ESCROW AGREEMENT
THIS
ESCROW AGREEMENT (“Agreement”) is made and entered into as of January 19, 2011,
by and among: NeoStem
Inc., a Delaware corporation (“Parent”); Progenitor Cell Therapy, LLC,
a Delaware limited liability company (the “Company”), Xxxxxx Xxxxxx, as
representative (the “PCT Representative”), of the Members of the Company
identified from time to time on Schedule 1 hereto; and Continental Stock Transfer &
Trust Company, a New York corporation (the “Escrow Agent”).
RECITALS
WHEREAS,
Parent, NBS Acquisition Company, LLC, a Delaware limited liability company and a
wholly-owned subsidiary of Parent (“Subco”), the Company and the PCT
Representative have entered into an Agreement and Plan of Merger dated as of
September 23, 2010 (the “Merger Agreement”), pursuant to which, among other
things, (i) Subco is merging with and into the Company, and (ii) certain stock
issuances are to be made by Parent to the Members (as defined
below). A copy of the Merger Agreement is attached hereto as Exhibit
A;
WHEREAS,
the Merger Agreement contemplates the establishment of an escrow account to
secure certain rights of the Parent Indemnified Parties (as defined in the
Merger Agreement) to indemnification, compensation and reimbursement as provided
in the Merger Agreement; and
WHEREAS,
pursuant to Section 8.5 of the Merger Agreement, Xxxxxx Xxxxxx has been
irrevocably appointed by the Members to serve as the PCT Representative in
connection with all matters under this Agreement and the resolution of all
claims for Damages under the Merger Agreement.
AGREEMENT
The
parties, intending to be legally bound, agree as follows:
Section
1. Defined
Terms.
1.1 Capitalized
terms used and not defined in this Agreement shall have the meanings given to
them in the Merger Agreement.
1.2 As
used in this Agreement, the term “Members” refers to the Persons who were
members, or equity holders, of the Company immediately prior to the Effective
Time or to which the rights under this Agreement have been assigned as set forth
herein. “Escrowed Shares” refers to the 10,600,000 shares of Parent
Common Stock being issued as Stock Consideration under the Merger
Agreement.
Section
2. Escrow and
Indemnification.
2.1 Appointment of Escrow Agent;
Shares and Stock Powers Placed
in Escrow. Continental Stock Transfer & Trust Company is
hereby appointed to serve as Escrow Agent hereunder, and Continental Stock
Transfer & Trust Company hereby agrees to serve as Escrow Agent
hereunder. In accordance with the Merger Agreement, at the Closing,
(a) Parent shall issue certificates for the Escrowed Shares registered in the
name of the Escrow Agent evidencing 10,600,000 shares of Parent Common Stock to
be held in escrow under this Agreement, and shall cause such certificates to be
delivered to the Escrow Agent, and (b) the PCT Representative shall deliver to
the Escrow Agent an “assignment separate from certificate” (“Stock Power”)
endorsed by him in blank. Such endorsement by the PCT Representative
shall have been guaranteed by a national bank or an NYSE-Amex member
firm.
2.2 Escrow Account. The
Escrowed Shares being held in escrow pursuant to this Agreement, together with
any distributions on the Escrowed Shares, shall collectively constitute an
escrow fund securing the indemnification rights of Parent and the other Parent
Indemnified Parties under the Merger Agreement. The Escrow Agent
agrees to accept delivery of the Escrowed Shares and to hold the Escrowed Shares
in a separate escrow account (such account, the “Escrow Account”), subject to
the terms and conditions of this Agreement and the Merger
Agreement.
2.3 Voting of Escrow
Shares. The Escrow Agent, as record owner of the Escrowed
Shares, shall exercise all voting rights with respect to such Escrowed Shares in
accordance with Section 3.5 of the Merger Agreement, upon receipt of written
instructions from the Parent. The Escrow Agent is not obligated to
distribute to the Members or to the PCT Representative any proxy materials or
other documents relating to the Escrowed Shares received by the Escrow Agent
from Parent.
2.4 Reports. Upon the
request of either Parent or the PCT Representative, the Escrow Agent shall
provide a statement to the requesting party that describes any deposit,
distribution or investment activity or deductions with respect to shares held in
the Escrow Account in addition to quarterly account statements from the Escrow
Agent.
2.5 Dividends,
Etc. Parent and the PCT Representative, on behalf of each of
the Members, agree that any shares of Parent Common Stock or other property
(including ordinary cash dividends) distributable or issuable (whether by way of
dividend, stock split or otherwise) in respect of or in exchange for any
Escrowed Shares (including pursuant to or as a part of a merger, consolidation,
acquisition of property or stock, reorganization or liquidation involving
Parent) shall not be distributed or issued to the beneficial owners of such
Escrowed Shares, but rather shall be distributed or issued to and held by the
Escrow Agent in the Escrow Account. Any securities or other property
received by the Escrow Agent in respect of any Escrowed Shares held in escrow as
a result of any stock split or combination of shares of Parent Common Stock,
payment of a stock dividend or other stock distribution in or on shares of
Parent Common Stock, or change of Parent Common Stock into any other securities
pursuant to or as a part of a merger, consolidation, acquisition of property or
stock, reorganization or liquidation involving Parent, or otherwise, shall be
held by the Escrow Agent as part of the Escrow Account.
2.6 Transferability. Except
as expressly provided for herein or by operation of law, the interests of the
Members in the Escrow Account shall not be assignable or
transferable.
-2-
2.7 Trust Fund. The
Escrow Account shall be held as trust funds and shall not be subject to any
lien, attachment, trustee process or any other judicial process of any creditor
of Escrow Agent, any Member or Parent, respectively, or of any party
hereto. The Escrow Agent shall hold and safeguard the Escrow Account
until the Termination Date (as defined in Section 6) or earlier distribution in
accordance with this Agreement.
Section
3. Release of Escrow
Shares.
3.1 General. (X) Within
ten (10) calendar Days after receiving either (a) written instructions from the
Parent (a “Parent Notice”) which have not been objected to by the PCT
Representative within seven (7) calendar days after the later of the PCT
Representative’s receipt of the Parent Notice or the Escrow Agent’s receipt of
such Parent Notice, (b) joint written instructions from Parent and the PCT
Representative (“Joint Instructions”), (c) a decision and/or award from the
Arbitrator (an “Arbitration Award”) or (d) an order issued by a court of
competent jurisdiction (a “Court Order”) relating to the release of any Escrowed
Shares from the Escrow Account or (Y) in accordance with Section 3.4 hereof, the
Escrow Agent shall release or cause to be released any such Escrowed Shares and
any other amounts from the Escrow Account, in the amounts, to the Persons and in
the manner set forth in such Parent Notice, Joint Instructions, Arbitration
Award, Court Order or as provided in Section 3.4. If a Parent Notice
is sent under Section 8.4 of the Merger Agreement and such Parent Notice is not
disputed as provided in Section 8.4 within 7 calendar days, the Escrow Agent
shall make the distribution requested by the Parent Notice without action by the
PCT Representative.
3.2 Potential Tax
Liability. Upon receipt of (i) a certification from a Taxable
Member pursuant to Section 8.4(a)(i) of the Merger Agreement, and
(ii) joint instructions from the Parent and the PCT Representative, the Escrow
Agent shall release shares to a Taxable Member in accordance with the
certification of the Taxable Member and such joint instructions.
3.3 Pro Rata
Distributions. For purposes of this Agreement, (i) all
distributions (except distributions to the Taxable Members as such pursuant to
Section 3.2 above and Section 8.4(i) of the Merger Agreement) to the Members
shall be pro rata distributions made based on the percentages set forth on
Schedule 1, as may be amended from time to time pursuant to Section 9.8 of this
Agreement, except as follows:
(1) the
Escrow Agent will maintain sub-accounts, referred to as the Taxable Account and
the Balance Account, as provided in Section 8.4 of the Merger Agreement, until
the first anniversary of the date hereof. The distributions at the
end of the first year pursuant to Section 8.4(a)(ii) shall be made to the
Taxable Members from the Taxable Account and to the Members other than the
Taxable Members from the Balance Account. The Parent and the PCT
Representative shall provide the Escrow Agent with joint instructions with
respect to the amounts to be distributed to each Member after the first
anniversary of the Closing Date.
(2) no
fractional shares shall be issued, and all amounts released from escrow and
distributed to the Members shall be rounded up or down pursuant to Section
3.4(c) of the Merger Agreement.
-3-
The
Company and the PCT Representative represent and warrant that Schedule 1 (the
“Percentage Certifications”) accurately reflects each Member’s percentage
membership interest in the Company immediately prior to the consummation of the
Merger.
3.4 Release of the Escrowed
Shares. Within 10 Business Days following the two year
anniversary of the Closing Date, if there are no claims for Damages against the
Escrow Account that have not been finally resolved and paid, the Escrow Agent
shall deliver to the Members pro rata in accordance with the Percentage
Certification the balance of shares of Parent Common Stock and other property
held in the Escrow Account at such time. If, on the Termination Date
there are claims for Damages against the Escrow Account that have not been
finally resolved, then, within 10 Business Days of the Termination Date, the
Escrow Agent shall deliver to the Members the excess, if any, by which the value
of the amounts held in the Escrow Account exceed an amount equal to 120% of the
amount of any claims for Damages against the Escrow Account that have not been
finally resolved and paid at such time. The Parent and the PCT
Representative shall provide the Escrow Agent with joint instructions with
respect to the amounts to be distributed to each Member after the second
anniversary of the Closing Date (and thereafter if shares remain in the Escrow
Account after the second anniversary with respect to unresolved claims for
Damages at such date). Thereafter, final distributions of the Escrow
Account shall be made in accordance with Section 3.1(X)(a), (b), (c) or (d), as
applicable.
3.5 Distributions. Whenever
a distribution of a number of shares of Parent Common Stock is to be made
pursuant to the terms of this Agreement, the Escrow Agent shall requisition the
appropriate number of shares from Parent’s stock transfer agent, delivering to
the transfer agent the appropriate stock certificates accompanied by the
respective Stock Powers, together with the specific instructions, as
appropriate. Within 5 Business Days prior to the date the Escrow
Agent is required to make a distribution of shares of Parent Common Stock or
other property (including ordinary cash dividends) to the Members pursuant to
the terms of this Agreement, the Escrow Agent shall provide the PCT
Representative and the Parent with a notice specifying that a distribution will
be made and requesting that the PCT Representative update the then current
Schedule 1 to this Agreement. The Escrow Agent shall make the
corresponding distributions to the Persons listed on such updated Schedule 1 in
accordance with the terms hereof, to their respective addresses as set forth
therein. Notwithstanding anything to the contrary set forth herein,
the Escrow Agent shall not be obligated to make any distribution under this
Agreement to the Members unless it has received from the PCT Representatives an
updated Schedule 1 to this Agreement as provided herein. Any
distributions to Parent pursuant to the terms of this Agreement shall be made to
the address set forth in Schedule 2 hereto.
3.6 Disputes. All
disputes, claims, or controversies arising out of or relating to Section 3 of
this Agreement that are not resolved by mutual agreement between Parent and the
PCT Representative shall be resolved solely and exclusively as set
forth in Section 8.4 of the Merger Agreement by the PCT Representative and the
Parent.
-4-
Section
4. Fees and
Expenses.
The
Escrow Agent shall be entitled to receive, from time to time, fees in accordance
with Schedule 3. In accordance with Schedule 3, the Escrow Agent will
also be entitled to reimbursement for reasonable and documented out-of-pocket
expenses incurred by the Escrow Agent in the performance of its duties hereunder
and the execution and delivery of this Agreement. All such fees and
expenses shall be paid by Parent.
Section
5. Limitation of Escrow
Agent’s Liability.
5.1 The
Escrow Agent undertakes to perform such duties as are specifically set forth in
this Agreement only and shall have no duty under any other agreement or
document, and no implied covenants or obligations shall be read into this
Agreement against the Escrow Agent. The Escrow Agent shall incur no
liability with respect to any action taken by it or for any inaction on its part
in reliance upon any notice, direction, instruction, consent, statement or other
document believed by it in good faith to be genuine and duly authorized, nor for
any other action or inaction except for its own gross negligence or willful
misconduct. In all questions arising under this Agreement, the Escrow
Agent may rely on the advice of counsel, and for anything done, omitted or
suffered in good faith by the Escrow Agent based upon such advice the Escrow
Agent shall not be liable to anyone. In no event shall the Escrow
Agent be liable for incidental, punitive or consequential damages.
5.2 Parent
and the PCT Representative, acting on behalf of the Members hereby agree to
indemnify the Escrow Agent and its officers, directors, employees and agents
for, and hold it and them harmless against, any loss, liability or expense
incurred without gross negligence or willful misconduct on the part of Escrow
Agent, arising out of or in connection with the Escrow Agent’s carrying out its
duties hereunder. This right of indemnification shall survive the
termination of this Agreement and the resignation of the Escrow
Agent.
Section
6. Termination.
This
Agreement shall terminate upon the release by the Escrow Agent of the final
amounts held in the Escrow Account in accordance with Section 3 (the date of
such release being referred to as the “Termination Date”).
Section
7. Successor Escrow
Agent.
In the
event the Escrow Agent becomes unavailable or unwilling to continue as escrow
agent under this Agreement, the Escrow Agent may resign and be discharged from
its duties and obligations hereunder by giving its written resignation to the
parties to this Agreement. Such resignation shall take effect not
less than 30 days after it is given to all the other parties
hereto. In such event, Parent may appoint a successor Escrow Agent
(acceptable to the PCT Representative, acting reasonably). If Parent
fails to appoint a successor Escrow Agent within 15 days after receiving the
Escrow Agent’s written resignation, the Escrow Agent shall have the right to
apply to a court of competent jurisdiction for the appointment of a successor
Escrow Agent. The successor Escrow Agent shall execute and deliver to
the Escrow Agent an instrument accepting such appointment, and the successor
Escrow Agent shall, without further acts, be vested with all the estates,
property rights, powers and duties of the predecessor Escrow Agent as if
originally named as Escrow Agent herein. The Escrow Agent shall act
in accordance with written instructions from Parent and the PCT
Representative as to the transfer of the Escrow Accounts to a
successor Escrow Agent.
-5-
Section
8. PCT
Representative.
8.1 Unless
and until Parent and the Escrow Agent shall have received written notice of the
appointment of a successor PCT Representative, Parent and the Escrow Agent shall
be entitled to rely on, and shall be fully protected in relying on, the power
and authority of the PCT Representative to act on behalf of the
Members.
Section
9. Miscellaneous.
9.1 Attorneys’ Fees. In
any action at law or suit in equity to enforce or interpret this Agreement or
the rights of any of the parties hereunder, the prevailing party in such action
or suit shall be entitled to receive a reasonable sum for its attorneys’ fees
and all other reasonable costs and expenses incurred in such action or
suit.
9.2 Notices. Any notice
or other communication required or permitted to be delivered to any party under
this Agreement shall be in writing and shall be deemed properly delivered, given
and received when delivered (by hand, by registered mail, by courier or express
delivery service or by facsimile) to the address or facsimile telephone number
set forth beneath the name of such party below (or to such other address or
facsimile telephone number as such party shall have specified in a written
notice given to the other parties hereto):
if to Parent:
Suite
450
000
Xxxxxxxxx Xxxxxx
Xxx Xxxx,
XX 00000
Attention: Xxxxxxxxx
X. Xxxxx, Esq.
Facsimile:
(000) 000-0000
with a
copy, which shall not constitute notice, to:
Xxxxxxxxxx
Xxxxxxx PC
00
Xxxxxxxxxx Xxxxxx
Xxxxxxxx,
XX 00000
Attention: Xxxx
Xxxxxxxxxx, Esq.
Facsimile:
(000) 000-0000
if
to the PCT Representative :
Xx.
Xxxxxx X. Xxxxxx
Progenitor
Cell Therapy, LLC
0 Xxxxx
Xxxxx, Xxxxx X
Xxxxxxxxx,
XX 00000
Facsimile: (000)
000-0000
-6-
with a
copy, which shall not constitute notice, to:
Xxxxxxx
Xxxxxx & Green, P.C.
0000 00xx
Xxxxxx, XX
Xxxxx
000
Xxxxxxxxxx,
XX 00000-0000
Attention: Xxxxxx
X. Xxxx, Esq.
Facsimile:
(000) 000-0000
if
to the Escrow Agent:
Continental
Stock Transfer & Trust Company
00
Xxxxxxx Xxxxx
Xxx Xxxx,
XX 00000
Attention: Xxxx
X. Xxxxx, Xx.
Facsimile:
(000) 000-0000
Notwithstanding
the foregoing, notices addressed to the Escrow Agent shall be effective only
upon receipt. If any notice or other document is required to be
delivered to the Escrow Agent and any other Person, the Escrow Agent may assume
without inquiry that notice or other document was received by such other Person
on the date on which it was received by the Escrow Agent.
9.3 Headings. The
bold-faced headings contained in this Agreement are for convenience of reference
only, shall not be deemed to be a part of this Agreement and shall not be
referred to in connection with the construction or interpretation of this
Agreement.
9.4 Counterparts and Exchanges by
Facsimile or Other Electronic Transmission. This Agreement may
be executed in several counterparts, each of which shall constitute an original
and all of which, when taken together, shall constitute one
agreement. The exchange of a fully executed Agreement (in
counterparts or otherwise) by facsimile or other means of electronic
transmission shall be sufficient to bind the parties to the terms and conditions
of this Agreement.
9.5 Applicable Law;
Jurisdiction. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof. Subject to Section 3.5 of this Agreement, in any action
between the parties arising out of or relating to this Agreement or any of the
transactions contemplated by this Agreement: (a) each of the parties irrevocably
and unconditionally consents and submits to the non-exclusive jurisdiction and
venue of the state and federal courts located in the State of New York; (b) if
any such action is commenced in a state court, then, subject to applicable law,
no party shall object to the removal of such action to any federal court located
in the State of New York; and (c) each of the parties irrevocably waives the
right to trial by jury.
-7-
9.6 Successors and
Assigns. This Agreement shall be binding upon and shall inure
to the benefit of each of the parties hereto and each of their respective
permitted successors and assigns, if any. No director indirect
interest in the Escrow Account or the shares of Parent Common Stock held in the
Escrow Account may be sold, assigned, transferred or pledged except by operation
of law.
9.7 Waiver. No failure
on the part of any Person to exercise any power, right, privilege or remedy
under this Agreement, and no delay on the part of any Person in exercising any
power, right, privilege or remedy under this Agreement, shall operate as a
waiver of such power, right, privilege or remedy; and no single or partial
exercise of any such power, right, privilege or remedy shall preclude any other
or further exercise thereof or of any other power, right, privilege or
remedy. No Person shall be deemed to have waived any claim arising
out of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such Person; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
9.8 Amendment. This
Agreement may not be amended, modified, altered or supplemented other than by
means of a written instrument duly executed and delivered on behalf of Parent,
the PCT Representative and the Escrow Agent; provided, however, that any
amendment executed and delivered by the PCT Representative shall be deemed
to have been approved by and duly executed and delivered by all of the
Members.
9.9 Severability. Any
term or provision of this Agreement that is invalid or unenforceable in any
situation in any jurisdiction shall not affect the validity or enforceability of
the remaining terms and provisions hereof or the validity or enforceability of
the offending term or provision in any other situation or in any other
jurisdiction. If the final judgment of a court of competent
jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the parties hereto agree that the court making such determination
shall have the power to limit the term or provision, to delete specific words or
phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified. In the event such
court does not exercise the power granted to it in the prior sentence, the
parties hereto agree to replace such invalid or unenforceable term or provision
with a valid and enforceable term or provision that will achieve, to the extent
possible, the economic, business and other purposes of such invalid or
unenforceable term.
9.10 Parties in
Interest. Except as expressly provided herein, none of the
provisions of this Agreement, express or implied, is intended to provide any
rights or remedies to any Person other than the parties hereto and their
respective successors and assigns, if any.
9.11 Entire
Agreement. This Agreement and the Merger Agreement set forth
the entire understanding of the parties hereto relating to the subject matter
hereof and supersede all prior agreements and understandings among or between
any of the parties relating to the subject matter hereof.
-8-
9.12 Waiver of Jury
Trial. Each of the parties hereto hereby irrevocably waives
any and all right to trial by jury in any action arising out of or related to
this Agreement or the transactions contemplated hereby.
9.13 Cooperation. The
PCT Representative on behalf of the Members and Parent agree to cooperate fully
with each other and the Escrow Agent and to execute and deliver such further
documents, certificates, agreements, stock powers and instruments and to take
such other actions as may be reasonably requested by Parent, the PCT
Representative or the Escrow Agent to evidence or reflect the transactions
contemplated by this Agreement and to carry out the intent and purposes of this
Agreement.
9.14 Construction.
(a)
For purposes of this Agreement, whenever the context requires:
the singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neutral genders; the feminine gender shall
include the masculine and neutral genders; and the neutral gender shall include
masculine and feminine genders.
(b) The
parties hereto agree that any rule of construction to the effect that
ambiguities are to be resolved against the drafting party shall not be applied
in the construction or interpretation of this Agreement.
(c) As
used in this Agreement, the words “include” and “including,” and variations
thereof, shall not be deemed to be terms of limitation, but rather shall be
deemed to be followed by the words “without limitation.”
(d) Except
as otherwise indicated, all references in this Agreement to “Sections”,
“Schedules” and “Exhibits” are intended to refer to Sections of this Agreement,
Schedules to this Agreement and Exhibits to this Agreement.
[Remainder
of page intentionally left blank]
-9-
IN WITNESS WHEREOF, the
parties have duly caused this Agreement to be executed as of the day and year
first above written.
|
NEOSTEM, INC., a
Delaware corporation
|
||
|
By:
|
/s/
Xxxxx X. Xxxxx
|
|
|
Name:
|
Xxxxx
X. Xxxxx
|
|
|
Title:
|
Chief
Executive Officer
|
|
|
PROGENITOR
CELL THERAPY, INC.
|
||
|
By:
|
/s/
Xxxxxx X. Xxxxxxxxxx
|
|
|
Name:
|
Xxxxxx
X. Xxxxxxxxxx
|
|
|
Title:
|
Chief
Business & Financial Officer, Secretary
|
|
|
/s/
Xxxxxx Xxxxxx
|
||
|
Xxxxxx
Xxxxxx, as PCT Representative
|
||
|
CONTINENTAL
STOCK TRANSFER &
TRUST COMPANY, a New
York corporation
|
||
|
By:
|
/s/
Xxxx X. Xxxxx, Xx.
|
|
|
Name:
|
Xxxx
X. Xxxxx, Xx.
|
|
|
Title:
|
Vice
President & Senior
Account Manager
|
|
[Escrow
Agreement Signature Page]
-10-
SCHEDULE
1
MEMBERS
Percentage
Certification Attached.
-11-
SCHEDULE
2
ESCROWED
SHARES
|
Number
of Escrowed Shares:
|
10,600,000
|
|
Address
for distributions to Parent:
|
NeoStem
Inc.
|
|
Xxxxx
000
|
|
|
000
Xxxxxxxxx Xxxxxx
|
|
|
Xxx
Xxxx, Xxx Xxxx 00000
|
|
|
Attention: Xxxxxxxxx
X. Xxxxx, Esq.
|
-12-
SCHEDULE
3
ESCROW
AGENT’S FEES AND EXPENSES
|
Monthly
Fee for holding securities and/or cash:
|
$200
per month
|
|
Additional
out of pocket expenses including postage and stationary:
|
Additional
|
|
Disbursement
fees at termination:
|
Additional
|
-13-
EXHIBIT
A
MERGER
AGREEMENT
-14-
