StemCells (STEM) Enters Merger Agreement with Microbot Medical

August 16, 2016 9:10 AM EDT
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StemCells (NASDAQ: STEM) disclosed the following on Monday night:

Item 1.01 Entry Into a Material Definitive Agreement.

Merger Agreement

On August 15, 2016, StemCells, Inc., a Delaware corporation (the “Company”), entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Microbot Medical Ltd., a private medical device company organized under the laws of the State of Israel (“Microbot”) and C&RD Israel Ltd., an Israeli corporation and wholly-owned subsidiary of the Company (“Merger Sub”). Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will be merged with and into Microbot, Merger Sub will cease to exist and Microbot will survive as a wholly-owned subsidiary of the Company (the “Merger”). The respective boards of directors of StemCells and Microbot have approved the Merger Agreement and the transactions contemplated thereby.

At the effective time of the Merger (the “Effective Time”), each outstanding share of Microbot capital stock will be automatically converted into the right to receive that number of shares of Company common stock as determined pursuant to the exchange ratio described in the Merger Agreement (the “Exchange Ratio”). In addition, at the Effective Time: (i) all outstanding options to purchase shares of Microbot stock will be assumed by the Company and converted into options to purchase shares of Company common stock, in each case appropriately adjusted based on the Exchange Ratio; and (ii) all outstanding warrants to purchase shares of the capital stock of Microbot will be assumed by the Company and converted into warrants to purchase shares of Company common stock, in each case appropriately adjusted based on the Exchange Ratio. No fractional shares of Company common stock will be issued in the Merger. Following the consummation of the Merger, former stockholders of Microbot and certain advisors with respect to the Merger are expected to own 95% of the combined company and current stockholders of the Company are expected to own 5% of the combined company, in each case based on the fully diluted shares of each company prior to the consummation of the Merger.

In connection with the Merger, the Company will seek to amend its certificate of incorporation to: (a) effect a reverse stock split of the Company’s common stock, if necessary to comply with the listing requirements of the NASDAQ Capital Market; (b) increase the number of authorized shares of Company common stock; and (c) change the name of the Company to “Microbot Medical Inc.” or another name designated by Microbot (the “Charter Amendment”).

The Merger Agreement provides that, immediately following the Effective Time, the board of directors of the Company will be designated by Microbot.

The completion of the Merger is subject to various customary conditions, including, among other things: (a) the approval of the respective stockholders of the Company and Microbot; (b) subject to certain materiality exceptions, the accuracy of the representations and warranties made by each of the Company and Microbot and the compliance by each of the Company and Microbot with their respective obligations under the Merger Agreement; (c) approval for the listing of shares of the Company’s common stock to be issued in the Merger on the NASDAQ Capital Market; (d) approval of the transactions contemplated by the Merger Agreement by the Office of Chief Scientist at the Israeli Ministry of Economy; and (e) that the Company’s cash position, net of debt and certain other liabilities, is not less than $0, excluding any balance under the Note (as defined below) (the “Net Cash Condition”). The Company’s existing cash resources, together with the Note, are insufficient to satisfy all of its outstanding liabilities. Accordingly, in order to satisfy the Net Cash Condition and consummate the Merger, the Company will be required to negotiate significant reductions in outstanding balances with its creditors. A failure to negotiate reductions in these outstanding balances could result in the Company’s failure to satisfy its closing conditions under the Merger Agreement.

The Merger Agreement contains customary representations, warranties and covenants, including covenants obligating each of the Company and Microbot to continue to conduct its respective business in the ordinary course, to provide reasonable access to each other’s information and to use reasonable best efforts to cooperate and coordinate to make any filings or submissions that are required to be made under any applicable laws or requested to be made by any government authority in connection with the Merger. The Merger Agreement also contains a customary “no solicitation” provision pursuant to which, prior to the completion of the Merger, neither the Company nor Microbot may solicit or engage in discussions with any third party regarding another acquisition proposal unless it has received an unsolicited, bona fide written proposal that the recipient’s board of directors determines is or would reasonably be expected to result in a Superior Proposal (as defined in the Merger Agreement).

The Merger Agreement contains certain termination rights in favor of each of the Company and Microbot.

The foregoing summary of the Merger Agreement and the Merger does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Merger Agreement, a copy of which is attached hereto as Exhibit 2.1 and is incorporated by reference herein.

The Merger Agreement has been provided pursuant to applicable rules and regulations of the SEC in order to provide investors and stockholders with information regarding its terms. However, it is not intended to provide any other factual information about the Company, Microbot, their respective subsidiaries and affiliates or any other party. In particular, the representations, warranties and covenants contained in the Merger Agreement have been made only for the purpose of the Merger Agreement and, as such, are intended solely for the benefit of the parties to the Merger Agreement. In many cases, the representations, warranties and covenants are subject to limitations agreed upon by the parties and are qualified by certain disclosures exchanged by the parties in connection with the execution of the Merger Agreement. Furthermore, many of the representations and warranties in the Merger Agreement are the result of a negotiated allocation of contractual risk among the parties and, taken in isolation, do not necessarily reflect facts about the Company, Microbot, their respective subsidiaries and affiliates or any other party. Likewise, any reference to materiality contained in the representations and warranties may not correspond to concepts of materiality applicable to investors or stockholders. Finally, information concerning the subject matter of the representations and warranties may change after the date of the Merger Agreement and these changes may not be fully reflected in the Company’s public disclosures.

As a result of the foregoing, investors are encouraged not to rely on the representations, warranties and covenants contained in the Merger Agreement, or on any descriptions thereof, as accurate characterizations of the state of facts or condition of the company or any other party. Investors and stockholders are likewise cautioned that they are not third-party beneficiaries under the Merger Agreement and do not have any direct rights or remedies pursuant to the Merger Agreement.

Voting Agreements

On August 15, 2016, concurrently with the execution of the Merger Agreement, certain stockholders of Microbot (collectively, the “Key Microbot Stockholders”) entered into a voting agreement in favor of StemCells (collectively, the “StemCells Voting Agreement”). Pursuant to the StemCells Voting Agreement, the Key Microbot Stockholders have agreed, among other things, to vote all shares of capital stock of Microbot beneficially owned by them in favor of the Merger and the adoption of the Merger Agreement and the approval of the transactions contemplated by the Merger Agreement, and any actions required in furtherance thereof. The Microbot Voting Agreement will terminate upon the earliest to occur of: (i) the termination of the Merger Agreement in accordance with its terms; (ii) the date on which the Merger becomes effective; or (iii) the date on which an amendment to the Merger Agreement is effected without the consent of the Key Microbot Stockholders that decreases the Exchange Ratio or materially and adversely affects such Key Microbot Stockholders. In addition, Investor (as defined below) has informed StemCells that it will vote its shares in favor of the Merger, the adoption of the Merger Agreement and the approval of the transactions contemplated by the Merger Agreement.

On August 15, 2016, concurrently with the execution of the Merger Agreement, all of the directors and certain stockholders of the Company (collectively, the “Key StemCells Stockholders”) entered into voting agreements in favor of Microbot (collectively, the “Microbot Voting Agreements”). Pursuant to the Microbot Voting Agreements, the Key StemCells Stockholders have agreed, among other things, to vote all shares of capital stock of the Company beneficially owned by them in favor of the approval of the Charter Amendment, the issuance of Company common stock in connection with the Merger, and any actions required in furtherance thereof. The terms of the Microbot Voting Agreements are substantially similar to the terms of the StemCells Voting Agreement, discussed above.

The foregoing summary of the StemCells Voting Agreements and the Microbot Voting Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the form of voting agreements, copies of which are attached hereto as Exhibit 10.1 and Exhibit 10.2 and are incorporated by reference herein.

Secured Note and Security Agreement

On August 15, 2016, concurrently with the execution of the Merger Agreement, the Company issued a 5.0% secured note (the “Note”) to Alpha Capital Anstalt (“Investor”), in the principal amount of $2 million, for value received, payable

upon the earlier of (i) 30 days following the consummation of the Merger and (ii) December 31, 2016. Proceeds from the Note are to be used for Closing costs in connection with the Merger and operational expenses leading to such Closing.

Pursuant to the terms of the Note, the Company is obligated to pay interest on the principal amount owed under the Note at a fixed rate per annum of 5.0%, payable monthly in arrears on the first of the month, beginning on January 1, 2017 until the principal amount is paid in full. In addition, on August 15, 2016, the Company and Investor entered into a Security Agreement to secure the Company’s obligations under the Note. The Company’s obligations are secured by a first priority security interest in all of the Company’s intellectual property and certain other general assets.

The foregoing summary of the Note does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Note, a copy of which is attached hereto as Exhibit 10.3 and is incorporated by reference herein.

Company Warrant Exchange

As part of the Company’s obligations under the Merger Agreement, the Company has negotiated with certain institutional holders of the Company’s 2016 Series A and Series B warrants to have such holders surrender their 2016 Series B warrants in exchange for a reduced exercise price of $0.30 per share on their existing 2016 Series A warrants and the elimination of the anti-dilution price protection in the 2016 Series A warrants. As a result of the exchange, the exercise price for all outstanding 2011 Series A warrants and 2016 Series A and Series B warrants has been reset to equal $0.30 per share. The 2016 Series B warrants remain unexercisable pursuant to their terms.



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