HOLDBACK ESCROW AGREEMENT
This
Holdback Escrow Agreement, dated as of December 24, 2007 (this “Agreement”),
is
entered
into by and among Discovery Technologies, Inc., a Nevada corporation (the
“Company”),
the
investors set forth on Exhibit
A
and
signatory hereto (collectively, the “Investors”),
and
Tri-State Title & Escrow,
LLC (the “Escrow
Agent”).
The
principal address of each party hereto is set forth
on
Exhibit
A.
The
Company is sometimes referred to herein as the Escrowing Party.
WITNESSETH:
WHEREAS,
the Company, through, Xxxxxx Freihofner Capital, a division of Xxxxx Securities,
Inc, Member NASD/MSRB/SIPC (the “Placement Agent”),
proposes to make a private offering to accredited institutional investors
(the “Offering”)
of the
Company’s common stock, par value $0.001 per share (the
“Securities”)
in
reliance upon available exemptions from the registration requirements
of the U.S. Securities Act of 1933, as amended (the “Act”)
and
pursuant to the
Securities Purchase Agreement (the
“Securities
Purchase Agreement”),
in an
minimum amount of twenty million dollars ($20,000,000) and a maximum aggregate
amount of twenty six million dollars ($26,000,000) (the “Subscription
Amount”);
WHEREAS,
the Company has agreed to deposit at the closing of the transactions
contemplated by the Securities Purchase Agreement (the “Closing”)
an
aggregate of $4,250,000.00 of the proceeds received
from subscriptions made by the investors in the Offering (the “Investors”)
for
the Securities
as more fully specified in this Agreement (the “Escrowed
Funds”)
with
the Escrow Agent, to be held in escrow
and administered and distributed as described in Section 4.12 of the Securities
Purchase Agreement and Section 3 of this Agreement;
WHEREAS,
Escrow Agent is willing to hold the Escrowed Funds in escrow subject
to the terms and conditions of this Agreement;
WHEREAS,
in contemplation of, and as a material inducement for the Investors to
enter
into the Securities Purchase Agreement, the Company and Escrow Agent have each
agreed to execute and deliver this Agreement; and
WHEREAS,
capitalized terms used but not otherwise defined herein shall have the
respective meanings given to such terms in the Securities Purchase
Agreement.
NOW,
THEREFORE, in consideration of the mutual promises herein contained and
intending to be legally bound, the parties hereby agree as follows:
1. Appointment
of Escrow Agent.
The
Company hereby appoints Escrow Agent as escrow
agent in accordance with the terms and conditions set forth herein and the
Escrow Agent
hereby accepts such appointment.
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2. Delivery
of the Escrowed Funds.
2.1 The
Company hereby directs that the Escrowed
Funds be delivered simultaneously with the Closing to the Escrow Agent’s account
(the “Escrow
Account”)
as
follows:
Account
Name: Tri-State Title & Escrow, LLC
Bank:
Access National Bank, Xxxxxx, XX 00000
Account
No.: 0000000
ABA
No:
.000000000
Escrowed
Funds: $4,250,000.00
3. Escrow
Agent to Hold and Disburse Escrowed Funds.
Promptly following the Closing, the Escrow Agent will provide written notice
to
the Company (for simultaneous distribution to the Investors) that the Escrow
Agent has received the entire amount of Escrowed Funds in the Escrow Account.
The Escrow Agent will hold and
disburse the Escrowed Funds received by it pursuant to the terms of this
Agreement, as follows:
3.1 Pursuant
to Section 4.12 of the Securities Purchase Agreement, the Company has undertaken
that
no
later than 120 days following the Closing Date, the Board of Directors of the
Company shall be comprised of a minimum of five members, a majority of which
shall be “independent directors” as such term is defined in NASDAQ Marketplace
Rule 4200(a)(15). Accordingly, $2,000,000
(the
“Board
Holdback Escrow
Amount”)
of the
Escrowed Funds is to be held in the Escrow Account subject to the satisfaction
of the Company’s obligations under Section 4.12 of the Securities Purchase
Agreement.
3.2 Pursuant
to Section 4.15 of the Securities Purchase Agreement, the Company has undertaken
that no later than three
months
following the Closing Date, the Company will hire a chief financial officer
who
is a
certified public accountant or possesses experience such that he or she can
reasonably serve as a chief financial officer, fluent in English, and
who
has a
working familiarity with
(i) US
GAAP and (ii) auditing procedures and compliance for United States public
companies;
provided that if the proposed CFO is not a certified public accountant, who
is
fluent in English and an expert in GAAP and auditing procedures and compliance
for United States public companies, then such proposed CFO shall be subject
to
Pinnacle’s reasonable approval. The Company shall enter into an employment
agreement with the CFO for a term of no less than two years. Accordingly,
$2,000,000
(the
“CFO
Holdback Escrow
Amount”)
of the
Escrowed Funds is to be held in the Escrow Account subject to the satisfaction
of the Company’s obligations under Section 4.15 of the Securities Purchase
Agreement.
3.3 Pursuant
to Section 4.13 of the Securities Purchase Agreement, the Company has undertaken
that by the thirtieth day following the Closing Date, the Company shall hire
either of CCG Elite, Hayden Communications, or Integrated Corporate Relations
as
the Company’s investor relations firm. Accordingly, $250,000
(the
“IR
Holdback Escrow
Amount”)
of the
Escrowed Funds is to be held in the Escrow Account subject to the satisfaction
of the Company’s obligations under Section 4.13 of the Securities Purchase
Agreement. The
IR
Holdback Escrow Amount shall remain in the Escrow Account and shall only be
released by the Escrow Agent to the Company upon the Escrow Agent’s receipt of
written notice from the Company and the Investors then holding a majority of
the
Shares (the “Required
Investors”)
that
the Company has hired one of the aforementioned investor relations firms and
then only to the extent that the Company evidences investor relations related
expenses for payment; provided, however, if there are no such investor relations
related expenses or only a portion of such IR Holdback Escrow Amount is required
to pay investor relations related expenses, any remaining portion shall be
returned to the Investors pro rata to the accounts for such Investors set forth
on Schedule
1.
No
other portion of the Escrowed Funds may be used by the Company for such
purposes.
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3.4 If
for
any reason or for no reason whatsoever, the Escrow Agent does not receive the
written notice contemplated
herein
from the Company and the Required Investors relating to either the release
of
(i) the Board Holdback Escrow Amount prior to 125 calendar days following the
Closing Date (the “Board
Compliance Period”)
or
(ii) CFO Holdback Escrow Amount prior to 95 calendar days following the Closing
Date (the “CFO
Compliance Period”)
(each
such failure or breach being referred to as an “Event,”
and
for purposes of this Section the date such Event occurs being referred to as
“Event
Date”),
then
in addition to any other rights the Investors may have hereunder, under the
Securities Purchase Agreement or under applicable law, on each such Event Date
and on each monthly anniversary of such Event Date (if the applicable Event
shall not have been cured by such date) until the applicable Event is cured,
the
Company shall pay to each Investor by wire transfer an amount in immediately
available funds, as partial liquidated damages and not as a penalty, equal
to 1%
of the aggregate Investment Amount paid by such Investor for Shares pursuant
to
the Securities Purchase Agreement. The partial liquidated damages payable under
this Section 3.4 shall be independent of any other damages payable under this
Agreement, the Securities Purchase Agreement or any other Transaction Document
and shall apply on a daily pro-rata basis for any portion of a month prior
to
the cure of an Event. In no event will the Company be liable for partial
liquidated damages under this Agreement in excess of 1% of the aggregate
Investment Amount of the Investors in any 30-day period in respect of any single
Event (it being understood that if the Company suffers an Event relating to
its
failure to comply with Section 4.12 of the Securities Purchase Agreement and
an
Event relating to its failure to comply with Section 4.15 of the Securities
Purchase Agreement in a 30-day period it will be responsible for 2% of partial
liquidated damages under this provision in a 30-day period). It is further
understood that partial liquidated damages under this Agreement are limited
to
the Board Holdback Escrow Amount as to that Event and the CFO Holdback Escrow
Amount as to that Event; provided that the Investors are entitled to all other
remedies available under applicable law. On any Event Date, the Company will
deliver to each Investor a written notice which shall set forth the relevant
Event. Schedule
1
attached
hereto shall set forth the name, address, Investment Amount and delivery
instructions for any partial liquidated damages contemplated hereby of each
Investor.
3.5 In
the
event that the Escrow Agent does not timely receive the written notice from
the
Company and the Required Investors in accordance with the terms hereof prior
to
the expiration of either of the Board Compliance Period and/or the CFO
Compliance Period, as relevant, the Company hereby irrevocably directs the
Escrow Agent to automatically, and without any action on the part of the parties
hereto, disburse the partial liquidated damages applicable to any such Event
to
the Investors as contemplated herein until the earlier of (i) such time as
all
Escrowed Funds applicable to such Event have been disbursed to the Investors
or
(ii) such time as the Escrow Agent receives written notice from the Company
and
the Required Investors that the obligations of the Company under the Securities
Purchase Agreement applicable to such Event have been adequately complied
with.
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4.
Interpleader.
Should
any controversy arise among the parties hereto with respect
to this Agreement or with respect to the right to receive the Escrowed Funds,
the Escrow Agent shall have the right to consult counsel and/or to institute
an
appropriate interpleader
action to determine the rights of the parties. The Escrow Agent is also
hereby
authorized to institute an appropriate interpleader action upon receipt of
a
written letter of direction executed by the parties so directing the Escrow
Agent. If the Escrow Agent
is
directed to institute an appropriate interpleader action, it shall institute
such action
not prior to thirty (30) days after receipt of such letter of direction and
not
later than
sixty (60) days after such date. Any interpleader action instituted in
accordance with this
Section 4 shall be filed in any court of competent jurisdiction in Virginia,
and
the portion of the Escrowed Funds in dispute shall be deposited with the court
and in such event the Escrow Agent shall be relieved of and discharged from
any
and all obligations and liabilities under and pursuant to this Agreement with
respect to that portion of the Escrowed Funds.
5.
Exculpation
and Indemnification of Escrow Agent and Investors.
5.1
The
Escrow Agent and the Investors shall have no duties or responsibilities
other
than those expressly set forth herein. The Escrow Agent and the Investors shall
have no duty
to
enforce any obligation of any person to make any payment or delivery, or to
direct
or
cause any payment or delivery to be made, or to enforce any obligation of any
person
to
perform any other act. The Escrow Agent and the Investors shall be under no
liability
to the other parties hereto or anyone else, by reason of any failure, on the
part of any
party
hereto or any maker, guarantor, endorser or other signatory of a document or
any
other
person, to perform such person’s obligations under any such document. Except for
amendments to this Agreement
referenced below, and except for written instructions given to the Escrow Agent
by the Company and the Required Investors relating to the Escrowed Funds, the
Escrow Agent shall not be obligated to recognize any other
agreement.
5.2
Neither
the Escrow Agent nor the Investors shall be liable to the Company or
to
anyone
else for any action taken or omitted by it, or any action suffered by it to
be
taken
or
omitted, in good faith and acting upon any order, notice, demand, certificate,
opinion
or advice of counsel (including counsel chosen by the Escrow Agent), statement,
instrument,
report, or other paper or document (not only as to its due execution and the
validity
and effectiveness of its provisions, but also as to the truth and acceptability
of any
information therein contained), which is believed by the Escrow Agent or the
Investors to be
genuine and to be signed or presented by the proper person or persons. The
Escrow Agent
shall not be bound by any of the terms thereof, unless evidenced by written
notice delivered
to the Escrow Agent signed by the proper party or parties and, if the duties
or
rights
of
the Escrow Agent are affected, unless it shall give its prior written consent
thereto.
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5.3
Neither
the Escrow Agent nor the Investors shall be responsible for the sufficiency
or accuracy of the form, or of the execution, validity, value or genuineness
of,
any
document or property received, held or delivered to it hereunder, or of any
signature or
endorsement thereon, or for any lack of endorsement thereon, or for any
description therein;
nor shall the Escrow Agent or the Investors be responsible or liable to the
Company or
to
anyone else in any respect on account of the identity, authority or rights,
of
the person
executing or delivering or purporting to execute or deliver any document or
property or this Agreement.
The
Escrow Agent shall have no responsibility with respect
to the use or application of the Escrowed Funds pursuant to the provisions
hereof.
5.4
The
Escrow Agent shall have the right to assume, in the absence of written
notice
to
the contrary from the proper person or persons, that a fact or an event, by
reason of
which
an action would or might be taken by the Escrow Agent, does not exist or has
not
occurred, without incurring liability to the Company or to anyone else for
any
action taken or omitted to be taken or omitted, in good faith and in the
exercise of its own best judgment, in reliance upon such
assumption.
5.5 To
the
extent that the Escrow Agent becomes liable for the payment of taxes,
including withholding taxes, in respect of income derived from the investment
of
the
Escrowed Funds, or any payment made hereunder, the Escrow Agent may pay such
taxes;
and the Escrow Agent may withhold from any payment to the Company (but not
from
any partial liquidated damages paid to Investors) of the Escrowed Funds
such
amount as the Escrow Agent estimates to be sufficient to provide for the payment
of such
taxes not yet paid, and may use the sum withheld for that purpose. The Escrow
Agent
shall be indemnified and held harmless by the Company against any liability
for
taxes and for any penalties
in respect of taxes, on such investment income or payments in the manner
provided
in Section 5.6.
5.6 The
Escrow Agent will be indemnified and held harmless by the Company
from and against all expenses, including all counsel fees and disbursements,
or
loss
suffered by the Escrow Agent in connection with any action, suit or proceedings
involving
any claim, or in connection with any claim or demand, which in any way,
directly
or indirectly, arises out of or relates to this Agreement, the services of
the
Escrow
Agent hereunder, except for claims relating to gross negligence by Escrow Agent
or
breach
of this Agreement by the Escrow Agent, or the monies or other property
held by it hereunder. Promptly after the receipt of the Escrow Agent of notice
of any demand or claim or the commencement of any action, suit or proceeding,
the Escrow Agent shall, if a claim in respect thereof is to be made against
the
Escrowing Party,
notify it thereof in writing, but the failure by the Escrow Agent to give such
notice shall
not
relieve any such party from any liability which an Escrowing Party may have
to
the
Escrow Agent hereunder. Notwithstanding any obligation to make payments and
deliveries hereunder, the Escrow Agent may retain and hold for such time as
it
deems necessary such amount of monies or property as it shall, from time to
time, in its sole discretion, seem sufficient to indemnify itself for any such
loss or expense and for any amounts due it under Section 8.
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5.7 For
purposes hereof, the term “expense or loss” shall include all amounts
paid
or
payable to satisfy any claim, demand or liability, or in settlement of any
claim, demand, action, suit or proceeding settled with the express written
consent of the Escrow Agent, and all costs and expenses, including, but not
limited to, counsel fees and disbursements, paid or incurred in investigating
or
defending against any such claim, demand, action, suit or
proceeding.
6. Termination
of Agreement and Resignation of Escrow Agent.
6.1 This
Agreement
shall
terminate upon disbursement of all of the Escrowed Funds, provided that the
rights of the Escrow Agent and the Investors and the obligations of the Company
under Section 5 shall survive the termination hereof.
6.2 The
Escrow Agent may resign at any time and be discharged from its duties
as
Escrow Agent hereunder by giving the Company at least five (5) business days
written
notice thereof (the “Notice
Period”).
As
soon as practicable after its resignation, the
Escrow Agent shall, if it receives notice from the Company within the Notice
Period, turn
over
to a successor escrow agent appointed by the Company all Escrowed Funds
(less
such amount as the Escrow Agent is entitled to retain pursuant to Section 8)
upon presentation
of the document appointing the new escrow agent and its acceptance thereof.
If
no new
agent is so appointed within the Notice Period, the Escrow Agent shall return
the
Escrowed Funds to the parties from which they were received without interest
or
deduction.
7. Form
of Payments by Escrow Agent.
7.1 Any
payments of the Escrowed Funds by the Escrow Agent pursuant to the
terms
of this Agreement
shall be
made by wire transfer unless directed to be made by check by the receiving
party.
7.2 All
amounts referred to herein are expressed in United States Dollars and
all
payments by the Escrow Agent shall be made in such dollars.
8. Compensation. Escrow
Agent shall be entitled to the following compensation from
the
Company (it being understood that no Investor shall be responsible to pay the
Escrow Agent any compensation hereunder):
8.1 Documentation
Fee: The
Company shall pay a documentation fee to the Escrow
Agent of $2,000 receipt of which is hereby acknowledged by Escrow
Agent.
8.2 Interest:
The
Escrowed Funds shall accrue interest (the “Accrued
Interest”)
at the
available rate obtained by the Escrow Agent with respect to the period during
which such funds are held in the Escrow Account.
Each
time Escrowed Funds are disbursed to the Company in accordance with this
Agreement,
the Company shall be paid Accrued Interest of 2.0% per annum on the aggregate
amount of Escrowed Funds disbursed to the Company at such time and the balance
of Accrued Interest, if any, shall be retained by the Escrow Agent.
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9. Notices. All
notices, requests, demands, and other communications provided herein shall
be in
writing, shall be delivered by hand or by first-class mail, shall be
deemed
given when received and shall be addressed to parties hereto at their respective
addresses first set forth on Exhibit
A
hereto.
10. Further
Assurances. From
time
to time on and after the date hereof, the Company
shall deliver or cause to be delivered to the Escrow Agent such further
documents
and instruments and shall do and cause to be done such further acts as the
Escrow Agent shall reasonably request (it being understood that the Escrow
Agent
shall have
no
obligation to make any such request) to carry out more effectively the
provisions and
purposes of this Agreement, to evidence compliance herewith or to assure
itself
that it is protected in acting hereunder.
11. Consent
to Service of Process.
The
Company hereby irrevocably consents to the jurisdiction
of the courts of the State of Virginia and of any Federal court located in
such
state
in
connection with any action, suit or proceedings arising out of or relating
to
this Agreement
or any action taken or omitted hereunder, and waives personal service
of
any
summons, complaint or other process and agrees that the service thereof may
be
made
by
certified or registered mail directed to it at the address listed on
Exhibit
A hereto.
12. Miscellaneous.
12.1 This
Agreement shall be construed without regard to any presumption
or other rule requiring construction against the party causing such instrument
to be drafted. The terms “hereby,” “hereof,” “hereunder,” and any similar
terms,
as
used in this Agreement, refer to the Agreement in its entirety and
not
only to the particular portion of this Agreement
where
the term is used. The word “person” shall mean any natural person, partnership,
corporation, government and any other form of business of legal entity. All
words or terms used in this Agreement,
regardless of the number or gender in which they were used, shall be deemed
to
include any other number and any other gender as the context may require. This
Agreement
shall
not be admissible in evidence to construe the provisions of any prior
agreement.
12.2 This
Agreement
and the
rights and obligations hereunder of the Company may not be assigned. This
Agreement
and the
rights and obligations hereunder of the Escrow Agent may be assigned by the
Escrow Agent, with the prior consent
of the Company and the Required Investors. This Agreement shall be binding
upon
and inure to
the
benefit of each party’s respective successors, heirs and permitted assigns. No
other person
shall acquire or have any rights under or by virtue of this Agreement. This
Agreement
may not
be changed orally or modified, amended or supplemented without an express
written agreement executed by the Escrow Agent, the Company and the Required
Investors. This Agreement
is
intended to be for the sole benefit of the parties hereto and
their
respective successors, heirs and permitted assigns, and none of the provisions
of this
Agreement are intended to be, nor shall they be construed to be, for the
benefit
of any third person.
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12.3 This
Agreement shall be governed by, and construed in accordance
with, the internal laws of the State of Virginia. The representations and
warranties contained in this Agreement
shall
survive the execution and delivery hereof
and any investigations made by any party. The headings in this
Agreement
are for
purposes of reference only and shall not limit or otherwise affect any
of
the
terms thereof.
12.4 This
Agreement may be executed in a number
of
counterparts, by facsimile, each of which shall be deemed to be an original
as
of
those
whose signature appears thereon, and all of which shall together constitute
one
and
the
same instrument. This Agreement shall become binding when one or more of the
counterparts hereof, individually or taken together, are signed by all the
parties.
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IN
WITNESS WHEREOF, the parties have executed and delivered this Holdback Escrow
Agreement on the day and year first above written.
TRI-STATE
TITLE & ESCROW, LLC
By:
/s/
Xxx X
Xxxxxx
Name:
Xxx
X. Xxxxxx
Title:
President
DISCOVERY
TECHNOLOGIES, INC.
By:
/s/
Xxx
Xx
Name:
Xxx
Xx
Title:
Chairman of the Board,
President
and Chief Executive Officer
NAME
OF INVESTOR:
___________________________________
By:
Name:
Title:
9
EXHIBIT
A
PARTIES
TO AGREEMENT
Tri
State Title & Escrow LLC
000
Xxxx
Xxxxxx, 0xx
Xxxxx
X.X.
Xxx
000
Xxxxxxxxxx,
XX 00000
(000)
000-0000
Attention:
Xxxxxxx X. Xxxxxxx
Telephone:
(000)
000-0000
Fax: (000)
000-0000
Email: xxxxxx@xxxxxxxxxxxxx.xxx
Discovery
Technologies, Inc.
00
Xxx
Xxxxxxxxx Xxxxx, Xxxx 0,
Xxxx
Xxxxxxx, XX 00000
Attn:
Mr.
Yinshing Xxxxx To
[Insert
Investors]
10
Schedule
1
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