MAKE GOOD SECURITIES ESCROW AGREEMENT
THIS MAKE
GOOD SECURITIES ESCROW AGREEMENT (the “Make Good Agreement” or the
“Agreement”), dated as
of December 2, 2010, is entered into by and among Weikang Bio-Technology Group
Company, Inc., a Nevada corporation (the “Company”), Lucky Wheel Limited
(the “Principal
Shareholder”) and Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP with an address at
00 Xxxxxxxx, 00xx Xxxxx,
Xxx Xxxx, XX 00000 (the “Escrow
Agent”).
Capitalized
terms used but not defined herein shall have the meanings set forth in the
Subscription Agreement (as defined below).
WITNESSETH:
WHEREAS,
certain investors, pursuant to a Subscription Agreement dated December 2, 2010
(the “Buyers”), will be
purchasing from the Company and the Company will be selling to the Buyers up to
an aggregate of 520,834 Units, with each Unit consisting of: (i) four (4) shares of common
stock, par value $.00001 per share (the “Common Stock”), (ii) a three
year warrant to purchase one share of Common Stock at an exercise price of $3.60
per share (“Series C
Warrant”), and (iii) a three year warrant to purchase one share of Common
Stock at an exercise price of $4.80 per share (“Series D
Warrant”) of the Company’s common stock, par value $0.001 per
share (“Common Stock”),
for a total aggregate purchase price of up to $5,000,000 in a private placement
financing transaction (the “Financing Transaction”)
pursuant to a Subscription Agreement dated as of the date hereof (the “Closing Date”) by and among
the Company and the Buyers (the “Subscription
Agreement”);
WHEREAS,
as an inducement to the Buyers to enter into the Subscription Agreement, the
Principal Shareholder has agreed to place the Escrow Shares (as hereinafter
defined) into escrow for the benefit of the Buyers in the event the Company
fails to achieve the following financial performance thresholds for the 12-month
periods ended December 31, 2010 (“2010”) and December 31, 2011
(“2011”):
(a) In
2010, After-Tax Net Income (“ATNI”) as reported by the
Company in its audited financial statements for 2010 (the “2010 financial statements”)
equals or exceeds $21,000,000 (the “2010 Performance
Threshold”);
(b) In
2011, ATNI, as reported by the Company in its audited financial statements for
2011 (the “2011 financial
statements”) exceeds $25,000,000 (the “2011 Performance Threshold”);
and
(c) For
purposes of this agreement, ATNI means net income from operations after tax,
prior to deduction of non-cash items, determined in accordance with United
States generally accepted accounting principles (“US GAAP”), and any charges
relating to the transaction contemplated by this Make Good Agreement, the
Subscription Agreement, and other documents executed in connection with the
Financing Transaction (the “Transaction
Documents”).
WHEREAS,
the Company and the Principal Shareholder have requested that the
Escrow Agent hold the Escrow Shares on the terms and conditions set forth in
this Agreement and the Escrow Agent has agreed to act as escrow agent pursuant
to the terms and conditions of this Agreement.
NOW,
THEREFORE, in consideration of the covenants and mutual promises contained
herein and other good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE
I
TERMS OF
THE ESCROW
1.1. The
parties hereby agree to establish an escrow account with the Escrow Agent
whereby the Escrow Agent shall hold the Escrow Shares as contemplated by this
Agreement.
1.2. Within
fifteen (15) days of the execution of this Agreement, the Principal Shareholder
shall deposit or cause to be deposited Two Million Eight-Three Thousand Three
Hundred Thirty-Three (2,083,333) shares of Common Stock with the Escrow Agent
(the “Escrow
Shares”).
1.3. The
Company will provide the Buyers with (i) the Company’s audited financial
statements for 2010, prepared in accordance with US GAAP, on or before March 31,
2011 and (ii) the Company’s audited financial statements for 2011, prepared in
accordance with US GAAP, on or before March 31, 2012, so as to allow the Buyers
the opportunity to evaluate whether the 2010 Performance Threshold and the 2011
Performance Threshold were attained. In the event that any Buyer receives the
financial information prior to its dissemination by the Company in either a
press release or in the Company’s SEC Documents, the Company shall issue a press
release announcing the information or file a Form 8-K within one trading day of
a request by the Buyer to make such information public.
1.4. The
parties hereby agree that the Escrow Shares shall be delivered to the Buyers as
set forth below:
If the Company fails to achieve the
2010 Performance Threshold or 2011 Performance Threshold for the relevant fiscal
periods, the Company shall instruct the Escrow Agent to deliver such number of
Escrow Shares to Buyer on a pro-rata basis, based on the following
formula:
Number of
Make-Good Shares = (A* B)
due to
investor A
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where A
=
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the
number of shares of Common Stock issued to the Buyer,
and
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B
=
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(the
target ATNI minus the actual applicable ATNI) / the target ATNI, as
calculated to four decimal places (or to two decimal places, if expressed
as a percentage)
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For
example, if the shortfall for 2010 is 10.00% and the minimum Offering amount is
raised, with 416,667 shares of Common Stock issued to Buyers, then the total
number of Escrow Shares to be transferred for 2010 is 41,667, to be transferred
on a pro-rata basis to the Buyers.
1.5 The
parties hereby agree that in determining the 2010 Performance Threshold and the
2011 Performance Threshold, the parties shall not take into account
(and such amounts shall not be included in determining ATNI):
(i) the
offering and transactional costs associated with the Financing Transaction,
including without limitation, legal and audit costs, registration and filing
fees;
(ii) losses
the Company has suffered or reasonably calculated to have suffered as a result
of a force majeure event, which shall mean (i) acts of God (ii) outbreak of
hostilities, riots, civil disturbances, acts of terrorisms, (iii) the act of any
government or authority (including refusal or revocation of any license or
consent), (iv) fire, explosion, flood, or bad weather, (v) power failure,
failure of telecommunications lines, failure or breakdown of plant, machinery or
vehicles, (vi) default of suppliers or sub-contractors, (vii) theft, malicious
damage, strike, lock-out or industrial action of any kind and (vii) any cause or
circumstance whatsoever beyond the Company’s reasonable control;
(iii) any
compensation expense incurred by the Company in connection with the release of
any Escrow Shares to the Principal Shareholder;
(iv) the
effects of EITF 07-5; and
(v) the
costs and expense incurred by the Company in 2010 and incurred in 2011 in
establishing an employee stock option plan and granting stock options to its
employees thereunder.
1.7 If
the Company does not achieve either the 2010 Performance Threshold or the 2011
Performance Threshold, the Company shall use its commercially reasonable efforts
to promptly cause the 2010 Escrow Shares or the 2011 Escrow Shares, as the case
may be, to be delivered to the Buyers, including causing its transfer agent
promptly to issue the certificates in the names of the Buyers and causing its
securities counsel to provide any written instruction required by the Escrow
Agent in a timely manner so that the issuances and delivery contemplated above
can be achieved within ten (10) business days after March 31, 2011 or March 31,
2012, as applicable. For the avoidance of any doubt, the Escrow Agent
shall not be responsible to procure written instructions from the Company to
transfer the 2009 Escrow Shares or the 2010 Escrow Shares to the
Buyers.
1.8 Upon
the written instructions of the Company, the Escrow Agent shall deliver the 2010
Escrow Shares and the 2011 Escrow Shares, as applicable, to each Buyer or the
Principal Shareholder, and shall be held harmless from any claim, loss or
expense regarding such delivery regardless of whether the other provisions of
this Make Good Securities Escrow Agreement are complied with or
met.
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1.9 The
Escrow Agent shall upon the delivery of 2010 Escrow Shares and 2011 Escrow
Shares to the Buyers, but in no event no later than April 15, 2012, return to
the Principal Shareholder any Escrow Shares not required to be delivered to the
Buyers pursuant to the terms hereof.
ARTICLE
II
REPRESENTATIONS
OF THE PRINCIPAL SHAREHOLDER
2. The
Principal Shareholder hereby represents and warrants to the Company as
follows:
(i) The
Escrow Shares placed into escrow hereunder by the Principal Shareholder are
validly issued, fully paid and nonassessable shares of the Company. The
Principal Shareholder is the record and beneficial owner of the Escrow Shares
placed into escrow pursuant to this Agreement by the Principal Shareholder and
has good title to such Escrow Shares, free and clear of all pledges, liens,
claims and encumbrances, except encumbrances created by this Agreement. There
are no restrictions on the ability of the Principal Shareholder to transfer the
Escrow Shares placed into escrow pursuant to this Agreement by the Principal
Shareholder or to enter into this Agreement other than transfer restrictions
under the Lock-Up Agreement and/or applicable federal and state securities laws.
While any Escrow Shares remain in escrow, the Principal Shareholder will not
pledge any Escrow Shares and will not create or permit to be created or to exist
any lien, claim or encumbrance upon any Escrow Share. Upon any delivery of
Escrow Shares placed into escrow pursuant to this Agreement by the Principal
Shareholder to the Buyers hereunder, the Buyers will acquire good and valid
title to such Escrow Shares, free and clear of any pledges, liens, claims and
encumbrances.
(ii) The
performance of this Agreement and compliance with the provisions hereof will not
violate any provision of any law applicable to the Principal Shareholder and
will not conflict with or result in any breach of any of the terms, conditions
or provisions of, or constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon, any of the properties or
assets of the Principal Shareholder pursuant to the terms of the certificate of
incorporation or by-laws of the Company or any indenture, mortgage, deed of
trust or other agreement or instrument binding upon the Principal Shareholder or
affecting the Escrow Shares. No notice to, filing with, or authorization,
registration, consent or approval of any governmental authority or other person
is necessary for the execution, delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby by the Principal
Shareholder.
ARTICLE
III
MISCELLANEOUS
3.1 The
Company will pay Escrow Agent a total of $1,000 for all services rendered by
Escrow Agent hereunder.
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3.2 No
waiver or any breach of any covenant or provision herein contained shall be
deemed a waiver of any preceding or succeeding breach thereof, or of any other
covenant or provision herein contained. No extension of time for performance of
any obligation or act shall be deemed an extension of the time for performance
of any other obligation or act.
3.3 All
notices, demands, consents, requests, instructions and other communications to
be given or delivered or permitted under or by reason of the provisions of this
Agreement or in connection with the transactions contemplated hereby shall be in
writing and shall be deemed to be delivered and received by the intended
recipient as follows: (i) if personally delivered, on the business day of such
delivery (as evidenced by the receipt of the personal delivery service), (ii) if
mailed certified or registered mail return receipt requested, two (2) business
days after being mailed, (iii) if delivered by overnight courier (with all
charges having been prepaid), on the business day of such delivery (as evidenced
by the receipt of the overnight courier service of recognized standing), or (iv)
if delivered by facsimile transmission, on the business day of such delivery if
sent by 6:00 p.m. in the time zone of the recipient, or if sent after that time,
on the next succeeding business day (as evidenced by the printed confirmation of
delivery generated by the sending party’s telecopier machine). If any notice,
demand, consent, request, instruction or other communication cannot be delivered
because of a changed address of which no notice was given (in accordance with
this Section 3.3), or the refusal to accept same, the notice, demand, consent,
request, instruction or other communication shall be deemed received on the
second business day the notice is sent (as evidenced by a sworn affidavit of the
sender). All such notices, demands, consents, requests, instructions and other
communications will be sent to the following addresses or facsimile numbers as
applicable.
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If
to Escrow Agent:
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Sichenzia
Xxxx Xxxxxxxx Xxxxxxx LLP
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00
Xxxxxxxx, 00xx Xxxxx,
Xxx Xxxx,
XX 00000
Attention: Xxxx
X. Xxxx, Esq.
Tel
No.:000-000-0000
Fax No.:
000-000-0000
If to the
Company or the Principal Shareholder:
Xx. 000
Xxxxxxx Xxxxxx, Xxxxxx Xxxxxxxx, Xxxxxx
Xxxxxxxxxxxx
Xxxxxxxx, The People’s Republic of China 150020
Attention:
Xxx Xxxx, Chief Executive Officer
Phone:
(00) 0000-00000000
With a
copy to:
Sichenzia
Xxxx Xxxxxxxx Xxxxxxx LLP
00
Xxxxxxxx, 00xx
Xxxxx
Xxx Xxxx,
XX 00000
Attention:
Xxxx X.
Xxxx, Esq.
Tel. No.:
(000) 000-0000
Fax No.:
(000) 000-0000
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or to
such other address and to the attention of such other person as any of the above
may have furnished to the other parties in writing and delivered in accordance
with the provisions set forth above.
3.4 This
Escrow Agreement shall be binding upon and shall inure to the benefit of the
permitted successors and permitted assigns of the parties hereto.
3.5 This
Escrow Agreement is the final expression of, and contains the entire agreement
between, the parties with respect to the Escrow Shares, and the subject matter
hereof and supersedes all prior understandings with respect to the Escrow
Shares. This Escrow Agreement is one of a series of agreements relating to the
Financing Transaction, and the terms hereof shall not relate to any aspect of
the Financing Transaction other than the Escrow Shares and the escrow hereby
created. This Escrow Agreement may not be modified, changed, supplemented or
terminated, nor may any obligations hereunder be waived, except by written
instrument signed by the parties to be charged or by its agent duly authorized
in writing or as otherwise expressly permitted herein.
3.6 Whenever
required by the context of this Escrow Agreement, the singular shall include the
plural and each gender shall include all other genders. This Escrow Agreement
shall not be construed as if it had been prepared by one of the parties, but
rather as if both parties had prepared the same. Unless otherwise indicated, all
references to Articles are to articles of this Escrow Agreement.
3.7 The
parties hereto expressly agree that this Escrow Agreement shall be governed by,
interpreted under and construed and enforced in accordance with the laws of the
State of New York, without regard to conflicts of law principles that would
result in the application of the substantive laws of another jurisdiction. Any
action to enforce, arising out of, or relating in any way to, any provisions of
this Escrow Agreement shall only be brought in a state or Federal court sitting
in New York City, Borough of Manhattan.
3.8 The
Escrow Agent’s duties hereunder may be altered, amended, modified or revoked
only by a writing signed by the Company, the Principal Shareholder, and the
Escrow Agent.
3.9 The
Escrow Agent shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by the Escrow Agent
to be genuine and to have been signed or presented by the proper party or
parties. The Escrow Agent shall not be personally liable for any act the Escrow
Agent may do or omit to do hereunder as the Escrow Agent while acting in good
faith and in the absence of gross negligence, fraud and willful misconduct, and
any act done or omitted by the Escrow Agent pursuant to the advice of the Escrow
Agent’s attorneys-at-law shall be conclusive evidence of such good faith, in the
absence of gross negligence, fraud and willful misconduct.
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3.10 The
Escrow Agent is hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law and is hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case the Escrow Agent obeys or complies with any such order, judgment or decree,
the Escrow Agent shall not be liable to any of the parties hereto or to any
other person, firm or corporation by reason of such decree being subsequently
reversed, modified, annulled, set aside, vacated or found to have been entered
without jurisdiction.
3.11 The
Escrow Agent shall not be liable in any respect on account of the identity,
authorization or rights of the parties executing or delivering or purporting to
execute or deliver any documents or papers deposited or called for hereunder in
the absence of gross negligence, fraud and willful misconduct.
3.12 The
Escrow Agent shall be entitled to employ such legal counsel and other experts as
the Escrow Agent may deem necessary properly to advise the Escrow Agent in
connection with the Escrow Agent’s duties hereunder, may rely upon the advice of
such counsel, and may pay such counsel reasonable compensation therefor which
shall be paid by the Escrow Agent. The Escrow Agent has acted as legal
counsel for the Company and the Principal Shareholder and may continue to act as
legal counsel for the Company and the Principal Shareholder from time to time,
notwithstanding its duties as the Escrow Agent hereunder.
3.13 The
Escrow Agent’s responsibilities as escrow agent hereunder shall terminate if the
Escrow Agent shall resign by giving written notice to the Company. In the event
of any such resignation, the Company shall appoint a successor Escrow Agent and
the Escrow Agent shall deliver to such successor Escrow Agent any Escrow Shares
and other documents held by the Escrow Agent.
3.14 If
the Escrow Agent reasonably requires other or further instruments in connection
with this Escrow Agreement or obligations in respect hereto, the necessary
parties hereto shall join in furnishing such instruments.
3.15 It
is understood and agreed that should any dispute arise with respect to the
delivery and/or ownership or right of possession of the documents or the Escrow
Shares held by the Escrow Agent hereunder, the Escrow Agent is authorized and
directed in the Escrow Agent’s sole discretion (1) to retain in the Escrow
Agent’s possession without liability to anyone all or any part of said documents
or the Escrow Shares until such disputes shall have been settled either by
mutual written agreement of the parties concerned or by a final order, decree or
judgment or a court of competent jurisdiction after the time for appeal has
expired and no appeal has been perfected, but the Escrow Agent shall be under no
duty whatsoever to institute or defend any such proceedings or (2) to deliver
the Escrow Shares and any other property and documents held by the Escrow Agent
hereunder to a state or Federal court having competent subject matter
jurisdiction and located in the City of New York, Borough of Manhattan, in
accordance with the applicable procedure therefor.
3.16 The
Company agrees to indemnify and hold harmless the Escrow Agent and its partners,
employees, agents and representatives from any and all claims, liabilities,
costs or expenses in any way arising from or relating to the duties or
performance of the Escrow Agent hereunder or the transactions contemplated
hereby or by the Subscription Agreement other than any such claim, liability,
cost or expense to the extent the same shall have been determined by final,
unappealable judgment of a court of competent jurisdiction to have resulted from
the gross negligence, fraud or willful misconduct of the Escrow
Agent.
[Signature
Page Follows]
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[SIGNATURE
PAGE TO MAKE GOOD ESCROW AGREEMENT]
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and
year first above written.
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WEIKANG
BIO-TECHNOLOGY GROUP
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COMPANY,
INC.
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By:
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/s/ Xxx Xxxx
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Name:
Xxx Xxxx
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Title:
Chief Executive Officer
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ESCROW
AGENT:
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Sichenzia
Xxxx Xxxxxxxx Xxxxxxx LLP
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By:
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/s/ Xxxx X. Xxxx
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Name:
Xxxx X. Xxxx
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Title:
Partner
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PRINCIPAL
SHAREHOLDER:
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Lucky
Wheel Limited
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By:
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/s/ Xxx Xxxx
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Name:
Xxx Xxxx
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Title: Chief
Executive Officer
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