<PAGE> 1
As filed with the Securities and Exchange Commission on March 18, 1999
Registration No. 333-70355
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------
GERON CORPORATION
(Exact Name of Registrant as specified in its charter)
DELAWARE 75-2287752
(State of incorporation) (I.R.S. Employer Identification No.)
230 CONSTITUTION DRIVE
MENLO PARK, CALIFORNIA 94025
(650) 473-7700
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive
offices)
RONALD W. EASTMAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
GERON CORPORATION
230 CONSTITUTION DRIVE
MENLO PARK, CALIFORNIA 94025
(650) 473-7700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies to:
JOSHUA L. GREEN
LAURA A. GORDON
SCOTT S. RING
VENTURE LAW GROUP
A PROFESSIONAL CORPORATION
2800 SAND HILL ROAD
MENLO PARK, CALIFORNIA 94025
(650) 854-4488
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT UNTIL
THE DATE THAT IS THREE YEARS FOLLOWING THE EFFECTIVE DATE OF THIS REGISTRATION
STATEMENT OR UNTIL SUCH EARLIER TIME THAT ALL OF THE SHARES REGISTERED HEREIN
HAVE BEEN SOLD.
----------------
If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
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CALCULATION OF REGISTRATION FEE
=============================================================================================================
TITLE OF EACH CLASS OF AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE (3)
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<S> <C> <C> <C> <C>
Common stock, $0.001 par value 3,850,000 shares $11.0313 $42,470,505 $11,807
=============================================================================================================
</TABLE>
(1) Shares of common stock which may be offered by selling stockholders pursuant
to this registration statement consisting of 3,850,000 shares issuable upon
conversion of $7,500,000 of series A zero coupon convertible debentures,
$7,500,000 of series B zero coupon convertible debentures and warrants
exercisable to purchase $15,000,000 of common stock. For purposes of
estimating the number of shares of common stock to be included in this
registration statement, Geron calculated 140% of the number of shares of
common stock issuable upon conversion of the debentures and exercise of the
warrants (based upon an assumed conversion price for the series A and series
B zero coupon convertible debentures of $10.00 and an exercise price for the
warrants of $12.00). In addition to the shares set forth in the table, the
amount to be registered includes an indeterminate number of shares issuable
upon conversion of
the series A and series B zero coupon convertible debentures and exercise of
the warrants, as such number may be adjusted as a result of stock splits,
stock dividends and similar transactions in accordance with Rule 416. Geron
is not, however, relying on Rule 416 to register any shares issuable as a
result of other changes to the conversion price of the debentures or the
exercise price of the warrants.
(2) Estimated solely for the purpose of computing the amount of the registration
fee, based on the average of the high and low prices for Geron's common
stock as reported on The Nasdaq National Market on January 4, 1999 in
accordance with Rule 457 under the Securities Act of 1933.
(3) Previously paid.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2
PROSPECTUS Subject to Completion
March 18, 1999
GERON CORPORATION
3,850,000 SHARES
OF COMMON STOCK
----------------
The shares of common stock offered by this prospectus are being offered by the
stockholders of Geron named in the section entitled "selling stockholders" on
page 16. The selling stockholders may sell the shares of common stock from
time to time on the Nasdaq National Market, in the over-the-counter market, in
regular brokerage transactions, in transactions directly with market makers or
in privately negotiated transactions. For additional information on the methods
of sale, you should refer to the section entitled "Plan of Distribution" on page
22. Geron will not receive any portion of the proceeds from the sale of these
shares.
----------------
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 3.
----------------
Each of the selling stockholders may be deemed to be an "Underwriter," as
such term is defined in the Securities Act of 1933.
Geron's common stock is quoted on the Nasdaq National Market under the
symbol "GERN."
The common stock will be sold at the market price of Geron's common stock at
the time it is sold. On March 16, 1999, the last sale price of the common stock
on the Nasdaq National Market was $10.50 per share.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OR PASSED ON THE
ADEQUACY OR ACCURACY OF THE DISCLOSURES IN THE PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
The date of this prospectus is March 18, 1999.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C>
OFFICES AND PLACE OF INCORPORATION.......................................................... 2
RISK FACTORS................................................................................ 3
WHERE CAN YOU FIND MORE INFORMATION......................................................... 14
USE OF PROCEEDS............................................................................. 15
ISSUANCE OF COMMON STOCK TO SELLING STOCKHOLDERS............................................ 15
SELLING STOCKHOLDERS........................................................................ 16
DESCRIPTION OF CAPITAL STOCK................................................................ 17
REGISTRATION RIGHTS OF CERTAIN OTHER HOLDERS................................................ 21
DELAWARE ANTI-TAKEOVER LAW; CHARTER AND BYLAW PROVISIONS THAT DISCOURAGE TAKEOVERS.......... 21
PLAN OF DISTRIBUTION........................................................................ 22
LEGAL MATTERS............................................................................... 23
EXPERTS..................................................................................... 23
</TABLE>
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You should
not rely on any unauthorized information. This prospectus does not offer to sell
or buy any shares in any jurisdiction in which it is unlawful. The information
in this prospectus is current as of the date on the cover.
OFFICES AND PLACE OF INCORPORATION
We were incorporated in 1990 under the laws of Delaware. Our principal
executive offices are located at 230 Constitution Drive, Menlo Park, California
94025 and our telephone number is (650) 473-7700. References in this prospectus
to "we," "us," "our," the "Company" and "Geron" refer to Geron Corporation and
its subsidiaries.
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RISK FACTORS
Before you invest in our common stock, you should be aware that there are
various risks, including those described below. You should carefully consider
these risk factors, together with all of the other information included in this
prospectus, before you decide whether to purchase shares of our common stock.
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may, "will," "expect,"
"anticipate," "believe," "estimate," and "continue" or similar words. You should
read statements that contain these words carefully because they: (1) discuss our
future expectations; (2) contain projections of our future results of operations
or of our financial condition; or (3) state other "forward-looking" information.
We believe it is important to communicate our expectations to our investors.
However, there may be events in the future that we are not able to predict
accurately or over which we have no control. The risk factors listed in this
section, as well as any cautionary language in this prospectus, provide examples
of risks, uncertainties and events that may cause our actual results to differ
materially from the expectations we describe in our forward-looking statements.
Before you invest in our common stock, you should be aware that the occurrence
of the events described in the risk factors and elsewhere in this prospectus
could have a material adverse effect on our business, operating results and
financial condition.
OUR TECHNOLOGY IS NEW AND WE MAY NOT BE ABLE TO DEVELOP PRODUCTS SUCCESSFULLY
The study of the mechanisms of cellular aging and cellular immortality,
including telomere biology and telomerase, and the study of embryonic stem and
germ cells are relatively new areas of research. While our development efforts
are at different stages for different products, we cannot assure you that we
will successfully develop any products or that we will not abandon some or all
of our proposed research programs. In the long term, for any of our cancer
treatments or other discoveries to be proven commercially viable, we will need
to demonstrate to the health care community that the treatment or products are:
- safe;
- effective;
- reliable; and
- not subject to other problems that would affect commercial viability.
If and when potential lead drug compounds or product candidates are
identified through our research programs, they will require significant
preclinical and clinical testing prior to regulatory approval in the United
States and elsewhere. In addition, we will also need to determine whether any of
these potential products can be manufactured in commercial quantities at an
acceptable cost. Our efforts may not result in a product that can be marketed.
Because of the significant scientific, regulatory and commercial milestones that
must be reached for any of our research programs to be successful, any program
may be abandoned, even after significant resources have been expended.
Our cancer treatment research may not result in commercially viable
therapeutic products
As a result of our drug discovery efforts to date, we have identified
compounds in laboratory studies that demonstrate potential for inhibiting
telomerase in humans. However, additional development efforts will be required
before we select a lead compound for preclinical development and clinical trials
as a telomerase inhibitor for cancer. We will have to conduct additional
research before we can select a compound and we may never identify a compound
that will enable us to fully develop a commercially viable treatment for cancer.
If and when selected, a lead compound may prove to have undesirable and
unintended side effects or other characteristics affecting its safety or
effectiveness that may prevent or limit its commercial use. In terms of safety,
our discoveries may result in cancer treatment solutions that cause unacceptable
side effects for the human body. Our discoveries may also not be as effective as
is necessary to market a commercially viable product for the treatment of
cancer. For example, we expect that telomerase inhibition may have delayed
effectiveness as telomeres resume normal shortening. As a result, telomerase
inhibition may need to be used in conjunction with other cancer
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<PAGE> 5
therapies. Accordingly, it may become extremely difficult for us to proceed with
preclinical and clinical development, to obtain regulatory approval or to market
a telomerase inhibitor for the treatment of cancer. If we abandon our research
for cancer treatment for any of these reasons or for other reasons, our business
would be materially and adversely affected.
Our research related to the treatment of age-related degenerative diseases
may not result in commercially viable therapeutic products
The research resulting from our telomerase activation and expression program
has shown us that the activation of telomerase can extend cell lifespan in
normal human cells. While telomere length and replicative capacity have been
extended in laboratory studies, we may not discover a compound that will
modulate telomere length or increase replicative capacity effectively for
clinical use. We have yet to identify any lead compounds that have been
demonstrated to modulate gene expression in human cells and we cannot guarantee
that we will be able to discover or develop the necessary compound.
Our cancer diagnostic program may not result in commercially viable clinical
products
There is, as yet, insufficient clinical data to confirm the full utility of
our proprietary telomerase detection technology to diagnose, prognose, monitor
patient status and screen for cancer. Although Intergen, Roche Diagnostics,
Kyowa Medex and PharMingen, our licensees, have begun to sell kits for research
use, additional development work and regulatory consents will be necessary prior
to the introduction of tests for clinical use.
Our research related to embryonic stem and germ cells may not result in
commercially viable clinical products
Our Embryonic Stem Cell Therapies program is also at an early stage. While
human embryonic stem cells have been derived and allowed to expand and
differentiate into numerous cell types, our efforts to direct differentiation of
human embryonic stem cells and develop products from our research may not result
in any commercial applications.
WE HAVE A HISTORY OF OPERATING LOSSES AND ANTICIPATE FUTURE LOSSES; CONTINUED
LOSSES COULD IMPAIR OUR ABILITY TO SUSTAIN OPERATIONS
We have incurred net operating losses every year since our operations began
in 1990. Losses have resulted principally from costs incurred in connection with
our research and development activities and from general and administrative
costs associated with our operations. We expect to incur additional operating
losses over the next several years as our research and development efforts and
preclinical testing activities are expanded. Substantially all of our revenues
to date have been research support payments under the collaborative agreements
with Kyowa Hakko and Pharmacia & Upjohn. Research support payments under the
agreement with Kyowa Hakko expired in April 1998. Research payments under the
agreement with Pharmacia & Upjohn expire in January 2000. We are unable to
estimate at this time the level of revenue to be received from the sale of
diagnostic products, and do not expect to receive significant revenues from the
sale of research-use-only kits. Our ability to achieve profitability is
dependent on our ability, alone or with others, to:
- continue to have success with our research and development
efforts;
- select therapeutic compounds for development;
- obtain the required regulatory approvals; and
- manufacture and market resulting products.
We cannot assure you when or if we will receive material revenues from
product sales or achieve profitability. Failure to generate significant
additional revenues and achieve profitability could impair our ability to
sustain operations.
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WE DEPEND ON OUR CURRENT COLLABORATIVE PARTNERS TO HELP US COMPLETE THE PROCESS
OF DEVELOPING, TESTING AND COMMERCIALIZING OUR PRODUCTS
Our strategy for the development, clinical testing and commercialization
of our products requires entering 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. We cannot assure you that our partners
will 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 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.
Our ability to successfully develop and commercialize telomerase
inhibition products depends on our corporate partnerships with Kyowa Hakko and
Pharmacia & Upjohn and our ability to successfully develop and commercialize
telomerase diagnostic products depends on our corporate partnership with Roche
Diagnostics. Under our collaborative agreements with these partners, we rely
significantly on them, among other activities, to:
- design and conduct advanced clinical trials;
- fund research and development activities with us;
- pay us fees upon the achievement of milestones; and
- co-promote with us any commercial products that result from our
collaborations.
The development and commercialization of products from these
collaborations will be delayed if Kyowa Hakko, Pharmacia & Upjohn or Roche
Diagnostics fail to conduct these collaborative activities in a timely manner or
at all. In addition, Kyowa Hakko, Pharmacia & Upjohn or Roche Diagnostics could
terminate these agreements and we cannot assure you that we will receive any
development or milestone payments. If we do not receive research funds or
achieve milestones set forth in the agreements, or if Kyowa Hakko, Pharmacia &
Upjohn or Roche Diagnostics or any of our future partners breach or terminate
collaborative agreements with us, our business may be damaged significantly.
We are also, to a lesser extent, dependent upon collaborative partners other
than Kyowa Hakko, Pharmacia & Upjohn and Roche Diagnostics. For example, we have
entered into licensing arrangements with several diagnostic companies for our
telomerase detection technology. However, because these licenses are limited to
the research-use-only market, such arrangements are not expected to generate
significant commercial revenues, if at all.
OUR ABILITY TO DEVELOP, MANUFACTURE AND MARKET PRODUCTS IS DEPENDENT UPON
WHETHER WE ARE SUCCESSFUL IN ENTERING INTO ADDITIONAL COLLABORATIVE PARTNERSHIPS
We currently have no manufacturing infrastructure and no marketing or sales
organization. As a result, we intend to rely almost entirely on our current and
future collaborative partners for the manufacture of any product and the
principal marketing and sales responsibilities for any such product. To the
extent that we choose not to or are unable to establish such arrangements, we
will require substantially greater capital to develop our own manufacturing,
marketing and sales capabilities.
We cannot assure you that we will be able to negotiate additional strategic
arrangements in the future on acceptable terms, if at all, or that any potential
strategic arrangement will be successful. In the absence of such arrangements,
we may encounter significant delays in introducing any product or find that the
research, development, manufacture, marketing or sale of any product is
adversely affected. In the event we need to enter into strategic arrangements in
the future, but are unable to do so, our business will be significantly and
negatively impacted.
WE HAVE LIMITED CONTROL OVER THE RESEARCH ACTIVITIES OF OUR SCIENTIFIC ADVISORS
ON WHICH WE RELY
We rely extensively and have relationships with scientific advisors at
academic and other institutions, some of whom conduct research at our request.
These scientific advisors are not our employees and may have commitments
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<PAGE> 7
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
advisors and, except as otherwise required by our collaboration and consulting
agreements, can expect only limited amounts of their time to be dedicated to our
activities. If our scientific advisors are unable or refuse to contribute to the
development of any of our potential discoveries, our ability to generate
significant advances in our technologies will be significantly harmed.
OUR SUCCESS IS DEPENDENT UPON OUR ABILITY TO PROTECT OUR DISCOVERIES
The sustainability of our business is dependent on our ability to protect
our discoveries with patents and enforce our patents
Protection of our proprietary compounds and technology is critically
important to our business.
Our success will depend in part on our ability to obtain and enforce our patents
and maintain trade secrets, both in the United States and in other countries.
The patent positions of pharmaceutical and biopharmaceutical companies,
including ours, are highly uncertain and involve complex legal and technical
questions for which legal principles are not firmly established. We cannot
assure you that we will continue to develop products or processes that are
patentable or that patents will issue from any of the pending applications,
including allowed patent applications. Further, we cannot assure you that our
current patents, or patents that issue on pending applications, will not be
challenged, invalidated or circumvented, or that our current or future patent
rights will provide proprietary protection or competitive advantages to us. In
the event that we are unsuccessful in obtaining and enforcing patents, our
business would be negatively impacted.
Patent applications in the United States are maintained in secrecy until
patents issue. Publication of discoveries in the scientific or patent literature
tends to lag behind actual discoveries by at least several months and sometimes
several years. Therefore, we cannot assure you that the persons or entities that
we or our licensors name as inventors in our patents and patent applications
were the first to invent the inventions disclosed in the patent applications or
patents, or file patent applications for these inventions. As a result, we may
not be able to obtain patents from discoveries that we otherwise would consider
patentable and that we consider to be extremely significant to our future
success.
Patent prosecution or litigation may also be necessary to obtain patents,
enforce any patents issued or licensed to us or to determine the scope and
validity of our proprietary rights or the proprietary rights of another. We
cannot assure you that we would be successful in any patent prosecution or
litigation. Patent prosecution and litigation in general can be extremely
expensive and time consuming, even if the outcome is favorable to us. An adverse
outcome in a patent prosecution, litigation or any other proceeding in a court
or patent office could subject our business to significant liabilities to other
parties, require disputed rights to be licensed from other parties or require us
to cease using such technology.
In the event that we are unsuccessful in obtaining and enforcing patents or
otherwise protecting our discoveries, we will be dependent on our ability to
develop alternative patentable technologies, avoid infringing on the patents
of others, and license from others the patents that are necessary
Our commercial success depends significantly on our ability to operate
without infringing patents and proprietary rights of others. We cannot assure
you that our technologies do not and will not infringe the patents or
proprietary rights of others. In the event of such infringement, we may be
prevented from pursuing research, development or commercialization of potential
products or may be required to obtain licenses to these patents or other
proprietary rights or to develop or obtain alternative technologies. We may not
be able to obtain alternative technologies or any required license on
commercially favorable terms, if at all. If we do not obtain any such license or
alternative technologies, we may be delayed or prevented from pursuing the
development of some potential products. Our breach of an existing license or
failure to obtain alternative technologies or a license to any technology that
we may require to develop or commercialize our products will significantly and
negatively affect our business.
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<PAGE> 8
We cannot assure you that we will not be subject to claims or litigation as a
result of entering into license agreements with third parties or infringing on
the patents of others. For example, we signed a licensing and sponsored research
agreement relating to our Embryonic Stem Cell Therapies program with The Johns
Hopkins University School of Medicine in August 1997. Prior to signing this
agreement, we had been informed by a third party that we and Johns Hopkins
University would violate the rights of that third party and another academic
institution in doing so. After a review of the correspondence with the third
party and Johns Hopkins University, as well as related documents, including an
issued U.S. patent, we believe that both we and Johns Hopkins University have
substantial defenses to any claims that might be asserted by the third party. We
have provided indemnification to Johns Hopkins University relating to such
potential claims. However, any litigation resulting from this matter may divert
significant resources, both financial and otherwise, from our research programs.
We cannot assure you that we would be successful if the matter is litigated. If
the outcome of litigation is unfavorable to us, our business could be materially
and adversely affected.
Patent law relating to the scope and enforceability of claims in the
technology fields in which we operate is still evolving, and the degree of
future protection for any of our proprietary rights is highly uncertain. In this
regard we cannot assure you that independent patents will issue from any of our
patent applications, some of which include many interrelated applications
directed to common or related subject matter. As a result, our success may
become dependent on our ability to obtain licenses for using the patented
discoveries of others. We are aware of patent applications and patents that have
been filed by others with respect to telomerase and telomere length technology
and we may have to obtain licenses to use this technology. For example, there
are a number of issued patents and pending applications owned by others directed
to differential display, stem cell and other technologies relating to our
research, development and commercialization efforts. We may also become aware of
discoveries and technology controlled by third parties that is advantageous to
our other research programs. We cannot assure you that our discoveries and
treatments can be further developed and commercialized without a license to
these discoveries or technologies. Moreover, other patent applications may be
granted priority over patent applications that we or any of our licensors have
filed. Furthermore, others may independently develop similar or alternative
technologies, duplicate any of our technologies or design around the patented
technologies we have developed. In the event that we are unable to acquire
licenses to critical technologies that we cannot patent ourselves, we may be
required to expend significant time and resources to develop similar technology,
and we may not be successful in this regard. If we cannot acquire or develop
necessary technology, we may be prevented from pursuing some of our business
objectives. Moreover, one of our competitors could acquire or license such
technology. Any of these events could have a material adverse effect on our
business.
Much of the information and know-how that is critical to our business is not
patentable and we may not be able to prevent others from obtaining this
information
We rely extensively on trade secrets to protect our proprietary technology,
especially in circumstances in which patent protection is not believed to be
appropriate or obtainable. We attempt to protect our proprietary technology in
part by confidentiality agreements with our employees, consultants and
contractors. We cannot assure you that these agreements will not be breached,
that we would have adequate remedies for any breach, or that our trade secrets
will not otherwise become known or be independently discovered by competitors,
any of which would harm our business significantly.
WE WILL NEED ADDITIONAL CAPITAL TO CONDUCT OUR OPERATIONS AND DEVELOP OUR
PRODUCTS, AND OUR ABILITY TO OBTAIN THE NECESSARY FUNDING IS UNCERTAIN
We will require substantial capital resources in order to conduct our
operations and develop our products. Based on current projections, we estimate
that our existing capital resources, payments under our agreement with Pharmacia
& Upjohn, proceeds to be received under convertible debentures in 1999, interest
income and equipment financing will be sufficient to fund our current and
planned operations through the end of 2000. The timing and degree of any future
capital requirements will depend on many factors, including:
- the accuracy of the assumptions underlying our estimates for our capital
needs in 1999 and beyond;
- continued scientific progress in our research and development programs;
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<PAGE> 9
- the magnitude and scope of our research and development programs;
- our ability to maintain and establish strategic arrangements for
research, development, clinical testing, manufacturing and marketing;
- our progress with preclinical and clinical trials;
- the time and costs involved in obtaining regulatory approvals;
- the costs involved in preparing, filing, prosecuting, maintaining,
defending and enforcing patent claims; and
- the potential for new technologies and products.
We intend to acquire additional funding through strategic collaborations,
public or private equity financings and capital lease transactions. Additional
financing may not be available on acceptable terms, or at all. Additional equity
financings could result in significant dilution to stockholders. Further, in the
event that additional funds are obtained through arrangements with collaborative
partners, such arrangements may require us to relinquish rights to some of our
technologies, product candidates or products that we would otherwise seek to
develop or commercialize ourselves. If sufficient capital is not available, we
may be required to delay, reduce the scope of or eliminate one or more of our
research or development programs, each of which could have a material adverse
effect on our business.
WE ARE IN A HIGHLY COMPETITIVE MARKET AND OUR COMPETITORS MAY DEVELOP
ALTERNATIVE TECHNOLOGIES THAT MAY IMPAIR OUR ABILITY TO SUSTAIN OPERATIONS
The pharmaceutical and biopharmaceutical industries are intensely
competitive. We believe that other pharmaceutical and biopharmaceutical
companies and research organizations currently engage in or have in the past
engaged in efforts related to the biological mechanisms of cell aging and cell
immortality, including the study of telomeres, telomerase and stem cell
technologies. In addition, other products and therapies that could compete
directly with the products that we are seeking to develop and market currently
exist or are being developed by pharmaceutical and biopharmaceutical companies,
and by academic and other research organizations. Many companies are also
developing alternative therapies to treat cancer and, in this regard, are
competitors of ours. The pharmaceutical companies developing and marketing these
competing products have significantly greater financial resources and expertise
than we do in:
- research and development;
- manufacturing;
- preclinical and clinical testing;
- obtaining regulatory approvals; and
- marketing.
Smaller companies may also prove to be significant competitors, particularly
through collaborative arrangements with large and established companies.
Academic institutions, government agencies and other public and private research
organizations may also conduct research, seek patent protection and establish
collaborative arrangements for research, clinical development and marketing of
products similar to ours. These companies and institutions compete with us in
recruiting and retaining qualified scientific and management personnel as well
as in acquiring technologies complementary to our programs. There is also
competition for access to libraries of compounds to use for screening. Should we
fail to secure and maintain access to sufficiently broad libraries of compounds
for screening potential targets, our business would be materially harmed. In
addition to the above factors, we expect to face competition in the following
areas:
- product efficacy and safety;
- the timing and scope of regulatory consents;
- availability of resources;
- reimbursement coverage;
- price; and
- patent position, including potentially dominant patent positions of
others.
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As a result of the foregoing, our competitors may develop more effective or
more affordable products, or achieve earlier patent protection or product
commercialization than us. Most significantly, competitive products may render
our products that we develop obsolete.
OUR SUCCESS IS DEPENDENT ON OUR ABILITY TO RETAIN KEY PERSONNEL
Our future success depends to a significant extent on the skills, experience
and efforts of our executive officers and key members of our scientific staff.
The loss of any or all of these individuals could damage our business and might
significantly delay or prevent the achievement of research, development or
business objectives.
We also rely on consultants and advisors, including the members of our
Scientific Advisory Board, who assist us in formulating our research and
development strategy. We face intense competition for qualified individuals from
numerous pharmaceutical, biopharmaceutical and biotechnology companies, as well
as academic and other research institutions. We may not be able to attract and
retain such individuals on acceptable terms. Failure to do so would adversely
affect our business.
THE ETHICAL, LEGAL AND SOCIAL IMPLICATIONS OF THE EMBRYONIC STEM CELL THERAPIES
PROGRAM COULD PREVENT US FROM DEVELOPING COMMERCIALLY VIABLE PRODUCTS IN THIS
AREA
Our Embryonic Stem Cell Therapies program may involve the use of human
embryonic stem and germ cells that would be derived from human embryonic or
fetal tissue. The use of human embryonic stem and germ cells gives rise to
ethical, legal and social issues regarding the appropriate utilization of these
cells. In the event that our research related to human embryonic stem cell
therapies becomes the subject of adverse commentary or publicity, our name and
goodwill could be adversely affected.
We have established an Ethics Advisory Board comprised of independent and
recognized medical ethicists to advise us with respect to these issues. Indeed,
the use of embryonic tissue in scientific research is an issue of national
interest. Many research institutions, including several of our scientific
collaborators, have adopted policies regarding the ethical use of these types of
human cells. These policies may have the effect of limiting the scope of
research conducted in this area. The United States government currently does not
fund research that involves the use of human embryonic cells or tissue and may
in the future regulate or otherwise restrict its use. The Embryonic Stem Cell
Therapies program would be significantly harmed if we are prevented from
conducting research on these cells due to government regulation or otherwise.
OUR ABILITY TO EARN REVENUES FROM THE SALE OF MARKETABLE PRODUCTS IS PARTLY
DEPENDENT ON THE SCOPE OF GOVERNMENT REGULATION AND OUR SUCCESS IN OBTAINING
REGULATORY APPROVAL FOR OUR PRODUCTS
Our business is subject to intense government regulation and this regulation
may significantly impact our ability to create and market commercially viable
products.
Federal, state and local governments in the United States and governments in
other countries have significant regulations in place that govern many of our
activities. The preclinical testing and clinical trials of the products that we
develop ourselves or that our collaborative partners develop are subject to
intense government regulation and may prevent us from creating commercially
viable products from our discoveries. In addition, the sale by us or our
collaborative partners of any commercially viable product will be subject to
government regulation from several standpoints, including the processes of:
- manufacturing;
- labeling;
- selling;
- distributing;
- marketing;
- advertising; and
- promoting.
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<PAGE> 11
We cannot assure you that we will be able to comply with these regulations
for any of our potentially marketable products. To the extent that we are
unable, our ability to earn revenues will be significantly and negatively
impacted.
The regulatory process, particularly for biopharmaceutical products like
ours, is uncertain, can take many years and requires the expenditure of
substantial resources.
Any product that we or our collaborative partners develop must receive all
relevant regulatory agency approvals or clearances, if any, before it may be
marketed in the United States or other countries. Generally, biological drugs
and non-biological drugs are regulated more rigorously than medical devices. In
particular, human pharmaceutical therapeutic products, including a telomerase
inhibitor, are subject to rigorous preclinical and clinical testing and other
requirements by the Food and Drug Administration in the United States and
similar health authorities in foreign countries. The regulatory process, which
includes extensive preclinical testing and clinical trials of each product in
order to establish its safety and efficacy, is uncertain, can take many years
and requires the expenditure of substantial resources.
Data obtained from preclinical and clinical activities is susceptible to
varying interpretations that could delay, limit or prevent regulatory agency
approvals or clearances. In addition, delays or rejections may be encountered
based upon changes in regulatory agency policy during the period of product
development and/or the period of review of any application for regulatory agency
approval or clearance for a product. Delays in obtaining regulatory agency
approvals or clearances could:
- significantly harm the marketing of any products that we or our
collaborative partners develop;
- impose costly procedures upon our activities or the activities of our
collaborative partners;
- diminish any competitive advantages that we or our collaborative
partners may attain; or
- adversely affect our ability to receive royalties and generate revenues
and profits.
Even if we commit the time and resources, both economic and otherwise, that
are necessary, the required regulatory agency approvals or clearances may not be
obtained for any products developed by or in collaboration with us. If
regulatory agency approval or clearance for a new product is obtained, such
approval or clearance may entail limitations on the indicated uses for which it
may be marketed that could limit the potential market for any such product.
Furthermore, approved products and their manufacturers are subject to continual
review, and discovery of previously unknown problems with a product or its
manufacturer may result in restrictions on such product or manufacturer,
including withdrawal of the product from the market. Failure to comply with
regulatory requirements can result in severe civil and criminal penalties,
including but not limited to:
- recall or seizure of products;
- injunction against manufacture, distribution, sales and marketing; and
- criminal prosecution.
The imposition of any of these penalties could significantly impair our
business.
THE SUCCESS OF OUR PRODUCTS IS DEPENDENT UPON THEIR ACCEPTANCE IN THE HEALTH
CARE COMMUNITY
We cannot assure you that any products successfully developed by us or by our
collaborative partners, if approved for marketing, will achieve market
acceptance since 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 may represent substantial departures from established
treatment methods and will compete with a number of traditional drugs and
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:
- our establishment and demonstration to the medical community of the
clinical efficacy and safety of our product candidates;
- our ability to create products that are superior to alternatives
currently on the market;
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<PAGE> 12
- our ability to establish in the medical community of the potential
advantage of our treatments over alternative treatment methods; and
- reimbursement policies of government and third-party payors.
If the health care community does not accept our products for any of the
foregoing reasons, our ability to generate revenues will be significantly
impaired
HEALTH CARE REFORM MEASURES MAY NEGATIVELY IMPACT THIRD PARTY REIMBURSEMENT FOR
OUR PRODUCTS AND PREVENT MARKET ACCEPTANCE OF OUR PRODUCTS
Significant uncertainty exists as to the reimbursement status of newly
approved health care products, including pharmaceuticals. If we fail to generate
adequate third party reimbursement for the users of our potential products and
treatments, then we may be unable to maintain price levels sufficient to realize
an appropriate return on our investment in product development.
In both domestic and foreign markets, sales of our products, if any, will
depend in part on the availability of reimbursement from third-party payors such
as:
- government health administration authorities;
- private health insurers;
- health maintenance organizations; and
- pharmacy benefit management companies.
Both federal and state governments in the United States and foreign
governments continue to propose and pass legislation designed to contain or
reduce the cost of health care through various means. Legislation and
regulations affecting the pricing of pharmaceuticals and other medical products
may change or be adopted before any of our potential products are approved for
marketing. Cost control initiatives could decrease the price that we receive for
any product we may develop in the future. In addition, third-party payors are
increasingly challenging the price and cost-effectiveness of medical products
and services and any of our potential products and treatments may ultimately not
be considered cost effective by these third parties. Any of these initiatives or
developments could negatively impact our business.
IMPROPER USE OF HAZARDOUS MATERIALS COULD RESULT IN SIGNIFICANT ECONOMIC
PENALTIES AND ADVERSELY AFFECT OUR FINANCIAL CONDITION
Our research and development activities involve the controlled use of
hazardous materials, chemicals and various radioactive compounds. As a
consequence, we are subject to numerous environmental and safety laws and
regulations. We may be required to incur significant costs to comply with
current or future environmental laws and regulations and may be adversely
affected by the cost of compliance with such laws and regulations. Although we
believe that our safety procedures for using, handling, storing and disposing of
such materials comply with the standards prescribed by state and federal
regulations, the risk of accidental contamination or injury from these materials
cannot be eliminated. In the event of such an accident, our use of these
materials could be curtailed by state or federal authorities, and we could be
held liable for any damages that result. Any such liability could materially
adversely affect our business.
INSURANCE MAY NOT BE AVAILABLE TO COVER US IN THE EVENT THAT WE ARE EXPOSED TO
PRODUCT LIABILITY CLAIMS
Although we believe that we do not currently have any exposure to product
liability claims, our future business will expose us to potential product
liability risks that are inherent in the testing, manufacturing and marketing of
human therapeutic and diagnostic products. We currently have no clinical trial
liability insurance and we may not be able to obtain and maintain such insurance
for any of our clinical trials. In addition, we may not be able to obtain or
maintain product liability insurance in the future on acceptable terms or with
adequate coverage against potential liabilities.
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<PAGE> 13
THE SUBSTANTIAL NUMBER OF SHARES THAT WILL BE ELIGIBLE FOR SALE IN THE NEAR
FUTURE MAY ADVERSELY AFFECT THE MARKET PRICE FOR OUR COMMON STOCK AND MAY RESULT
IN SIGNIFICANT DILUTION TO OUR CURRENT STOCKHOLDERS
Sales of a substantial number of shares of our common stock in the public
market following this offering could significantly and negatively affect the
market price for our common stock. As of March 8, 1999, we had outstanding
approximately 13,666,182 shares of common stock. We also have reserved 3,527,017
shares of common stock for issuance upon exercise of outstanding warrants and
options that we issued to our employees and other entities and persons who are
not selling stockholders related to this prospectus.
The conversion of the debentures and exercise of the warrants that we issued
to the selling stockholders will result in our issuance of a minimum of
2,750,000 additional shares of common stock. If the series A debentures were
converted on March 8, 1999, the series A debentures would be convertible into
750,000 shares of common stock. Similarly, the series B debentures will be
convertible into 750,000 shares of common stock on their date of issuance if no
adjustments in the conversion price have occurred before that date. If the
series A warrants were exercised on March 8, 1999, the series A warrants would
be exercisable into 625,000 shares of common stock. Similarly, the series B
warrants would be exercisable into 625,000 shares of common stock on their date
of issuance if no adjustments in the exercise price have occurred before that
date. As described in "Description of Capital Stock - Convertible debentures"
and - "Warrants" on pages 19 and 21 of this prospectus, this number of shares
could prove to be significantly greater, and you would be increasingly diluted,
in the event that the conversion or exercise prices are reduced because we:
- - have a rights offering, or a similar offering of securities to all
investors, at less than the conversion or exercise price per share
respectively; or
- - issue common stock or securities convertible into common stock, other
than related to our option plans or in connection with a strategic joint
venture, at a price less than the conversion price per share.
Additionally, one of our current strategic partners and shareholders,
Pharmacia & Upjohn, has contractually agreed not to sell the 696,787 shares of
common stock that it holds until April 2000, at which time these shares will be
eligible for sale and freely transferable in the public market. We also continue
to have 3,452 outstanding shares of our series A convertible preferred stock,
which shares would be convertible into 380,026 shares of common stock as of
December 31, 1998. In order for these shares to be converted, we would have to
seek and obtain shareholder approval for the transaction or receive a waiver
from the Nasdaq National Market. See "Description of Capital Stock - Series A
convertible preferred stock" on page 17 of this prospectus.
Current holders of our common stock will also be immediately and
substantially diluted to the extent that the weighted average conversion and
exercise price of the above-described convertible and exercisable securities is
less than the price of our common stock on the date holders of these securities
convert or exercise their convertible or exercisable securities.
OUR STOCK PRICE WILL LIKELY BE SUBJECT TO SUBSTANTIAL PRICE AND VOLUME
FLUCTUATIONS DUE TO A NUMBER OF FACTORS, MANY OF WHICH ARE BEYOND OUR CONTROL
Stock prices and trading volumes for many biopharmaceutical companies
fluctuate widely for a number of reasons, including some reasons which may be
unrelated to their businesses or results of operations. This market volatility,
as well as general domestic or international economic, market and political
conditions, could materially and adversely affect the market price of our common
stock and your return on your investment.
Historically, our stock price has been extremely volatile. Between January
1998 and January 1999, our stock price traded as high as $24.50 per share and as
low as $3.50 per share. The significant market price fluctuations of our common
stock are due to a variety of factors, including:
- depth of the market for the common stock;
- the experimental nature of our prospective products;
- fluctuations in our operating results;
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<PAGE> 14
- market conditions relating to the biopharmaceutical and pharmaceutical
industries;
- any announcements of technological innovations, new commercial products
or clinical progress or lack thereof by us, our collaborative partners
or our competitors; or
- announcements concerning regulatory developments, developments with
respect to proprietary rights and our collaborations.
In addition, the stock market is subject to other factors outside our control
that can cause extreme price and volume fluctuations. Securities class action
litigation has often been brought against companies, including many
biotechnology companies, which then experience volatility in the market price of
their securities. Litigation brought against us could result in substantial
costs and a diversion of management's attention and resources, which could
adversely affect our business.
OUR UNDESIGNATED PREFERRED STOCK MAY INHIBIT POTENTIAL ACQUISITION BIDS; THIS
MAY ADVERSELY AFFECT THE MARKET PRICE FOR OUR COMMON STOCK AND THE VOTING RIGHTS
OF THE HOLDERS OF COMMON STOCK
Our certificate of incorporation provides our Board of Directors with the
authority to issue up to 3,000,000 shares of undesignated preferred stock and to
determine the rights, preferences, privileges and restrictions of these shares
without further vote or action by the stockholders. In March 1998, the Board of
Directors designated 15,000 shares as series A preferred stock. As of the date
of this prospectus, the Board of Directors still has authority to designate and
issue up to 2,985,000 shares of preferred stock. The rights of the holders of
common stock will be subject to, and may be adversely affected by, the rights of
the holders of any preferred stock that may be issued in the future. The
issuance of shares of preferred stock may delay or prevent a change in control
transaction without further action by our stockholders. As a result, the market
price of our common stock may be adversely affected. The issuance of preferred
stock may also result in the loss of voting control by others.
PROVISIONS IN OUR CHARTER AND BYLAWS, AND PROVISIONS OF DELAWARE LAW, MAY
INHIBIT POTENTIAL ACQUISITION BIDS FOR US AND MAY PREVENT CHANGES IN MANAGEMENT
In addition to the undesignated preferred stock, provisions of our charter
documents and bylaws may make it substantially more difficult for a third party
to acquire control of us and may prevent changes in our management, including
provisions that:
- prevent stockholders from taking actions by written consent;
- require a staggered election of our board of directors; and
- set forth procedures for nominating directors and submitting proposals
for consideration at stockholders' meetings
Provisions of Delaware law may also inhibit potential acquisition bids for
us. For example, Delaware law prevents Delaware corporations, including us, from
engaging in certain business combinations. See "Delaware Anti-Takeover Law;
Charter and Bylaw Provisions that Discourage Takeovers" on page 22 of this
prospectus for a further description this and other takeover defenses provided
by Delaware law.
Either collectively or individually, these provisions may prevent holders of
our common stock from benefiting from what they may believe are the positive
aspects of acquisitions and takeovers, including the potential realization of a
higher rate of return on their investment from these types of transactions.
POTENTIAL YEAR 2000 PROBLEMS COULD ADVERSELY AFFECT OUR OPERATIONS
Potential year 2000 problems are the result of computer programs being
written using two digits rather than four to define the applicable year. Any of
our computer programs or laboratory equipment that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions in
operations, including, among other things, a temporary inability to:
- process transactions;
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<PAGE> 15
- send checks;
- perform research and development activities; or
- engage in similar normal business activities.
Based on a recent assessment, we have determined that we will be required to
modify or replace portions of our software so that our computer systems will
function properly with respect to dates in the year 2000 and thereafter. These
software programs include our accounting package and voicemail system. We
presently believe that with modifications to existing software and conversions
to new software, potential year 2000 problems will not pose significant
operational problems for our computer systems. However, if such modifications
and conversions are not made, or are not completed timely, potential year 2000
problems could have a significant and negative impact on our operations.
WHERE CAN YOU FIND MORE INFORMATION
This prospectus is part of a registration statement on Form S-3 that we filed
with the Securities and Exchange Commission, or the "Commission." Certain
information in the registration statement has been omitted from this prospectus
in accordance with the Commission rules. We file annual, quarterly and special
reports, proxy statements and other information with the Commission. You can
read and copy the registration statement as well as reports, proxy statements
and other information we have filed with the Commission at the public reference
room maintained by the Commission at 450 Fifth Street, NW, Washington, D.C.
20549, and at the following Regional Offices of the Commission: Seven World
Trade Center, New York, New York 10048, and Northwest Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661. You can call the Commission at
1-800-732-0330 for further information about the public reference room. We are
also required to file electronic versions of these documents with the
Commission, which may be accessed through the Commission's World Wide Web site
at http://www.sec.gov. Our common stock is quoted on The Nasdaq National Market.
Reports, proxy and information statements and other information concerning our
company may be inspected at The Nasdaq Stock Market at 1735 K Street, NW,
Washington, D.C. 20006.
The Commission allows us to "incorporate by reference" the information we
have previously filed with them, which means we can disclose important
information by referring you to those documents. All information that we have
incorporated by reference is available to you in accordance with the above
paragraph. Information that we file with the Commission subsequent to the date
of this prospectus will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings made
with the Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), until the selling
stockholders have sold all the shares.
The following documents filed with the Commission are incorporated by
reference in this prospectus:
1. Our Annual Report on Form 10-K for the year ended December 31, 1998 (File
No. 0-20859).
2. Our definitive Proxy Statement dated April 6, 1998, filed in connection
with our 1998 Annual Meeting of Stockholders.
3. Our Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998,
June 30, 1998 and September 30, 1998 (File No. 0-20859).
4. Our Current Reports on Form 8-K, filed with the Commission on February 11,
1998, April 2, 1998 and December 17, 1998 (File No. 0-20859).
5. The description of our common stock set forth in our registration
statement on Form 8-A, filed with the Commission on June 13, 1996 (File No.
0-20859).
We will furnish without charge to you, on written or oral request, a copy of
any or all of the documents incorporated by reference, including exhibits to
such documents. You should direct any requests for documents to
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<PAGE> 16
David L. Greenwood, Chief Financial Officer, Geron Corporation, 230 Constitution
Drive, Menlo Park, California 94025, telephone: (650) 473-7700.
USE OF PROCEEDS
The proceeds from the sale of the common stock offered pursuant to this
prospectus are solely for the account of the selling stockholders. We will not
receive any proceeds from the sale of these shares of common stock.
ISSUANCE OF COMMON STOCK TO SELLING STOCKHOLDERS
On December 10, 1998, we completed a private placement of $7,500,000 face
amount of series A debentures and series A warrants to purchase up to $7,500,000
of our common stock. The series A debentures are convertible into common stock
at the option of the holder until the date which is three years following the
date of issuance, or December 10, 2001, at a conversion price of $10.00 per
share, subject to adjustment under circumstances more extensively described in
the section entitled "Description of Capital Stock - Convertible debentures" on
page 19 of this prospectus. The series A debentures are convertible at our
option when the closing bid price of our common stock on the Nasdaq National
Market is greater than $17.50 for five consecutive trading days. The series A
warrants are exercisable for common stock at the option of the holder until June
10, 2000 at an exercise price of $12.00 per share, subject to adjustment under
circumstances more extensively described in the section entitled "Description of
Capital Stock - Warrants" on page 21 of this prospectus. These debentures and
warrants were sold in reliance on Rule 506 of the Securities Act which provides
an exemption from registration for sales to "accredited investors," as defined
by Rule 501 under Regulation D of the Securities Act. After the effectiveness of
this prospectus and other customary closing conditions outside the direct or
indirect control of the selling stockholders, we will issue a total of
$7,500,000 face amount of series B debentures and $7,500,000 of series B
warrants to the selling stockholders. The series A and series B debentures, and
the series A and series B warrants will be identical in price and terms, except
for the date of issuance. Following the issuance of the series B debentures and
the series B warrants, a total of $15,000,000 face amount of debentures and
$15,000,000 of warrants will be outstanding.
Under the terms of the private placements, we agreed to file a registration
statement on Form S-3 to cover the shares of common stock issuable upon
conversion of the debentures and exercise of all of the warrants.
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<PAGE> 17
SELLING STOCKHOLDERS
The following table sets forth certain information known to us with respect
to beneficial ownership of our common stock as of January 4, 1999 by each
selling stockholder. The number of shares set forth in the table represents an
estimate of the number of shares of common stock to be offered by the selling
stockholders. We estimate that the $15,000,000 of series A and B debentures will
be convertible at a conversion price of $10.00 per share into 1,500,000 shares
of common stock collectively. We also estimate that the $15,000,000 of series A
and B warrants will be exercisable at an exercise price of $12.00 per share into
1,250,000 shares collectively. The actual number of shares of common stock
issuable upon conversion of the debentures and exercise of the warrants is
indeterminate and could be materially less or more than the amount estimated due
to the conversion and exercise price adjustments explained in the section of
this prospectus entitled "Description of Capital Stock" on page 17 and, in
particular, the subsections entitled "Convertible debentures" on page 19 and
"Warrants" on page 21. This table, however, assumes no price adjustment to the
conversion price of the debentures or exercise price of the warrants. Except
where noted, this table also only includes the number of shares of common stock
expected to be issuable upon conversion of the series A and B debentures and
exercise of the series A and B warrants. The terms of the debentures and the
warrants provide that the debentures are convertible and the warrants are
exercisable by any holder only to the extent that the number of issuable shares
of common stock, together with the number of shares of common stock owned by
that holder and its affiliates, would not equal or exceed 9.9% of the then
outstanding common stock as determined in accordance with Section 13(d) of the
Exchange Act. Shares of common stock underlying unconverted portions of the
debentures, or unexercised portions of the warrants or other securities with
analogous limitations are not included in this calculation with respect to any
holder.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED PRIOR TO SHARES TO BE SHARES
THE OFFERING, ACQUIRED SHARES OFFERED
INCLUDING SHARES THROUGH OFFERED PURSUANT SHARES
ACQUIRED THROUGH PLACEMENT OF PURSUANT TO TO BENEFICIALLY
PLACEMENT OF SERIES B CONVERSION EXERCISE OWNED AFTER
SERIES A DEBENTURES OF OF THE
DEBENTURES AND AND DEBENTURES WARRANTS OFFERING(1)
SELLING STOCKHOLDERS WARRANTS WARRANTS (1) (1) SHARES PERCENT
- --------------------- -------- -------- ------ ------ --------------
<S> <C> <C> <C> <C> <C>
RGC International Investors, LOC 458,333 458,334 500,000(3) 417,667(3) 0(2) *(2)
Brown Simpson Strategic 192,500 192,500 210,000 175,000 0 *
Growth Fund, Ltd.
Brown Simpson Strategic 82,500 82,500 90,000 75,000 0 *
Growth Fund, L.P.
Brown Simpson - ORD 91,667 91,667 100,000 83,333 0 *
Investments LLC
LB I Group Inc. 550,000 550,000 600,000 500,000 0 *
------- -------
Total 1,500,000 1,250,000
</TABLE>
- ------------
* less than one percent of our common stock
(1) Assumes that the series B debentures and the series B warrants will be
issued on the effective date of this prospectus and that each selling
stockholder will sell all of the shares set forth in these columns. We
cannot give assurance that the selling stockholders will sell all or any of
these shares.
(2) RGC International Investors, LDC is also the owner of 2,750 shares of our
series A convertible preferred stock which, as of the December 31, 1998, are
convertible into 302,744 shares of common stock. As a result of limitations
imposed by Nasdaq and the terms of the series A convertible preferred stock,
these shares are no longer convertible into shares of common stock unless we
obtain stockholder approval. We may choose not to seek stockholder approval
and may instead redeem the outstanding shares of series A convertible
preferred stock in accordance with their terms. Since shares of common stock
are not issuable to RGC International Investors, LDC unless we seek the
approval of our shareholders and our shareholders approve, no beneficial
ownership of the shares of common stock that would otherwise be underlying
these shares of series A
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<PAGE> 18
convertible preferred stock is attributable to RGC International Investors,
LDC. Therefore, these potentially issuable shares of common stock are not
included in the table for this selling stockholder.
(3) Pursuant to footnote (3), the number of shares of common stock set forth in
the table for this selling stockholder exceeds the number of shares of
common stock that this selling stockholder could own beneficially at any
given time through their ownership of the debentures and the warrants. In
that regard, beneficial ownership of this selling stockholder set forth in
the table is not determined in accordance with Rule 13d-3 under the Exchange
Act.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 25,000,000 shares of common stock,
$0.001 par value per share, and 3,000,000 shares of preferred stock, $0.001 par
value per share. Of the authorized preferred stock, 15,000 shares have been
designated series A convertible preferred stock. As of March 8, 1999, there were
13,666,182 shares of common stock outstanding held of record by 728 record
holders and 3,452 shares of series A convertible preferred stock held of record
by four record holders.
COMMON STOCK
Each common stockholder is entitled to one vote per share on all matters to
be voted upon by the stockholders. Subject to preferences that may be applicable
to any outstanding preferred stock, the common stockholders are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the board of directors out of legally available funds. In the event of
liquidation, dissolution or winding up, the holders of our common stock are
entitled to share ratably in all assets remaining after payment of liabilities,
subject to prior rights of preferred stock, if any, then outstanding. The common
stock has no preemptive or conversion rights or other subscription rights. There
are no redemption or sinking fund provisions available to the common
stockholders. All outstanding shares of common stock are fully paid and
non-assessable.
PREFERRED STOCK
The board of directors has the authority to issue up to 3,000,000 shares of
preferred stock in one or more series and to fix the rights, preferences and
privileges, including dividend rights, conversion rights, voting rights, terms
of redemption, liquidation preferences, sinking fund terms and the number of
shares constituting any series or the designation of such series, without any
further vote or action by stockholders. The issuance of preferred stock could
adversely affect the voting power of holders of common stock and the likelihood
that such holders will receive dividend payments and payments upon liquidation
and could have the effect of delaying, deterring or preventing a change in
control.
SERIES A CONVERTIBLE PREFERRED STOCK
Pursuant to our certificate of incorporation, the Board has classified 15,000
shares of preferred stock as series A convertible preferred stock with the
rights, preferences, privileges and terms set forth in the certificate of
designations filed with the State of Delaware. Of the 15,000 shares of series A
convertible preferred stock authorized by the Board, 3,452 shares are currently
outstanding. The stated value per share of the series A convertible preferred
stock is $1,000.00. With respect to rights upon liquidation, winding up or
dissolution and redemption rights, the series A convertible preferred stock will
rank:
- junior to any other series of preferred stock duly established by the
board of directors hereafter created; and
- if the average price of the common stock for the ten trading days prior
to the date the board of directors authorizes the issuance of such class
or series of stock is above $12.50, on a parity with any other series of
preferred stock duly established by the board of directors hereafter
created; and
- and prior to any other class or series of our capital stock, including,
without limitation, all classes of common stock, whether now existing or
hereafter created, all of which are collectively referred to in this
prospectus as "Junior Securities."
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<PAGE> 19
Dividends. Holders of the series A convertible preferred stock are not
entitled to receive dividends. So long as the series A convertible preferred
stock is outstanding, however, no dividends may be declared or paid on, nor
shall any distribution be made on any Junior Securities, nor can any Junior
Securities be redeemed or repurchased, nor may any moneys be paid to or made
available for a sinking fund for the benefit of any Junior Securities, without
the written consent of the holders of a majority of the outstanding shares of
series A convertible preferred stock.
Liquidation. In the event of any dissolution, liquidation or winding up,
whether voluntary or involuntary, or if any bankruptcy, insolvency or similar
proceedings, whether voluntary or involuntary, shall be commenced with respect
to us, the holders of shares of series A convertible preferred stock shall be
entitled to receive out of our assets legally available for distribution to
stockholders, whether representing capital or surplus, before any payment or
distribution shall be made on the common stock or any other Junior Securities
but after payment or distribution among our creditors and to holders of any of
our stock with liquidation rights senior to the series A convertible preferred
stock, the stated value per share plus an amount equal to 6% per annum for the
period beginning March 27, 1998 and ending on the date of final distribution to
the holder thereof. After this liquidation distribution has been made, the
holders of shares of series A convertible preferred stock shall not be entitled
to any further participation in any distribution of our assets.
If the assets distributable upon such dissolution, liquidation or winding up
shall be insufficient to pay cash in an amount equal to the amount required to
be paid to the holders of series A preferred stock as provided above, then any
assets or proceeds that are available after distribution to more senior
securityholders shall be distributed among the holders of the series A
convertible preferred stock ratably in proportion to the respective amounts of
the liquidation preference to which they otherwise would be entitled. The merger
or consolidation of us into or with another corporation, a merger or
consolidation of any other corporation with or into us upon the completion of
which our stockholders prior to the merger or consolidation no longer hold a
majority of our outstanding equity securities or the sale, conveyance, exchange
or transfer of all or substantially all of our property or assets shall, at the
option of the holders of at least 50% of the series A convertible preferred
stock, require us to distribute 115% of the distribution to holders of series A
preferred stock that these holders of preferred stock would be otherwise be
entitled to receive were we liquidated for other reasons.
Voting Rights. The holders of the series A convertible preferred stock shall
be entitled to notice of all stockholders meetings in accordance with our
bylaws. Except as otherwise provided by Delaware law, the holders of the series
A convertible preferred stock have no voting power. The series A convertible
preferred stock terms include what are customarily called protective provisions.
Under these provisions, a vote of the holders of at least a majority of the
outstanding shares of series A convertible preferred stock is required before we
can:
- alter or change the rights, preferences or privileges of the series A
convertible preferred stock or any Senior preferred stock so as to
adversely affect the series A convertible preferred stock;
- create any new class or series of stock having any preference over the
series A convertible preferred stock as to distribution of assets upon
the liquidation, dissolution or winding up of our company;
- create any new class or series of stock ranking pari passu with the
series A convertible preferred stock as to distribution of assets upon
liquidation, dissolution or winding up of our company, unless the
average closing price for common stock for the ten trading days prior to
the date the board of directors authorizes the issuance of such class or
series is above $12.50;
- increase the number of shares of series A convertible preferred stock;
or
- do any act or thing which would result in taxation to the holders
of the series A convertible preferred stock under Section 305 of the
Internal Revenue Code.
Conversion. Each share of series A convertible preferred stock is convertible
into the number of shares of our common stock, equal to (1) the stated value
($1,000) plus a premium of 6% per annum of the stated value from the date of
issuance of the series A convertible preferred stock (the "Issue Date"), divided
by (2) their conversion price. The series A preferred stock conversion price for
any conversion that may occur from the date of this prospectus forward is equal
to the lesser of:
(1) (a) the average closing bid prices of the common stock for any five
consecutive trading days during the twenty consecutive trading day
period ending on the day prior to the conversion if this price is
greater than $12.50, or (b) 105% of the price in (a) if the price in (a)
is less than $12.50; and
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<PAGE> 20
(2) $16.88.
Subject to certain limited exceptions, the holders of the series A
convertible preferred stock are subject to limits on the number of shares they
can convert at any one time. Unless the price at which the common stock trades
on the Nasdaq National Market on the date of conversion is greater than or equal
to either (1) 120% of the average closing bid prices of the common stock for any
five consecutive trading days during the twenty consecutive trading day period
ending on the day prior to the conversion or (2) $15.00, the following limits
apply:
- Prior to 270 days from the Issue Date, the series A convertible
preferred stock may not be converted;
- beginning 271 days from the Issue Date, each holder of the series A
convertible preferred stock may only convert up to 33.3% of its initial
holding of the series A convertible preferred stock;
- beginning 301 days from the Issue Date, each holder of the series A
convertible preferred stock may only convert up to 66.6% of its initial
holding of the series A convertible preferred stock; and
- beginning 331 days from the Issue Date, all of the series A convertible
preferred stock may be converted.
The series A convertible preferred stock is subject to redemption at our
option if the market price of the common stock exceeds or falls below certain
thresholds. We have registered the underlying common stock for resale.
The issuance of the series A convertible preferred stock is also subject to
the Nasdaq National Market's Market Place Rule 4460(i). Pursuant to the terms of
this rule, the holders of the series A convertible preferred stock and us have
agreed that we will not issue more than 19.99% of the common stock outstanding
on the date the series A convertible preferred stock was issued upon conversion
of the series A convertible preferred stock in the absence of (1) the approval
of such issuance by our stockholders, (2) a waiver by Nasdaq of the provisions
of the 20% Rule, or (3) the provisions of the 20% Rule no longer being
applicable to us.
As of the date of this prospectus, we have issued 19.99% of the common stock
outstanding on the date the series A preferred stock was issued. For the 3,452
shares of our series A convertible preferred stock that remain outstanding to be
converted into common stock, we would have to seek and obtain stockholder
approval for the transaction or receive a waiver from Nasdaq of the Market Place
Rule 4460(i). We may choose not to seek stockholder approval or Nasdaq waiver
and may instead choose to redeem the outstanding shares of series A convertible
preferred stock in accordance with its terms.
CONVERTIBLE DEBENTURES
As of the date of this prospectus, there were $7,500,000 face amount of
series A debentures outstanding. Subsequent to the effectiveness of this
prospectus and the fulfillment of closing conditions outside the direct or
indirect control of the selling stockholders, we will issue $7,500,000 face
amount of series B debentures. The series A and series B debentures are
identical in price and terms, except for the date of issuance.
The debentures are "zero-coupon" securities because they require no regular
payments of interest. In the event of a default, the debentures will accrue
penalty interest at a rate of 15% per year from the date of the default.
The debentures are convertible at any time, at the option of the holder,
until the third anniversary of issuance, which is December 10, 2001 in the case
of the series A debentures. The debentures are convertible into such number of
shares of common stock as is determined by dividing the value of debentures
converted by the then current conversion price which, as of the date of this
prospectus, is fixed at $10.00 per share. If the series A debentures were
converted on January 4, 1999, the series A debentures would be convertible into
750,000 shares of common stock. Similarly, assuming the series B debentures are
issued under the same terms, the series B debentures would be convertible into
750,000 shares of common stock on their date of issuance. The conversion price
of the debentures is subject to customary adjustments in the event of a stock
split or stock dividend. The conversion price is also subject to a weighted
average adjustment in the event we have a rights offering, or a similar offering
of securities to all investors, at less than the conversion price per share,
within 15 months of the issuance date.
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<PAGE> 21
Additionally, the conversion price of the debentures will be adjusted in the
event that we issue common stock or securities convertible into common stock at
a price less than the conversion price per share, not including shares issued
pursuant to our option plans, or shares issued in connection with a strategic
joint venture. In the event that we issue shares of our stock at less than the
conversion price per share, the conversion price of the debentures will be
adjusted to the actual price of such issuance. This conversion price adjustment
is operative for 15 months from the date of issuance of the debentures. However,
it expires automatically on the 180th day following the issuance of the
debentures, or June 8, 1999 in the case of the series A debentures, if the
closing bid price of our common stock on the Nasdaq National Market or any other
national exchange or quotation system as permitted under the terms of the
debentures is greater than 150% of the conversion price for five consecutive
trading days following the effective date of this prospectus. The conversion
price of the debentures will have identical terms of adjustment.
The debentures may be converted at our option if the closing bid price of our
common stock on the Nasdaq National Market is greater than $17.50 for five
consecutive trading days. We will have 45 days following the five trading day
period in which to exercise our option to force conversion of the debentures. We
may convert all or a portion of the outstanding debentures, but if only a
portion of the debentures are to be converted, the forced conversion will be pro
rata among all debenture holders. However, no debenture holder will be forced to
convert if (1) this prospectus is not currently effective and (2) the holder
would not currently be permitted to resell the underlying shares within 90 days
under Rule 144(k) under the Securities Act without volume restrictions.
Under the terms of the debentures, the maximum number of shares of common
stock that may be issued in connection with series A and series B debenture
conversions may not equal or exceed, in the aggregate, 20% of the common shares
outstanding immediately prior to the last issuance of the debentures. If a
debenture holder wishes to convert after the share limit is reached, we will not
issue shares, but will pay cash in an amount equal to the greater of (1) 115% of
the principal balance of the unconverted debentures or (2) the amount, in cash,
the shares that would have been issued would have been worth had they been
issued, based either on the conversion price and average share price on the
trading day immediately prior to the day the cash payment is made, or the
conversion price and average share price on the day of the conversion request.
In the case that we determine that the share limit has been reached and elect to
pay cash in the amount described above, we will notify all remaining debenture
holders within two trading days after we make this determination. Ten days
following the delivery of this notice, we will pay the required amount. If we do
not pay this amount in full within five business days after the date it is due,
we will pay interest at a rate of 15% per annum, to be accrued on a daily basis
from the date of conversion, to the converting debenture holders until we have
paid the full amount, plus all such interest.
The debentures will be considered to be in default if, among other things:
- we fail to make any payment due under the terms of the debentures;
- we fail to make any payment due under the terms of any other debt of
more than $1,000,000;
- we file for bankruptcy or are adjudged bankrupt;
- our stock is delisted from Nasdaq and trading has not resumed on Nasdaq
or another national exchange or quotation system within three days;
- we are acquired (unless the acquirer assumes the obligations); or
- judgments or orders (that are not covered by insurance) for the payment
of money are entered against us, and remain in effect for 30 days, that
are in excess of $500,000 in the aggregate.
If not converted, the debentures will mature three years from the issuance
date, which is December 10, 2001 in the case of the series A debentures. We have
not set up a sinking fund to repay the principal on any unconverted debentures.
On December 10, 1998, we received proceeds of $7,500,000 from the issuance of
the series A debentures. We will allocate these proceeds between the value of
the debentures and the value of the warrants, which we have determined to be
$719,000, issued on that date. The difference between the face value and the
book value of the debentures will be amortized over the life of the debentures
and recorded as interest expense.
-20-
<PAGE> 22
In addition, we recorded approximately $562,000 of interest expense in
connection with the issuance of series A debentures. This interest expense
represents the difference between the conversion price of the debentures and the
closing market price of our common stock on December 10, 1998. An additional
$562,000 in interest expense is expected to be recorded upon the issuance of the
series B debentures.
WARRANTS
In connection with the sale of the series A debentures, we issued warrants to
the purchasers of the series A debentures to purchase up to $7,500,000 of common
stock. In connection with the sale of the series B debentures, we intend to
issue warrants to purchasers of the series B debentures to purchase up to an
additional $7,500,000 of common stock. Other than the issuance date, the series
B warrants will have the same terms as the series A warrants.
The warrants will entitle the holder to purchase shares of common stock at an
exercise price of $12.00 per share, subject to certain adjustments, for a period
of 18 months from the date of issuance, or June 10, 2000 in the case of the
series A warrants. If the series A warrants were exercised on January 4, 1999,
the series A warrants would be exercisable into 625,000 shares of common stock.
Similarly, assuming the series B warrants are issued under the same terms, the
series B warrants would be exercisable into 625,000 shares of common stock on
their date of issuance.
The exercise price of the warrants is subject to customary adjustment in the
event of a stock split or stock dividend. The exercise price is also subject to
a weighted average adjustment in the event we have a rights offering, or a
similar offering of securities to all investors, at less than the exercise price
per share within 12 months of the issuance date. In the case of series A
warrants, the exercise price is also subject to adjustment in the event we issue
common stock or securities convertible into Common Stock at a price of less than
the conversion price per share of the series A debentures, not including shares
issued pursuant to our option plans, or shares issued in connection with a
strategic joint venture. In the event that we issue stock at a price below the
conversion price of the series A debentures, the exercise price of the series A
warrants will be adjusted to equal 120% of the actual price of issuance. This
exercise price adjustment is operative for 12 months from the date of issuance
of the debentures. However, it will expire automatically on the 180th day
following the date of issuance of the warrants, or June 8, 1999 in the case of
the series A warrants, if the closing bid price of our Common Stock on the
Nasdaq National Market is greater than 150% of the exercise price for five
consecutive trading days following the effective date of this prospectus. The
exercise price of the series B warrants will have identical terms of adjustment.
REGISTRATION RIGHTS OF OTHER HOLDERS
Excluding the shares of common stock issuable upon conversion of the
debentures, and the shares of common stock issuable upon exercise of the
warrants, the holders of approximately 461,739 shares of common stock and
warrants to purchase 50,311 shares of common stock or their transferees have
rights with respect to the registration of their shares under the Securities
Act. These rights are provided under the terms of agreements between us and the
holders of these shares of common stock. If at any time we register any of our
common stock, the holders of these shares of common stock are entitled to
include their shares of common stock in the registration. A holder's right to
include shares in an underwritten registration is subject to the ability of the
underwriters to limit the number of shares included in the offering. All
registration expenses must be borne by us and all selling expenses relating to
these shares of common stock must be borne by the holders of the securities
being registered. In addition, these holders may require us to use our best
efforts to file a registration statement under the Securities Act at our expense
with respect to their shares of common stock, subject to limitations
DELAWARE ANTI-TAKEOVER LAW;
CHARTER AND BYLAW PROVISIONS THAT DISCOURAGE TAKEOVERS
Certain provisions of Delaware law and our charter documents could make the
acquisition of us and the removal of incumbent officers and directors more
difficult. These provisions are expected to discourage certain types of coercive
takeover practices and inadequate takeover bids and to encourage persons seeking
to acquire control of us to first negotiate with us. We believe that the
benefits of increased protection of our potential ability to negotiate
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<PAGE> 23
with the proponent of an unfriendly or unsolicited proposal to acquire or
restructure us outweigh the disadvantages of discouraging such proposals
because, among other things, negotiation of such proposals could result in an
improvement of their terms.
We are subject to the provisions of Section 203 of the Delaware law. In
general, the statute prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date that the person became an interested
stockholder unless (with certain exceptions) the business combination or the
transaction in which the person became an interested stockholder is approved in
a prescribed manner. Generally, a "business combination" includes a merger,
asset or stock sale, or other transaction resulting in a financial benefit to
the stockholder. Generally, an "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years prior, did
own) 15% or more of the corporation's voting stock. These provisions may have
the effect of delaying, deferring or preventing a change in control of us
without further action by the stockholders.
Our amended and restated bylaws provide for a classified board of directors
divided into three classes, with staggered three-year terms. As a result, only
one class of directors will be elected at each annual meeting of stockholders,
with the other classes continuing for the remainder of their respective
three-year terms. The classification of the board of directors may make it more
difficult for existing stockholders to replace the board of directors as well as
for another party to obtain control of us by replacing the board of directors.
Since the board of directors has the power to retain and discharge officers,
these provisions could also make it more difficult for existing stockholders or
another party to effect a change in management.
Our restated certificate of incorporation provides that stockholder action
can be taken only at an annual or special meeting of stockholders and may not be
taken by written consent. The bylaws provide that special meetings of
stockholders can be called only by the board of directors, the chairman of the
board, if any, the president and holders of 10% of the votes entitled to be cast
at a meeting. Moreover, the business permitted to be conducted at any special
meeting of stockholders is limited to the business brought before the meeting by
the board of directors, the chairman of the board, if any, the president or the
10% holders that call the meeting. The bylaws set forth an advance notice
procedure with regard to the nomination, other than by or at the direction of
the board of directors, of candidates for election as directors and with regard
to business to be brought before a meeting of stockholders.
PLAN OF DISTRIBUTION
We will receive no proceeds from this offering. The shares of common stock
offered by this prospectus may be sold by the selling stockholders or their
respective donees, pledgees, transferees or other successors in interest from
time to time in transactions on the Nasdaq National Market, in the
over-the-counter market, in negotiated transactions other than on the Nasdaq
National Market, or in the over-the-counter market, in connection with short
sales, by pledge to secure debts and other obligations, in connection with the
writing of call options, in hedging transactions and in settlement of other
transactions in standardized or over-the-counter options, or in a combination of
any of the above transactions, in privately negotiated transactions, including
pursuant to Rule 144, at fixed prices which may be changed, at market prices
prevailing at the time of sale, at prices related to prevailing market prices or
at negotiated prices. The selling stockholders may effect such transactions by
selling the shares of common stock to or through broker-dealers, and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions for their own account and at their own risk. In order to comply with
the securities laws of certain states, if applicable, the shares of common stock
will be sold in such jurisdictions only through registered or licensed brokers
or dealers. In addition, in certain states the shares of common stock may not be
sold unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is
available and is complied with.
The selling stockholders or their respective donees, pledgees, transferees or
other successors in interest and any broker-dealers or agents that participate
with the selling stockholders or their respective donees, pledgees, transferees
or other successors in interest in the distribution of the shares of common
stock may under certain circumstances be deemed to be "underwriters" within the
meaning of the Securities Act, and any commissions received by them and any
profit realized on the resale of the shares of common stock purchased by them
may be
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<PAGE> 24
deemed to be underwriting commissions or discounts under the Securities Act.
Broker-dealers may agree with the selling stockholders to sell a specified
number of shares of common stock at a stipulated price per share, and, to the
extent such a broker-dealer is unable to do so acting as agent for the selling
stockholders, to purchase as principal any unsold shares of common stock.
Brokers-dealers who acquire shares of common stock as principal may thereafter
resell such shares of common stock from time to time in transactions, which may
involve crosses and block transactions and which may involve sales to and
through other broker-dealers, including transactions of the nature described
above, in the over-the-counter market, on the Nasdaq National Market, in
privately negotiated transactions, or by a combination of such methods of sale,
at fixed prices that may be changed, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices, and in connection with such resales may pay to or receive from the
purchasers of such shares of common stock commissions. Under applicable rules
and regulations under the Exchange Act, any person engaged in the distribution
of the shares of common stock may not simultaneously engage in market making
activities with respect to our common stock for a period of two business days
prior to the commencement of such distribution. In addition and without limiting
the foregoing, the selling stockholders will be subject to applicable provisions
of the Exchange Act and the rules and regulations thereunder, including, without
limitation, Rules 10b-6 and 10b-7, which provisions may limit the timing of
purchases and sales of shares of common stock by the selling stockholders.
The shares of common stock offered are being registered pursuant to
contractual obligations, and we have agreed to bear the expenses in connection
with the registration and sale of the shares of common stock being offered by
the selling stockholders. We have agreed to indemnify the selling stockholders,
the officers, directors, agents, brokers, investment advisors and employees of
each of them, each person who controls them and the officers, directors, agents,
and employees of each the controlling person against certain liabilities under
the Securities Act, or to contribute to payment the indemnified parties may be
required to make for these violations. We have not made any underwriting
arrangements with respect to the sale of the shares of common stock offered
by this prospectus.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed upon
by Venture Law Group, A Professional Corporation, Menlo Park, California,
counsel to Geron.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements included in our Annual Report on Form 10-K for the three
years ended December 31, 1998, as set forth in their report which is
incorporated in this prospectus by reference. Our consolidated financial
statements are incorporated by reference in reliance upon Ernst & Young LLP's
report given on their authority as experts in accounting and auditing.
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<PAGE> 25
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The registrant will bear no expenses in connection with any sale or other
distribution by the selling stockholders of the shares being registered other
than the expenses of preparation and distribution of this registration statement
and the prospectus included in this registration statement. Such expenses are
set forth in the following table. All of the amounts shown are estimates except
the Securities and Exchange Commission registration fee.
<TABLE>
<S> <C>
SEC registration fee $11,807
Legal fees and expenses 15,000
Accounting fees and expenses 3,000
Miscellaneous expenses 5,193
-------
Total $35,000
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law allows for the
indemnification of officers, directors, and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act. The registrant's certificate of incorporation and bylaws provide
for indemnification of the registrant's directors, officers, employees and other
agents to the extent and under the circumstances permitted by the Delaware
General Corporation Law. The registrant has also entered into agreements with
its directors and officers that will require the registrant, among other things,
to indemnify them against certain liabilities that may arise by reason of their
status or service as directors to the fullest extent not prohibited by law. In
addition, the registrant carries director and officer liability insurance.
In connection with this offering, the selling stockholders have agreed to
indemnify the registrant, its directors and officers and each such person who
controls the registrant, against any and all liability arising from inaccurate
information provided to the registrant by the selling stockholders and contained
herein.
ITEM 16. EXHIBITS.
EXHIBITS.
<TABLE>
<S> <C>
4.1* Form of series A and series B zero coupon convertible debenture
4.2* Form of series A and series B warrant
5.1** Opinion of Venture Law Group, A Professional Corporation
10.40 Securities Purchase Agreement dated as of December 10, 1998
between Geron and certain investors
10.41* Registration Rights Agreement dated as of December 10, 1998
between Geron and certain investors.
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2** Consent of Counsel (included in Exhibit 5.1)
24.1** Power of Attorney
</TABLE>
- ------------
* Incorporated by reference to identically numbered exhibit filed with our
current report on Form 8-K, as filed on December 17, 1998.
** Previously filed with our S-3 on January 8, 1999.
II-1
<PAGE> 26
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change
to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each post-effective amendment shall be deemed to be a new
registration statement relating to the securities it offers, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
this offering.
(4) That, for purposes of determining any liability under the Securities Act,
each filing of the registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Exchange Act that is incorporated by reference in
the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, Geron
Corporation certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Menlo Park, State of California, on March 18, 1999.
GERON CORPORATION
By: /s/ DAVID L. GREENWOOD
--------------------------
David L. Greenwood
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* President, Chief Executive Officer and March __, 1999
- ----------------------------- Director
Ronald W. Eastman
/s/ DAVID L. GREENWOOD Vice president of Corporate March 18, 1999
- ----------------------------- Development and Chief Financial
David L. Greenwood Officer (Principal Financial and
Accounting Officer)
* Director March __, 1999
- -----------------------------
Alexander E. Barkas
* Director March __, 1999
- -----------------------------
Edward V. Fritzky
* Director March __, 1999
- -----------------------------
Thomas D. Kiley
* Director March __, 1999
- -----------------------------
Gary L. Neil
* Director March __, 1999
- -----------------------------
Robert B. Stein
* Director March __, 1999
- -----------------------------
John P. Walker
*By: /s/ DAVID L. GREENWOOD March 18, 1999
-------------------------
David L. Greenwood
Attorney-in Fact
</TABLE>
II-3
<PAGE> 28
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
4.1* Form of series A and series B zero coupon convertible debenture
4.2* Form of series A and series B warrant
5.1** Opinion of Venture Law Group, A Professional Corporation
10.40 Securities Purchase Agreement dated as of December 10, 1998
between Geron and certain investors
10.41* Registration Rights Agreement dated as of December 10, 1998
between Geron and certain investors.
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2** Consent of Counsel (included in Exhibit 5.1)
24.1** Power of Attorney
</TABLE>
- ------------
* Incorporated by reference to identically numbered exhibit filed with our
current report on Form 8-K, as filed on December 17, 1998.
** Previously filed with our S-3 on January 8, 1999.
<PAGE> 1
EXHIBIT 10.40
================================================================================
SECURITIES PURCHASE AGREEMENT
Among
GERON CORPORATION,
BROWN SIMPSON STRATEGIC GROWTH FUND, LTD.,
BROWN SIMPSON STRATEGIC GROWTH FUND, L.P.,
LB I GROUP INC.
and
RGC INTERNATIONAL INVESTORS, LDC
Dated as of December 10, 1998
================================================================================
<PAGE> 2
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is dated as
of December 10, 1998, among Geron Corporation, a Delaware corporation (the
"Company"), Brown Simpson Strategic Growth Fund, Ltd., a Cayman Islands exempt
company ("Brown Simpson Limited"), Brown Simpson Strategic Growth Fund, L.P., a
New York limited partnership ("Brown Simpson LP"), LB I Group Inc., a Delaware
corporation ("LB Group") and RGC International Investors, LDC, a Cayman Islands
limited duration company ("RGC"). Brown Simpson Limited, Brown Simpson LP, LB
Group and RGC are each referred to herein as a "Purchaser" and are collectively
referred to herein as the "Purchasers."
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchasers, and the
Purchasers desire to acquire from the Company, an aggregate of seven million
five hundred thousand dollars ($7,500,000) principal amount of Series A
Zero-Coupon Convertible Debentures (the "Tranche A Debentures"), and warrants
(the "Tranche A Warrants") to purchase up to $7,500,000 of the Company's common
stock, par value $.001 per share (the "Common Stock"); and
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchasers, and the
Purchasers desire to acquire from the Company, an aggregate of seven million
five hundred thousand dollars ($7,500,000) principal amount of Series B
Zero-Coupon Convertible Debentures (the "Tranche B Debentures" and, together
with the Tranche A Debentures, the "Debentures"), and warrants (the "Tranche B
Warrants", and together with the Tranche A Warrants, the "Warrants") to purchase
up to $7,500,000 of the Company's Common Stock.
IN CONSIDERATION of the mutual covenants contained in this
Agreement, the Company and each Purchaser agree as follows:
ARTICLE I.
PURCHASE AND SALE OF THE DEBENTURES AND WARRANTS
I.1 Purchase and Sale.
(a) Subject to the terms and conditions set forth herein, the
Company shall issue and sell to each Purchaser, and each Purchaser, severally
and not jointly, shall purchase from the Company:
(i) On the Tranche A Closing Date (as defined below),
the principal amount of Tranche A Debentures as set forth for such Purchaser on
Schedule I; and
(ii) On the Tranche B Closing Date (as defined below),
the principal amount of Tranche B Debentures as set forth for such Purchaser on
Schedule I.
<PAGE> 3
(b) Each Purchaser shall purchase that principal amount of
Debentures set forth opposite such Purchaser's name on Schedule I attached
hereto and each Purchaser shall deliver to the Company the portion of the
purchase price for each of the Tranche A Debentures and the Tranche B Debentures
as set forth next to its name on Schedule I.
I.2 The Closings.
(a) The Tranche A Closing. The closing of the purchase and sale
of the Tranche A Debentures (the "Tranche A Closing") shall take place at the
offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P., 590 Madison Avenue, New
York, New York 10022, or by transmission by facsimile and overnight courier,
immediately following the execution hereof or such later date or different
location as the parties shall agree, but not prior to the date that the
conditions set forth in Section 4.1 have been satisfied or waived by the
appropriate party (the "Tranche A Closing Date"). At the Tranche A Closing:
(i) Each Purchaser shall deliver to the Company its
portion of the purchase price as set forth next to its name on Schedule I in
United States dollars in immediately available funds to an account designated in
writing by the Company;
(ii) The Company shall deliver to each Purchaser a
Debenture, substantially in the form of Exhibit A hereto, representing the
principal amount purchased by such Purchaser as set forth on Schedule I hereto;
(iii) The Company shall deliver to each Purchaser a
Warrant, substantially in the form of Exhibit B hereto, representing the number
of Tranche A Warrants purchased by such Purchaser as set forth on Schedule I
hereto;
(iv) The parties shall execute and deliver each of the
documents referred to in Section 4.1 hereof; and
(v) The Company shall pay to Brown Simpson Asset
Management, LLC ("Brown Simpson Asset") a fee of $25,000 (the "Brown Simpson
Asset Fee") in United States dollars in immediately available funds to an
account designated in writing by Brown Simpson Asset.
(b) The Tranche B Closing. Subject to the terms and conditions
set forth in Section 4.2 and elsewhere in this Agreement, the closing of the
purchase and sale of the Tranche B Debentures (the "Tranche B Closing") shall
take place in the same manner as the Tranche A Closing, on the date after the
Company fulfills the conditions set forth in Section 4.2 (the "Tranche B Closing
Date"); provided that in no case shall the Tranche B Closing take place unless
and until the conditions listed in Section 4.2 have been satisfied or waived by
the appropriate party. At the Tranche B Closing:
(i) Each Purchaser shall deliver to the Company its
portion of the purchase price as set forth next to its name on Schedule I in
United States dollars in immediately available funds to an account designated in
writing by the Company;
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<PAGE> 4
(ii) The Company shall deliver to each Purchaser a
Debenture, substantially in the form of Exhibit A hereto, representing the
principal amount of Tranche B Debentures purchased by such Purchaser as set
forth on Schedule I hereto;
(iii) The Company shall deliver to each Purchaser a
Warrant, substantially in the form of Exhibit B hereto, representing the number
of Tranche B Warrants purchased by such Purchaser as set forth on Schedule I
hereto; and
(iv) The parties shall execute and deliver each of the
documents referred to in Section 4.2 hereof.
With respect to the Tranche B Debentures and Tranche B Warrants,
in no event shall any Purchaser have the right or be required to purchase
Tranche B Debentures or Tranche B Warrants if the aggregate number of shares of
Common Stock beneficially owned by such Purchaser and its affiliates exceeds
9.9% of the outstanding shares of the Common Stock following such conversion.
For purposes of this paragraph, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
II.1 Representations, Warranties and Agreements of the Company.
The Company hereby makes the following representations and warranties to each of
the Purchasers:
(a) Organization and Qualification. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware, with the requisite corporate power and authority to own and
use its properties and assets and to carry on its business as currently
conducted. Except as set forth on Schedule 2.1(a), the Company has no
subsidiaries (collectively, the "Subsidiaries"). Each of the Subsidiaries is a
corporation duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, with the full corporate power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. Each of the Company and the Subsidiaries is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may be, would not, individually or
in the aggregate, (x) adversely affect the legality, validity or enforceability
of any of this Agreement or the Transaction Documents (as defined below) or any
of the transactions contemplated thereby, (y) have or result in a material
adverse effect on the results of operations, assets, prospects, or financial
condition of the Company and its Subsidiaries, taken as a whole or (z) adversely
impair the Company's ability to perform fully on a timely basis its obligations
under any Transaction Document (any of (x), (y) or (z), being a "Material
Adverse Effect").
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<PAGE> 5
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by this Agreement and the Debentures, the Warrants and the
Registration Rights Agreement (as defined below) (collectively, the "Transaction
Documents"), and otherwise to carry out its obligations hereunder and
thereunder. The execution and delivery of each of this Agreement and the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action and no further action is required by the Company, its
Board of Directors or its stockholders. Each of this Agreement and the
Transaction Documents has been duly executed by the Company and when delivered
in accordance with the terms hereof will constitute the valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
(c) Capitalization. As of the date hereof and immediately prior
to the Tranche A Closing Date, the authorized capital stock of the Company is as
set forth on Schedule 2.1(c). The issuance and sale of all interests in such
capital stock have been in compliance with all applicable federal and state
securities laws. No shares of Common Stock are entitled to preemptive or similar
rights, nor is any holder of the Common Stock entitled to preemptive or similar
rights arising out of any agreement or understanding with the Company by virtue
of any of this Agreement or the Transaction Documents. Except as disclosed on
Schedule 2.1(c), other than the Debentures and the Warrants, there are no
outstanding options, warrants, rights to subscribe to, calls or commitments of
any character whatsoever relating to securities, rights or obligations
convertible into or exchangeable for, or giving any person any right to
subscribe for or acquire any shares of Common Stock, or contracts, commitments,
understandings, or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock. No anti-dilution or
similar adjustment provision of securities of the Company will be triggered by
the issuance of the Debentures or the Warrants, except as described on Schedule
2.1(c). The Company is not subject (contingent or otherwise) to repurchase or
otherwise acquire or retire any units of its capital stock or any security
convertible into or exchangeable for any of its capital stock. Except as
specifically disclosed in the SEC Documents (as defined below), to the Company's
best knowledge, no Person or group of related Persons beneficially owns (as
determined pursuant to Rule 13d-3 promulgated under the Exchange Act) or has the
right to acquire by agreement with or by obligation binding upon the Company
beneficial ownership of in excess of 5% of the Common Stock. "Person" means an
individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any kind.
(d) Authorization and Validity; Issuance of Shares. All of the
Debentures and the Warrants have been duly authorized, and when delivered
against payment therefor as contemplated hereby, will be validly issued, fully
paid and non-assessable, free and clear of all liens, encumbrances and Company
rights of first refusal, other than liens and encumbrances
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<PAGE> 6
created by the Purchasers (collectively, "Liens") and will not be subject to
any preemptive or similar rights. The shares of Common Stock issuable upon
exercise of the Debentures and the Warrants (collectively, the "Underlying
Shares") are and will at all times hereafter continue to be duly authorized and
reserved for issuance and the shares of Common Stock issued upon conversion of
the Debentures (the "Debenture Shares") and exercise of the Warrants (the
"Warrant Shares") will be validly issued, fully paid and non-assessable, free
and clear of all Liens.
(e) No Conflicts. The execution, delivery and performance of
this Agreement and the Transaction Documents by the Company and the consummation
by the Company of the transactions contemplated hereby and thereby do not and
will not (i) conflict with or violate any provision of the certificate of
incorporation, bylaws or other charter documents of the Company or any of the
Subsidiaries, (ii) subject to obtaining the consents referred to in Section
2.1(f), conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument (evidencing a Company or Subsidiary debt or
otherwise) to which the Company or any Subsidiary is a party or by which any
property or asset of the Company or any Subsidiary is bound or affected, or
(iii) result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company or any Subsidiary is subject (including Federal and state
securities laws and regulations), or by which any material property or asset of
the Company or any Subsidiary is bound or affected (except for such conflicts,
defaults, terminations, amendments, accelerations or cancellations that are not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect).
(f) Consents and Approvals. Except as specifically set forth on
Schedule 2.1(f), neither the Company nor any Subsidiary is required to obtain
any consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other
governmental authority or other person in connection with the execution,
delivery and performance by the Company of this Agreement or the Transaction
Documents, other than (i) the filing of a registration statement with the
Securities and Exchange Commission (the "Commission"), which shall be filed in
accordance with and in the time periods set forth in the Registration Rights
Agreement, (ii) the application(s) or any letter(s) acceptable to the National
Market System of Nasdaq Stock Market ("Nasdaq") for the listing of the
Underlying Shares with Nasdaq (and with any other national securities exchange
or market on which the Common Stock is then listed), and (iii) any filings,
notices or registrations under applicable state securities laws (together with
the consents, waivers, authorizations, orders, notices and filings referred to
on Schedule 2.1(f), the "Required Approvals").
(g) Litigation; Proceedings. Except as specifically set forth on
Schedule 2.1(g), there is no action, suit, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its Subsidiaries or any of their respective
properties before or by any court, governmental or administrative agency or
regulatory authority (federal, state, county, local or foreign) which (i)
adversely affects or challenges the legality, validity or enforceability of any
of this Agreement or
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<PAGE> 7
the Transaction Documents or (ii) would individually or in the aggregate, have a
Material Adverse Effect.
(h) No Default or Violation. Neither the Company nor any
Subsidiary (i) is in default under or in violation of any indenture, loan or
credit agreement or any other agreement or instrument to which it is a party or
by which it or any of its properties is bound except for such defaults or
violations that are not reasonably likely, individually or in the aggregate, to
have a Material Adverse Effect, (ii) is in violation of any order of any court,
arbitrator or governmental body applicable to it, or (iii) is in violation of
any statute, rule or regulation of any governmental authority to which it is
subject.
(i) Disclosure; Absence of Certain Changes. Neither this
Agreement, the Schedules to this Agreement, the Transaction Documents nor the
SEC Documents contains any untrue statement of a material fact or omits to state
any material fact necessary in order to make the statements made herein and
therein, in light of the circumstances under which they were made, not
misleading. Except as disclosed on Schedule 2.1(i) or the SEC Documents filed on
EDGAR at least five business days prior to the date hereof, since December 31,
1997, there has been no material adverse change and no material adverse
development in the business, properties, operations, financial condition,
liabilities or results of operations or, insofar as can reasonably be foreseen,
prospects of the Company or the Subsidiaries. The Company has not taken any
steps, and does not currently expect to take any steps, to seek protection
pursuant to any bankruptcy law nor does the Company or any of its Subsidiaries
have any knowledge or reason to believe that its creditors intend to initiate
involuntary bankruptcy proceedings. No event, liability, development or
circumstance has occurred or exists, or is contemplated to occur, with respect
to the Company or its Subsidiaries or their respective businesses, properties,
operations or financial condition or, insofar as can reasonably be foreseen,
prospects, that would be required to be disclosed by the Company under
applicable securities laws on a registration statement (including by way of
incorporation by reference) filed with the SEC, on the date this representation
is made or deemed to be made, relating to an issuance and sale by the Company of
its Common Stock and which has not been publicly disclosed.
(j) Private Offering. The Company and all Persons acting on its
behalf have not directly or indirectly made, and will not make, offers or sales
of any securities or solicited any offers to buy any security under
circumstances that would require registration of the Debentures, the Warrants,
the Debentures Shares, the Warrant Shares or the Underlying Shares or the
issuance of such securities under the Securities Act of 1933, as amended (the
"Act"). The issuance of the Debentures, the Warrants, the Debenture Shares and
the Warrant Shares to the Purchasers will not be integrated with any other
issuance of the Company's securities (past, current, or future). Subject to the
accuracy and completeness of the representations and warranties of the
respective Purchasers contained in Section 2.2 hereof, the offer and sale by the
Company to the Purchasers of the Debentures and the Warrants is exempt from the
registration requirements of the Act.
(k) SEC Documents; Financial Statements. The Common Stock of the
Company is registered pursuant to Section 12(g) of the Exchange Act. The Company
has filed all reports
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<PAGE> 8
required to be filed by it under the Exchange Act, including pursuant to Section
13, 14 or 15(d) thereof (the foregoing materials being collectively referred to
herein as the "SEC Documents"), on a timely basis or has received a valid
extension of such time of filing and has filed any such SEC Documents prior to
the expiration of any such extension. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the Act and
the Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Documents, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. All material
agreements to which the Company or any Subsidiary is a party or to which the
property or assets of the Company or any Subsidiary are subject have been filed
as exhibits to the SEC Documents as required; neither the Company nor any of its
Subsidiaries is in breach of any agreement where such breach, individually or in
the aggregate, would have a Material Adverse Effect. The financial statements of
the Company included in the SEC Documents comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the Commission with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved, except as may be otherwise specified in such financial
statements or the notes thereto, and fairly present in all material respects the
financial position of the Company as of and for the dates thereof and the
results of operations and cash flows for the periods then ended, subject, in the
case of unaudited statements, to normal year-end audit adjustments.
(l) Investment Company. The Company is not, and is not
controlled by or under common control with an affiliate (an "Affiliate") of an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
(m) Broker's Fees. Except for a $25,000 fee paid to Brown
Simpson Asset upon execution of that certain letter agreement dated November 25,
1998 between the Company and Brown Simpson Asset and an additional fee of
$25,000 payable by the Company to Brown Simpson Asset at the Tranche A Closing,
no fees or commissions or similar payments with respect to the transactions
contemplated by this Agreement or the Transaction Documents have been paid or
will be payable by the Company to any broker, financial advisor, finder,
investment banker, or bank. The Purchasers shall have no obligation with respect
to any fees or with respect to any claims made by or on behalf of other Persons
for fees of a type contemplated in this Section 2.1(m) that may be due in
connection with the transactions contemplated by this Agreement and the
Transaction Documents.
(n) Form S-3 Eligibility. The Company is, and at the Tranche A
Closing Date and the Tranche B Closing Date will be, eligible to register
securities (including the Underlying Shares) for resale with the Commission
under Form S-3 (or any successor form) promulgated under the Securities Act.
(o) Listing and Maintenance Requirements Compliance. The
principal market on which the Common Stock is currently traded is Nasdaq. Except
as disclosed on Schedule 2.1(o),
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<PAGE> 9
the Company has not in the three years preceding the date hereof received notice
(written or oral) from Nasdaq (or any stock exchange, market or trading facility
on which the Common Stock is or has been listed (or on which it has been
quoted)) to the effect that the Company is not in compliance with the listing or
maintenance requirements of such market or exchange. The Company is not aware of
any facts which would reasonably lead to delisting or suspension of the Common
Stock by Nasdaq. After giving effect to the transactions contemplated by this
Agreement and the Transaction Documents, the Company believes that it is and
will be in compliance with all such maintenance requirements.
(p) Patents and Trademarks. To the Company's best knowledge, the
Company or its Subsidiaries has, or has rights to use, all patents, patent
applications, trademarks, trademark applications, service marks, trade names,
copyrights, licenses and rights (collectively, the "Intellectual Property
Rights") which are necessary for use in connection with its business, as
currently conducted and as described in the SEC Documents. To the best knowledge
of the Company, there is no existing infringement by another Person of any of
the Intellectual Property Rights which are necessary for use in connection with
the Company's business which would, individually or in the aggregate, have a
Material Adverse Effect and the Company is not infringing on any other person's
Intellectual Property Rights.
(q) Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened. Neither the
Company nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that relations with
their employees are good. Except as set forth on Schedule 2.1(q), no executive
officer (as defined in Rule 501(f) of the Act) has notified the Company that
such officer intends to leave the Company or otherwise terminate such officer's
employment with the Company.
(r) Registration Rights; Rights of Participation. Except as
described on Schedule 2.1(r) hereto, (i) the Company has not granted or agreed
to grant to any Person any rights (including "piggy-back" registration rights)
to have any securities of the Company registered with the Commission or any
other governmental authority which has not been satisfied and (ii) no Person,
including, but not limited to, current or former stockholders of the Company,
underwriters, brokers or agents, has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by this Agreement or any Transaction Document.
(s) Title. Except as disclosed on Schedule 2.1(s), the Company
and the Subsidiaries have good and marketable title in fee simple to all real
property and personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all Liens,
except for Liens that do not materially affect the value of such property and do
not interfere with the use made and proposed to be made of such property by the
Company and the Subsidiaries. Any real property and facilities held under lease
by the Company and the Subsidiaries are held by them under valid, subsisting
and, to the Company's best knowledge, enforceable leases with such exceptions as
are not material and do not interfere
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<PAGE> 10
with the use made and proposed to be made of such property and buildings by the
Company and the Subsidiaries.
(t) Permits. The Company and the Subsidiaries possess all
certificates, authorizations, licenses, easements, consents, approvals, orders
and permits necessary to own, lease and operate their respective properties and
to conduct their respective businesses as currently conducted except where the
failure to possess such permits would not, individually or in the aggregate,
have a Material Adverse Effect ("Material Permits"), and there is no proceeding
pending, or, to the knowledge of the Company, threatened relating to the
revocation, modification, suspension or cancellation of any Material Permit.
Neither the Company nor any of the Subsidiaries is in conflict with or default
or violation of any Material Permit.
(u) Insurance. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has any
reason to believe that it will not be able to renew its existing insurance
coverages as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business.
(v) Internal Accounting Controls. The Company and each of the
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(w) Tax Status; Firpta. The Company and each of the Subsidiaries
has made or filed all federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company and each of its Subsidiaries has
set aside on its books provisions reasonably adequate for the payment of all
unpaid and unreported taxes) and has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith and has set aside on it books provisions reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. 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. The Company
is not a "United States real property holding corporation" within the meaning of
Section 847(c)(2) of the Internal Revenue Code of 1986, as amended.
(x) Transactions With Affiliates. Except as set forth on
Schedule 2.1(c) or Schedule 2.1(x), none of the officers, directors, or
employees of the Company is presently a party
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<PAGE> 11
to any transaction with the Company or any of its Subsidiaries (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 corporation, partnership, trust or entity in which
any officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
(y) [Intentionally omitted.]
(z) Environmental Laws. The Company and its Subsidiaries (i) are
in compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permits, licenses or other approvals except where the
failure of any of the foregoing would not result in a Material Adverse Effect.
(aa) Foreign Corrupt Practices. To the Company's best knowledge,
neither the Company, nor any of its Subsidiaries, nor any director, officer,
agent, employee or other person acting on behalf of the Company or any of its
Subsidiaries has, in the course of its actions for, or on behalf of, the Company
used any corporate funds for any unlawful contribution, gift, entertainment or
other unlawful expenses relating to political activity; made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee form corporate funds; violated or is in violation of any provision of
the U.S. Foreign Corrupt Practices Act of 1977, as amended; or made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment to
any foreign or domestic government official or employee.
(bb) Solicitation Materials. The Company has not (i) distributed
any offering materials in connection with the offering and sale of the
Debentures or the Warrants, other than the SEC Documents, the Schedules to this
Agreement, any amendments and supplements thereto and the materials listed on
Schedule 2.1(bb), or (ii) solicited any offer to buy or sell the Debentures or
the Warrants by means of any form of general solicitation or advertising.
II.2 Representations and Warranties of the Purchasers. Each of
the Purchasers, severally and not jointly, hereby represents and warrants to the
Company as follows:
(a) Organization; Authority. Such Purchaser is a corporation or
a limited duration company duly incorporated or a limited liability company or
limited partnership duly formed, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or formation with the requisite
power and authority, corporate or otherwise, to enter into and to consummate the
transactions contemplated hereby and by the Transaction Documents and otherwise
to carry out its obligations hereunder and thereunder. The purchase by such
Purchaser of the Debentures and the Warrants hereunder has been duly authorized
by all necessary action
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on the part of such Purchaser. Each of this Agreement and the Registration
Rights Agreement has been duly executed and delivered by such Purchaser and
constitutes the valid and legally binding obligation of such Purchaser,
enforceable against such Purchaser in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity.
(b) Investment Intent. Such Purchaser is acquiring the
Debentures and the Warrants for its own account for investment purposes only and
not with a view to or for distributing or reselling the Debentures, the
Warrants, the Debentures Shares or the Warrant Shares or any part thereof or
interest therein in violation of any securities laws; provided, however, that by
making the representations herein, such Purchaser does not agree to hold any of
the Debentures, the Warrants, the Debentures Shares or the Warrant Shares for
any minimum or other specific term and reserves the right to dispose of the
securities at any time in accordance with or pursuant to a registration
statement or an exemption under the Act.
(c) Purchaser Status. At the time such Purchaser was offered the
Debentures and the Warrants, and at the Tranche A Closing Date and the Tranche B
Closing Date, (i) it was and will be an "accredited investor" as defined in Rule
501 under the Act or (ii) such Purchaser, either alone or together with its
representatives, had and will have such knowledge, sophistication and experience
in business and financial matters so as to be capable of evaluating the merits
and risks of the prospective investment in the Debentures and the Warrants.
(d) Reliance. Each Purchaser understands and acknowledges that
(i) the Debentures and the Warrants are being offered and sold to the Purchaser
without registration under the Act in a private placement that is exempt from
the registration provisions of the Act under Section 4(2) of the Act or
Regulation D promulgated thereunder and (ii) the availability of such exemption,
depends in part on, and the Company will rely upon the accuracy and truthfulness
of, the representations set forth in this Section 2.2 and such Purchaser hereby
consents to such reliance.
(e) Information. Each Purchaser and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Debentures and Warrants which have been requested by the Purchaser or its
advisors. The Purchaser and its advisors, if any, have been afforded the
opportunity to ask questions of the Company and have received what the Purchaser
believes to be satisfactory answer to any such inquiries. Neither such inquiries
nor any other due diligence investigation conducted by Purchaser or any of its
advisors or representatives shall modify, amend or affect Purchaser's right to
rely on the Company's representations and warranties contained in Section 2.1
above. The Purchaser understands that its investment in the Debentures and
Warrants involves a significant degree of risk.
(f) Governmental Review. The Purchaser understands that no
United States federal or state agency or any other government or governmental
agency has passed upon or made any recommendation or endorsement of the
Debentures or Warrants.
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(g) Residency. Each Purchaser is a resident of the jurisdiction
set forth immediately below such Purchaser's name on the signature pages hereto.
The Company acknowledges and agrees that the Purchasers make no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III.
OTHER AGREEMENTS
III.1 Transfer Restrictions.
(a) If any Purchaser should decide to dispose of the Debentures,
the Warrants, the Debentures Shares or the Warrant Shares held by it, each
Purchaser understands and agrees that it may do so only pursuant to an effective
registration statement under the Act, to the Company or pursuant to an available
exemption from the registration requirements of the Act. In connection with any
transfer of any Debentures, Warrants, Debenture Shares or Warrant Shares other
than pursuant to an effective registration statement or to the Company, the
Company may require the transferor thereof to provide to the Company a written
opinion of counsel experienced in the area of United States securities laws
selected by the transferor, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred securities under the Act; provided,
however, that if the Debentures, Warrants, Debenture Shares or Warrant Shares
may be sold pursuant to Rule 144(k), no written opinion of counsel shall be
required unless a written opinion of counsel is required by any transfer agent.
Notwithstanding the foregoing, the Company hereby consents to and agrees to
register any transfer by any Purchaser to an Affiliate of such Purchaser,
provided that the transferee certifies to the Company that it is an "accredited
investor" as defined in Rule 501(a) under the Act. Any such transferee shall be
bound by the terms of this Agreement and shall have the rights of a Purchaser
under this Agreement and the Registration Rights Agreement.
(b) Each Purchaser agrees to the imprinting, so long as is
required by this Section 3.1(b), of the following legend on the Debentures, the
Warrants, the Debenture Shares and the Warrant Shares:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE ACT.
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Neither the Debentures, the Warrants, the Debenture Shares, nor
the Warrant Shares shall contain the legend set forth above if (i) the issuance
of any of such securities occurs at any time while the Registration Statement
(as defined in the Registration Rights Agreement) is effective under the Act,
(ii) in the written opinion of counsel to the Company experienced in the area of
United States securities laws such legend is not required under applicable
requirements of the Act (including judicial interpretations and pronouncements
issued by the staff of the Commission) or (iii) such Debentures, Warrants,
Debenture Shares or Warrant Shares may be sold pursuant to Rule 144. The Company
agrees that it will provide each Purchaser, upon request, with a certificate or
certificates representing Debentures, Warrants, Debenture Shares or Warrant
Shares, free from such legend at such time as such legend is no longer required
hereunder.
III.2 Stop Transfer Instruction. The Company may make notations
on its records or give instructions to any transfer agent with regard to the
restrictions on transfer set forth in Section 3.1; provided, however, the
Company may not make any notation on its records or give instructions to any
transfer agent of the Company which enlarge the restrictions on transfer set
forth in Section 3.1.
III.3 Furnishing of Information. As long as any Purchaser owns
the Debentures, the Warrants, the Debenture Shares or the Warrant Shares, the
Company will cause the Common Stock to continue at all times to be registered
under 12(g) of the Exchange Act, will timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13, 14 or 15(d) of the Exchange Act and will not take any action or file any
document (whether or not permitted by the Exchange Act or the rules thereunder)
to terminate or suspend such reporting and filing obligations. The Company
further covenants that it will take such further action as any holder of the
Debentures, the Warrants, the Debenture Shares or the Warrant Shares may
reasonably request, all to the extent required from time to time to enable such
Person to sell the Debentures, the Warrants, the Debenture Shares, or the
Warrant Shares without registration under the Act within the limitation of the
exemptions provided by Rule 144 promulgated under the Act.
III.4 Blue Sky Laws. In accordance with the Registration Rights
Agreement, the Company shall qualify the Debentures Shares and the Warrant
Shares under the securities or Blue Sky laws of such jurisdictions as the
Purchasers may request and shall continue such qualification at all times
through the third anniversary of the Tranche B Closing Date.
III.5 Integration. The Company shall not sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Act) that would be integrated with the offer or sale
of the Debentures, the Warrants, the Debenture Shares or the Warrant Shares in a
manner that would require the registration under the Act of the sale of the
Debentures, the Warrants, the Debenture Shares or the Warrant Shares to any
Purchaser.
III.6 Listing and Reservation of Debenture Shares and Warrant
Shares.
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(a) The Company shall (i) not later than 5 days after the
Tranche A Closing Date prepare and file with Nasdaq (as well as any other
national securities exchange or market on which the Common Stock is then listed)
an additional shares listing application or a letter acceptable to Nasdaq
covering and listing a number of shares of Common Stock which is at least equal
to the aggregate amount of Underlying Shares sold or to be sold in the Tranche A
Closing and Tranche B Closing, (ii) take all steps necessary to cause the
Underlying Shares to be approved for listing on Nasdaq (as well as on any other
national securities exchange or market on which the Common Stock is then listed)
as soon as possible thereafter and (iii) provide to the Purchasers evidence of
such listing. Neither the Company nor any of its Subsidiaries shall take any
action which may result in the delisting or suspension of the Common Stock on
Nasdaq. The Company shall promptly provide to each Purchaser copies of any
notices it receives from Nasdaq regarding the continued eligibility of the
Common Stock for listing on such automated quotation system.
(b) The Company at all times shall reserve the number of shares
of its authorized but unissued Common Stock which would be issuable upon
conversion of the Debentures and exercise of the Warrants. Shares of Common
Stock reserved for issuance upon conversion of the Debentures and the exercise
of the Warrants shall be allocated pro rata to each of the Purchasers in
accordance with the amount of Debentures and Warrants issued and delivered to
such Purchaser at the Tranche A Closing and Tranche B Closing, as applicable.
III.7 Notice of Breaches.
(a) The Company and each Purchaser shall give prompt written
notice to the other of any breach by it of any representation, warranty or other
agreement contained in this Agreement or in the Registration Rights Agreement,
as well as any events or occurrences arising after the date hereof and prior to
the Tranche A Closing Date or the Tranche B Closing Date, as applicable, which
would reasonably be likely to cause any representation or warranty or other
agreement of such party, as the case may be, contained herein to be incorrect or
breached as of such Closing Date provided such notice will not constitute
material non-public information. However, no disclosure by either party pursuant
to this Section 3.7 shall be deemed to cure any breach of any representation,
warranty or other agreement contained herein or in the Registration Rights
Agreement.
(b) Notwithstanding the generality of Section 3.7(a), the
Company shall promptly notify, provided such notification will not constitute
material non-public information, each Purchaser of any notice or claim (written
or oral) that it receives from any lender of the Company or any Subsidiary to
the effect that the consummation of the transactions contemplated hereby and by
the Registration Rights Agreement violates or would violate any written
agreement or understanding between such lender and the Company or any
Subsidiary, and the Company shall promptly furnish by facsimile to the
Purchasers a copy of any written statement in support of or relating to such
claim or notice.
(c) The default by any Purchaser of any of its obligations,
representations or warranties under this Agreement or the Registration Rights
Agreement shall not be imputed to,
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and shall have no effect upon, any other Purchaser or affect the Company's
obligations under this Agreement or any Transaction Document to any
non-defaulting Purchaser.
III.8 Form D; Blue Sky Laws. The Company agrees to file a Form D with
respect to the Debentures and Warrants as required by Rule 506 under Regulation
D and to provide a copy thereof to each Purchaser promptly after such filing.
The Company shall, on or before the applicable closing, take such action as the
Company shall reasonably determine is necessary to qualify the Debentures and
Warrants for sale to the Purchasers at the applicable closing pursuant to this
Agreement under applicable securities or "blue sky" laws of the states of the
United States (or to obtain an exemption from such qualification), and shall
provide evidence of any such action so taken to each Purchaser on or prior to
the applicable closing.
III.9 Future Financings. Except for (i) those transactions contemplated
by the Company and Rose Glen Capital Management, L.P. and certain other
investors pursuant to which the Company intends to complete a private placement
of Common Stock (as described in Schedule 2.1(c) hereto); (ii) issuance of the
Underlying Shares; (iii) shares of Common Stock deemed to have been issued by
the Company in connection with any contract, plan or agreement which has been
approved by the Board of Directors of the Company, pursuant to which the
Company's securities may be issued to any employee, officer, director or
consultant of the Company; (iv) shares of Common Stock issuable upon the
exercise of any options or warrants outstanding on the date hereof and listed in
Schedule 2.1(c) hereto; (v) shares of Common Stock issued or deemed to have been
issued in a Strategic Venture (as defined below); or (vi) shares of Common Stock
issued or deemed to have been issued as consideration for an acquisition by the
Company of a division, assets or business (or stock constituting any portion
thereof) from another person, if the Company agrees to issue Securities prior to
the first anniversary of the Tranche A Closing Date at an effective price per
share of less than an amount equal to the Conversion Price (as defined in the
Debentures) of the Debentures as of the date hereof and Debentures are still
then outstanding (a "Future Financing"), the Company shall provide by 5:00 p.m.
(New York time) on the third (3rd) Trading Day after the decision to issue the
Securities has been made, written notice of the Future Financing containing in
reasonable detail (i) the proposed terms of the Future Financing, (ii) the
amount of the proceeds that will be raised and (iii) the Person with whom such
Future Financing shall be effected, and attached to which shall be a term sheet
or similar document relating thereto (the "Future Financing Notice"). Upon
receiving the Future Financing Notice, each Purchaser shall have the pro rata
right to purchase, on the same terms as the Future Financing, an amount of
Securities not to exceed the sum of (i) the number of Securities which may be
purchased by the amount of the then outstanding principal amount of and any
interest owing on such Purchaser's Debenture and (ii) the number of Securities
which is the product of the Exercise Price (as defined in the Warrants)
multiplied by that number of shares of Common Stock underlying the Warrant. In
the event a Purchaser desires to exercise the right granted under this Section
3.9, such Purchaser must notify the Company on or prior to the fifth (5th)
Trading Day after the Purchaser has received the Future Financing Notice. In the
event one or more Purchasers elects not to exercise its rights granted hereby,
the Company shall permit those Purchasers electing to exercise the right granted
under this Section 3.9 to purchase, on a basis equal to its percentage ownership
of the then aggregate outstanding principal of the Debentures, the sum of the
number of Securities that the other Purchaser(s) were eligible to
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Purchase, if they had exercised their right hereunder. Those Purchasers desiring
to purchase additional Securities must notify the Company of their intention to
do so within three (3) Trading Days after the Company has informed the
Purchasers of their right to purchase additional Securities. Within five (5)
Trading Days of the termination of the final notice period, the transactions
contemplated by this Section 3.9 shall close and the Company shall tender to
each Purchaser certificates representing that number of the Securities that it
agreed to purchase and the Purchasers shall make payment for the entire purchase
price in immediately available funds at the closing of such sale; provided,
however, that each Purchaser, in lieu of providing cash as consideration for the
purchase price, may retire all or a portion of the outstanding principal amount
of and any interest owing on the Debentures as payment of the purchase price for
the Securities that it desires to purchase pursuant to this Section 3.9.
"Strategic Venture" shall mean a venture between the Company and a
pharmaceutical or biotechnology company or an Affiliate thereof, the primary
purpose of which is not to raise capital in the form of equity (including
without limitation through the issuance of warrants, convertible securities,
phantom stock rights, stock appreciation rights or other rights with equity
features) and pursuant to which the Company contributes or issues securities of
the Company valued at less than 50% of the entire contribution of the Company.
III.10 Use of Proceeds. The Company shall use the proceeds from
the sale of the Debentures and the exercise of the Warrants for general
corporate purposes and shall not, directly or indirectly, other than in
connection with a strategic or research collaboration, use such proceeds for any
loan to or investment in any other corporation, partnership, enterprise or other
Person.
III.11 Reimbursement. In the event that any Purchaser, other
than by reason of its gross negligence or willful misconduct, becomes involved
in any capacity in any action, proceeding or investigation brought by or against
any person, including shareholders of the Company, in connection with or as a
result of (a) any misrepresentation or breach of any representation or warranty
made by the Company in this Agreement or the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (b) any
breach of any covenant, agreement or obligation of the Company contained in this
Agreement or the Transaction Documents or any other certificate, instrument or
document hereby or thereby, or (c) any cause of action, suit or claim brought or
made against such Purchaser and arising out of or resulting from the execution,
delivery, performance or enforcement of this Agreement or the Transaction
Documents or any other certificate, instrument or document contemplated hereby
or thereby, the Company will reimburse such Purchaser for its legal and other
actual out-of-pocket expenses (including the cost of any investigation and
preparation) incurred in connection therewith. The reimbursement obligations of
the Company under this paragraph shall be in addition to any liability which the
Company may otherwise have, shall extend upon the same terms and conditions to
any affiliate of the Purchasers and partners, directors, agents, employees and
controlling persons (if any), as the case may be, of the Purchasers and any such
affiliate, and shall be binding upon and inure to the benefit of any successors,
assigns, heirs and personal representatives of the Company, the Purchasers and
any such affiliate and any such Person. The Company also agrees that neither the
Purchasers or any
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such Affiliates, partners, directors, agents, employees or controlling persons
shall have any liability to the Company or any Person asserting claims on behalf
of or in right of the Company in connection with or as a result of the
consummation of this Agreement or any of the Transaction Documents except to the
extent that any losses, claims, damages, liabilities or expenses incurred by the
Company result from the gross negligence or willful misconduct of such Purchaser
or entity in connection with the transactions contemplated by this Agreement or
the Registration Rights Agreement. To the extent that the foregoing undertaking
by the Company may be unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of its obligations
hereunder which is permissible under applicable law.
III.12 [Reserved.]
III.13 Transfer Agent Instructions. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of each Purchaser or its
respective nominee(s), for the Debenture Shares and the Warrant Shares in such
amounts as specified from time to time by each Purchaser to the Company in a
form acceptable to the Purchasers (the "Irrevocable Transfer Agent
Instructions"). Prior to registration of the Debenture Shares and Warrant Shares
under the Act, all such certificates shall bear the restrictive legend specified
in Section 3.1(b) of this Agreement. The Company warrants that no instruction
other than the Irrevocable Transfer Agent Instructions referred to in this
Section 3.13, and stop transfer instructions to give effect to Section 3.1
hereof, prior to registration of the Debenture Shares and the Warrant Shares
under the Act, will be given by the Company to its transfer agent and that the
Debentures, the Warrants, the Debenture Shares and the Warrant Shares shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration Rights Agreement.
If a Purchaser provides the Company with an opinion of counsel, in form and
substance reasonably satisfactory to the Company, to the effect that a public
sale, assignment or transfer of the Debentures, the Debenture Shares, the
Warrants and the Warrant Shares may be made without registration under the Act
or the Purchaser provides the Company with reasonable assurances that the
Warrants, the Debenture Shares and the Warrant Shares can be sold pursuant to
Rule 144 without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold, the Company shall permit the
transfer, and, in the case of the Debenture Shares and the Warrant Shares,
promptly instruct its transfer agent to issue one or more certificates in such
name and in such denominations as specified by such Purchaser and without any
restrictive legend. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Purchasers by violating
the intent and purpose of the transactions contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 3.13 will be inadequate and agrees, in the event of a beach
or threatened breach by the Company of the provisions of this Section 3.13, that
the Purchasers, shall be entitled, in addition to all other available remedies,
to an order and/or injunction restraining any breach and requiring immediate
issuance and transfer, without the necessity of showing economic loss and
without any bond or other security being required.
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III.14 Filing of Form 8-K. On or before the 10th business day
following each of the Tranche A Closing Date and the Tranche B Closing Date, the
Company shall file a Form 8-K with the Commission describing the terms of the
transaction contemplated by this Agreement and the Transaction Documents in the
form required by the Exchange Act.
III.15 Ordinary Course Brokerage and Trading. Subject to
compliance with all applicable securities laws and Nasdaq regulations, no
Purchaser shall be prohibited from engaging in its ordinary course brokerage and
trading activities in respect of the Company's Common Stock (including
establishing short positions); provided that the personnel engaged in such
activities have not been involved with the transactions contemplated hereby and
have not been provided with confidential information with respect to the
Company.
ARTICLE IV.
CONDITIONS
IV.1 (a) Conditions Precedent to the Obligation of the Company
to Sell the Tranche A Debentures and Tranche A Warrants. The obligation of the
Company to sell the Tranche A Debentures and Tranche A Warrants (and to pay the
Brown Simpson Asset Fee) hereunder is subject to the satisfaction or waiver
(with prior written notice to each Purchaser) by the Company, at or before the
Tranche A Closing, of each of the following conditions:
(i) Accuracy of the Purchasers' Representations and
Warranties. The representations and warranties of each Purchaser in this
Agreement shall be true and correct in all material respects as of the date when
made and as of the Tranche A Closing Date;
(ii) Performance by the Purchasers. Each Purchaser shall
have performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by such Purchaser at or prior to the Tranche A
Closing; and
(iii) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement or the Transaction Documents.
(a) Conditions Precedent to the Obligation of the Purchasers to
Purchase the Tranche A Debentures and Tranche A Warrants. The obligation of each
Purchaser hereunder to acquire and pay for the Tranche A Debentures and Tranche
A Warrants is subject to the satisfaction or waiver (with prior written notice
to the Company) by such Purchaser, at or before the Tranche A Closing, of each
of the following conditions:
(i) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company set forth in this
Agreement shall be true and correct in all material respects as of the date when
made and as of the Tranche A Closing Date;
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(ii) Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Tranche A Closing;
(iii) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement and the Transaction Documents;
(iv) No Suspensions of Trading in Common Stock. The
trading in the Common Stock shall not have been suspended by the Commission or
on Nasdaq which suspension shall remain in effect;
(v) Listing of Common Stock. The Common Stock shall have
been at all times since the date hereof, and on the Tranche A Closing Date shall
be, listed for trading on Nasdaq;
(vi) Required Approvals. All Required Approvals shall
have been obtained other than those relating solely to the Tranche B Debentures
and Tranche B Warrants;
(vii) Shares of Common Stock. The Company shall have
duly reserved the number of Underlying Shares required by this Agreement and the
Transaction Documents to be reserved for issuance upon conversion of the Tranche
A Debentures and the exercise of the Tranche A Warrants;
(viii) Change of Control. No Change of Control shall
have occurred between the date hereof and the Tranche A Closing Date. "Change of
Control" means the occurrence of any of (i) an acquisition after the date hereof
by an individual or legal entity or "group" (as described in Rule 13d-5(b)(1)
promulgated under the Exchange Act), other than the Purchasers or any of their
Affiliates, of in excess of 50% of the voting securities of the Company, (ii) a
replacement of more than one-half of the members of the Company's Board of
Directors which is not approved by those individuals who are members of the
Board of Directors on the date hereof in one or a series of related
transactions, (iii) the merger of the Company with or into another entity,
consolidation or sale of all or substantially all of the assets of the Company
in one or a series of related transactions or (iv) the execution by the Company
of an agreement to which the Company is a party or by which it is bound,
providing for any of the events set forth above in (i), (ii) or (iii); and
(ix) Transfer Agent Instructions. The Irrevocable
Transfer Agent Instructions, in a form acceptable to the Purchasers, shall have
been delivered to and acknowledged in writing by the Company's transfer agent.
(b) Documents and Certificates. At the Tranche A Closing, the Company
shall have delivered to the Purchasers the following in form and substance
reasonably satisfactory to the Purchasers:
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(i) An opinion of the Company's legal counsel in the
form attached hereto as Exhibit C dated as of the Tranche A Closing Date;
(ii) A Debenture(s) representing the principal amount of
Tranche A Debentures purchased by such Purchaser as set forth next to such
Purchaser's name on Schedule I, registered in the name of such Purchaser, each
in form satisfactory to the Purchaser;
(iii) A Warrant(s) representing the Tranche A Warrants
purchased by such Purchaser as set forth next to such Purchaser's name on
Schedule I, registered in the name of such Purchaser;
(iv) The Company shall have executed and delivered the
Registration Rights Agreement;
(v) Officer's Certificate. An Officer's Certificate
dated the Tranche A Closing Date and signed by an executive officer of the
Company confirming the accuracy of the Company's representations, warranties and
covenants as of such Closing Date and confirming the compliance by the Company
with the conditions precedent set forth in this Section 4.1 as of the Tranche A
Closing Date.
(vi) Secretary's Certificate. A Secretary's Certificate
dated the Tranche A Closing Date and signed by the Secretary or Assistant
Secretary of the Company certifying (A) that attached thereto is a true and
complete copy of the Certificate of Incorporation of the Company, as in effect
on the Tranche A Closing Date, (B) that attached thereto is a true and complete
copy of the by-laws of the Company, as in effect on the Tranche A Closing Date
and (C) that attached thereto is a true and complete copy of the resolutions
duly adopted by the Board of Directors of the Company authorizing the execution,
delivery and performance this Agreement and of the Transaction Documents, and
that such resolutions have not been modified, rescinded or revoked.
IV.2 (a) Conditions Precedent to the Obligation of the Company
to Sell the Tranche B Debentures and Tranche B Warrants. The obligation of the
Company to sell the Tranche B Debentures and Tranche B Warrants hereunder is
subject to the satisfaction or waiver (with prior written notice to each
Purchaser) by the Company, at or before the Tranche B Closing, of each of the
following conditions:
(i) Accuracy of the Purchasers' Representations and
Warranties. The representations and warranties of each Purchaser in this
Agreement shall be true and correct in all material respects as of the date when
made and as of the Tranche B Closing Date (except for representations and
warranties that speak as of a specific date);
(ii) Performance by the Purchasers. Each Purchaser shall
have performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by such Purchaser at or prior to the Tranche B
Closing; and
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(iii) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement and the Transaction Documents.
(a) Conditions Precedent to the Obligation of the Purchasers to
Purchase the Tranche B Debentures and Tranche B Warrants. The obligation of each
Purchaser hereunder to acquire and pay for the Tranche B Debentures and Tranche
B Warrants is subject to the satisfaction or waiver (with prior written notice
to the Company) by each Purchaser, at or before the Tranche B Closing, of each
of the following conditions:
(i) Tranche A Closing. The Tranche A Closing shall have
occurred;
(ii) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company contained herein
shall be true and correct in all material respects as of the date when made and
in all material respects as of the Tranche B Closing Date (except for
representations and warranties that speak as of a specific date);
(iii) Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement and the Transfer Documents
to be performed, satisfied or complied with by the Company at or prior to the
Tranche B Closing Date;
(iv) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement and the Transaction Documents;
(v) Effective Registration Statement. The Registration
Statement with respect to the Underlying Shares shall have been declared and
shall be effective under the Act by the Commission; not subject to any stop
order and not be subject to any suspension pursuant to Section 3(p) of the
Registration Rights Agreement, and shall have been effective and shall not have
been subject to any stop order for the thirty (30) business days prior to such
Closing Date and no stop order shall be pending or threatened as at such Closing
Date;
(vi) No Suspensions of Trading in Common Stock. The
trading in the Common Stock shall not have been suspended by the Commission or
on Nasdaq (except for any suspension of trading of limited duration solely to
permit dissemination of material information regarding the Company);
(vii) Listing of Common Stock. The Common Stock shall
have been at all times since the date hereof and, on the Tranche B Closing Date
the Common Stock, including the Underlying Shares, shall be listed for trading
on Nasdaq;
(viii) Required Approvals. All Required Approvals shall
have been obtained;
21
<PAGE> 23
(ix) Shares of Common Stock. The Company shall have duly
reserved the number of Underlying Shares required by this Agreement to be
reserved for issuance upon conversion of the Tranche B Debentures and exercise
of the Tranche B Warrants;
(x) Change of Control. No Change of Control in the
Company shall have occurred; and
(xi) Transfer Agent Instructions. The Irrevocable
Transfer Agent Instructions, in a form acceptable to the Purchasers, shall have
been delivered to and acknowledged in writing by the Company's transfer agent.
(b) Documents and Certificates. At the Tranche B Closing, the
Company shall have delivered to the Purchasers the following in form and
substance reasonably satisfactory to the Purchasers:
(i) An opinion of the Company's legal counsel, in
substantially the form attached hereto as Exhibit C dated as of the Tranche B
Closing Date;
(ii) A Debenture(s) representing the principal amount of
Tranche B Debentures purchased by such Purchaser as set forth next to such
Purchaser's name on Schedule I, registered in the name of such Purchaser, each
in form satisfactory to the Purchaser;
(iii) a Warrant(s) representing the Tranche B Warrants
being purchased by such Purchaser as set forth next to such Purchaser's name on
Schedule I, registered in the name of such Purchaser;
(iv) Officer's Certificate. The Company shall deliver to
the Purchasers an Officer's Certificate dated the Tranche B Closing Date and
signed by an executive officer of the Company confirming the accuracy of the
Company's representations, warranties and covenants as of the Tranche B Closing
Date and confirming the compliance by the Company with the conditions precedent
set forth in this Section 4.2 as of the Tranche B Closing Date; and
(v) Secretary's Certificate. A Secretary's Certificate
dated the Tranche B Closing Date and signed by the Secretary or Assistant
Secretary of the Company certifying (A) that attached thereto is a true and
complete copy of the Certificate of Incorporation of the Company, as in effect
on the Tranche B Closing Date, (B) that attached thereto is a true and complete
copy of the bylaws of the Company, as in effect on the Tranche B Closing Date
and (C) that attached thereto is a true and complete copy of the resolutions
duly adopted by the Board of Directors of the Company authorizing the execution,
delivery and performance of the Agreement and the Transaction Documents and that
such resolutions have not been modified, rescinded or revoked.
ARTICLE V.
MISCELLANEOUS
22
<PAGE> 24
V.1 Fees and Expenses. Except as set forth in the Registration
Rights Agreement and as otherwise set forth in this Agreement, each party shall
pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement.
The Company shall pay all stamp and other taxes and duties levied in connection
with the issuance of the Debenture Shares and the Warrant Shares pursuant
hereto.
V.2 Entire Agreement; Amendments. This Agreement, together with
the Exhibits and Schedules hereto and the Registration Rights Agreement contain
the entire understanding of the parties with respect to the subject matter
hereof and supersede all prior agreements and understandings, oral or written,
with respect to such matters.
V.3 Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been received (a) upon hand delivery (receipt acknowledged) or delivery by telex
(with correct answer back received), telecopy or facsimile (with transmission
confirmation report) at the address or number designated below (if received by
8:00 p.m. EST where such notice is to be received), or the first business day
following such delivery (if delivered on a business day after during normal
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications are (i) if to
the Company to Geron Corporation, 230 Constitution Drive, Menlo Park, California
94025 attn: David Greenwood, fax no. (650) 473-7701 and (ii) if to any Purchaser
to the address as set forth on Schedule II hereto with copies to Akin, Gump,
Strauss, Hauer & Feld, L.L.P., 590 Madison Avenue, New York, New York 10022,
Attn: James Kaye, fax no. (212) 872-1002, or such other address as may be
designated in writing hereafter, in the same manner, by such Person.
V.4 Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchasers or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any 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 accruing to it thereafter. Notwithstanding the
foregoing, no such amendment shall be effective to the extent that it applies to
less than all of the holders of the Debentures outstanding. The Company shall
not offer or pay any consideration to a Purchaser for consenting to such an
amendment or waiver unless the same consideration is offered to each Purchaser
and the same consideration is paid to each Purchaser which consents to such
amendment or waiver.
V.5 Headings; Interpretive Matters. The headings herein are for
convenience only, do not constitute a part of this Agreement and shall not be
deemed to limit or affect any of the provisions hereof. No provision of this
Agreement will be interpreted in favor of, or against,
23
<PAGE> 25
any of the parties hereto by reason of the extent to which any such party or its
counsel participated in the drafting thereof or by reason of the extent to which
any such provision is inconsistent with any prior draft hereof or thereof.
V.6 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of each of the Purchasers. The
Purchasers may assign this Agreement or any rights or obligations hereunder to
any Affiliate thereof without the prior written consent of the Company, except
that any assignees must make the representations and warranties set forth in
Section 2.2 and otherwise comply with the terms of this Agreement otherwise
applicable to its assignor. This provision shall not limit a Purchaser's right
to transfer securities in accordance with all of the terms of this Agreement or
under the Registration Rights Agreement.
V.7 No Third-Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
V.8 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York without regard to the principles of conflicts of law thereof. Each party
hereby irrevocably submits to the nonexclusive jurisdiction of the state and
federal courts sitting in the City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law.
V.9 Survival. The agreements, covenants, representations,
warranties and provisions contained in this Agreement shall survive the delivery
of the Debentures and the Warrants pursuant to this Agreement and each closing
hereunder and any conversion of the Debentures or exercise of the Warrants.
V.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
24
<PAGE> 26
V.11 Publicity. The Company and each Purchaser shall consult
with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and neither
party shall issue any such press release or otherwise make any such public
statement without the prior written consent of the other, which consent shall
not be unreasonably withheld or delayed, except that no prior consent shall be
required if such disclosure is required by law, in which such case the
disclosing party shall provide the other party with prior notice of such public
statement. The Company shall not publicly or otherwise disclose the names of any
of the Purchasers without each such Purchaser's prior written consent.
V.12 Severability. In case any one or more of the provisions of
this Agreement shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Agreement shall
not in any way be affected or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
V.13 Remedies. In addition to being entitled to exercise all
rights provided herein or granted by law, including recovery of damages, the
Purchasers will be entitled to specific performance of the obligations of the
Company under this Agreement or the Transaction Documents without the showing of
economic loss and without any bond or other security being required. Each of the
Company and the Purchasers (severally and not jointly) agree that monetary
damages would not be adequate compensation for any loss incurred by reason of
any breach of its 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.
V.14 Independent Nature of Purchasers' Obligations and Rights.
The obligations of each Purchaser hereunder is several and not joint with the
obligations of the other Purchasers hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement or out of the
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.
V.15 Payment Set Aside. To the extent that the Company makes a
payment or payments to the Purchasers hereunder or pursuant to the Registration
Rights Agreement or the Purchasers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared fraudulent
or preferential, set aside, recovered from, disgorged by or are required to be
refunded, repaid or otherwise restored to the Company, a trustee, receiver or
any
25
<PAGE> 27
other Person under any law (including, without limitation, any bankruptcy law,
state or federal law, common law or equitable cause of action), then to the
extent of any such restoration the obligation or part thereof originally
intended to be satisfied shall be revived and continued in full force and effect
as if such payment had not been made or such enforcement or setoff had not
occurred.
26
<PAGE> 28
IN WITNESS WHEREOF, the parties hereto have caused this
Securities Purchase Agreement to be duly executed by their respective authorized
persons as of the date first indicated above.
GERON CORPORATION
By:
----------------------------------------
Name:
Title:
BROWN SIMPSON STRATEGIC
GROWTH FUND, LTD.
By:
----------------------------------------
Name: Mitchell Kaye
Title: Principal
Residence: Grand Cayman, Cayman Islands
BROWN SIMPSON STRATEGIC
GROWTH FUND, L.P.
By:
----------------------------------------
Name: Mitchell Kaye
Title: Principal
Residence: New York, New York
LB I GROUP INC.
By:
----------------------------------------
Name: Steven Berkenfeld
Title: Senior Vice President
Residence: New York, New York
<PAGE> 29
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P., Investment Manager
BY: RGC GENERAL PARTNER CORP.,
AS GENERAL PARTNER
By:
----------------------------------------
Name: Wayne D. Bloch
Title: Managing Director
Residence: Grand Cayman, Cayman Islands
-28-
<PAGE> 30
<TABLE>
<CAPTION>
Schedule I
Principal Principal Amount
Amount of of Convertible
Convertible Debentures at
Debentures at Tranche B
Tranche A No. of Tranche A Closing Date No. of Tranche B
Name of Purchaser Closing Date Warrants Warrants(1)
- ----------------- ------------ -------- -----------
<S> <C> <C> <C> <C>
Brown Simpson Strategic
Growth Fund, Ltd. $1,050,000 87,500 [$2,000,000 to
be allocated
between Brown
Simpson
Strategic Growth
Fund, Ltd.,
Brown Simpson
Strategic Growth
Fund, L.P. and
Brown
Simpson-ORD
Investments LLC]
Brown Simpson Strategic
Growth Fund, L.P. $450,000 37,500
Brown Simpson-ORD $500,000 41,667
Investments LLC
LB I Group Inc. $3,000,000 250,000 $3,000,000
RGC International $2,500,000 208,333 $2,500,000
Investors, LDC
</TABLE>
- -----------------
(1) As may be adjusted from time to time in accordance with and subject to
paragraph 6 of the Warrant.
-29-
<PAGE> 31
Schedule II
<TABLE>
<CAPTION>
Name of Purchaser Address
- ----------------- -------
<S> <C>
Brown Simpson Strategic Growth Fund, Ltd. 152 West 57th Street, 40th Floor
New York, New York 10019
Attn: Paul Gustus
Fax: (212) 247-1329
Brown Simpson Strategic Growth Fund, L.P. 152 West 57th Street, 40th Floor
New York, New York 10019
Attn: Paul Gustus
Fax: (212) 247-1329
LB I Group Inc. c/o Lehman Brothers, Inc.
3 World Financial Center
New York, New York 10285
Attn: Kevin Jenirs
Fax: (212) 526-2198
RGC International Investors, LDC c/o Rose Glen Capital Management, L.P.
3 Bala Plaza East, Suite 200
251 Saint Asaphs Road
Bala Cynwyd, PA 19004
Attn: Wayne D. Bloch
Fax: (620) 617-0570
</TABLE>
-30-
<PAGE> 32
GERON CORPORATION
SCHEDULE 2.1(a) - SUBSIDIARIES
None
<PAGE> 33
GERON CORPORATION
SCHEDULE 2.1(c) - CAPITALIZATION
Number of Shares Authorized
25,000,000 shares of Common Stock and 3,000,000 shares of Preferred Stock are
authorized for issuance.
Number of Shares Issued and Outstanding
As of November 17, 1998, 13,596,419 shares of Common Stock and 3,452 shares of
Preferred Stock were issued and outstanding.
Obligations for Future Issuance of Shares
1. Warrants
o In August 1997, in conjunction with a license agreement between
Geron Corporation and The Johns Hopkins University School of
Medicine, the Company issued a warrant to purchase [*] shares
of Common Stock at $6.75 per share. The warrant is exercisable
through [*].
o In June 1994, in conjunction with the Series C Preferred Stock
financing, the Company issued a warrant to purchase 2,766 shares
of Common Stock at $9.28 per share to Invemed Associates. The
warrant is exercisable through June 1999.
o In June 1994, in conjunction with the Series C Preferred Stock
financing, the Company issued a warrant to purchase 487 shares
of Common Stock at $9.30 per share to Christina H. Kepner. The
warrant is exercisable through June 1999.
o In February 1994, in conjunction with a research agreement
between Geron Corporation and Cold Spring Harbor Laboratory, the
Company issued a warrant to purchase 47,058 shares of Common
Stock at $7.65 per share. The warrant is exercisable through
February 2004.
2. 1992 Stock Option Plan
o The 1992 Stock Option Plan provides for grants to employees of
the Company of incentive stock options and for grants of
nonstatutory stock options to employees, directors and
consultants.
o As of November 17, 1998, options to purchase 2,449,001 shares of
Common Stock were outstanding and 556,224 shares remain
available for future grants. Expiration dates range from 3/12/01
to 9/16/08. Exercise prices range from $0.34 to $17.00.
3. 1996 Directors' Option Plan
o In July 1996, the Company adopted the 1996 Directors' Option
Plan and reserved an aggregate of 250,000 shares of Common Stock
for issuance thereunder. As of November 17, 1998, options to
purchase 125,000 shares of Common Stock were outstanding and
125,000 shares remain available for future grants. Expiration
dates range from 4/3/07 to 9/18/08. Exercise prices range from
$4.81 to $11.13.
* Certain portions of this schedule have been omitted for which confidential
treatment has been requested and filed separately with the Securities and
Exchange Commission.
<PAGE> 34
4. 1996 Employee Stock Purchase Plan
o In July 1996, the Company adopted the 1996 Employee Stock
Purchase Plan and reserved an aggregate of 300,000 shares of
Common Stock for issuance thereunder. As of November 17, 1998,
44,079 shares of Common Stock had been issued and 255,921 shares
remain available for future purchases.
5. Eric Lander Stock Option Plan
o In August 1997, the Company adopted the Lander Stock Option Plan
for a nonstatutory stock option grant to Eric S. Lander, a
consultant and member of the Company's Scientific Advisory
Board. The Company had reserved 7,352 shares of Common Stock for
issuance under the Lander Stock Option Plan. As of November 17,
1998, an option to purchase 7,352 shares of Common Stock at
$0.816 per share was outstanding and no shares remain available
for future grants.
6. The Johns Hopkins University School of Medicine ("JHU")
o In August 1997, the Company signed a license agreement with JHU
relating to its Primordial Stem Cell Therapies program. Under
this agreement, certain milestone payments will be made upon
achievement of certain research and development milestones. The
milestones and their respective payment structures are outlined
below:
<TABLE>
<CAPTION>
Milestone Event Equity (shares) Warrants (shares)
- --------------- --------------- -----------------
<S> <C> <C>
Successfully transfer to Company [*] [*]
EG Cells isolated by JHU
Successfully transfer to Company [*] [*]
ES Cells isolated by JHU
Issuance of first United States [*] [*]
patent which prevents others from
making, using, selling the EG Cells
or ES Cells
IND filing for the first Licensed [*] [*]
Product or comparable regulatory
filing for first Licensed Product or
Licensed Service
NDA Approval for the first [*] [*]
Licensed Product or comparable
regulatory approval for first
Licensed Product or Licensed
Service
Total Shares for Future Issuance [*] [*]
</TABLE>
o The exercise price for the warrants granted in connection with
the first three milestone events shall be equal to the average
closing price of the common stock during the [*] business
days immediately preceding the effective date of the license
agreement. The exercise price for the warrants granted in
connection with the last two milestone events shall be equal to
the average closing price of the common stock during the
[*] business days immediately preceding the date upon which the
milestone event in question occurred. All warrants shall vest
immediately and shall have a [*] year exercise period.
* Certain portions of this schedule have been omitted for which confidential
treatment has been requested and filed separately with the Securities and
Exchange Commission.
<PAGE> 35
7. University Technology Corporation ("UTC")
o In December 1996, the Company signed a license agreement with
UTC relating to its Telomerase programs. Under this agreement, a
grant of 1,000 shares of Geron Common Stock and a nonstatutory
stock option grant to purchase 5,000 shares of Geron Common
Stock shall be awarded upon successful patent issuance that
claims recombinant methods and vectors encoding the human
telomerase protein component or components, which patent is not
subject to interference proceeding and is not dominated by a
patent owned by a third party with claims directed specifically
to human telomerase proteins or nucleic acids encoding the same.
8. Darwin Molecular Corporation (Chiroscience Group)
o In September 1997, the Company signed a research collaboration
agreement with Darwin/Chiroscience relating to the Werner's
Gene. Under this agreement, after the creation or in-licensing
by Geron of a Werner's Gene Knockout mouse and prior to
expiration of the Option Period, Geron shall either (i) identify
the mouse as having a premature aging phenotype, elect to extend
the Research Term by one year and grant Darwin/Chiroscience
20,000 shares of Geron Common Stock; (ii) identify the mouse as
not having a premature aging phenotype and offer to extend the
Research Term for one year under a Revised Plan in exchange for
10,000 shares of Geron Common Stock; or (iii) terminate the
Agreement.
9. Series A Convertible Preferred Stock
o In March 1998, the Company completed a private placement with
two institutional investors for the sale of 15,000 shares of
Series A Convertible Preferred Stock with a stated value of
$1,000 per share. The Series A Convertible Preferred Stock is
convertible into the number of shares of Common Stock of the
Company equal to the stated value plus a premium of 6% per annum
divided by a conversion price. The conversion price of the
Preferred Stock is based on the market price of the Common Stock
during a pricing period conversion, up to a conversion price cap
of $16.88. With limited exceptions, during the nine month period
following issuance, the Preferred Stock is convertible only
after the market price of the Common Stock equals or exceeds $15
per share. The Preferred Stock is subject to redemption at the
Company's option if the market price of the Common Stock exceeds
or falls below certain thresholds. The shares of Common Stock
into which the Series A Convertible Preferred Stock may be
converted have been registered pursuant to a Registration
Statement on Form S-3 that was filed on April 24, 1998 and
declared effective by the SEC on July 17, 1998.
o On November 6, 1998, 11,548 shares of the Company's Series A
Convertible Preferred Stock were converted into 2,173,446 shares
of the Company's Common Stock. As of this date, 3,452 shares of
Series A Convertible Preferred Stock remain outstanding.
10. Right of First Offer
o Pursuant to a Securities Purchase Agreement dated as of March
27, 1998 among the Company and certain purchasers, the Company
agreed that it would not, without the prior written consent of
Rose Glen Capital Management, L.P. ("RGC") negotiate or contract
with any party to obtain additional equity financing (including
debt financing with an equity component) that (i) involves (A)
the issuance of Common Stock at a discount to the market price
of the Company's Common Stock on the date of issuance (taking
into account the value of any warrants or options to acquire
Common Stock issued in connection therewith) or (B) the issuance
of convertible securities that are convertible into an
indeterminate number of shares of Common Stock and (ii) allows
for the public resale of such Common Stock (or the Common Stock
issuable upon conversion or exercise of such securities ) during
the period beginning on March 27, 1998 and ending 270 days from
the date a registration statement on Form S-3 related to the
Securities Purchase Agreement was declared effective. The
Company also agreed that it would not offer any equity financing
<PAGE> 36
(including debt with an equity component) during the period
beginning on March 27, 1998 and ending 180 days from the date
such registration statement was declared effective unless it
shall have first delivered to RGC a written notice stating its
intention to offer such financing and providing RGC an option to
purchase securities to be offered in such financing. The Company
intends to seek a waiver from RGC with respect to these
provisions.
11. Private Placement
o The Company intends to enter into a Securities Purchase
Agreement in December 1998 with certain investors under which
the Company intends to complete a private placement of shares of
its Common Stock to such investors, yielding gross proceeds to
the Company of approximately $3.6 million.
<PAGE> 37
GERON CORPORATION
SCHEDULE 2.1(f) - NO CONFLICTS; CONSENTS AND APPROVALS
Conflicts
None
Consents and Approvals
See Schedule 2.1(c), paragraph 10
<PAGE> 38
GERON CORPORATION
SCHEDULE 2.1(g) - LITIGATION
Current On-going Litigation
None
Possible Controversies
1. Third party alleged interference with an existing relationship with a
University and University has been contacted by another University
regarding alleged misconduct relating to patented technology.
o Geron signed a licensing and sponsored research agreement
relating to its Embryonic Stem Cell program with The Johns
Hopkins University School of Medicine ("JHU") on August 1, 1997,
after having been informed by a third party (Plurion) that the
Company and JHU would violate the rights of the third party and
another academic institution (Vanderbilt University) with which
that third party claimed to be affiliated by way of contract
(collectively "Third Party") in doing so. After a review of the
correspondence with the Third Party and JHU as well as related
documents, including an issued U.S. patent, the Company believes
that the Third Party's claims, if asserted, would fall into
three general categories: patent infringement, misuse of
confidential information and breach of contract. The Company
believes that it and JHU have substantial defenses to any claims
that might be asserted by such Third Party and has provided
indemnification to JHU relating to such potential claims.
2. FAA
o In July 1997, the FAA notified the Company that it was
conducting an investigation regarding the shipment of improperly
packaged hazardous materials from the Company that resulted in
leakage but no physical injury.
3. Former employee regarding authorship of a scientific paper
o In January 1998, counsel for a former employee contacted the
Company regarding authorship of a scientific paper from which he
was omitted as an author. No damages or awards have been
requested.
Current On-going Regulatory Inquiries
1. National Association of Securities Dealers ("NASD")
o In September 1997, the NASD began a review of trading in Geron
Corporation Common Stock surrounding the August 14, 1997
announcement wherein Geron disclosed it had successfully cloned
the gene for the human telomerase catalytic protein.
o The Company has responded to all requests for information.
o On March 25, 1998, the NASD notified Geron that the staff has
concluded its review and has referred the documents to the
Securities and Exchange Commission for whatever action, if any,
it deems appropriate.
o There has been no correspondence between NASD, the SEC and Geron
about this subject since March 1998.
<PAGE> 39
2. Chicago Board of Options Exchange ("CBOE")
o In March 1998, the CBOE requested information relating to a
review of market activity in Geron Corporation prior to the news
announcement on January 13, 1998 regarding the Company's intent
to publish its successful study in human cell research.
o The Company has responded to all requests for information.
o There has been no correspondence between the CBOE and Geron
about this subject since April 1998.
3. Securities and Exchange Commission ("SEC")
o In April 1998, the SEC requested information relating to its
review of trading for certain individuals in connection with the
news announcement on January 13, 1998 regarding the study which
confirms the role of the enzyme telomerase.
o The Company has responded to all requests for information.
o There has been no correspondence between the SEC and Geron about
this subject since April 1998.
<PAGE> 40
GERON CORPORATION
SCHEDULE 2.1(i) - SEC DOCUMENTS
In connection with the Form S-8 filed on August 14, 1997, the Company
incorrectly filed the 1992 Stock Option Plan as an exhibit instead of the Lander
Stock Option Plan.
<PAGE> 41
GERON CORPORATION
SCHEDULE 2.1(o) - LISTING AND MAINTENANCE REQUIREMENTS
None
<PAGE> 42
GERON CORPORATION
SCHEDULE 2.1(q) - EMPLOYEE RELATIONS
None
<PAGE> 43
GERON CORPORATION
SCHEDULE 2.1(r) - REGISTRATION RIGHTS; RIGHTS OF PARTICIPATION
Obligations to Register Securities
The Company is party to an Investor Rights Agreement dated November 5, 1995
where certain investors have a right to have their securities registered by the
Company.
The Company is party to a Registration Rights Agreement dated March 27, 1998
under which certain investors have a right to have their securities registered
by the Company.
The Company intends to enter into a Securities Purchase Agreement in December
1998 with certain investors under which the Company intends to complete a
private placement of shares of its Common Stock to such investors. These
investors would have a right to have their securities registered by the Company.
<PAGE> 44
GERON CORPORATION
SCHEDULE 2.1(s) - TITLE
None
<PAGE> 45
GERON CORPORATION
SCHEDULE 2.1(x) - TRANSACTIONS WITH AFFILIATES
Employee Loan
In December 1993, the Company provided an interest-free loan to Calvin B.
Harley, Chief Scientific Officer, in the principal amount of $150,000, due
December 1, 1996, pursuant to a note secured by a second deed of trust to Dr.
Harley's residence in Palo Alto, California. On December 1, 1996, the Company
agreed to extend the due date of the interest-free loan to December 31, 1998. As
of November 17, 1998, $150,000 was outstanding under the note.
Consulting Agreements
In April 1996, the Company entered into a Consulting Agreement with Thomas D.
Kiley, a Director of the Company, pursuant to which Mr. Kiley agreed to provide
such advice and consultation as reasonably requested by the Company to its
officers and scientists on the direction, implementation and operations of its
scientific programs, business plans and management of intellectual property. As
compensation for his services under this agreement, Mr. Kiley received an option
to purchase 7,352 shares of Geron Corporation Common Stock at an exercise price
of $2.04 per share, with monthly vesting over a five-year period. Unless
otherwise terminated by either the Company or Mr. Kiley, this agreement will
expire on April 10, 2001.
In April 1997, the Company entered into a Consulting Agreement with John P.
Walker, a Director of the Company, pursuant to which Mr. Walker agreed to
provide such advice and consultation as reasonably requested by the Company to
its officers and scientists on the direction, implementation and operations of
its scientific programs and business plans. As compensation for his services
under this agreement, Mr. Walker received an option to purchase 10,000 shares of
Geron Corporation Common Stock at an exercise price of $9.25 per share, with
annual vesting over a three year period. In addition, Mr. Walker will receive
cash compensation in the amount of $10,000 per year, payable quarterly. Unless
otherwise terminated by either the Company or Mr. Walker, this agreement will
expire on April 3, 2000.
<PAGE> 46
GERON CORPORATION
SCHEDULE 2.1(bb) - SOLICITATION OF MATERIALS
None
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-3 and related Prospectus of Geron Corporation
for the registration of 3,850,000 shares of its Common Stock and to the
incorporation by reference therein of our report dated February 12, 1999 with
respect to the financial statements of Geron Corporation included in its Annual
Report on Form 10-K for the year ended December 31, 1998 filed with the
Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Palo Alto, California
March 17, 1999
