HOLDBACK ESCROW AGREEMENT
This
Holdback Escrow Agreement, dated as of May 30, 2008 (this “Agreement”),
is
entered
into by and among Genesis
Pharmaceuticals Enterprises, Inc., a Florida corporation
(the
“Company”),
the
investors set forth on Exhibit
A
and
signatory hereto (collectively, the “Investors”),
and
Loeb & Loeb LLP
(the
“Escrow
Agent”).
The
principal address of each of the parties hereto is set forth
on
Exhibit
A.
WITNESSETH:
WHEREAS,
the Company proposes
to make a private offering to the Investors
(the
“Offering”)
of the
Company’s 6% Convertible Notes due May 30, 2011 (“Notes”)and warrants to
purchase shares of the Company’s common stock, par value $0.001 per share
(“Common Stock”) pursuant
to that
certain Securities Purchase Agreement, dated as of the date hereof, by and
among
the Company, the Investors and certain other parties signatory thereto
(the
“Securities
Purchase Agreement”),
in an
aggregate amount of approximately Thirty Million dollars
($30,000,000)
(capitalized terms used but not otherwise defined herein shall have the
respective meanings given to such terms in the Securities Purchase
Agreement);
WHEREAS,
pursuant to the Securities Purchase Agreement, the Company has agreed that
an
aggregate of $4,000,000 of the aggregate Investment Amounts paid by Investors
to
the escrow account established in accordance with the Closing Escrow Agreement
(the “Escrowed
Funds”),
will
be deposited at Closing with the Escrow Agent, to continue to be held in
escrow,
administered and distributed as described in Section 4.12 of the Securities
Purchase Agreement and in accordance with Section 3 of this
Agreement;
and
WHEREAS,
as a material inducement for the Investors to
enter
into the Securities Purchase Agreement and consummate the Closing, the Company
and Escrow Agent have agreed to enter into this 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 to act as escrow
agent in accordance with the terms of this Agreement, and the Escrow
Agent
hereby accepts such appointment.
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:
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CITI
PRIVATE BANK
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Bank
Address:
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000
Xxxxx Xxxxxx, Xxx Xxxx, XX 00000
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000000000
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Beneficiary:
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Escrowed
Funds:
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$4,000,000.00
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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 Board
Holdback Escrow.
Pursuant to Section 4.12(a) 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
(at
least two of whom shall be fluent English speakers who possess
experience such that he or she can fulfill its fiduciary obligations and other
responsibilities as a director of
a
United States publicly listed company incorporated in the United States), a
majority of which shall be “independent directors” as such term is defined in
NASDAQ Marketplace Rule 4200(a)(15) acceptable to Xxxx. 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 this Section 3.1 and Section 4.12(a) of the
Securities Purchase Agreement. Upon the Company’s satisfaction of the aforesaid
obligations in this Section 3.1 and Section 4.12(a) of the Securities Purchase
Agreement, the Company and Investors that have invested at least a majority
of
the total Investment Amount under the Purchase Agreement (a “Majority
in Interest of the Investors”)
shall
execute and deliver written instructions with reference to this Section 3.1
to
release the Board Holdback Escrow Amount to the Company (“Instructions
to Release Board Holdback”).
Within one (1) Business Day following its receipt of Instructions to Release
Board Holdback (with wire instructions attached) jointly executed by the Company
and a Majority in Interest of the Investors, the Escrow Agent shall distribute
the Board Holdback Escrow Amount to the Company. In the event that the Escrow
Agent does not receive Instructions to Release Board Holdback on or prior to
the
125th date after the Closing Date, then upon receipt of written instructions
from a Majority in Interest of the Investors, the Escrow Agent shall release
the
Board Holdback Amount to the Investors, pro rata, based upon the Investment
Amounts paid by the Investors pursuant to the Securities Purchase
Agreement.
3.2 CFO
Holdback Escrow.
Pursuant to Section 4.12(b) of the Securities Purchase Agreement, the Company
has undertaken that no later than six (6) months following the Closing Date,
the
Company will hire a full-time chief financial officer who has experience as
the
chief financial officer of a United States public reporting company and who
is
(i) a certified public accountant, (ii) fluent in English, and (iii) an expert
in (x) GAAP and (y) auditing procedures and compliance for United States public
companies (such a chief financial officer being referred to as a “Qualified
CFO”),
which
Qualified CFO shall be acceptable to Xxxx. Xxxx
hereby agrees that the Company has complied with this covenant as of the Closing
Date by virtue of its hiring of Xxxx Xxxx as the Company’s Chief Financial
Officer. Should the Qualified CFO be dismissed at any time while the Notes
are
outstanding, then the Company shall replace the Qualified CFO with a chief
financial officer who fits the criteria set forth herein as soon as practicable.
By
9:00
a.m. (New York time) on the second Trading Day following the hiring of such
Qualified CFO, the Company will file a Current Report on Form 8-K disclosing
the
information required by Item 5.02 of Form 8-K. 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 this Section 3.2 and Section 4.12(b) of the
Securities Purchase Agreement. Upon the Company’s satisfaction of the aforesaid
obligations in this Section 3.2 and Section 4.12(b) of the Securities Purchase
Agreement, the Company and a Majority in Interest of the Investors shall execute
and deliver written instructions with reference to this Section 3.2 to release
the CFO Holdback Escrow Amount to the Company (“Instructions
to Release CFO Holdback”).
Within one (1) Business Day following its receipt of Instructions to Release
CFO
Holdback (with wire instructions attached) jointly executed by the Company
and a
Majority in Interest of the Investors, the Escrow Agent shall distribute the
CFO
Holdback Escrow Amount to the Company. In the event that the Escrow Agent does
not receive Instructions to Release CFO Holdback on or prior to six (6) months
after the Closing Date, then upon receipt of written instructions from a
Majority in Interest of the Investors, the Escrow Agent shall release the CFO
Holdback Amount to the Investors, pro rata, based upon the Investment Amounts
paid by the Investors pursuant to the Securities Purchase
Agreement.
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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 New York,
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
5.1
The
Escrow Agent shall have no duties or responsibilities other
than those expressly set forth herein. The Escrow Agent shall have no
duty
to
enforce any obligation of any person other than itself 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 shall be under no liability
to the other parties hereto or anyone else, by reason of any failure, on the
part of any
other
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 a Majority in Interest of the Investors relating to the
Escrowed Funds, the Escrow Agent shall not be obligated to recognize any other
agreement.
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5.2 The
Escrow Agent shall not 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 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.
5.3
The
Escrow Agent shall not 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 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.
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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 resulting from the gross negligence or
willful malfeasance of the 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
Company,
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 the Company may have to
the
Escrow Agent hereunder.
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. Resignation
of Escrow Agent.
The
Escrow Agent may resign at any time and be discharged from its duties
as
Escrow Agent hereunder by giving the Company and the Investors at least ten
(10)
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 or as directed by the Investors who delivered the same,
without interest or deduction with the understanding that such Escrowed Funds
will continue to be subject to the provisions of this Agreement.
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 (US$) 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 or fees hereunder):
8.1 Documentation
Fee: The
Company shall pay a documentation fee to the Escrow
Agent of $2,000.
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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 All notices, requests, demands and other communications required
or
permitted to be given hereunder shall be in writing and shall be deemed to
have
been duly given if sent by hand-delivery, by facsimile (followed by first-class
mail), by nationally recognized overnight courier service or by prepaid
registered or certified mail, return receipt requested, to the addresses set
forth below.
If
to
Investors:
To
the
address set forth on the signature pages hereto.
With
a copy to:
Wells,
Moore, Xxxxxxx & Xxxxxxx PLLC
0000
Xxx
Xxxxxx Xxxx XXX 000
P.O.
Box
1970
Xxxxxxx,
XX 00000
Attn:
Xxxxxx Xxxxx, Esq
Fax:
(000) 000-0000
If
to
the Company:
Middle
Section, Longmao Street, Area A, Laiyang Waixiangxing Industrial
Park
Laiyang
City, Yantai, Shandong Province, People’x Xxxxxxxx xx Xxxxx 000000
Attn.:
President
Facsimile:
(000) 000-0000
With
a copy to:
Loeb
& Loeb, LLP
000
Xxxx
Xxxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Attn.:
Xxxxxxxx Xxxxxxxx
Facsimile:
(000) 000-0000
If
to
Escrow Agent:
Loeb
& Loeb, LLP
000
Xxxx
Xxxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Attn.:
Xxxxxxxx Xxxxxxxx
Facsimile:
(000) 000-0000
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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. Miscellaneous.
11.1 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.
11.2 This
Agreement
and the
rights and obligations hereunder of the Company may be assigned by the Company
only following the prior written consent
of the Majority in Interest of the Investors.
This
Agreement
and the
rights and obligations hereunder of the Escrow Agent may be assigned by the
Escrow Agent only with the prior consent
of the Company and the Majority in Interest of the Investors. An Investor may
assign its rights under this Agreement without any consent from any other party.
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 Majority
in Interest of the Investors.
This
Agreement
is
binding upon and 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.
11.3 This
Agreement shall be governed by, and construed in accordance
with, the internal laws of the State of New
York.
The
representations and warranties contained in this Agreement
shall
survive the execution and delivery hereof
and any investigations made by any party. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement
shall
be commenced exclusively in the state and federal courts sitting in the City
of
New York, Borough of Manhattan (the “New
York Courts”).
Each
party hereto hereby irrevocably submits to the exclusive jurisdiction of the
New
York Courts for the adjudication of any dispute hereunder or in connection
herewith, and hereby irrevocably waives, and agrees not to assert in any such
proceeding, any claim that it is not personally subject to the jurisdiction
of
any such New York Court, or that such proceeding has been commenced in an
improper or inconvenient forum. Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address
in
effect for notices to it under this Agreement and agrees that such service
shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law.
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11.4 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.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE
PAGES FOLLOW]
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IN
WITNESS WHEREOF, the parties have executed and delivered this Agreement on
the
day and year first above written.
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Loeb
& Loeb LLP, as ESCROW AGENT
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By:
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/s/
Xxxxxxxx Xxxxxxxx
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Name:
Xxxxxxxx Xxxxxxxx
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Title:
Partner
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By:
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/s/
Cao Wubo
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Name:
Cao Wubo
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Title:
Chief Executive Officer
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INVESTORS:
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[NAME
OF INVESTOR]
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By:
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Name:
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Title:
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[NAME
OF INVESTOR]
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By:
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Name:
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Title:
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[NAME
OF INVESTOR]
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By:
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Name:
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Title:
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