights under this Agreement.
15.6 Neither Party shall originate any publicity, news release or other public announcement
(Announcements), written or oral, relating to this Agreement or the existence of an arrangement
between the Parties, without the prior written approval of the other Party, which approval shall
not be unreasonably withheld or delayed, except as otherwise required by law. The foregoing
notwithstanding, LICENSOR and LICENSEE shall have the right to make such Announcements without the
consent of the other Party in any prospectus, offering memorandum, or other document or filing
required by applicable securities laws or other applicable law or regulation, provided that such
Party shall have given the other Party at least ten (10) days prior written notice of the proposed
text for the purpose of giving the other Party the opportunity to comment on such text.
15.7 No implied licenses are granted pursuant to the terms of this Agreement. No licensed
rights shall be created by implication or estoppel.
15.8 Nothing herein shall be deemed to constitute either Party as the agent or representative
of the Party, or both parties as joint venturers or partners for any purpose. Each Party shall be
an independent contractor, not an employee or partner of the other Party, and the manner in which
each Party renders its services under this Agreement shall be within its sole discretion. Neither
Party shall be responsible for the acts or omissions of the other Party, nor shall either Party
have authority to speak for, represent or obligate the other Party in any way without prior written
authority from the other Party.
15.9 To the extent commercially feasible, and consistent with prevailing business practices
and applicable law, all LICENSED PRODUCTS sold pursuant to this Agreement will be marked with the
number of each issued patent that applies to such LICENSED PRODUCTS.
23
15.10 This Agreement shall be construed, governed, interpreted and applied in accordance with
the laws of the State of California, U.S.A. without regard to principles of conflicts of law
thereof, except that questions affecting the construction and effect of any patent shall be
determined by the law of the country in which the patent was granted.
15.11 The Parties hereto acknowledge that this Agreement sets forth the entire Agreement and
understanding of the Parties hereto as to the subject matter hereof, and shall not be subject to
any change or modification except by the execution of a written instrument signed by the Parties
hereto.
15.12 The provisions of this Agreement are severable, and in the event that any provision of
this Agreement shall be determined to be invalid or unenforceable under any controlling body of the
law, such invalidity or unenforceability shall not in any way affect the validity or enforceability
of the remaining provisions hereof.
15.13 The failure of either Party to assert a right hereunder or to insist upon compliance
with any term or condition of this Agreement shall not constitute a waiver of that right or excuse
a similar subsequent failure to perform any such term or condition by the other Party.
15.14 This Agreement may not be assigned by LICENSEE without the prior written consent of
LICENSOR, which consent shall be granted or denied in LICENSORs sole discretion. LICENSOR may not
assign this Agreement without the consent of LICENSEE, which consent shall not be unreasonably
withheld or delayed, except that LICENSOR may assign this Agreement to an affiliate or to a
successor in connection with the merger, consolidation, or sale of all or substantially all of its
assets or that portion of its business to which this Agreement relates. Notwithstanding the
foregoing to the contrary, this restriction on the assignment by LICENSEE of this Agreement shall
not prevent the assignment of this Agreement in connection with a merger or consolidation of
LICENSEE into another company or a sale of all or substantially all of the assets of LICENSEE, so
long as the purchaser of the assets agrees to assume to any and all outstanding liabilities to
LICENSOR under this Agreement, including but not limited to any outstanding amounts under the
promissory note referred to in
Section 4.1
.
15.15 This Agreement has been prepared jointly and no rule of strict construction shall be
applied against either Party. In this Agreement, the singular shall include the plural and vice
versa and the word including shall be deemed to be followed by the phrase without limitation.
The section headings contained in this Agreement are inserted for convenience only and shall not
affect in any way the meaning or interpretation of this Agreement.
15.16 This Agreement may be executed in counterparts, each of which together shall constitute
one and the same Agreement.
24
15.17 All rights and licenses granted under or pursuant to this Agreement by LICENSOR to
LICENSEE are, and shall otherwise be deemed to be, for purposes of Paragraph
365(n) of the U.S. Bankruptcy Code (the Code), licenses to rights in intellectual property
as defined in the Code. The Parties hereto agree that LICENSEE, as a LICENSEE of such rights under
this Agreement, shall retain and may fully exercise all of its rights and elections under the Code.
The Parties hereto further agree that, in the event of the commencement of a bankruptcy proceeding
by or against LICENSOR including a proceeding under the Code, LICENSEE shall be entitled to a
complete duplicate of (or complete access to, as appropriate) any such intellectual property and
all embodiments of such intellectual property, including the PATENT RIGHTS and KNOW-HOW, and the
same, if not already in LICENSEEs possession, shall be promptly delivered to LICENSEE upon any
such commencement of a bankruptcy proceeding upon written request therefore by LICENSEE.
15.18 In addition to the other rights granted herein, LICENSOR hereby grants to LICENSEE a 90
day right of negotiation with respect to any technology that would constitute LICENSED TECHNOLOGY
if the FIELD included diseases related either to the heart or to neuro degenerative diseases (the
Added Fields) prior to LICENSOR entering into any license relating to either of such Added
Fields) with a third party. Such a 90 day period shall commence on the earlier of the 12 month
anniversary of the Effective Date, or such date when LICENSOR notifies LICENSEE that it has opened
negotiations with a third party or that a third party has made inquiry about such a license. If
following the expiration of any such 90-day negotiation period LICENSEE and LICENSOR have not
entered into a license for an Added Field, LICENSOR shall be free to enter into an exclusive or
non-exclusive license for such Added Field with any third party. If LICENSOR enters into a
non-exclusive license for an Added Field with a third party following the 90-day negotiating period
hereunder, LICENSOR shall offer a non-exclusive license to LICENSEE on comparable terms as those
entered into with such third party. LICENSEE shall then have 30 days to enter into such a
nonexclusive license. If LICENSEE does not enter into such a license within said 30-day period,
LICENSOR shall have no further obligations relating to the Added Field.
[Remainder of this page intentionally left blank]
25
IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the EFFECTIVE DATE.
ADVANCED CELL TECHNOLOGY, INC.
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By:
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Printed Name: Michael D. West, Ph.D.
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Title: President & Chief Executive Officer
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PACGEN CELLCO, LLC
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By:
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Printed Name: Kenneth Aldrich
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Title: Managing Member
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EXHIBIT A
PATENT RIGHTS
(Reference Section 1.10)
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Serial No.
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Filing Date
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Patent No.
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CO
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Issue Date
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Title
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Assignee
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60/382,616
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US
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2002-05-24
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A Bank of Nuclear
Transfer-Generated Stem Cells
for Transplantation Having
Homozygous MHC Alleles, and
Methods for Making and Using
Such a Stem Cell Bank
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ACT, Inc.
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10/445,195
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US
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2003-05-27
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A Bank of Nuclear
Transfer-Generated Stem Cells
for Transplantation Having
Homozygous MHC Alleles, and
Methods for Making and Using
Such a Stem Cell Bank
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ACT, Inc.
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|
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PCT/US03/16626
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WO
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2003-05-27
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A Bank of Nuclear
Transfer-Generated Stem Cells
for Transplantation Having
Homozygous MHC Alleles, and
Methods for Making and Using
Such a Stem Cell Bank
|
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ACT, Inc.
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PCT/US00/18063
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WO
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2000-06-30
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Cytoplasmic Transfer to
De-Differentiate Recipient
Cells
|
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ACT, Inc.
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60/141,250
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US
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1999-06-30
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Cytoplasmic Transfer to
De-Differentiate Recipient
Cells
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ACT, Inc.
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09/736,268
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US
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2000-12-15
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Cytoplasmic Transfer to
De-Differentiate Recipient
Cells
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ACT, Inc.
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516236
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NZ
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2000-06-30
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Cytoplasmic Transfer to
De-Differentiate Recipient
Cells
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ACT, Inc.
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2000000507057
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JP
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2000-06-30
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Cytoplasmic Transfer to
De-Differentiate Recipient
Cells
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ACT, Inc.
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147179
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IL
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2000-06-30
|
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Cytoplasmic Transfer to
De-Differentiate Recipient
Cells
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ACT, Inc.
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2000000008098
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CN
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2000-06-30
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Cytoplasmic Transfer to
De-Differentiate Recipient
Cells
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ACT, Inc.
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2,377,515
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CA
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2000-06-30
|
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Cytoplasmic Transfer to
De-Differentiate Recipient
Cells
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ACT, Inc.
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PI0012099-5
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BR
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2000-06-30
|
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Cytoplasmic Transfer to
De-Differentiate Recipient
Cells
|
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ACT, Inc.
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2000000059028
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AU
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2000-06-30
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Cytoplasmic Transfer to
De-Differentiate Recipient
Cells
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ACT, Inc.
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2
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Serial No.
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Filing Date
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Patent No.
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CO
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Issue Date
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Title
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Assignee
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PCT/US02/26798
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WO
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2002-08-27
|
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Dedifferentiation and
Re-Differentiation of Somatic
Cells and Production of Cells
for Cell Therapies
|
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ACT, Inc.
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10/228,316
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US
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2002-08-27
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Dedifferentiation and
Re-Differentiation of Somatic
Cells and Production of Cells
for Cell Therapies
|
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ACT, Inc.
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60/314,657
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US
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2001-08-27
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Dedifferentiation of Somatic
Cells and Use for Cell
Therapies
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ACT, Inc.
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60/382,386
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US
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2002-05-23
|
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Generation of Histocompatible
Tissues Using Nuclear
Transplantation
|
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ACT, Inc.
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PCT/US03/16424
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US
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2003-05-23
|
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Generation of Histocompatible
Tissues Using Nuclear
Transplantation
|
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ACT, Inc.
|
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60/342,358
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US
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2001-12-27
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Generation of Human Stem
Cells Via Cross Species
Nuclear Transfer
|
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ACT, Inc.
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PCT/US02/41572
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WO
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2002-12-27
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Embryonic or Stem-Like Cell
Lines Produced by Cross
Species Nuclear
Transplantation and Method
for Enhancing Embryonic
Development by Genetic
Alteration of Donor Cells or
by Tissue Culture Conditions
|
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ACT, Inc.
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60/332,510
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US
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2001-11-26
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Human Nuclear Transfer
|
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ACT, Inc.
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PCT/US02/37899
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WO
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2002-11-26
|
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Methods for Making and Using
Reprogrammed Human Somatic
Cell Nuclei and Autologous
and Isogenic Human Stem Cells
|
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ACT, Inc.
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10/304,020
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US
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2002-11-26
|
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Methods for Making and Using
Reprogrammed Human Somatic
Cell Nuclei and Autologous
and Isogenic Human Stem Cells
|
|
ACT, Inc.
|
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10/484,398
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US
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2002-07-18
|
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Improved Methods and
Compositions for Cell Therapy
|
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ACT, Inc.
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02322522
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AU
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2002-07-18
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Improved Methods and
Compositions for Cell Therapy
|
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ACT, Inc.
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PCT/US02/22857
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WO
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2002-07-18
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Improved Methods and
Compositions for Cell Therapy
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ACT, Inc.
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60/305,904
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US
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2001-07-18
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Improved Methods and
Compositions for Cell Therapy
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ACT, Inc.
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3
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Serial No.
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Filing Date
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Patent No.
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CO
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Issue Date
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Title
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Assignee
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60/280,138
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US
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2001-04-02
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Method for Facilitating the
Production of Differentiated
Cell Types and Tissues from
Embryonic and Adult
Pluripotent and Multipotent
Cells
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ACT, Inc.
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10/112,939
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US
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2002-04-02
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Method for Facilitating the
Production of Differentiated
Cell Types and Tissues from
Embryonic and Adult
Pluripotent and Multipotent
Cells
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ACT, Inc.
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PCT/US00/24398
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WO
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2000-09-06
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Method for Generating
Immune-Compatible Cells and
Tissues Using Nuclear
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ACT, Inc.
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09/655,815
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US
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2000-09-06
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Method for Generating
Immune-Compatible Cells and
Tissues Using Nuclear
Transfer Techniques
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ACT, Inc.
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60/152,354
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US
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1999-09-07
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Method for Generating
Immune-Compatible Cells and
Tissues Using Nuclear
Transfer Techniques
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ACT, Inc.
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60/155,107
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US
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1999-09-22
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Method for Generating
Immune-Compatible Cells and
Tissues Using Nuclear
Transfer Techniques
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ACT, Inc.
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09/797,684
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US
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2001-03-05
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Method for Generating
Immune-Compatible Cells and
Tissues Using Nuclear
Transfer Technique
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ACT, Inc.
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PA/a/2002/002444
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MX
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2000-09-06
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Method for Generating
Immune-Compatible Cells and
Tissues Using Nuclear
Transfer Techniques
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ACT, Inc.
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2001-522404
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JP
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2000-09-06
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Method for Generating
Immune-Compatible Cells and
Tissues Using Nuclear
Transfer Techniques
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ACT, Inc.
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148418
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IL
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2000-09-06
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Method for Generating
Immune-Compatible Cells and
Tissues Using Nuclear
Transfer Techniques
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ACT, Inc.
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4
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Serial No.
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Filing Date
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Patent No.
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CO
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Issue Date
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Title
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Assignee
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00964946.8
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EP
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2000-09-06
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Method for Generating
Immune-Compatible Cells and
Tissues Using Nuclear
Transfer Techniques
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ACT, Inc.
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CN 00813394.8
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CN
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2000-09-06
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Method for Generating
Immune-Compatible Cells and
Tissues Using Nuclear
Transfer Techniques
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ACT, Inc.
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2,383,776
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CA
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2000-09-06
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Method for Generating
Immune-Compatible Cells and
Tissues Using Nuclear
Transfer Techniques
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ACT, Inc.
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PI0011905-9
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BR
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2000-09-06
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Method for Generating
Immune-Compatible Cells and
Tissues Using Nuclear
Transfer Techniques
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ACT, Inc.
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2000000075755
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AU
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Method for Generating
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PCT/US00/28285
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518191
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Lineage-Defective Embryonic
Stem Cells
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ACT, Inc.
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PA/a/2002/003733
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MX
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Morula or Inner Cell Mass
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Stem Cells
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2001-532190
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JP
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Method of Differentiation of
Morula or Inner Cell Mass
Cells and Method of Making
Lineage-Defective Embryonic
Stem Cells
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5
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149043
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IL
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Method of Differentiation of
Morula or Inner Cell Mass
Cells and Method of Making
Lineage-Defective Embryonic
Stem Cells
|
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ACT, Inc.
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2000000973497
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EP
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2000-10-13
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Method of Differentiation of
Morula or Inner Cell Mass
Cells and Method of Making
Lineage-Defective Embryonic
Stem Cells
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ACT, Inc.
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00817477.6
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ACT, Inc.
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PI0014864-4
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BR
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Method of Differentiation of
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Lineage-Defective Embryonic
Stem Cells
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ACT, Inc.
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Methods of Making and
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PCT/US03/04868
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Pluripotent Cells Comprising
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NZ 521711
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PA/a/2002/010075
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2001-577429
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Pluripotent Cells Comprising
Allogenic Nucleus and
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ACT, Inc.
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152064
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Allogenic Nucleus and
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ACT, Inc.
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EP 00930525
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EP
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2001-04-16
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Pluripotent Cells Comprising
Allogenic Nucleus and
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ACT, Inc.
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CN 01808875.9
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ACT, Inc.
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PI0110072-6
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BR
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ACT, Inc.
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2001257053
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AU
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2001-04-16
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Allogenic Nucleus and
Mitochrondria
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ACT, Inc.
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PCT/US02/26945
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2002-08-26
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Screening Assays for
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ACT, Inc.
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2001-08-24
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Screening Assays for
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ACT, Inc.
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Assignee
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10/227,282
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US
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2002-08-26
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Screening Assays for
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ACT, Inc.
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PCT/US00/24393
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Telomere Restoration and
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ACT, Inc.
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60/179,486
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2000-02-01
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Telomere Restoration and
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517577
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ACT, Inc.
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PA/a/2002/002443
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2000-09-06
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Telomere Restoration and
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ACT, Inc.
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2001-521771
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2000-09-06
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Telomere Restoration and
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148457
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00961569.1
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2000-09-09
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Telomere Restoration and
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CN 00813712.9
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9
EXHIBIT B
THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR UNDER THE SECURITIES LAWS OF APPLICABLE
STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
FORM OF
CONVERTIBLE PROMISSORY NOTE
OF
PACGEN CELLCO LLC
|
|
|
$225,000.00
|
|
Made as of May 14, 2004
|
For value received,
PacGen CellCo LLC
, a California limited liability company (the Company),
with principal offices at 157 Surfview Drive, Pacific Palisades, CA 90272, hereby promise to pay to
Advanced Cell Technology, Inc., a Delaware corporation (Holder), or its registered assigns, the
principal sum of Two Hundred Twenty Five Thousand Dollars ($225,000) (the Principal Amount).
Unless earlier paid or converted, the unpaid Principal Amount shall be due and payable on June
1, 2007 (the Maturity Date). On the Maturity Date, the principal shall be (i) repaid by the
Company in cash to the Holder
or
(ii) at the Holders election, converted into shares of
Common Stock (as defined below) at the conversion rate set forth in
Subsection 2(a)
below
based on a determination of the Conversion Price as of the Maturity Date made not later than 60
days following the Maturity Date by the Companys Board of Managers, acting in good faith.
This Note is issued pursuant to that certain Exclusive License Agreement dated as of
May 14,
2004
(the License Agreement), by and among the Company and Holder, and is subject to the
provisions thereof.
The following is a statement of the rights of Holder and the conditions to which this Note is
subject, and to which Holder hereof, by the acceptance of this Note, agrees:
|
1.
|
|
Definitions.
The following definitions shall apply for all purposes of this
Note:
|
10
Common Stock
means shares of or units of or other interests (as the case may be)
of common equity of the Company or its successors or assigns
Company
means the Company as defined above and includes any corporation, which
shall succeed to or assume the obligations of the Company under this Note.
Conversion Price
means (i) in the case of a First Equity Financing, the price paid
per share for the equity securities issued in such First Equity Financing; or (ii)
in the case of an Acquisition Event (as defined below) the value of one share or
unit of Common Stock based upon the portion of the aggregate sale price or merger or
consolidation consideration which is available to the Companys common equity
holders in connection with such Acquisition Event; or (iii) on the Maturity, the
value of one share or unit of Common Stock as determined in good faith by the Board
of Managers.
First Equity Financing
means a sale or series thereof, subsequent to the date of
this Note, by the Company of equity securities in which the Company receives
aggregate cash proceeds of at least $5,000,000 (not including conversion of the this
Note) as result of investments made by one or more bona fide third party
institutional or strategic investors in exchange for the sale of shares of capital
stock of the Company.
Holder
means any person who shall at the time be the registered holder of this
Note.
Maturity Date
means the date on which this Note is either repaid or converted in
whole in accordance with the terms hereunder.
Note
means this Secured Convertible Promissory Note.
Series A Preferred Stock
means the class of equity securities issued by the
Company in the First Equity Financing.
2. Interest
.
The principal sum outstanding under this Note shall bear no interest unless not repaid at the
Maturity Date, in which event it shall thereafter bear interest at a rate equal to the lesser of
(a) ten percent (10%) per annum, or (b) the maximum non-usurious rate allowed under the laws of the
State of California.
11
3. Conversion
.
a) Automatic Conversions. This Note shall be automatically converted into that number of
shares of Series A Preferred Stock equal to the quotient of (a) the aggregate principal amount of
this Note then outstanding divided by (b) the Conversion Price, under the following conditions:
i) Upon the consummation of the First Equity
Financing;
ii) Immediately prior to the closing of any merger, sale or other consolidation of the Company
or of any sale of all or substantially all assets of the Company which occurs prior to the First
Equity Financing (an Acquisition Event). Notwithstanding the above, and only in the event that a
conversion resulting from such Acquisition Event would result in a security not traded on a
national stock exchange (including NASDAQ and NASDAQ small cap), upon written notice to the Company
not later than 5 days after the consummation of the Acquisition Event and notice of the Acquisition
Event to the Holder of the Note, the Holder may elect to receive payment in cash of the entire
outstanding principal of this Note.
b.
Conversion Mechanics
. Upon the effective date of any elective or automatic
conversion of this Note, the outstanding principal of this Note shall be deemed converted into
shares of Series A Preferred Stock or Common Stock automatically as of such effective date without
any further action by the Holder and whether or not the Note is surrendered to the Company or its
transfer agent. However, the Company shall not be obligated to issue certificates evidencing the
shares of the Series A Preferred Stock or Stock issuable upon such elective or automatic conversion
unless such Note is either delivered to the Company or its transfer agent, or the Holder notifies
the Company or its transfer agent that such Note has been lost, stolen or destroyed and executes an
agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in
connection with such Note.
4. Reservation of Stock.
If at any time the number of shares of Common Stock or other
securities issuable upon conversion of this Note shall not be sufficient to effect the conversion
of this Note, the Company will take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock or other securities issuable upon conversion of this
Note (and any securities of the Company that the Common Stock may convert into) as shall be
sufficient for such purpose.
5. Covenants of the Company.
The Company covenants to, and agrees with the Holder that prior
to the Maturity Date, so long as the Notes are outstanding, with the following:
a) Organization, Standing Power. The Company is a limited liability company duly organized,
validly existing and in good standing under the California Limited Liability Company Act (the
CLLCA). The Company has all requisite power and authority to conduct its business as now being
conducted under the CLLCA.
12
b)
Authority; Enforceability; No Conflict
.
The Company has all requisite power and
authority under the CLLCA to issue this Note and to carry out its obligations
hereunder. The issuance of this Note by the Company has been duly and validly authorized by
all requisite proceedings on the part of the Company. This Note when executed and delivered by the
Company is a valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except that (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium, rehabilitation, liquidation, conservatorship, receivership
or other similar laws now or hereafter in effect relating to creditors rights generally and (ii)
the remedy of specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which any proceeding
therefor may be brought. The execution and delivery of this Note by the Company does not, and the
consummation by the Company of the transaction contemplated hereby and thereby will not result in
or constitute: (i) a default, breach or violation of or under the limited liability agreement of
the Company, (ii) the California Limited Liability Company Act or any applicable law or (iii) any
material agreement to which the Company is a party.
6. No Rights or Liabilities as Shareholder.
This Note does not by itself entitle the Holder
to any voting rights or other rights as a shareholder of the Company. In the absence of conversion
of this Note, no provisions of this Note, and no enumeration herein of the rights or privileges of
the Holder, shall cause the Holder to be a shareholder of the Company for any purpose.
7. No Impairment.
The Company will not, by amendment of its limited liability agreement, or
through reorganization, consolidation, merger, dissolution, issue or sale of securities, sale of
assets or any other voluntary action, willfully avoid or seek to avoid the observance or
performance of any of the terms of this Note, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder under this Note against wrongful
impairment. Without limiting the generality of the foregoing, the Company will take all such action
as may be necessary or appropriate in order that the Company may duly and validly issue fully paid
and nonassessable shares of Common Stock upon the conversion of this Note.
8. Prepayment.
The Company may at any time, without penalty, prepay in whole or in part the
unpaid balance of this Note. All payments will first be applied to the repayment of accrued fees
and expenses, if any, then to accrued interest, if any, until all then outstanding accrued interest
has been paid, and then shall be applied to the repayment of principal.
9. Notice.
The Company shall give the Holder of this Note at least ten (10) days notice of
any Acquisition Event.
10. Waiver and Amendment.
Any provision of this Note may be amended, waived or modified only
upon written consent of the Company and the Holder of the Note.
11. Waiver of Notice and Fees.
The Company and all endorsers of this Note hereby waive
notice, presentment, protest and notice of dishonor.
13
12. Transfer.
This Note and any rights hereunder may not be assigned, conveyed or
transferred, in whole or in part, without the Companys prior written consent, which consent shall
not be unreasonably withheld. The rights and obligations of the Company and the Holder under this
Note and the License Agreement shall be binding upon and benefit their respective permitted
successors, assigns, heirs, administrators and transferees. However, this Note and the loans
evidenced hereby may be transferred in whole or in part only by registration of such transfer on
the register maintained for such purpose by or on behalf of the Company.
13. Governing Law.
This Note shall be governed by and construed under the internal laws of
the State of Delaware, without reference to principles of conflict of laws or choice of laws.
14. Securities Law Representations.
This Note is issued to the Holder in reliance upon the
Holders representation to the Company, which by such Holders execution of this Note Holder hereby
confirms, that the Note will be acquired for investment for such Holders own account, not as a
nominee or agent, and not with a view to the sale or distribution of any part thereof, and that
such Holder has no present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Note, such Holder further represents that such Holder has
no contract, undertaking, agreement or arrangement with any person to sell, transfer, of grant
participations to such person or to any third person, with respect to this Note.
15. Headings.
The headings and captions used in this Note are used only for convenience and
are not to be considered in construing or interpreting this Note. All references in this Note to
sections and exhibits shall, unless otherwise provided, refer to sections hereof and exhibits
attached hereto, all of which exhibits are incorporated herein by this reference.
16. Severability.
If one or more provisions of this Note are held to be unenforceable under
applicable law, such provision(s) shall be excluded from this Note and the balance of the Note
shall be interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
17. Entire Agreement; Successors and Assigns.
This Note constitutes the entire contract
between the Company and the Holder relative to the subject matter hereof. Any previous agreement
between the Company and the Holder is superseded by this Agreement. Subject to the exceptions
specifically set forth in this Note, the terms and conditions of this Note shall inure to the
benefit of and be binding upon the respective executors, administrators, heirs, successors and
assigns of the Parties.
[Remainder of this page intentionally left blank]
14
IN WITNESS WHEREOF
, the Company has caused this Note to be signed in its name as of the date
first above written.
PACGEN CELLCO LLC
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By:
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/S/ KENNETH ALDRICH
Name:
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Title:
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ACCEPTED AND AGREED TO:
ADVANCED CELL TECHNOLOGY, INC.
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By:
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/S/ MICHAEL D. WEST
Name:
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Title:
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EXHIBIT C
(Reference Section 12.3)
None
2
EXHIBIT D
(Reference Section 12.7)
None
3
Exhibit 10.14
EXCLUSIVE LICENSE AGREEMENT (UMass IP)
This Exclusive License Agreement (Agreement) is made and entered into this 14
th
day of May, 2004 (the Effective Date), by and between Advanced Cell Technology, Inc., a Delaware
corporation with offices located at One Innovation Drive, Worcester, Massachusetts 01605
(LICENSOR), and PacGen Cellco, LLC, a California limited liability company with offices located
at 157 Surfview Drive, Pacific Palisades, CA 90272 (LICENSEE) (LICENSOR and LICENSEE sometimes
hereinafter referred to individually as a Party and collectively as the Parties).
WITNESSETH
WHEREAS, LICENSOR owns or has licensed with sublicenseable interest the PATENT RIGHTS (as
defined below) and KNOW-HOW (as defined below); and
WHEREAS, LICENSEE desires to obtain an exclusive worldwide license under LICENSORs rights in
such technology in the FIELD; and
WHEREAS, LICENSOR is willing to grant such a license to LICENSEE upon the terms and conditions
set forth below; and
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein,
the Parties hereto agree as follows:
ARTICLE 1 DEFINITIONS
For the purposes of this Agreement, the following words and phrases shall have the following
meanings:
1.1 ACT ANIMAL CELL LINES shall mean cell lines of non-human animal origin developed by ACT.
These cell lines shall include but not be limited to murine and primate embryonic stem cells
derived through parthenogenesis, nuclear transfer or otherwise isolated from fertilized blastocysts
including the relevant information LICENSOR possesses associated with these cells, including but
not limited to information on the cells karyotype, gene expression and growth characteristics.
1.2 AFFILIATE shall mean, with respect to any PERSON, any other PERSON which directly or
indirectly controls, is controlled by, or is under common control with, such PERSON. A PERSON
shall be regarded as in control of another PERSON if it owns, or directly or indirectly controls,
at least fifty percent (50%) of the voting stock or other ownership interest of the other PERSON,
or if it directly or indirectly possesses the power to direct or cause the direction of the
management and policies of the other PERSON by any means whatsoever.
1.3 FIELD shall mean (1) the research, development, manufacture and selling of
human and non-human animal cells and ACT ANIMAL CELL LINES for commercial research use,
including small molecule and other drug testing and basic research, (2) the manufacture and selling
of human cells for therapeutic and diagnostic use in the treatment of human (a) diabetes and (b)
liver diseases, and (3) the use of ACT ANIMAL CELL LINES in the process of manufacturing and
selling human cells for therapeutic and diagnostic use in the treatment of human (a) diabetes and
(b) liver diseases but where the final marketed product does not include ACT ANIMAL CELL LINES
(i.e. does not include the field of xenotransplantation); but FIELD shall exclude applications
involving the use of cells in the treatment of tumors where the primary use of the cells is the
destruction or reduction of tumors and does not involve regeneration of tissue or organ function.
1.4 KNOW-HOW means all compositions of matter, techniques and data and other know-how and
technical information including inventions (whether or not patentable), improvements and
developments, practices, methods, concepts, trade secrets, documents, computer data, computer code,
apparatus, clinical and regulatory strategies, test data, analytical and quality control data,
formulation, manufacturing, patent data or descriptions, development information, drawings,
specifications, designs, plans, proposals and technical data and manuals and all other proprietary
information that is owned or controlled by LICENSOR as of the Effective Date that relates to
cloning technology or to any of the subject matter described in or claimed by the PATENT RIGHTS and
is relevant to the FIELD. By way of illustration, but not in limitation, KNOW-HOW shall include
commercial rights to any existing potential research products, including reagents, developed by
LICENSOR in the course of its in-house research. An example of this is the proprietary culture
medium developed by LICENSOR in the course of the development of LICENSORs proprietary ooplasmic
transfer technology.
1.5 LICENSED PROCESS means any process or method, the research, development, use, practice,
sale, offer for sale, import or export of which cannot be performed without (i) infringing, in
whole or in part, one or more VALID CLAIMS of the PATENT RIGHTS, or (ii) using or incorporating
some portion of the LICENSED TECHNOLOGY.
1.6 LICENSED PRODUCT means any product that cannot be developed, manufactured, used,
imported, exported, or sold without (i) infringing, in whole or in part, one or more VALID CLAIMS
of the PATENT RIGHTS, or (ii) using or incorporating some portion of the LICENSED TECHNOLOGY.
1.7 LICENSED SERVICES means any service, the developing, using, performing, selling,
offering for sale, importing or exporting of which by LICENSEE would, but for the licenses granted
to LICENSEE in
Article 2
of this Agreement, infringe a VALID CLAIM of the PATENT RIGHTS in
the country in which any such service is so developed, used, performed, sold, offered for sale,
imported or exported by LICENSEE.
2
1.8 LICENSED TECHNOLOGY shall mean, collectively, the licensed PATENT RIGHTS and licensed
KNOW-HOW.
1.9 NET SALES shall mean the amount billed or invoiced by LICENSEE for the sale or provision
of LICENSED PRODUCTS or LICENSED PROCESSES or LICENSED SERVICES less:
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a)
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discounts, credits, allowances and rebates allowed;
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b)
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sales, tariff duties, use and other taxes or governmental
charges directly imposed with reference to particular sales;
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c)
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special packaging, transportation and insurance costs incurred
and directly related to the sale of LICENSED PRODUCTS;
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d)
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amounts allowed or credited on returns; and
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e)
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uncollected accounts.
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1.10 NEURONAL & HEART FIELD OPTION means an option described in
Section 15.18
hereof for LICENSEE to negotiate terms for license to the LICENSED TECHNOLOGY for the field of
diseases related to heart or neurodegenerative diseases
1.11 PATENT RIGHTS means (a) the patent applications and patents identified on
Exhibit
A
attached hereto and any patents that issue on said applications and (b) any divisions,
continuations, extensions, reissues or reexaminations of any of the patents identified in the
foregoing clause (a). The Parties agree that
Exhibit A
may be revised from time to time
after the Effective Date to reflect changes thereto that result from the course of patent
prosecution.
1.12 PERSON shall mean an individual, corporation, partnership, limited liability company,
trust, business trust, association, joint stock company, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization, governmental authority or any other form of entity not
specifically listed herein.
1.13 TERM has the meaning set forth in
Section 9.1
.
1.14 TERRITORY means the entire world.
1.15 1996 UMASS LICENSE means the Exclusive License Agreement between LICENSOR and the
University of Massachusetts (the University), dated April 16, 1996, as amended by the Amendment
to Exclusive License Agreement dated September 1, 1999, the Second Amendment to Exclusive License
Agreement dated May 31, 2000, and the Third Amendment to Exclusive License Agreement dated
September 19, 2002.
1.16 2003 UMASS LICENSE means the Exclusive License Agreement between
LICENSOR and the University dated April 1, 2003.
3
1.17 UMASS LICENSES means the 1996 UMASS LICENSE and the 2003 UMASS LICENSE.
1.18 VALID CLAIM means a claim of any issued and unexpired patent within the PATENT RIGHTS
which has not lapsed, become abandoned or been held permanently revoked, invalid, or unenforceable
by a decision of a court or administrative or government authority or agency of competent
jurisdiction from which no appeal can be or has been taken within the time allowed for such appeal,
or a claim of a pending patent application included within the Licensed PATENT RIGHTS, which claim
was filed in good faith and has not been abandoned or finally disallowed without the possibility of
appeal or refiling of such application.
Additional terms may be defined throughout this Agreement.
ARTICLE 2 GRANT
2.1 LICENSOR hereby grants to LICENSEE, and LICENSEE hereby accepts, subject to the terms and
conditions hereof:
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a)
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A royalty bearing, exclusive license in the TERRITORY in the
FIELD and under the LICENSED TECHNOLOGY to (a) research, develop, make, have
made, use, sell, offer for sale, import and export LICENSED PRODUCTS, (b)
research, develop, use, practice, sell, offer for sale, import and export
LICENSED PROCESSES and (c) develop, use, perform, sell, offer for sale, import
and export LICENSED SERVICES. By way of example, but not in limitation,
LICENSEE shall have the right to use LICENSED TECHNOLOGY within the FIELD for
the following purposes: to produce mammalian embryonic stem (ES) cells and to
produce from those mammalian embryonic cells, differentiated cells for human
therapeutic purposes or for commercial research purposes, including drug
screening assays, and to produce pluripotent cells including ES cells,
differentiated human cells for human diagnostic and therapeutic purposes and/or
for commercial research purposes, including drug screening assays.
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b)
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A royalty bearing, twelve (12) month exclusive license in the
TERRITORY in the FIELD to expand in culture, prepare for sale, sell, offer for
sale, import and export ACT ANIMAL CELL LINES. The twelve-month term of
exclusivity granted to LICENSEE shall begin upon the date of the first sale of
the ACT ANIMAL CELL LINES. LICENSOR and LICENSEE agree that after the
twelve-month period of exclusivity has passed, LICENSOR AND LICENSEE shall
negotiate in good faith to establish reasonable minimum sales goals over
reasonable evaluation periods in order to maintain
LICENSEES exclusive rights hereunder. If LICENSOR fails to meet the minimum
sales goals then LICENSEEs exclusive rights shall revert to nonexclusive
rights.
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4
2.2 LICENSEE shall have the right to sublicense the rights granted in
Section 2.1
to
third parties in connection with contracting with such third parties to (a) provide LICENSED
PRODUCT marketing and distribution services to LICENSEE on behalf of LICENSEE, (b) provide LICENSED
SERVICES marketing services to LICENSEE on behalf of LICENSEE or (c) manufacture for LICENSEE
LICENSED PRODUCTS for sale by LICENSEE or a third party pursuant to the foregoing clause (a).
2.3 LICENSEE shall have the right to grant sublicenses beyond the scope of those described in
Section 2.2 (a), (b), and (c)
without the express prior written approval of LICENSOR,
however, LICENSOR shall be given at least 30 days prior written notice of an intent to sublicense
and at least 30 days to comment on the text of the proposed sublicense agreement. In any case,
such sublicenses shall meet the following conditions:
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a)
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the sublicensee shall not have the right to grant further
sublicenses;
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b)
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the sublicense shall not be assignable without prior written
approval by LICENSEE and LICENSOR; and
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c)
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the sublicense shall include fair consideration consistent with
industry norms for upfront fees and royalties.
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2.4 Within thirty (30) business days of the Effective Date, LICENSOR shall provide and
transfer to LICENSEE, in writing where practicable, all information and data relating to the
LICENSED TECHNOLOGY and the ACT ANIMAL CELL LINES as may be reasonably necessary and requested to
allow LICENSEE to exploit the licenses granted hereunder. LICENSOR shall work with LICENSEE in good
faith to provide the necessary training for up to a total of 60 days, at LICENSORs facilities,
necessary to allow LICENSEE to utilize the LICENSED TECHNOLOGY and expand the ACT ANIMAL CELL
LINES. LICENSEE shall pay to LICENSOR all reasonable and customary expenses other than normal
operating expenses incurred by LICENSOR in providing such training and technology transfer,
including but not limited to fees incurred to request documents from patent counsel or the United
States Patent and Trademark Office.
2.5 LICENSEE acknowledges that a portion of the PATENT RIGHTS licensed to LICENSEE hereunder
is owned by the University and is licensed to LICENSOR under the UMASS LICENSES. In the event the
UMASS LICENSES expire or are terminated for any reason pursuant to the provisions of the UMASS
LICENSES or otherwise, the terms of the letter agreement attached hereto as
Exhibit B
between LICENSOR, LICENSEE and the University shall apply to this Agreement.
5
2.6 Notwithstanding anything stated herein, nothing in this Agreement shall be construed as
preventing LICENSOR from practicing the LICENSED TECHNOLOGY within the
FIELD for non-commercial in-house research purposes. In the event that LICENSOR requests that
LICENSEE deliver to LICENSOR the LICENSED TECHNOLOGY or LICENSED PRODUCTS in the FIELD for research
purposes, LICENSEE shall make the LICENSED TECHNOLOGY or LICENSED PRODUCTS available to LICENSOR on
commercially reasonable terms. In the event LICENSOR requires the use of collaborators in its
research, LICENSEE shall also make such LICENSED TECHNOLOGY OR LICENSED PRODUCTS available to such
collaborator if LICENSEE, in its sole but reasonable discretion is satisfied that providing such
items to a collaborator will not endanger its exclusive commercial control of such items or result
in their use by a competitor.
ARTICLE 3 LICENSEE OBLIGATIONS
RELATING TO COMMERCIALIZATION
3.1 LICENSEE shall use its commercially reasonable and diligent efforts to bring one or more
LICENSED PRODUCTS, LICENSED PROCESSES or LICENSED SERVICES to market through an active and diligent
program for exploitation of the PATENT RIGHTS and to continue active, diligent marketing efforts
for one or more LICENSED PRODUCTS, LICENSED PROCESSES or LICENSED SERVICES throughout the TERM of
this Agreement.
3.2 LICENSEE shall maintain minimum R&D requirements to maintain exclusivity under this
Agreement
.
Commencing 30 months following the Effective Date hereof and until the launch of the
first human cell-based therapeutic product, LICENSEE shall be required to invest a minimum of
$400,000 per year in research and development of the FIELD covered by this Agreement or other
agreements with LICENSOR affecting the FIELD in order to maintain the exclusive license rights
granted hereunder. In the event LICENSEE fails to perform this minimum expenditure in R&D in the
FIELD during the course of a calendar year during the above-mentioned period, the license under
this Agreement shall become nonexclusive and such minimum expenditure for research and development
shall be reduced to $200,000 per year.
3.3 LICENSEE shall maintain complete and accurate records of LICENSED PRODUCTS, LICENSED
PROCESSES, LICENSED SERVICES and ACT ANIMAL CELL LINES that are made, used, sold or performed by
LICENSEE under this Agreement. Not later than April 1
st
of each year following the
Effective Date, LICENSEE shall furnish LICENSOR with a summary report on the progress of its
efforts during the prior year to develop and commercialize LICENSED PRODUCTS, LICENSED PROCESSES,
LICENSED SERVICES or ACT ANIMAL CELL LINES, including without limitation research and development
efforts, efforts to obtain regulatory approval, marketing efforts (including LICENSED PRODUCTS,
LICENSED PROCESSES, LICENSED SERVICES and ACT ANIMAL CELL LINES made, used, sold or performed) and
sales figures, provided that such reports shall be deemed Confidential Information (as defined in
Section 10.1
herein) subject to the provisions of
Article 10
of this Agreement.
6
3.4 In the event that LICENSOR determines that LICENSEE has not fulfilled its obligations
under this
Article 3
, LICENSOR shall furnish LICENSEE with written notice of such
determination. Within thirty (30) days after receipt of such notice, LICENSEE shall (i) fulfill
the relevant obligation, (ii) negotiate with LICENSOR a mutually acceptable schedule of revised
obligations, or (3) if LICENSEE disputes the alleged failure to fulfill its obligations, it shall
promptly seek appropriate judicial determination of the matter and diligently pursue such action to
a final determination with all appropriate speed; failing which, LICENSOR shall have the right,
immediately upon written notice to LICENSEE, to terminate this Agreement as provided in
Section
9.2
hereof.
ARTICLE 4 CONSIDERATION
4.1
Initial Payment
. In partial consideration of the license granted to LICENSEE from
LICENSOR in
Article 2
of this Agreement, LICENSEE agrees to pay as a License Fee to
LICENSOR $150,000 in a convertible promissory note in the form attached hereto as Exhibit C.
4.2
Royalties
.
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a)
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In partial consideration of the license in the FIELD granted by LICENSOR to
LICENSEE in
Article 2
of this Agreement, LICENSEE agrees to pay to LICENSOR an
earned royalty equal to the following percentages of the NET SALES in the FIELD made,
used, sold, imported, exported or performed by LICENSEE in the TERRITORY.
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(i) 6% on therapeutics,
(ii) 3% on diagnostics, and
(iii) 10% on commercial research use of LICENSED
TECHNOLOGY in all FIELDS except (iv) below and
(iv) 12% on ACT ANIMAL CELL LINES
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b)
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No multiple royalties shall be payable because any LICENSED PRODUCT, LICENSED
PROCESS or LICENSED SERVICE in the FIELD, its manufacture, use, lease, sale or
performance are or shall be covered by more than one patent or patent application
within the PATENT RIGHTS.
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c)
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The obligation of LICENSEE to pay royalties or Sublicense Income (as defined in
Section 4.5
herein) hereunder shall terminate for each country in the TERRITORY
concurrently with the expiration or termination of the last applicable VALID CLAIM
within the PATENT RIGHTS in such country in which the LICENSED PRODUCT, LICENSED
PROCESS or LICENSED SERVICE is, (as applicable), used, practiced, performed, sold,
offered for sale, imported, exported or manufactured.
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7
4.3
Minimum Royalties
.
Within 2 business days from the Effective Date hereof,
LICENSEE shall pay to LICENSOR a minimum royalty fee of $100,000 in cash or by wire transfer. In
addition, commencing 12 months following the Effective Date, LICENSEE shall pay to LICENSOR
additional minimum royalty fees equal to the difference between total Royalties actually paid in
the preceding 12 months and the following minimum amounts:
(i) At 12 months, $10,000
(ii) At 24 months, $20,000
(iii) At 36 months, $30,000
(iv) Annually thereafter, $40,000.
4.4
Stacking Royalties
. With the exception of minimum royalties due to LICENSOR, if
LICENSEE, its Affiliates or sublicensees are required to pay royalties relating to any additional
intellectual property from LICENSOR in order to exercise its rights hereunder to make, have made,
use or sell any Product, then LICENSEE shall have the right to credit a pro-rated portion of such
royalty payments against the royalties owing to LICENSOR under
Section 4.2
of this
Agreement with respect to sales of such Product such that in no event shall the total of royalty
payments that are due to LICENSOR in such royalty period exceed the royalty payments payable under
Subsection 4.2(a)
above. Prorations shall be made in the same manner as specified for
combination products under
Section 4.9
below.
4.5
Sublicense Income
. LICENSEE shall pay to LICENSOR a total of Thirty Three percent
(33%) of all Sublicense Income. Sublicense Income means consideration that LICENSEE receives for
the sublicense of rights that are granted LICENSEE under
Article 2
, including without
limitation license fees, milestone payments, equity payments, up front fees, success fees, and
license maintenance fees.
4.6
Stacking Sublicense Income.
The fees payable on Sublicense Income under
Section 4.5
above shall be in addition to any royalties specified elsewhere in this
Article 4
, but if LICENSEE is obligated to pay or has paid to LICENSOR similar fees on
Sublicense Income under another license agreement with respect to the FIELD, then LICENSEE shall
have the right to pro-rate such fees against the fees owing to LICENSOR under this Agreement such
that in no event shall the total of fees due from LICENSEE, as a result of Sublicense Income, to
LICENSOR exceed the payments payable under
Section 4.5
. Pro-rating of payments shall be
made in the ratio of the minimum royalties payable under this Agreement to the minimum royalties
payable under any other agreement covered hereby under which fees on Sublicense Income are owed.
4.7
Milestone Payments.
Upon the launch of a commercial therapeutic product based on
the LICENSED TECHNOLOGY, LICENSEE shall pay additional Milestone Payments totaling $1,750,000 on
the following schedule:
$250,000 within 30 days following the launch of the first commercial Product;
$500,000 upon reaching $5,000,000 in sales from one or both Product Fields;
$1,000,000 upon reaching $10,000,000 in sales from one or both Product Fields.
8
4.8
Stacking Milestone Payments.
The milestone payments shall be in addition to any
royalties specified elsewhere in this
Article 4
, but shall not apply to diagnostic,
commercial research, or any other non-therapeutic uses. If LICENSEE is obligated to pay or has
paid to LICENSOR similar Milestone Payments under another license agreement with respect to the
FIELD, then LICENSEE shall have the right to pro-rate such Milestone Payments against the Milestone
Payments owing to LICENSOR under this Agreement such that in no event shall the total of all
Milestone Payments due from LICENSEE to LICENSOR exceed the amounts stated in
Section 4.7
.
Pro-rating of payments shall be made in the ratio of the minimum royalties payable under this
Agreement to the minimum royalties payable under any other agreement covered hereby under which
Milestone Payments are owed.
4.9
Combination Product
. In the event a Product is sold in a combination product with
other devices or biologically active components, NET SALES, for purposes of royalty payments on
the combination product, shall be calculated by multiplying the NET SALES of that combination by
the fraction A/B, where A is the gross selling price of the Product sold separately and B is the
gross selling price of the combination product. In the event that no such separate sales are made
by LICENSEE, its Affiliates or permitted sublicensees, NET SALES for royalty determination shall be
calculated by multiplying NET SALES of the combination by the fraction C/(C+D), where C is the
fully allocated cost of the Product and D is the fully allocated cost of such other biologically
active components.
4.10
Payments in U.S. Currency
. All payments due under this Agreement shall be paid
in cash to LICENSOR and all payments shall be made in United States currency. Conversion of
foreign currency to U.S. dollars shall be made at the conversion rate reported in
The Wall
Street Journal
on the last working day of the calendar quarter to which the payment relates.
4.11
Taxes
. Subject to the limits of
Section 1.9
hereof, all payments due
hereunder shall be paid in full without deduction of taxes or other fees which may be imposed by
any government and which shall be paid by LICENSEE; provided, however, that any withholding tax
required to be withheld by LICENSEE on royalty payments under the laws of any country in the
TERRITORY on behalf of LICENSOR will be timely paid by LICENSEE to the appropriate governmental
authority, and LICENSEE will furnish LICENSOR with proof of payment of such tax. Any such tax
actually withheld may be deducted from royalty payments due to LICENSOR under this Agreement. If
at any time legal restrictions prevent the prompt remittance of part or all of any payments owed by
LICENSEE to LICENSOR hereunder with respect to any country in the TERRITORY, payment shall be made
through any lawful means or methods that may be available, and as LICENSEE shall reasonably
determine is appropriate.
4.12
Overdue Payments
. Any payments to be made by LICENSEE hereunder that are not
paid on or before the date such payments are due under this Agreement shall bear interest, to the
extent permitted by law, at two percentage points above the Prime Rate of interest as reported in
The Wall Street Journal
on the date payment is due, with interest calculated based on
the number of days that payment is delinquent.
9
ARTICLE 5 REPORTS AND RECORDS
5.1 LICENSEE shall keep full, true and accurate books of account containing all particulars
that may be necessary for the purpose of showing the amounts payable to LICENSOR hereunder and to
enable the reports provided under
Section 5.2
to be verified. Said books of account shall
be kept at LICENSEEs principal place of business. Said books and the supporting data shall be
open upon reasonable advance notice (but not less than five (5) business days notice and no more
frequently than once per calendar year) for three (3) years following the end of the calendar year
to which they pertain, to the inspection of LICENSOR or its agents for the purpose of verifying
LICENSEEs royalty and Sublicense Income statement or compliance in other respects with this
Agreement. If any such audit determines an error in any royalty or Sublicense Income payment,
LICENSEE shall pay to LICENSOR, within thirty (30) days of the discovery of the error, (a) all
deficiencies in royalty or Sublicense Income payments, (b) interest on such deficiencies from the
date such royalty or Sublicense Income payment was due until the date paid at the rate set forth in
Section 4.12
above, and (c) if such error is in excess of five percent (5%) of any royalty
or Sublicense Income payment, the cost of the audit. In all other cases, the costs of the audit
shall be paid for by LICENSOR. All information disclosed pursuant to an audit shall be treated as
Confidential Information (as defined in
Section 10.1
herein) and shall not be disclosed to
any third party or used for any purpose other than to determine the correctness of LICENSEEs
royalty and Sublicense Income statement or compliance in other respects with this Agreement.
5.2 After the first commercial sale of a LICENSED PRODUCT, LICENSED PROCESS, LICENSED
SERVICES, or ACT ANIMAL CELL LINES, LICENSEE, within forty-five (45) days after March 31, June 30,
September 30 and December 31 of each year, shall deliver to LICENSOR a true and accurate report,
giving such particulars of the business conducted by LICENSEE and its permitted sublicensees during
the preceding three-month period under this Agreement as shall be pertinent to a royalty and
Sublicense Income accounting hereunder. Without limiting the generality of the foregoing, these
reports shall include at least the following:
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a)
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the number of LICENSED PRODUCTS and ACT ANIMAL CELL LINES
manufactured and sold by LICENSEE and all sublicensees;
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b)
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total billings and the amounts actually received for LICENSED
PRODUCTS and ACT ANIMAL CELL LINES sold by LICENSEE and all sublicensees;
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c)
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an accounting for all LICENSED PROCESSES or LICENSED SERVICES
used in the provision of services to others or sold by LICENSEE;
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d)
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the deductions applicable as provided in
Section 1.9
;
and
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e)
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the names and addresses of all parties making LICENSED PRODUCTS
on
behalf of LICENSEE.
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10
The reports shall provide the above-identified information by product, process, or service
type.
5.3 With each such report submitted, LICENSEE shall pay to LICENSOR the royalties and
Sublicense Income due and payable for such three-month period. If no royalties or Sublicense
Income shall be due, LICENSEE shall so report.
ARTICLE 6 PATENT PROSECUTION
6.1 LICENSOR shall be solely responsible for the continued prosecution of pending patent
applications included in the PATENT RIGHTS and the issuance of such applications after allowance.
The prosecution, filing and maintenance of all patents and applications shall be the primary
responsibility of LICENSOR. LICENSEE agrees to cooperate fully with LICENSOR, as requested by
LICENSOR and at LICENSORs expense, in the preparation, filing, prosecution, and maintenance of the
patent applications and patents included in the PATENT RIGHTS. With respect to Australia, Canada,
Europe, Mexico, Japan and Israel, LICENSEE shall pay to LICENSOR on or before the due date one
half (1/2) of any future annuity and maintenance fees with respect to UMA 99-19, provided LICENSOR
notifies LICENSEE of the amount of such payments due at least 30 days prior to their due date.
6.2 Licensors will not allow any patent or patent application within the PATENT RIGHTS to
become expired or abandoned without giving (a) prior written notice to LICENSOR of such expiration
or abandonment, and (b) LICENSOR the right to assume responsibility for such patent or patent
application subject to the rights of the University under the UMASS LICENSES and the rights of
pre-existing licensees under their respective licenses. LICENSOR will then assign such patent or
patent application to LICENSEE and LICENSEE will thereafter assume control thereof and all expenses
related thereto.
ARTICLE 7 PROSECUTION OF INFRINGERS
AND DEFENSE OF PATENT RIGHTS
The Parties agree to notify each other in writing of any actual or threatened infringement by
a third party of the PATENT RIGHTS or of any claim of invalidity, unenforceability, or
non-infringement of the PATENT RIGHTS. LICENSOR shall have the sole responsibility to prosecute or
defend such claims, as applicable. LICENSEE shall, if requested, provide reasonable assistance to
LICENSOR in connection with the prosecution or defense of such claims.
11
ARTICLE 8 INDEMNIFICATION
8.1
Indemnification of the LICENSOR and the University
. LICENSEE shall be
responsible for and shall indemnify, defend, and hold harmless LICENSOR and the University,
and their agents, attorneys, representatives, third party beneficiaries and their respective heirs,
executors, successors and assigns (collectively, the LICENSOR Indemnitees) from and against all
liabilities of any kind whatsoever, including legal expenses and reasonable attorneys fees,
incurred or imposed upon any of the LICENSOR Indemnitees in connection with or as a consequence of
any claims (including third party claims), suits, actions, demands or judgments arising out of the
death of or injury to any person or persons or out of any damage to property resulting from the
development, production, manufacture, sale, use, performance, rendering, consumption or
advertisement of the LICENSED PRODUCT(s) and/or LICENSED PROCESS(es), LICENSED SERVICE(s), and/or
ACT ANIMAL CELL LINES or arising from any obligation, act or omission performed or failed to be
performed hereunder, or from a breach of any representation or warranty of LICENSEE hereunder
unless and to the extent that such liability arises solely from any action of LICENSOR or any of
its Affiliates. If the exercise of LICENSEEs rights under this Agreement in any country in the
TERRITORY is the subject of a bona fide claim by a third party, filed in a court of competent
jurisdiction after the date hereof, that the exercise of such rights infringes or conflicts with
any intellectual property rights of such third party (a Third Party Infringement Claim), then
LICENSEE shall not have any of the rights granted herein in such country and shall have no
obligation to pay LICENSOR any further payments under
Article 4
of this Agreement with
respect to any country of the TERRITORY until such claim is resolved by proper adjudication or
settlement permitting LICENSEE to exercise LICENSEEs rights under this Agreement in the applicable
country of the TERRITORY. Notwithstanding anything herein to the contrary, LICENSOR covenants that
it will not (a) assert or bring any suit, action, claim or other proceeding against LICENSEE based
on, in whole or in part, LICENSEEs exercise of LICENSEEs rights, in accordance with the terms and
conditions of this Agreement, with respect to the LICENSED TECHNOLOGY and/or (b) join in any third
party suit, action, claim or other proceeding against LICENSEE based on, in whole or in part, any
intellectual property rights (including without limitation, patent rights and/or know how) owned by
the applicable third party, so long as LICENSEE is not in violation of this Agreement.
8.2
Indemnification of the LICENSEE
. LICENSOR shall be responsible for and shall
indemnify, defend, and hold harmless LICENSEE and the officers, directors, shareholders, employees,
agents, attorneys, representatives, and Affiliates, and their respective heirs, executors,
successors and assigns. (the LICENSEE Indemnitees) from and against all liabilities of any kind
whatsoever, including legal expenses and reasonable attorneys fees, incurred or imposed upon any
of the LICENSEE Indemnitees in connection with or as a consequence of any claims (including third
party claims), suits, actions, demands or judgments arising out of, directly or indirectly, or in
any way relating to: (a) any breach by LICENSOR of any representation, warranty, covenant or
obligation set forth in this Agreement; or (b) arising from LICENSORs ownership, management,
control, use or disposition of the LICENSED TECHNOLOGY or ACT ANIMAL CELL LINES unless and to the
extent that such liability arises solely from any action of LICENSEE or any of its Affiliates after
the Effective Date.
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8.3
Demands for Third Party Claims
. Each indemnified Party hereunder (an Indemnified
Party) agrees that promptly upon its discovery of facts giving rise to a claim for indemnity under
this Agreement, including the receipt of any demand, assertion, claim, action or proceeding,
judicial or otherwise, by any third party (being referred to herein as a Claim), with respect to
any matter as to which it claims to be entitled to indemnity under the provisions of this
Agreement, it will give prompt notice thereof in writing to the Indemnifying Party (the
Indemnifying Party), together with a statement of such information respecting any of the
foregoing as it shall have. Such notice shall include a formal demand for indemnification under
this Agreement.
8.4
Right to Contest and Defend
. The Indemnifying Party shall contest and defend, at
its sole cost and expense, by all appropriate legal proceedings any Claim with respect to which it
is called upon to indemnify the Indemnified Party under the provisions of this Agreement; provided,
that notice of the intention to so contest shall be delivered by the Indemnifying Party to the
Indemnified Party as soon as reasonably possible after (but no later than twenty 20 days from) the
date of receipt by the Indemnifying Party of notice by the Indemnified Party of the assertion of
the Claim. Any such contest may be conducted in the name and on behalf of the Indemnifying Party or
the Indemnified Party as may be appropriate. Such contest shall be conducted by reputable counsel
employed by the Indemnifying Party, but the Indemnified Party shall have the right but not the
obligation to participate in such proceedings and to be represented by counsel of its own choosing
at its sole cost and expense. The Indemnifying Party shall have full authority to determine all
action to be taken with respect thereto; provided, however, that the Indemnifying Party will not
have the authority to subject the Indemnified Party to any obligation whatsoever (whether financial
or the imposition of equitable or injunctive relief), other than the performance of purely
ministerial tasks or obligations not involving material expense (for which the Indemnified Party
shall be reimbursed). If the Indemnifying Party does not elect to contest any such Claim, the
Indemnifying Party shall be bound by the result obtained with respect thereto by the Indemnified
Party.
8.5
Cooperation
. If requested by the Indemnifying Party, the Indemnified Party agrees
to cooperate with the Indemnifying Party and its counsel in contesting any Claim that the
Indemnifying Party elects to contest or, if appropriate, in making any counterclaim against the
PERSON asserting the Claim, or any cross-complaint against any PERSON, and the Indemnifying Party
will reimburse the Indemnified Party for any expenses incurred by it in so cooperating.
8.6
Right to Participate
. The Indemnified Party agrees to afford the Indemnifying
Party and its counsel the opportunity to be present at, and to participate in, conferences with any
PERSON, including governmental authorities, asserting any Claim against the Indemnified Party or
conferences with representatives of or counsel for such PERSON.
8.7
Payment of Damages
. The Indemnifying Party shall pay to the Indemnified Party in
immediately available funds any amounts to which the Indemnified Party may become entitled by
reason of the provisions of this Agreement, such payment to be made within five (5) days
after any such amounts are finally determined either by mutual agreement of the Parties hereto
or pursuant to the final non-appealable judgment of a court of competent jurisdiction.
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8.8
Independent Indemnities
. The Parties acknowledge and agree that each of the
indemnities under
Sections 8.1 and 8.2
may be relied upon independently.
8.9
Insurance.
LICENSEE and LICENSOR mutually agree to maintain insurance or
self-insurance that is reasonably adequate to fulfill any potential obligation to the Indemnified
Parties. LICENSEE and LICENSOR shall continue to maintain such insurance or self-insurance during
the term of this Agreement and after the expiration or termination of this Agreement for a period
of five (5) years. Each Party shall provide to the other Party, upon request, proof of any such
insurance policy maintained by such Party.
ARTICLE 9 TERMINATION
9.1 The term of this Agreement (TERM) shall commence on the Effective Date and continue
until the expiration of the last VALID CLAIM within the PATENT RIGHTS to expire , unless sooner
terminated as provided in this
Article 9
; provided that LICENSEEs obligation to pay
royalties or Sublicense Income on NET SALES in any country will terminate pursuant to
Subsection 4.2(c)
(subject to LICENSEEs obligations under
Section 9.4
herein).
9.2 If either Party commits a material breach of a material term of this Agreement (including
any failure to make any payment due under this Agreement), the non-breaching Party shall have the
right to terminate this Agreement effective on thirty (30) days prior written notice to the Party
in breach, unless such breach is cured prior to the expiration of such thirty (30) day period.
9.3 LICENSEE shall have the right to terminate this Agreement at any time on thirty (30) days
prior notice to LICENSOR, and upon payment of all amounts due LICENSOR through the effective date
of the termination.
9.4. Notwithstanding anything herein to the contrary, in the event that this Agreement is
terminated by LICENSOR pursuant to
Section 9.2
or by LICENSEE pursuant to
Sections 9.2
or 9.3
, LICENSEE shall retain a license to rights granted in
Article 2
to the extent
reasonably necessary to sell any LICENSED PRODUCTS existing or under production and to perform
LICENSED PROCESSES or LICENSED SERVICES related to such LICENSED PRODUCTS or that are in process,
subject to the terms of this Agreement (including without limitation the obligation to pay
royalties under
Article 4
), provided that LICENSEE shall complete and sell all such
work-in-progress and inventory within six (6) months after the effective date of termination.
9.5 Upon the expiration of the TERM of this Agreement LICENSEE shall have a fully paid-up,
non-exclusive, irrevocable, royalty free license under the rights granted in
Article 2
.
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9.6 Nothing herein shall be construed to release either Party from any obligation that accrued
prior to expiration or any termination of this Agreement. The following provisions shall survive
any termination or any expiration of the TERM of this Agreement: this
Section 9.6 and
Articles/Sections 1, 4, 5, 8, 9.4, 10, 11, 12, 13, 15.1, 15.2, 15.5, 15.6, 15.7, 15.8, 15.10, 15.15
and 15.16
, and any other provision which by its nature is intended to survive any such
termination.
ARTICLE 10 CONFIDENTIALITY AND NON-DISCLOSURE
10.1
Confidential Information; Non-Disclosure
. Confidential Information shall mean
any technical, business, financial, customer or other information disclosed by one Party (the
Disclosing Party) to the other Party (the Receiving Party) pursuant to this Agreement which is
marked Confidential or Proprietary, or which, under all of the given circumstances, ought
reasonably to be treated as confidential information of the Disclosing Party. Such information may
be disclosed in oral, visual or written form (including magnetic, optical or other media). Except
as expressly provided in
Section 10.2
below, each Partys Confidential Information
specifically includes without limitation the respective Partys business plans and business
practices, the terms of this Agreement, scientific knowledge, research and development or know-how,
processes, inventions, techniques, formulae, products and product plans, business operations,
customer requirements, designs, sketches, photographs, drawings, specifications, reports, studies,
findings, data, plans or other records, biological materials, software, margins, payment terms and
sales forecasts, volumes and activities, designs, computer code, technical information, costs,
pricing, financing, business opportunities, personnel, and information of LICENSOR or LICENSEE
relating to the LICENSED PROCESSES, LICENSED PRODUCTS or LICENSED SERVICES whether or not such
information is marked or identified provided that the Disclosing Party provides notice in writing
reasonably identifying such Confidential Information within 30 days of disclosure. Except to the
extent expressly authorized by this Agreement or by other prior written consent by the Disclosing
Party, the Receiving Party, during the term of this Agreement, and thereafter, shall: (i) treat as
confidential all Confidential Information of the other Party; (ii) use Confidential Information
only for exercising the rights and fulfilling the obligations set forth in this Agreement, (iii)
implement reasonable procedures to prohibit the disclosure, unauthorized duplication, misuse or
removal of the Disclosing Partys Confidential Information; (iv) not disclose Confidential
Information to any third party, and (v) only disclose the Confidential Information to (a) those of
its employees who have a need to know Confidential Information in order to exercise the rights and
fulfill the obligations set forth in this Agreement and (b) legal and professional advisors and
existing and potential investors and their legal and professional advisors, each of which is bound
by a written agreement (or in the case of attorneys or other professional advisors, formal ethical
duties) requiring such advisors and investors to treat, hold and maintain such Confidential
Information in accordance with the terms and conditions of this Agreement, or (c) recipients of
offering documents in connection with any offering of securities where such disclosure is, in the
opinion of counsel for the
15
Disclosing Party, reasonably required to comply with the investment disclosure laws of any
applicable jurisdiction. Without limiting the foregoing, the Receiving Party shall protect the
Disclosing Partys Confidential Information using at least the same procedures and degree of care
that it uses to prevent the disclosure of its own confidential information of like importance, but
in no event less than reasonable care.
10.2
Exceptions
. The Receiving Party shall have no obligation or liability to the
Disclosing Party with regard to any Confidential Information of the Disclosing Party: (i) that was
publicly known and available at the time it was disclosed or becomes publicly known and available
through no fault, action, or inaction of the Receiving Party; (ii) was known to the Receiving
Party, without restriction, at the time of disclosure as shown by the files of the Receiving Party
in existence at the time of disclosure; (iii) is disclosed with the prior written approval of the
Disclosing Party; (iv) was independently developed by the Receiving Party without any use of the
disclosing partys Confidential Information, provided, that the Receiving Party can demonstrate
such independent development by documented evidence prepared contemporaneously with such
independent development; (v) is disclosed pursuant to the order or requirement of a court,
administrative agency, or other governmental body, provided that the Receiving Party shall provide
prompt notice thereof and reasonable assistance to the Disclosing Party to enable the Disclosing
Party to seek a protective order or otherwise prevent such disclosure, and provided further that
such disclosure is limited to the extent necessary to comply with such order and the information
shall otherwise be treated as Confidential Information; or (vi) that is provided to the Receiving
Party by an independent third party without violating any confidentiality obligation to the
Disclosing Party.
10.3
Injunctive Relief
. LICENSOR and LICENSEE acknowledge and agree that any breach
of the confidentiality obligations imposed by this
Article 10
will constitute immediate and
irreparable harm to the Disclosing Party and/or its successors and assigns, which cannot adequately
and fully be compensated by money damages and will warrant, in addition to all other rights and
remedies afforded by law, injunctive relief, specific performance, and/or other equitable relief.
The Disclosing Partys rights and remedies hereunder are cumulative and not exclusive. The
Disclosing Party shall also be entitled to receive from the Receiving Party the costs of enforcing
this
Article 10
, including reasonable attorneys fees and expenses of litigation.
10.4
Termination
. Upon termination or expiration of this Agreement, or upon the
request of the Disclosing Party at any time, the Receiving Party shall promptly return to the
Disclosing Party, at its request, all copies of Confidential Information received from the
Disclosing Party, and shall return or destroy, and document the destruction of, all summaries,
abstracts, extracts, or other documents which contain any Confidential Information of the
Disclosing Party in any form. Notwithstanding the foregoing to the contrary, LICENSEE shall have
no obligation (even upon a request by LICENSOR) to return or destroy any KNOW-HOW (including
tangible embodiments of KNOW-HOW) during the TERM of this Agreement.
10.5
Survival
. The obligations of LICENSOR and LICENSEE under this
Article 10
shall survive any expiration or termination of this Agreement.
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ARTICLE 11 PAYMENTS, NOTICES, AND OTHER COMMUNICATIONS
Any payment, notice or other communication pursuant to this Agreement shall be in writing and
sent by certified first class mail, postage prepaid, return receipt requested, or by nationally
recognized overnight carrier addressed to the Parties at the following addresses or such other
addresses as such Party furnishes to the other Party in accordance with this paragraph. Such
notices, payments, or other communications shall be effective upon receipt.
In the case of LICENSOR:
Advanced Cell Technology, Inc.
One Innovation Drive
Worcester, MA 01605
Attention: Michael D. West, Ph.D., President
With a copy to:
Pierce Atwood
One Monument Square
Portland, ME 04101
Attention: William L. Worden, Esq.
In the case of LICENSEE:
PacGen Cellco, LLC.
157 Surfview Drive
Pacific Palisades, CA 90272
Attention: Kenneth Aldrich
With a copy to:
Gray Cary Ware & Freidenrich
4365 Executive Drive, Suite 1100
San Diego, CA 92121-2133
Attention: Lisa Haile
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ARTICLE 12 RESPRESENTATIONS AND WARRANTIES OF LICENSOR
As an inducement to LICENSEE to enter into and perform this Agreement, LICENSOR represents and
warrants to LICENSEE as follows:
12.1
Title to LICENSED TECHNOLOGY; Encumbrances
. LICENSOR has good and valid title or
valid licenses (with the right of sublicense) to the LICENSED TECHNOLOGY.
12.2
No Violations
. The execution, delivery and performance of this Agreement by
LICENSOR and the consummation by LICENSOR of the transactions contemplated hereby does not,: (a)
violate any statute, ordinance, rule or regulation applicable to LICENSOR or by which any of the
LICENSED TECHNOLOGY may be bound; (b) violate any order, judgment or decree of any court or of any
Governmental Authority or regulatory body, agency or authority applicable to LICENSOR or by which
any of the LICENSED TECHNOLOGY may be bound; (c) require any filing by LICENSOR with, or require
LICENSOR to obtain any permit, consent or approval of, or require LICENSOR to give any notice to,
any Governmental Authority or regulatory body, agency or authority; or (d) result in a violation or
breach by LICENSOR of, conflict with, constitute a default by LICENSOR (or give rise to any right
of termination, cancellation, payment or acceleration) under or result in the creation of any
Encumbrance upon any of the LICENSED TECHNOLOGY.
12.3
Litigation
. Except as set forth in
Exhibits D and E
, there is no action,
suit, proceeding at law or in equity, arbitration or administrative or other proceeding by or
before (or any investigation by) any governmental or other instrumentality or agency, pending, or
threatened, against or affecting the LICENSED TECHNOLOGY, and LICENSOR does not know of any valid
basis for any such action, proceeding or investigation. To the knowledge of LICENSOR, there are no
such suits, actions, claims, proceedings or investigations pending or threatened, seeking to
prevent or challenge the transactions contemplated by this Agreement.
12.4
Disclosure
. Neither these representations and warranties made by LICENSOR
pursuant to this Agreement nor any of the exhibits, schedules or certificates attached hereto or
delivered in accordance with the terms hereof knowingly contains any misstatement of fact or omits
any statement of fact necessary in order to make the statements contained herein and therein not
misleading in light of the circumstances under which they were made.
12.5
Copies of Documents
. LICENSOR has caused to be made available for inspection and
copying by LICENSEE and its advisers, true, complete and correct copies of all documents in
LICENSORs possession referred to in any schedule attached hereto.
12.6
Brokers or Finders Fees
. No agent, broker, person or firm acting on behalf of
LICENSOR is, or will be, entitled to any fee, commission or brokers or finders fees for which the
LICENSEE may be liable in connection with this Agreement or any of the transactions contemplated
hereby.
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12.7
LICENSED TECHNOLOGY
.
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(a)
|
|
Except as set forth on
Exhibit D and E
, LICENSOR, is
not aware of any interference, infringement, misappropriation, or other
conflict with any intellectual property rights of third parties, and LICENSOR
has never received any charge, complaint, claim, demand, or notice alleging any
such interference, infringement, misappropriation, or violation (including any
claim that LICENSOR must license or refrain from using any intellectual
property rights of any third party). To the knowledge of LICENSOR, no third
party has interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any of the LICENSED TECHNOLOGY.
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(b)
|
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Exhibit A
identifies each patent or registration which
has been issued or licensed to LICENSOR with respect to any of the LICENSED
TECHNOLOGY and identifies each pending patent application or application for
registration which LICENSOR has made with respect to any of the LICENSED
TECHNOLOGY. LICENSOR has made available to LICENSEE correct and complete copies
of all such patents, registrations and applications (as amended to-date) in
LICENSORs possession and has made available to LICENSEE correct and complete
copies of all other written documentation in LICENSORs possession evidencing
ownership and prosecution (if applicable) of each such item.
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(c)
|
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Exhibit A
identifies each item of LICENSED TECHNOLOGY
that is assigned to the University and that LICENSOR uses pursuant to license,
sublicense, agreement, or permission. LICENSOR has made available to LICENSEE
correct and complete copies of all such licenses, sublicenses, agreements,
patent prosecution files and permissions (as amended to-date) in LICENSORs
possession. With respect to each item of LICENSED TECHNOLOGY required to be
identified in
Exhibit A
and to the knowledge of LICENSOR: (i) the
license, sublicense, agreement, or permission covering the item is legal,
valid, binding, enforceable, and in full force and effect; (ii) the license,
sublicense, agreement, or permission will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby; (iii) no Party to the
license, sublicense, agreement, or permission is in breach or default, and no
event has occurred which with notice or lapse of time would constitute a breach
or default or permit termination, modification, or acceleration thereunder;
(iv) no party to the license, sublicense, agreement, or permission has
repudiated any provision thereof; (v) the underlying item of LICENSED
TECHNOLOGY is not subject to any outstanding lien or encumbrance, injunction,
judgment, order, decree, ruling, or charge other than that disclosed in
Exhibits D and E; (vi) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or is threatened which
challenges the legality, validity, or enforceability of the underlying
item of LICENSED TECHNOLOGY other than that disclosed in Exhibits D and E; and
(vii) LICENSOR has not granted any sublicense or similar right to the LICENSED
TECHNOLOGY within the FIELD.
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12.8
Survival of Representations and Warranties
.
|
(a)
|
|
Except as otherwise provided herein, notwithstanding any
investigation at any time made by or on behalf of any Party hereto, the
representations and warranties set forth herein and in any certificate
delivered in connection herewith with respect to any of those representations
and warranties will survive the Effective Date until the longer to occur of:
(i) two (2) years or (ii) the expiration of the applicable statutes of
limitation, including all periods of extension and tolling whereupon they will
terminate and expire.
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(b)
|
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After a representation and warranty has expired, as provided in
Subsection 12.8(a)
, no claim for claims or costs may be made or
prosecuted by any Person who would have been entitled to claims or costs on the
basis of that representation and warranty prior to its termination and
expiration, provided that no claim presented in writing for claims or costs to
the Person or Persons from which or whom those damages are sought on the basis
of that representation and warranty prior to its termination and expiration
will be affected in any way by that termination and expiration.
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12.9 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, LICENSOR, ITS DIRECTORS,
OFFICERS, EMPLOYEES, AND AFFILIATES MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY KIND,
EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR
A PARTICULAR PURPOSE, VALIDITY OF PATENT RIGHTS, ISSUED OR PENDING, AND THE ABSENCE OF LATENT OR
OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE. NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A
REPRESENTATION MADE OR WARRANTY GIVEN BY LICENSOR THAT THE PRACTICE BY LICENSEE OF THE LICENSE
GRANTED HEREUNDER SHALL NOT INFRINGE THE PATENT RIGHTS OF ANY THIRD PARTY.
ARTICLE 13REPRESENTATIONS AND WARRANTIES OF LICENSEE.
LICENSEE represents and warrants to LICENSOR as follows:
13.1
Existence and Good Standing: Power and Authority
. LICENSEE is a limited liability
company duly organized, validly existing and in good standing under the laws of the state of
California. LICENSEE has full corporate power and authority to make, execute, deliver and perform
this Agreement, to perform its obligations hereunder and to consummate the
20
transactions contemplated hereby. The execution, delivery and performance of this Agreement by
LICENSEE and the consummation by it of the transactions contemplated hereby, have been duly
authorized and approved by all required corporate action of LICENSEE and no other action on the
part of LICENSEE is necessary to authorize the execution, delivery and performance of this
Agreement by LICENSEE and the consummation of the transaction contemplated hereby. This Agreement
has been duly executed and delivered by LICENSEE and is a valid and binding obligation of LICENSEE
enforceable against it in accordance with its terms, except to the extent that its enforceability
may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting the enforcement of creditors rights generally and by general equitable principles.
13.2
Authorization and Validity of Agreement
. LICENSEE has full power and authority,
including full corporate power and authority, to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby. Without limiting the
foregoing, the execution, delivery and performance of this Agreement by LICENSEE and the
consummation by it of the transactions contemplated hereby, have been duly authorized and approved
by the members and managers of LICENSEE, and no other action on the part of LICENSEE or its
officers, directors or shareholder is necessary to authorize the execution, delivery and
performance of this Agreement by LICENSEE and the consummation of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by LICENSEE and is a valid and binding
obligation of LICENSEE enforceable against it in accordance with its terms, except to the extent
that its enforceability may be subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting the enforcement of creditors rights generally and by general
equitable principles.
13.3
Consents and Approvals; No Violations
. The execution, delivery and performance of
this Agreement by LICENSEE and the consummation by LICENSEE of the transactions contemplated hereby
will not, with or without the giving of notice or the lapse of time or both: (a) violate, conflict
with, or result in a breach or default under any provision of the organizational documents of
LICENSEE; (b) violate any statute, ordinance, rule or regulation applicable to LICENSEE, (c)
violate any order, judgment or decree of any court or of any governmental or regulatory body,
agency or authority applicable to LICENSEE or by which any of the LICENSED TECHNOLOGY may be bound;
or (d) require any filing by LICENSEE with, or require LICENSEE to obtain any permit, consent or
approval of, or require LICENSEE to give any notice to, any governmental or regulatory body, agency
or authority, except filings, if any, which may be required under the Blue Sky laws of
Massachusetts or as may be required in the future to comply with governmental regulations governing
the production and sale of products by LICENSEE as it conducts its business.
13.4
Survival of Representations and Warranties
.
(a) Except as otherwise provided herein, notwithstanding any investigation at any time made by
or on behalf of any Party hereto, the representations and warranties set forth herein and in any
certificate delivered in connection herewith with respect to any of those
representations and warranties will survive the Effective Date until the longer to occur of:
(i) two (2) years or (ii) the expiration of the applicable statutes of limitation, including all
periods of extension and tolling whereupon they will terminate and expire.
21
(b) After a representation and warranty has expired, as provided in
Subsection
13.4(a)
, no claim for claims or costs may be made or prosecuted by any Person who would have
been entitled to claims or costs on the basis of that representation and warranty prior to its
termination and expiration, provided that no claim presented in writing for claims or costs to the
Person or Persons from which or whom those damages are sought on the basis of that representation
and warranty prior to its termination and expiration will be affected in any way by that
termination and expiration.
ARTICLE 14 LIMITATION OF LIABILITY
EXCEPT FOR ANY LIABILITY TO ANY THIRD PARTIES PURSUANT TO ARTICLE 8 OR TO A PARTY PURSUANT TO
ARTICLES 12 AND 13 OF THIS AGREEMENT, IN NO EVENT SHALL LICENSOR OR LICENSEE OR THEIR, ITS
DIRECTORS, OFFICERS, EMPLOYEES OR AFFILIATES BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES OF
ANY KIND, INCLUDING ECONOMIC DAMAGE OR INJURY TO PROPERTY AND LOST PROFITS, REGARDLESS OF WHETHER
LICENSOR OR LICENSEE SHALL BE ADVISED, SHALL HAVE OTHER REASON TO KNOW, OR IN FACT SHALL KNOW OF
THE POSSIBILITY OF SUCH DAMAGES.
ARTICLE 15 MISCELLANEOUS PROVISIONS
15.1 CORPORATE PARTNERSHIPS. In the event LICENSEE enters into a corporate partnership for
the joint development of any of the LICENSED TECHNOLOGY, and LICENSEE sublicenses the LICENSED
TECHNOLOGY to a third party, then payments required hereunder shall not include funds provided for
sponsored research or equity investments by any third party so long as such payments do not
constitute a majority of funds transferred by such third party. However if the sponsored research
involves fees in excess of industry standard reimbursement for FTEs or equity investment in excess
of fair market value, LICENSEE shall pay to LICENSOR a royalty on such excess fees calculated at
the rates specified herein.
15.2 LICENSEE REVERSE LICENSE TO LICENSOR. LICENSEE agrees to license to LICENSOR on a
non-exclusive basis for therapeutic uses in the treatment of blood and cardiovascular diseases the
rights to any technology it currently owns or has licensed or develops or licenses in the future
that is applicable to such diseases (excluding however the use of proprietary techniques now or
hereafter developed by LICENSEE for the enhanced vascularization of transplanted cells or tissues).
Such license shall provide for royalty payments at the same rate as LICENSEES royalty payments to
LICENSOR hereunder as provided in Section 4.2(a). Such license will be sublicensable only once in
a given field of use; or for the
22
purpose of having products produced, made, or distributed; or in connection with a merger or
consolidation of LICENSOR into another company or a sale of all or substantially all of the assets
of LICENSOR. LICENSEE shall also have no obligations hereunder with respect to technology licenses
it has or may acquire if such licenses restrict sublicensing in a manner inconsistent with this
subparagraph. Such Reverse License shall not apply to any rights acquired by LICENSEE under
Section 15.18 hereof.
15.3 FUTURE TECHNOLOGY LICENSES. LICENSOR acknowledges that it is continuing to develop
cell-based technology, the existence or significance of which it may not have disclosed to
LICENSEE. Therefore, LICENSOR further agrees that in the event any of its technology now perfected
or pending as of the date of this agreement but not specifically enumerated herein would inhibit or
adversely affect the commercial use by LICENSEE of the PATENT RIGHTS in the field, LICENSOR shall
waive any claim of infringement to the extent necessary to permit LICENSEE to continue the use of
the PATENT RIGHTS under this Agreement. In addition, LICENSOR agrees to license to LICENSEE on a
non-exclusive basis for uses in the FIELDS, including any rights acquired under Section 15.18
hereof, the rights to any technology it currently owns or has licensed or develops or licenses in
the future that is applicable to such FIELDS (but specifically excluding applications involving the
use of cells in the treatment of tumors where the primary use of the cells is the destruction or
reduction of tumors and does not involve regeneration of tissue or organ function). Such license
shall provide for royalty payments at the same rate as LICENSEES royalty to LICENSOR hereunder as
provided in Section 4.2(a). Such license will be sublicensable only once in a given field of use;
or for the purpose of having products produced, made, or distributed; or in connection with a
merger or consolidation of LICENSEE into another company or a sale of all or substantially all of
the assets of LICENSEE. LICENSOR shall also have no obligations hereunder with respect to
technology licenses it has or may acquire if such licenses restrict sublicensing in a manner
inconsistent with this subparagraph.
15.4 LICENSEE shall comply with all local, state, federal and international laws and
regulations relating to the development, manufacture, use, provision, and sale of LICENSED
PRODUCTS, LICENSED PROCESSES and LICENSED SERVICES. Without limiting the generality of the
foregoing, LICENSEE agrees to comply with the following:
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a)
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LICENSEE shall obtain all necessary approvals from the FDA,
USDA, or any similar governmental authorities of any foreign jurisdiction in
which LICENSEE intends to make, use, or sell LICENSED PRODUCTS or to perform
LICENSED PROCESSES or LICENSED SERVICES.
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b)
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LICENSEE shall comply fully with any and all applicable local,
state, federal and international laws and regulations relating to the LICENSED
PRODUCTS, LICENSED PROCESSES and LICENSED SERVICES, and the PATENT RIGHTS, in
the TERRITORY, including without limitation all export or import regulations
and rules now in effect or as may be issued from time to time by any
governmental authority which has jurisdiction relating to the export of
LICENSED PRODUCTS, LICENSED PROCESSES or
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23
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LICENSED SERVICES and any technology relating thereto. LICENSEE hereby gives
written assurance that it will comply with all such import or export laws and
regulations (including without limitation all Export Administration Regulations
of the United States Department of Commerce), that it bears sole responsibility
for any violation of such laws and regulations, and that it will indemnify,
defend, and hold LICENSOR and the University harmless (in accordance with
Article 8
) for the consequences of any such violation.
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c)
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To the extent that any invention claimed in the PATENT RIGHTS
has been partially funded by the United States Government, and only to the
extent required by applicable laws and regulations, LICENSEE agrees that any
LICENSED PRODUCTS used or sold in the United States will be manufactured
substantially in the United States or its territories. Current law provides
that if a domestic manufacturer is not commercially feasible under the
circumstances, LICENSOR and/or the University may seek a waiver of this
requirement from the relevant federal agency on behalf of LICENSEE and, upon
LICENSEES request, shall cooperate with LICENSEE in seeking such a waiver.
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15.5 LICENSEE shall not create or incur or cause to be incurred or to exist any lien,
encumbrance, pledge, charge, restriction or other security interest of any kind upon the PATENT
RIGHTS, but may cause to be incurred or to exist a lien, encumbrance, pledge, charge, restriction
or other security interest on its rights to the LICENSED TECHNOLOGY hereunder, provided such
security interest does not affect LICENSORs rights to the LICENSED TECHNOLOGY, or any of
LICENSORs rights under this Agreement.
15.6 Neither Party shall originate any publicity, news release or other public announcement
(Announcements), written or oral, relating to this Agreement or the existence of an arrangement
between the Parties, without the prior written approval of the other Party, which approval shall
not be unreasonably withheld or delayed, except as otherwise required by law. Any references to
the University in such Announcements shall be subject to the approval of the University. The
foregoing notwithstanding, LICENSOR and LICENSEE shall have the right to make such Announcements
without the consent of the other Party or the University, as applicable, in any prospectus,
offering memorandum, or other document or filing required by applicable securities laws or other
applicable law or regulation, provided that such Party shall have given the other Party or the
University, as applicable, at least ten (10) days prior written notice of the proposed text for the
purpose of giving the other Party or the University, as applicable, the opportunity to comment on
such text.
15.7 No implied licenses are granted pursuant to the terms of this Agreement. No licensed
rights shall be created by implication or estoppel.
24
15.8 Nothing herein shall be deemed to constitute either Party as the agent or
representative of the Party, or both parties as joint venturers or partners for any purpose. Each
Party shall be an independent contractor, not an employee or partner of the other Party, and the
manner in which each Party renders its services under this Agreement shall be within its sole
discretion. Neither Party shall be responsible for the acts or omissions of the other Party, nor
shall either Party have authority to speak for, represent or obligate the other Party in any way
without prior written authority from the other Party.
15.9 To the extent commercially feasible, and consistent with prevailing business practices
and applicable law, all LICENSED PRODUCTS sold pursuant to this Agreement will be marked with the
number of each issued patent that applies to such LICENSED PRODUCTS.
15.10 This Agreement shall be construed, governed, interpreted and applied in accordance with
the laws of the State of California, U.S.A. without regard to principles of conflicts of law
thereof, except that questions affecting the construction and effect of any patent shall be
determined by the law of the country in which the patent was granted.
15.11 The Parties hereto acknowledge that this Agreement sets forth the entire Agreement and
understanding of the Parties hereto as to the subject matter hereof, and shall not be subject to
any change or modification except by the execution of a written instrument signed by the Parties
hereto.
15.12 The provisions of this Agreement are severable, and in the event that any provision of
this Agreement shall be determined to be invalid or unenforceable under any controlling body of the
law, such invalidity or unenforceability shall not in any way affect the validity or enforceability
of the remaining provisions hereof.
15.13 The failure of either Party to assert a right hereunder or to insist upon compliance
with any term or condition of this Agreement shall not constitute a waiver of that right or excuse
a similar subsequent failure to perform any such term or condition by the other Party.
15.14 This Agreement may not be assigned by LICENSEE without the prior written consent of
LICENSOR, which consent shall be granted or denied in LICENSORs sole discretion. LICENSOR may not
assign this Agreement without the consent of LICENSEE, which consent shall not be unreasonably
withheld or delayed, except that LICENSOR may assign this Agreement to an affiliate or to a
successor in connection with the merger, consolidation, or sale of all or substantially all of its
assets or that portion of its business to which this Agreement relates. Notwithstanding the
foregoing to the contrary, this restriction on the assignment by LICENSEE of this Agreement shall
not prevent the assignment of this Agreement in connection with a merger or consolidation of
LICENSEE into another company or a sale of all or substantially all of the assets of LICENSEE, so
long as the purchaser of the assets agrees to assume to any and all outstanding liabilities to
LICENSOR under this Agreement, including but not limited to any outstanding amounts under the
promissory note referred to in
Section 4.1
.
25
15.15 This Agreement has been prepared jointly and no rule of strict construction shall be
applied against either Party. In this Agreement, the singular shall include the plural and vice
versa and the word including shall be deemed to be followed by the phrase without limitation.
The section headings contained in this Agreement are inserted for convenience only and shall not
affect in any way the meaning or interpretation of this Agreement.
15.16 This Agreement may be executed in counterparts, each of which together shall constitute
one and the same Agreement.
15.17 All rights and licenses granted under or pursuant to this Agreement by LICENSOR to
LICENSEE are, and shall otherwise be deemed to be, for purposes of Paragraph 365(n) of the U.S.
Bankruptcy Code (the Code), licenses to rights in intellectual property as defined in the Code.
The Parties hereto agree that LICENSEE, as a LICENSEE of such rights under this Agreement, shall
retain and may fully exercise all of its rights and elections under the Code. The Parties hereto
further agree that, in the event of the commencement of a bankruptcy proceeding by or against
LICENSOR including a proceeding under the Code, LICENSEE shall be entitled to a complete duplicate
of (or complete access to, as appropriate) any such intellectual property and all embodiments of
such intellectual property, including the PATENT RIGHTS and KNOW-HOW, and the same, if not already
in LICENSEEs possession, shall be promptly delivered to LICENSEE upon any such commencement of a
bankruptcy proceeding upon written request therefore by LICENSEE.
15.18 In addition to the other rights granted herein, LICENSOR hereby grants to LICENSEE a 90
day right of negotiation with respect to any technology that would constitute LICENSED TECHNOLOGY
if the FIELD included diseases related either to the heart or to neuro degenerative diseases (the
Added Fields) prior to LICENSOR entering into any license relating to either of such Added
Fields) with a third party. Such a 90 day period shall commence on the earlier of the 12 month
anniversary of the Effective Date, or such date when LICENSOR notifies LICENSEE that it has opened
negotiations with a third party or that a third party has made inquiry about such a license. If
following the expiration of any such 90-day negotiation period LICENSEE and LICENSOR have not
entered into a license for an Added Field, LICENSOR shall be free to enter into an exclusive or
non-exclusive license for such Added Field with any third party. If LICENSOR enters into a
non-exclusive license for an Added Field with a third party following the 90-day negotiating period
hereunder, LICENSOR shall offer a non-exclusive license to LICENSEE on comparable terms as those
entered into with such third party. LICENSEE shall then have 30 days to enter into such a
nonexclusive license. If LICENSEE does not enter into such a license within said 30-day period,
LICENSOR shall have no further obligations relating to the Added Field.
15.19 LICENSEE shall acknowledge LICENSOR as [co-marketer] through equal size lettering on
the packaging of ACT ANIMAL CELL LINES.
26
IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the EFFECTIVE DATE.
ADVANCED CELL TECHNOLOGY, INC.
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By:
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Printed Name: Michael D. West, Ph.D.
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Title: President & Chief Executive Officer
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PACGEN CELLCO, LLC
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By:
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Printed Name: Kenneth Aldrich
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Title: Managing Member
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27
EXHIBIT A
PATENT RIGHTS
(
Reference Section 1.12
)
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Serial No.
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Filing Date
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Patent No.
|
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CO
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Issue Date
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Title
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Assignee
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08/935,052
6,235,970
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US
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1997-09-22
2001-05-22
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CICM Cells and
Non-Human Mammalian
Embryos Prepared by
Nuclear Transfer of
a Proliferating
Differentiated Cell
or its Nucleus
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UMASS
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09/828,876
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US
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2001-04-10
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Cloning Using Donor
Nuclei from
Differentiated
Fetal and Adult
Cells
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UMASS
|
|
|
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PI9806872-5
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BR
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|
1998-01-05
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Cloning Using Donor
Nuclei from
Differentiated
Fetal and Adult
Cells
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UMASS
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6014598
0742363
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AU
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|
1998-01-05
2002-01-03
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|
Cloning Using Donor
Nuclei from
Differentiated
Fetal and Adult
Cells
|
|
UMASS
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|
|
|
|
|
|
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98802794.1
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CN
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|
1998-01-05
|
|
Cloning Using Donor
Nuclei from
Differentiated
Fetal and Adult
Cells
|
|
UMASS
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|
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|
|
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2277192
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CA
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|
1998-01-05
|
|
Cloning Using Donor
Nuclei from
Differentiated
Fetal and Adult
Cells
|
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UMASS
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336612
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|
NZ
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|
1998-01-05
|
|
Cloning Using Donor
Nuclei from
Differentiated
Fetal and Adult
Cells
|
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UMASS
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|
|
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|
|
|
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9906464
|
|
MX
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|
1998-01-05
|
|
Cloning Using Donor
Nuclei from
Differentiated
Fetal and Adult
Cells
|
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UMASS
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|
|
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10-530958
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JP
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|
1998-01-05
|
|
Cloning Using Donor
Nuclei from
Differentiated
Fetal and Adult
Cells
|
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UMASS
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|
|
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|
|
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130829
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IL
|
|
1998-01-05
|
|
Cloning Using Donor
Nuclei from
Differentiated
Fetal and Adult
Cells
|
|
UMASS
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|
|
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98903349.3
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EP
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1998-01-05
|
|
Cloning Using Donor
Nuclei from
Differentiated
Fetal and Adult
Cells
|
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UMASS
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28
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Serial No.
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Filing Date
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Patent No.
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|
CO
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Issue Date
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Title
|
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Assignee
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PCT/US00/29551
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WO
|
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2000-10-27
|
|
Gynogenetic or
Androgenetic
Production of
Pluripotent Cells
and Cell Lines, and
Use Thereof to
Produce
Differentiated
Cells and Tissues
|
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UMASS
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10/374,512
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US
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2003-02-27
|
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Gynogenetic or
Androgenetic
Production of
Pluripotent Cells
and Cell Lines, and
Use Thereof to
Produce
Differentiated
Cells and Tissues
|
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UMASS
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60/161,987
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US
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1999-10-28
|
|
Gynogenetic or
Androgenetic
Production of
Pluripotent Cells
and Cell Lines, and
Use Thereof to
Produce
Differentiated
Cells and Tissues
|
|
UMASS
|
|
|
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|
|
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518365
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NZ
|
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2000-10-27
|
|
Gynogenetic or
Androgenetic
Production of
Pluripotent Cells
and Cell Lines, and
Use Thereof to
Produce
Differentiated
Cells and Tissues
|
|
UMASS
|
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PA/a/2002/004233
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MX
|
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2000-10-27
|
|
Gynogenetic or
Androgenetic
Production of
Pluripotent Cells
and Cell Lines, and
Use Thereof to
Produce
Differentiated
Cells and Tissues
|
|
UMASS
|
|
|
|
|
|
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2001-533962
|
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JP
|
|
2000-10-27
|
|
Gynogenetic or
Androgenetic
Production of
Pluripotent Cells
and Cell Lines, and
Use Thereof to
Produce
Differentiated
Cells and Tissues
|
|
UMASS
|
|
|
|
|
|
|
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|
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149175
|
|
IL
|
|
2000-10-27
|
|
Gynogenetic or
Androgenetic
Production of
Pluripotent Cells
and Cell Lines, and
Use Thereof to
Produce
Differentiated
Cells and Tissues
|
|
UMASS
|
|
|
|
|
|
|
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2000000973905
|
|
EP
|
|
2000-10-27
|
|
Gynogenetic or
Androgenetic
Production of
Pluripotent Cells
and Cell Lines, and
Use Thereof to
Produce
Differentiated
Cells and Tissues
|
|
UMASS
|
|
|
|
|
|
|
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00816098.8
|
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CN
|
|
2000-10-27
|
|
Gynogenetic or
Androgenetic
Production of
Pluripotent Cells
and Cell Lines, and
Use Thereof to
Produce
Differentiated
Cells and Tissues
|
|
UMASS
|
29
|
|
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Serial No.
|
|
|
|
Filing Date
|
|
|
|
|
Patent No.
|
|
CO
|
|
Issue Date
|
|
Title
|
|
Assignee
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2,387,506
|
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CA
|
|
2000-10-27
|
|
Gynogenetic or
Androgenetic
Production of
Pluripotent Cells
and Cell Lines, and
Use Thereof to
Produce
Differentiated
Cells and Tissues
|
|
UMASS
|
|
|
|
|
|
|
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BR 0015148-3
|
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BR
|
|
2000-10-27
|
|
Gynogenetic or
Androgenetic
Production of
Pluripotent Cells
and Cell Lines, and
Use Thereof to
Produce
Differentiated
Cells and Tissues
|
|
UMASS
|
|
|
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12353/01
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AU
|
|
2000-10-27
|
|
Gynogenetic or
Androgenetic
Production of
Pluripotent Cells
and Cell Lines, and
Use Thereof to
Produce
Differentiated
Cells and Tissues
|
|
UMASS
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Invention Disclosures
|
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UMA 01-02*
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Reprogramming of
Somatic Cell Nuclei
in vitro for use in
Nuclear
Transplantation
|
|
UMASS
|
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|
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UMA 99-19*
|
|
|
|
|
|
Reprogramming
Nuclear Function in
Somatic Cell
Cytoplasm
|
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UMASS
|
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*
|
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Including patents filed by parties other than LICENSOR based on these Invention Disclosures,
the rights to which LICENSOR would get through the litigation described in Exhibit D.
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30
EXHIBIT B
(Reference Section 2.4)
[Date]
Advanced Cell Technology, Inc.
One Innovation Drive
Worcester, MA 01605
Attention: Michael D. West, Ph.D., President
University of Massachusetts
Office of the General Counsel
One Beacon Street, 26
th
Floor
Boston, MA 02108
PacGen Cellco, LLC.
157 Surfview Dr.,
Pacific Palisades, CA 90272
Attention: Kenneth Aldrich
Re: Exclusive License Agreement dated
, 2004 between Advanced Cell Technology, Inc.
(LICENSOR) and PacGen Cellco, LLC (LICENSEE) (the License Agreement)
Reference is made to the License Agreement identified above.
LICENSOR, the University of Massachusetts (the University) and LICENSEE agree that, in the event
the UMASS LICENSES (as defined in the License Agreement) expire or are terminated for any reason
pursuant to the provisions of the UMASS LICENSE or otherwise, (i) LICENSEE will thereafter pay
directly to the University any payments due to LICENSOR under the License Agreement which are
reasonably attributable to the University technology or subject matter of the UMASS LICENSES, and
(ii) promptly following such termination, the University and LICENSEE will enter into a direct
license agreement reflecting the applicable terms of the License Agreement and the UMASS LICENSES.
For the avoidance of doubt, the references to Sublicensees in Section 8.5 of the 1996 UMASS
LICENSE shall not apply to LICENSEE and shall not be construed as vitiating the provisions of
Section 2.5
of the License Agreement. LICENSOR and the University agree that the
provisions of Section 2.2 of the 1996 UMASS LICENSE providing for the automatic assignment to the
University of sublicenses granted by LICENSOR under said Section 2.2 shall not apply to the
sublicense by LICENSOR to LICENSEE under the License Agreement, and that the provisions of
Section 2.5
of the License Agreement shall govern in the event that the UMASS LICENSES are
terminated. LICENSOR and the University agree that LICENSEE will not be bound by any amendment to
the UMASS
31
LICENSES that affects LICENSEEs rights under the License Agreement in any material respects,
unless LICENSEE agrees in writing to such amendment. Neither LICENSOR nor the University will not
make any change or addition to, or otherwise amend, the UMASS LICENSES in any manner that
materially adversely affects LICENSEE without the prior written consent of LICENSEE (such consent
not to be unreasonably withheld or delayed).
ADVANCED CELL TECHNOLOGY, INC.
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By:
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Printed Name: Michael D. West, Ph.D.
|
|
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Title: President & Chief Executive Officer
|
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THE UNIVERSITY OF MASSACHUSETTS
PACGEN CELLCO, LLC
|
|
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|
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By:
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Printed Name: Kenneth Aldrich
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Title: President
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32
EXHIBIT C
THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR UNDER THE SECURITIES LAWS OF APPLICABLE
STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
FORM OF
CONVERTIBLE PROMISSORY NOTE
OF
PACGEN CELLCO LLC
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$150,000.00
|
|
Made as of May 14, 2004
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For value received,
PacGen CellCo LLC
, a California limited liability company (the Company),
with principal offices at 157 Surfview Drive, Pacific Palisades, CA 90272, hereby promise to pay to
Advanced Cell Technology, Inc., a Delaware corporation (Holder), or its registered assigns, the
principal sum of One Hundred Fifty Thousand Dollars ($150,000) (the Principal Amount).
Unless earlier paid or converted, the unpaid Principal Amount shall be due and payable on June
1, 2007 (the Maturity Date). On the Maturity Date, the principal shall be (i) repaid by the
Company in cash to the Holder
or
(ii) at the Holders election, converted into shares of
Common Stock (as defined below) at the conversion rate set forth in
Subsection 2(a)
below
based on a determination of the Conversion Price as of the Maturity Date made not later than 60
days following the Maturity Date by the Companys Board of Managers, acting in good faith.
This Note is issued pursuant to that certain Exclusive License Agreement dated as of
May 14,
2004
(the License Agreement), by and among the Company and Holder, and is subject to the
provisions thereof.
The following is a statement of the rights of Holder and the conditions to which this Note is
subject, and to which Holder hereof, by the acceptance of this Note, agrees:
|
1.
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Definitions.
The following definitions shall apply for all purposes of this
Note:
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33
Common Stock
means shares of or units of or other interests (as the case may be)
of common equity of the Company or its successors or assigns
Company
means the Company as defined above and includes any corporation, which
shall succeed to or assume the obligations of the Company under this Note.
Conversion Price
means (i) in the case of a First Equity Financing, the price paid
per share for the equity securities issued in such First Equity Financing; or (ii)
in the case of an Acquisition Event (as defined below) the value of one share or
unit of Common Stock based upon the portion of the aggregate sale price or merger or
consolidation consideration which is available to the Companys common equity
holders in connection with such Acquisition Event; or (iii) on the Maturity, the
value of one share or unit of Common Stock as determined in good faith by the Board
of Managers.
First Equity Financing
means a sale or series thereof, subsequent to the date of
this Note, by the Company of equity securities in which the Company receives
aggregate cash proceeds of at least $5,000,000 (not including conversion of the this
Note) as result of investments made by one or more bona fide third party
institutional or strategic investors in exchange for the sale of shares of capital
stock of the Company.
Holder
means any person who shall at the time be the registered holder of this
Note.
Maturity Date
means the date on which this Note is either repaid or converted in
whole in accordance with the terms hereunder.
Note
means this Secured Convertible Promissory Note.
Series A Preferred Stock
means the class of equity securities issued by the
Company in the First Equity Financing.
2. Interest
.
The principal sum outstanding under this Note shall bear no interest unless not repaid at the
Maturity Date, in which event it shall thereafter bear interest at a rate equal to the lesser of
(a) ten percent (10%) per annum, or (b) the maximum non-usurious rate allowed under the laws of the
State of California.
34
3. Conversion
.
a) Automatic Conversions. This Note shall be automatically converted into that number of
shares of Series A Preferred Stock equal to the quotient of (a) the aggregate principal amount of
this Note then outstanding divided by (b) the Conversion Price, under the following conditions:
i) Upon the consummation of the First Equity
Financing;
ii) Immediately prior to the closing of any merger, sale or other consolidation of the Company
or of any sale of all or substantially all assets of the Company which occurs prior to the First
Equity Financing (an Acquisition Event). Notwithstanding the above, and only in the event that a
conversion resulting from such Acquisition Event would result in a security not traded on a
national stock exchange (including NASDAQ and NASDAQ small cap), upon written notice to the Company
not later than 5 days after the consummation of the Acquisition Event and notice of the Acquisition
Event to the Holder of the Note, the Holder may elect to receive payment in cash of the entire
outstanding principal of this Note.
b.
Conversion Mechanics
. Upon the effective date of any elective or automatic
conversion of this Note, the outstanding principal of this Note shall be deemed converted into
shares of Series A Preferred Stock or Common Stock automatically as of such effective date without
any further action by the Holder and whether or not the Note is surrendered to the Company or its
transfer agent. However, the Company shall not be obligated to issue certificates evidencing the
shares of the Series A Preferred Stock or Stock issuable upon such elective or automatic conversion
unless such Note is either delivered to the Company or its transfer agent, or the Holder notifies
the Company or its transfer agent that such Note has been lost, stolen or destroyed and executes an
agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in
connection with such Note.
4. Reservation of Stock.
If at any time the number of shares of Common Stock or other
securities issuable upon conversion of this Note shall not be sufficient to effect the conversion
of this Note, the Company will take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock or other securities issuable upon conversion of this
Note (and any securities of the Company that the Common Stock may convert into) as shall be
sufficient for such purpose.
5. Covenants of the Company.
The Company covenants to, and agrees with the Holder that prior
to the Maturity Date, so long as the Notes are outstanding, with the following:
a) Organization, Standing Power. The Company is a limited liability company duly organized,
validly existing and in good standing under the California Limited Liability Company Act (the
CLLCA). The Company has all requisite power and authority to conduct its business as now being
conducted under the CLLCA.
35
b)
Authority; Enforceability; No Conflict
.
The Company has all requisite power and
authority under the CLLCA to issue this Note and to carry out its obligations
hereunder. The issuance of this Note by the Company has been duly and validly authorized by
all requisite proceedings on the part of the Company. This Note when executed and delivered by the
Company is a valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except that (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium, rehabilitation, liquidation, conservatorship, receivership
or other similar laws now or hereafter in effect relating to creditors rights generally and (ii)
the remedy of specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which any proceeding
therefor may be brought. The execution and delivery of this Note by the Company does not, and the
consummation by the Company of the transaction contemplated hereby and thereby will not result in
or constitute: (i) a default, breach or violation of or under the limited liability agreement of
the Company, (ii) the California Limited Liability Company Act or any applicable law or (iii) any
material agreement to which the Company is a party.
6. No Rights or Liabilities as Shareholder.
This Note does not by itself entitle the Holder
to any voting rights or other rights as a shareholder of the Company. In the absence of conversion
of this Note, no provisions of this Note, and no enumeration herein of the rights or privileges of
the Holder, shall cause the Holder to be a shareholder of the Company for any purpose.
7. No Impairment.
The Company will not, by amendment of its limited liability agreement, or
through reorganization, consolidation, merger, dissolution, issue or sale of securities, sale of
assets or any other voluntary action, willfully avoid or seek to avoid the observance or
performance of any of the terms of this Note, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder under this Note against wrongful
impairment. Without limiting the generality of the foregoing, the Company will take all such action
as may be necessary or appropriate in order that the Company may duly and validly issue fully paid
and nonassessable shares of Common Stock upon the conversion of this Note.
8. Prepayment.
The Company may at any time, without penalty, prepay in whole or in part the
unpaid balance of this Note. All payments will first be applied to the repayment of accrued fees
and expenses, if any, then to accrued interest, if any, until all then outstanding accrued interest
has been paid, and then shall be applied to the repayment of principal.
9. Notice.
The Company shall give the Holder of this Note at least ten (10) days notice of
any Acquisition Event.
10. Waiver and Amendment.
Any provision of this Note may be amended, waived or modified only
upon written consent of the Company and the Holder of the Note.
11. Waiver of Notice and Fees.
The Company and all endorsers of this Note hereby waive
notice, presentment, protest and notice of dishonor.
36
12. Transfer.
This Note and any rights hereunder may not be assigned, conveyed or
transferred, in whole or in part, without the Companys prior written consent, which consent shall
not be unreasonably withheld. The rights and obligations of the Company and the Holder under this
Note and the License Agreement shall be binding upon and benefit their respective permitted
successors, assigns, heirs, administrators and transferees. However, this Note and the loans
evidenced hereby may be transferred in whole or in part only by registration of such transfer on
the register maintained for such purpose by or on behalf of the Company.
13. Governing Law.
This Note shall be governed by and construed under the internal laws of
the State of Delaware, without reference to principles of conflict of laws or choice of laws.
14. Securities Law Representations.
This Note is issued to the Holder in reliance upon the
Holders representation to the Company, which by such Holders execution of this Note Holder hereby
confirms, that the Note will be acquired for investment for such Holders own account, not as a
nominee or agent, and not with a view to the sale or distribution of any part thereof, and that
such Holder has no present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Note, such Holder further represents that such Holder has
no contract, undertaking, agreement or arrangement with any person to sell, transfer, of grant
participations to such person or to any third person, with respect to this Note.
15. Headings.
The headings and captions used in this Note are used only for convenience and
are not to be considered in construing or interpreting this Note. All references in this Note to
sections and exhibits shall, unless otherwise provided, refer to sections hereof and exhibits
attached hereto, all of which exhibits are incorporated herein by this reference.
16. Severability.
If one or more provisions of this Note are held to be unenforceable under
applicable law, such provision(s) shall be excluded from this Note and the balance of the Note
shall be interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
17. Entire Agreement; Successors and Assigns.
This Note constitutes the entire contract
between the Company and the Holder relative to the subject matter hereof. Any previous agreement
between the Company and the Holder is superseded by this Agreement. Subject to the exceptions
specifically set forth in this Note, the terms and conditions of this Note shall inure to the
benefit of and be binding upon the respective executors, administrators, heirs, successors and
assigns of the Parties.
[Remainder of this page intentionally left blank]
37
IN WITNESS WHEREOF
, the Company has caused this Note to be signed in its name as of the date
first above written.
PACGEN CELLCO LLC
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By:
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/S/ KENNETH ALDRICH
Name:
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Title: MANAGING MEMBER
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ACCEPTED AND AGREED TO:
ADVANCED CELL TECHNOLOGY, INC.
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By:
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/S/ MICHAEL D. WEST
Name:
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Title: PRESIDENT
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EXHIBIT D
(Reference Section 12.3)
A civil action was filed by the University of Massachusetts on February 3, 2004 against James
M. Robl and Philippe Collas relating to the misappropriation of intellectual property.
Specifically the University of Massachusetts believes that invention disclosures UMA 99-19 and UMA
01-02 were misappropriated and wrongly assigned to third parties. This action is currently pending
as of the signing of this license.
EXHIBIT E
(Reference Section 12.7)
Declared patent interferences:
a)
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Patent Interference No. 104,746, involving U.S. Patent No. 5,945,577 and U.S. Patent
Application No. 09/650,194.
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b)
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Patent Interference No. 105,192, involving U.S. Patent No. 6,235,970 and U.S. Patent
Application No. 09/989,126.
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Potential patent interferences, verbally threatened to be filed against the following patents:
a)
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6,215,041
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b)
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6,235,969
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Exhibit 10.15
INTERNATIONAL STEM CELL CORPORATION
2006 EQUITY PARTICIPATION PLAN
INTERNATIONAL
STEM CELL CORPORATION
2006 EQUITY PARTICIPATION PLAN
TABLE OF CONTENTS
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1.
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Purpose
.
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1
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2.
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Definitions
.
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1
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3.
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Administration
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4
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3.1.
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Delegation of Administration
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4
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3.2.
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Powers of the Committee
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5
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3.3.
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Administration When Common Stock is Publicly Traded
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6
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4.
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Eligibility
.
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6
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4.1.
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Eligibility for Awards
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6
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4.2.
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Eligibility of Consultants
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6
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4.3.
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Limitation on Individual Awards
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6
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4.4.
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Substitute Awards
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7
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5.
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Common Stock Subject to Plan
.
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7
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5.1.
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Share Reserve
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7
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5.2.
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Reversion of Shares
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7
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5.3.
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Source of Shares.
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7
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6.
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Options
.
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7
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6.1.
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Award
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7
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6.2.
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Option Price
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7
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6.3.
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Maximum Option Period
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8
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6.4.
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Maximum Value of Options which are Incentive Stock Options
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8
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- i -
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6.5.
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Nontransferability
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8
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6.6.
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Vesting and Termination of Continuous Service
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9
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6.7.
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Exercise
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9
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6.8.
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Payment
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10
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6.9.
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Buyout Provisions
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10
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6.10.
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Shareholder Rights
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10
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6.11.
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Disposition and Stock Certificate Legends for Incentive Stock Option Shares
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10
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7.
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Restricted Stock Awards
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11
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7.1.
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Restricted Stock Awards
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11
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8.
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Changes in Capital Structure and Change in Control
.
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12
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8.1.
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No Limitations of Rights
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12
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8.2.
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Changes in Capitalization
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12
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8.3.
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Change in Control
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12
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8.4.
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Limitation on Adjustment
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13
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9.
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Withholding of Taxes
.
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14
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10.
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Compliance with Law and Approval of Regulatory Bodies
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14
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10.1.
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General Requirements
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14
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10.2.
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Participant Representations
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14
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11.
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General Provisions
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15
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11.1.
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Corporation Repurchase Rights
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15
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11.2.
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Information to Participants
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15
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11.3.
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Effect on Employment and Service
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15
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11.4.
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Use of Proceeds
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15
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11.5.
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Unfunded Plan
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15
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11.6.
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Rules of Construction
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15
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11.7.
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Choice of Law
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15
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12.
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Amendment and Termination
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16
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13.
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Effective Date of Plan, Duration of Plan
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16
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- ii -
INTERNATIONAL STEM CELL CORPORATION
2006 EQUITY PARTICIPATION PLAN
The 2006 Equity Participation Plan (the
Plan
) of International Stem Cell Corporation
(the
Corporation
) is intended to promote the best interests of the Corporation and its
shareholders by: (i) assisting the Corporation and its Affiliates (as defined below) in the
recruitment and retention of persons with ability and initiative; (ii) providing an incentive to
such persons to contribute to the growth and success of the Corporations businesses by affording
such persons equity participation in the Corporation; and (iii) associating the interests of such
persons with those of the Corporation and its Affiliates and shareholders.
As used in the Plan, the following definitions shall apply:
Affiliate
means (i) any Subsidiary; (ii) any Parent; (iii) any corporation, trade or
business (including, without limitation, a partnership or limited liability company) which is
directly or indirectly controlled fifty percent (50%) or more (whether by ownership of stock,
assets or an equivalent ownership interest or voting interest) by the Corporation or one of its
Affiliates; and (iv) any other entity in which the Corporation or any of its Affiliates has a
material equity interest and which is designated as an Affiliate by resolution of the Committee.
Board
means the Board of Directors of the Corporation.
Cause
means (i) in the case where the Participant does not have an employment,
consulting or similar agreement in effect with the Corporation or its Affiliate at the time of
grant of the Option or Restricted Stock Award or where there is such an agreement but it does not
define cause (or words of like import), conduct related to the Participants service to the
Corporation or an Affiliate for which either criminal or civil penalties against the Participant
may be sought, misconduct, insubordination, material violation of Corporation or its Affiliates
policies, disclosing or misusing any confidential information or material concerning the
Corporation or any Affiliate or material breach of any employment, consulting agreement or similar
agreement; or (ii) in the case where the Participant has an employment agreement, consulting
agreement or similar agreement in effect with the Corporation or its Affiliate at the time of grant
of the Option or Restricted Stock Award that defines a termination for cause (or words of like
import), cause as defined in such agreement;
provided
,
however
, that with regard
to any agreement that defines cause on occurrence of or in connection with change of control,
such definition of cause shall not apply until a change of control actually occurs and then only
with regard to a termination thereafter.
Change in Control
means: (i) the acquisition (other than from the Corporation) by
any Independent Third Party of beneficial ownership of more than fifty percent (50%) of the
outstanding voting securities of the Corporation; provided, however, a Change in Control shall not
be deemed to occur solely because more than fifty percent (50%) of the outstanding voting
securities of the Corporation is acquired by (a) a trustee or other fiduciary holding securities
under one (1) or more employee benefit plans maintained by the Corporation or any of its
Subsidiaries, or (b) any individual, corporation, partnership, limited liability company,
association, joint-stock
company, trust, unincorporated association or other entity which, immediately prior to such
acquisition, is owned directly or indirectly by the shareholders of the Corporation in the same
proportion as their ownership of the voting securities of the Corporation immediately prior to such
acquisition; (ii) a merger, consolidation or other reorganization involving the Corporation if the
shareholders of the Corporation, immediately before such merger, consolidation or other
reorganization, do not, as a result of such merger, consolidation or other reorganization, own,
directly or indirectly, more than fifty percent (50%) of the combined voting power of the then
outstanding voting securities of the entity resulting from such merger, consolidation or other
reorganization in substantially the same proportion as their ownership of the Common Stock
outstanding immediately before such merger, consolidation or other reorganization, (iii) a complete
liquidation or dissolution of the Corporation; or (iv) the sale or other disposition of all or
substantially all of the assets of the Corporation and its Subsidiaries determined on a
consolidated basis.
Change in Control Price
means the highest of (i) if the Common Stock is traded on
the NASDAQ Stock Market or is listed on a national securities exchange, the highest reported sales
price, regular way, of a share of Common Stock in any transaction as reported on the NASDAQ Stock
Market or other national securities exchange or market on which such shares are listed, as
applicable, during the 60-day period prior to and including the date of a Change in Control; (ii)
if the Change in Control is the result of a tender or exchange offer, merger or other corporate
transaction, the highest price per share of Common Stock paid in such tender or exchange offer,
merger or other corporate transaction; and (iii) the Fair Market Value of a share of Common Stock
upon the Change in Control. To the extent that the consideration paid in any such transaction
described above consists all or in part of securities or other non-cash consideration, the value of
such securities or other non-cash consideration shall be determined in the sole discretion of the
Committee. The Participant shall receive the same form of consideration pursuant to the
transaction as holders of Common Stock, subject to the same restrictions and limitations and
indemnification obligations as the holders of Common Stock, and will execute any and all documents
required by the Committee to evidence the same.
Code
means the Internal Revenue Code of 1986, and any amendments thereto.
Committee
means the Board or any Committee of the Board to which the Board has
delegated any responsibility for the implementation, interpretation or administration of the Plan.
Common Stock
means the common stock of the Corporation.
Consultant
means (i) any person performing consulting or advisory services for the
Corporation or any Affiliate; or (ii) a director of an Affiliate.
Continuous Service
means that the Participants service with the Corporation or an
Affiliate, whether as an employee, Director or Consultant, is not interrupted or terminated. A
Participants Continuous Service shall not be deemed to have terminated merely because of a change
in the capacity in which the Participant renders service to the Corporation or an Affiliate as an
employee, Consultant or Director or a change in the entity for which the Participant renders such
service, provided that there is no interruption or termination of the Participants Continuous
Service. The Participants Continuous Service shall be deemed to have terminated either upon an
actual termination or upon the corporation for which the Participant is performing services ceasing
to be an Affiliate of the Corporation. The Committee shall determine whether Continuous Service
shall be considered interrupted in the case of any leave of absence approved by the
Corporation, including sick leave, military leave or any other personal leave.
- 2 -
Corporation Law
means the general corporation law of the jurisdiction of
incorporation of the Corporation.
Director
means a member of the Board.
Disability
shall have the meaning provided for in Section 22(e)(3) of the Code or
any successor statute thereto.
Eligible Person
means, as determined by the Committee, an employee of the
Corporation or an Affiliate (including a corporation that becomes an Affiliate after the adoption
of the Plan), a Director or a Consultant to the Corporation or an Affiliate (including a
corporation that becomes an Affiliate after the adoption of the Plan).
Exchange Act
means the Securities Exchange Act of 1934, as amended.
Fair Market Value
means, on any given date, the current fair market value of a share
of Common Stock as determined as follows:
(i) If the Common Stock is traded on The NASDAQ Stock Market or is listed on a national
securities exchange, the closing price for the day of determination as quoted on such market or
exchange which is the primary market or exchange for trading of the Common Stock or if no trading
occurs on such date, the last day on which trading occurred, or such other appropriate date as
determined by the Committee in its discretion, as reported in The Wall Street Journal or such other
source as the Committee deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling
prices are not reported, its Fair Market Value shall be the mean between the high and the low asked
prices for the Common Stock for the day of determination; or
(iii) In the absence of an established market for the Common Stock, Fair Market Value shall be
determined by the Committee in good faith.
Fair Market Value shall be determined in accordance with Code Section 409A and the regulations
and other applicable guidance issued thereunder.
Independent Third Party
means any individual, corporation, partnership, limited
liability company, association, joint-stock company, trust, unincorporated association or other
entity who does not directly or indirectly own in excess of twenty percent (20%) of the outstanding
Common Stock, who is not controlling, controlled by or under common control with any such twenty
percent (20%) owner, and who is not the spouse or descendent (by birth or adoption) of any such
twenty percent (20%) owner.
Incentive Stock Option
means an Option (or portion thereof) intended to qualify for
special tax treatment under Section 422 of the Code.
Listing Date
means the date on which the Corporation has a class of equity
securities registered under Section 12 of the Securities Act.
- 3 -
Nonqualified Stock Option
means an Option (or portion thereof) which is not intended
to or for any reason does not qualify as an Incentive Stock Option.
Option
means any option to purchase shares of Common Stock granted under the Plan.
Parent
means any corporation (other than the Corporation) in an unbroken chain of
corporations ending with the Corporation if each of the corporations (other than the Corporation)
owns stock possessing at least fifty percent (50%) of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
Participant
means an Eligible Person who is selected by the Committee to receive an
Option or Restricted Stock Award and is party to a Stock Option Agreement or Restricted Stock
Agreement.
Plan
means this International Stem Cell Corporation 2006 Equity Participation Plan.
Restricted Stock Award
means an award of Common Stock under
Section 7.1
.
Securities Act
means the Securities Act of 1933, as amended.
Restricted Stock Agreement
means an agreement (written or electronic) between the
Corporation and a Participant setting forth the specific terms and conditions of a Restricted Stock
Award granted to the Participant under
Section 7
. Each Restricted Stock Agreement shall be
subject to the terms and conditions of the Plan and shall include such terms and conditions as the
Committee shall authorize.
Stock Option Agreement
means an agreement (written or electronic) between the
Corporation and a Participant setting forth the specific terms and conditions of an Option granted
to the Participant. Each Stock Option Agreement shall be subject to the terms and conditions of
the Plan and shall include such terms and conditions as the Committee shall authorize.
Subsidiary
means any corporation (other than the Corporation) in an unbroken chain
of corporations beginning with the Corporation if each of the corporations (other than the last
corporation in the unbroken chain) owns stock possessing at least fifty percent (50%) of the total
combined voting power of all classes of stock in one of the other corporations in such chain.
Ten Percent Owner
means any Eligible Person owning at the time an Option or
Restricted Stock Award is granted more than ten percent (10%) of the total combined voting power of
all classes of stock of the Corporation or of an Affiliate. An individual shall be considered to
own any voting stock owned (directly or indirectly) by or for his brothers, sisters, spouse,
ancestors and lineal descendants and any voting stock owned (directly or indirectly) by or for a
corporation, partnership, estate or trust shall be considered as being owned proportionately by or
for its shareholders, partners or beneficiaries.
3.1.
Delegation of Administration
. The Board shall serve as the Committee of the Plan
unless the Board delegates all or any portion of its authority to administer the Plan to a
Committee. To the extent not prohibited by the charter or bylaws of the Corporation, the Board may
delegate all
or a portion of its authority to administer the Plan to a Committee of the Board appointed by
the Board and constituted in compliance with the applicable Corporation Law.
- 4 -
3.2.
Powers of the Committee
. Subject to the provisions of the Plan and, in the case
of a Committee appointed by the Board, the specific duties delegated to such Committee, the
Committee shall have the authority:
(i) to construe and interpret all provisions of the Plan and all Stock Option Agreements and
Restricted Stock Agreements under the Plan;
(ii) to determine the Fair Market Value of Common Stock;
(iii) to select the Eligible Persons to whom Options or Restricted Stock Awards are granted
from time to time hereunder;
(iv) to determine the number of shares of Common Stock covered by an Option or Restricted
Stock Award; determine whether an Option shall be an Incentive Stock Option or Nonqualified Stock
Option; and determine such other terms and conditions, not inconsistent with the terms of the Plan,
of each such Option or Restricted Stock Award. Such terms and conditions include, but are not
limited to, the exercise price of an Option, the purchase price of Common Stock subject to a
Restricted Stock Award, the time or times when Options or Restricted Stock Awards may be exercised
or Common Stock issued thereunder, the right of the Corporation to repurchase Common Stock issued
pursuant to the exercise of an Option or a Restricted Stock Award and other restrictions or
limitations (in addition to those contained in the Plan) on the forfeitability or transferability
of Options, Restricted Stock Awards or Common Stock issued upon exercise of an Option or pursuant
to a Restricted Stock Award. Such terms may include conditions as determined by the Committee and
need not be uniform with respect to Participants;
(v) to accelerate the time at which any Option or Restricted Stock Award may be exercised, or
the time at which a Restricted Stock Award or Common Stock issued under the Plan may become
transferable or non-forfeitable; provided that the time of exercise of any Option that is subject
to Code Section 409A may not be accelerated;
(vi) to determine whether and under what circumstances an Option may be settled in cash,
shares of Common Stock and/or other property under
Section 6.1
;
(vii) to amend, cancel, extend, renew, accept the surrender of, modify or accelerate the
vesting of or lapse of restrictions on all or any portion of an outstanding Option or Restricted
Stock Award and reduce the exercise price of any Option, provided that any action taken pursuant to
this
Section 3.2(vii)
with respect to an Option shall be taken only to the extent that such
action would not violate Code Section 409A or prevent the Plan or the Option from qualifying for an
exemption under Code Section 409A. Except as specifically permitted by the Plan, Stock Option
Agreement or Restricted Stock Agreement or as required to comply with applicable law, regulation or
rule, no amendment, cancellation or modification shall, without a Participants consent, adversely
affect any rights of the Participant;
provided
,
however
, that an amendment or
modification that may cause an Incentive Stock Option to become a Nonqualified Stock Option shall
not be treated as adversely affecting the rights of the Participant; and
- 5 -
(viii) to prescribe the form of Stock Option Agreements and Restricted Stock Agreements; to
adopt policies and procedures for the exercise of Options and Restricted Stock
Awards, including the satisfaction of withholding obligations, and the authority to adopt,
amend, and rescind policies and procedures pertaining to the administration of the Plan and make
all other determinations necessary or advisable for the administration of the Plan.
The express grant in the Plan of any specific power to the Committee shall not be construed as
limiting any power or authority of the Committee;
provided
,
however
, that a
Committee of the Board may not exercise any right or power reserved to the Board. Any decision
made, or action taken, by the Committee or in connection with the administration of the Plan shall
be final, conclusive and binding on all persons having an interest in the Plan.
3.3.
Administration When Common Stock is Publicly Traded
. On and following the
Listing Date the Committee authorized by the Board to administer the Plan shall, if so determined
by the Board, consist of solely two (2) or more Non-Employee Directors (within the meaning of Rule
16b-3 under the Exchange Act) and/or two (2) or more persons who qualify as Outside Directors
(within the meaning of Treasury Regulations under Section 162(m) of the Code);
provided
,
however
, that the Board may delegate administrative authority with respect to Eligible
Persons who are not subject to Section 16 of the Exchange Act to a committee of other than
Non-Employee Directors and/or to a committee of other than Outside Directors if either the Board
decides not to comply with Section 162(m) or such authority is limited to Eligible Persons who are
not then and are not reasonably expected to become Covered Employees (within the meaning of Section
162(m) of the Code).
4.1.
Eligibility for Awards
. Nonqualified Stock Options and Restricted Stock Awards
may be granted to any Eligible Person selected by the Committee. Incentive Stock Options may be
granted only to employees of the Corporation or a Parent or Subsidiary.
4.2.
Eligibility of Consultants
. A Consultant shall be an Eligible Person only if the
offer or sale of the Corporations securities would be exempt from registration under Rule 701
under the Securities Act prior to the date the Corporation is required to file reports under
Section 13 or 15(d) of the Exchange Act, or eligible for registration on Form S-8 Registration
Statement, on and following the date the Corporation is required to file reports under Section 13
or 15(d) of the Exchange Act, because, in either case, of the identity and nature of the service
provided by such person, unless the Corporation determines that an offer or sale of the
Corporations securities to such person satisfies another exemption from registration under the
Securities Act and complies with the security laws of all other jurisdictions applicable to such
offer or sale.
4.3.
Limitation on Individual Awards
. Following the effective date of this Section as
provided below and subject to adjustment in accordance with
Section 8
of the Plan, no
employee shall during any calendar year be granted Options or Restricted Stock Awards for more than
Five Million (5,000,000) shares of Common Stock. The limitation of this
Section 4.3
shall
apply following the Listing Date and upon the earlier of (i) a material modification of the Plan;
(ii) the first meeting of shareholders at which directors are elected and which occurs after the
close of the third (3
rd
) calendar year following the calendar year during which occurs
the first registration of the Corporations equity securities under Section 12 of the Securities
Act; or (iii) such date as is required to comply with Section 162(m) of the Code and regulations
thereunder.
- 6 -
4.4.
Substitute Awards
. The Committee may make Restricted Stock Awards and may grant
Options under the Plan by assumption, substitution or replacement of performance shares,
phantom shares, stock awards, stock options, stock appreciation rights or similar awards
granted by another company (including an Affiliate), if such assumption, substitution or
replacement is in connection with an asset acquisition, merger, consolidation or similar
transaction involving the Corporation (and/or its Affiliate) and such other company (and/or its
affiliate). Notwithstanding any provision of the Plan (other than the maximum number of shares of
Common Stock that may be issued under the Plan), the terms of such assumed, substituted or replaced
Restricted Stock Awards or Options shall be as the Committee, in its discretion, determines is
appropriate.
5.
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Common Stock Subject to Plan
.
|
5.1.
Share Reserve
. Subject to adjustment as provided in
Section 8
, the
maximum aggregate number of shares of Common Stock that may be (i) issued under the Plan pursuant
to the exercise of Options; and (ii) issued pursuant to Restricted Stock Awards is Fifteen Million
(15,000,000) shares. At no time shall the total number of securities issuable upon the exercise of
all outstanding options and the total number of shares provided for under any stock bonus or
similar plan or agreement of the Corporation exceed the applicable percentage as calculated in
accordance with the conditions and exclusions of Reg. 260.140.45 of the California Code of
Regulations, based on the securities of the Corporation which are outstanding at the time the
calculation is made.
5.2.
Reversion of Shares
. If an Option or Restricted Stock Award is terminated,
expires or becomes unexercisable, in whole or in part, for any reason, the unissued or unpurchased
shares of Common Stock which were subject thereto shall become available for future grant under the
Plan. Shares of Common Stock that have been actually issued under the Plan shall not be returned
to the share reserve for future grants under the Plan, except that shares of Common Stock issued
pursuant to a Restricted Stock Award which are repurchased by the Corporation at the original
purchase price of such shares shall be returned to the share reserve for future grant under the
Plan.
5.3.
Source of Shares
. Common Stock issued under the Plan may be shares of authorized
and unissued Common Stock or shares of previously issued Common Stock that have been reacquired by
the Corporation.
6.1.
Award
. In accordance with the provisions of Section 4 above, the Committee shall
designate each Eligible Person to whom an Option is to be granted and shall specify the number of
shares of Common Stock covered by such Option. The Stock Option Agreement shall specify whether
the Option is an Incentive Stock Option or Nonqualified Stock Option, the vesting schedule
applicable to such Option and any other terms of such Option. No Option that is intended to be an
Incentive Stock Option shall be invalid for failure to qualify as an Incentive Stock Option.
6.2.
Option Price
. The exercise price per share for Common Stock subject to an Option
shall be determined by the Committee, but shall comply with the following:
(i) Unless otherwise determined by the Committee, the exercise price per share for Common
Stock subject to a Nonqualified Stock Option:
(a) granted to a Participant who is deemed to be a Ten Percent Owner on the date such option
is granted, shall not be less than one hundred ten percent (110%) of the Fair Market Value on the
date of grant; and
- 7 -
(b) granted to any other Participant, shall not be less than one hundred percent (100%) of the
Fair Market Value on the date of grant.
(ii) The exercise price per share for Common Stock subject to an Incentive Stock Option:
(a) granted to a Participant who is deemed to be a Ten Percent Owner on the date such option
is granted, shall not be less than one hundred ten percent (110%) of the Fair Market Value on the
date of grant; and
(b) granted to any other Participant, shall not be less than one hundred percent (100%) of the
Fair Market Value on the date of grant.
6.3.
Maximum Option Period
. The maximum period during which an Option may be
exercised shall be determined by the Committee on the date of grant, except that no Option shall be
exercisable after the expiration of ten years from the date such Option was granted. In the case
of an Incentive Stock Option that is granted to a Participant who is or is deemed to be a Ten
Percent Owner on the date of grant, such Option shall not be exercisable after the expiration of
five years from the date of grant. The terms of any Option may provide that it is exercisable for
a period less than such maximum period.
6.4.
Maximum Value of Options which are Incentive Stock Options
. To the extent that
the aggregate Fair Market Value of the Common Stock with respect to which Incentive Stock Options
granted to any person are exercisable for the first time during any calendar year (under all stock
option plans of the Corporation or any of its Affiliates) exceeds One Hundred Thousand Dollars
($100,000) (or such other amount provided in Section 422 of the Code), the Options are not
Incentive Stock Options. For purposes of this
Section 6.4
, the Fair Market Value of the
Common Stock shall be determined as of the time the Incentive Stock Option with respect to the
Common Stock is granted. This
Section 6.4
shall be applied by taking Incentive Stock
Options into account in the order in which they are granted.
6.5.
Nontransferability
. Options granted under the Plan which are intended to be
Incentive Stock Options shall be nontransferable except by will or by the laws of descent and
distribution and during the lifetime of the Participant shall be exercisable by only the
Participant to whom the Incentive Stock Option is granted. Nonqualified Stock Options granted
under the Plan shall be nontransferable except by will or by the laws of descent and distribution
or, if the Stock Option Agreement so provides or the Committee so approves, as permitted by Rule
701 of the Securities Act, with respect to transfers by a Participant to the Participants family
members, provided, however, that the Participant may not receive any consideration for the
transfer. The holder of an Option transferred pursuant to this
Section 6.5
shall be bound
by the same terms and conditions that governed the Option during the period that it was held by the
Participant. Except to the extent transferability of a Nonqualified Stock Option is provided for
in the Stock Option Agreement or is approved by the Committee, during the lifetime of the
Participant to whom the Nonqualified Stock Option is granted, such Option may be exercised only by
the Participant. No right or interest of a Participant in any Option shall be liable for, or
subject to, any lien, obligation, or liability of such Participant.
- 8 -
6.6.
Vesting and Termination of Continuous Service
. The following rules shall apply:
(i) Options shall vest as provided in the Stock Option Agreement, provided that Options
granted to Eligible Persons other than officers, Directors and Consultants shall vest at a rate of
at least twenty percent (20%) per year over five (5) years from the date the Option is granted
subject to reasonable conditions such as continued employment. An Option shall be exercisable only
to the extent that it is vested on the date of exercise. Except as provided in the Stock Option
Agreement, vesting of an Option shall cease on the date of the Participants termination of
Continuous Service and the Option shall be exercisable only to the extent the Option is vested on
the date of termination of Continuous Service;
(ii) If the Participants termination of Continuous Service is due to death or Disability, the
Participant may exercise the Option as set forth in the Stock Option Agreement, provided that the
right to exercise the Option (to the extent vested) shall expire six (6) months after the date of
the Participants termination of Continuous Service, but in no event later than the tenth (10th)
anniversary of the effective date of the Stock Option Agreement. Until the expiration date, the
Participants heirs, legatees or legal representative may exercise the Option, except to the extent
the Option was previously transferred pursuant to
Section 6.5
;
(iii) If the Participants termination of Continuous Service is an involuntary termination by
the Corporation without Cause, or a voluntary termination by the Participant with Cause, the
Participant may exercise the vested portion of the Option as set forth in the Stock Option
Agreement, provided that the right to exercise the Option (to the extent that it is vested) shall
expire ninety (90) days after the date of the Participants termination of Continuous Service, but
in no event later than the tenth (10th) anniversary of the effective date of the Stock Option
Agreement. If the Participants termination of Continuous Service is an involuntary termination
without Cause or a voluntary termination with cause, and the Participant dies after his or her
termination of Continuous Service but before the right to exercise the Option has expired, the
right to exercise the Option (to the extent vested) shall expire six (6) months after the date of
the Participants termination of Continuous Service, but in no event later than the tenth (10th)
anniversary of the effective date of the Stock Option Agreement, and, until expiration, the
Participants heirs, legatees or legal representative may exercise the Option, except to the extent
the Option was previously transferred pursuant to
Section 6.5
; and
(iv) Unless otherwise provided in the Stock Option Agreement, if the Participants termination
of Continuous Service is: (a) for Cause by the Corporation; (2) voluntary by the Participant
without Cause; or (3) voluntary by the Participant after an event which would be grounds for
termination by the Corporation of the Participants Continuous Service for Cause, then the right to
exercise the Option shall expire as of the date of the Participants termination of Continuous
Service.
6.7.
Exercise
. An Option shall be exercised by completion, execution and delivery of
a notice of exercise (written or electronic) to the Corporation which states: (i) the Option
holders intent to exercise the Option; (ii) the number of shares of Common Stock with respect to
which the Option is being exercised; (iii) such other representations and agreements as may be
required by the Corporation; and (iv) the method for satisfying any applicable tax withholding as
provided in
Section 9
. Such notice of exercise shall be provided on such form or by such
method as the Committee may designate, and payment of the exercise price shall be made in
accordance with
Section 6.8
. Subject to the provisions of the Plan and the applicable
Stock Option Agreement, an Option may be
exercised to the extent vested in whole at any time or in part from time to time at such times
and in compliance with such requirements as the Committee shall determine. A partial exercise of
an Option shall not affect the right to exercise the Option from time to time in accordance with
the Plan and the applicable Stock Option Agreement with respect to the remaining shares subject to
the Option. An Option may not be exercised with respect to fractional shares of Common Stock.
- 9 -
6.8.
Payment
. Unless otherwise provided by the Stock Option Agreement, payment of the
exercise price for an Option shall be made in cash or a cash equivalent acceptable to the
Committee. With the consent of the Committee, payment of all or part of the exercise price of an
Option may also be made (i) by surrendering shares of Common Stock to the Corporation that have
been held for at least six (6) months prior to the date of exercise; (ii) with a full-recourse
promissory note until such time as the Corporation has a class of equity securities registered
under Section 12 of the Securities Act; (iii) if the Common Stock is traded on an established
securities market, the Committee may approve payment of the exercise price by a broker-dealer or by
the Option holder with cash advanced by the broker-dealer if the exercise notice is accompanied by
the Option holders written irrevocable instructions to deliver the Common Stock acquired upon
exercise of the Option to the broker-dealer; or (iv) any other method acceptable to the Committee
and in compliance with applicable laws. If Common Stock is used to pay all or part of the exercise
price, the sum of the cash or cash equivalent and the Fair Market Value (determined as of the date
of exercise) of the shares surrendered must not be less than the Option price of the shares for
which the Option is being exercised. If all or part of the exercise price is to be paid with a
full-recourse promissory note, the shares received upon exercise of the Option shall be pledged as
security for payment of the principal amount of the promissory note and interest thereon and the
interest rate payable under the terms of the promissory note shall not be less than the minimum
rate (if any) required to avoid the imputation of additional interest under the Code. Subject to
the foregoing, the Committee (at its sole discretion) shall specify the term, interest rate,
amortization requirements (if any) and other provisions of such note.
6.9.
Buyout Provisions
. The Committee may at any time offer to buy out an Option
previously granted for a payment in cash, shares of Common Stock or other property. Such buyout
offer shall be on such terms and conditions as the Committee shall determine.
6.10.
Shareholder Rights
. No Participant shall have any rights as a shareholder with
respect to shares subject to an Option until the date of exercise of such Option and the
certificate for shares of Common Stock to be received on exercise of such Option has been issued by
the Corporation. Voting rights of Common Stock issued pursuant to the Plan shall comply with Reg.
260.140.1 of the California Code of Regulations.
6.11.
Disposition and Stock Certificate Legends for Incentive Stock Option Shares
. A
Participant shall notify the Corporation of any sale or other disposition of Common Stock acquired
pursuant to an Incentive Stock Option if such sale or disposition occurs (i) within two (2) years
of the grant of an Option; or (ii) within one (1) year of the issuance of the Common Stock to the
Participant. Such notice shall be in writing and directed to the Secretary of the Corporation.
The Corporation may require that certificates evidencing shares of Common Stock purchased upon the
exercise of an Incentive Stock Option issued under the Plan be endorsed with a legend in
substantially the following form:
- 10 -
THE SHARES EVIDENCED BY THIS CERTIFICATE MAY NOT BE SOLD OR
TRANSFERRED PRIOR TO ___, 20___, IN THE ABSENCE OF A WRITTEN
STATEMENT FROM THE CORPORATION TO THE EFFECT THAT THE CORPORATION IS
AWARE OF THE FACTS OF SUCH SALE OR TRANSFER.
The blank lines contained in this legend shall be filled in with the date that is the later of
(i) one (1) year and one (1) day after the date of the exercise of such Incentive Stock Option; or
(ii) two (2) years and one (1) day after the grant of such Incentive Stock Option.
7.
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Restricted Stock Awards
.
|
7.1.
Restricted Stock Awards
. Each Restricted Stock Agreement for a Restricted Stock
Award shall be in such form and shall contain such terms and conditions as the Committee shall deem
appropriate. The terms and conditions of the Restricted Stock Agreements for Restricted Stock
Awards may change from time to time, and the terms and conditions of separate Restricted Stock
Awards need not be identical, but each Restricted Stock Award shall include (through incorporation
of the provisions hereof by references in the agreement or otherwise), unless the Committee
otherwise provides, the substance of each of the following provisions.
(i)
Purchase Price
. Unless otherwise determined by the Committee, the purchase price
of Restricted Stock Awards:
(a) granted to a Participant who is deemed to be a Ten Percent Owner on the date of granted,
shall be one hundred percent (100%) of the Fair Market Value either on the date of grant (if the
Restricted Stock Award is an outright grant to the Participant) or at the time the purchase is
consummated (if the Restricted Stock Award requires the Participation to purchase the shares
subject to the Restricted Stock Award); and
(b) granted to any other Participant, shall not be less than eighty-five percent (85%) of the
Fair Market Value on the date of grant (if the Restricted Stock Award in an outright grant to the
Participant) or at the time the purchase is consummated (if the Restricted Stock Award requires the
Participant to purchase the shares subject to the Restricted Stock Award).
(ii)
Consideration
. The purchase price of Common Stock acquired pursuant to the
Restricted Stock Award shall be paid either (a) in cash at the time of purchase; (b) at the
discretion of the Committee, according to a deferred payment or other similar arrangement with the
Participant; or (c) in any other form of legal consideration that may be acceptable to the
Committee in its discretion.
(iii)
Vesting
. Shares of Common Stock acquired under a Restricted Stock Award may,
but need not, be subject to a vesting schedule and may, but need not, be subject to a share
repurchase option in favor of the Corporation as determined by the Committee.
(iv)
Participants Termination of Service
. In the event of a Participants
termination of Continuous Service, the Corporation may repurchase or otherwise reacquire any or all
of the shares of Common Stock held by the Participant which have not vested as of the date of
termination under the terms of the Restricted Stock Agreement for such Restricted Stock Award,
subject to
Section 11.1
.
- 11 -
(v)
Nontransferability
. Rights to acquire shares of Common Stock under a Restricted
Stock Award shall be nontransferable except by will or by the laws of descent and distribution or,
if the Restricted Stock Agreement so provides or the Committee so approves, as permitted by Rule
701 of the Securities Act, with respect to transfers by a Participant to the Participants family
members; provided, however, that the Participant may not receive any consideration for the
transfer.
8.
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Changes in Capital Structure and Change in Control
.
|
8.1.
No Limitations of Rights
. The existence of outstanding Options or Restricted
Stock Awards shall not affect in any way the right or power of the Corporation or its shareholders
to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in
the Corporations capital structure or its business, or any merger or consolidation of the
Corporation, or any issuance of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the
Corporation, or any sale or transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise.
8.2.
Changes in Capitalization
. If the Corporation effects a subdivision or
consolidation of shares or other capital readjustment, the payment of a stock dividend or other
increase or reduction of the number of shares of the Common Stock outstanding, or a combination,
reclassification or other distribution of shares, without receiving consideration therefor in
money, services or property, then (i) the number, class, and per share price of shares of Common
Stock subject to outstanding Options and Restricted Stock Awards hereunder; and (ii) the number and
class of shares then reserved for issuance under the Plan and the maximum number of shares for
which awards may be granted to a Participant during a specified time period shall be appropriately
and proportionately adjusted. The conversion of convertible securities of the Corporation shall
not be treated as having been effected without receiving consideration. No substitution or
adjustment made pursuant to this
Section 8.2
shall be made to the extent that such
substitution or adjustment would violate Code Section 409A or prevent the Plan from qualifying from
exemption under Code Section 409A. The Committee shall make such adjustments, and its
determinations shall be final, binding and conclusive.
8.3.
Change in Control
. Notwithstanding any other provision of the Plan to the
contrary, except to the extent otherwise provided in an agreement granting an Option or a
Restricted Stock Award, in the event of a Change in Control:
(i) The Committee shall have the discretion to accelerate the vesting of any Options and
Restricted Stock Awards outstanding, but not fully vested and exercisable as of the date of such
Change in Control, to the extent it deems appropriate;
(ii) The Committee shall have the discretion to remove all restrictions applicable to any
outstanding Restricted Stock Awards, the effect of which shall be that the Common Stock relating to
such Restricted Stock Awards shall become fully vested and transferable;
(iii) The Committee shall have the discretion to terminate any outstanding repurchase rights
of the Corporation with respect to any outstanding Options and Restricted Stock Awards; and
- 12 -
(iv) Outstanding Options and Restricted Stock Awards shall be subject to any agreement of
merger or reorganization that effects such Change in Control, which agreement shall provide for:
(a) The continuation of the outstanding Options and Restricted Stock Awards by the
Corporation, if the Corporation is a surviving corporation;
(b) The assumption of the outstanding Options and Restricted Stock Awards by the surviving
corporation or its parent or subsidiary;
(c) The substitution by the surviving corporation or its parent or subsidiary of equivalent
awards for the outstanding Options and Restricted Stock Awards; or
(d) Settlement of each share of Common Stock subject to an outstanding Option or Restricted
Stock Award for the Change in Control Price (less, to the extent applicable, the per share exercise
price), or, if the per share exercise price equals or exceeds the Change in Control Price, the
outstanding Option or Restricted Stock Award, as applicable, shall terminate and be canceled.
(v) In the absence of any agreement of merger or reorganization effecting such Change in
Control, each share of Common Stock subject to an outstanding Option or Restricted Stock Award
shall be settled for the Change in Control Price (less, to the extent applicable, the per share
exercise price), or, if the per share exercise price equals or exceeds the Change in Control Price,
the outstanding Option or Restricted Stock Award shall terminate and be canceled.
No substitution or adjustment made pursuant to this
Section 8.3
shall be made to the
extent that such substitution or adjustment would violate Code Section 409A or prevent the Plan
from qualifying from exemption under Code Section 409A.
8.4.
Limitation on Adjustment
. Except as previously expressly provided, neither the
issuance by the Corporation of shares of stock of any class, or securities convertible into shares
of stock of any class, for cash or property, or for labor or services either upon direct sale or
upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or
obligations of the Corporation convertible into such shares or other securities, nor the increase
or decrease of the number of authorized shares of stock, nor the addition or deletion of classes of
stock, shall affect, and no adjustment by reason thereof shall be made with respect to, the number,
class or price of shares of Common Stock then subject to outstanding Options or Restricted Stock
Awards. No adjustment made pursuant to this
Section 8.4
shall be made to the extent that
such adjustment would violate Code Section 409A or prevent the Plan from qualifying from exemption
under Code Section 409A.
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9.
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Withholding of Taxes
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The Corporation shall have the right, before any certificate for any Common Stock is
delivered, to deduct or withhold from any payment owed to a Participant any amount that is
necessary in order to satisfy any withholding requirement that the Corporation in good faith
believes is imposed upon it in connection with federal, state, or local taxes, including transfer
taxes, as a result of the issuance of, or lapse of restrictions on, such Common Stock, or otherwise
require such
Participant to make provision for payment of any such withholding amount. Subject to such
conditions as may be established by the Committee, the Committee may permit a Participant to (i)
have Common Stock otherwise issuable under an Option or Restricted Stock Award withheld to the
extent necessary to comply with minimum statutory withholding rate requirements for supplemental
income; (ii) tender back to the Corporation shares of Common Stock received pursuant to an Option
or Restricted Stock Award to the extent necessary to comply with minimum statutory withholding rate
requirements for supplemental income; (iii) deliver to the Corporation previously acquired Common
Stock; (iv) have funds withheld from payments of wages, salary or other cash compensation due the
Participant; or (v) pay the Corporation in cash, in order to satisfy part or all of the obligations
for any taxes required to be withheld or otherwise deducted and paid by the Corporation with
respect to the Option or Restricted Stock Award.
10.
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Compliance with Law and Approval of Regulatory Bodies
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10.1.
General Requirements
. No Option or Restricted Stock Award shall be exercisable,
no Common Stock shall be issued, no certificates for shares of Common Stock shall be delivered, and
no payment shall be made under the Plan except in compliance with all applicable federal and state
laws and regulations (including, without limitation, withholding tax requirements), any listing
agreement to which the Corporation is a party, and the rules of all domestic stock exchanges or
quotation systems on which the Corporations shares may be listed. The Corporation shall have the
right to rely on an opinion of its counsel as to such compliance. Any share certificate issued to
evidence Common Stock when a Restricted Stock Award is granted or for which an Option or Restricted
Stock Award is exercised may bear such legends and statements as the Committee may deem advisable
to ensure compliance with federal and state laws and regulations. No Option or Restricted Stock
Award shall be exercisable, no Restricted Stock Award shall be granted, no Common Stock shall be
issued, no certificate for shares shall be delivered, and no payment shall be made under the Plan
until the Corporation has obtained such consent or approval as the Committee may deem advisable
from regulatory bodies having jurisdiction over such matters.
10.2.
Participant Representations
. The Committee may require that a Participant, as a
condition to receipt of a particular award, execute and deliver to the Corporation a written
statement, in form satisfactory to the Committee, in which the Participant represents and warrants
that the shares are being acquired for such persons own account, for investment only and not with
a view to the resale or distribution thereof. The Participant shall, at the request of the
Committee, be required to represent and warrant in writing that any subsequent resale or
distribution of shares of Common Stock by the Participant shall be made only pursuant to either (i)
a registration statement on an appropriate form under the Securities Act, which registration
statement has become effective and is current with regard to the shares being sold; or (ii) a
specific exemption from the registration requirements of the Securities Act, but in claiming such
exemption the Participant shall, prior to any offer of sale or sale of such shares, obtain a prior
favorable written opinion of counsel, in form and substance satisfactory to counsel for the
Corporation, as to the application of such exemption thereto.
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11.1.
Corporation Repurchase Rights
. If the Committee provides for a right of the
Corporation to repurchase shares of Common Stock issued under the Plan to a Participant other than
an officer, Director or Consultant, the Corporation may exercise such right as set forth in the
Stock Option Agreement or Restricted Stock Agreement,
provided
,
however
, that such
repurchase
right shall provide (i) that the Common Stock is to be repurchased for its Fair Market Value
on the date of termination of Continuous Service and the repurchase right terminates when the
Common Stock becomes publicly traded; or (ii) that the repurchase is at the original purchase price
for the shares of Common Stock, provided that the right to repurchase lapses at a rate of at least
twenty percent (20%) of the shares per year over five (5) years from the date the right to acquire
the shares was granted (without respect to the date the Option was exercised or became
exercisable). In either case, the right to repurchase the shares of Common Stock may be exercised
for cash or cancellation of purchase money indebtedness for the shares within ninety (90) days of
the Participants termination of Continuous Service (or in the case of shares issued upon exercise
of Options after termination of Continuous Service, within ninety (90) days after the exercise).
In addition to the restrictions set forth in this
Section 11.1
, the securities held by an
officer, director or consultant of the Corporation or an Affiliate may be subject to additional or
greater restrictions.
11.2.
Information to Participants
. The Corporation shall provide to each Participant
and to any other individual who acquires shares of Common Stock under the Plan, not less frequently
than annually during the period such Participant has an Option or Restricted Stock Award
outstanding under the Plan, and, in the case of an individual who acquires Common Stock pursuant to
the Plan, during the period such individual owns such Common Stock, copies of annual financial
statements for the Corporation. The Corporation shall not be required to provide such statements
to key employees where duties in connection with the Corporation ensure their access to equivalent
information.
11.3.
Effect on Employment and Service
. None of the adoption of the Plan, its
operation, or any documents describing or referring to the Plan (or any part thereof) shall (i)
confer upon any individual any right to continue in the employ or service of the Corporation or an
Affiliate; (ii) in any way affect any right and power of the Corporation or an Affiliate to change
an individuals duties or terminate the employment or service of any individual at any time with or
without assigning a reason therefor; or (iii) except to the extent the Committee grants an Option
or Restricted Stock Award to such individual, confer on any individual the right to participate in
the benefits of the Plan.
11.4.
Use of Proceeds
. The proceeds received by the Corporation from the sale of
Common Stock pursuant to the Plan shall be used for general corporate purposes.
11.5.
Unfunded Plan
. The Plan, insofar as it provides for grants, shall be unfunded,
and the Corporation shall not be required to segregate any assets that may at any time be
represented by grants under the Plan. Any liability of the Corporation to any person with respect
to any grant under the Plan shall be based solely upon any contractual obligations that may be
created pursuant to the Plan. No such obligation of the Corporation shall be deemed to be secured
by any pledge of, or other encumbrance on, any property of the Corporation.
11.6.
Rules of Construction
. Headings are given to the Sections of the Plan solely as
a convenience to facilitate reference. The reference to any statute, regulation, or other
provision of law shall be construed to refer to any amendment to or successor of such provision of
law.
11.7.
Choice of Law
. The Plan and all Stock Option Agreements and Restricted Stock
Agreements entered into under the Plan shall be interpreted under the laws of the State of
California, without regard to any conflict of laws.
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12.
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Amendment and Termination
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The Board may amend or terminate the Plan from time to time; provided, however, that
shareholder approval shall be required for any amendment that (i) increases the aggregate number of
shares of Common Stock that may be issued under the Plan; or (ii) changes the class of employees
eligible to receive Incentive Stock Options. Except as specifically permitted by the Plan, Stock
Option Agreement or Restricted Stock Agreement or as required to comply with applicable law,
regulation or rule, no amendment shall, without a Participants consent, adversely affect any
rights of such Participant under any Option or Restricted Stock Award outstanding at the time such
amendment is made;
provided
,
however
, that an amendment that may cause an Incentive
Stock Option to become a Nonqualified Stock Option shall not be treated as adversely affecting the
rights of the Participant. Any increase in the aggregate number of shares of Common Stock
available under Plan or change in class of employees eligible to receive Incentive Stock Options
shall be approved by the shareholders of the Corporation within twelve (12) months of the date such
amendment is adopted by the Board.
No Option or Restricted Stock Award granted pursuant to this Plan is intended to constitute
deferred compensation as defined in Code Section 409A, and the Plan and the terms of all Options
and Restricted Stock Awards shall be interpreted accordingly. If any provision of the Plan, an
Option or a Restricted stock Award contravenes any regulations or Treasury guidance issued under
Code Section 409A, such provision shall be modified to maintain, to the maximum extent practicable,
the original intent of the applicable provision without triggering the penalties and interest under
Code Section 409A.
13.
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Effective Date of Plan, Duration of Plan
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13.1.
The Plan became effective as of November 17, 2006, upon adoption by the Board, subject to
approval within twelve (12) months by the shareholders holding of a majority of the shares of
Common Stock entitled to vote thereon. Unless and until the Plan has been approved by the
shareholders of the Corporation, no Option or Restricted Stock Award may be exercised. In the
event that the shareholders of the Corporation do not approve the Plan within such twelve (12)
month period, the Plan and any previously granted Option or Restricted Stock Award shall terminate.
13.2. Unless previously terminated, the Plan shall terminate ten (10) years after the earlier
of (i) the date the Plan is adopted by the Board; or (ii) the date the Plan is approved by the
shareholders, except that Options and Restricted Stock Awards that are granted under the Plan prior
to its termination shall continue to be administered under the terms of the Plan until the Options
and Restricted Stock Awards terminate or are exercised.
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INTERNATIONAL STEM CELL CORPORATION
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By:
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Name:
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Title:
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President
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Date:
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