MBOT Microbot Medical Inc

PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS

ABOUT THIS DOCUMENT

StemCells, Inc., which we refer to herein as the “Company,” “StemCells,” “we,” “our,” or “us,” is providing these proxy materials in connection with the solicitation of proxies by our Board of Directors to be voted at our special meeting of stockholders to be held at 2:00 p.m., local time, on October [●], 2016, at 39899 Balentine Drive, Suite 200, Newark, CA 94560, or at any adjournment or postponement thereof. Commencing on or about September [●], 2016, this proxy statement and the enclosed proxy card will be mailed to each stockholder entitled to notice of, and to vote at, the special meeting.

You should rely only on the information contained in this proxy statement. No one has been authorized to provide you with information that is different from that contained in or incorporated by reference into this proxy statement. This proxy statement is dated September [●], 2016. You should not assume that the information contained in this proxy statement is accurate as of any other date. The mailing of this proxy statement to our stockholders will not create any implication to the contrary.

Unless otherwise expressly stated, the following information and all other information contained in this proxy statement does not give effect to the proposed reverse stock split described in Proposal No. 3, beginning on page 139 in this proxy statement. When this proxy statement refers to the “combined company,” it means StemCells and its subsidiaries and Microbot, collectively, assuming consummation of the Merger.

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QUESTIONS AND ANSWERS ABOUT THE MERGER AND

THE STEMCELLS SPECIAL MEETING

The following are some questions that you may have regarding the Merger (as defined below) or the StemCells special meeting, together with brief answers to those questions. StemCells urges you to read carefully the remainder of this proxy statement, including the annexes and other documents referred to in this proxy statement, because the information in this section may not provide all of the information that might be important to you with respect to the Merger or the StemCells special meeting.

This document contains important information about the Merger and the special meeting, so you should read it carefully.

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For illustrative purposes only, if the Merger had been completed on August 15, 2016, the date of the Merger Agreement, the Exchange Ratio (without giving effect to the proposed reverse stock split described elsewhere in this proxy statement) would have been approximately [●] shares of StemCells common stock for each Microbot ordinary share. Therefore, if the Merger had been completed on such date and you owned 1,000 shares of StemCells common stock as of such date, you will continue to hold 1,000 shares of the combined company following the completion of the Merger. As a percentage, if you hold 5% of the outstanding common shares of StemCells calculated on a fully diluted basis immediately prior to the completion of the Merger and do not also hold common shares of Microbot, then upon completion of the Merger you will hold an aggregate of approximately 0.25% of the outstanding shares of common stock of the combined company calculated on a fully diluted basis.

No fractional shares of StemCells common stock will be issued to Microbot shareholders in connection with the Merger. The number of whole shares of StemCells common stock to be issued to any holder of Microbot common shares will be rounded down to the nearest whole number of shares (after aggregating all fractional shares of StemCells common stock issuable to such holder).

For example, if you are a StemCells stockholder and hold 5% of the outstanding shares of StemCells common stock calculated on a fully diluted basis immediately prior to the completion of the Merger and do not also hold common shares of Microbot, then upon completion of the Merger you will hold an aggregate of approximately 0.25% of the outstanding shares of common stock of the combined company calculated on a fully diluted basis.

For a more complete discussion of the Exchange Ratio, see the section entitled “The Merger — The Exchange Ratio” beginning on page 68.

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control of the combined company, Microbot’s current Board of Directors (or as otherwise designated by Microbot to enable the combined company to satisfy applicable NASDAQ and SEC independence and corporate governance requirements) will be the Board of Directors of the combined company, and members of the management of Microbot immediately prior to the closing of the Merger, along with newly appointed members of management, will be responsible for the management of the combined company.

For a more complete discussion of the existing businesses of StemCells and Microbot, see the sections entitled “StemCells Business,” “StemCells Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Microbot Business,” and “Microbot Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on pages 95, 96, 110, and 126, respectively. In addition, you should carefully review the section entitled “Risk Factors” beginning on page 20, which presents risks and uncertainties related to the Merger, the combined company following the completion of the Merger, and the business and operations of StemCells and Microbot.

These restrictions on shares issued to Microbot shareholders in the Merger will not affect the transferability of shares already held by our existing stockholders. Our existing stockholders will be free to buy and sell shares of StemCells common stock on the open market as they currently do.

In connection with the execution of the Merger Agreement, the holders of approximately 1% of the total outstanding voting power of StemCells, as of August 15, 2016, entered into voting agreements with Microbot that provide, among other things, that they will vote in favor of the StemCells Merger Proposals and that grant to Microbot an irrevocable proxy to vote all of their shares of StemCells common stock in favor of the StemCells Merger Proposals.

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For a more complete discussion of the conditions to the completion of the Merger under the Merger Agreement, see the section entitled “The Merger Agreement — Conditions to the Completion of the Merger” beginning on page 84.

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Microbot. Under Israeli law, pursuant to which the Merger is being consummated, holders of Microbot common shares are not entitled to appraisal rights or their equivalent in connection with the Merger.

By mail . You may vote by mailing your signed StemCells proxy card in the enclosed return envelope. Please provide your proxy instructions only once and as soon as possible so that your shares can be voted at the StemCells special meeting.

By Internet or by telephone . Follow the instructions on the StemCells proxy card to vote by Internet or telephone.

In person at the meeting . If you attend the StemCells special meeting, you may deliver your completed StemCells proxy card in person or you may vote by completing a ballot, which will be available at the meeting.

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If you are a StemCells stockholder and you sign, date, and mail your proxy card without indicating how you wish to vote, your proxy will be counted as present for the purpose of determining the presence of a quorum for the StemCells special meeting and all of your shares will be voted “FOR” StemCells Proposal Nos. 1, 2, 3, 4, 5, and 6. However, if you submit a proxy card and affirmatively elect to abstain from voting, your proxy will be counted as present for the purpose of determining the presence of a quorum for the StemCells special meeting, but will not be voted at the StemCells special meeting. As a result, your abstention will have the same effect as voting “AGAINST” StemCells Proposal Nos. 1, 2, 3, 4, 5, and 6.

If your shares of StemCells common stock are held in a brokerage account or by another nominee, you are considered the beneficial owner of shares held in “street name,” and these proxy materials are being forwarded to you together with a voting instruction card. As the beneficial owner, you are also invited to attend the StemCells special meeting. However, because a beneficial owner is not the stockholder of record, you may not vote these shares in person at the StemCells special meeting unless you obtain a “legal proxy” from the broker or other nominee that holds your shares giving you the right to vote the shares in person at the applicable stockholder meeting.

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Okapi Partners

1212 Avenue of the Americas

24 ^th Floor

New York, New York 10036

Attention Charles W. Garske

Stockholders Call Toll-Free: (877) 259-6290

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MARKET PRICE AND DIVIDEND INFORMATION

Our common stock is listed on the NASDAQ Capital Market under the symbol “STEM.” As of [●], 2016, the record date, we had [●] shares of common stock outstanding and approximately 241 registered stockholders. The last reported sales price of our common stock on September 9, 2016, the last full trading day prior to the date of this proxy statement, was $1.33 per share.

Set forth below are the high and low sales prices for our common stock as reported on the NASDAQ Capital Market for the two most recently completed fiscal years, and the first, second and third fiscal quarters of the current fiscal year:

We have never paid any dividends on our common stock and have no intention to do so for the foreseeable future.

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RISK FACTORS

The combined company will face an unpredictable market environment that involves significant risks, many of which will be beyond its control. In addition to the other information contained in this proxy statement, you should carefully consider the material risks described below before deciding how to vote your shares of StemCells common stock at the StemCells special meeting. These factors should be considered in conjunction with the other information included by StemCells and Microbot in this proxy statement. If any of the risks described below or referred to in this proxy statement actually materialize, the business, financial condition, results of operations, or prospects of StemCells, Microbot, and/or the combined company, or the stock price of the combined company, could be materially and adversely affected.

Risks Relating to the Merger

The issuance of shares of StemCells common stock to advisors and to Microbot shareholders in connection with the Merger will substantially dilute the voting power of current StemCells stockholders, and as a result the StemCells stockholders will exercise less influence over the management of the combined company following the completion of the Merger.

Pursuant to the terms of the Merger Agreement, it is anticipated that StemCells will issue shares of StemCells common stock advisors. Following the closing of the Merger, StemCells stockholders will own approximately 5% of the combined company, with the remaining 95% of the combined company ownership comprised 75% of existing Microbot shareholders and 20% by certain advisors (which includes an existing Microbot shareholder) pursuant to Section 5.29 of the Merger Agreement in each case calculated on a fully diluted basis. Accordingly, the issuance of shares of StemCells common stock to Microbot shareholders and advisors in connection with the Merger will significantly reduce the relative voting power of each share of StemCells common stock held by current StemCells stockholders. In addition, the board of directors of the combined company will be designated by Microbot. Consequently, StemCells’ stockholders will be able to exercise substantially less influence over the management and policies of the combined company than they currently exercise over the management and policies of StemCells.

StemCells stockholders may not realize a benefit from the Merger commensurate with the ownership dilution they will experience in connection with the Merger.

If the combined company is unable to realize the full strategic and financial benefits anticipated from the Merger, StemCells stockholders will have experienced substantial dilution of their ownership interests without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent the combined company is able to realize only part of the strategic and financial benefits currently anticipated from the Merger.

Microbot is not a publicly traded company, making it difficult to determine the fair market value of Microbot.

The outstanding capital stock of Microbot is privately held and is not traded on any public market, which makes it difficult to determine the fair market value of Microbot. There can be no assurances that the merger consideration to be issued to Microbot shareholders will not exceed the actual value of Microbot.

The conditions under the Merger Agreement to Microbot’s consummation of the Merger may not be satisfied at all or in the anticipated timeframe.

The obligation of Microbot to complete the Merger is subject to certain conditions, including the condition that StemCells have at least $0 in Net Cash (as defined in the Merger Agreement) as of the closing, the approval by our stockholders of certain matters including, among other things, the approval of the Share Issuance Proposal, the Reverse Stock Split Proposal and the Authorized Share Increase Proposal, the accuracy of the

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representations and warranties contained in the Merger Agreement, subject to certain materiality qualifications, compliance by the parties with their respective covenants under the Merger Agreement and no law or order preventing the Merger. These conditions are described in more detail under the section “The Merger Agreement” beginning on page 71 of this proxy statement.

The announcement and pendency of the Merger or failure to consummate the Merger could have an adverse effect on StemCells’ or Microbot’s financial results, future business and operations, as well as the market price of StemCells common stock.

The announcement and pendency of the Merger, or the companies’ failure to consummate the Merger, could disrupt StemCells’ or Microbot’s businesses in the following ways, among others:

Should they occur, any of these matters could adversely affect StemCells’ or Microbot’s financial condition, results of operations, or business prospects.

The completion of the Merger is subject to a number of conditions, and there can be no assurance that the conditions to the completion of the Merger will be satisfied. If the Merger is not completed, StemCells and/or Microbot, as applicable, will be subject to several risks, including:

In addition, if the Merger Agreement is terminated and StemCells’ Board of Directors determines to seek another business combination, there can be no assurance that it will be able to find a transaction that is superior or equal in value to the Merger.

StemCells is subject to the additional risk that if the Merger Agreement is terminated, StemCells will no longer have access to the interim financing provided in connection with the execution of the Merger Agreement, in which case StemCells would need to raise capital or obtain alternative financing to strengthen its cash position. If StemCells is unable to raise sufficient additional capital or obtain alternative financing to strengthen its cash

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position, StemCells may not be able to service its existing indebtedness and may be required to initiate bankruptcy proceedings.

The Merger Agreement and the voting agreements contain provisions that could discourage or make it difficult for a third party to acquire StemCells or Microbot prior to the completion of the Merger.

The Merger Agreement contains provisions that make it difficult to entertain a third-party proposal for an acquisition of StemCells. These provisions include the general prohibition on StemCells and Microbot soliciting or engaging in discussions or negotiations regarding any alternative acquisition proposal and the requirement that StemCells submit the StemCells Merger Proposals to a vote of our stockholders even if our Board of Directors changes its recommendation with respect to the StemCells Merger Proposals.

These provisions might discourage an otherwise interested third party from considering or proposing an acquisition of StemCells or Microbot, even one that may be deemed of greater value to StemCells stockholders or Microbot shareholders, as applicable, than the Merger.

If the Microbot Merger is not completed, StemCells may elect to liquidate its remaining assets, and there can be no assurances as to the amount of cash available to distribute to StemCells stockholders after paying StemCells’ debts and other obligations.

If the Merger is not completed, the Board of Directors of StemCells may elect to take the steps necessary to liquidate all of its remaining assets. The process of liquidation may be lengthy and StemCells cannot make any assurances regarding the timing of completing such a process. In addition, StemCells would be required to pay all of its debts and contractual obligations, and to set aside certain reserves for potential future claims. There can be no assurance as to the amount of available cash, if any, that might be available to distribute to stockholders, if any, after paying the debts and other obligations and setting aside funds for reserves, nor as to the timing of any such distribution.

StemCells and Microbot have incurred and expect to continue to incur substantial transaction-related costs in connection with the Merger.

StemCells and Microbot have incurred, and expect to continue to incur, a number of non-recurring transaction-related costs associated with completing the Merger and combining the two companies. These fees and costs have been, and will continue to be, substantial. Non-recurring transaction costs include, but are not limited to, fees paid to legal, financial and accounting advisors, severance and benefit costs, filing fees and printing costs. Additional unanticipated costs may be incurred in the combined company’s business, which may be higher than expected and could have a material adverse effect on the combined company’s financial condition and operating results.

If StemCells fails to continue to meet all applicable NASDAQ Capital Market requirements and NASDAQ determines to delist StemCells common stock, the delisting would impair StemCells’ ability to complete the Merger.

As a condition to completion the Merger, StemCells must maintain the listing of its common stock on NASDAQ and the combined company must be approved for listing on the NASDAQ Capital Market. In order to maintain that listing and receive approval for listing of the combined company, StemCells and the combined company must satisfy minimum financial and other requirements.

On July 14, 2016, StemCells received notices from NASDAQ, that (i) the closing bid price for StemCells common stock had been below $1.00 per share for the previous 30 consecutive business days, and therefore StemCells was not in compliance with the requirements for continued including on the NASDAQ Capital Market and (ii) because StemCells’ Market Value of Listed Securities, as defined by NASDAQ had been below

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$35 million for the previous 30 consecutive business days, StemCells was not in compliance with the requirements for continued inclusion on the NASDAQ Capital Market. NASDAQ has notified StemCells that it has 180 days to regain compliance. On August 29 2016, StemCells regained compliance with the minimum bid price requirement for continued listing on the NASDAQ Capital Market, as the closing bid price of its common stock had been at least $1.00 per share for ten consecutive trading days. The Company remains non-compliant with NASDAQ’s Market Value of Listed Securities requirement, but continues to have until January 10, 2017 to regain compliance with this requirement.

While StemCells intends to engage in efforts to regain compliance and thus maintain its listing, there can be no assurance that StemCells will be able to regain compliance during the applicable time period. If NASDAQ determines to delist StemCells’ common stock, an important condition to consummation of the Merger will be frustrated, the delisting would adversely affect the market liquidity of StemCells common stock and adversely affect StemCells’ ability to obtain financing on acceptable terms, if at all.

The Exchange Ratio will not be adjusted in the event of any change in either StemCells’ stock price or Microbot’s share price.

In the Merger, each outstanding ordinary share of Microbot (with certain exceptions), by virtue of the Merger and without any action on the part of the parties to the Merger Agreement or the holders of shares of StemCells’ common stock, will be converted into the right to receive validly issued, fully paid and nonassessable shares of StemCells common stock pursuant to an established exchange ratio set forth in the Merger Agreement, which we refer to as the Exchange Ratio. This Exchange Ratio will not be adjusted for changes in the market price of either StemCells common stock or Microbot stock. However, the Exchange Ratio may be adjusted to eliminate the effect of certain events, including a reclassification, recapitalization, or stock split in the outstanding shares of the capital stock of either StemCells or Microbot.

Share price changes may result from a variety of factors (many of which are beyond our or Microbot’s control), including the following:

The price of StemCells common stock at the closing of the Merger may vary from the price on the date the Merger Agreement was executed and the date of the special meeting of StemCells stockholders. As a result, the market value of the merger consideration will also vary.

Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, Microbot, which could prevent a change of control, even when the terms of such a transaction are favorable to us and our shareholders.

Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to such types of transactions. For example, a merger may not be consummated unless at least 50 days have passed from the date on which a merger proposal is filed by each of Microbot and Merger Sub with the Israel Registrar of Companies and at least 30 days have passed from the date on which the shareholders of both merging companies have approved the Merger. In addition, a majority of each class of securities of the target company must approve a merger.

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Because the Merger will result in an ownership change under Section 382 of the Internal Revenue Code (the “Code”) for StemCells, StemCells’ pre-Merger net operating loss carryforwards and certain other tax attributes will be subject to limitations.

If a corporation undergoes an “ownership change” within the meaning of Section 382 of the Code, the corporation’s net operating loss carryforwards and certain other tax attributes arising prior to the ownership change are subject to limitations on use after the ownership change. In general, an ownership change occurs if there is a cumulative change in the corporation’s equity ownership by certain stockholders that exceeds fifty percentage points over a rolling three-year period. Similar rules may apply under state tax laws. The Merger will result in an ownership change of StemCells and, accordingly, StemCells’ use of net operating loss carryforwards and certain other tax attributes will be subject to an annual limitation after the Merger. Consequently, StemCells will likely be unable to utilize a material portion of its net operating loss carryforwards and other tax attributes to reduce its U.S. federal or state income tax liability.

Some of the directors and executive officers of StemCells and Microbot have interests in the Merger that may be different from, or in addition to, those of the other StemCells and Microbot shareholders.

When considering the recommendation by the Board of Directors of StemCells that the StemCells stockholders vote “for” each of the StemCells Merger Proposals, the StemCells stockholders should be aware that certain of the directors and executive officers of StemCells and Microbot have certain rights to indemnification and to directors’ and officers’ liability insurance that will be provided by the company in connection with the Merger. In addition, certain executive officers of StemCells have arrangements that provide them with interests in the Merger that are different from, or in addition to, those of the stockholders of StemCells and shareholders of Microbot.

Certain of Microbot’s current executive officers and directors are expected to own shares of common stock of the combined company and/or options to purchase shares of common stock of the combined company following the completion of the Merger. See “Principal Stockholders of Combined Company” beginning on page 163.

The Board of Directors of StemCells was aware of these potential interests and considered them in making their respective recommendations to approve the StemCells Merger Proposals.

Risks Relating to the Combined Company

Even if the Merger is consummated, StemCells and Microbot may fail to realize the anticipated benefits of the Merger.

The success of the Merger will depend on, among other things, the combined company’s ability to achieve its business objectives, including the successful development of its product candidates. If the combined company is not able to achieve these objectives, the anticipated benefits of the Merger may not be realized fully, may take longer to realize than expected, or may not be realized at all.

StemCells and Microbot have operated and, until the completion of the Merger, will continue to operate independently. Even if the Merger is completed, it is possible that the integration process could result in the disruption of each company’s ongoing business, an adverse impact on the value of StemCells’ assets, or inconsistencies in standards, controls, procedures or policies that could adversely affect the combined company’s ability to comply with reporting obligations as a public company, to satisfy StemCells’ obligations to third parties or to achieve the anticipated benefits of the Merger. Any delays in the integration process or inability to realize the full extent of the anticipated benefits of the Merger could have an adverse effect on the business prospects and results of operations of the combined company. Such an adverse effect may impact the value of the shares of the combined company’s common stock after the completion of the Merger.

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Potential difficulties that may be encountered in the integration process include the following:

In addition, Microbot could be materially adversely affected prior to the closing of the Merger, which could have a material adverse effect on the value of the combined company. StemCells is required under the Merger Agreement to complete the Merger despite: any changes in general economic or political conditions or the securities market in general, to the extent they do not disproportionately affect Microbot; any changes in or affecting the industries in which Microbot operates, to the extent they do not disproportionately affect Microbot; and any changes, effects or circumstances resulting from the announcement or pendency of the Merger Agreement or the completion of the contemplated transactions or compliance with the terms of the Merger Agreement. If any such adverse changes occur and the Merger is still completed, the combined company’s stock price may suffer. This in turn may reduce the value of the Merger to the stockholders of the combined company.

A failure by the combined company upon completion of the Merger to comply with the initial listing standards of the NASDAQ Capital Market may subject the stock to delisting from the NASDAQ Capital Market, which listing is a condition to the completion of the Merger.

As a condition to the Merger, StemCells must maintain the listing of StemCells common stock on NASDAQ. In addition, oftentimes a reverse stock split will not result in a trading price for the affected common stock that is proportional to the ratio of the split. Upon the completion of the Merger, the combined company will be required to meet the initial listing requirements to maintain the listing and continued trading of StemCells’ shares on the NASDAQ Capital Market. These initial listing requirements are more difficult to achieve than the continued listing requirements under which StemCells is now trading, including that StemCells (a) have a minimum bid price of at least $4 per share, (b) have a public float of at least $15 million and (c) have stockholders equity of at least $5 million. Based on information currently available, StemCells anticipates that it will be unable to meet the $4.00 minimum bid price initial listing requirement at the closing of the Merger unless it effects a reverse stock split. If StemCells is unable to satisfy these requirements, NASDAQ may notify StemCells that its stock will be subject to delisting from the NASDAQ Capital Market.

The combined company’s management will be required to devote substantial time to comply with public company regulations.

As a public company, the combined company will incur significant legal, accounting and other expenses. The rules implemented by the SEC and the NASDAQ Capital Market, impose various requirements on public companies, including those related to corporate governance practices. The combined company’s management and other personnel will need to devote a substantial amount of time to these requirements. Certain members of Microbot’s management, which will substantially continue as the management of the combined company, do not have experience in addressing these requirements.

Sarbanes-Oxley requires, among other things, that the combined company maintain effective internal controls for financial reporting and disclosure controls and procedures. In particular, the combined company must perform system and process evaluation and testing of its internal controls over financial reporting to allow management and the combined company’s independent registered public accounting firm to report on the

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effectiveness of its internal controls over financial reporting, as required by Section 404. The combined company’s compliance with Section 404 will require that it incur substantial accounting and related expenses and expend significant management efforts. The combined company may need to hire additional accounting and financial staff to satisfy the ongoing requirements of Section 404. Moreover, if the combined company is not able to comply with the requirements of Section 404, or if the combined company or its independent registered public accounting firm identifies deficiencies in its internal controls over financial reporting that are deemed to be material weaknesses, the market price of the combined company’s stock could decline and the combined company could be subject to sanctions or investigations by the NASDAQ Capital Market, the SEC, or other regulatory authorities.

Either StemCells, Microbot or both may become involved in securities class action litigation that could divert management’s attention and harm the combined company’s business, and insurance coverage may not be sufficient to cover all costs and damages.

In the past, securities class action or shareholder derivative litigation often follows certain significant business transactions, such as the announcement of a merger. The combined company may become involved in this type of litigation in the future. Litigation often is expensive and diverts management’s attention and resources, which could adversely affect the combined company’s business.

The market price of the combined company’s common stock after the Merger may be affected by factors different from those currently affecting the shares of StemCells common stock.

Upon completion of the Merger, holders of StemCells common stock and Microbot capital stock will become holders of the combined company’s common stock. StemCells’ business differs significantly from the business of Microbot and, accordingly, the results of operations of the combined company and the market price of the combined company’s common stock following the completion of the Merger may be significantly affected by factors different from those currently affecting StemCells’ independent results of operations.

The reverse stock split may not increase the combined company’s stock price over the long-term.

The principal purpose of the reverse stock split is to increase the per-share market price of StemCells’ common stock. It cannot be assured, however, that the reverse stock split will accomplish this objective for any meaningful period of time. In addition, it cannot be assured that the reverse stock split will increase the market price of its common stock by a multiple of the proposed reverse stock split ratio, or result in any permanent or sustained increase in the market price of StemCells’ common stock, which is dependent upon many factors, including the combined company’s business and financial performance, general market conditions, and prospects for future success. Therefore, while the stock price of the combined company might meet the continued listing requirements for the NASDAQ Capital Market initially, it cannot be assured that it will continue to do so.

The reverse stock split may decrease the liquidity of the combined company’s common stock.

Although StemCells believes that the anticipated increase in the market price of the combined company’s common stock could encourage interest in its common stock and possibly promote greater liquidity for its stockholders, such liquidity could also be adversely affected by the reduced number of shares outstanding after the reverse stock split. The reduction in the number of outstanding shares may lead to reduced trading and a smaller number of market makers for StemCells’ common stock.

The reverse stock split may lead to a decrease in the combined company’s overall market capitalization.

Should the market price of the combined company’s common stock decline after the reverse stock split, the percentage decline may be greater, due to the smaller number of shares outstanding, than it would have been prior to the reverse stock split. A reverse stock split may be viewed negatively by the market and, consequently,

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can lead to a decrease in the combined company’s overall market capitalization. If the per share market price does not increase in proportion to the reverse stock split ratio, then the value of the combined company, as measured by its stock capitalization, will be reduced. In some cases, the per-share stock price of companies that have effected reverse stock splits subsequently declined back to pre-reverse stock split levels, and accordingly, it cannot be assured that the total market value of StemCells’ common stock will remain the same after the reverse stock split is effected, or that the reverse stock split will not have an adverse effect on StemCells’ stock price due to the reduced number of shares outstanding after the reverse stock split.

The existing shareholders of Microbot will control the combined company for the foreseeable future, including the outcome of matters requiring shareholder approval and such control may prevent existing stockholders of StemCells from influencing significant corporate decisions and may result in conflicts of interest that could cause the combined company’s stock price to decline.

Following the closing of the Merger, StemCells stockholders will own approximately 5% of the combined company, with the remaining 95% of the combined company ownership comprised 75% of existing Microbot shareholders and 20% by certain advisors (which includes an existing Microbot shareholder) pursuant to Section 5.29 of the Merger Agreement. As a result, after the consummation of the Merger, such entities and individuals will have the ability, acting together, to control the election of the combined company’s directors and the outcome of corporate actions requiring shareholder approval, such as: (i) a merger or a sale of the combined company; (ii) a sale of all or substantially all of the combined company’s assets; and (iii) amendments to the combined company’s articles of incorporation and bylaws. This concentration of voting power and control could have a significant effect in delaying, deferring or preventing an action that might otherwise be beneficial to the combined company’s other shareholders and be disadvantageous to Microbot shareholders with interests different from those entities and individuals. Certain of these individuals will also have significant control over the combined company’s business, policies and affairs as officers or directors of the combined company. These stockholders may also exert influence in delaying or preventing a change in control of the combined company, even if such change in control would benefit the other stockholders of the combined company. In addition, the significant concentration of stock ownership may adversely affect the market value of the combined company’s common stock due to investors’ perception that conflicts of interest may exist or arise.

Material weaknesses may exist when the combined company reports on the effectiveness of its internal control over financial reporting for purposes of its reporting requirements.

A material weakness is a control deficiency, or a combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of annual or interim financial statements would not be prevented or detected. Microbot has concluded that there is a material weakness in its internal control over financial reporting because it does not have a sufficient number of personnel with the appropriate level of experience and technical expertise to appropriately resolve non-routine and complex accounting matters or to evaluate the impact of new and existing accounting pronouncements on its consolidated financial statements while completing the financial statement close process. Until this design deficiency is remediated, there is more than a remote likelihood that a material misstatement to Microbot’s annual or interim consolidated financial statements could occur and not be prevented or detected by Microbot’s internal controls in a timely manner.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, following the completion of the Merger, the combined company will be required to assess the effectiveness of its internal control over financial reporting as of the end of its fiscal year. This assessment must include disclosure of any material weaknesses in the combined company’s internal control over financial reporting that is identified by management. The report must also contain a statement that the combined company’s independent registered public accounting firm has issued an attestation report on management’s assessment of such internal controls. If the combined company’s management or its independent registered public accounting firm identifies one or more material weaknesses in the combined company’s internal control over financial reporting, the combined company will be unable to assert that such internal control is effective. If the combined company is unable to assert that its internal control over

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financial reporting is effective because the material weakness identified above has not been remediated, or for any other reason, or if the combined company’s independent registered public accounting firm is unable to attest that the combined company’s management’s report is fairly stated or it is unable to express an opinion on the effectiveness of the combined company’s internal controls, investors could lose confidence in the accuracy and completeness of the combined company’s financial reports, which could have an adverse effect on the combined company’s stock price.

The combined company does not expect to pay cash dividends on its common stock.

It is anticipated that the combined company will retain its earnings, if any, for future growth and therefore the combined company does not anticipate paying cash dividends on its common stock in the future.

The combined company will incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies.

The combined company will incur significant legal, accounting and other expenses that Microbot did not incur as a private company, including costs associated with public company reporting requirements. The combined company will also incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act and rules and regulations promulgated by the SEC and The NASDAQ Stock Market. These rules and regulations are expected to increase the combined company’s legal and financial compliance costs and to make some activities more time-consuming and costly. For example, not all members of the combined company’s management team have previously managed and operated a public company. The executive officers and other personnel of the combined company will need to devote substantial time to gaining expertise regarding operations as a public company and compliance with applicable laws and regulations. These rules and regulations may also make it difficult and expensive for the combined company to obtain directors’ and officers’ liability insurance. As a result, it may be more difficult for the combined company to attract and retain qualified individuals to serve on the combined company’s board of directors or as executive officers of the combined company, which may adversely affect investor confidence in the combined company and could cause the combined company’s business or stock price to suffer.

Anti-takeover provisions in the combined company’s charter and bylaws under Delaware law may prevent or frustrate attempts by stockholders to change the board of directors or current management and could make a third-party acquisition of the combined company difficult.

Provisions in the combined company’s certificate of incorporation and bylaws, which are identical to StemCells’ certificate of incorporation and bylaws, may delay or prevent an acquisition or a change in management. These provisions include a classified board of directors. In addition, because the combined company will be incorporated in Delaware, it is governed by the provisions of Section 203 of the DGCL, which prohibits stockholders owning in excess of 15% of the outstanding combined company voting stock from merging or combining with the combined company. Although StemCells and Microbot believe these provisions collectively will provide for an opportunity to receive higher bids by requiring potential acquirors to negotiate with the combined company’s board of directors, they would apply even if the offer may be considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent any attempts by the combined company’s stockholders to replace or remove then current management by making it more difficult for stockholders to replace members of the board of directors, which is responsible for appointing members of management.

There can be no assurance of the combined company obtaining the effectiveness of a resale registration statement or any other liquidity event.

No assurance can be given that the combined company will be able to obtain the effectiveness of a resale registration statement or other liquidity event will be consummated or that, if consummated, it would result in increased value of the shares of Common Stock.

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Upon dissolution of the combined company, you may not recoup all or any portion of your investment.

In the event of a liquidation, dissolution or winding-up of the combined company, whether voluntary or involuntary, the proceeds and/or assets of the combined company remaining after giving effect to such transaction, and the payment of all of our debts and liabilities, will be distributed to the stockholders of Common Stock on a pro rata basis, subject to any holders of our securities that have preferential rights over our Common Stockholders. There can be no assurance that we will have available assets to pay to the holders of Common Stock, or any amounts, upon such a liquidation, dissolution or winding-up of our Company. In this event, you could lose some or all of your investment.

The combined company may have unforeseen liabilities and any such liabilities could harm its business, prospects, financial condition and results of operations.

As part of the negotiation of the Merger Agreement, each party conducted due diligence on the other customary and appropriate for a transaction similar to the Merger. However, the due diligence process may not have revealed all material liabilities of the companies which may be asserted in the future against the combined company relating to its activities before the consummation of the Merger. In addition, the Merger Agreement contains closing conditions with respect to the net cash of StemCells being no less than zero at closing, subject to certain important exceptions. However, there can be no assurance that the combined company will not have additional liabilities upon the closing of the Merger that either party was unaware of. Any such liabilities that survive the Merger could harm the combined company’s business, prospects, financial condition and results of operations.

Risks Relating to Microbot

Risks Relating to Microbot’s Financial Position and Need for Additional Capital

Microbot has had no revenue and has incurred significant operating losses since inception and the combined company after the Merger is expected to continue to incur significant operating losses for the foreseeable future. The combined company may never become profitable or, if achieved, be able to sustain profitability.

Pro forma for the Merger, as if they had occurred as of June 30, 2016, Microbot had cash and cash equivalents of approximately $5.3 million. Microbot has incurred significant operating losses since its inception and expects to incur significant losses for the foreseeable future as Microbot continues its preclinical and clinical development programs for its existing product candidates, SCS and TipCAT; its research and development of any other future product candidates; and all other work necessary to obtain regulatory clearances or approvals for its product candidates in the United States and other markets. In the future, Microbot intends to continue conducting micro-robotics research and development; performing necessary animal and clinical testing; working towards medical device regulatory compliance; and, if SCS, TipCAT or other future product candidates are approved or cleared for commercial distribution, engaging in appropriate sales and marketing activities that, together with anticipated general and administrative expenses, will likely result in Microbot incurring further significant losses for the foreseeable future.

Microbot is a development-stage medical device company and currently generates no revenue from product sales, and may never be able to commercialize SCS, TipCAT or other future product candidates. Microbot does not currently have the required approvals or clearances to market or test in humans SCS, TipCAT or any other future product candidates and Microbot may never receive them. Following the Merger, Microbot does not anticipate generating significant revenues until the combined company can successfully develop, commercialize and sell products derived from its product pipeline, of which Microbot can give no assurance. Even if Microbot or any of its future development partners succeed in commercializing any of Microbot’s product candidates, Microbot may never generate revenues significant enough to achieve profitability.

Because of the numerous risks and uncertainties associated with its product development pipeline and strategy, Microbot cannot accurately predict when it will achieve profitability, if ever. Failure to become and

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remain profitable would depress the value of the combined company and could impair its ability to raise capital, which may force the combined company to curtail or discontinue its research and development programs and/or day-to-day operations. Furthermore, there can be no assurance that profitability, if achieved, can be sustained on an ongoing basis.

Microbot’s business depends on the success of the SCS and the TipCAT, both of which are still in pre-clinical development. If Microbot is unable to obtain regulatory approval for or to successfully commercialize these products, its business will be materially harmed.

To date, the primary focus of Microbot’s product development has been on SCS, for the treatment of hydrocephalus and normal pressure hydrocephalus, or NPH, and TipCAT, a self-propelling, semi-disposable endoscope being developed initially for use in colonoscopy procedures. Successful continued development and ultimate regulatory approval or clearance of both SCS and TipCAT are critical to the future success of Microbot’s business. Microbot has invested, and will continue to invest, a significant portion of its time and financial resources in the development, pre-clinical and clinical testing of and obtaining regulatory authorization for SCS and TipCAT. Microbot will need to raise sufficient funds to successfully complete its development of these products. The future regulatory and commercial success of SCS and TipCAT is subject to a number of risks, including the following:

If Microbot is unable to successfully navigate these risks and achieve commercial success for its products, its business will be significantly harmed and Microbot may never become profitable.

Microbot has a limited operating history, which may make it difficult to evaluate the prospects for the combined company’s future viability.

Microbot has a limited operating history upon which an evaluation of its business plan or performance and prospects can be made. The business and prospects of Microbot must be considered in the light of the potential problems, delays, uncertainties and complications that may be encountered in connection with a newly established business. The risks include, but are not limited to, the possibility that Microbot will not be able to develop functional and scalable products, or that although functional and scalable, its products will not be economical to market; that its competitors hold proprietary rights that may preclude Microbot from marketing such products; that its competitors market a superior or equivalent product; that Microbot is not able to upgrade and enhance its technologies and products to accommodate new features and expanded service offerings; or the failure to receive necessary regulatory clearances or approvals for its products. To successfully introduce and market its products at a profit, Microbot must establish brand name recognition and competitive advantages for its products. There are no assurances that Microbot can successfully address these challenges. If it is unsuccessful, Microbot and its business, financial condition and operating results could be materially and adversely affected.

Microbot’s operations to date have been limited to organizing the company, entering into licensing arrangements to initially obtain rights to its technologies, developing and securing its technologies, raising capital, developing regulatory and reimbursement strategies for its product candidates and preparing for pre-clinical and clinical trials of the SCS and TipCAT. Microbot has not yet demonstrated its ability to successfully complete development of any product candidate, obtain marketing clearance or approval, manufacture a

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commercial-scale product or arrange for a third party to do so on its behalf, or conduct sales and marketing activities necessary for successful product commercialization. Consequently, any predictions made about Microbot’s future success or viability may not be as accurate as they could be if Microbot had a longer operating history.

Microbot’s independent registered public accounting firm has noted that the continuation of Microbot as a business will be dependent on its ability to receive additional financing.

Based on Microbot’s limited operating history and the risks it faces, including uncertainties regarding the development of its product, Microbot’s independent registered public accounting firm has included an explanatory paragraph in its report on Microbot’s financial statements as of and for the years ended December 31, 2015 and December 31, 2014 elaborating on the business conditions Microbot faces. As Microbot expects to continue to incur significant operating costs and losses in connection with the development of its product and financing its business development operations, as of the date of the financial statements, the continuation of Microbot’s activities and its obligations are dependent upon the receipt of financing from its shareholders or new investors.

The combined company will need substantial additional funding. If the combined company is unable to raise capital when needed, it could be forced to delay, reduce or eliminate its product development programs or commercialization efforts.

To date, Microbot has funded its operations primarily through private placement offerings of debt and equity securities, grants and loans. From November 10, 2010 through June 30, 2016, Microbot received: (i) approximately $3.0 million from the issuance of Microbot’s series A preferred stock and the exercise of warrants to purchase Microbot’s series A preferred stock, (ii) approximately $0.9 million for research and development activities as a grant from the Office of the Chief Scientist in Israel, and (iii) approximately $1.2 million from existing shareholders of Microbot pursuant to convertible loan agreements. In addition, as a condition to the completion of the Merger, Microbot will conduct one or more private capital raises prior to the consummation of the Merger, pursuant to which Microbot expects to raise proceeds of no less than $4.0 million, which is referred to herein as the Microbot Private Placement.

Microbot does not know when, or if, the combined company will generate any revenue, but does not expect the combined company to generate significant revenue unless and until it obtains regulatory clearance or approval of and commercializes one of its current or future product candidates. It is anticipated that the combined company will continue to incur losses for the foreseeable future, and that losses will increase as the combined company continues the development of, and seeks regulatory review of, its product candidates, and begins to commercialize any approved or cleared products following a successful regulatory review.

Microbot expects the research and development expenses of the combined company to increase substantially in future periods as it conducts pre-clinical studies in large animals and potentially clinical trials for its product candidates, and especially if it initiates additional research programs for future product candidates. In addition, if the combined company obtains marketing clearance or approval for any of its product candidates, it expects to incur significant commercialization expenses related to product manufacturing, marketing and sales. Furthermore, upon the completion of the Merger, Microbot expects to incur additional costs associated with operating as a public company in the United States. Accordingly, the combined company will need to obtain substantial additional funding in connection with its continuing operations. If the combined company is unable to raise capital when needed or on attractive terms, it could be forced to delay, reduce or eliminate its research and development programs or any future commercialization efforts.

Microbot believes that the net cash of the combined company that will be available upon completion of the Merger will be sufficient to fund the combined company for at least 18 months and fund operations necessary to commercialize SCS and TipCAT.

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The combined company may need to raise additional funds through equity offerings or otherwise in order to meet expected future liquidity needs, including the introduction of the SCS device into the hydrocephalus and NPH market, and introducing the TipCAT as a next-generation colonoscope. The combined company’s future capital requirements, generally, will depend on many factors, including:

Raising additional capital may cause dilution to the combined company’s investors, restrict its operations or require it to relinquish rights to its technologies or product candidates.

Until such time, if ever, as the combined company can generate substantial product revenues, it expects to finance its cash needs through a combination of equity offerings, licensing, collaboration or similar arrangements, grants and debt financings. The combined company does not have any committed external source of funds. In addition to the Microbot Private Placement, the combined company may seek to raise additional capital at any time prior to, or financing soon after, completion of the Merger. To the extent that the combined company raises additional capital through the sale of equity or convertible debt securities, the ownership interest of its stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of holder of the combined company’s common stock. Debt financing, if available, may involve agreements that include covenants limiting or restricting the combined company’s ability to take specific actions, such as incurring additional debt, making capital expenditures, declaring dividends or other distributions, selling or licensing intellectual property rights, and other operating restrictions that could adversely affect the combined company’s ability to conduct its business.

If the combined company raises additional funds through licensing, collaboration or similar arrangements, it may have to relinquish valuable rights to its technologies, future revenue streams, research and development programs or product candidates or to grant licenses on terms that may not be favorable to the combined company. If the combined company is unable to raise additional funds through equity or debt financings or other arrangements when needed, it may be required to delay, limit, reduce or terminate its product development or future commercialization efforts or grant rights to develop and market product candidates that it would otherwise prefer to develop and market itself.

Limitations on the ability of smaller reporting companies to sell shares under a Form S-3 shelf registration statement may interfere with the combined company’s ability to execute financing transactions quickly or at all.

The combined company’s ability to raise capital using a shelf registration statement may be limited by, among other things, current SEC rules and regulations. Under these rules and regulations, the combined company

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must meet certain requirements to use a Form S-3 registration statement to raise capital without restriction as to the amount of the market value of securities sold under the Form S-3 registration statement. One such requirement is that the market value of the combined company’s outstanding common stock held by non-affiliates, or public float, be at least $75 million as of a date within 60 days prior to the date on which the securities are sold under the Form S-3 (and the date of any Form 10-K filing thereafter by the combined company, which is deemed a re-evaluation date). If the combined company does not meet that requirement, then the aggregate market value of securities sold by the combined company in a primary offering under a Form S-3 in any 12-month period is limited to an aggregate of one-third of the combined company’s public float. SEC rules and regulations require that the combined company periodically re-evaluate the value of its public float, and if, at a re-evaluation date, its public float is less than $75 million, the combined company would become subject to the one-third of public float limitation described above.

Following the closing of the Merger, the combined company’s public float is expected to be less than $75 million, so the combined company’s ability to utilize a Form S-3 registration statement for a primary offering of its securities will be restricted under these rules, and any such offering under a Form S-3 will be limited to raising an aggregate of one-third of the combined company’s public float. Alternatively, the combined company could elect to raise capital pursuant to an exemption from registration under the Securities Act, or under a Form S-1 registration statement, but either of these alternatives would likely increase the cost of raising additional capital when compared to the use of a Form S-3 registration statement. Furthermore, because of these limitations to using Form S-3 and the increased likelihood of greater costs and potential delays associated with the alternatives to using a Form S-3, the terms of any financing transaction that the combined company is able to conduct may be less favorable or may cause it to be unable to obtain capital in a timely manner.

Risks Relating to the Development and Commercialization of Microbot’s Product Candidates

Microbot’s business depends heavily on the success of its lead product candidates, the SCS and the TipCAT. If Microbot is unable to commercialize the SCS or the TipCAT or experiences significant delays in doing so, Microbot’s business will be materially harmed.

Microbot expects the animal studies for SCS to start by the end of 2016. Upon the completion of animal studies, Microbot may conduct clinical trials if they are requested by the FDA or if Microbot decides that the data from such trials would improve the marketability of the product candidate. The TipCAT is expected to enter animal studies in 2017. Upon the completion of animal studies, Microbot may conduct clinical trials if they are requested by the FDA or if Microbot decides that the data from such trials would improve the marketability of the product candidate. After all necessary clinical and performance data supporting the safety and effectiveness of each product candidate are collected, Microbot must still obtain FDA clearance or approval to market the device and those regulatory processes can take several months to several years to be completed. Therefore, Microbot’s ability to generate product revenues will not occur for at least the next few years, if at all, and will depend heavily on the successful commercialization of SCS and TipCAT in their respective intended markets. The success of each of these product candidates will depend on a number of factors, including the following:

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If Microbot does not achieve one or more of these factors in a timely manner or at all, Microbot could experience significant delays or an inability to successfully commercialize SCS and/or TipCAT, which would materially harm its business.

Microbot’s product candidates are subject to an uncertain and potentially lengthy domestic regulatory review process. If Microbot does not obtain and maintain the necessary regulatory authorizations from the Food and Drug Administration, Microbot will not be able to sell its product candidates in the United States.

Microbot’s product candidates and operations are subject to extensive regulation in the United States by the FDA under the agency’s medical device authorities. The FDA regulates the development, bench and clinical testing, manufacturing, labeling, storage, record-keeping, promotion, marketing sales, distribution and post-market support and reporting of medical devices in the United States to ensure that medical products distributed domestically are safe and effective for their intended uses. Microbot expects its product candidates to be classified as Class II. In order to market Class II products for use in the United States, Microbot must first obtain clearance from the FDA pursuant to Section 510(k) of the Federal Food, Drug, and Cosmetic Act. Clearance under Section 510(k) requires a demonstration that a new device is substantially equivalent to another device with 510(k) clearance or grandfathered status or to a device that was reclassified from Class III to Class II or Class I.

If the FDA determines that the device or its intended use is not substantially equivalent to a predicate device, the device is automatically placed into Class III, requiring the submission of a premarket approval application (PMA). There is no guarantee that the FDA will agree with Microbot’s determination that a 510(k) notification is the appropriate regulatory pathway for its products, or that FDA will grant Microbot 510(k) clearance for its pipeline medical device products even if that pathway is accepted. Failure to obtain the necessary clearances for its products would adversely affect Microbot’s ability to grow its business. Delays in receipt or failure to receive the necessary clearances, or the failure to comply with existing or future regulatory requirements, could reduce our business prospects.

Devices that cannot be cleared through the 510(k) process due to lack of a predicate device but would be considered low or moderate risk (in other words, they do not rise to the level of requiring the approval of a PMA) may be eligible for the 510(k) de novo classification process. If FDA determines that either of Microbot’s product candidates is not eligible for a traditional 510(k), the Microbot device may still be eligible for the 510(k) de novo process.

Even if one or both of Microbot’s product candidates receives 510(k) clearance from FDA, under either the traditional pathway or the de novo 510(k) pathway, any subsequent modification that could significantly affect the device’s safety or effectiveness, or that would cause them to be marketed for additional indications for use, may require a new 510(k) clearance or a PMA for the modified products before Microbot will be permitted to market them in the United States. The FDA can require a manufacturer to cease U.S. marketing and/or recall the modified device until it is satisfied that the appropriate 510(k) clearance or PMA approval is obtained.

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The FDA may not act favorably or quickly in its review of Microbot’s 510(k), de novo 510(k), or PMA submissions, as applicable, or Microbot may encounter significant difficulties and costs in its efforts to obtain FDA clearance or approval, any of which could delay or preclude its sale of its product candidates in the United States. Furthermore, the FDA may request additional data or require Microbot to conduct further testing, or compile more data, including clinical data and clinical studies, in support of its 510(k) submission or potentially a de novo 510(k).

Moreover, the regulatory policies affecting Microbot’s proposed product candidates can change at any time. The changes and their potential impact on Microbot’s business cannot be accurately predicted. For example, in 2011, the FDA announced a Plan of Action to modernize and improve the FDA’s premarket review of medical devices, and has implemented, and continues to implement, reforms intended to streamline the premarket review process. In addition, as part of the Food and Drug Administration Safety and Innovation Act of 2012, Congress enacted several reforms through the Medical Device Regulatory Improvements and additional miscellaneous provisions which will further affect both pre- and post-approval medical device regulation. Changes in the FDA 510(k) process could make clearance more difficult to obtain, increase delay, add uncertainty and have other significant adverse effects on Microbot’s ability to obtain and maintain clearance for its product candidates.

The FDA may also, instead of accepting any kind of 510(k) submission, classify a product as high-risk and require Microbot to submit a PMA for the initial clearance, which is typically a much more complex, lengthy and burdensome application than a 510(k) submission. To support a PMA, the FDA would likely require that Microbot conduct one or more clinical studies to demonstrate that the device is safe and effective. In some cases such studies may be requested for a 510(k) or de novo 510(k) as well. Microbot may not be able to meet the requirements to obtain 510(k) clearance or PMA approval, in which case the FDA may not grant any necessary clearances or approvals. In addition, the FDA may place significant limitations upon the intended use of its product candidates as a condition to a 510(k) clearance or PMA approval. Product applications can also be denied or withdrawn due to failure to comply with regulatory requirements or the occurrence of unforeseen problems following clearance or approval. Any delays or failure to obtain FDA clearance or approval of new products Microbot develops, any limitations imposed by the FDA on new product use or the costs of obtaining FDA clearance or approvals could have a material adverse effect on Microbot’s business, financial condition and results of operations.

Failure to comply with the regulations or obtain the approvals described above could have a material adverse effect on Microbot’s business, financial condition and results of operations. There can be no assurance that clinical trials will meet desired endpoints, produce meaningful or useful data and be free of unexpected adverse effects, and such uncertainty could preclude or delay market clearance or authorizations resulting in significant financial costs and reduced revenue.

At this time, Microbot does not know whether the FDA will require it to submit clinical data in support of its future marketing applications for either product candidate.

Microbot anticipates that each of its existing product candidates, SCS and TipCAT, will be classified by the FDA as Class II and thus be eligible for marketing pursuant to a cleared 510(k) notification. However, there is no guarantee that the FDA will agree with the Company’s determination or that the FDA would accept the predicate devices that Microbot intends to submit in its 510(k) notifications in order to establish that its new device product is substantially equivalent to one or more predicate devices. The FDA also may request additional data in response to a 510(k) notification, or require Microbot to conduct further testing or compile more data in support of its 510(k) submission or de novo 510(k), as appropriate. Such additional data could include clinical data that must be derived from human clinical studies that are designed appropriately to address the potential questions from the FDA regarding a proposed product’s safety or effectiveness.

In order to conduct a clinical investigation involving human subjects for the purpose of demonstrating the safety and effectiveness of a medical device, a company must, among other things, apply for and obtain

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Institutional Review Board, or IRB, approval of the proposed investigation. In addition, if the clinical study involves a “significant risk” (as defined by the FDA) to human health, the sponsor of the investigation must also submit and obtain FDA approval of an Investigational Device Exemption, or IDE, application. Microbot may not be able to obtain FDA and/or IRB approval to undertake clinical trials in the United States for any new devices Microbot intends to market in the United States in the future. Any type of clinical study in humans requires the investment of substantial expense, professional resources and time. Moreover, the timing of the commencement, continuation and completion of any future clinical trial may be subject to significant delays attributable to various causes, including scheduling conflicts with participating clinicians and clinical institutions, difficulties in identifying and enrolling patients who meet trial eligibility criteria, failure of patients to complete the clinical trial, delay in or failure to obtain IRB approval to conduct a clinical trial at a prospective site, and shortages of supply in the investigational device.

The addition of one or more mandatory clinical trials to the development timeline for one or both Microbot product candidates would significantly increase the costs associated with developing and commercializing the product and delay the timing of U.S. regulatory authorization.

Unsuccessful animal studies, clinical trials or procedures relating to product candidates under development could have a material adverse effect on Microbot’s prospects.

The regulatory approval process for new products and new indications for existing products requires extensive data and procedures, including the development of regulatory and quality standards and, potentially, certain clinical studies. Unfavorable or inconsistent data from current or future clinical trials or other studies conducted by Microbot or third parties, or perceptions regarding such data, could adversely affect Microbot’s ability to obtain necessary device clearance or approval and the market’s view of Microbot’s future prospects. Failure to successfully complete these studies in a timely and cost-effective manner could have a material adverse effect on Microbot’s prospects. Because animal trials, clinical trials and other types of scientific studies are inherently uncertain, there can be no assurance that these trials or studies will be completed in a timely or cost-effective manner or result in a commercially viable product. Clinical trials or studies may experience significant setbacks even if earlier preclinical or animal studies have shown promising results. Furthermore, preliminary results from clinical trials may be contradicted by subsequent clinical analysis. Results from clinical trials may also not be supported by actual long-term studies or clinical experience. If preliminary clinical results are later contradicted, or if initial results cannot be supported by actual long-term studies or clinical experience, Microbot’s business could be adversely affected. Clinical trials also may be suspended or terminated by us, the FDA or other regulatory authorities at any time if it is believed that the trial participants face unacceptable health risks.

Microbot has no prior experience in conducting clinical trials and will depend upon the ability of third parties, including contract research organizations, collaborative academic groups, future clinical trial sites and investigators, to conduct or to assist the Company in conducting clinical trials for its product candidates, if such trials become necessary.

As a development-stage, pre-clinical company, Microbot has no prior experience in designing, initiating, conducting and monitoring human clinical trials, if data from such trials become necessary in order to obtain regulatory clearance or approval of our product candidates. Should the FDA or another regulatory agency in a foreign market request clinical data to support the safety and effectiveness of Microbot’s product candidates, Microbot will depend upon its ability and/or the ability of future collaborators, contract research organizations, clinical trial sites and investigators to successfully design, initiate, conduct and monitor such clinical trials.

Failure by Microbot or by any of these future collaborating parties to timely and effectively initiate, conduct and monitor a future clinical trial could significantly delay or materially impair Microbot’s ability to complete those clinical trials and/or obtain regulatory clearance or approval of its product candidates and, consequently, could delay or materially impair its ability to generate revenues from the commercialization of those products.

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If the commercial opportunity for SCS and TipCAT is smaller than Microbot anticipates, Microbot’s future revenue from SCS and TipCAT will be adversely affected and Microbot’s business will suffer.

If the size of the commercial opportunities in any of Microbot’s target markets is smaller than Microbot anticipates, Microbot may not be able to achieve profitability and growth. Microbot is developing SCS as a device for the treatment of hydrocephalus and NPH and is developing TipCAT as an endoscopic tool, with colonoscopy as the most immediate application of the TipCAT technology. Microbot expects its future revenues to be primarily derived from the sales of the SCS and TipCAT, neither of which has undergone an FDA pre-market review process necessary to commercialize the product candidate in the United States. It is difficult to predict the penetration, future growth rate or size of the market for Microbot’s product candidates.

The commercial success of the SCS and TipCAT will require broad acceptance of the devices by the doctors and other medical professionals who specialize in the procedures targeted by each device, a limited number of whom may be able to influence device selection and purchasing decisions. If Microbot’s technologies are not broadly accepted and perceived as having significant advantages over existing medical devices, then Microbot will not meet its business objectives. Such perceptions are likely to be based on a determination by medical facilities and physicians that Microbot’s product candidates are safe and effective, are cost-effective in comparison to existing devices, and represent acceptable methods of treatment. Microbot cannot assure that it will be able to establish the relationships and arrangements with medical facilities and physicians necessary to support the market uptake of its product candidates. In addition, its competitors may develop new technologies for the same markets Microbot is targeting that are more attractive to medical facilities and physicians. If doctors and other medical professionals do not consider Microbot product candidates to be suitable for application in the procedures we are targeting and an improvement over the use of existing or competing products, Microbot’s business goals will not be realized.

Customers will be unlikely to buy the SCS or the TipCAT unless Microbot can demonstrate that they can be produced for sale to consumers at attractive prices.

To date, Microbot has focused primarily on research and development of the first generation versions of the SCS and the TipCAT. Consequently, Microbot has no experience in manufacturing its product candidates, and intends to manufacture its product candidates through third-party manufacturers. Microbot can offer no assurance that either it or its manufacturing partners will develop efficient, automated, low-cost manufacturing capabilities and processes to meet the quality, price, engineering, design and production standards or production volumes required to successfully mass produce its commercial products. Even if its manufacturing partners are successful in developing such manufacturing capability and quality processes, including the assurance of GMP-compliant device manufacturing, there can be no assurance that Microbot can timely meet its product commercialization schedule or the production and delivery requirements of potential customers. A failure to develop such manufacturing processes and capabilities could have a material adverse effect on Microbot’s business and financial results.

The proposed price of Microbot’s product candidates, once approved for sale, will be dependent on material and other manufacturing costs. Microbot cannot offer any assurances that its manufacturing partner will be able manufacture its product candidates at a competitive price or that achieving cost reductions will not cause a reduction in the performance, reliability and longevity of its product candidates.

Microbot has relied on, and intends to continue to rely on, third-party manufacturers to produce its product candidates.

Microbot currently relies, and expects to rely for the foreseeable future, on third-party manufacturers to produce and supply its product candidates, and it expects to rely on third parties to manufacture the commercialized products as well, should they receive the necessary regulatory clearance or approval. Reliance on

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third-party manufacturers entails risks to which Microbot would not be subject if Microbot manufactured its product candidates or future commercial products itself, including:

If Microbot is not able to maintain its key manufacturing relationships, Microbot may fail to find replacement manufacturers or develop its own manufacturing capabilities, which could delay or impair Microbot’s ability to obtain regulatory clearance or approval for its product candidates and could substantially increase its costs or deplete profit margins, if any. If Microbot does find replacement manufacturers, Microbot may not be able to enter into agreements with them on terms and conditions favorable to it and there could be a substantial delay before new facilities could be qualified and registered with the FDA and other foreign regulatory authorities.

If Microbot’s product candidates are not considered to be a safe and effective alternative to existing technologies, Microbot will not be commercially successful.

The SCS and TipCAT rely on new technologies, and Microbot’s success will depend on acceptance of these technologies by the medical community as safe, clinically effective, cost effective and a preferred device as compared to products of its competitors. Microbot does not have long-term data regarding efficacy, safety and clinical outcomes associated with the use of SCS or TipCAT. Any data that is generated in the future may not be positive or may not support the product candidates’ regulatory dossiers, which would negatively affect market acceptance and the rate at which its product candidates are adopted. Equally important will be physicians’ perceptions of the safety of Microbot’s product candidates because Microbot’s technologies are relatively new. If, over the long term, Microbot’s product candidates do not meet surgeons’ expectations as to safety, efficacy and ease of use, they may not become widely adopted.

Market acceptance of Microbot’s product candidates will also be affected by other factors, including Microbot’s ability to convince key opinion leaders to provide recommendations regarding its product candidates; convince distributors that its technologies are attractive alternatives to existing and competing technologies; supply and service sufficient quantities of products directly or through marketing alliances; and price products competitively in light of the current macroeconomic environment, which is becoming increasingly price sensitive.

Microbot may be subject to penalties and may be precluded from marketing its product candidates if Microbot fails to comply with extensive governmental regulations.

Microbot believes that its medical device product candidates will be categorized as Class II devices, which typically require a 510(k) or 510(k) de-novo premarket submission to the FDA. However, the FDA has not made any determination about whether Microbot’s medical product candidates are Class II medical devices and may disagree with that classification. If the FDA determines that Microbot’s product candidates should be reclassified as Class III medical devices, Microbot could be precluded from marketing the devices for clinical use within the United States for months, years or longer, depending on the specifics of the change in classification. Reclassification of any of Microbot’s product candidates as Class III medical devices could significantly increase Microbot’s regulatory costs, including the timing and expense associated with required clinical trials and other costs.

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The FDA and non-U.S. regulatory authorities require that Microbot product candidates be manufactured according to rigorous standards. These regulatory requirements significantly increase Microbot’s production costs, which may prevent Microbot from offering products within the price range and in quantities necessary to meet market demands. If Microbot or one of its third-party manufacturers changes an approved manufacturing process, the FDA may need to review the process before it may be used. Failure to comply with applicable pre-market and post-market regulatory requirements could subject Microbot to enforcement actions, including warning letters, fines, injunctions and civil penalties, recall or seizure of its products, operating restrictions, partial suspension or total shutdown of its production, and criminal prosecution.

If Microbot is not able to both obtain and maintain adequate levels of third-party reimbursement for procedures involving its product candidates after they are approved for marketing and launched commercially, it would have a material adverse effect on Microbot’s business.

Healthcare providers and related facilities are generally reimbursed for their services through payment systems managed by various governmental agencies worldwide, private insurance companies, and managed care organizations. The manner and level of reimbursement in any given case may depend on the site of care, the procedure(s) performed, the final patient diagnosis, the device(s) utilized, available budget, or a combination of these factors, and coverage and payment levels are determined at each payor’s discretion. The coverage policies and reimbursement levels of these third-party payors may impact the decisions of healthcare providers and facilities regarding which medical products they purchase and the prices they are willing to pay for those products. Microbot cannot assure you that its sales will not be impeded and its business harmed if third-party payors fail to provide reimbursement for Microbot products that healthcare providers view as adequate.

In the United States, Microbot expects that its product candidates, once approved, will be purchased primarily by medical institutions, which then bill various third-party payors, such as the Centers for Medicare & Medicaid Services, or CMS, which administers the Medicare program through Medicare Administrative Contractors, and other government health care programs and private insurance plans, for the healthcare products and services provided to their patients. The process involved in applying for coverage and incremental reimbursement from CMS is lengthy and expensive. Moreover, many private payors look to CMS in setting their reimbursement policies and amounts. If CMS or other agencies limit coverage for procedures utilizing Microbot’s products or decrease or limit reimbursement payments for doctors and hospitals utilizing Microbot’s products, this may affect coverage and reimbursement determinations by many private payors.

If a procedure involving a medical device is not reimbursed separately by a government or private insurer, then a medical institution would have to absorb the cost of Microbot’s products as part of the cost of the procedure in which the products are used. At this time, Microbot does not know the extent to which medical institutions would consider insurers’ payment levels adequate to cover the cost of its products. Failure by hospitals and surgeons to receive an amount that they consider to be adequate reimbursement for procedures in which Microbot products are used could deter them from purchasing Microbot products and limit sales growth for those products.

Microbot has no control over payor decision-making with respect to coverage and payment levels for its medical device product candidates, once they are approved. Additionally, Microbot expects many payors to continue to explore cost-containment strategies (e.g., comparative and cost-effectiveness analyses, so-called “pay-for-performance” programs implemented by various public government health care programs and private third-party payors, and expansion of payment bundling initiatives, and other such methods that shift medical cost risk to providers) that may potentially impact coverage and/or payment levels for Microbot’s current product candidates or products Microbot develops in the future.

As Microbot’s product offerings are used across diverse healthcare settings, they will be affected to varying degrees by the different payment systems.

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Clinical outcome studies for the SCS may not provide sufficient data to make Microbot’s product candidates the standard of care.

Microbot’s business plan relies on the broad adoption by surgeons of the SCS for primary shunt placement procedures to prevent shunt occlusions. Although Microbot believes the occurrence of shunt occlusion complications is well known among physicians practicing in the relevant medical fields, SCS may be adopted for replacement shunt surgeries only. Neurosurgeons may adopt SCS for primary shunt placement procedures only upon additional clinical studies with longer follow up periods, if at all. It may also be necessary to provide outcome studies on the preventative capabilities of the SCS in order to convince the medical community of its safety and efficacy. Clinical studies may not show an advantage in SCS based procedures in a timely manner, or at all, and outcome studies have not been designed at this time, and may be too large and too costly for Microbot to conduct. Both situations could prevent broad adoption of the SCS and materially impact Microbot’s business.

Microbot products may in the future be subject to mandatory product recalls that could harm its reputation, business and financial results.

The FDA and similar foreign governmental authorities have the authority to require the recall of commercialized products in the event of material deficiencies or defects in design or manufacture that could pose a risk of injury to patients. In the case of the FDA, the authority to require a recall must be based on an FDA finding that there is a reasonable probability that the device would cause serious injury or death, although in most cases this mandatory recall authority is not used because manufacturers typically initiate a voluntary recall when a device violation is discovered. In addition, foreign governmental bodies have the authority to require the recall of Microbot products in the event of material deficiencies or defects in design or manufacture. Manufacturers may, under their own initiative, recall a product if any material deficiency in a device is found. A government-mandated or voluntary recall by Microbot or one of its distributors could occur as a result of component failures, manufacturing errors, design or labeling defects or other deficiencies and issues. Recalls of any Microbot products would divert managerial and financial resources and have an adverse effect on Microbot’s financial condition and results of operations, and any future recall announcements could harm Microbot’s reputation with customers and negatively affect its sales. In addition, the FDA could take enforcement action, including any of the following sanctions for failing to timely report a recall to the FDA:

If Microbot’s future commercialized products cause or contribute to a death or a serious injury, Microbot will be subject to Medical Device Reporting regulations, which can result in voluntary corrective actions or agency enforcement actions.

Under FDA regulations, Microbot will be required to report to the FDA any incident in which a marketed medical device product may have caused or contributed to a death or serious injury or in which a medical device malfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. In addition, all manufacturers placing medical devices in European Union markets are legally bound to report any serious or potentially serious incidents involving devices they produce or sell to the relevant authority in whose jurisdiction the incident occurred.

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Microbot anticipates that in the future it is likely that we may experience events that would require reporting to the FDA pursuant to the Medical Device Reporting (MDR) regulations. Any adverse event involving a Microbot product could result in future voluntary corrective actions, such as product actions or customer notifications, or agency actions, such as inspection, mandatory recall or other enforcement action. Any corrective action, whether voluntary or involuntary, as well as defending Microbot in a lawsuit, will require the dedication of our time and capital, distract management from operating our business, and may harm our reputation and financial results.

Microbot could be exposed to significant liability claims if Microbot is unable to obtain insurance at acceptable costs and adequate levels or otherwise protect itself against potential product liability claims.

The testing, manufacture, marketing and sale of medical devices entail the inherent risk of liability claims or product recalls. Product liability insurance is expensive and may not be available on acceptable terms, if at all. A successful product liability claim or product recall could inhibit or prevent the successful commercialization of Microbot’s products, cause a significant financial burden on Microbot, or both, which in any case could have a material adverse effect on Microbot’s business and financial condition.

The results of Microbot’s research and development efforts are uncertain and there can be no assurance of the commercial success of Microbot’s product candidates.

Microbot believe that its success will depend in part on its ability to expand its product offerings and continue to improve its existing product candidates in response to changing technologies, customer demands and competitive pressures. As such, Microbot expects to continue dedicating significant resources in research and development. The product candidates and services being developed by Microbot may not be technologically successful. In addition, the length of Microbot’s product candidates and service development cycle may be greater than Microbot originally expected.

If Microbot fail to retain certain of its key personnel and attract and retain additional qualified personnel, Microbot might not be able to pursue its growth strategy effectively.

Microbot is dependent on its senior management, in particular Harel Gadot, Microbot’s Chief Executive Officer. Although Microbot believes that its relationship with members of its senior management is positive, there can be no assurance that the services of any of these individuals will continue to be available to Microbot in the future. Microbot’s future success will depend in part on its ability to retain its management and scientific teams, to identify, hire and retain additional qualified personnel with expertise in research and development and sales and marketing, and to effectively provide for the succession of senior management, when necessary. Competition for qualified personnel in the medical device industry is intense and finding and retaining qualified personnel with experience in the industry is very difficult. Microbot believes that there are only a limited number of individuals with the requisite skills to serve in key positions at Microbot, particularly in Israel, and it competes for key personnel with other medical equipment and technology companies, as well as research institutions.

Microbot does not carry, and does not intend to carry, any key man life insurance policies on any of its existing executive officers.

Risks Relating to International Business

If Microbot fails to obtain regulatory clearances in other countries for its product candidates under development, Microbot will not be able to commercialize these product candidates in those countries.

In order for Microbot to market its product candidates in countries other than the United States, Microbot must comply with the safety and quality regulations in such countries.

In Europe, these regulations, including the requirements for approvals, clearance or grant of Conformité Européenne, or CE, Certificates of Conformity and the time required for regulatory review, vary from country to

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country. Failure to obtain regulatory approval, clearance or CE Certificates of Conformity (or equivalent) in any foreign country in which Microbot plans to market its product candidates may harm its ability to generate revenue and harm its business. Approval and CE marking procedures vary among countries and can involve additional product testing and additional administrative review periods. The time required to obtain approval or CE Certificate of Conformity in other countries might differ from that required to obtain FDA clearance. The regulatory approval or CE marking process in other countries may include all of the risks detailed above regarding FDA clearance in the United States. Regulatory approval or the CE marking of a product candidate in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval or a CE Certificate of Conformity in one country may negatively impact the regulatory process in others. Failure to obtain regulatory approval or a CE Certificate of Conformity in other countries or any delay or setback in obtaining such approval could have the same adverse effects described above regarding FDA clearance in the United States.

Microbot cannot be certain that it will be successful in complying with the requirements of the CE Certificate of Conformity and receiving a CE Mark for its product candidates or in continuing to meet the requirements of the Medical Devices Directive in the European Economic Area (EEA).

Israel’s Medical Devices Law generally requires the registration of all medical products with the Ministry of Health, or MOH, Registrar through the submission of an application to the Ministry of Health Medical Institutions and Devices Licensing Department, or AMAR. If the application includes a certificate issued by a competent authority of a “recognized” country, which includes Australia, Canada, the European Community Member States, Japan or the United States, the registration process is expedited, but is generally still expected to take 6 to 9 months for approval. If certification from a recognized country is not available, the registration process takes significantly longer and a license is rarely issued under such circumstances, as the MOH may require the presentation of significant additional clinical data. Once granted, a license (marketing authorization) for a medical device is valid for five years from the date of registration of the device, except for implants with a life-supporting function, for which the validity is for only two years from the date of registration. Furthermore, the holder of the license must meet several additional requirements to maintain the license. Microbot cannot be certain that it will be successful in applying for a license from the MOH for its product candidates.

Microbot operations in international markets involve inherent risks that Microbot may not be able to control.

Microbot’s business plan includes the marketing and sale of its proposed product candidates internationally, and specifically in Europe and Israel. Accordingly, Microbot’s results could be materially and adversely affected by a variety of factors relating to international business operations that it may or may not be able to control, including:

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Microbot’s financial results may be affected by fluctuations in exchange rates and Microbot’s current currency hedging strategy may not be sufficient to counter such fluctuations.

Microbot’s financial statements are denominated in U.S. dollars and the financial results of the combined company are expected to be denominated in U.S. dollars, while a significant portion of Microbot’s business is conducted, and a substantial portion of its operating expenses are payable, in currencies other than the U.S. dollar. Exchange rate fluctuations may have an adverse impact on Microbot’s future revenues or expenses as presented in the financial statements. Microbot may in the future use financial instruments, such as forward foreign currency contracts, in its management of foreign currency exposure. These contracts would primarily require Microbot to purchase and sell certain foreign currencies with or for U.S. dollars at contracted rates. Microbot may be exposed to a credit loss in the event of non-performance by the counterparties of these contracts. In addition, these financial instruments may not adequately manage Microbot’s foreign currency exposure. Microbot’s results of operations could be adversely affected if Microbot is unable to successfully manage currency fluctuations in the future.

Risks Relating to Microbot’s Intellectual Property

Microbot’s right to develop and commercialize its existing product candidates are subject to the terms and condition of a license granted to Microbot by Technion Research and Development Foundation Ltd and termination of the license with respect to one or both of the technology platforms underlying the product candidates would result in Microbot ceasing its development efforts for the applicable product candidate(s).

Microbot entered into a license agreement with Technion Research and Development Foundation Ltd., or TRDF, in 2012 pursuant to which Microbot obtained an exclusive, worldwide, royalty-bearing, sub-licensable license to certain patents and inventions relating to the SCS and TipCAT technology platforms. Pursuant to the terms of the license agreement, in order to maintain the license with respect to each platform, Microbot must use commercially reasonable efforts to develop products covered by the license, including meeting certain agreed upon development milestones. TRDF has the option to terminate a license granted with respect a particular technology in the event Microbot fails to meet a development milestone associated with such technology. Therefore, the failure to meet development milestones may lead to a complete termination of the applicable license agreement and result in Microbot ceasing its development efforts for the applicable product candidate. The milestones for SCS include commencing initial studies in humans by December 2018 and commencing a clinical trial, if necessary, by December 2019. The milestones for TipCAT include commencing initial studies in humans by December 2018 and commencing a full clinical trial, if necessary, by December 2020. Failure to meet any development milestone will give TRDF the right to terminate the license with respect to the technology underlying the missed milestone. Although Microbot expects to meet the milestone requirements, TRDF has demonstrated flexibility with respect to amending the terms of the license to extend the milestone dates.

Under the license agreement, Microbot is also subject to various other obligations, including obligations with respect to payment upon the achievement of certain milestones and royalties on product sales. TRDF may terminate the license agreement under certain circumstances, including material breaches by Microbot or under certain bankruptcy or insolvency events. In the case of termination of the license by Microbot without cause or by TRDF for cause, TRDF has the right to receive a non-exclusive license from Microbot with respect to improvements to the licensed technologies made by Microbot.

If TRDF were to terminate the license agreement or if Microbot was to otherwise lose the ability to exploit the licensed patents, Microbot’s competitive advantage could be reduced or terminated, and Microbot will likely not be able to find a source to replace the licensed technology.

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However, if there is any future dispute between Microbot and TRDF regarding the respective parties’ rights under the license agreement, Microbot’s ability to develop and commercialize the SCS and TipCAT may be materially harmed.

Microbot may not meet its product candidates’ development and commercialization objectives in a timely manner or at all.

Microbot has established internal goals, based upon expectations with respect to its technologies, which Microbot has used to assess its progress toward developing its product candidates. These goals relate to technology and design improvements as well as to dates for achieving specific development results. If the product candidates exhibit technical defects or are unable to meet cost or performance goals, Microbot’s commercialization schedule could be delayed and potential purchasers of its initial commercialized products may decline to purchase such products or may opt to pursue alternative products, which would materially harm its business.

Intellectual property litigation and infringement claims could cause Microbot to incur significant expenses or prevent Microbot from selling certain of its product candidates.

The medical device industry is characterized by extensive intellectual property litigation. From time to time, Microbot might be the subject of claims by third parties of potential infringement or misappropriation. Regardless of outcome, such claims are expensive to defend and divert the time and effort of Microbot’s management and operating personnel from other business issues. A successful claim or claims of patent or other intellectual property infringement against Microbot could result in its payment of significant monetary damages and/or royalty payments or negatively impact its ability to sell current or future products in the affected category and could have a material adverse effect on its business, cash flows, financial condition or results of operations.

If Microbot or TRDF are unable to protect the patents or other proprietary rights relating to Microbot’s product candidates, or if Microbot infringes on the patents or other proprietary rights of others, Microbot’s competitiveness and business prospects may be materially damaged.

Microbot’s success depends on its ability to protect its intellectual property (including its licensed intellectual property) and its proprietary technologies. Microbot’s commercial success depends in part on its ability to obtain and maintain patent protection and trade secret protection for its product candidates, proprietary technologies, and their uses, as well as its ability to operate without infringing upon the proprietary rights of others.

Microbot currently hold, through licenses or otherwise, an intellectual property portfolio that includes U.S. and international patents and pending patents, and other patents under development. Microbot intend to continue to seek legal protection, primarily through patents, including the TRDF licensed patents, for its proprietary technology. Seeking patent protection is a lengthy and costly process, and there can be no assurance that patents will be issued from any pending applications, or that any claims allowed from existing or pending patents will be sufficiently broad or strong to protect its proprietary technology. There is also no guarantee that any patents Microbot holds, through licenses or otherwise, will not be challenged, invalidated or circumvented, or that the patent rights granted will provide competitive advantages to Microbot. Microbot’s competitors have developed and may continue to develop and obtain patents for technologies that are similar or superior to Microbot’s technologies. In addition, the laws of foreign jurisdictions in which Microbot develops, manufactures or sells its product candidates may not protect Microbot’s intellectual property rights to the same extent as do the laws of the United States.

Adverse outcomes in current or future legal disputes regarding patent and other intellectual property rights could result in the loss of Microbot’s intellectual property rights, subject Microbot to significant liabilities to third parties, require Microbot to seek licenses from third parties on terms that may not be reasonable or

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favorable to Microbot, prevent Microbot from manufacturing, importing or selling its product candidates, or compel Microbot to redesign its product candidates to avoid infringing third parties’ intellectual property. As a result, Microbot may be required to incur substantial costs to prosecute, enforce or defend its intellectual property rights if they are challenged. Any of these circumstances could have a material adverse effect on Microbot’s business, financial condition and resources or results of operations.

Microbot has the first right, but not the obligation, to control the prosecution, maintenance or enforcement of the licensed patents from TRDF. However, there may be situations in which Microbot will not have control over the prosecution, maintenance or enforcement of the patents that Microbot licenses, or may not have sufficient ability to consult and input into the patent prosecution and maintenance process with respect to such patents. If Microbot does not control the patent prosecution and maintenance process with respect to the TRDF licensed patents, TRDF may elect to do so but may fail to take the steps that are necessary or desirable in order to obtain, maintain and enforce the licensed patents.

Microbot’s ability to develop intellectual property depends in large part on hiring, retaining and motivating highly qualified design and engineering staff and consultants with the knowledge and technical competence to advance its technology and productivity goals. To protect Microbot’s trade secrets and proprietary information, Microbot has entered into confidentiality agreements with its employees, as well as with consultants and other parties. If these agreements prove inadequate or are breached, Microbot’s remedies may not be sufficient to cover its losses.

Dependence on patent and other proprietary rights and failing to protect such rights or to be successful in litigation related to such rights may result in Microbot’s payment of significant monetary damages or impact offerings in its product portfolios.

Microbot’s long-term success largely depends on its ability to market technologically competitive product candidates. If Microbot fails to obtain or maintain adequate intellectual property protection, it may not be able to prevent third parties from using its proprietary technologies or may lose access to technologies critical to our product candidates. Also, Microbot currently pending or future patent applications may not result in issued patents, and issued patents are subject to claims concerning priority, scope and other issues.

Furthermore, Microbot has not filed applications for all of our patents internationally and it may not be able to prevent third parties from using its proprietary technologies or may lose access to technologies critical to its product candidates in other countries.

Risks Relating to Operations in Israel

Microbot’s headquarters are located in Israel, and therefore, political conditions in Israel may affect Microbot’s operations and results.

Microbot’s executive offices are located in Israel and the executive offices of the combined company are expected to be located in Israel. In addition, the majority of its directors, who may also be the directors of the combined company, are residents of Israel. Accordingly, political, economic and military conditions in Israel will directly or indirectly affect Microbot’s operations and results. Since the establishment of the State of Israel, a number of armed conflicts have taken place between Israel and its Arab neighbors. An ongoing state of hostility, varying in degree and intensity has led to security and economic problems for Israel. For a number of years there have been continuing hostilities between Israel and the Palestinians. This includes hostilities with the Islamic movement Hamas in the Gaza Strip, which have adversely affected the peace process and at times resulted in armed conflicts. Such hostilities have negatively influenced Israel’s economy as well as impaired Israel’s relationships with several other countries. Israel also faces threats from Hezbollah militants in Lebanon, from ISIS and rebel forces in Syria, from the government of Iran and other potential threats from additional countries in the region. Moreover, some of Israel’s neighboring countries have recently undergone or are undergoing significant political changes. These political, economic and military conditions in Israel could have a material adverse effect on Microbot’s business, financial condition, results of operations and future growth.

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Political relations could limit Microbot’s ability to sell or buy internationally.

Microbot could be adversely affected by the interruption or reduction of trade between Israel and its trading partners. Some countries, companies and organizations continue to participate in a boycott of Israeli firms and others doing business with Israel, with Israeli companies or with Israeli-owned companies operating in other countries. Foreign government defense export policies towards Israel could also make it more difficult for us to obtain the export authorizations necessary for Microbot’s activities. Also, over the past several years there have been calls in Europe and elsewhere to reduce trade with Israel. There can be no assurance that restrictive laws, policies or practices directed towards Israel or Israeli businesses will not have an adverse impact on Microbot’s business.

Israel’s economy may become unstable.

From time to time, Israel’s economy may experience inflation or deflation, low foreign exchange reserves, fluctuations in world commodity prices, military conflicts and civil unrest. For these and other reasons, the government of Israel has intervened in the economy employing fiscal and monetary policies, import duties, foreign currency restrictions, controls of wages, prices and foreign currency exchange rates and regulations regarding the lending limits of Israeli banks to companies considered to be in an affiliated group. The Israeli government has periodically changed its policies in these areas. Reoccurrence of previous destabilizing factors could make it more difficult for Microbot to operate its business and could adversely affect its business.

Exchange rate fluctuations between the U.S. dollar and the NIS currencies may negatively affect Microbot’s operating costs.

A significant portion of Microbot’s expenses is paid in New Israeli Shekels, or NIS, but its financial statements are denominated in U.S. dollars. As a result, Microbot is exposed to the risks that the NIS may appreciate relative to the U.S. dollar, or the NIS instead devalues relative to the U.S. dollar, and the inflation rate in Israel may exceed such rate of devaluation of the NIS, or that the timing of such devaluation may lag behind inflation in Israel. In any such event, the U.S. dollar cost of Microbot’s operations in Israel would increase and Microbot’s U.S. dollar-denominated results of operations would be adversely affected. Microbot cannot predict any future trends in the rate of inflation in Israel or the rate of devaluation (if any) of the NIS against the U.S. dollar.

Microbot’s primary expenses paid in NIS that are not linked to the U.S. dollar are employee expenses in Israel and lease payments on its Israeli facility. If Microbot is unsuccessful in hedging against its position in NIS, a change in the value of the NIS compared to the U.S. dollar could increase Microbot’s research and development expenses, labor costs and general and administrative expenses, and as a result, have a negative impact on Microbot’s profits.

Funding and other benefits provided by Israeli government programs may be terminated or reduced in the future and the terms of such funding may have a significant impact on future corporate decisions.

Microbot participates in programs under the auspices of the Israeli Office of the Chief Scientist, or OCS, for which it receives funding for the development of its technologies and product candidates. If Microbot fails to comply with the conditions applicable to this program, it may be required to pay additional penalties or make refunds and may be denied future benefits. From time to time, the government of Israel has discussed reducing or eliminating the benefits available under this program, and therefore these benefits may not be available in the future at their current levels or at all.

Microbot’s research and development efforts from inception until now have been financed in part through such OCS royalty bearing grants in an aggregate amount of US$893,673 through June 30, 2016. With respect to such grants Microbot is committed to pay royalties at a rate of between 3% to 3.5% on sales proceeds up to the

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total amount of grants received, linked to the dollar, plus interest at an annual rate of USD LIBOR. In addition, as a recipient of OCS grants, Microbot must comply with the requirements of the Israeli Encouragement of Industrial Research and Development Law, 1984, or the R&D Law, and related regulations. Under the terms of the grants and the R&D Law, Microbot is restricted from transferring any technologies, know-how, manufacturing or manufacturing rights developed using OCS grants outside of Israel without the prior approval of OCS. Therefore, if aspects of its technologies are deemed to have been developed with OCS funding, the discretionary approval of an OCS committee would be required for any transfer to third parties outside of Israel of the technologies, know-how, manufacturing or manufacturing rights related to such aspects. Furthermore, the OCS may impose certain conditions on any arrangement under which it permits Microbot to transfer technology or development outside of Israel or may not grant such approvals at all.

If approved, the transfer of OCS-supported technology or know-how outside of Israel may involve the payment of significant fees, which will depend on the value of the transferred technology or know-how, the total amount OCS funding received by Microbot, the number of years since the funding and other factors. These restrictions and requirements for payment may impair Microbot’s ability to sell its technology assets outside of Israel or to outsource or transfer development or manufacturing activities with respect to any product or technology outside of Israel. Furthermore, the amount of consideration available to Microbot’s shareholders in a transaction involving the transfer of technology or know-how developed with OCS funding outside of Israel (such as through a merger or other similar transaction) may be reduced by any amounts that Microbot is required to pay to the OCS.

Some of Microbot’s employees and officers are obligated to perform military reserve duty in Israel.

Generally, Israeli adult male citizens and permanent residents are obligated to perform annual military reserve duty up to a specified age. They also may be called to active duty at any time under emergency circumstances, which could have a disruptive impact on Microbot’s workforce.

It may be difficult to enforce a non-Israeli judgment against Microbot or its officers and directors.

Upon the consummation of the Merger, the operating subsidiary of the combined company will be incorporated in Israel. Some of Microbot’s executive officers and directors who will be executive officers and directors of the combined company are not residents of the United States, and a substantial portion of Microbot’s assets and the assets of its executive officers and directors are located outside the United States. Therefore, a judgment obtained against Microbot, or any of these persons, including a judgment based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the United States and may not necessarily be enforced by an Israeli court. It also may be difficult to affect service of process on these persons in the United States or to assert U.S. securities law claims in original actions instituted in Israel. Additionally, it may be difficult for an investor, or any other person or entity, to initiate an action with respect to U.S. securities laws in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws reasoning that Israel is not the most appropriate forum in which to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law often involves the testimony of expert witnesses, which can be a time consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel that addresses the matters described above. As a result of the difficulty associated with enforcing a judgment against Microbot in Israel, it may be impossible to collect any damages awarded by either a U.S. or foreign court.

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Risks Relating to Microbot’s Securities and Governance Matters

The existing shareholders of Microbot will control the combined company for the foreseeable future, including the outcome of matters requiring shareholder approval and such control may prevent existing stockholders of StemCells from influencing significant corporate decisions and may result in conflicts of interest that could cause the combined company’s stock price to decline.

Upon completion of the Merger, the existing shareholders of Microbot, including certain shareholders holding 5% or more of the total ownership interest in Microbot, and its executive officers and directors, and advisors with respect to the Merger will collectively own approximately 95% of the combined company’s outstanding shares of Common Stock. As a result, after the consummation of the Merger, such entities and individuals will have the ability, acting together, to control the election of the combined company’s directors and the outcome of corporate actions requiring shareholder approval, such as: (i) a Merger or a sale of the combined company, (ii) a sale of all or substantially all of the combined company’s assets, and (iii) amendments to the combined company’s articles of incorporation and bylaws. This concentration of voting power and control could have a significant effect in delaying, deferring or preventing an action that might otherwise be beneficial to the combined company’s other shareholders and be disadvantageous to Microbot shareholders with interests different from those entities and individuals. Certain of these individuals will also have significant control over the combined company’s business, policies and affairs as officers or directors of the combined company. These stockholders may also exert influence in delaying or preventing a change in control of the combined company, even if such change in control would benefit the other stockholders of the combined company. In addition, the significant concentration of stock ownership may adversely affect the market value of the combined company’s common stock due to investors’ perception that conflicts of interest may exist or arise.

Anti-takeover provisions in the combined company’s charter and bylaws under Delaware law may prevent or frustrate attempts by stockholders to change the board of directors or current management and could make a third-party acquisition of the combined company difficult.

Provisions in the combined company’s certificate of incorporation and bylaws, which are identical to StemCells’ certificate of incorporation and bylaws, may delay or prevent an acquisition or a change in management. These provisions include a classified board of directors. In addition, because the combined company will be incorporated in Delaware, it is governed by the provisions of Section 203 of the DGCL, which prohibits stockholders owning in excess of 15% of the outstanding combined company voting stock from merging or combining with the combined company. Although StemCells and Microbot believe these provisions collectively will provide for an opportunity to receive higher bids by requiring potential acquirors to negotiate with the combined company’s board of directors, they would apply even if the offer may be considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent any attempts by the combined company’s stockholders to replace or remove then current management by making it more difficult for stockholders to replace members of the board of directors, which is responsible for appointing members of management.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement and the other documents referred to or incorporated by reference into this proxy statement contain or may contain “forward-looking statements” of StemCells within the meaning of Section 21E of the Exchange Act, which is applicable to StemCells, but not Microbot, because StemCells, unlike Microbot, is a public company subject to the reporting requirements of the Exchange Act. For this purpose, certain statements contained herein, other than statements of historical fact, may be forward-looking statements under the provisions of the Private Securities Litigation Reform Act of 1995. Such statements can be identified by the fact that they do not relate strictly to historical or current facts. Statements that include words such as “may”, “will”, “project”, “might”, “expect”, “believe”, “anticipate”, “intend”, “could”, “would”, “estimate”, “continue” or “pursue” or the negative of these words or other words or expressions of similar meaning may identify forward-looking statements. These forward-looking statements are found at various places throughout this proxy statement and the other documents referred to or incorporated by reference and relate to a variety of matters, including but not limited to (i) the timing and anticipated completion of the Merger, (ii) the benefits expected to result from the Merger, (iii) the anticipated business of the combined company following the completion of the Merger, and (iv) other statements that are not purely statements of historical fact. These forward-looking statements are made on the basis of the current beliefs, expectations, and assumptions of management are not guarantees of performance and are subject to significant risks and uncertainty. These forward-looking statements should, therefore, be considered in light of various important factors, including those set forth in this proxy statement and those that are referred to or incorporated by reference into this proxy statement. In addition to the risk factors identified elsewhere, important factors that could cause actual results to differ materially from those described in forward-looking statements contained herein include, but are not limited to:

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

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THE MERGER

Background of the Merger

This section and the section entitled “The Merger Agreement” beginning on page 71 describe the material aspects of the Merger, including the Merger Agreement. While StemCells believes that this description covers the material terms of the Merger and the Merger Agreement, it may not contain all of the information that is important to you. You should read carefully this entire proxy statement for a more complete understanding of the Merger and the Merger Agreement, including the Merger Agreement itself, which is attached as Annex A and the opinion of Carabiner LLC, which is attached as Annex B.

Background of the Merger

The Company’s Decision to Discontinue its Program in Age Related Macular Degeneration

In the fall of 2015, the Company’s leadership team was asked to develop and evaluate strategic alternatives with the aim of reaching a value inflection point for StemCells stockholders by late 2017. At the time, the Company had two ongoing Phase II clinical studies to evaluate its proprietary HuCNS-SC platform technology (highly purified human neural stem cells). The first clinical study, called the Radiant Study, was a controlled Phase II study testing HuCNS-SC cells in patients with the dry form of age related macular degeneration (“dry AMD”). The second clinical study, called the Pathway Study, was a controlled Phase II study testing HuCNS-SC cells in patients with chronic cervical spinal cord injury.

Both programs (dry AMD and spinal cord injury) were based on compelling pre-clinical and early clinical data. However, at September 30, 2015, the Company had reported cash and cash equivalents of approximately $21 million, and estimated that it would cost an additional $100 million to complete both Phase II studies. Towards the end of 2015, the capital market for small publicly traded life science companies was depressed, especially for those companies focused on regenerative medicine. Some were trading at or near all-time lows, as was the Company.

Accordingly, on December 7 and 8, 2015, the Company’s management team presented to the Board five possible operating plans, each with different anticipated impact on operations, headcount, cash requirements, financing opportunities, and likelihood of success. The Board considered and discussed, among other things, patient enrollment rates in both Phase II studies and the Company’s likely prospects for reaching a successful outcome in one or both clinical studies. Management presented alternative budgets ranging from approximately $40 million to approximately $100 million over a two- to three-year period, together with their related operating plans, timelines, and rationales. Management also presented different alternative approaches for the Company’s product development efforts, including the scale-up of cell manufacturing believed necessary to conduct pivotal clinical programs and commercial launch of a therapeutic based upon HuCNS-SC cells. Following discussion, the Board requested additional information largely relating to the Company’s product development efforts, which had become a significant percentage of the Company’s annual operating budget.

On December 16, 2015, the Board again met to discuss the different proposals from management for maximizing enterprise value by conserving corporate resources and focusing on only one of the Company’s two Phase II clinical studies. Management presented various recommendations including a possible reduction in force. Following discussion, the Board decided to discontinue the Company’s Radiant Study in dry AMD, focusing on the spinal cord injury program to substantially increase the Company’s likelihood for success.

Following this meeting, on December 23, 2015, the Company announced its strategic realignment to fully focus the Company’s resources on its proprietary HuCNS-SC cell platform technology for the treatment of chronic spinal cord injury. The decision to suspend the Company’s dry AMD program, including its Phase II Radiant Study and a reduction in force of approximately 25%, was expected to reduce operating costs by approximately $20 million. As part of this strategic realignment, the Company also began a process of actively

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seeking to divest non-core assets and pursue non-dilutive financing alternatives. These efforts were intended to reduce cash needs and reliance on capital markets for further funding, expedite enrollment in the ongoing Phase II Pathway study in spinal cord injury, and allow the Company to continue a more limited, but still viable, process development scale up for initiation of a pivotal study in spinal cord injury.

The Company’s Decision to Discontinue its Program in Spinal Cord Injury

As of the end of 2015, the Company had approximately $14.5 million in cash and cash equivalents, and a cash burn rate of approximately $2 million to $3 million per month. With the reduction in force and discontinuation of the Radiant Study, the Company anticipated needing more than $50 million to complete its Phase II Pathway Study in spinal cord injury and continue its planned product development activities, and the Company had a market valuation of just under $45 million. Market conditions, especially for small regenerative medicine companies, remained challenging.

In January and February 2016, the Company reviewed and considered various financing proposals received from potential investors and various investment banks and other intermediaries. On February 25, 2016, the Board approved resolutions to raise funds through either a preferred stock or common stock financing, with the target to raise gross proceeds of not less than $5 million and up to approximately $16 million. On March 8, 2016, the Company initiated a confidentially marketed public offering of common stock and common stock warrants (the “2016 CMPO”). The Company raised just over $8 million in the 2016 CMPO. As part of the financing, the Company’s underwriters required a lockup prohibiting the Company from conducting future equity financings for up to 120 days. During this time, recruitment in the Pathway Study continued on track and the 6-month and 9-month data from the first cohort of the Pathway Study remained encouraging. The trial was also beginning to attract media attention, although the Company’s stock price continued to remain below $0.40 per share.

With an anticipated need to raise at least $20 million in 2016 to advance the Pathway Study, on April 20, 2016, the StemCells Board of Directors approved both a proposal to further narrow the Company’s product development activities to reduce expenditures and a proposal to initiate a common stock rights offering. On May 23, 2016, after completing its 12:1 reverse stock split, the Company filed with the SEC a preliminary registration statement on Form S-1 for the planned rights offering.

However, by the end of May, the Company had received preliminary indications that some of the 12-month clinical data from the open cohort in the Pathway Study was less robust than the 6-month and 9-month data. While the 12-month data generally still showed an improvement over baseline for all patients in Cohort 1, the magnitude of the improvements appeared small and the possibility of a loss of improvement from 9-month time point to the 12-month time point called into question the durability of any clinical effect in this patient population. It was also unknown and unknowable whether less than robust 12-month data would be sufficiently compelling to successfully complete the Company’s planned rights offering.

The StemCells Board of Directors held seven meetings from May 9 until May 30, 2016. In each of these meetings, the main topic of discussion concerned the data from the Pathway Study and its potential significance to patients with chronic spinal cord injury and to the Company’s financing options. Some of the open questions included whether even small improvements in muscle strength and dexterity would translate into a meaningful improvement in quality of life for patients with complete paralysis and whether the data from such a small cohort of patients (just six patients) might be predictive of outcomes in the larger second cohort of patients, which at the time remained blinded to the Company.

Therefore, at the Board’s direction, the Company engaged several key opinion leaders, including clinicians familiar with spinal cord injury and those who helped develop the GRASSP measurements used to test the patients in the Pathway Study, to help answer these questions on an expedited basis. In addition, at its May 19, 2016 meeting, the Board approved management’s recommendation to unblind some of the data from the second cohort from the study in the hope of determining, one way or another, whether the Pathway Study was worth pursuing to completion.

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The Company empaneled an Interim Analysis Data Monitoring Committee (the “IA-DMC”), consisting of three expert clinicians. With expert consultation and advice, the Company prepared a series of “go/no go” questions for the IA-DMC with the aim of using both data from Cohort 1 and unblinded data from Cohort 2 to assess the likelihood of success from the Pathway Study. The IA-DMC met on May 25, 2016 and determined that the data failed to clear most of the pre-established hurdles. In addition, after completing their assessments, the IA-DMC delivered to the Company the committee’s written recommendation to discontinue the study.

With this information in hand, the Board met again on May 27, 2016, to discuss, among other things, the data from the Pathway Study, its prospects for success, the Company’s cash needs, the methodologies and conclusions of the IA-DMC, and management’s assessments. Following an assessment of different options available to the Company, the Board concluded that in light of the available clinical data and the IA-DMC’s recommendation to discontinue the study, the Company’s prospects to raise sufficient funds to complete enrollment in the Pathway Study and collect final data were very poor. The Board therefore instructed management to discontinue the Pathway Study and cease all clinical trial related activities as promptly as possible. The Board also instructed management to prepare a wind down plan, with the aim of maximizing the Company’s residual enterprise value for all stakeholders, including stockholders and trade creditors.

The Decision to Enter into the Microbot Merger Agreement

Following the Board meeting held on May 27, 2016, the Company’s management considered various wind-down scenarios, including the possibility of pursuing alternative disease indications as well as the possibility of repurposing the Company to pursue pre-clinical testing of its recently announced genetically modified human neural stem cell. This preclinical research, which was being conducted in collaboration with researchers at Stanford University and which provided the basis for a newly filed patent application, was considered promising, but the Company’s overhead costs did not support a re-start of the business as a “new cell” discovery company. At this time, the Company had less than three months of cash on hand, and the likelihood of rapidly acquiring new technology in order to repurpose the business was also considered very low.

The Board met on May 30, 2016 to consider its strategic alternatives. As part of these deliberations, the Company’s legal counsel advised the Board on its fiduciary responsibilities and management reviewed alternative plans. These alternative plans included (i) the potential for monetizing or further developing any of StemCells’ prior clinical development programs, including its earlier programs in rare genetic disorders, (ii) possible business combinations with other healthcare companies with other technologies under development; and (iii) the possibility of liquidating StemCells and distributing any remaining cash to stockholders. The Board also considered the possibility of divesting Company assets, both hard assets and intellectual property, together with a potential combination with a company interested in combining with StemCells.

The following day, on May 31, 2016, the Company announced the termination of the Pathway Study and the Company’s plan to wind down operations. StemCells also began to evaluate measures to preserve its cash while maximizing stockholder value.

From the announced discontinuation of clinical activities on May 31 until execution of the Microbot Merger Agreement on August 15, 2016, the Company’s Board of Directors held twelve special meetings. The initial meetings, the ones held on June 2, 16 and 28 and July 8, 12 and 15, 2016, preceded the execution of the letter of intent with Microbot and focused on evaluating the strategic alternatives for the Company, the potential wind down scenarios and the monetization alternatives for the Company’s assets.

Early in the process, the Company solicited and received proposals for the possible engagement of an investment bank to help conduct one or more auctions of available assets. Most of the banks indicated that all the proposed transactions were likely too small to warrant an engagement, and none of the banks proposed engagement terms that were consistent with the Company’s limited cash resources and timeline. Moreover, following the announcement of the wind down, the Company received numerous unsolicited expressions of

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interest to acquire one or more of the identified bundles of assets. The Company also sent out invitations to many businesses that had, from time to time in the past, expressed an interest in either partnering with or acquiring StemCells or its technologies, whether for specific disease indications or otherwise. For these reasons, the Company elected not to engage an investment bank.

By mid-June, the Company had entered into approximately 60 confidentiality agreements with bidders interested in potentially acquiring different Company assets. Active negotiations followed with approximately 40 of these bidders.

Four bidders expressed an interest in the Company’s GMP manufacturing facility. It was decided from these negotiations that the deal structure would likely be an assignment of the Company’s real property lease in Sunnyvale, California, coupled with a sale of the equipment located at the facility and the retention of technical employees who had been separated by StemCells as part of its reduction in force. Four bidders expressed an interest in the Company’s proprietary animal models. Five bidders expressed an interest in the Company’s research and laboratory equipment. Approximately 30 bidders, many of which were from outside the United States, expressed an interest in the Company’s clinical research programs and/or intellectual property. Approximately 20 bidders, including Microbot, expressed an interest in combining with StemCells.

All these corporate opportunities were discussed and reviewed with the Company’s Board of Directors at its meetings in June and early July. In particular, at the board meeting held of June 16, management presented to the Board over 30 potential acquirers of Company assets. The StemCells Board of directors asked about, and discussed with management, the different technologies being developed by the companies that had expressed an interest in combining with StemCells, likely deal structures, the advantages of different deals for the Company’s stockholders and creditors, and likely preconditions to closing, among other things. With respect to bidders interested in combining with StemCells, management presented detailed information about each of the companies and their indications of interest, including (i) company-specific value drivers, such as descriptions of each company’s clinical programs and potential fund-raising ability to support its programs, and (ii) transaction-specific value drivers, such as the valuation of the company, the proposed post-closing stock ownership split ( i.e. , what percentage ownership would StemCells’ stockholders continue to own in the company) and the ability to close a transaction.

By the end of June 2016, more than 30 bidders had conducted due diligence on different aspects of the Company and, after having advanced dozens of negotiations over the span of six weeks, the Company had made significant progress narrowing the field of viable transactions. First, the Company had selected an auction house, Heritage Partners, to auction off the Company’s laboratory and research equipment. Second, the Company determined that its plans to divest the GMP manufacturing facility had a reasonable chance of success in July, thereby potentially providing funds needed to extend the Company’s timeline for completing any other transaction, especially a business combination. Third, the Board determined that any business combination would require $1-2 million in transaction costs, not including those needed to file the Company’s Form 10-Q for the second quarter of fiscal year 2016.

At its meeting held on June 28, 2016, the Board of Directors of StemCells met again with management to review the entire landscape of ongoing negotiations, with the intent of selecting a subset to advance to the next round of consideration. Management presented approximately 40 potential bidders, ranging from those interested in acquiring certain Company patents to those interested in combining with the Company. Of these, approximately twenty had submitted term sheets or other non-binding expressions of interest; twelve of these, including Microbot’s, involved some form of business combination.

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Of these twelve, management considered five as significantly less reliable, as they were made by bidders that appeared to lack funds sufficient to complete the proposed transaction without unspecified third party funding. The remaining seven bidders had presented preliminary non-binding indications of interest with the following terms:

As a consequence of the Company’s severe cash constraints and the high cash requirements for any business combination, the Board, at this meeting, concluded that one of the key preconditions for any merger transaction would be the willingness of an acquirer to provide a bridge loan to the Company to cover transaction costs, including those related to the preparation and filing of the Company’s Form 10-Q for the second quarter of 2016, which was due to be filed on or before August 9, 2016. The Board also expressed an interest in selecting a finalist with whom to focus StemCells’ limited time and resources to negotiate a definitive merger agreement.

Following this, Company management engaged in accelerated negotiations with Microbot and the remaining Bidders A-F. Each of these bidders was invited to submit final terms for an acquisition, which had to include a mechanism for immediate bridge funding to the Company.

On or about June 30, 2016, BMR-Pacific Research Center LP (“BMR”), the Company’s landlord at its Newark, CA facility, filed suit against StemCells claiming breach of the lease and damages in excess of $16 million ( BMR v. StemCells, Inc. , Alameda County Superior Court case no. RG16821619; hereinafter the “ Lease Litigation ”).

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Bidder D passed on the Company’s technology and withdrew its offer. Bidders C, E and F each indicated that it was unprepared to provide bridge funding prior to the execution of definitive agreements and failed to offer a business case that the Board believed would offer value to StemCells stockholders.

Bidders A and B and Microbot (collectively, the “Three Finalists”), in contrast, all presented revised offers that included attempts to address the Company’s need for an immediate cash infusion. On July 5, Microbot submitted a revised letter of intent that included a commitment to provide a bridge loan of $530,000 upon execution of the term sheet and an additional bridge loan of $650,000 upon execution of the definitive merger agreement. On July 7, Bidder A submitted a revised term sheet that included a proposal to acquire the Company’s intellectual property for $2 million as a source of bridge funding for a subsequent business combination transaction. Furthermore, also on July 7, Bidder B submitted a revised term sheet which included provisions for a secured note for $1.2 million, payable in two tranches — the first for $530,000 in July and the second for $670,000 in August.

At its meeting held on July 8, 2016, the Board considered the revised terms proposed by the Three Finalists. The Board considered management’s final recommendations, including the assessment that only the Microbot proposal showed a workable path forward to provide funding to cover transaction costs, funding to pay down Company trade payables, and a proposal that would provide the Company’s stockholders with potential upside from a percentage ownership in the continuing company. The proposal from Bidder A remained preliminary and required significant additional due diligence from Bidder A, as the initial transaction (specifically, the sale of the Company’s IP for $2 million) was contingent on significant additional due diligence and would require transaction costs, transfer of IP to the Company’s foreign subsidiary, and the negotiation of an asset acquisition agreement. Bidder B’s revised proposal was unclear, proposing that all bridge loan money was contingent upon final due diligence to Bidder B’s satisfaction and execution of the definitive merger agreement documents, therefore failing to address the Board’s principal need for speedy funding. In addition, Bidder B had no clear solution for addressing the Company’s trade payables and other liabilities. It was also noted that, of the Three Finalists, Microbot had been the fastest and most focused in its negotiations and due diligence activities to date, which gave management higher confidence in Microbot’s ability to successfully negotiate definitive merger agreements before the Company’s 10-Q filing date. Accordingly, following this discussion and based on StemCells’ diligence and discussions with potential strategic partners, the Board agreed to narrow the focus of the process principally on Microbot.

Negotiation of the Microbot term sheet accelerated following the Board’s July 8 meeting. The negotiations primarily revolved around three items: (1) how to divide the value of StemCells’ intellectual property if monetized, (2) what cash commitment existed from the Investor to pay down StemCells’ trade payables and other liabilities, and (3) the Investor’s bridge funding commitment of approximately $1.2 million, so that the Company would have resources sufficient to complete the Merger.

During this time, the Company and the Investor began negotiating lending documents to provide for an immediate bridge loan to the Company of $530,000 to help fund transaction costs, including costs associated with the Company’s Form 10-Q filing for the second quarter of 2016. Concurrently, the Company and Microbot, together with their legal advisors, continued to negotiate terms within the letter of intent.

At its July 12, 2016 meeting, the Board was provided an update from management on progress in the negotiation of the letter of intent and the lending documents as well as an update on the Company’s efforts at settling the Lease Litigation . Additional negotiations followed.

At the July 15, 2016 Board meeting, management presented for possible approval a final letter of intent and secured lending documents for the Microbot transaction. The StemCells Board of Directors discussed and considered the options available to the company, including liquidation. Question were asked of, and answered by, management about the process of securing the proposed letter of intent, as well as final recommendations. At this time, the Board authorized management to enter into a period of exclusive negotiation with Microbot for a

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possible reverse triangular merger in which StemCells’ stockholders would continue to hold approximately 5% of the continuing company and with the aim of securing a bridge loan upon entering into a non-binding letter of intent by no later than July 22, 2016, so as to preserve the opportunity to complete an orderly wind-down and satisfaction of creditors if StemCells and Microbot were unable to successfully enter into a definitive merger agreement.

Discussions continued over the weekend, and it became clear that StemCells would not be able to enter into the Microbot letter of intent and receive the initial bridge loan of $530,000 unless the Company could successfully settle the Lease Litigation with BMR, its former landlord. In addition, BMR had, on July 12, filed an ex parte motion in the Lease Litigation seeking an attachment on all the Company’s assets.

At about this time, on July 13, StemCells successfully entered into an agreement with Miltenyi Biotec, Inc., the U.S. wholly-owned subsidiary of Miltenyi Biotech GmbH, an international research tools supplier, for the divestiture of the Company’s GMP manufacturing facility. This transaction brought $690,000 and reduced the Company’s overall severance costs. Shortly thereafter, on July 20, StemCells successfully completed the auction of its remaining research and laboratory equipment for gross proceeds of approximately $880,000.

While negotiations of the Microbot merger slowed as the Company defended itself in the Lease Litigation and successfully opposed the landlord’s ex parte motion, settlement discussions with BMR continued. At the end of July, the Company reached a tentative agreement for the settlement of the Lease Litigation , and the Microbot Investor agreed to increase its bridge loan offer by $800,000 to cover part of the litigation settlement costs. Thereafter, Microbot and StemCells, having just received the proceeds from the divestiture of its GMP manufacturing facility, modified the proposed term sheet to reflect a bridge loan of $2 million, payable upon execution of the definitive merger documents.

StemCells and Microbot executed the agreed-upon letter of intent on July 27, 2016 and the Company and BMR executed their settlement of the Lease Litigation on July 29, 2016.

Negotiation of definitive merger documents and more active due diligence of both companies began upon entering into the letter of intent. The drafting of the Merger Agreement began with a kick-off call on July 27 and culminated in the execution of the definitive deal documents, two and a half weeks later, on August 15, 2016.

Between July 27, when the parties executed the letter of intent, until August 15, when the parties entered into the definitive Merger Agreement, the Company’s Board met to discuss the proposed transaction six times.

At its July 29, 2016 meeting, the Board received and discussed an update on negotiations, the proposed mechanism for paying down StemCells’ payables, and mechanics for negotiating the definitive merger agreements.

On July 30, 2016, Ropes & Gray LLP (“Ropes”), outside corporate counsel to StemCells, Inc., distributed the initial draft of the merger agreement to representatives from Microbot and its advisors and legal counsel, Ruskin Moscou Faltischek PC (“Ruskin”), Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, PC (“Mintz Levin”) and Abraham Moran & Co., Microbot’s Israeli counsel (“Abraham”), as well as Investor’s representative and its advisors and legal counsel, GreenBlock Capital (“GreenBlock”) and Ellenoff Grossman & Schole LLP (“Ellenoff”). StemCells, Microbot and the Investor, together with their respective advisors (namely, Ropes, Ruskin, Mintz Levin, Abraham, GreenBlock, and Ellenoff), became the working group responsible for negotiating and drafting the definitive merger documents, the “Working Group.” StemCells also engaged local Israeli counsel, S. Horowitz & Co., for specific consultation and advice; and, on July 31, 2016, the Company engaged Carabiner LLC to advise the Board with respect to the potential transaction, and to potentially provide a fairness opinion with respect to the consideration to be paid in connection with the potential transaction.

From August 1 through August 9, 2016, the Working Group held daily calls during which the Working Group reviewed all aspects of the proposed transaction. During this period of time, StemCells’ management team

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and outside advisors, including Carabiner, conducted targeted due diligence with respect to each company’s financial position and funding opportunities as well as Microbot’s product development programs, especially focusing on the timing of reaching stated milestones and probability of success.

On August 2, 2016, Ruskin provided the Working Group with a mark-up of the proposed merger agreement.

The Working Group held an all hands drafting call on August 3, 2016 in an attempt to address some of these open items.

At a meeting on August 3, 2016, the Board discussed and considered the proposal to renegotiate StemCells’ outstanding warrants, the commitments being made by the Investor to fund the transaction, plans to monetize the Company’s intellectual property assets, and the desirability of paying down the Company’s payables, among other things.

On August 4, 2016, Ropes provided the Working Group with a revised draft of the proposed merger agreement, including a high-level issues list based on Ruskin’s mark-up of the merger agreement. The principal changes revolved around financing commitments from the Investor and interim operating covenants.

At a meeting on August 5, 2016, the Board further discussed and considered Microbot’s financial position and fundraising opportunities, the planned exchange of some of StemCells’ outstanding warrants, and the mechanism for funding of StemCells’ payables. For the second half of this meeting, a representative from the Investor attended the meeting to answer questions about Microbot, the Investor and its interest in Microbot’s product development programs.

At a meeting on August 9, 2016, the Board further discussed and considered the relative advantage of the merger against other alternatives available to the Company, including liquidation. The Company’s outside legal counsel presented an update on the negotiations and the deal terms reflected in the draft merger agreement, noting open issues and certain Israeli law considerations. Discussion focused on the commitments from the Investor to bridge the Company’s transaction costs, fund the pay down of StemCells’ payables and commit to making a substantial cash investment into Microbot prior to the closing of the merger.

On August 10, 2016, Ruskin provided the Working Group with a mark-up of the proposed merger agreement, following an all hands call. Additional changes were made to reconfirm the Investor’s side letter commitment to fund Microbot prior to the closing of the Merger.

On August 11, 2016, Ropes provided the Working Group with a revised draft of the proposed merger agreement, following an all hands call to cover open items, consisting principally of the dispute mechanism relating to the closing net cash calculation and certain aspects of Israeli law.

On August 12, 2016, Ruskin provided the Working Group with a mark-up of the proposed merger agreement, following a working group call covering last remaining open items, including assurance for Microbot (i) that the Company could satisfy all its liabilities with cash available, plus Investor’s committed funding, so that the Company could satisfy a net cash zero precondition to closing, and (ii) that the combined company could satisfy the NASDAQ listing requirements.

At its meeting on August 12, 2016, the Board further discussed and considered alternatives for monetizing the Company’s intellectual property assets, the nature of the proposed bridge loan and the collateral. The Company’s outside legal counsel presented the terms and conditions of the proposed lending agreements, including the initial secured note.

On August 14, 2016, Ropes provided the Working Group with a revised draft of the proposed merger agreement and on August 15, 2016, Ropes provided the Working Group with the final draft of the merger agreement.

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On August 14, 2016, a telephonic meeting of the StemCells Board of Directors was held for the purpose of (i) determining whether to approve the transaction with Microbot and direct management to enter into the definitive merger agreement, and (ii) discussing any other viable potential courses of action for the Company, including liquidation. Attendees included all members of the StemCells Board of Directors (except Dr. Trounson who was absent for health reasons), members of StemCells’ management team, a representative from Carabiner, and a representative from Ropes & Gray, the Company’s outside corporate counsel in the transaction.

At the beginning of the meeting, the representative from Carabiner provided a detailed fairness presentation, during which directors’ questions were asked and answered. Following this, the representative from Carabiner orally presented its fairness opinion, which was confirmed by delivery of a written opinion dated August 14, 2016, that, as of that date, and based upon the assumptions, qualifications and limitations set forth in its opinion, the consideration to be paid in the merger was fair, from a financial point of view, to StemCells.

Following this, the representative from Ropes reviewed for the Board the directors’ fiduciary duties, including duty of care, duty of loyalty and duties in a change of control transaction, and the applicable judicial review standards. In addition, StemCells’ management had prepared and delivered to the Board in advance of this meeting new cash flow projections factoring in anticipated transaction costs and the quantification of expected severance and other costs. During this presentation, questions were asked by directors and addressed by management, including a detailed discussion about the minimum cash closing requirement and StemCells’ comfort level of satisfying that condition under various scenarios.

The StemCells Board of Directors expressed consensus and satisfaction that a full and complete process had been run and that the appropriate corporate governance steps had been taken. The Board reiterated its view that the proposed transaction was the best opportunity for maximizing stockholder value, noting the objective merits of both (i) the process run, (ii) the ultimate selection of Microbot based on probability-of-success grounds, and (iii) the deal terms. After discussion, the StemCells Board of Directors then unanimously (i) determined that the Merger was advisable and in the best interests of StemCells and its stockholders, (ii) approved the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement and deemed the Merger Agreement advisable, and (iii) approved and determined to recommend the approval of the issuance of the shares of StemCells common stock in connection with the Merger.

Management was directed to sign the Merger Agreement. In the morning of August 15, 2016, the Merger Agreement was signed by Dr. Massey on behalf of the Company. On August 15, 2016, StemCells and Microbot issued a joint press release publicly announcing the signing of the definitive Merger Agreement.

Reasons for the Merger

Following the Merger, the combined company will focus on the development of robotics based medical devices for the treatment of cerebrospinal fluid and gastrointestinal disorders, as well as other conditions.

The StemCells Board of Directors considered the following factors in reaching its conclusion to approve the Merger and to recommend that the StemCells stockholders approve the issuance of shares of StemCells common stock in the Merger, all of which the Board viewed as supporting its decision to approve the business combination with Microbot:

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The Board also reviewed the recent financial condition, results of operations and financial condition of StemCells, including:

The StemCells Board of Directors also reviewed the terms of the Merger and associated transactions, including:

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In the course of its deliberations, the StemCells Board of Directors also considered a variety of risks and other countervailing factors related to entering into the Merger, including:

The foregoing information and factors considered by the StemCells Board of directors are not intended to be exhaustive but are believed to include all of the material factors considered by the Board. In view of the wide variety of factors considered in connection with its evaluation of the Merger and the complexity of these matters, the Board did not find it useful, and did not attempt, to quantify, rank or otherwise assign relative weights to these factors. In considering the factors described above, individual members of the Board may have given

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different weight to different factors. The StemCells Board of Directors conducted an overall analysis of the factors described above, including thorough discussions with, and questioning of, the StemCells management team and the legal and financial advisors of StemCells, and considered the factors overall to be favorable to, and to support, its determination.

Opinion of the Financial Advisor to the StemCells Board of Directors

On August 14, 2016, Carabiner rendered its oral opinion to the StemCells Board of Directors, which opinion was subsequently confirmed in writing on August 14, 2016, that, as of the date of the written opinion and subject to the various assumptions made, procedures followed, matters considered, and qualifications and limitations set forth therein, the consideration to be paid by StemCells in the Merger was fair, from a financial point of view, to the StemCells stockholders.

The full text of the Carabiner Opinion, which sets forth assumptions made, procedures followed, matters considered, and qualifications and limitations on the review undertaken by Carabiner in connection with such opinion, is attached as Annex B to this proxy statement and is incorporated by reference into this proxy statement. StemCells urges you to carefully read the Carabiner Opinion, together with the following description thereof, in its entirety. The following is a summary of the material terms of the Carabiner Opinion and is qualified in its entirety by reference to the full text of such opinion.

Carabiner provided the Carabiner Opinion for the information and assistance of the StemCells Board of Directors in connection with its consideration of the Merger. The Carabiner Opinion addressed only the fairness, from a financial point of view, to the StemCells stockholders of the consideration to be paid in the Merger. The Carabiner Opinion was intended for the use and benefit of the StemCells Board of Directors. The Carabiner Opinion is not a recommendation to any StemCells stockholder or Microbot shareholder or any other person as to how such person should vote with respect to the Merger or take any other action in connection with the Merger or otherwise.

In connection with rendering the opinion described above and performing its related financial analyses, Carabiner:

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In addition, Carabiner conducted such other quantitative reviews, analysis and inquiries relating to Microbot as it considered appropriate in rendering its opinion.

In arriving at its opinion, Carabiner assumed and relied upon, without independent verification, the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting, and other information provided to, discussed with, or reviewed by Carabiner and upon the respective assurances of the management of StemCells and Microbot that each of them was not aware of any material relevant developments or matters related to StemCells or Microbot, as applicable, or that may affect the Merger, that has been omitted or that remains undisclosed to Carabiner. The Carabiner Opinion does not address any legal, regulatory, tax, or accounting matters, as to which Carabiner understood that StemCells had obtained such advice as it deemed necessary from other qualified professionals. Carabiner did not conduct any independent verification of any financial projections of StemCells, Microbot, or the combined company following the Merger and expressed no opinion as to any such financial projections or the assumptions on which they were based.

In arriving at its opinion, Carabiner made no analysis of, and expressed no opinion as to, the adequacy of the reserves of StemCells or Microbot and relied upon information supplied to Carabiner by StemCells and Microbot as to such adequacy. Carabiner did not make any independent evaluations or appraisals of the assets or liabilities (including any contingent derivatives or off-balance sheet assets or liabilities) of StemCells or any of its subsidiaries or Microbot, and Carabiner was not furnished with any such evaluations or appraisals.

Carabiner assumed, in all respects material to its analysis, that the representations and warranties of each party contained in the Merger Agreement and any other agreement contemplated thereby are and will be true and correct as of the date or the dates made or deemed made, that each party will perform all of the covenants and agreements required to be performed by it under the Merger Agreement and any other agreement contemplated thereby, and that all conditions to the completion of the Merger will be satisfied and the Merger, and the other transactions contemplated by the Merger Agreement, will be completed in accordance with the terms of the Merger Agreement without waiver, modification, or amendment of any material term, condition, or agreement set forth therein. Carabiner also assumed that the final form of the Merger Agreement would be substantially similar to the last draft of the Merger Agreement reviewed by Carabiner prior to the delivery of the Carabiner Opinion. Carabiner further assumed that any governmental, regulatory, and other consents and approvals contemplated by the Merger Agreement would be obtained and that, in the course of obtaining any of those consents, no restrictions will be imposed or waivers made that would have an adverse effect on StemCells, Microbot, or any of the potential benefits of the Merger.

In arriving at its opinion, Carabiner did not consider any effects of any share of Microbot capital stock held by Microbot or owned by StemCells or any of its subsidiaries, which shall be canceled in the Merger. In addition, Carabiner did not give any consideration to any terms or conditions of any other agreement to be entered into in connection with the Merger Agreement, including the terms or conditions of the voting agreements described elsewhere in this proxy statement.

The Carabiner Opinion was based on economic, market, financial, and other conditions existing, and on the information made available to Carabiner, as of the date of such opinion, and Carabiner assumed no obligation to update, revise or reaffirm such opinion, unless otherwise mutually agreed to by the StemCells Board of Directors and Carabiner. Carabiner noted that subsequent developments may affect the conclusion reached in the Carabiner Opinion.

The Carabiner Opinion addressed solely the fairness, from a financial point of view, to the StemCells stockholders of the Exchange Ratio. The Carabiner Opinion does not in any way address other terms or conditions of the Merger or the Merger Agreement, including the financial or other terms of any other agreement contemplated by, or to be entered into in connection with, the Merger Agreement, nor does the Carabiner Opinion address, and Carabiner expressed no opinion with respect to, the solvency of StemCells or Microbot or the impact thereon of the Merger. The Carabiner Opinion does not address the StemCells Board of Directors’

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underlying business decision to proceed with the Merger, the relative merits of the Merger compared to other alternatives available to StemCells, or whether such alternatives exist. Carabiner did not express any opinion as to what the value of the shares of StemCells common stock will be when issued to holders of Microbot capital stock pursuant to the Merger or the prices or ranges of prices at which shares of StemCells common stock will trade at any time, including following the announcement or completion of the Merger. The Carabiner Opinion does not in any manner address (and Carabiner was not required to opine as to) the fairness of the amount or nature of, or any other aspects related to, compensation to be received by any officers, directors, or employees of any party to the Merger, or any class of such persons, relative to the Exchange Ratio or otherwise.

The following is a summary of the material financial analyses delivered by Carabiner to the StemCells Board of Directors in connection with rendering the Carabiner Opinion. The following summary, however, does not purport to be a complete description of the financial analyses performed by Carabiner. The order of the analyses described below does not represent the relative importance or weight given to those analyses by Carabiner. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of the corresponding summaries and are alone not a complete description of the financial analyses performed by Carabiner. Considering the data in the tables below without considering the corresponding full narrative descriptions of the financial analyses, including the methodologies and assumptions underlying such analyses, could create a misleading or incomplete view of the financial analyses performed by Carabiner. Other than the guidance provided by the StemCells Board of Directors and senior management to Carabiner set forth in this proxy statement, no instructions were given to or limitations imposed upon Carabiner by the StemCells Board of Directors or senior management with respect to the investigations made or procedures followed by it in rendering its opinion.

In furnishing its opinion, Carabiner did not attempt to combine the analyses described herein into one composite valuation range, nor did Carabiner assign any quantitative weight to any of the analyses or the other factors considered. Furthermore, in arriving at its opinion, Carabiner did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor in light of one another. Accordingly, Carabiner has stated that it believes that its analyses must be considered as a whole and that considering any portion of its analyses, without considering all of the analyses, could create a misleading or incomplete view of the process underlying its opinion or the conclusions to be drawn therefrom.

The results of the application by Carabiner of each of the valuation methodologies utilized in connection with its fairness opinion is summarized below.

Selected Comparable Company Analysis

In order to assess how the public market values shares of similar publicly traded companies and to provide a range of relative implied equity values per share of Microbot common shares by reference to these companies, which could then be used to calculate implied exchange ratio ranges, Carabiner reviewed and compared specific financial data relating to Microbot with selected companies that Carabiner deemed comparable to Microbot. These companies each operate in segments of the medical device industry, have annual revenues up to $50 million, and a market capitalization of between $1 million and $80 million.

The selected comparable companies with respect to Microbot were:

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Carabiner selected the comparable companies listed above because it considered their businesses and operating profiles to be reasonably similar to that of Microbot, as applicable.

Comparable Transaction Analysis

Carabiner reviewed the financial terms, to the extent publicly available, of acquisitions or reverse mergers in the United States during the past 24 months involving medical device companies that Carabiner deemed relevant, based on its professional experience. For each of the selected precedent transactions, Carabiner analyzed the revenues reported by the target company and compared these to the purchase price.

The table below summarizes the data points that Carabiner presented to the board of directors:

Carabiner noted that the valuation data indicates that early stage revenue companies can achieve multiples of 3x to 10x of revenues in a merger or sale transaction but that publicly available market data for pre-revenue, development stage medical device companies is generally unavailable.

General Overview of Analyses; Other Considerations

The preparation of a financial opinion is a complex process and is not susceptible to partial analysis or summary description. In arriving at its opinion, Carabiner considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor considered. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques. The overall conclusions Carabiner reached are based on all the analyses and factors presented, taken as a whole, and also on application of Carabiner’s own experience and judgment. Such conclusions may involve significant elements of subjective judgment and qualitative analysis. Carabiner therefore gave no opinion as to the value or merit, standing alone, of any one or more parts of the analyses. Furthermore, Carabiner believes that the summary provided and the analyses described above must be considered as a whole and that selecting any portion of the analyses, without considering all of them, would create an incomplete view of the process underlying Carabiner’s analysis and opinion.

In performing its analyses, Carabiner made numerous assumptions with respect to industry performance, general business, regulatory, and economic conditions, and other matters, all of which are beyond Carabiner’s and many of which are beyond the control of StemCells or Microbot. Any estimates used by Carabiner in its analysis are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates.

No single company or transaction used in the above analyses as a comparison is identical to StemCells, Microbot or the Merger, and an evaluation of the results of those analyses is not entirely mathematical. Rather,

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the analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading, or other values of the companies, businesses, or transactions analyzed. The analyses were prepared solely for purposes of Carabiner providing its opinion and do not purport to be appraisals or necessarily reflect the prices at which businesses or securities actually may be sold, which are inherently subject to uncertainty.

The Carabiner Opinion was one of the many factors taken into consideration by the StemCells Board of Directors in making its determination to approve the Merger. See the section entitled “The Merger—Reasons for the Merger.” Consequently, the analyses as described above should not be viewed as determinative of the opinion of the StemCells Board of Directors with respect to the Exchange Ratio or of whether the StemCells board of directors would have been willing to agree to a different exchange ratio. The Exchange Ratio was determined through arm’s-length negotiations between StemCells and Microbot and was approved by the StemCells Board of Directors. Carabiner did not recommend any specific amount of consideration or specific exchange ratio to StemCells or the StemCells Board of Directors or suggest that any specific amount of consideration or exchange ratio constituted the only appropriate consideration or exchange ratio for the Merger.

Carabiner has consented to the use of the Carabiner Opinion in this proxy statement; however, Carabiner has not assumed any responsibility for the form or content of this proxy statement, other than the Carabiner Opinion itself.

The StemCells Board of Directors selected Carabiner because of Carabiner’s reputation in the health care industry and experience in health care merger and acquisition transactions, including transactions similar to the Merger. Pursuant to an engagement letter agreement, dated as of July 19, 2016, Carabiner agreed to provide, an opinion as to the fairness, from a financial point of view, of the consideration to be paid or received in any such transaction. As compensation for Carabiner’s financial advisory services, StemCells paid a monthly retainer of $15,000 and, upon delivery of the fairness opinion, a fee of $150,000. In addition, StemCells also agreed to reimburse Carabiner for its reasonable out of pocket expenses, not to exceed $10,000, including attorney’s fees and expenses, and to indemnify Carabiner and its related parties against various liabilities in connection with Carabiner’s engagement.

Carabiner is regularly engaged in performing financial analyses with respect to businesses and securities in connection with mergers and acquisitions, and for other purposes.

Interests of the StemCells Directors and Executive Officers in the Merger

General

In considering the recommendation of the Board of Directors of StemCells with respect to the approval of the Merger Agreement, the Merger, the transactions contemplated by the Merger Agreement, and the other matters to be acted upon by the StemCells stockholders at the special meeting, the StemCells stockholders should be aware that certain members of the Board of Directors and executive officers of StemCells have interests in the Merger that may be different from, or in addition to, the interests of the StemCells stockholders. These interests relate to or arise from, among other things:

The Board of Directors of StemCells was aware of these potential conflicts of interest and considered them, among other matters, in reaching their respective decisions to approve the Merger Agreement and to recommend,

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as applicable, that the StemCells stockholders approve the proposals to be presented to the StemCells stockholders for consideration at the special meeting as contemplated by this proxy statement.

Golden Parachute Compensation

Overview

This section sets forth the information required by Item 402(t) of Regulation S-K regarding the compensation for each of StemCells’ named executive officers that is based on or otherwise relates to the Merger. This compensation is referred to as “golden parachute” compensation by the applicable SEC disclosure rules, and in this section StemCells uses such term to describe the Merger-related compensation payable to StemCells’ named executive officers.

Severance and Change of Control Arrangements with StemCells’ Named Executive Officers

Following the announcement that StemCells would begin an orderly wind down of operations, StemCells entered into a trust agreement on June 16, 2016 with David A. Bradlow, as trustee, in order to establish a third party trust for the benefit of StemCells employees and, in particular, to help ensure the availability of funds necessary to satisfy its future commitments to exiting employees and tax authorities. At the time, and following a renegotiation of all its existing severance obligations owed to employees, StemCells transferred $2.3 million to fund the trust. This amount represented StemCells’ best estimate of (i) severances expected to become payable to employees upon the termination of their employment, (ii) anticipated accrued paid time off expected to be due at the time of their termination of employment, (iii) certain anticipated future employee wages, (iv) certain anticipated tax obligations, (v) potential retention bonuses payable in October, and (vi) anticipated costs associated with the administration of the trust. In all cases, the severance amounts contributed into the beneficial trust were net of the agreed-upon negotiated discounts of more than 50% from each employee’s original severance agreement with StemCells.

As part of this renegotiation of severances in June 2016, StemCells’ then current executive officers — Dr. Ian Massey (its then-President and Chief Executive Officer), Mr. Greg Schiffman (its then-Chief Financial Officer), and Mr. Ken Stratton (its General Counsel and current interim President) — each entered into a Severance Buy-Out, Compromise and Release agreement with the Company, each dated June 6, 2016, in which they amended their existing employment agreements to forfeit in excess of 50% of their severances otherwise payable in the event of their involuntary termination of employment other than for cause, whether following a change of control transaction or otherwise. In return, these severance amounts were deposited into the beneficial trust. In the case of Dr. Massey, StemCells contributed $219,808 into the trust to cover his severance payable and both employer and employee taxes owed of this payment. In the case of Mr. Schiffman, StemCells contributed $190,219 into the trust to cover his severance payable and both employer and employee taxes owed of this payment. In the case of Mr. Stratton, StemCells contributed $143,656 into the trust to cover his severance payable and both employer and employee taxes owed of this payment.

Also, in connection with the renegotiation of severances in June 2016, sixteen current and former employees of StemCells, including its three named executive officers, which we refer to collectively as the Close-out Team, entered into Cooperation and Consulting Agreements, also dated June 6, 2016, under which StemCells has agreed to pay the Close-out Team success payments generally equal to 15% of (i) the valuation ascribed to StemCells in a merger transaction such as the Merger and (ii) any proceeds received by the Company upon the successful disposition of certain Company assets in connection with the wind down of operations in return for their continued support of the business and its wind down activities even after the termination of their employment. The Company will divide any success fees in good faith either ratably based upon efforts made or in equal shares across all eligible members of the Close-out Team. Accordingly, upon completion of the Merger, certain of StemCells’ current and former named executive officers may receive the cash success fees included in the table below.

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On or about August 1, 2016, the trustee released both to the approximately 50 impacted employees, including StemCells’ current and former executive officers all of whom had been given provisionally an August 1, 2016 termination date, and to tax authorities approximately $2.1 million from the trust, in all cases pursuant to the terms of the trust agreement. The amount was part of the approximately $3,800,000 recorded as wind-down expense in our Condensed Consolidated Statement of Operations.

Aggregate Amounts of Potential Compensation

The table below summarizes potential golden parachute compensation that each named executive officer could be entitled to receive from StemCells if the Merger is completed, as discussed above. It is currently expected that none of the named executive officers will continue to be employed by the combined company following the closing of the Merger and, accordingly, will be entitled to receive the severance and benefits described above and below. Please note that the amounts indicated below are estimates based on multiple assumptions that may or may not actually occur, including assumptions described herein. Accordingly, the actual amounts, if any, to be received by such named executive officer may differ in material respects from the amounts set forth below.

For purposes of calculating such potential golden parachute compensation, StemCells has assumed that the Merger had occurred on September 1, 2016 and has further assumed that the named executive officers will incur a termination of employment on such date that would entitle them to the benefits set forth in the table below.

Indemnification and Insurance.     For a description of the indemnification rights afforded to StemCells’ directors and officers under the Merger Agreement, see “The Merger Agreement — Indemnification of Directors and Officers.”

Limitations of Liability and Indemnification of the StemCells and Microbot Officers and Directors

Pursuant to the Merger Agreement, upon the completion of the Merger, the parties agreed that all rights to indemnification or advancement of expenses now existing in favor of, and all limitations on the personal liability of each present and former director, officer, employee, fiduciary or agent of StemCells or any of its subsidiaries, as provided for in their respective organizational documents in effect as of the date of the Merger Agreement, will continue to be honored and in full force and effect after the closing of the Merger.

The Merger Agreement also provides that StemCells will purchase a six-year “tail” policy under its existing directors’ and officers’ liability insurance policy, with an effective date as of the closing of the Merger.

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Merger Consideration

At the effective time of the Merger, by virtue of the Merger and without any action on the part of the holders of Microbot capital stock, each then-outstanding share of Microbot capital stock will be automatically converted into the right to receive a number of shares of StemCells common stock equal to the Exchange Ratio. The Exchange Ratio will be determined immediately prior to the completion of the Merger by dividing (i) the product of (a) three times (b) the total number of outstanding shares of StemCells common stock calculated on a fully diluted basis (in other words, inclusive of all shares of StemCells common stock issuable upon conversion of any securities convertible into or exercisable or exchangeable for shares of StemCells common stock) as of immediately prior to the completion of the Merger (but after giving effect to the reverse stock split described elsewhere in this proxy statement and the issuance of the shares to certain Microbot advisors with respect to the Merger representing, in the aggregate, 20% of StemCells’ post-closing capitalization, as provided for in the Merger Agreement), by (ii) the total number of outstanding common shares of Microbot calculated on a fully diluted basis (in other words, inclusive of all shares of Microbot capital stock issuable upon conversion of any securities convertible into or exercisable or exchangeable for shares of Microbot common stock) as of immediately prior to the completion of the Merger. As a result, former shareholders of Microbot are expected to receive shares of StemCells common stock representing an aggregate of approximately 75% of the outstanding shares of common stock of the combined company calculated on a fully diluted basis.

The Exchange Ratio

The Exchange Ratio is based on three times the number of shares of StemCells common stock divided by the number of common shares of Microbot outstanding, in each case calculated on a fully diluted basis immediately prior to the effective time of the Merger, and will not be determined until that time. Accordingly, any changes in the number of shares of outstanding capital stock of either StemCells or Microbot, as a result of option grants, option expirations, or issuance of new share capital, prior to the effective time of the Merger would result in a corresponding change to the Exchange Ratio.

For illustrative purposes only, based on the number of shares of StemCells common stock and Microbot common shares outstanding, in each case calculated on a fully diluted basis, as of August 15, 2016, the date of the Merger Agreement, the Exchange Ratio (without giving effect to the proposed reverse stock split described elsewhere in this proxy statement) would have been approximately 26.6 shares of StemCells common stock for each share of Microbot capital stock. Based on the number of shares of StemCells common stock and Microbot capital stock outstanding, in each case calculated on a fully diluted basis, as of September [●], 2016, the last practicable date before the printing of this proxy statement, the Exchange Ratio (without giving effect to the proposed reverse stock split described elsewhere in this proxy statement) would have been [●] shares of StemCells common stock for each share of Microbot capital stock.

No adjustments to the Exchange Ratio will be made based upon changes in the price of the StemCells common stock or the value of Microbot equity prior to the completion of the Merger. Changes in stock price or value may result from a variety of factors, including, among others, general market and economic conditions, changes in StemCells’ or Microbot’s respective businesses, operations, and prospects, the market assessment of the likelihood that the Merger will be completed as anticipated or at all, and regulatory considerations. Many of these factors are beyond StemCells’ or Microbot’s control.

As a result of any such changes in the price of the StemCells common stock, the aggregate market value of the shares of StemCells common stock that the Microbot shareholders will be entitled to receive at the effective time of the Merger could vary significantly from the value of such shares on the date of this proxy statement, the date of the StemCells special meeting, the date of the Microbot extraordinary general meeting, or the date on which the Microbot shareholders actually receive their shares of StemCells common stock.

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Fractional Shares

No fractional shares of StemCells common stock will be issued to Microbot shareholders in connection with the Merger. Instead, the number of whole shares to be issued to any holder of Company Stock shall be rounded down to the nearest whole number of shares of StemCells common stock (after aggregating all fractional share will receive in connection with the Merger, see the section entitled “The Merger Agreement — Merger Consideration” beginning on page 72).

Effective Time of the Merger

The Merger Agreement requires the parties to complete the Merger after all of the conditions to the completion of the Merger contained in the Merger Agreement are satisfied or waived, including, among others, the adoption of the Merger Agreement by the shareholders of Microbot and stockholders of StemCells and the approval by the StemCells stockholders of the issuance of StemCells common stock and the amendment to StemCells’ amended and restated certificate of incorporation effecting the proposed reverse stock split, among other things. The Merger will become effective upon the issuance by the Israeli Companies Registrar, after the closing of the Merger, of the certificate of merger. The Israeli Companies Registrar will issue such certificate after Microbot and the Merger Sub file with the Israeli Companies Registrar all the necessary documents required by the ICL, including, inter alia , a merger proposal and a notice stating that all the preconditions to the merger were completed. Neither StemCells nor Microbot can predict the exact timing of the completion of the Merger, but according to the ICL the Israeli Companies Registrar will not issue the certificate of merger unless at least fifty (50) days have elapsed since the filing of the merger proposal with the Companies Registrar and at least thirty (30) days have elapsed since the approval of the merger by the shareholders of each of Microbot and Merger Sub.

Regulatory Approvals

As of the date of this proxy statement, neither StemCells nor Microbot is required to make filings or to obtain approvals or clearances from any antitrust regulatory authorities in the United States or other countries to complete the Merger. In Israel, because Microbot received certain grants from the OCS, Microbot must obtain the approval of the transactions contemplated by the Merger Agreement, including the Merger, of the OCS. As a pre-condition for the OCS approval, StemCells would need to sign an undertaking (following a standard form prescribed by the OCS) to comply, and cause Microbot to comply, following the Merger, with the OCS laws and regulations in respect of the grants Microbot received. In the United States, StemCells must comply with applicable federal and state securities laws and the rules and regulations of the NASDAQ Capital Market in connection with the issuance of shares of StemCells common stock in the Merger and the resulting change in control of StemCells and the filing of this proxy statement with the SEC.

Tax Treatment of the Merger

StemCells, Merger Sub and Microbot intend the Merger, together with the issuance of shares of StemCells common stock to Microbot shareholders, to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, or the Code. Each of StemCells, Merger Sub and Microbot will use its reasonable best efforts to cause the Merger, together with the issuance of shares of StemCells common stock to Microbot shareholders, to qualify as a reorganization within the meaning of Section 368(a) of the Code, and not take any action or cause any action to be taken which would or could reasonably be expected to prevent or impede the Merger from qualifying as a reorganization under Section  368(a) of the Code.

NASDAQ Stock Market Listing

StemCells common stock currently is listed on the NASDAQ Capital Market under the symbol “STEM.” StemCells has agreed to use its reasonable best efforts to cause the shares of StemCells common stock to be

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approved, at or prior to the completion of the Merger, for listing (subject only to notice of issuance) on the NASDAQ Capital Market at and following the completion of the Merger, and the listing of the shares of StemCells common stock issuable pursuant to the Merger Agreement is a condition to Microbot’s and StemCells’ obligation to complete the Merger.

As of the date of the mailing of this proxy statement, StemCells has filed an initial listing application for the NASDAQ Capital Market in connection with the Merger pursuant to NASDAQ “reverse merger” rules. If such application is approved, StemCells anticipates that its common stock will continue to be listed on the NASDAQ Capital Market following the completion of the Merger under the trading symbol “             .” It is expected that following the Merger, the trading symbol of the combined company will be changed. Microbot has requested the ticker symbol “MBOT” for this purpose.

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THE MERGER AGREEMENT

The following is a summary of the material provisions of the Merger Agreement but does not purport to describe all of the terms of the Merger Agreement. The following summary is qualified in its entirety by reference to the complete text of the Merger Agreement, a copy of which is attached as Annex A to this proxy statement and is incorporated by reference into this proxy statement. This summary may not contain all of the information about the Merger Agreement that is important to you. You should refer to the full text of the Merger Agreement for details of the transaction and the terms and conditions of the Merger Agreement.

Additionally, the representations, warranties and covenants described in this section and 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 StemCells, Merger Sub and Microbot. In many cases, these 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 StemCells or Microbot, their respective subsidiaries and affiliates or any other party. Likewise, any references 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 have changed since the date of the Merger Agreement or may change in the future and these changes may not be fully reflected in the public disclosures made by StemCells and/or Microbot. As a result of the foregoing, you are strongly encouraged not to rely on the representations, warranties and covenants contained in the Merger Agreement, or any descriptions thereof, as accurate characterizations of the state of facts or condition of StemCells, Microbot, or any other party. You are likewise cautioned that you are not a third-party beneficiary under the Merger Agreement and do not have any direct rights or remedies pursuant to the Merger Agreement.

Terms of the Merger

The Merger Agreement provides that, subject to the terms and conditions of the Merger Agreement and in accordance with Delaware law with respect to the Merger Agreement and with the laws of the State of Israel with respect to the Merger, at the completion of the Merger, Merger Sub, a wholly owned subsidiary of StemCells, will merge with and into Microbot. Upon completion of the Merger, Microbot will continue as a wholly owned subsidiary of StemCells (the “Surviving Corporation”).

Completion of the Merger

The closing of the Merger will take place no later than the second business day after the satisfaction or waiver of the conditions to the completion of the Merger contained in the Merger Agreement, other than the conditions which by their terms can be satisfied only as of the closing of the Merger or on such other day as StemCells, Microbot and Merger Sub may mutually agree. For a more complete discussion of the conditions to the completion of the Merger, see the section entitled “— Conditions to the Completion of the Merger” beginning on page 84.

At the closing, the parties will file with the Israeli Companies Registrar (the “Companies Registrar”) a notice informing the Companies Registrar of the Merger and requires that, promptly after notice that the closing has occurred, the Companies Registrar issue a certificate evidencing the completion of the Merger (the “Certificate of Merger”) in accordance with the Israeli Companies Law and the regulations promulgated thereunder (the “ICL”). The Merger shall become effective upon issuance by the Companies Registrar, after the closing of the Merger, of the Certificate of Merger.

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Articles of Association; Directors and Officers

Upon completion of the Merger, the articles of association of the Surviving Corporation will be amended and restated in such form and substance as shall have been reasonably agreed to by StemCells and Microbot, until thereafter amended in accordance with the terms thereof and applicable law.

The directors of Microbot will be the directors of the Surviving Corporation immediately following the completion of the Merger and each of them will hold office until his or her successor is duly elected or appointed and qualified or until his or her earlier death, resignation or removal.

The officers of Microbot will be the officers of the Surviving Corporation immediately following the completion of the Merger, and each of them will hold office until his or her successor is duly appointed and qualified or until his or her earlier death, resignation or removal.

Merger Consideration

Upon completion of the Merger, each share of then-outstanding capital stock of Microbot (other than shares held by Microbot, StemCells or any of StemCells’ subsidiaries, which will be cancelled at the completion of the Merger) will be automatically converted into the right to receive the number of shares of StemCells common stock equal to the Exchange Ratio (as defined below) (the “Merger Consideration”).

No fractional shares of StemCells common stock will be issued in connection with the Merger. The number of whole shares to be issued to any holder of Microbot capital stock shall be rounded down to the nearest whole number of shares of StemCells common stock (after aggregating all fractional shares of StemCells common stock issuable to such holder).

The Merger Agreement defines the “Exchange Ratio” as the number of shares of StemCells common stock equal to the quotient obtained by dividing (i) the product obtained by multiplying (a) three times (b) the total number of outstanding shares of StemCells common stock on a fully diluted, as converted basis (in other words, inclusive of all shares of common stock issuable upon conversion of any securities convertible into or exercisable or exchangeable for StemCells common stock), as of immediately prior to the completion of the Merger (but after giving effect to the Reverse Stock Split Proposal and including the shares of StemCells common stock issued to certain consultants with respect to the Merger representing, in the aggregate, 20% of StemCells’ post-closing capitalization) by (ii) the total number of outstanding shares of Microbot common stock on a fully diluted, as converted basis (in other words, inclusive of all shares of common stock issuable upon conversion of any securities convertible into or exercisable or exchangeable for Microbot capital stock) as of immediately prior to the completion of the Merger. The Merger Agreement provides that the Exchange Ratio will be appropriately adjusted if, prior to the completion of the Merger, the outstanding shares of common stock of Microbot or StemCells are changed as a result of any reclassification, recapitalization, stock split, merger, combination, exchange, readjustment or similar transaction, or any stock dividend thereon, to eliminate the effect of such event on the Exchange Ratio.

Assumption of Microbot Stock Options and Warrants

Stock Options

The Merger Agreement provides that, upon completion of the Merger, each Microbot stock option that is outstanding and unexercised immediately prior to the completion of the Merger, whether or not vested, will be converted into an option to purchase StemCells common stock, and StemCells will assume such stock option in accordance with the terms of the Microbot 2015 Stock Option Plan, which is referred to as the “Microbot Equity Plan,” and the terms of the contract evidencing such Microbot stock option. Following the completion of the Merger, each Microbot option may be exercised solely for shares of StemCells common stock. The number of shares of StemCells common stock subject to each assumed Microbot stock option will be determined by

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multiplying the number of shares of Microbot capital stock subject to the stock option immediately prior to the completion of the Merger by the Exchange Ratio and rounding down to the nearest whole number of shares of StemCells common stock. The per share exercise price for shares of StemCells common stock issuable upon exercise of each assumed Microbot stock option will be determined by dividing the per share exercise price for Microbot common stock subject to the stock option immediately prior to the completion of the Merger by the Exchange Ratio and rounding up to the nearest whole cent. After adjusting the assumed stock options to reflect the application of the Exchange Ratio, all other terms of the assumed stock options, including the term, exercisability and vesting schedule, will remain unchanged, except that the board of directors of the combined company or a committee thereof will succeed to the authority and responsibility of the Microbot board of directors or any applicable committee thereof with respect to such stock options.

In addition, at the completion of the Merger, StemCells may assume the Company Equity Plan. If StemCells assumes the Company Equity Plan, then under such Company Equity Plan, StemCells shall be entitled to grant stock awards, to the extent permissible under applicable law, using the share reserves of the Company Equity Plan, subject to certain customary adjustments.

Warrants

The Merger Agreement provides that, upon completion of the Merger, each Microbot warrant that is outstanding and unexercised immediately prior to the completion of the Merger will be converted into a warrant to purchase StemCells common stock and StemCells will assume such warrant in accordance with the terms of the applicable Microbot warrant and the terms of the contract evidencing such Microbot warrant. Following the completion of the Merger, each Microbot warrant may be exercised solely for shares of StemCells common stock. The number of shares of StemCells common stock subject to each assumed Microbot warrant will be determined by multiplying the number of shares of Microbot capital stock subject to the warrant immediately prior to the completion of the Merger by the Exchange Ratio and rounding down to the nearest whole number of shares of StemCells common stock. The per share exercise price for shares of StemCells common stock issuable upon exercise of each assumed Microbot warrant will be determined by dividing the per share exercise price of such warrant immediately prior to the completion of the Merger by the Exchange Ratio and rounding up to the nearest whole cent. After adjusting the assumed Microbot warrants to reflect the application of the Exchange Ratio, all other terms of the assumed warrants, including the term, exercisability and vesting schedule, will remain unchanged.

Exchange of Microbot Stock Certificates

At or prior to the completion of the Merger, StemCells will enter into an agreement with a bank or trust company selected by StemCells reasonably acceptable to Microbot who will act as the exchange agent for payment of the Merger Consideration to the holders of Microbot’s ordinary shares in exchange for certificates representing the existing ordinary shares of Microbot. At or before the completion of the Merger, StemCells will supply the exchange agent with the Merger Consideration.

The Merger Agreement provides that, promptly following the completion of the Merger, StemCells or the exchange agent will mail to each Microbot shareholder of record a letter of transmittal and instructions for use in surrendering all certificates of Microbot stock for the applicable portion of the Merger Consideration. The Merger Agreement provides that upon surrender to the exchange agent of Microbot stock certificates, a properly completed letter of transmittal and other documents reasonably requested by the exchange agent, a holder of shares of Microbot stock will be entitled to receive the applicable portion of the Merger Consideration. StemCells, the Surviving Corporation, and the exchange agent will be entitled to deduct and withhold from the Merger Consideration such amounts as may be required to be deducted or withheld under the Code or any other applicable law.

If any shares of Microbot stock are unvested or subject to a repurchase option, risk of forfeiture or other similar condition immediately prior to the completion of the Merger, then the Merger Consideration Shares

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issued with respect thereto will also be unvested or subject to a repurchase option, risk or forfeiture or other similar condition, as applicable.

If any shareholder has lost a certificate representing Microbot capital stock, or if any such certificate has been stolen or destroyed, such shareholder will, as a condition to receiving the applicable portion of Merger Consideration for the shares represented by such certificate, be required to make an affidavit of the loss, theft or destruction and, if reasonably required by StemCells, post a bond in a reasonable amount as indemnity against any claim that may be made against StemCells with respect to such certificate.

From and after the completion of the Merger, unless it is properly surrendered or transferred, each Microbot stock certificate will represent only the right to receive an applicable portion of the Merger Consideration. In addition, the transfer books of Microbot will close at the completion of the Merger and no shares of Microbot stock will thereafter be registered or transferred on the transfer books of Microbot.

Stock certificates should not be surrendered for exchange by Microbot shareholders prior to the completion of the Merger and should be sent only pursuant to instructions set forth in the letters of transmittal which the Merger Agreement provides will be mailed to Microbot shareholders promptly following the completion of the Merger. In all cases, the certificates representing shares of StemCells common stock will be delivered only in accordance with the procedures set forth in the letter of transmittal.

After the first anniversary of the date upon which the Merger is completed, any Merger Consideration (or dividends or distributions thereon) remaining in the exchange fund established by StemCells with the exchange agent shall be delivered to StemCells or StemCells’ designee, and any former shareholders of Microbot who have not complied with the applicable provisions for payment summarized above will be entitled to receive payment of the applicable portion of Merger Consideration only from StemCells. None of the Surviving Corporation, StemCells, the exchange agent or any other party to the Merger Agreement will be liable to any former shareholders of Microbot for any amounts delivered to a public official pursuant to any applicable abandoned property, escheat or similar laws.

Representations and Warranties

The Merger Agreement contains customary representations and warranties made by Microbot to StemCells and Merger Sub made as of the date of the Merger Agreement and as of the Closing Date, and generally reciprocal representations and warranties made by StemCells and Merger Sub to Microbot. Specifically, the representations and warranties of each of StemCells and Microbot in the Merger Agreement (many of which are qualified by concepts of knowledge, materiality and/or dollar thresholds and are further modified and limited by confidential disclosure schedules exchanged by StemCells and Microbot as may or may not be specifically indicated in the text of the Merger Agreement) relate to the following subject matters, among other things:

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The Merger Agreement contains additional representations and warranties of StemCells regarding, among other things, the approval by the StemCells board of directors of the amendment to StemCells’ certificate of incorporation, StemCells’ SEC filings, disclosure controls and procedures and internal controls over financial reporting, StemCells’ compliance with the listing requirements of the NASDAQ Capital Market, and the due authorization, valid issuance, and lack of resale restrictions with respect to the shares of StemCells common stock to be issued as Merger Consideration (other than as may be imposed pursuant to rules 144 or 145 under the Securities Act).

Material Adverse Effect

Several of the representations, warranties, covenants and closing conditions contained in the Merger Agreement refer to the concept of “Company Material Adverse Effect” or “Parent Material Adverse Effect”.

Company Material Adverse Effect

For purposes of the Merger Agreement, a “Company Material Adverse Effect” means any change, circumstance, condition, development, effect, event, occurrence, result or state of facts that, individually or when taken together with any other such change, circumstance, condition, development, effect, event, occurrence,

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result or state of facts, has or would reasonably be expected to have a material adverse effect on the business, financial condition, assets, liabilities or results of operations of Microbot or prevent the ability of Microbot to consummate the transactions contemplated by the Merger Agreement, when viewed on a long-term or short-term basis; except none of the following shall be taken into account in determining whether there has been a Company Material Adverse Effect:

Parent Material Adverse Effect

For purposes of the Merger Agreement, a “Parent Material Adverse Effect” means any change, circumstance, condition, development, effect, event, occurrence, result or state of facts that, individually or when taken together with any other such change, circumstance, condition, development, effect, event, occurrence, result or state of facts, has or would reasonably be expected to have a material adverse effect on the business, financial condition, assets, liabilities or results of operations of StemCells and Merger Sub or prevent or materially delay the ability of StemCells and Merger Sub to consummate the transactions contemplated by the Merger Agreement, when viewed on a long-term or short-term basis; except none of the following shall be taken into account in determining whether there has been a Parent Material Adverse Effect: changes in general economic or political conditions or the securities market in general (whether as a result of acts of terrorism, war (whether or not declared), armed conflicts or otherwise) to the extent they do not disproportionately affect StemCells and its subsidiaries, taken as a whole;

Furthermore, no change, circumstance, condition, development, effect, event, occurrence, result or state of facts relating to StemCells intellectual property, equipment or leasehold improvements shall be taken into account in determining whether there has been a Parent Material Adverse Effect.

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Certain Covenants of the Parties

Affirmative Covenants

Each of StemCells and Microbot has undertaken certain covenants in the Merger Agreement relating to the conduct of its business between the date of the Merger Agreement and the earlier of the completion of the Merger or the earlier termination of the Merger Agreement. In general, except as contemplated or required by the Merger Agreement (or disclosed to the other party pursuant to the terms of the merger agreement), without the prior written consent of the other party, each of StemCells and Microbot has agreed to, and StemCells has agreed to cause its subsidiaries to:

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In addition, in the case of StemCells, StemCells has agreed to prepare and deliver a schedule setting forth, in reasonable detail, the Net Cash of StemCells as of 10 days prior to the anticipated Closing and a good faith estimate of the Net Cash to be held by Stem Cells as of the Closing, which shall be reviewed by Microbot with access to be provided by StemCells to its books and records, books of account, accountant’s work paper and personnel and accountants. Within 5 business days after the delivery of the Net Cash schedule, Microbot will have the right to dispute any part of the Net Cash schedule by delivering a written request to StemCells setting forth, in reasonable detail, any item in the Net Cash schedule Microbot believes is not correct. A notification by StemCells of no objection or failure to deliver a notification will be a deemed acceptance that the Net Cash schedule has been finally determined for the purposes of the Merger Agreement and StemCells will not be required to determine Net Cash again prior to Closing except under certain circumstances. If Microbot disputes the Net Cash schedule, representatives of StemCells and Microbot shall promptly meet and attempt to resolve the disputed item(s) in good faith, which agreed upon amount will be deemed to have been finally determined for the purposes of the Merger Agreement. If the representatives of StemCells and Microbot are unable to negotiate an agreed-upon determination within 3 business days, then Microbot may pursue any available remedy under the Merger Agreement, including asserting that the closing conditions have not been satisfied or asserting that it may terminate the Merger Agreement.

For the purposes of the Merger Agreement, “Net Cash” of StemCells means, as of any particular time, on a consolidated basis (x) StemCells and its subsidiaries’ cash and cash equivalents, short term investments, and restricted cash, plus (y) accounts receivable as specifically contemplated by the line item “other receivables” in StemCells’ unaudited balance sheet for the fiscal period ended June 30, 2016 and filed with the SEC, but only to the extent of cash collections thereon through the completion of the Merger, minus (z) the aggregate of the following obligations and liabilities of Parent and Parent Subsidiaries, to the extent such obligations and liabilities are probable and can be reasonably estimated (including those cash settled liabilities and obligations that would be reflected on a balance sheet prepared in accordance with GAAP), calculated without duplication: (i) All current liabilities (other than non-cash current liabilities) and long term liabilities (other than non-cash long term liabilities), including but not limited to any litigation costs, accounts payable and severance payments; (ii) All indebtedness for borrowed money or in respect of capitalized leases or the purchase of assets (including all principal, accrued interest thereon (and if such indebtedness is not prepayable, all remaining interest to be paid or accrued through maturity thereof), and any other amounts payable to the holders of such indebtedness as a result of or in connection with, the consummation of the transactions); (iii) Any and all contractual cash obligations, including but not limited to operating lease payments, capital lease equipment and loan payables. Notwithstanding the foregoing, the calculation of the obligations and liabilities in calculating Net Cash herein

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shall exclude any obligations or liabilities of StemCells to the Investor or any of its affiliates or assignees; provided that such amount shall not exceed $4.4 million; and (iv) any litigation costs, expenses, settlements and judgments (whether actual or projected).

Negative Covenants

Prior to the completion of the Merger or other earlier termination of the Merger Agreement, each of Microbot and StemCells have agreed, with respect to itself and its subsidiaries, not to (unless consented to in writing by the other party), among other things (subject to, in some cases, exceptions or qualifications specified in the Merger Agreement or set forth in the confidential disclosure schedules exchanged by Microbot and StemCells):

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No Solicitation

Subject to certain exceptions described below, prior to the completion of the Merger or the earlier termination of the Merger Agreement, each of StemCells and Microbot has agreed that it will not, and it will not authorize or permit its subsidiaries, if applicable, and their respective directors, officers, employees, agents and other representatives to, directly or indirectly:

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In addition, each of StemCells and Microbot has agreed to and will cause its subsidiaries, if applicable, and their respective directors, officers, employees, agents and other representatives to cease and terminate all discussions or negotiations with any person previously conducted with respect to any Acquisition Proposal.

Prior to obtaining the requisite stockholder approval of the StemCells Merger Proposals or the Microbot Merger Proposal, as applicable, the restrictions set forth above do not prohibit either StemCells or Microbot, as applicable, from furnishing information regarding itself or participating in discussions with a person making an unsolicited written Acquisition Proposal if (i) it received an Acquisition Proposal that the board of directors of the company determines in good faith, after consultation with legal advisors, and in the case of StemCells, financial advisors, constitutes or would reasonably be expected to constitute a Superior Proposal (as defined below), (ii) such Acquisition Proposal did not result from a violation of the restrictions set forth above, (iii) its board of directors determines in good faith, after consultation with outside legal counsel, that failure to take action would be inconsistent with its fiduciary duties under applicable law, (iv) with respect to furnishing information regarding itself, it enters into a confidentiality agreement with such person, and (v) with respect to furnishing information regarding itself, all information provided to such person has been previously or concurrently provided to the other company. In addition, StemCells or Microbot, as applicable, must provide the other company with written notice within 48 hours of receipt of any proposal, offer, or inquiry or discussions or negotiations sought to be initiated or continued with such person regarding an Acquisition Proposal, which notice indicates the terms of such proposal and includes a copy of any written materials received relating thereto and thereafter promptly keeps the other company informed of all material developments regarding such proposal, offer or inquiry.

An “Acquisition Proposal” means, with respect to StemCells or Microbot, as the case may be, any offer, proposal or indication of interest (other than the transactions contemplated by the Merger Agreement) related to any transaction or series of transactions involving:

A “Superior Proposal” means, with respect to StemCells or Microbot, as the case may be, a bona fide written Acquisition Proposal (provided that, for purposes of this definition, references to 15% in the definition of “Acquisition Proposal” shall be deemed to be references to 50%) which the board of directors of the subject company determines in good faith (after consultation with its financial advisor) (i) to be reasonably likely to be consummated if accepted and (ii) to be more favorable to the subject company’s stockholders from a financial point of view than the Merger, in each case, taking into account at the time of determination all relevant circumstances, including the various legal, financial and regulatory aspects of the proposal, all the terms and conditions of such proposal and the Merger Agreement, any changes to the terms of the Merger Agreement offered by the other company in response to such Acquisition Proposal and the ability of the person making such Acquisition Proposal to consummate the transactions contemplated by such Acquisition Proposal (based upon, among other things, expectation of obtaining required approvals).

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Board Recommendations

Under the Merger Agreement, subject to the exceptions set forth below, (i) the Microbot board of directors has agreed to recommend that Microbot shareholders vote in favor of the Microbot Merger Proposal (the “Microbot Board Recommendation”) and (ii) the StemCells board of directors has agreed to recommend that StemCells stockholders vote in favor of the StemCells Merger Proposals (the “StemCells Board Recommendation”). Subject to the exceptions described below, the Merger Agreement provides that:

Each of the foregoing actions is referred to as a “Recommendation Change”.

The restrictions set forth above will not prohibit the StemCells board of directors or the Microbot board of directors, as the case may be, from effecting a Recommendation Change if Microbot or StemCells, as applicable, has (i) received an Acquisition Proposal, and the board of directors of such company has determined in good faith after consulting with legal counsel (x) that a failure to take action would be inconsistent with its duties under applicable law and (y) the Acquisition Proposal constitutes a Superior Proposal (with respect to StemCells, after consulting with its financial advisor) or (ii) in response to an Intervening Event (as defined below), if the board of directors of such company has determined in good faith, after consulting with legal counsel, that a failure to take action would be inconsistent with its duties under applicable law, and all of the following conditions are met:

An “Intervening Event” means, with respect to StemCells or Microbot, as the case may be, a material event or circumstance that occurs after the date of the Merger Agreement and was not previously known or reasonably foreseeable by the board of directors of StemCells or Microbot, as the case may be, provided that the receipt, existence or terms of an Acquisition Proposal or any matter relating thereto or consequence thereof does not constitute an Intervening Event.

Special Meetings of Stockholders

Each of StemCells and Microbot has agreed to take all action necessary to hold a meeting of its stockholders for the purpose of obtaining the required stockholder approval of the StemCells Merger Proposals and the Microbot Merger Proposal, respectively, as promptly as practicable, including mailing this proxy statement to

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StemCells’ stockholders as promptly as reasonably practicable following clearance of the proxy statement by the SEC. Each party’s respective obligation to hold its stockholder meeting will not be affected by any Recommendation Change by its board of directors (unless such Recommendation Change leads to a termination of the Merger Agreement).

To the extent reasonably necessary to comply with applicable listing criteria of the NASDAQ Capital Market or otherwise to permit the issuance of the Merger Consideration, StemCells further agrees to submit to its stockholders at the special meeting a proposal to approve a reverse stock split of StemCells common stock.

Indemnification of Directors and Officers

The Merger Agreement provides that StemCells will continue to indemnify and hold harmless each present and former director or officer of StemCells or any of its subsidiaries, with respect to acts or omissions occurring or alleged to have occurred before or at the completion of the Merger, to the fullest extent permitted under applicable law and in StemCells’ certificate of incorporation and bylaws.

The Merger Agreement provides that StemCells will not enter into any contract relating to the indemnification of any present and former director or officer of StemCells or any of its subsidiaries, or any other person, without the prior written consent of Microbot, which may be withheld in its reasonable discretion.

The Merger Agreement provides that, prior to the completion of the Merger, StemCells will purchase and maintain for a period of six years following the completion of the Merger, a directors’ and officers’ liability “tail” insurance policy covering the present and former directors and officers of StemCells for events occurring at or prior to the completion of the Merger. Such policy must contain terms no less favorable than the policies maintained by StemCells or Microbot, as applicable, as of the date of the Merger Agreement.

Governance Matters Upon Completion of the Merger

StemCells has agreed to take all actions necessary to ensure that, immediately following the completion of the Merger, the StemCells board of directors shall resign and the replacement board of directors shall consist of members designated by Microbot, to hold office from and after the completion of the Merger until the earliest of the appointment of his or her respective successor, his or her resignation, or his or her proper removal.

StemCells has agreed to take all actions necessary to ensure that, immediately following the completion of the Merger, StemCells’ remaining employees and officers resign and the replacement executive officers shall consist of members designated by Microbot, to hold office from and after the completion of the Merger until the earliest of the appointment of his or her respective successor, his or her resignation, or his or her proper removal.

Conditions to the Completion of the Merger

The obligations of each of Microbot and StemCells to complete the Merger and the other transactions contemplated by the Merger Agreement are subject to the satisfaction or waiver in writing of the following conditions:

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The obligations of Microbot to complete the Merger and the other transactions contemplated by the Merger Agreement are subject to the satisfaction or waiver in writing of the following conditions:

The obligations of StemCells and Merger Sub to complete the Merger and the other transactions contemplated by the Merger Agreement are subject to the satisfaction or waiver in writing of the following conditions:

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Termination of the Merger Agreement

The Merger Agreement provides that, at any time prior to the completion of the Merger, either before or after the requisite stockholder approvals of the StemCells Merger Proposals and the Microbot Merger Proposal have been obtained (except as set forth below), the Merger Agreement may be terminated:

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Termination Fees and Expenses

The Merger Agreement provides that all fees and expenses incurred in connection with the Merger Agreement and the transactions contemplated by the Merger Agreement will be paid by the party incurring such expenses whether or not the Merger is consummated.

Amendments

The Merger Agreement may be amended only by the written agreement of StemCells, Merger Sub and Microbot at any time prior to the completion of the Merger. However, following the approval of the StemCells Merger Proposals or the Microbot Merger Proposal, any amendment that pursuant to applicable law requires further stockholder approval may not be made without such stockholder approval.

Governing Law

The Merger Agreement is governed by the laws of the State of Delaware and, with respect to the Merger, the laws of the State of Israel.

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AGREEMENTS RELATED TO THE MERGER

Microbot Private Placement

Pursuant to the Merger Agreement, Microbot is obligated to raise no less than $4.0 million in one or more private placements prior to the closing of the Merger (the “Microbot Private Placement”), which amount would provide the combined company with at least 18 months of cash to fund operations post-closing, assuming a minimum StemCells net cash amount of not less than $0 at closing.

On August 15, 2016, Microbot and Alpha Capital Anstalt (the “Investor”), entered into an agreement pursuant to which, among other things, the Investor agreed to fund the Microbot Private Placement, which obligation shall be reduced dollar-for-dollar by any third party investors investing in the Microbot Private Placement.

As of the date of this proxy statement, Microbot has not sold any securities in the Microbot Private Placement.

Voting Agreements

In connection with the execution of the Merger Agreement, certain stockholders of StemCells also entered into a voting agreement with Microbot under which each such stockholder has agreed to vote in favor of the proposals that relate to the Merger and against any alternative acquisition proposal, agreement or transaction. The voting agreement grants Microbot irrevocable proxies to vote any shares of StemCells common stock over which such stockholder has voting power in favor of each of the proposals described elsewhere in this proxy statement and against any alternative acquisition proposal, agreement or transaction.

Certain shareholders of Microbot owning approximately 68% of the voting power of Microbot on an as-converted basis also entered into voting agreements with StemCells under which such shareholders agreed to vote in favor of the Merger and against any alternative acquisition proposal, agreement or transaction. The shareholders of Microbot will vote on whether to approve the Merger on September 14, 2016.

Each director, executive officer and stockholder, as applicable, upon executing his, her, or its voting agreement has made representations and warranties to StemCells and Microbot, as applicable, regarding ownership and unencumbered title to the shares thereto, such stockholder’s power and authority to execute the voting agreement, and due execution and enforceability of the voting agreement. Unless otherwise waived, all of these voting agreements prohibit the sale, assignment, transfer or other disposition by the stockholder of his, her, or its respective shares of StemCells or Microbot stock, as applicable, or the entrance into an agreement or commitment to do any of the foregoing, except for transfers by will or by operation of law, in which case the voting agreement shall bind the transferee.

The voting agreements will terminate at the earlier of the effective time of the Merger, termination of the Merger Agreement in accordance with its terms or upon mutual written consent of such stockholder, StemCells and Microbot

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MANAGEMENT FOLLOWING THE MERGER

Executive Officers and Directors

Termination of Current Executive Officers and Directors of StemCells

Effective as of immediately following the effective time of the Merger, StemCells’ remaining employees and officers, including its remaining executive officers and directors, are required by the Merger Agreement to resign and the officers and directors of Microbot immediately prior to the completion of the Merger shall be the officers of the combined company immediately after the effective time of the Merger.

Executive Officers and Directors of the Combined Company Following the Merger

The combined company’s board of directors is expected to initially consist of at least six (6) members, consisting of Harel Gadot, Yoav Waizer, Moshe Shoham, Yoseph Bornstein, Solomon Mayer, and at least one additional member who shall be designated by Microbot prior to closing and who meets the SEC and NASDAQ Stock Market independence requirements. The staggered structure of the current StemCells board of directors will remain in place for the combined company following the completion of the merger.

The following table lists the names and ages as of September 1, 2016 and positions of the individuals who are expected to serve as executive officers and directors of the combined company upon completion of the merger:

Executive Officers

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

Microbot expects to hire a Chief Financial Officer prior to closing pending the consummation of the merger. Microbot also expects to hire a Chief Technology Officer either shortly before or after the consummation of the merger, and a Chief Operating Officer shortly after the consummation of the merger.

Non-Employee Directors

Yoav Waizer, has served as a member of the Board of Directors of Microbot since May 2015. Mr. Waizer is a Partner and Chief Executive Officer of Medica Venture Partners, a healthcare dedicated venture investing out

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

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

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

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

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Board of Directors of the Combined Company Following the Merger

Microbot expects that the combined company’s board of directors will initially consist of at least five members, consisting of Harel Gadot, Yoav Waizer, Moshe Shoham, Yoseph Bornstein and Solomon Mayer. Furthermore, Microbot may designate at least one additional member prior to closing if Microbot determines that it needs to further meet the SEC and NASDAQ Stock Market independence requirements. The staggered structure of the current StemCells board of directors will remain in place for the combined company following the completion of the merger.

It is anticipated that the directors will be appointed to the three staggered director classes of the combined company board of directors prior to the completion of the Merger.

Microbot has notified us that there are no family relationships among any of the current Microbot directors and executive officers, and there are no family relationships among any of the proposed combined company directors and officers. There are no arrangements or understandings with another person under which the directors and executive officers of the combined company was or is to be selected as a director or executive officer. Additionally, no director or executive officer of the combined company is involved in legal proceedings which require disclosure under Item 401 of Regulation S-K.

The StemCells board of directors currently has, and following the completion of the Merger will continue to have, the following committees: an Audit Committee, a compensation and stock option committee (the “Compensation Committee”) and a corporate governance and nominating committee (the “Corporate Governance Committee”). Following the completion of the Merger, the combined company does not expect to have a Strategic Transaction Committee.

Audit Committee

The Audit Committee acts pursuant to a written charter. The primary function of the Audit Committee is to assist the board of directors in fulfilling its oversight responsibilities. The committee does this primarily by reviewing the company’s financial reports and other financial information as well as the company’s systems of internal controls regarding finance, accounting, legal compliance, and ethics that management and the board of directors have established. The committee also assesses the company’s auditing, accounting and financial processes more generally. The Audit Committee recommends to the board of directors the appointment of a firm of independent auditors to audit the financial statements of the company and meets with such personnel of the company to review the scope and the results of the annual audit, the amount of audit fees, the company’s internal accounting controls, the company’s financial statements contained in this proxy statement, and other related matters.

In connection with the closing of the Merger, the combined company’s board of directors is expected to select members of the Audit Committee, including the Audit Committee financial expert. To qualify as independent to serve on the combined company’s audit committee, the NASDAQ Stock Market listing standards and the applicable rules of the SEC require that a director does not accept any consulting, advisory, or other compensatory fee from the combined company, other than for services as a director, or be an affiliated person of the combined company. StemCells and Microbot believe that, following the completion of the Merger, the functioning of the combined company’s Audit Committee will comply with the applicable requirements of the rules and regulations of the NASDAQ Stock Market.

Compensation Committee

The Compensation Committee acts pursuant to a written charter. The Compensation Committee makes recommendations to the board of directors and management concerning salaries in general, determines executive compensation and approves incentive compensation for employees and consultants.

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In connection with the closing of the Merger, the combined company’s board of directors is expected to select members of the Compensation Committee. To qualify as independent to serve on the combined company’s Compensation Committee, the NASDAQ Stock Market listing standards and the applicable rules of the SEC require that a director does not accept any consulting, advisory, or other compensatory fee from the combined company, other than for services as a director, or be an affiliated person of the combined company and, if so, whether such affiliation would impair the director’s judgment as a member of the Compensation Committee. StemCells and Microbot believe that, following the completion of the Merger, the functioning of the combined company’s Compensation Committee will comply with the applicable requirements of the rules and regulations of the NASDAQ Stock Market and of the SEC.

Corporate Governance Committee

The Corporate Governance Committee acts pursuant to a written charter. The Corporate Governance Committee oversees nominations to the board of directors and considers the experience, ability and character of potential nominees to serve as directors, as well as particular skills or knowledge that may be desirable in light of the company’s position at any time. The Corporate Governance Committee also develops and recommends to the board of directors a set of corporate governance principles applicable to the company.

In connection with the closing of the Merger, the combined company’s board of directors is expected to select members of the Corporate Governance Committee. StemCells and Microbot believe that, following the completion of the Merger, the composition of the Corporate Governance Committee will comply with the applicable requirements of the rules and regulations of the NASDAQ Stock Market.

Director Independence

NASDAQ’s listing standards and StemCells’ Corporate Governance Guidelines require that StemCells’ board of directors consist of a majority of independent directors, as determined under the applicable NASDAQ listing standards.

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RELATED PARTY TRANSACTIONS OF DIRECTORS AND EXECUTIVE OFFICERS OF THE COMBINED COMPANY

Described below are the transactions and series of similar transactions of Microbot since January 1, 2015 in which:

Microbot Transactions

Consulting Arrangements with Mr. Gadot

In March 2011, Microbot entered into a consulting agreement with MEDX Ventures Group LLC, of which Mr. Gadot is the Chief Executive Officer, Company Group Chairman and majority equity owner (the “Gadot Consulting Agreement”), pursuant to which Mr. Gadot serves as Microbot’s Chief Executive Officer. Under the terms of the Gadot Consulting Agreement, MEDX Ventures Group receives a monthly fee of $17,000, which amount increases to $25,000 per month upon the consummation of a merger or other similar transaction. Under the Gadot Consulting Agreement, MEDX Ventures Group and Mr. Gadot are subject to customary non-competition, non-solicitation, confidentiality and intellectual property ownership provisions. In addition, MEDX Ventures Group is entitled to receive reimbursement for all direct expenses in connection with the performance of services under the Gadot Consulting Agreement. Either Microbot or MEDX Ventures Group may terminate the Gadot Consulting Agreement upon 60 days’ written notice. MEDX Ventures Group LLC is a stockholder of Microbot. Microbot expects to enter into an employment agreement or to amend the Gadot Consulting Agreement with Mr. Gadot prior to, and contingent upon, the completion of the Merger.

2015 Bridge Notes

In 2015, Microbot issued convertible promissory notes, at an interest rate of 10%, in the aggregate principal amount of $411,500 (the “2015 Notes”) to certain investors and Microbot shareholders. The 2015 Notes matured on July 8, 2016. The principal and accrued but unpaid interest on the 2015 Notes converted into 452,650 shares of Series A Preferred Stock and warrants to purchase 409,750 shares of Series A Preferred Stock. The table below sets forth the 2015 Notes with aggregate principal in excess of $120,000 that were purchased by Microbot’s directors, executive officers and holders of more than 5% of its capital stock.

2016 Bridge Notes

In 2016, Microbot issued convertible promissory notes, at an annual interest rate of 10%, in the aggregate principal amount of $750,000 (the “2016 Notes”) to certain investors and Microbot shareholders. The principal and accrued but unpaid interest on the 2016 Notes will convert, at a 20% discount, into common stock upon the consummation of the Merger. The table below sets forth the 2016 Notes with aggregate principal in excess of $120,000 that were purchased by Microbot’s directors, executive officers and holders of more than 5% of its capital stock.

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