SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Date
of
Report (Date of earliest event reported): November 2, 2008
NEOSTEM,
INC.
(Exact
Name of Registrant as Specified in Charter)
|
Delaware
(State
or Other Jurisdiction of Incorporation)
|
0-10909
(Commission
File
Number)
|
22-2343568
(IRS
Employer Identification No.)
|
420
Lexington Avenue, Suite 450, New York, New York 10170
(Address
of Principal Executive Offices)(Zip Code)
(212)
584-4180
Registrant's
Telephone Number
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
o
Written communications
pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule
14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant
to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant
to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item
1.01. Entry
into a Material Definitive Agreement.
Agreement
and Plan of Merger
On
November 2, 2008, NeoStem, Inc., a Delaware corporation ("NeoStem"), entered
into an Agreement and Plan of Merger (the “Merger Agreement”), with China
Biopharmaceuticals Holdings, Inc., a Delaware corporation ("CBH"), China
Biopharmaceuticals Corp., a British Virgin Islands corporation and wholly-owned
subsidiary of CBH ("CBC"), and CBH Acquisition LLC, a Delaware limited liability
company and wholly-owned subsidiary of NeoStem ("Merger Sub"). The Merger
Agreement contemplates the merger of CBH with and into Merger Sub, with Merger
Sub as the surviving entity (the “Merger”); provided, that prior to the
consummation of the Merger, CBH will spin off all of its shares of capital
stock
of CBC to CBH’s stockholders in a liquidating distribution so that the only
material assets of CBH following such spin-off (the "Spin-off") will be CBH's
51% ownership interest in Suzhou Erye Pharmaceuticals Company Ltd. (“Erye”), a
Sino-foreign joint venture with limited liability organized under the laws
of
the People’s Republic of China (the "PRC"), plus net cash which shall not be
less than $550,000. Erye specializes in research and development, production
and
sales of pharmaceutical products, as well as chemicals used in pharmaceutical
products. Erye, which has been in business for more than 50 years, currently
manufactures over 100 drugs on seven Good Manufacturing Practices (GMP) lines,
including small molecule drugs.
Pursuant
to the terms and subject to the conditions set forth in the Merger Agreement,
all of the shares of common stock, par value $.01 per share, of CBH ("CBH Common
Stock"), issued and outstanding immediately prior to the effective time of
the
Merger (the "Effective Time") will be converted into the right to receive,
in
the aggregate, 7,500,000 shares of common stock, par value $.001 per share,
of
NeoStem (the "NeoStem Common Stock") (of which 150,000 shares will be held
in
escrow pursuant to the terms of an escrow agreement to be entered into between
CBH and NeoStem). Subject to the cancellation of outstanding warrants to
purchase shares of CBH Common Stock held by RimAsia Capital Partners, L.P.
("RimAsia"), a current holder of approximately 14% of the outstanding shares
of
NeoStem Common Stock and the sole holder of shares of Series B Convertible
Preferred Stock, par value $0.01 per share, of CBH (the "CBH Series B Preferred
Stock"), all of the shares of CBH Series B Preferred Stock issued and
outstanding immediately prior to the Effective Time will be converted into
(i)
5,383,009 shares of NeoStem Common Stock, (ii) 6,977,512 shares of Series C
Convertible Preferred Stock, without par value, of NeoStem, each with a
liquidation preference of $1.125 per share and convertible into shares of
NeoStem Common Stock at a conversion price of $.90 per share, and (iii) warrants
to purchase 2,400,000 shares of NeoStem Common Stock at an exercise price of
$0.80 per share.
At
the
Effective Time, in exchange for cancellation of all of the outstanding shares
of
Series A Convertible Preferred Stock, par value $.01 per share, of CBH (the
"CBH
Series A Preferred Stock") held by Stephen Globus, a director of CBH, and/or
related persons, NeoStem will issue to Mr. Globus and/or related persons an
aggregate of 50,000 shares of NeoStem Common Stock. NeoStem also will issue
60,000 shares of NeoStem Common Stock to Mr. Globus and 40,000 shares of NeoStem
Common Stock to Chris Peng Mao, the Chief Executive Officer of CBH, in exchange
for the cancellation and the satisfaction in full of indebtedness in the
aggregate principal amount of $90,000, plus any and all accrued but unpaid
interest thereon, and other obligations of CBH to Globus and Mao. NeoStem will
bear 50% of up to $450,000 of CBH's expenses post-merger, and satisfaction
of
the liabilities of Messrs. Globus and Mao will count toward that obligation.
NeoStem also will issue 200,000 shares to CBC to be held in escrow, payable
if
NeoStem successfully consummates its previously announced acquisition of control
of Shandong New Medicine Research Institute of Integrated Traditional and
Western Medicine Limited Liability Company and there are no further liabilities
above $450,000.
2
Also
at
the Effective Time, subject to acceptance by the holders of all of the
outstanding warrants to purchase shares of CBH Common Stock (other than warrants
held by RimAsia), such warrants shall be canceled and the holders thereof shall
receive warrants to purchase up to an aggregate of up to 2,012,097 shares of
NeoStem Common Stock at an exercise price of $2.50 per share.
Upon
consummation of the transactions contemplated by the Merger, NeoStem will own
51% of the ownership interests in Erye, and Suzhou Erye Economy and Trading
Co.
Ltd., a limited liability company organized under the laws of the PRC ("EET"),
will own the remaining 49% ownership interest. In connection with the execution
of the Merger Agreement, NeoStem, Merger Sub and EET have negotiated a revised
joint venture agreement (the "Joint Venture Agreement"), which, subject to
finalization and approval by the requisite PRC governmental authorities, will
become effective and will govern the rights and obligations with respect to
their respective ownership interests in Erye. Pursuant to the terms and
conditions of the Joint Venture Agreement, dividend distributions to EET and
NeoStem will be made in proportion to their respective ownership interests
in
Erye; provided, however, that for the three-year period commencing on the first
day of the first fiscal quarter after the Joint Venture Agreement becomes
effective, (i) 49% of undistributed profits (after tax) will be distributed
to
EET and lent back to Erye by EET for use by Erye in connection with the
construction of a new plant for Erye; (ii) 45% of the net profit (after tax)
will be provided to Erye as part of the new plant construction fund, which
will
be characterized as paid-in capital for NeoStem's 51% interest in Erye; and
(iii) 6% of the net profit will be distributed to NeoStem directly for NeoStem’s
operating expenses. In the event of the sale of all of the assets of Erye or
liquidation of Erye, NeoStem will be entitled to receive the return of such
additional paid-in capital before distribution of Eyre’s assets is made based
upon the ownership percentages of NeoStem and EET, and upon an initial public
offering of Erye which raises at least 50,000,000 RMB (or approximately U.S.
$7,100,000), NeoStem will be entitled to receive the return of such additional
paid-in capital.
Pursuant
to the Merger Agreement, NeoStem has agreed to use its reasonable best efforts
to cause the members of NeoStem's Board of Directors to consist of the following
five members promptly following the Effective Time: Robin L. Smith (Chairman),
current Chairman of the Board and Chief Executive Officer of NeoStem; Madam
Zhang Jian, the Chairman and Chief Financial Officer of CBH, the General Manager
of Erye and a 10% holder of EET, and Richard Berman, Steven S. Myers and Joseph
Zuckerman, each a director of NeoStem (the latter three to be independent
directors, as defined under the American Stock Exchange listing standards).
Within four months following the Effective Time, NeoStem’s Board of Directors
will, in accordance with NeoStem’s bylaws, as amended, cause the number of
members constituting the Board of Directors of NeoStem to be increased from
five
to seven and to fill the two vacancies created thereby with a designee of
RimAsia, who will initially be Eric Wei, and with an independent director (as
defined under the American Stock Exchange listing standards) to be selected
by a
nominating committee of the Board of Directors of NeoStem. NeoStem has started
to identify candidates for the independent director positions to contribute
to
the new direction of NeoStem.
3
In
connection with the Merger, NeoStem intends to file with the Securities and
Exchange Commission (the “SEC”) a combined registration statement and proxy
statement on Form S-4 (including any amendments, supplements and exhibits
thereto, the “Proxy Statement/Registration Statement”) with respect to, among
other things, the shares of NeoStem Common Stock to be issued in the Merger
(the
"Issuance") and a proposed amendment to NeoStem’s certificate of incorporation
to effect an increase in NeoStem’s authorized shares of preferred stock, without
par value, that may be necessary to consummate the transactions contemplated
by
the Merger Agreement (the “Charter Amendment"). The Merger has been approved by
the NeoStem Board of Directors. The Issuance and Charter Amendment contemplated
by the Merger Agreement are subject to approval by the stockholders of NeoStem
and the Merger, the Spin-Off and the other transactions contemplated by the
Merger Agreement are subject to approval by the stockholders of CBH.
In
connection with execution of the Merger Agreement, each of the officers and
directors of CBH, RimAsia, Erye and EET have entered into a lock-up and voting
agreement, pursuant to which they have agreed to vote their shares of CBH Common
Stock in favor of the Merger and to the other transactions contemplated by
the
Merger Agreement and are prohibited from selling their CBH Common Stock and/or
NeoStem Common Stock from November 2, 2008 through the expiration of the
six-month period immediately following the consummation of the transactions
contemplated by the Merger Agreement (the "Lock-Up Period"). Similarly, the
officers and directors of NeoStem have entered into a lock-up and voting
agreement, pursuant to which they have agreed to vote their shares of NeoStem
Common Stock in favor of the Issuance and are prohibited from selling their
NeoStem Common Stock during the Lock-Up Period.
The
transactions contemplated by the Merger Agreement are subject to the
authorization for listing on the American Stock Exchange (or any other stock
exchange on which shares of NeoStem Common Stock are listed) of the shares
to be
issued in connection with the Merger, shareholder approval, approval of
NeoStem's acquisition of 51% ownership interest in Erye by relevant PRC
governmental authorities, receipt of a fairness opinion and other customary
closing conditions set forth in the Merger Agreement. The Merger currently
is
expected to be consummated in the first quarter of 2009.
The
foregoing description of the Merger Agreement is not complete and is qualified
in its entirety by reference to the Merger Agreement, which is filed as Exhibit
2.1 hereto and is incorporated herein by reference. On November 3, 2008, NeoStem
issued a press release announcing the execution of the Merger Agreement, a
copy
of which is filed as Exhibit 99.1 hereto and incorporated herein by
reference.
Risk
Factors Relating to the Merger
You
are
urged to read all relevant documents filed with the SEC, including, without
limitation, the Proxy Statement/Registration Statement, because they will
contain important information about NeoStem and the proposed Merger, including
risk factors relating thereto. Set forth below are certain risk factors relating
to the proposed Merger of which you should be aware. More complete risk factors
relating to the proposed Merger will be included in the Proxy
Statement/Registration Statement.
4
The
consummation of the transactions contemplated by the Merger Agreement are
dependent upon NeoStem's obtaining all relevant and necessary governmental
approvals from the relevant PRC government
authorities.
Pursuant
to the Merger Agreement, NeoStem will acquire, indirectly through NeoStem's
ownership in Merger Sub, a
51%
ownership interest in Erye, with EET owning the remaining 49% ownership interest
in Erye. NeoStem, Merger Sub and EET must enter into a Joint Venture Agreement
to govern the rights and obligations of NeoStem, Merger Sub and EET with respect
to their ownership in Erye. The Joint Venture Agreement, together with the
articles of incorporation of Erye, must be delivered to the relevant PRC
governmental organizations for inspection and approval, and the closing of
the
transactions contemplated by the Merger Agreement are contingent upon, among
other things, obtaining all relevant and necessary governmental approvals from
the relevant PRC government authorities of the Joint Venture Agreement, the
articles of incorporation and the transactions contemplated thereby. There
can
be no assurance that NeoStem will be able to obtain all such relevant and
necessary governmental approvals from the relevant PRC government authorities
on
a timely basis or at all.
NeoStem
has incurred, and expects to continue to incur, significant costs and expenses
in connection with the proposed Merger. Any failure to obtain, or delay in
obtaining, the necessary PRC government approvals would prevent NeoStem from
being able to consummate, or delay the consummation of, the transactions
contemplated by the Merger Agreement, which could materially adversely affect
its business, financial condition and results of operations.
Following
the Merger, a substantial portion of NeoStem's assets will be located in the
PRC
and a substantial portion of NeoStem's revenue will be derived from operations
in the PRC. Since this is one of NeoStem's first ventures into the Chinese
market, NeoStem's operations may be subject to additional risks and
uncertainties.
Because
NeoStem does not have any experience in doing business in the PRC, the company’s
directors, officers, managers, and employees will be encountering for the first
time the economic, political, and legal climate that is unique to the PRC,
which
may present risk and uncertainties to NeoStem's operations. Although in recent
years the PRC’s government has implemented measures emphasizing the use of
market forces for economic reform, the reduction of state ownership of
productive assets and the establishment of sound corporate governance in
business enterprises, a substantial portion of productive assets in the PRC
is
still owned by the PRC’s government. In addition, the PRC’s government continues
to play a significant role in regulating industry development by imposing
industrial policies. It also exercises significant control over the PRC’s
economic growth through the allocation of resources, controlling payment of
foreign currency-denominated obligations, setting monetary policy and providing
preferential treatment to particular industries or companies.
There
can
be no assurance that the PRC’s economic, political or legal systems will not
develop in a way that becomes detrimental to our business, results of operations
and prospects. NeoStem's activities may be materially and adversely affected
by
changes in the PRC’s economic and social conditions and by changes in the
policies of the PRC’s government, such as measures to control inflation, changes
in the rates or method of taxation and the imposition of additional restrictions
on currency conversion.
5
Additional
factors that NeoStem may experience in connection with having operations in
the
PRC that may adversely affect NeoStem's business and results of operations
include the following:
| · |
NeoStem
may not be able to enforce or obtain a remedy under any material
agreements.
|
| · |
PRC
restrictions on foreign investment could severely impair NeoStem's
ability
to conduct its business or acquire or contract with other entities
in the
future.
|
| · |
Restrictions
on currency exchange may limit NeoStem's ability to use cash flow
most
effectively and fluctuations in currency values could adversely affect
operating results.
|
| · |
Cultural
and managerial differences may result in the reduction of our overall
performance.
|
| · |
Political
instability in the PRC could harm NeoStem's
business.
|
Additional
Information about the Merger and Where to Find It
NeoStem
intends to file a Proxy Statement/Registration Statement with the SEC with
respect to the shares of NeoStem Common Stock to be issued in connection with
the Merger. Investors and security holders are advised to read the Proxy
Statement/Registration Statement when it becomes available because it contains
important information about NeoStem, CBH, the proposed Merger and other related
matters. The Proxy Statement/Registration Statement will be sent to stockholders
of NeoStem seeking their approval of the proposed transaction. Investors and
security holders will be able to obtain the documents free of charge at the
SEC’s web site, http://www.sec.gov. Since such documents are not currently
available, NeoStem's stockholders will receive information at an appropriate
time as to how to obtain transaction-related documents free of charge from
NeoStem.
Safe
Harbor for Forward-Looking Statements
This
Current Report on Form 8-K contains “forward-looking” statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements are typically preceded by words such as “believes,” “expects,”
“anticipates,” “intends,” “will,” “may,” “should,” or similar expressions. These
forward-looking statements are subject to risks and uncertainties that may
cause
actual future experience and results to differ materially from those discussed
in these forward-looking statements. Important factors that might cause such
a
difference include, but are not limited to, costs related to the merger; failure
of NeoStem's or CBH’s stockholders to approve the Merger; NeoStem's or CBH's
inability to satisfy the conditions of the Merger; NeoStem's inability to
maintain its American Stock Exchange listing; the inability to integrate
NeoStem’s and CBH's businesses successfully; the need for outside financing to
meet capital requirements; failure to have an effective Joint Venture Agreement
satisfactory to the parties and regulatory authorities and other events and
factors disclosed previously and from time to time in NeoStem’s filings with the
SEC, including NeoStem’s Annual Report on Form 10-K for the year ended December
31, 2007, filed with the SEC on March 28, 2008, as amended by Amendment No.
1 on
Form 10-K/A filed with the SEC on April 29, 2008 (collectively, the "NeoStem
Form 10-K"), and the Proxy Statement/Registration Statement. NeoStem does not
undertake any obligation to release publicly any revisions to such
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
6
This
Current Report on Form 8-K may be deemed to be solicitation material in respect
of the proposed Merger. The directors and executive officers of each of NeoStem
and CBH may be deemed to be participants in the solicitation of proxies from
the
holders of NeoStem Common stock in respect of the proposed transaction.
Information about the directors and executive officers of NeoStem is set forth
in the NeoStem Form 10-K. Investors may obtain additional information regarding
the interest of NeoStem and its directors and executive officers, and CBH and
its directors and executive officers in connection with the proposed Merger
by
reading the Proxy Statement/Registration Statement when it becomes
available.
Item
9.01. Financial
Statements and Exhibits.
(d) Exhibits
Exhibit
2.1 - Agreement and Plan of Merger, dated as of November 2, 2008 by and among
NeoStem, CBH, CBC and Merger Sub.*
Exhibit
99.1 - Press release, dated November 3, 2008.
________________
*
The
schedules to this agreement have been omitted from this filing pursuant to
Item
601(b)(2) of Regulation S-K. NeoStem will furnish copies of any schedules to
the
Securities and Exchange Commission upon request.
7
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, NeoStem has duly
caused this Report to be signed on its behalf by the undersigned hereunto duly
authorized.
| NEOSTEM, INC. | ||
| |
|
|
| By: | /s/ Catherine M. Vaczy | |
|
Name: Catherine M. Vaczy |
||
| Title: Vice President and General Counsel | ||
Date: November
6, 2008
8
Exhibit
2.1
AGREEMENT
AND PLAN OF MERGER
BY
AND AMONG
NEOSTEM,
INC.,
CBH
ACQUISITION LLC,
CHINA
BIOPHARMACEUTICALS HOLDINGS, INC.
AND
CHINA
BIOPHARMACEUTICALS CORP.
November
2, 2008
TABLE
OF CONTENTS
EXHIBIT
INDEX
Exhibit
A
- Class B Warrant
Exhibit
B
- Class C Warrant
Exhibit
C
- CBH Lock-Up and Voting Agreement
Exhibit
D
- Escrow Agreement
Exhibit
E
- Support Agreement
Exhibit
F
- Erye Letter of Intent to Enter into Amended and Restated Joint Venture
Agreement
Exhibit
G
- CBH Liability Release
Exhibit
H
- Amended and Restated Erye Joint Venture Agreement
Exhibit
I
- NeoStem Lock-Up and Voting Agreement
-i-
AGREEMENT
AND PLAN OF MERGER
This
Agreement and Plan of Merger (this “Agreement”)
is
made and entered into as of the 2nd day of November, 2008, by and among NeoStem,
Inc., a Delaware corporation (“NeoStem”),
CBH
Acquisition LLC, a Delaware limited liability company and a wholly owned
subsidiary of NeoStem (“Subco”),
China
Biopharmaceuticals Holdings, Inc., a Delaware corporation (“CBH”)
and
China Biopharmaceutical Corp., a British Virgin Islands corporation
(“CBC”).
NeoStem, Subco and CBH are sometimes collectively referred to as the “Parties”;
each individually a “Party”.
PRELIMINARY
STATEMENTS
A. NeoStem
is engaged in a platform business of operating a commercial autologous adult
stem cell bank, is pioneering the pre-disease collection, processing and
long-term storage of stem cells from adult donors for use for their own future
medical treatment and has entered into research and development through the
acquisition of a worldwide exclusive license of technology to identify and
isolate very small embryonic-like stem cells.
B. CBH
is a
pharmaceutical company focused on developing, manufacturing and distributing
drugs in the PRC. CBH is a holding company with two subsidiaries, Suzhou Erye
Pharmaceuticals Company Ltd. (“Erye”),
a
Sino-Foreign joint venture with limited liability organized under the laws
of
the People’s Republic of China (the “PRC”),
and
CBC. Erye is engaged in the production and sale of injection drugs, capsule
drugs, API and aluminum caps for injection glass vials.
C. NeoStem
desires to acquire CBH's 51% ownership interest (“Erye
Ownership”)
in
Erye plus net cash which shall not be less than $550,000 after payment of all
litigation expenses and CBH Payable Obligations (the “Minimum
Cash”).
Prior
to the Merger (as defined below), CBH will spin off all of its shares of CBC
Common Stock (as defined herein) to CBH’s shareholders in a liquidating
distribution (the “Spin-Off”)
so
that the only material assets of CBH following the Spin-Off will be the Erye
Ownership and cash.
D. NeoStem
desires to acquire the Erye Ownership through the merger of CBH (after the
Spin-off) with and into Subco, with Subco as the surviving entity (the
“Merger”).
The
Merger is intended to be a tax-free merger under Section 368(a)(1)(A) of the
Internal Revenue Code (the “Code”).
Each
of the Parties has determined that the Merger is consistent with and in
furtherance of its respective long-term business strategies and desires to
combine their respective businesses and for the holders of shares of CBH Common
Stock and/or shares of CBH Preferred Stock (each, as defined herein)
(“CBH
Stockholders”)
to
have a continuing equity interest in the combined NeoStem/Erye businesses
through the ownership of NeoStem securities.
E. Pursuant
to the terms and subject to the conditions set forth in this Agreement as
consideration in the Merger, NeoStem shall issue to the CBH Stockholders the
following (collectively, the “Exchanged
Securities”):
1. 7,500,000
shares of NeoStem Common Stock (as defined herein) (the “Exchanged
Common Shares”)
(of
which 150,000 shares shall be delivered to the Escrow Agent to be held in escrow
pursuant to the Escrow Agreement annexed as Exhibit D) to be issued to the
holders of CBH Common Stock (inclusive of any CBH Common Stock issued upon
exercise of any CBH Common Stock Purchase Warrants prior to the
Closing);
2. (a)
5,383,009 shares of NeoStem Common Stock (“RimAsia
Exchanged Common Shares”),
(b)
6,977,512 shares of NeoStem Series C Convertible Preferred Stock (as defined
herein), each with a liquidation preference of $1.125 and convertible to shares
of NeoStem Common Stock at $.90 (“RimAsia
Exchanged Preferred Shares”)
and
(c) Class B warrants (the “Class
B Warrants”)
to
purchase 2,400,000 shares of NeoStem Common Stock at $0.80 per share under
the
Class B Warrant Agreement, a copy of which is attached hereto as Exhibit
A
(collectively, the RimAsia Exchanged Common Shares, the RimAsia Exchanged
Preferred Shares and the Class B Warrants are referred to as the “RimAsia
Exchanged Securities”),
to be
issued to RimAsia Capital Partners, L.P. (“RimAsia”);
and
3. subject
to acceptance by the holders of CBH Common Stock Purchase Warrants to purchase
an aggregate of up to 7,831,684 shares of CBH Common Stock (collectively, the
“CBH
Common Stock Purchase Warrants”),
Class
C warrants (the “Class
C Warrants”)
to
purchase up to 2,012,097 shares of NeoStem Common Stock at an exercise price
equal to $2.50 per share under the Class C Warrant Agreement, the form of which
is attached here to as Exhibit
B,
to be
issued to such holders of CBH Common Stock Purchase Warrants.
E. The
respective Boards of Directors (or committees thereof) of NeoStem, Subco and
CBH
have determined that the Merger, in the manner contemplated herein, is desirable
and in the best interests of their respective stockholders and, by resolutions
duly adopted, have approved and adopted this Agreement.
NOW,
THEREFORE, in consideration of these premises and the mutual and dependent
promises hereinafter set forth, the parties hereto hereby agree as
follows:
ARTICLE
I.
THE
MERGER
1.1 The
Merger. Upon
the
terms and subject to the conditions hereof, and in accordance with the
provisions of the Delaware General Corporation Law (the “DGCL”),
CBH
shall be merged with and into Subco at the Effective Time. As a result of the
Merger, the separate existence of CBH shall cease and Subco shall
continue its existence under the laws of the State of Delaware. Subco, in its
capacity as the limited liability company surviving the Merger, is hereinafter
sometimes referred to as the “Surviving
Company.”
-2-
1.2 Effective
Time. As
promptly as possible on the Closing Date (as defined herein), the parties shall
cause the Merger to be consummated by filing with the Secretary of State of
the
State of Delaware (the “Delaware
Secretary of State”)
a
certificate of merger (the “Certificate
of Merger”)
in
such form as is required by Section 18-209 of the Delaware Limited Liability
Company Act (“DLLCA”)
and
executed in accordance with the DLLCA. The Merger shall become effective (the
“Effective
Time”)
when
the Certificate of Merger has been filed with the Delaware Secretary of State,
which filing shall occur on the Closing Date, or at such later time as shall
be
agreed upon by NeoStem and CBH and specified in the Certificate of Merger.
Prior
to the filing referred to in this Section 1.2, a closing (the “Closing”)
shall
be held at the offices of Lowenstein Sandler PC, 65 Livingston Avenue, Roseland,
New Jersey 07068 or such other place as the parties may agree, as soon as
practicable (but in any event within five Business Days (as defined herein))
following the date upon which all conditions set forth in Article V hereof
have
been satisfied or waived, or at such other date as NeoStem and CBH may agree,
provided that the conditions set forth in Article V have been satisfied or
waived at or prior to such date. The date on which the Closing takes place
is
referred to herein as the “Closing
Date.”
For
all tax purposes, the Closing shall be effective at the end of the day on the
Closing Date. For purposes of this Agreement, the term “Business
Day”
means
a
day, other than a Saturday or Sunday, on which commercial banks in New York
City
are open for the general transaction of business.
1.3 Effects
of the Merger. From
and
after the Effective Time, the Merger shall have the effects set forth in Section
18-209(g) of the DLLCA.
1.4 Certificate
of Formation and Operating Agreement. At
the
Effective Time, (i) the certificate of formation of the Surviving Company as
in
effect immediately prior to the Effective Time shall be amended as of the
Effective Time so as to contain the provisions, and only the provisions,
contained immediately prior thereto in the certificate of formation of Subco,
except for Article FIRST thereof which may be revised to change the name of
the
limited liability company as mutually agreed to by the parties hereto, and
(ii)
the limited liability company agreement of Subco in effect immediately prior
to
the Effective Time shall be the limited liability company agreement of the
Surviving Company; in each case until amended in accordance with applicable
law.
1.5 Managers
and Officers of the Surviving Company. From
and
after the Effective Time, individuals designated by NeoStem prior to the
Effective Time shall be the officers of the Surviving Company and the managers
of Subco, if any, shall be the managers of the Surviving Company, in each case
until their respective successors are duly elected and qualified. On or prior
to
the Closing Date, CBH shall deliver to NeoStem a written resignation, in form
and substance satisfactory to NeoStem, from each director and officer of CBH,
effective as of the Effective Time.
-3-
ARTICLE
II.
CONVERSION
AND DISTRIBUTION OF SECURITIES
2.1 Conversion
of Capital Stock. At
the
Effective Time, by virtue of the Merger and without any action on the part
of
NeoStem, Subco or CBH or their respective stockholders or members, as the case
may be:
2.1.1 Each
membership interest of Subco issued and outstanding immediately prior to the
Effective Time shall be converted into a membership interest of the Surviving
Company. Such membership interests shall thereafter constitute all of the issued
and outstanding equity of the Surviving Company, so that NeoStem shall own
all
of the membership interests in, and equity of, the Surviving Company.
2.1.2 Subject
to the other provisions of this Article II, all of the shares of CBH Common
Stock issued and outstanding immediately prior to the Effective Time shall
be
converted into the right to receive in the aggregate all of the Exchanged Common
Shares so that all of the holders of CBH Common Stock (inclusive of any CBH
Common Stock issued upon exercise of any CBH Common Stock Purchase Warrants)
shall be entitled to receive 7,500,000 shares of NeoStem Common Stock in the
aggregate (of which 150,000 shares shall be delivered to the Escrow Agent to
be
held in escrow pursuant to the Escrow Agreement annexed as Exhibit
D).
2.1.3 Each
share of capital stock of CBH held in the treasury of CBH shall be canceled
and
retired and no payment shall be made in respect thereof.
2.1.4 All
of
the shares of CBH Series B Preferred Stock issued and outstanding immediately
prior to the Effective Time shall be converted into all of the RimAsia Exchanged
Securities subject to cancellation of the RimAsia CBH Warrants as specified
in
Section 2.2.1.
2.1.5 Dissenting
Shares (as defined herein) shall, by virtue of the Merger, be cancelled and
extinguished and converted into the right to receive payment provided for by
Section 262 of the DGCL, in accordance with the provisions of Section 2.5.
2.2 Distributions;
Exchange Ratio; Fractional Shares; Adjustments.
2.2.1 Pursuant
to a CBH Lock-Up and Voting Agreement, dated as of the date hereof, among
RimAsia, the CBH Preferred Stockholders, each director and officer of each
of
CBH, CBH, Erye, EET, Dr. Wang Taihua and NeoStem, a copy of which is attached
hereto as Exhibit
C
(the
“CBH
Lock-Up and Voting Agreement”),
RimAsia has consented to the treatment set forth in Section 2.1.4 above and
agreed, upon the effectiveness of the Merger, to cancel the Common Stock
Purchase Warrant to purchase up to 12 million shares of CBH Common Stock issued
to RimAsia on June 30, 2006 and modified on November 16, 2007 (“Modified
Warrants”),
and
the Additional Common Stock Purchase Warrants (No. R-2) issued to RimAsia on
November 16, 2007 (“Additional
Warrants,
and
collectively with the Modified Warrants, the “RimAsia
CBH Warrants”)
and
exchange all of its interest in CBH, including but not limited to all of the
CBH
Series B Preferred Stock outstanding for the RimAsia Exchanged
Securities.
-4-
2.2.2 Pursuant
to the CBH Lock-Up and Voting Agreement, the holders of the CBH Series A
Preferred Stock have consented to the Merger and have agreed to cancel and
cause
to be terminated such holders' shares of CBH Series A Preferred Stock as set
forth in Section 2.7 and to cancel any CBH Warrants held by such holders.
2.2.3 As
soon
as practical after the effectiveness of the Merger, each holder of CBH Common
Stock shall receive, for each share of CBH Common Stock held by such CBH common
shareholder, a fraction of a share of NeoStem Common Stock equal to the Exchange
Ratio (as defined herein).
2.2.4 The
“Exchange
Ratio”
shall
be equal to the quotient of 7,350,000 divided by the sum of (x) the number
of
shares of CBH Common Stock outstanding at the Effective Time, and (y) the number
of shares of CBH Common Stock issuable upon exercise of in-the-money warrants
of
CBH immediately prior to the Effective Time subject to adjustment as set forth
herein. Any Escrow Shares shall be distributed pro rata to the same record
shareholders as the initial distribution.
2.2.5 No
certificates for fractional shares of NeoStem Common Stock shall be issued
as a
result of the distribution provided for in Section 2.2.3. In lieu of any
fractional share to which the CBH Stockholders would otherwise be entitled
as a
result of the distribution provided for in Section 2.2.3, all issuances of
NeoStem Common Stock shall be rounded up to the nearest whole
share.
2.2.6 In
the
event that, subsequent to the date hereof and prior to the Effective Time,
NeoStem or CBH shall declare a stock dividend or other distribution payable
in
shares of NeoStem Common Stock or CBH Common Stock or securities convertible
into shares of NeoStem Common Stock or CBH Common Stock or effect a stock split,
reclassification, combination or other change with respect to shares of NeoStem
Common Stock or CBH Common Stock, the Exchange Ratio set forth in Section 2.2.4
shall be adjusted to reflect such dividend, distribution, stock split,
reclassification, combination or other change.
2.2.7 In
the
event that, subsequent to the date hereof and prior to the Effective Time,
CBH
or Erye shall incur any liabilities or obligations of any nature, whether
absolute, accrued, unmatured, contingent or otherwise, or any unsatisfied
judgments or any leases of personalty or realty or unusual or extraordinary
commitments, other than those liabilities or allowances recorded, accrued or
reserved against on the CBH Balance Sheet (as defined herein) or described
in
the notes thereto, such liabilities or obligations shall be paid, satisfied
or
otherwise provided for or transferred to CBC prior to the Spin-Off in accordance
with Section 5.17.1.
2.3 Exchange
of Certificates.
2.3.1 Exchange
Agent. Promptly
following the Effective Time, NeoStem shall deposit with Continental Stock
Transfer & Trust Company or such other exchange agent as may be designated
by NeoStem (the “Exchange
Agent”),
for
the benefit of CBH Stockholders, for distribution in accordance with this
Section 2.3, certificates representing 7,500,000 shares of the Exchanged Common
Shares for distribution to holders of outstanding shares of CBH Common Stock
pursuant to Section 2.2.3.
-5-
2.3.2 Exchange
Procedures. As
soon
as practicable after the Effective Time, CBH shall instruct the Exchange Agent
to mail to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of CBH
Common Stock, a certificate or certificates for the Exchanged Common Shares
in
the pro
rata
amounts
provided for in this Section 2.3.
2.3.3 Distributions
with Respect to CBH Preferred Stock.
Simultaneously with the consummation of the Merger, RimAsia shall cancel the
RimAsia CBH Warrants and all its outstanding shares of CBH Series B Preferred
Stock shall be cancelled. In exchange, NeoStem will issue the RimAsia Exchanged
Securities to RimAsia as set forth in Section 2.2.1.
2.3.4 Erye.
At
the
Closing, CBH shall deliver to NeoStem a duly executed assignment of its Erye
Ownership, consented to by Erye and the other 49% equity holder in Erye. CBH
represents and warrants that following the Merger, NeoStem will have the Erye
Ownership, and will have unfettered access to the Minimum Cash.
2.4 Treatment
of Warrants. At
the
Effective Time, subject to acceptance by the holders of CBH Common Stock
Purchase Warrants, the CBH Common Stock Purchase Warrants shall be canceled
and
the holders thereof shall receive, in the aggregate, Class C Warrants to
purchase up to an aggregate of 2,012,097 shares of NeoStem Common Stock at
an
exercise price of $2.50 per share pursuant to the Class C Warrant Agreement.
Notwithstanding anything contained herein to the contrary, if and to the extent
NeoStem determines, in its sole discretion, to waive the condition to NeoStem's
obligation to consummate the Merger that all of the holders of CBH Common Stock
Purchase Warrants accept Class C Warrants in exchange for their respective
CBH
Common Stock Purchase Warrant set forth in Section 6.2.20, then any holder
of
CBH Common Stock Purchase Warrants that does not accept Class C Warrants in
exchange for such holder's CBH Common Stock Purchase Warrants, upon consummation
of the Merger, shall be entitled to the rights under the CBH Common Stock
Purchase Warrants held by such holder.
2.5 Escrow
Shares.
At the
Closing, NeoStem shall issue an aggregate amount of 200,000 shares of NeoStem
Common Stock to CBC in escrow as a conditional bonus payment if introductions
with respect to the Shangdong Institute made by CBC to NeoStem result NeoStem's
acquisition of the Shangdong Institute prior to the six month anniversary of
the
Closing (together with the 150,000 shares of the Common Stock provided in
Preliminary Statement E(1), collectively, the "Escrow
Shares").
The
certificates for the Escrow Shares (the "Escrow
Certificates")
shall
be deposited with an escrow agent to be mutually agreed to by NeoStem and CBC
prior to the Closing (the “Escrow
Agent”).
The
Certificates shall be held and disbursed by the Escrow Agent pursuant to the
terms and conditions of an Escrow Agreement, in the form attached hereto as
Exhibit
D,
subject
to such modifications thereof as the Escrow Agent shall reasonably request
prior
to the Closing and as shall be accepted by CBC and NeoStem (such acceptance
not
to be unreasonably denied) (as so modified, the “Escrow
Agreement”).
-6-
2.6 Dissenting
Shares.
Notwithstanding anything in this Agreement to the contrary, shares of CBH Common
Stock and CBH Preferred Stock held by holders thereof who are entitled to vote
on the Merger and who have not voted such shares in favor of the adoption of
this Agreement and the Merger and with respect to which appraisal rights shall
have been properly exercised and perfected in accordance with Section 262 of
the
DGCL (the “Dissenting
Shares”),
shall
not be converted into or represent the right to receive the Merger Consideration
which the holders of CBH Common Stock and CBH Preferred Stock are entitled
to
receive pursuant to Sections 2.1 through 2.3 above, and holders of such
Dissenting Shares shall be entitled to receive only the payment provided for
by
Section 262 of the DGCL unless and until such holders fail to perfect or
effectively withdraw or otherwise lose their rights to demand payment under
the
DGCL. If, after the Effective Time, any such holder fails to perfect or
effectively withdraws or loses such right, such Dissenting Shares shall
thereupon be deemed to be “Non-Electing Company Shares.” CBH shall give NeoStem
(i) prompt notice of any demands for payment for Dissenting Shares pursuant
to
Section 262 of the DGCL received by CBH, withdrawals of such demands, and any
other instruments served pursuant to the DGCL and received by CBH and (ii)
the
opportunity to direct all negotiations and proceedings with respect to demands
for payment pursuant to Section 262 of the DGCL. CBH shall not, except with
the
prior written consent of NeoStem or as otherwise required by Applicable Law,
make any payment with respect to any such demands for payment or offer to settle
or settle any such demands. Notwithstanding anything in this Agreement to the
contrary, NeoStem, at the election of its Board of Directors (or a committee
thereof), in its sole discretion, may terminate and abandon this Agreement
at
any time prior to the Closing if the Dissenting Shares represent more than
five
(5%) of the shares of CBH Common Stock or CBH Preferred Stock held by holders
thereof who are entitled to vote on the Merger.
2.7 Satisfaction
of Certain CBH Obligations.
At the
Effective Time, NeoStem shall issue to Stephen E. Globus, a director of CBH
or
related persons ("Globus")
50,000
shares of NeoStem Common Stock in exchange for cancellation of all of the shares
of CBH Series A Preferred Stock held by Globus (which Globus and CBH have
represented to NeoStem are all of the outstanding shares of Series A Preferred
Stock). NeoStem shall also issue 60,000 shares of NeoStem Common Stock to Globus
and 40,000 shares of NeoStem Common Stock to Chris Peng Mao, the Chief Executive
Officer of CBH ("Mao")
(an
aggregate of 150,000 shares of NeoStem Common Stock being issued pursuant to
this paragraph) at or prior to the Closing, in exchange for the cancellation
and
the satisfaction in full of the Globus Obligation and the Mao Obligation (each,
as defined in Section 6.2.21 herein). CBH and Globus shall cause all of the
outstanding shares of the CBH Series A Preferred Stock to be cancelled and
terminated no later than immediately prior to the record date for any
shareholder vote with respect to the Merger. The "Globus Shares" shall be
allocated among related persons in accordance with written instructions to
be
provided to NeoStem by Globus and certified by him.
-7-
ARTICLE
III.
REPRESENTATIONS
AND WARRANTIES OF CBH
Except
as
set forth in the disclosure statement delivered by CBH to NeoStem at or prior
to
the execution of this Agreement (the “CBH
Disclosure Statement”)
(each
section of which qualifies the correspondingly numbered representation and
warranty, regardless of whether such representation or warranty expressly refers
to or is qualified by reference to such CBH Disclosure Statement), or disclosed
in the CBH SEC Reports (as defined herein), CBH represents and warrants to
NeoStem and Subco as follows (it being understood and agreed that each
representation and warranty with respect to any payment obligation of Erye
that
is qualified hereunder as to materiality, shall refer to any such obligation
(i)
having a dollar value of more than $50,000, to the extent such value is
quantifiable, and (ii) not incurred or made in the ordinary course of
business):
3.1 Organization
and Qualification.
3.1.1 Each
of
CBH and Erye is an entity duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
corporate power and authority to own, lease and operate its properties and
to
conduct its business as described in the CBH SEC Reports (as defined herein),
except that as of the date hereof, CBH is not in good standing under the laws
of
Delaware but covenants to pay all taxes and be in good standing prior to the
filing of any Registration Statement or Joint Proxy Statement with the SEC.
Each
of CBH and Erye is duly qualified to transact business as a foreign corporation
or other foreign entity and is in good standing in each jurisdiction in which
the conduct of its business or the ownership, leasing or operation of its
property requires such qualification, except for failures to be so qualified
or
in good standing which would not, singly or in the aggregate with all such
other
failures, have a CBH Material Adverse Effect (as defined herein). For purposes
of this Agreement, “CBH
Material Adverse Effect”
means,
with respect to any event, occurrence, matter, failure of event or occurrence,
change, effect, state of affairs, breach, default, violation, fine, penalty
or
failure to comply (each, a “Circumstance”),
individually or taken together with all other Circumstances contemplated by
or
in connection with any or all of the representations and warranties made in
this
Agreement, a material adverse effect on the business, assets (including without
limitation intangible assets), liabilities (contingent or otherwise), financial
condition, results of operations or prospects of CBH and Erye, taken as a whole;
provided,
however,
that
the term “CBH Material Adverse Effect” shall not be deemed to include the impact
of: (A) the implementation of changes in U.S. generally accepted accounting
principles; (B) actions and omissions of CBH or its Subsidiaries taken or
permitted with the prior written consent of NeoStem after the date hereof;
(C)
expenses reasonably incurred by CBH or its Subsidiaries in consummating the
transactions contemplated by this Agreement; (D) changes in the general economic
or financial market conditions; (E) any occurrence, condition, change, event
or
effect that affects the pharmaceutical industry generally; and (F) the outbreak
or escalation of hostilities involving the PRC or the United States, the
declaration by the PRC or the United States of war or the occurrence of any
natural disasters and acts of terrorism.
-8-
3.1.2 Neither
CBH nor any of its Subsidiaries is in violation of any of the provisions of
its
certificate of incorporation or by-laws, or other similar organizational
documents, each as amended and currently in effect, or, if it is a limited
liability company or partnership, its operating agreement, partnership agreement
or other comparable agreement. True and complete copies of the certificate
of
incorporation and by-laws, each as amended and as currently in effect, of CBH,
and true and complete copies of the certificate of incorporation and by-laws,
or
other similar organizational documents, each as amended and currently in effect,
of each Subsidiary of CBH have been previously delivered or made available
to
NeoStem. No amendments to the certificate of incorporation, as amended, of
CBH
have been authorized since 2005 and no amendments to the by-laws of CBH have
been authorized since 2005. For purposes of this Agreement, all references
to
the “Subsidiaries”
of
CBH
shall constitute references to any entity (i) the accounts of which would be
consolidated with those of CBH in CBH’s consolidated financial statements if
such financial statements were prepared in accordance with generally accepted
accounting principles or (ii) of which securities or other ownership interests
representing more than 50% of the equity or more than 50% of the ordinary voting
power or, in the case of a partnership, more than 50% of the general partnership
interests or more than 50% of the profits or losses are owned by CBH and/or
one
or more subsidiaries of CBH, and shall include, without limitation, CBC, Nanjing
Keyuan Pharmaceutical R&D Co., Ltd., a Chinese company (“Nanjing
Keyuan”),
and
Erye.
3.1.3 Erye
is a
Sino-Foreign Joint Venture with limited liability organized under the laws
of
the PRC, duly incorporated, validly existing and in good standing under the
laws
of the PRC. The articles of association, the business license and other
constituent documents of Erye comply with the requirements of applicable laws
of
the PRC and are in full force and effect. Erye has full power and authority
(corporate and other) and all consents, approvals, authorizations, orders,
registrations, clearances and qualifications of or with any local, domestic,
foreign or multi-national court, arbitration tribunal, administrative agency,
commission, legislative body or other governmental or regulatory body, agency,
instrumentality or authority, including, without limitation, of the United
States, the PRC, or otherwise (a “Governmental
Authority”)
having
jurisdiction over Erye or any of its properties required for the ownership
and
the conduct of its business and has the legal right and authority to own, use,
lease and operate its assets and to conduct its business. All of the issued
shares of capital stock of Erye has been duly and validly authorized and issued
and are fully paid and non-assessable. Erye has obtained all approvals,
authorizations, consents and orders, and has made all filings and registrations,
which are required under PRC laws and regulations for the ownership interest
by
CBH or NeoStem of its equity interest in Erye; and there are no outstanding
rights, warrants or options to acquire, or instruments convertible into or
exchangeable for, nor any agreements or other obligations to issue or other
rights to convert any obligation into, any equity interest in Erye.
3.2 Authority
Relative to this Agreement. (a) CBH
and
Erye have the corporate power and authority to execute and deliver this
Agreement and, upon obtaining the approval of a majority of the outstanding
shares of the CBH Common Stock and each of the CBH Series A Preferred Stock
and
Series B Preferred Stock of CBH (collectively, the "CBH
Preferred Stock”)
at the
CBH Special Meeting (as defined herein) or any adjournment thereof as authorized
under the DGCL, to consummate the Merger and the other transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of
the
Merger and the other transactions contemplated hereby have been duly and validly
authorized by the Boards of Directors of CBH and Erye and except as stated
in
the preceding sentence, no other corporate proceedings on the part of CBH or
Erye are necessary to authorize this Agreement or to consummate the Merger
and
the other transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by each of CBH and Erye and, assuming the due
authorization, execution and delivery hereof by NeoStem and Subco and subject
to
stockholder approval as aforesaid, constitutes a valid and binding agreement
of
each of CBH and Erye enforceable against each of CBH and Erye in accordance
with
its terms, except to the extent that its enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the enforcement of creditors’ rights generally or by general equitable
principles.
-9-
(b) As
a
result of the Merger, the Surviving Company will own of record the Erye
Ownership, and NeoStem will beneficially own the Erye Ownership, free of all
Encumbrances and free of all governed or contractual restrictions.
(c) CBH
has
the corporate power and authority to effect the Spin-Off. The consummation
of
the Spin-Off has been duly and validly authorized by the Board of Directors
of
CBH, and other than approval by the CBH Stockholders, no other corporate
proceedings on the part of CBH are necessary to authorize or consummate the
Spin-Off.
3.3 Consents,
No Conflicts.
3.3.1 Except
for actions to be taken in connection with (a) the filing of the Certificate
of
Merger required under DLLCA Section 18-209(c), (b) the filing and effectiveness
of the Registration Statement (as hereinafter
defined), (c) filings required pursuant to any state securities or “blue sky”
laws, (d) filings and other matters relating to the listing or quoting on the
American Stock Exchange, Inc., The New York Stock Exchange, Inc. or The NASDAQ
Stock Market (each, an "Exchange")
of the
shares of NeoStem Common Stock required to be issued pursuant to this Agreement,
and (e) any other filings, notices, disclosures or registrations set forth
in
Section 3.3.1 of the CBH Disclosure Statement, no filing or registration with,
notification or disclosure to, or permit, authorization, consent or approval
of,
(x) any U.S. Governmental Authority or (y) any third party, whether acting
in an
individual, fiduciary or other capacity, is required for the consummation by
CBH
of the Merger or the other transactions contemplated hereby or for the ownership
by NeoStem of the Erye Ownership.
3.3.2 Except
as
set forth in Section 3.3.2 of the CBH Disclosure Statement, the execution,
delivery and performance of this Agreement and the consummation of the Merger
and the other transactions contemplated hereby and compliance by CBH and Erye
with any of the provisions hereof do not and will not: (i) subject to obtaining
the approval of the Merger by holders of the CBH Common Stock and the CBH
Preferred Stock, conflict with or result in any breach or violation of any
provision of the certificate of incorporation or by-laws, or other similar
organizational documents, each as amended, of CBH or any of its Subsidiaries
or
(ii) result in (1) a breach or violation of, a default under or an event
triggering any payment, obligation or acceleration of any obligation pursuant
to
CBH Employee Benefit Plan (as defined herein) or any grant or award made under
any of the foregoing, (2) a breach or violation of, a default under or an event
triggering a right of termination of, a default under, or the acceleration
of
any obligation or the creation of a lien, pledge, security interest or other
encumbrance on assets (with or without the giving of notice or the lapse of
time
or both) pursuant to any provision of, any agreement, license, lease of real
or
personal property, marketing agreement, contract, note, mortgage, indenture
or
other obligation of CBH or any of its Subsidiaries (“CBH
Contracts”)
or,
subject to making all filings, notifications and disclosures and receipt of
all
permits, authorizations, consents and approvals referred to in clauses “a”
through “e” of Section 3.3.1 or in Section 3.3.1 of the CBH Disclosure
Statement, any law, rule, ordinance or regulation or judgment, decree, order
or
award to which CBH or any of its Subsidiaries is subject or any governmental
or
non-governmental authorization, consent, approval, registration, franchise,
license or permit under which CBH or any of its Subsidiaries conducts any of
its
business, or (3) any other change in the rights or obligations of any party
under any of the CBH Contracts, except, with respect to this clause (ii), for
breaches, violations, defaults, triggering events, creations of Encumbrances
on
assets, or changes in rights or obligations which would not, singly or in the
aggregate with all other such matters, have a CBH Material Adverse
Effect.
-10-
3.3.3 Except
as
disclosed on Section 3.3.3 of the CBH Disclosure Statement, Erye (a) is not
in
conflict with or in violation or breach of or default under (and there exists
no
event that, with notice or passage of time or both, would constitute a conflict,
violation, breach or default with, of or under) (i) any Law applicable to it
or
any of its properties, assets, operations or business, (ii) any provision of
its
certificate of incorporation or by-laws, or other similar organizational
documents, each as amended, except in the case of the foregoing clauses (i)
and
(iii) for any such conflicts, breaches, violations and defaults that,
individually or in the aggregate, could not have or result in a CBH Material
Adverse Effect. Except for the approval of the competent authorities of commerce
under the Law on Sino-Foreign Equity Joint Ventures and its implementation
regulations, no PRC Government Approval or other consent is required to be
obtained or made by Erye in connection with the execution and delivery of this
Agreement or the consummation of the Merger or other transactions contemplated
hereby.
3.4 Board
Recommendation. The
Boards of Directors of CBH and the board member representatives from Erye have,
each, by a unanimous written consent on November 2, 2008, approved and adopted
this Agreement, the Merger and the other transactions contemplated hereby.
In
such resolutions, the Boards of Directors of CBH and the board member
representatives from Erye determined that the consideration to be received
by
holders of CBH Common Stock and CBH Preferred Stock pursuant to the Merger
is
fair to the holders of shares of CBH Common Stock and CBH Preferred Stock,
respectively, and recommended that the holders of such shares approve and adopt
this Agreement, the Merger and the other transactions contemplated hereby (the
“CBH
Board Recommendation”).
3.5 State
Anti-takeover Statutes; Stockholder Protection Rights
Agreements.
By
virtue of resolutions heretofore approved by CBH’s and Eyre’s Boards of
Directors, the Merger, this Agreement, the CBH Lock-Up and Voting Agreement,
the
Support Agreement (as defined herein) and the transactions contemplated hereby
will not be subject to the restrictions on business combinations with interested
stockholders otherwise applicable to the Merger, this Agreement, the CBH Lock-Up
and Voting Agreement, the Support Agreement or the transactions contemplated
hereby under Section 203 of the DGCL. CBH’s Board of Directors have taken such
actions and votes as are necessary on its part to render the provisions of
Section 203 of the DGCL, all other applicable takeover statutes of the DGCL
inapplicable to this Agreement, the Merger, the CBH Lock-Up and Voting
Agreement, the Support Agreement and the transactions contemplated hereby and
thereby. Neither CBH nor Erye is a party to any stockholder protection rights
agreement or any agreement similar thereto.
-11-
3.6 No
Existing Violation, Default, Etc. None
of
CBH or its Subsidiaries is in violation of (A) any Applicable Law or (B) any
order, decree or judgment of any Governmental Authority having jurisdiction
over
CBH or any of its Subsidiaries. No event of default or event that, but for
the
giving of notice or the lapse of time or both, would constitute an event of
default, exists under any CBH Contract or any lease, permit, license or other
agreement or instrument to which CBH or any of its Subsidiaries is a party
or by
which any of them is bound or to which any of the properties, assets or
operations of CBH or any of its Subsidiaries is subject.
3.7 Licenses
and Permits. Each
of
CBH and Erye has such certificates, permits, licenses, franchises, consents,
approvals, orders, authorizations and clearances from appropriate governmental
agencies and bodies (“CBH
Licenses”)
as are
necessary to own, lease or operate its properties and to conduct its business
in
the manner described in the CBH SEC Reports and as presently conducted and
all
such CBH Licenses are valid and in full force and effect, other than any failure
to have any such CBH License or any failure of any such CBH License to be valid
and in full force and effect as would not, singly or in the aggregate with
all
such other failures, have a CBH Material Adverse Effect. Each of CBH and Erye
is
and, within the period of all applicable statutes of limitations, has been
in
compliance with its obligations under such CBH Licenses and no event has
occurred that allows, or after notice or lapse of time would allow, revocation
or termination of such CBH Licenses. Each of CBH and Erye has no knowledge
of
any facts or circumstances that could reasonably be expected to result in an
inability of CBH or any of its Subsidiaries to renew any material CBH License.
Subject to making all filings, notifications and disclosures and receipt of
all
permits, authorizations, consents and approvals referred to in Section
3.3.1 of
the
CBH Disclosure Statement, neither the execution nor delivery by CBH of this
Agreement nor the consummation of any of the transactions contemplated herein
will result in any revocation or termination of any material CBH
License.
3.8 Registration
Statement; Prospectus/Joint Proxy Statement. None
of
the information supplied or to be supplied by CBH, Erye or CBC for inclusion
in,
and none of the information regarding CBH and its Subsidiaries incorporated
by
reference in, the registration statement under the Securities Act registering
the NeoStem Common Stock to be issued pursuant to the Merger and the shares
of
common stock, par value $1.00 per share, of CBC (the “CBC
Common Stock”)
to be
issued pursuant to the Spin-Off (such registration statement, as amended by
any
amendments thereto, being referred to herein as the “Registration
Statement”)
or the
prospectus/joint proxy statement to be sent to the stockholders of NeoStem
and
CBH in connection with the annual meeting of stockholders of NeoStem at which
such stockholders will be asked to approve the issuance of NeoStem Common Stock
pursuant to the Merger (the “NeoStem
Annual Meeting”)
and
the special meeting of the stockholders of CBH at which such stockholders will
be asked to approve the Spin-Off, the Merger and this Agreement (the
“CBH
Special Meeting”)
(such
prospectus/joint proxy statement, as amended by any amendments thereto, being
referred to herein as the “Prospectus/Joint
Proxy Statement”),
including all amendments and supplements to the Registration Statement and
Prospectus/Joint Proxy Statement, shall, in the case of the Registration
Statement, at the time the Registration Statement becomes effective and, in
the
case of the Prospectus/Joint Proxy Statement, on the date or dates the
Prospectus/Joint Proxy Statement is first mailed to NeoStem and CBH stockholders
and on the date or dates of the NeoStem Annual Meeting and the CBH Special
Meeting, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. CBH and Erye will supply NeoStem with all business,
financial, legal, management and other information required for inclusion in
a
Form S-4 under SEC rules.
-12-
3.9 Finders
or Brokers; Compensation Arrangements. Neither
CBH nor any Subsidiary of CBH has employed any investment banker, broker, finder
or intermediary in connection with the transactions contemplated hereby who
might be entitled to a fee or any commission the receipt of which is conditioned
in whole or part upon consummation of the Merger.
3.10 SEC
Reports.
CBH has
filed all forms, reports and documents required to be filed by it with the
SEC
since December 31, 2007 (the “CBH
Audit Date”)
(including, without limitation, CBH’s Annual Report on Form 10-KSB for the year
ended December 31, 2007 and CBH’s Quarterly Reports on Form 10-Q for the
quarters ended March 31, 2008 and June 30, 2008 and all certifications and
statements required by Rule 13a-14 or 15d-14 under the Securities Exchange
Act
of 1934, as amended (the “Exchange
Act”)
or 18
U.S.C. §1350 (Section 906 of the Sarbanes-Oxley Act of 2002 (“SOX”))
with
respect to any Annual Reports or Proxy Statements, and Current Reports on Form
8-K), pursuant to the federal securities laws and the SEC’s rules and
regulations thereunder, and SOX and all rules and regulations thereunder
(collectively, and together with all forms, reports and documents filed by
CBH
with the SEC after December 31, 2007, including any amendments thereto, the
“CBH
SEC Reports”).
CBH
SEC Reports were or will, as applicable, be prepared in accordance with the
requirements of the Securities Act and the Exchange Act, as the case may be,
and
the rules and regulations thereunder. As of their respective dates, none of
CBH
SEC Reports, including, without limitation, any financial statements or
schedules included therein, contained or will contain, as applicable, any untrue
statement of a material fact or omitted to state a material fact required to
be
stated therein or necessary in order to make the statements therein, in light
of
the circumstances under which they were or are made, as applicable, made, not
misleading. No Subsidiary of CBH is or has been required to file any form,
report, registration statement or other document with the SEC.
3.11 Disclosure
Controls and Procedures.
CBH
maintains disclosure controls and procedures required by Rule 13a-15 or 15d-15
under the Exchange Act. Such controls and procedures are effective to ensure
that all material information concerning CBH and its Subsidiaries is made known
on a timely basis to the individuals responsible for the preparation of CBH’s
filings with the SEC and other public disclosure documents. As used in this
Section 3.11, the term “file” shall be broadly construed to include any manner
in which a document or information is furnished, supplied or otherwise made
available to the SEC.
-13-
3.12 Financial
Statements.
The
consolidated balance sheets and the related consolidated statements of income
and cash flows (including the related notes thereto) of CBH included in CBH
SEC
Reports, as of their respective dates and the consolidated balance sheets and
related consolidated statements of income and cash flows of Erye annexed hereto
as Section 3.12
of
the CBH Disclosure Statement (the “Erye
Financial Statements”),
complied in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto, were
prepared in accordance with U.S. generally accepted accounting principles
applied on a basis consistent with prior periods (except as otherwise noted
therein), and present fairly in all material respects, the consolidated
financial position of CBH and its consolidated Subsidiaries or Erye, as the
case
may be, as of their respective dates, and the consolidated results of their
operations and their cash flows for the periods presented therein (subject,
in
the case of the unaudited interim financial statements, to notes and normal
year-end adjustments that were not material in amount or effect).
3.13 SOX
Certifications.
The
Chief Executive Officer and the Chief Financial Officer of CBH have signed,
and
CBH has furnished to the SEC, all certifications required by Sections 302 and
906 of SOX. Such certifications contain no qualifications or exceptions to
the
matters certified therein and have not been modified or withdrawn. Neither
CBH
nor any of it officers has received notice from any Governmental Authority
questioning or challenging the accuracy, completeness, form or manner of filing
or submission of such certifications.
3.14 Undisclosed
Liabilities.
Except
(i)as may be disclosed on Schedule 3.14(a) or 3.14(b) of the CBH Disclosure
Statement, (ii) as reflected in CBH’s unaudited consolidated balance sheet at
June 30, 2008 or liabilities described in any notes thereto, (iii) for
liabilities incurred in the ordinary course of business since June 30, 2008
consistent with past practice or in connection with this Agreement or the
transactions contemplated hereby, or (iv) performance obligations under
contracts required in accordance with their terms, or performance obligations,
to the extent required under applicable laws, in each case to the extent arising
after the date hereof, neither CBH nor any of its Subsidiaries has any material
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) and which, individually or in the aggregate, could reasonably
be
expected to have a CBH Material Adverse Effect. Set forth in Schedule 3.14(a)
of
the CBH Disclosure Statement are any and all material liabilities and
obligations of Erye (collectively, the “Eyre
Liabilities”),
as of
November 2, 2008. Set forth in Schedule 3.14(b) of the CBH Disclosure Statement
are any and all payable obligations of CBH and/or its Subsidiaries (other than
the Erye Liabilities as of November 2, 2008, )(“CBH Payable Obligations”),
excluding the expenses incurred in connection with the transactions contemplated
by this Agreement (the “Transaction Expenses,” which is set forth in Schedule
3.14(c) of the CBH Disclosure Statement and shall be approximately similar
to
NBS’s transaction expenses), and the name and address of each Person to whom
each such liability or obligation is owed, and CBH shall take any and all action
necessary or appropriate to obtain a CBH Liability Release (as defined herein)
from each CBH Creditor (as defined herein) in accordance with Section 5.17.
To
the best of knowledge of CBH and as of the date of this Agreement, the CBH
Payable Obligations set forth in Schedule 3.14(b) of the CBH Disclosure
Statement, excluding the Transaction Expenses, do not and shall not exceed,
individually or in the aggregate, $450,000.
-14-
3.15 Off-Balance
Sheet Arrangements.
CBH and
its Subsidiaries have not effected any securitization transactions or
“off-balance sheet arrangements” (as defined in Item 303(c) of Regulation S-K of
the SEC) since the CBH Audit Date. CBH has delivered or made available to
NeoStem copies of the documentation creating or governing any such
securitization transactions and off-balance sheet arrangements.
3.16 Loans
to Executives and Directors.
CBH has
not, since the effective date of SOX, extended or maintained credit, arranged
for the extension of credit, or renewed an extension of credit, in the form
of a
personal loan to or for any director or executive officer (or equivalent
thereof) of CBH in violation of SOX. CBH has not made any loan or extension
of
credit to which the second sentence of Section 13(k)(I) of the Exchange Act
applies.
3.17 Independent
Auditors.
Moore
Stephens Wurth Frazer & Torbet, LLP serves as CBH’s and Erye’s independent
registered public accounting firm and to CBH’s knowledge, there are no
relationships or services, or any other factors that may affect the objectivity
and independence of Moore Stephens Wurth Frazer & Torbet, LLP under
applicable auditing standards. Moore Stephens Wurth Frazer & Torbet, LLP has
not performed any non-audit services for CBH and its Subsidiaries since the
CBH
Audit Date, which, in any such case, were required to be disclosed in CBH SEC
Reports and were not so disclosed.
3.18 Absence
of Changes or Events. Except
for (a) matters publicly disclosed by CBH prior to the date hereof in CBH SEC
Reports filed prior to the date hereof, and (b) the settlement of the litigation
in Hong Kong and Canada by RACP Pharmaceutical Holdings Limited, a wholly-owned
subsidiary of CBC, against Li Xiaobo and certain other defendants in connection
with the acquisition of shares of Enshi International (Holdings) Pte Ltd (the
“LXB Litigation”).
3.18.1 Since
December 31, 2007: (i) CBH and its Subsidiaries have conducted their business
in
the ordinary course and have not entered into any material oral or written
agreement or other material transaction that is not in the ordinary course
of
business (other than this Agreement) or that could reasonably be expected to
result in a CBH Material Adverse Effect; (ii) neither CBH nor any of its
Subsidiaries have sustained any material loss or interference with their
business or properties from fire, flood, windstorm, accident, strike or other
calamity (whether or not covered by insurance); (iii) there has been no material
change in the indebtedness of CBH and its Subsidiaries, no change in the capital
stock of CBH and no dividend or distribution of any kind declared, paid or
made
by CBH on any class of its capital stock; (iv) there has been no event or
condition which has caused a CBH Material Adverse Effect, nor any development,
occurrence or state of facts or circumstances known to CBH that could, singly
or
in the aggregate, reasonably be expected to result in a CBH Material Adverse
Effect; and (v) there has been no material change by CBH or Erye in its
accounting principles, practices or methods.
-15-
3.18.2 Since
December 31, 2007, other than in the ordinary course of business consistent
with
past practice, there has not been any increase in the compensation or other
benefits payable, or which could become payable, by CBH, to its officers or
key
employees, or any amendment of any of the CBH Employee Benefit
Plans.
3.19 Capitalization.
3.19.1 The
authorized capital stock of CBH consists solely of 200,000,000 shares of CBH’s
common stock, par value $0.01 per share (the “CBH
Common Stock”),
and
10,000,000 shares of CBH’s preferred stock, par value $0.01 per share, of which
1,152,500 shares are designated as Series A Convertible Preferred Stock (the
“CBH
Series A Preferred Stock”)
and
6,185,607 shares are designated as Series B Convertible Preferred Stock (the
“CBH
Series B Preferred Stock”
and
together with the CBH Series A Preferred Stock the “CBH
Preferred Stock”).
As of
October 31, 2008, there were 37,082,313 shares of CBH Common Stock, and only
50,000 shares of CBH Series A Preferred Stock, all of which were held by Globus,
still outstanding and shall be cancelled pursuant to Section 2.7, and
6,653,656 shares
of
CBH Series B Preferred Stock outstanding, and no shares of CBH Common Stock,
CBH
Series A Preferred Stock or CBH Series B Preferred Stock were held in CBH’s
treasury. There have been no issuances of capital stock of CBH since October
31,
2008. As of October 31, 2008, 10,400,401 shares of CBH Common Stock were
issuable upon the exercise of outstanding warrants (collectively, the
“CBH
Warrants”)
in
addition to the shares of common stock issuable upon exercise of outstanding
RimAsia CBH Warrants, and no options to purchase shares of capital stock of
CBH
were outstanding, no other warrants or options are outstanding; and no shares
of
CBH Common Stock are reserved for issuance for any purpose other than upon
exercise of such outstanding CBH Warrants and RimAsia CBH Warrants. A true
and
complete list of each CBH Warrant outstanding as of October 31, 2008 and with
respect to each such warrant, the name of the holder thereof, the number of
shares of CBH Common Stock underlying such CBH Warrant, the exercise price
and
the expiration date is set forth in the Registration Statement on Form SB-2
of
CBH (File No. 333-132693) initially filed with the SEC on March 24, 2006, as
amended on May 3, 2006, and the Registration Statement on Form SB-2 of CBH
(File
No. 333-134727) filed with the SEC on June 5, 2006. Since October 31, 2008,
no
CBH Warrants or options to purchase shares of capital stock of CBH have been
granted and no agreements or commitments have been made to grant any CBH
Warrants or any options. Except for the foregoing and the RimAsia CBH Warrants,
there are not any existing options, warrants, calls, subscriptions, or other
rights or other agreements or commitments obligating CBH to issue, transfer
or
sell any shares of capital stock of CBH or any other securities convertible
into
or evidencing the right to subscribe for any such shares. There are no
outstanding stock appreciation rights with respect to the capital stock of
CBH.
All issued and outstanding shares of CBH Common Stock and CBH Preferred Stock
are duly authorized and validly issued, fully paid and nonassessable and have
not been issued in violation of (nor are any of the authorized shares of capital
stock of, or other equity interests in, CBH subject to) any preemptive or
similar rights created by statute, the certificate of incorporation or by-laws
of CBH or any agreement to which CBH is a party or by which it may be
bound.
-16-
3.19.2
The
authorized capital stock of Erye consists solely of 51% ownership interest
owned
by CBH and 49% ownership interest held by EET.
There
are not any existing options, warrants, calls, subscriptions, or other rights
or
other agreements or commitments obligating Erye to issue, transfer or sell
any
equity of Erye or any other securities convertible into or evidencing the right
to subscribe for any such shares. There are no outstanding stock appreciation
rights with respect to the capital of Erye. All issued and outstanding equity
of
Erye is duly authorized and validly issued, fully paid and nonassessable and
have not been issued in violation of (nor are any of the authorized shares
of
capital stock of, or other equity interests in, Erye subject to) any preemptive
or similar rights created by statute, the certificate of incorporation or
by-laws of Erye or any agreement to which Erye is a party or by which it may
be
bound.
3.19.3 Except
as
set forth in Section 3.19.3 of the CBH Disclosure Statement, there are no (i)
obligations, contingent or otherwise, of CBH or its Subsidiaries to repurchase,
redeem or otherwise acquire any shares of CBH Common Stock, CBH Preferred Stock
or any securities of Erye, or provide funds to, or make any investment in (in
the form of a loan, capital contribution or otherwise), or provide any guarantee
with respect to the obligations of, any other person, or (ii) agreements,
arrangements or commitments of any character (contingent or otherwise) pursuant
to which any person is or may be entitled to receive any payment based on the
revenues or earnings (or any component thereof), or calculated in accordance
therewith, of CBH or any of its Subsidiaries. Section 3.19.3 of the CBH
Disclosure Statement sets forth the contingent earn-out obligations to which
CBH
or any of its Subsidiaries is subject. There are no voting trusts, proxies
or
other agreements or understandings to which CBH or its Subsidiaries is a party
or by which CBH or its Subsidiaries is bound with respect to the voting of
any
shares of capital stock of CBH.
3.19.4 CBH
has
delivered or made available to NeoStem complete and correct copies of each
of
the CBH Warrants. Section 3.19.4 of the CBH Disclosure Statement sets forth
a
complete and correct list of all restricted stock awards applicable to CBH
Common Stock, including the recipients and the number of shares of CBH Common
Stock received or to be received by each.
3.20 Capital
Stock of Subsidiaries. The
only
direct or indirect Subsidiaries of CBH are those listed in Section 3.20 of
the
CBH Disclosure Statement. Except as set forth in Section 3.20 of the CBH
Disclosure Statement, CBH is directly or indirectly the record and beneficial
owner of (i) 90% of the outstanding shares of capital stock of Nanjing Keyuan,
51% of the outstanding equity interest of Erye and 100% of the outstanding
shares of capital stock of CBC and each of CBH’s other Subsidiaries. There are
no proxies with respect to such shares, and there are not any existing options,
warrants, calls, subscriptions, or other rights or other agreements or
commitments obligating CBH or any of such Subsidiaries to issue, transfer or
sell any shares of capital stock of any of such Subsidiaries or any other
securities convertible into or evidencing the right to subscribe for any such
shares. Each of the holders of capital stock of the Subsidiaries which is not
wholly-owned, directly or indirectly, by CBH is set forth on Schedule 3.20.
All
of such shares so beneficially owned by CBH are duly authorized and validly
issued, fully paid, nonassessable and free of preemptive rights with respect
thereto and are owned by CBH, directly or indirectly, free and clear of any
claim, lien or encumbrance of any kind with respect thereto. Except as set
forth
in Section 3.20 of the CBH Disclosure Statement, CBH does not directly or
indirectly own any interest in any corporation, partnership, limited liability
company, joint venture or other business association or entity.
-17-
3.21 Litigation.
Except
as
set forth in Section 3.21 of the CBH Disclosure Statement or in the CBH SEC
Reports, as of the date hereof there are no material pending actions, suits,
proceedings, arbitrations or, to the knowledge of CBH or Erye, investigations
by, against or affecting CBH, any of its Subsidiaries or any of their officers,
directors, properties, assets or operations, or with respect to which CBH or
any
of its Subsidiaries is responsible by way of indemnity or otherwise. Except
as
set forth in Section 3.21 of the CBH Disclosure Statement or the CBH SEC
Reports: (i) there are no material pending or, to the knowledge of CBH or Erye,
threatened actions, suits, proceedings, arbitrations or investigations by,
against or affecting CBH, any of its Subsidiaries or any of their officers,
directors, properties, assets or operations, or with respect to which they
are
responsible by way of indemnity or otherwise, whether or not disclosed in such
CBH SEC Reports; and (ii) to the knowledge of CBH or Erye, there are no material
actions, suits, proceedings, arbitrations or investigations are threatened
or
contemplated and there is no reasonable basis, to the knowledge of CBH, for
any
such action, suit, proceedings, arbitrations or investigation, whether or not
threatened or contemplated.
3.22 Insurance.
CBH
and
Erye have insurance policies and fidelity bonds covering it and its
Subsidiaries’ assets, business, equipment, properties, operations, employees,
officers and directors which CBH and Eyre reasonably and in good faith believes
are adequate to conduct the business of CBH and its Subsidiaries. All premiums
due and payable under all such policies and bonds have been paid, and CBH is
otherwise in full compliance with the terms and conditions of all such policies
and bonds, except where the failure to have made payment or to be in full
compliance would not, individually or in the aggregate with all such other
failures, have a CBH Material Adverse Effect. CBH reasonably believes that
the
reserves established by CBH and Erye in respect of all matters as to which
CBH
or any of its Subsidiaries self-insures or carries retention and/or deductibles,
including without limitation workers’ medical coverage and workers’
compensation, are adequate and appropriate, and neither CBH nor Eyre is aware
of
any facts or circumstances existing as of the date hereof that would reasonably
be expected to cause such reserves to be materially inadequate or
inappropriate.
3.23 Title
to and Condition of Properties. Except
as
set forth in Section 3.23 of the CBH Disclosure Statement, CBH and its
Subsidiaries have good title to all of the real property and personal property
reflected on CBH’s June 30, 2008 unaudited consolidated balance sheet contained
in CBH’s Quarterly Report on Form 10-QSB for the quarter ended June 30, 2008
filed with the SEC (the “CBH
Balance Sheet”),
except for property since sold or otherwise disposed of in the ordinary course
of business and consistent with past practice and except for defects of title
which are not material to CBH and its Subsidiaries taken as a whole. Except
as
set forth in Section 3.23 of the CBH Disclosure Statement, neither CBH nor
any
of its Subsidiaries owns any real property. No real or personal property owned
or leased by CBH or any of its Subsidiaries is subject to claims, liens or
other
encumbrances of any kind or character, including, without limitation, mortgages,
pledges, liens, conditional sale agreements, charges, security interests,
easements, restrictive covenants, rights of way or options, except for (i)
liens
for taxes not yet delinquent or which are being contested in good faith by
appropriate proceedings and in respect of which CBH or its appropriate
Subsidiary has set aside on its books adequate reserves in accordance with
generally accepted accounting principles; (ii) mechanics’, carriers’, workers’,
repairers’, materialmen’s, landlords’ and other similar statutory or common law
liens incurred in the ordinary course of business for obligations not yet
delinquent or the validity of which is being contested in good faith by
appropriate proceedings and in respect of which CBH or its appropriate
Subsidiary has set aside on its books adequate reserves in accordance with
generally accepted accounting principles; (iii) in the case of real property,
easements, rights of way, restrictions, minor defects or irregularities in
title
that do not individually or in the aggregate have a material adverse effect
on
the value or use of the real property encumbered thereby as currently used
in
the operation of the business of CBH or its Subsidiaries; (iv) those which
would
not materially interfere with the conduct of the business of CBH and its
Subsidiaries (the encumbrances described in clauses (i) through (iv) of this
sentence, collectively, the “CBH
Permitted Encumbrances”);
(v)
those securing liabilities reflected in the CBH Balance Sheet; or (vi) those
described in Section 3.23 of the CBH Disclosure Statement.
-18-
3.24 Leases.
There
have been delivered or made available to NeoStem true and complete copies of
each lease pursuant to which Real Property or personal property is held under
lease by CBH or Erye (limited, in the case of personal property, to leases
pursuant to which annual rentals are reasonably expected to be at least $100,000
per year), and true and complete copies of each lease pursuant to which CBH
or
Erye leases real or personal property to others (limited in the case of personal
property, to leases pursuant to which annual rentals are reasonably expected
to
be at least $100,000 per year). Section 3.24 of the CBH Disclosure Statement
sets forth a true and complete list of all such leases, and such leases are
the
only leases that are material to the business conducted by CBH or Erye taken
as
a whole. All of the leases so listed (i) are, in all material respects, valid
and subsisting and in full force and effect with respect to CBH or Erye, as
the
case may be, and, to CBH’s knowledge, with respect to any other party thereto
and (ii) were entered into as a result of bona fide arm’s length negotiations
with the other party or parties thereto. CBH or Erye have valid leasehold
interests in all properties leased thereunder free and clear of all material
liens and encumbrances other than CBH Permitted Encumbrances. The real
properties leased by CBH or Erye are, in all material respects, in good
operating order and condition, subject to ordinary wear and tear. To the
knowledge of CBH and Erye, there are no material structural, mechanical or
other
defects in any improvements located on such real properties.
3.25 Contracts
and Commitments. Except
as
set forth in Section 3.25 of the CBH Disclosure Statement or as set forth as
an
exhibit in a CBH SEC Report filed since December 31, 2007, neither CBH nor
any
of its Subsidiaries is a party to any existing contract, obligation or
commitment of any type which requires payment by or to any party thereto in
excess of $50,000. True and complete copies of all contracts, obligations and
commitments listed in Section 3.25 of the CBH Disclosure Statement (translated
into English where the originals are in Chinese) have been delivered or made
available to NeoStem. None of CBH or Erye or, to the knowledge of CBH or Erye,
any other party is in breach of or default under any of the contracts,
obligations and commitments listed in Section 3.25 of the CBH Disclosure
Statement or under any other CBH Contracts (and, to the knowledge of CBH, no
facts or circumstances exist which could reasonably support the assertion of
any
such breach or default) except for breaches and defaults which would not, singly
or in the aggregate with all other such breaches, have a CBH Material Adverse
Effect. For purposes of this Agreement, an “Affiliate” of a Person means a
Person that directly or indirectly through one or more intermediaries, controls,
is controlled by, or is under common control with, the first Person, including
but not limited to a subsidiary of the first Person, a Person of which the
first
Person is a subsidiary, or another Subsidiary of a Person of which the first
Person is also a subsidiary; and “Control” (including the terms “controlled by”
and “under common control with”) means the possession, directly or indirectly,
of the power to direct or cause the direction of the management policies of
a
Person, whether through the ownership of voting securities, by contract or
credit arrangement, as trustee or executor, or otherwise.
-19-
3.26 Employees;
Labor Matters. Except
as
set forth in Section 3.26 of the CBH Disclosure Statement, neither CBH nor
Erye
is a party to or bound by any collective bargaining agreement, and there are
no
labor unions or other organizations representing, purporting to represent or
attempting to represent any employees employed by CBH or Erye thereof. Since
January 1, 2004, there has not occurred or been threatened any material strike,
slowdown, picketing, work stoppage, concerted refusal to work overtime or other
similar labor activity with respect to any employees of CBH or Erye thereof.
Except as set forth in Section 3.26 of the CBH Disclosure Statement, there
are
no labor disputes currently subject to any grievance procedure, arbitration
or
litigation and there is no representation petition pending or threatened with
respect to any employee of CBH or any Subsidiary thereof. Each of CBH and Erye
has complied with all applicable laws, statutes, orders, rules, regulations,
policies or guidelines promulgated, or judgments, decisions or orders entered,
by any Governmental Authority (as defined herein) (all such laws, statutes,
orders, rules, regulations, policies, guidelines, judgments, decisions and
orders, collectively, “Applicable
Laws”)
pertaining to the employment or termination of employment of their respective
employees, including, without limitation, all such Applicable Laws relating
to
labor relations, equal employment opportunities, fair employment practices,
prohibited discrimination or distinction and other similar employment
activities. Contributions required to be made by employers under the Applicable
Laws to all the mandatory social welfare and pension funds in respect of all
employees of CBH or any Subsidiary thereof have been duly and punctually paid
in
full.
3.27 No
Change of Control Puts. Except
as
described in Section 3.27 of the CBH Disclosure Statement, neither the execution
and delivery by CBH of this Agreement nor the consummation of the Merger or
any
other transaction contemplated hereby gives rise to any obligation of CBH or
any
of its Subsidiaries to, or any right of any holder of any security of CBH or
any
of its Subsidiaries to require CBH or any of its Subsidiaries to, purchase,
offer to purchase, redeem or otherwise prepay or repay any such security, or
deposit any funds to effect the same.
3.28 Employment
and Labor Contracts. Except
as
set forth in Section 3.28 of the CBH Disclosure Statement, neither CBH nor
Erye
is a party to any employment, management services, consultation or other
contract or agreement that provides for annual compensation of $50,000 or more,
with any past or present officer, director or employee or, to the knowledge
of
CBH, any entity affiliated with any past or present officer, director or
employee, other than the agreements executed by employees generally, the forms
of which have been provided to NeoStem.
-20-
3.29 Intellectual
Property Rights. CBH
and
Erye own or have the right to use all material CBH Intellectual Property Rights
(as defined herein) necessary to the conduct of their respective businesses.
Subject to obtaining any associated consents with respect to agreements or
licenses listed in Section 3.3.2 of the CBH Disclosure Statement, each CBH
Intellectual Property Right owned or used by CBH or Erye immediately prior
to
the Effective Time will be owned or available for use, in all material respects,
by the Surviving Company or its subsidiaries on substantially the same terms
and
conditions immediately subsequent to the Effective Time. Section 3.29 of the
CBH
Disclosure Statement contains a list of all material patents, trade names,
registered copyrights, trademarks and service marks, mask works and applications
for the foregoing owned or used by CBH and Erye. Except as set forth in Section
3.29 of the CBH Disclosure Statement, (i) CBH or Erye have valid and
unencumbered (except for CBH Permitted Encumbrances) title to the CBH
Intellectual Property Rights set forth in such Section 3.29 and, to the
knowledge of CBH or Erye, such title has not been challenged (pending or
threatened) by others except for the encumbrances listed therein; (ii) no
material rights or licenses to use CBH Intellectual Property Rights have been
granted or acquired by CBH or Erye; (iii) there have been no claims or
assertions made by others that CBH and Erye has infringed any Intellectual
Property Rights (as defined herein) of others by the sale of products, the
rendering of services or any other activity since December 31, 2002; (iv) to
the
knowledge of CBH, there has been no such infringement by CBH or any of its
Subsidiaries since December 31, 2002; (v) CBH and Erye have no knowledge of
any
infringement of CBH Intellectual Property Rights of CBH or any of its
Subsidiaries by others; and (vi) all CBH Intellectual Property Rights owned
by
CBH or Erye (a) are in good standing with the registration authority therefor,
if any, (b) to the extent recorded on the public record, are recorded in the
name of CBH or Erye and (c) have been duly registered with, filed in or issued
by, as the case may be, the State Intellectual Property Office of the PRC,
the
National Copyright Administration of the PRC and Trademark Office of Stated
Administration For Industry & Commerce in the PRC, and the U.S. Patent and
Trademark Office and the U.S. Copyright Office and other filing offices,
domestic or foreign, to the extent necessary or desirable to ensure full
protection under any Applicable Law, and the same remain in full force and
effect. True and complete copies of all material listed in Section 3.29 of
the
CBH Disclosure Statement have been delivered or made available to NeoStem.
For
purposes of this Agreement, the phrase “Intellectual
Property Rights”,
shall
mean and include, with respect to any Person, rights of such Person relating
to
patents, trademarks, service marks, collective marks, certification marks,
trade
names, copyrights, mask works, inventions, processes, trade secrets, know-how,
confidentiality agreements, consulting agreements, software and any
documentation relating to the manufacture, marketing, sale, licensing or
maintenance of products or services by such Person; and the phrase "CBH
Intellectual Property Rights"
shall
mean the Intellectual Property Rights of each of CBH and Erye, excluding any
Intellectual Property Rights held solely by CBC or Nanjing
Keyuan.
-21-
3.30 Taxes.
3.30.1 Except
as
set forth in Section 3.30 in the CBH Disclosure Statement, (i) all Returns
(as
defined herein) required to be filed by, or with respect to any activities
or
assets of, each of CBH and its Subsidiaries have been duly and timely filed
and
are correct and complete in all material respects, (ii) all Taxes (as defined
herein) shown as owing on such Returns have been paid and (iii) none of CBH
or
its Subsidiaries is currently the beneficiary of any extension of time within
which to file any Return.
3.30.2 Except
as
set forth in Section 3.30 of the CBH Disclosure Statement, (i) all Taxes that
are or may become payable by any of CBH or its Subsidiaries or chargeable as
an
Encumbrance (as defined herein) upon its assets for which the filing of a Return
is not required have been duly and timely paid and (ii) each of CBH and its
Subsidiaries has duly and timely withheld all Taxes required to be withheld
in
connection with the business or assets of such entity, and such withheld Taxes
have been either duly and timely paid to the proper governmental authorities
or
properly set aside in accounts for such purpose.
3.30.3 Except
as
set forth in Section 3.30 of the CBH Disclosure Statement, there has been no
claim or issue (other than a claim or issue that has been finally settled)
concerning any liability for Taxes of CBH or any Subsidiary thereof asserted,
raised or threatened by any taxing authority and, to the knowledge of CBH and
its Subsidiaries, no circumstances exist to form the basis for such a claim
or
issue.
3.30.4 Section
3.30 of the CBH Disclosure Statement lists all Income Tax Returns (as defined
herein) that have been filed with respect to each of CBH and its Subsidiaries
for taxable periods ended on or after January 1, 2006 and that have not yet
been
audited or are currently the subject of audit.
3.30.5 Except
as
set forth in Section 3.30 of the CBH Disclosure Statement, none of CBH or its
Subsidiaries has (i) waived any statute of limitations, (ii) agreed to any
extension of the period for assessment or collection or (iii) executed or filed
any power of attorney with respect to Taxes, which waiver, agreement or power
of
attorney is currently in force.
3.30.6 Except
as
set forth in Section 3.30 of the CBH Disclosure Statement, (i) there are no
outstanding adjustments for Income Tax (as defined herein) purposes applicable
to CBH or any of its Subsidiaries required as a result of changes in methods
of
accounting effected on or before the date of this Agreement and (ii) no material
elections for Income Tax purposes have been made by any of CBH or its
Subsidiaries that are currently in force or by which any of CBH or its
Subsidiaries is bound.
3.30.7 Except
as
set forth in Section 3.30 of the CBH Disclosure Statement, none of CBH or its
Subsidiaries (i) is a party to or bound by or has any obligation under any
Tax
allocation, sharing, indemnity or similar agreement or arrangement or (ii)
is or
has been a member of any group of companies filing a consolidated, combined
or
unitary Income Tax Return.
-22-
3.30.8 For
purposes of this Agreement, the following terms shall have the meanings ascribed
to them below:
(i) “Encumbrance”
means
any mortgage, pledge, deed of trust, hypothecation, right of others, claim,
security interest, encumbrance, burden, title defect, title retention agreement,
lease, sublease, license, occupancy agreement, easement, covenant, condition,
encroachment, voting trust agreement, interest, option, right of first offer,
negotiation or refusal, proxy, lien, charge or other restriction or limitations
of any nature whatsoever, including but not limited to such Encumbrances as
may
arise under any contract.
(ii) “Income
Tax”
means
any Tax computed in whole or in part based on or by reference to net income
and
any alternative, minimum, accumulated earnings or personal holding company
Tax
(including all interest and penalties thereon and additions
thereto).
(iii) “Income
Tax Return”
means
any return, report, declaration, form, claim for refund or information return
or
statement relating to Income Taxes, including any schedule or attachment
thereto, and including any amendment thereof.
(iv) “Return”
means
any return, report, declaration, form, claim for refund or information return
or
statement relating to Taxes, including any schedule or attachment thereto,
and
including any amendment thereof.
(v) “Tax”
means
any federal, state, local or foreign income, alternative, minimum, accumulated
earnings, personal holding company, franchise, capital stock, profits, windfall
profits, gross receipts, sales, use, value added, transfer, registration, stamp,
premium, excise, customs duties, severance, environmental, real property,
personal property, ad valorem, occupancy, license, occupation, employment,
payroll, social security, disability, unemployment, workers’ compensation,
withholding, estimated or other similar tax, duty, fee, assessment or other
governmental charge or deficiencies thereof (including all interest and
penalties thereon and additions thereto).
3.31 Employee
Benefit Plans
3.31.1 Except
as
set forth in Section 3.31 of the CBH Disclosure Statement, with respect to
any
employee or former employee of CBH or any Subsidiary thereof, none of CBH or
Erye, or any Affiliated company presently maintains, contributes to or has
any
liability under: (i) any bonus, incentive compensation, profit sharing,
retirement, pension, group insurance, death benefit, cafeteria, medical expense
reimbursement, dependent care, stock option, stock purchase, stock appreciation
rights, deferred compensation, consulting, severance pay or termination pay,
vacation pay, welfare or other employee benefit or fringe benefit plan, program
or arrangement; or (ii) any plan, program or arrangement which is an employee
pension benefit plan, or an “employee welfare benefit plan” as defined under
relevant laws applicable to CBH or any Subsidiary thereof. Each plan, program
and arrangement set forth in Section 3.31 of the CBH Disclosure Statement is
herein referred to as a “CBH
Employee Benefit Plan.”
The
term “affiliated company” means any organization that would be aggregated with
any of CBH or any Subsidiary thereof under Section 414(b), (c), (m) or (o)
of
the Code.
-23-
3.31.2 There
is
no pending or threatened legal action, claim, proceeding or investigation
against or involving any CBH Employee Benefit Plan (other than routine claims
for benefits) and there is no basis for any facts which could give rise to
any
such condition, legal action, claim, proceeding or investigation.
3.31.3 None
of
CBH or Erye nor any of their affiliates is a party to any employment agreement,
whether written or oral, or agreement with change in control or similar
provisions, or a collective bargaining agreement or contract with any labor
union relating to any employees or former employees of CBH or any Subsidiary
thereof.
3.32 Environmental
Matters.
3.32.1 Each
of
CBH and its Subsidiaries has complied and is in compliance in all material
respects with all applicable Environmental Laws (as defined herein) pertaining
to any of the properties and assets of CBH and its Subsidiaries (including
all
real property owned by CBH or any of its Subsidiaries, together with all
structures, facilities, improvements, fixtures, systems, equipment and items
of
property presently or hereafter located thereon or attached or appurtenant
thereto or owned by CBH or any of its Subsidiaries and located on real property
leased by CBH or any of its Subsidiaries, and all easements, licenses, rights
and appurtenances relating to the foregoing (collectively, the “CBH
Real Property”)
and
the use and ownership thereof, and to the operation of their respective
businesses. No material violation by CBH or any of its Subsidiaries is being
alleged of any applicable Environmental Law relating to any of the properties
and assets of CBH or any of its Subsidiaries (including the CBH Real Property)
or the use or ownership thereof, or to the operation of their respective
businesses.
3.32.2 None
of
CBH or its Subsidiaries or any other Person (including any tenant or subtenant)
has caused or taken any action that will result in, nor is CBH or any Subsidiary
thereof subject to, any material liability or obligation on the part of CBH
or
any Subsidiary thereof or any of its Affiliates, relating to (x) the
environmental conditions on, under, or about the CBH Real Property or other
properties or assets owned, leased, operated or used by CBH or any of its
Subsidiaries or any predecessor thereto at the present time or in the past,
including without limitation, the air, soil and groundwater conditions at such
properties or (y) the past or present use, management, handling, transport,
treatment, generation, storage, disposal or Release (as defined herein) of
any
Hazardous (as defined herein) materials.
3.32.2.1
CBH has disclosed and made available to NeoStem all information, including,
without limitation, all studies, analyses and test results, in the possession,
custody or control of or otherwise known to CBH or its Subsidiaries relating
to
(x) the environmental conditions on, under or about the Real Property or other
properties or assets owned, leased, operated or used by CBH or any of its
Subsidiaries any predecessor in interest thereto at the present time or in
the
past, and (y) any Hazardous materials used, managed, handled, transported,
treated, generated, stored or Released by CBH or any of its Subsidiaries or
any
other Person on, under, about or from any of the CBH Real Property, or otherwise
in connection with the use or operation of any of the properties and assets
of
CBH or any of its Subsidiaries or their respective businesses.
-24-
3.32.3 For
purposes of this Agreement, the following terms shall have the meanings ascribed
to them below:
3.32.3.1
“Environmental
Laws”
means
all Laws relating to the protection of the environment, to human health and
safety, or to any Environmental activity, including, without limitation, (a)
CERCLA, the Resource Conservation and Recovery Act, and the Occupational Safety
and Health Act, or any equivalent law under the PRC, including, without
limitation, the Environmental Protection Law of the PRC, the Law of the PRC
on
Appraising of Environmental Impacts and the Law of the PRC on Prevention and
Control of Environmental Pollution by Solid Waste, (b) all other requirements
pertaining to reporting, licensing, permitting, investigation or remediation
of
emissions, discharges, releases or threatened releases of Hazardous materials
into the air, surface water, groundwater or land, or relating to the
manufacture, processing, distribution, use, sale, treatment, receipt, storage,
disposal, transport or handling of Hazardous materials and (c) all other
requirements pertaining to the protection of the health and safety of employees
or the public.
3.32.3.2
“Hazardous
Materials”
means
any substance that: (a) is or contains asbestos, urea formaldehyde foam
insulation, polychlorinated biphenyls, petroleum or petroleum-derived substances
or wastes, radon as or related materials (b) requires investigation, removal
or
remediation under any Environmental Law, or is defined, listed or identified
as
a “hazardous waste” or “hazardous substance” thereunder, or (c) is toxic,
explosive, corrosive, flammable, infectious, radioactive, carcinogenic,
mutagenic, or otherwise hazardous and is regulated by any Governmental Authority
or Environmental Law.
3.32.3.3
“Release”
means
any releasing, disposing, discharging, injecting, spilling, leaking, leaching,
pumping, dumping, emitting, escaping, emptying, seeing, dispersal, leeching,
migration, transporting, placing and the like, including without limitation,
the
moving of any materials through, into or upon, any land, soil, surface water,
ground water or air, or otherwise entering into the environment.
3.33 CBH
Business Matters.
3.33.1 None
of
CBH, Erye or any director, agent, employee or any other person acting for or
on
behalf of CBH or Erye, has directly or indirectly made any unlawful
contribution, gift, bribe, payoff, influence payment, kickback, or any other
fraudulent payment in any form, whether in money, property, or services to
any
person, including but not limited to any staff member at any hospital or center
for disease control or any government officer (a) to obtain favorable treatment
in securing business for CBH or Erye, (b) to pay for favorable treatment for
business secured, (c) to obtain special concessions or for special concessions
already obtained, for or in respect of CBH or Erye, or (d) in violation of
any
applicable anti-corruption law.
3.33.2 None
of
CBH, Erye or any director, agent, employee or any other person acting for or
on
behalf of CBH or Erye, has established or maintained any fund or assets in
which
such Group Company has proprietary rights that have not been recorded in the
books and records of CBH or Erye. Each transaction is properly and accurately
recorded in all material respects on the books and records of CBH or Erye,
and
each document upon which entries such books and records are based is complete
and accurate in all material respects. Each of CBH and Erye maintains a system
of internal accounting controls reasonably designed to insure that there is
no
maintain no off-the-books accounts and its assets are used only in accordance
with its corporate management directives.
-25-
3.33.3 Section
3.33.3 of the CBH Disclosure Agreement sets forth all the land, buildings and
premises currently owned by Erye (the “Owned
Real Property”).
The
description of the Owned Real Property as set forth in Section 3.33.3 of the
CBH
Disclosure Statement is true and complete.
3.33.4 Erye
has
exclusive and unfettered possession, occupation and proper legal title to the
land use rights and building ownership rights in respect of the Owned Real
Property (including possession of the land use rights certificates and building
ownerships certificates) and are, subject to compliance with applicable laws
of
the PRC, entitled to transfer, sell, mortgage or otherwise dispose of the Owned
Real Property and there are no occupancy rights or liens in favour of third
parties affecting it.
3.33.5 The
original land grant fee for the land use rights was paid in full, and no further
amounts are currently owed in respect thereof. No other fees or other payments
are owed in respect of the Owned Real Property including in respect of the
relocation of Erye to the site previously disclosed to NeoStem by CBH. The
relevant granted land use right contracts and the relevant land registration
cards contain no restrictions on Erye’s use of the Owned Real Property for which
such land use rights have been granted.
3.33.6 There
are
no claims pending or, to CBH and Erye’s knowledge, threatened that would result
in the creation of any lien on any Owned Real Property.
3.33.7 There
are
no zoning or other applicable laws or regulations currently in effect that
would
prevent or limit Erye from conducting its operations on the Owned Real Property
as they are currently conducted or contemplated to be conducted.
3.33.8 There
are
not material assets or properties shared with any other entity, which are used
in connection with the business conducted by Erye, and all of the facilities,
services, assets or properties owned by Erye are sufficient to conduct its
business as proposed to be conducted.
With
respect to the relocation of Erye’s workshop, Erye has all approvals and
certificates necessary for the title to and legal use of the building which
is
under construction on the date of this Agreement. CBH intends for Erye to
relocate its workshop to the completed building, which shall ensure optimum
operation and production of Erye, on or about December 31, 2011.
3.34 Disclosure.
All
information disclosed by or on behalf of CBH or its Subsidiaries to NeoStem
or
its advisers on or prior to the date hereof is true and accurate in all material
aspects, and CBH and its Subsidiaries are not aware of any other fact or matter
which renders any such information misleading because of any omission, ambiguity
or for any other reason. All information contained in the CBH Disclosure
Statement is true and accurate in all aspects and fairly presented and there
is
no fact or matter which has not been disclosed in the CBH Disclosure Statement
which renders any such information untrue or misleading and there is no fact
or
matter concerning CBH or its Subsidiaries which has not on the basis of the
utmost good faith been disclosed in the CBH Disclosure Statement which would
reasonably be expected to influence the decision of NeoStem to proceed with
the
Merger on the terms and conditions thereof.
-26-
ARTICLE
IV.
REPRESENTATION
AND WARRANTIES OF NEOSTEM AND SUBCO
Except
as
set forth in the disclosure statement delivered by NeoStem to CBH at or prior
to
the execution of this Agreement (the “NeoStem
Disclosure Statement”)
(each
section of which qualifies the correspondingly numbered representation and
warranty, regardless of whether such representation or warranty expressly refers
to or is qualified by reference to such NeoStem Disclosure Statement) or as
disclosed in the NeoStem SEC Reports, NeoStem and Subco, jointly and severally,
represent and warrant to CBH as follows (it being understood and agreed that
each representation and warranty with respect to any payment obligation of
NeoStem that is qualified hereunder as to materiality, shall refer to any such
obligation (i) having a dollar value of more than $50,000, to the extent such
value is quantifiable, and (ii) not made or incurred in the ordinary course
of
business):
4.1 Organization
and Qualification.
4.1.1 Each
of
NeoStem and its Subsidiaries (as defined in Section 4.1.2) is an entity duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the corporate power and authority
to
own, lease and operate its properties and to conduct its business as described
in the NeoStem SEC Reports (as defined herein). Each of NeoStem and each of
NeoStem’s Subsidiaries is duly qualified to transact business as a foreign
corporation or other foreign entity and is in good standing in each jurisdiction
in which the conduct of its business or the ownership, leasing or operation
of
its property requires such qualification, except for failures to be so qualified
or in good standing which would not, singly or in the aggregate with all such
other failures, have a NeoStem Material Adverse Effect. “NeoStem
Material Adverse Effect”
means,
with respect to any event, occurrence, matter, failure of event or occurrence,
change, effect, state of affairs, breach, default, violation, fine, penalty
or
failure to comply (each, a “Circumstance”),
individually or taken together with all other Circumstances contemplated by
or
in connection with any or all of the representations and warranties made in
this
Agreement, a material adverse effect on the business, assets (including without
limitation intangible assets), liabilities (contingent or otherwise), financial
condition, results of operations or prospects of NeoStem and its Subsidiaries,
taken as a whole; provided,
however,
that
NeoStem Material Adverse Effect shall not be deemed to include the impact of:
(A) the implementation of changes in U.S. generally accepted accounting
principles; (B) actions and omissions of NeoStem or its Subsidiaries taken
or
permitted with the prior written consent of CBH after the date hereof; (C)
expenses reasonably incurred by NeoStem or its Subsidiaries in consummating
the
transactions contemplated by this Agreement; (D) changes in the general economic
or financial market conditions; (E) any occurrence, condition, change, event
or
effect that affects the stem cell industry generally; and (F) the outbreak
or
escalation of hostilities involving the PRC or the United States, the
declaration by the PRC or the United States of war or the occurrence of any
natural disasters and acts of terrorism.
-27-
4.1.2 Neither
NeoStem nor any of its Subsidiaries is in violation of any of the provisions
of
its certificate of incorporation or by-laws, or other similar organizational
documents, each as amended and currently in effect, or, if it is a limited
liability company or partnership, its operating agreement, partnership agreement
or other comparable agreement. True and complete copies of the certificate
of
incorporation and by-laws, each as amended and as currently in effect, of
NeoStem and true and complete copies of the certificate of incorporation and
by-laws, or other similar organizational documents, each as amended and
currently in effect, of each Subsidiary of NeoStem have been previously
delivered or made available to CBH. Except for an amendment to the certificate
of incorporation to increase the number of shares of NeoStem Preferred Stock
authorized for issuance by NeoStem in order to consummate the transactions
contemplated by this Agreement, which may be authorized by the NeoStem Board
of
Directors, subject to the approval of the NeoStem Stockholders at the NeoStem
Annual Meeting, no amendments to the certificate of incorporation, as amended,
of NeoStem have been authorized since August 8, 2007, and no amendments to
the
by-laws of NeoStem have been authorized since August 1, 2006. For purposes
of
this Agreement, all references to the “Subsidiaries”
of
NeoStem shall constitute references to any entity (i) the accounts of which
would be consolidated with those of NeoStem in NeoStem’s consolidated financial
statements if such financial statements were prepared in accordance with
generally accepted accounting principles or (ii) of which securities or other
ownership interests representing more than 50% of the equity or more than 50%
of
the ordinary voting power or, in the case of a partnership, more than 50% of
the
general partnership interests or more than 50% of the profits or losses are
owned by NeoStem and/or one or more subsidiaries of NeoStem.
4.2 Authority
Relative to this Agreement. Each
of NeoStem
and Subco has the corporate power and authority to execute and deliver this
Agreement and, upon obtaining the approval of a majority of the outstanding
shares of NeoStem Common Stock at the NeoStem Annual Meeting or any adjournment
thereof as authorized under the DGCL, to consummate the Merger and the other
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the Merger and the other transactions contemplated
hereby have been duly and validly authorized by the Boards of Directors of
NeoStem and Subco, and except as stated in the preceding sentence, no other
corporate proceedings on the part of NeoStem or Subco are necessary to authorize
this Agreement or to consummate the Merger and the other transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by NeoStem and Subco and, assuming the due authorization, execution
and delivery hereof by CBH and subject to stockholder approval as aforesaid,
constitutes a valid and binding agreement of each of NeoStem and Subco,
enforceable against NeoStem and Subco in accordance with its terms, except
to
the extent that its enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting the enforcement
of creditors’ rights generally or by general equitable
principles.
-28-
4.3 Consents,
No Conflicts.
4.3.1 Except
for actions to be taken in connection with (a) the filing of the Certificate
of
Merger (including the increase in the preferred stock), (b) the filing and
effectiveness of the Registration Statement and/or Joint Proxy Statement and
shareholder approval thereunder, (c) filings required pursuant to any state
securities or “blue sky” laws, (d) filings, approvals for listing and other
matters relating to the listing or quoting on an Exchange of the shares of
NeoStem Common Stock required to be issued pursuant to this Agreement, and
(e)
any other filings, notices, disclosures or registrations set forth in Section
4.3.1 of the NeoStem Disclosure Statement, no filing or registration with,
notification or disclosure to, or permit, authorization, consent or approval
of,
(x) any Government Authority or (y) any third party, whether acting in an
individual, fiduciary or other capacity, is required for the consummation by
NeoStem or Subco of the Merger or the other transactions contemplated
hereby.
4.3.2 Except
as
set forth in Section 4.3.2 of the NeoStem Disclosure Statement, the execution,
delivery and performance of this Agreement and the consummation of the Merger
and the other transactions contemplated hereby and compliance by NeoStem and
Subco with any of the provisions hereof do not and will not: (i) subject to
obtaining the approval of the Merger by holders of the NeoStem Common Stock
and
the NeoStem Preferred Stock, conflict with or result in any breach or violation
of any provision of the certificate of incorporation or by-laws, or other
similar organizational documents, each as amended, of NeoStem or any of its
Subsidiaries or (ii) result in (1) a breach or violation of, a default under
or
an event triggering any payment, obligation or acceleration of any obligation
pursuant to any NeoStem Employee Benefit Plan (as defined herein) or any grant
or award made under any of the foregoing, (2) a breach or violation of, a
default under or an event triggering a right of termination of, a default under,
or the acceleration of any obligation or the creation of a lien, pledge,
security interest or other encumbrance on assets (with or without the giving
of
notice or the lapse of time or both) pursuant to any provision of, any
agreement, lease of real or personal property, marketing agreement, contract,
note, mortgage, indenture or other obligation of NeoStem or any of its
Subsidiaries (“NeoStem
Contracts”)
or,
subject to making all filings, notifications and disclosures and receipt of
all
permits, authorizations, consents and approvals referred to in clauses “a”
through “e” of Section 4.3.1 or in Section 4.3.1 of the NeoStem Disclosure
Statement, any law, rule, ordinance or regulation or judgment, decree, order
or
award to which NeoStem or any of its Subsidiaries is subject or any governmental
or non-governmental authorization, consent, approval, registration, franchise,
license or permit under which NeoStem or any of its Subsidiaries conducts any
of
its business, or (3) any other change in the rights or obligations of any party
under any of the NeoStem Contracts, except, with respect to this clause (ii),
for breaches, violations, defaults, triggering events, creations of liens,
pledges, security interests or other encumbrances on assets, or changes in
rights or obligations which would not, singly or in the aggregate with all
other
such matters, have a NeoStem Material Adverse Effect.
5.3.3 As
of the
date of execution of this Agreement, NeoStem has not received any de-listing
notice from the Exchange on which the NeoStem Common Stock is listed or quoted
with respect to its Common Stock.
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4.4 Board
Recommendation. The
Board
of Directors or an appropriate committee of the Board of Directors of NeoStem
has, by a unanimous vote of those directors in attendance at a meeting of such
Board or committee duly held on October 31, 2008 approved and adopted this
Agreement, the Merger and the other transactions contemplated hereby. At such
meeting, the Board of Directors of NeoStem or board committee determined that
the terms of the Merger are fair to the holders of NeoStem Common Stock and
recommended that the holders of such shares approve and adopt this Agreement,
the Merger, the issuance of the NeoStem Common Stock pursuant to this Agreement
and the other transactions contemplated hereby (the “NeoStem
Board Recommendation”).
4.5 State
Anti-takeover Statutes; Stockholder Protection Rights
Agreements.
Other
than the CBH Lock-Up and Voting Agreement, the NeoStem Lock-Up and Voting
Agreement (as defined herein) and the Confidentiality Agreements (as defined
herein), there are no contracts between NeoStem or Subco, on the one hand,
and
any member of CBH’s management or directors, on the other hand, as of the date
hereof that relate in any way to CBH or the transactions contemplated by this
Agreement. Prior to the Board of Directors of CBH approving this Agreement,
the
Merger and the other transactions contemplated hereby for purposes of the
applicable provisions of the DGCL, neither NeoStem nor Subco, alone or together
with any other person, was at any time, or became, an “interested stockholder”
thereunder or has taken any action that would cause the restrictions on business
combinations with interested stockholders set forth in Section 203 of the DGCL
to be applicable to this Agreement, the Merger, or any transactions contemplated
by this Agreement. NeoStem is not a party to any stockholder protection rights
agreement or any agreement similar thereto.
4.6 No
Existing Violation, Default, Etc. None
of
NeoStem or its Subsidiaries is in violation of (A) any Applicable Law or (B)
any
order, decree or judgment of any Governmental Authority having jurisdiction
over
NeoStem or any of its Subsidiaries. No event of default or event that, but
for
the giving of notice or the lapse of time or both, would constitute an event
of
default, exists under any material NeoStem Contract or any material lease,
permit, license or other agreement or instrument to which NeoStem or any of
its
Subsidiaries is a party or by which any of them is bound or to which any of
the
properties, assets or operations of NeoStem or any of its Subsidiaries is
subject.
4.7 Licenses
and Permits. Each
of
NeoStem and its Subsidiaries has such certificates, permits, licenses,
franchises, consents, approvals, orders, authorizations and clearances from
appropriate governmental agencies and bodies (“NeoStem
Licenses”)
as are
necessary to own, lease or operate its properties and to conduct its business
in
the manner described in the NeoStem SEC Reports and as presently conducted
and
all such NeoStem Licenses are valid and in full force and effect, other than
any
failure to have any such NeoStem License or any failure of any such NeoStem
License to be valid and in full force and effect as would not, singly or in
the
aggregate with all such other failures, have a NeoStem Material Adverse Effect.
NeoStem and its Subsidiaries do not currently participate in any Medicaid
program. Each of NeoStem and its Subsidiaries is and, within the period of
all
applicable statutes of limitations, has been in compliance with its obligations
under such NeoStem Licenses and no event has occurred that allows, or after
notice or lapse of time would allow, revocation or termination of such NeoStem
Licenses, other than any such failure to be in compliance with such obligations
or any such revocation or termination as would not, singly or in the aggregate
with all such other failures, revocations or terminations, have a NeoStem
Material Adverse Effect. Except as set forth in Section 4.7 of the NeoStem
Disclosure Statement, NeoStem has no knowledge of any facts or circumstances
that could reasonably be expected to result in an inability of NeoStem or any
of
its Subsidiaries to renew any material NeoStem License. Subject to making all
filings, notifications and disclosures and receipt of all permits,
authorizations, consents and approvals referred to in Section 4.3.1 of
the
NeoStem Disclosure Statement, neither the execution and delivery by NeoStem
or
Subco of this Agreement nor the consummation of any of the transactions
contemplated herein will result in any revocation or termination of any material
NeoStem License.
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4.8 Registration
Statement; Prospectus/Joint Proxy Statement. None
of
the information supplied or to be supplied by NeoStem for inclusion in, and
none
of the information regarding NeoStem and its Subsidiaries incorporated by
reference in, the Registration Statement or the Prospectus/Joint Proxy
Statement, including all amendments and supplements thereto, shall, in the
case
of the Registration Statement, at the time the Registration Statement becomes
effective, and, in the case of the Prospectus/Joint Proxy Statement, on the
date
or dates the Prospectus/Joint Proxy Statement is first mailed to NeoStem and
CBH
stockholders and on the date or dates of the NeoStem Annual Meeting and the
CBH
Special Meeting, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which
they
were made, not misleading. The Registration Statement and the Prospectus/Joint
Proxy Statement will comply as to form in all material respects with the
applicable provisions of the Securities Act and the Exchange Act, as the case
may be.
4.9 Finders
or Brokers; Compensation Arrangements. Except
as
provided in Section 4.9 of the NeoStem Disclosure Statement, neither NeoStem
nor
any Subsidiary of NeoStem has employed any investment banker, broker, finder
or
intermediary in connection with the transactions contemplated hereby who might
be entitled to a fee or any commission the receipt of which is conditioned
in
whole or part upon consummation of the Merger.
4.10 SEC
Reports.
NeoStem
has filed all forms, reports and documents required to be filed by it with
the
SEC since December 31, 2007 (the “NeoStem
Audit Date”)
(including, without limitation, NeoStem’s Annual Report on Form 10-K for the
year ended December 31, 2007 filed with the SEC on March 28, 2008, as amended
by
Amendment No. 1 to the Annual Report on Form 10-K/A filed with the SEC on April
29, 2008, and NeoStem’s Quarterly Report on Forms 10-Q for the quarters ended
March 31 and June 30, 2008 and all certifications and statements required by
Rule 13a-14 or 15d-14 under the Exchange Act or 18 U.S.C. §1350 (Section 906 of
SOX) with respect to any Annual Reports or Proxy Statements, and Current Reports
on Form 8-K), pursuant to the federal securities laws and the SEC’s rules and
regulations thereunder, and SOX and all rules and regulations thereunder
(collectively, and together with all forms, reports and documents filed by
NeoStem with the SEC after December 31, 2007, including any amendments thereto,
the “NeoStem
SEC Reports”).
Except as set forth in Section 4.10 of the NeoStem Disclosure Statement, NeoStem
SEC Reports were or will, as applicable, be prepared in accordance with the
requirements of the Securities Act and the Exchange Act, as the case may be,
and
the rules and regulations thereunder. As of their respective dates, none of
NeoStem SEC Reports, including, without limitation, any financial statements
or
schedules included therein, contained or will contain, as applicable, any untrue
statement of a material fact or omitted to state a material fact required to
be
stated therein or necessary in order to make the statements therein, in light
of
the circumstances under which they were or are made, as applicable, made, not
misleading. No Subsidiary of NeoStem is or has been required to file any form,
report, registration statement or other document with the SEC.
-31-
4.11 Disclosure
Controls and Procedures.
NeoStem
maintains disclosure controls and procedures required by Rule 13a-15 or 15d-15
under the Exchange Act. Such controls and procedures are effective to ensure
that all material information concerning NeoStem and its Subsidiaries is made
known on a timely basis to the individuals responsible for the preparation
of
NeoStem’s filings with the SEC and other public disclosure documents. As used in
this Section 4.11, the term “file” shall be broadly construed to include any
manner in which a document or information is furnished, supplied or otherwise
made available to the SEC.
4.12 Financial
Statements.
Except
as set forth in Section 4.12 of the NeoStem Disclosure Statement, the
consolidated balance sheets and the related consolidated statements of income
and cash flows (including the related notes thereto) of NeoStem included in
NeoStem SEC Reports, as of their respective dates, complied in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, were prepared in accordance with
U.S. generally accepted accounting principles applied on a basis consistent
with
prior periods (except as otherwise noted therein), and present fairly in all
material respects, the consolidated financial position of NeoStem and its
consolidated Subsidiaries as of their respective dates, and the consolidated
results of their operations and their cash flows for the periods presented
therein (subject, in the case of the unaudited interim financial statements,
to
notes and normal year-end adjustments that were not material in amount or
effect).
4.13 SOX
Certifications.
The
Chief Executive Officer and the Chief Financial Officer of NeoStem have signed,
and NeoStem has furnished to the SEC, all certifications required by Sections
302 and 906 of SOX. Such certifications contain no qualifications or exceptions
to the matters certified therein and have not been modified or withdrawn.
Neither NeoStem nor any of it officers has received notice from any Governmental
Authority questioning or challenging the accuracy, completeness, form or manner
of filing or submission of such certifications.
4.14 Undisclosed
Liabilities.
Except
(i) as reflected in NeoStem’s unaudited consolidated balance sheet at June 30,
2008 or liabilities described in any notes thereto, (ii) for liabilities
incurred in the ordinary course of business since June 30, 2008 consistent
with
past practice or in connection with this Agreement or the transactions
contemplated hereby, (iii) performance obligations under contracts required
in
accordance with their terms, or performance obligations, to the extent required
under applicable laws, in each case to the extent arising after the date hereof
or (iv) as set forth in Section 4.14 of the NeoStem Disclosure Statement,
neither NeoStem nor any of its Subsidiaries has any material liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
and which, individually or in the aggregate, could reasonably be expected to
have a Company Material Adverse Effect.
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4.15 Off-Balance
Sheet Arrangements.
NeoStem
and its Subsidiaries have not effected any securitization transactions or
“off-balance sheet arrangements” (as defined in Item 303(c) of Regulation S-K of
the SEC) since the NeoStem Audit Date. NeoStem has delivered or made available
to CBH copies of the documentation creating or governing any such securitization
transactions and off-balance sheet arrangements.
4.16 Loans
to Executives and Directors.
NeoStem
has not, since the effective date of SOX, extended or maintained credit,
arranged for the extension of credit, or renewed an extension of credit, in
the
form of a personal loan to or for any director or executive officer (or
equivalent thereof) of NeoStem in violation of SOX. NeoStem has not made any
loan or extension of credit to which the second sentence of Section 13(k)(I)
of
the Exchange Act applies.
4.17 Independent
Auditors.
Holtz
Rubenstein Reminick LLP serves as NeoStem’s independent registered public
accounting firm and to NeoStem’s knowledge, there are no relationships or
services, or any other factors that may affect the objectivity and independence
of Holtz Rubenstein Reminick LLP under applicable auditing standards. Holtz
Rubenstein Reminick LLP has not performed any non-audit services for NeoStem
and
its Subsidiaries since the NeoStem Audit Date, which, in any such case, were
required to be disclosed in NeoStem SEC Reports and were not so
disclosed.
4.18 Absence
of Changes or Events. Except
for (a) matters publicly disclosed by NeoStem prior to the date hereof in
NeoStem SEC Reports filed prior to the date hereof, (b) matters disclosed in
Section 4.18 of the NeoStem Disclosure Statement and (c) matters disclosed
in
Section 4.21 of the NeoStem Disclosure Statement:
4.18.1 Since
December 31, 2007: (i) NeoStem and its Subsidiaries have conducted their
business in the ordinary course and have not entered into any material oral
or
written agreement or other material transaction that is not in the ordinary
course of business (other than this Agreement) or that could reasonably be
expected to result in a NeoStem Material Adverse Effect; (ii) neither NeoStem
nor any of its Subsidiaries have sustained any material loss or interference
with their business or properties from fire, flood, windstorm, accident, strike
or other calamity (whether or not covered by insurance); (iii) there has been
no
material change in the indebtedness of NeoStem and its Subsidiaries, no change
in the capital stock of NeoStem and no dividend or distribution of any kind
declared, paid or made by NeoStem on any class of its capital stock; (iv) there
has been no event or condition which has caused a NeoStem Material Adverse
Effect, nor any development, occurrence or state of facts or circumstances
known
to NeoStem that could, singly or in the aggregate, reasonably be expected to
result in a NeoStem Material Adverse Effect; and (v) there has been no material
change by NeoStem in its accounting principles, practices or
methods.
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4.18.2 Since
December 31, 2007, other than in the ordinary course of business consistent
with
past practice or as disclosed in the NeoStem SEC Reports, there has not been
any
increase in the compensation or other benefits payable, or which could become
payable, by NeoStem, to its officers or key employees, or any amendment of
any
of the NeoStem Employee Benefit Plans.
4.19 Capitalization.
4.19.1 Subject
to Section 4.19.1 of the NeoStem Disclosure Statement, the authorized capital
stock of NeoStem consists solely of 500,000,000 shares of common stock, par
value $0.001 per share (the “NeoStem
Common Stock”),
and
5,000,000 shares of preferred stock, without par value (the “NeoStem
Preferred Stock”),
of
which 825,000 shares are designated as Series B Convertible Preferred Stock
(“NeoStem
Series B Preferred Stock”).
As of
October 31, 2008, there were 7,315,006 shares of NeoStem Common Stock and 10,000
shares of NeoStem Series B Preferred Stock outstanding; and no shares of NeoStem
Common Stock or shares of NeoStem Series B Preferred Stock held in NeoStem’s
treasury. As of October 31, 2008, 6,716,297 shares of NeoStem Common Stock
were
reserved for issuance upon the exercise or conversion of outstanding options,
warrants or convertible securities granted or issuable by NeoStem. Except for
the foregoing, as disclosed in the NeoStem SEC Documents or as set forth below,
there are not any existing options, warrants, calls, subscriptions, or other
rights or other agreements or commitments obligating NeoStem to issue, transfer
or sell any shares of capital stock of NeoStem or any other securities
convertible into or evidencing the right to subscribe for any such shares;
provided,
however,
that
(i) any and all outstanding options to purchase shares of NeoStem Common Stock
and/or warrants to purchase shares of NeoStem Common immediately prior to the
Closing, may be amended, canceled and reissued, or otherwise modified by
NeoStem's Board of Directors (or an appropriate committee thereof) so that
the
exercise price of each such option and/or warrant shall be as set forth in
Section 4.19 of the NeoStem Disclosure Statement; and (ii) simultaneously with
the Closing, any and all outstanding options to purchase shares of NeoStem
Common Stock held by employees, officers, directors or consultants providing
services to NeoStem immediately prior to the Closing shall be amended so that
vesting is based on the achievement of certain milestones. There are no
outstanding stock appreciation rights with respect to the capital stock of
NeoStem. As of the date hereof, except for (a) stock options issuable pursuant
to stock option plans adopted or assumed by NeoStem, (b) shares of NeoStem
Common Stock issuable pursuant to other NeoStem Employee Benefit Plans disclosed
in NeoStem SEC Reports, (c) securities issuable in connection with business
combinations disclosed in NeoStem SEC Reports, (d) matters described in Section
4.18 of the NeoStem Disclosure Statement and (e) matters described in this
Section 4.19, NeoStem is not bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character calling for the
purchase or issuance of any shares of NeoStem Common Stock or NeoStem Preferred
Stock or any other equity securities of NeoStem or any securities representing
the right to purchase or otherwise receive any shares of NeoStem Common Stock
or
NeoStem Preferred Stock or any other equity securities of NeoStem.
4.19.2 Except
as
set forth in Section 4.19.2 of the NeoStem Disclosure Statement, there are
no
(i) obligations, contingent or otherwise, of NeoStem or its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of NeoStem Common Stock
or
provide funds to, or make any investment in (in the form of a loan, capital
contribution or otherwise), or provide any guarantee with respect to the
obligations of, any other person, or (ii) agreements, arrangements or
commitments of any character (contingent or otherwise) pursuant to which any
person is or may be entitled to receive any payment based on the revenues or
earnings (or any component thereof), or calculated in accordance therewith,
of
NeoStem or any of its Subsidiaries. There are no voting trusts, proxies or
other
agreements or understandings to which NeoStem is a party or by which NeoStem
is
bound with respect to the voting of any shares of capital stock of
NeoStem.
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4.19.3 NeoStem
has delivered or made available to CBH complete and correct copies of each
stock
option plan adopted or assumed by NeoStem as of the date hereof and the form
of
equity compensation plan currently under consideration as a proposal for
adoption at the NeoStem Annual Meeting(the "Equity
Compensation Plan").
4.19.4 Each
outstanding share of NeoStem Common Stock and NeoStem Preferred Stock is, and
all shares of NeoStem Common Stock and NeoStem Series C Preferred Stock to
be
issued in connection with the transactions contemplated hereby will be, duly
authorized and validly issued, fully paid and nonassessable, with no personal
liability attaching to the ownership thereof, and each outstanding share of
NeoStem Common Stock and NeoStem Preferred Stock has not been, and all shares
of
NeoStem Common Stock and NeoStem Series C Preferred Stock to be issued in
connection with the transactions contemplated hereby will not be, subject to
or
issued in violation of any preemptive or similar rights.
4.20 Capital
Stock of Subsidiaries. The
only
direct or indirect Subsidiaries of NeoStem are those listed in Section 4.20
of
the NeoStem Disclosure Statement. NeoStem is directly or indirectly the record
and beneficial owner of all of the outstanding shares of capital stock of each
of its Subsidiaries, there are no proxies with respect to such shares, and
there
are not any existing options, warrants, calls, subscriptions, or other rights
or
other agreements or commitments obligating NeoStem or any of such Subsidiaries
to issue, transfer or sell any shares of capital stock of any of such
Subsidiaries or any other securities convertible into or evidencing the right
to
subscribe for any such shares. All of such shares so beneficially owned by
NeoStem are duly authorized and validly issued, fully paid, nonassessable and
free of preemptive rights with respect thereto and are owned by NeoStem,
directly or indirectly, free and clear of any claim, lien or encumbrance of
any
kind with respect thereto. Except as set forth in Section 4.20 of the NeoStem
Disclosure Statement, NeoStem does not directly or indirectly own any interest
in any corporation, partnership, limited liability company, joint venture or
other business association or entity.
4.21 Litigation.
Except
as
set forth in Section 4.21 of the NeoStem Disclosure Statement or in the NeoStem
SEC Reports, as of the date hereof there are no material pending actions, suits,
proceedings or, to the knowledge of NeoStem, investigations by, against or
affecting NeoStem, any of its Subsidiaries or any of their properties, assets
or
operations, or with respect to which NeoStem or any of its Subsidiaries is
responsible by way of indemnity or otherwise. Except as set forth in Section
4.21 of the NeoStem Disclosure Statement or the NeoStem SEC Reports: (i) no
material pending or, to the knowledge of NeoStem, threatened actions, suits,
proceedings or investigations by, against or affecting NeoStem, any of its
Subsidiaries or any of their properties, assets or operations, or with respect
to which they are responsible by way of indemnity or otherwise, whether or
not
disclosed in such NeoStem SEC Reports, would, singly or in the aggregate with
all such other actions, suits, investigations or proceedings, reasonably be
expected to have a NeoStem Material Adverse Effect; and (ii) to the knowledge
of
NeoStem, there are no material actions, suits, proceedings or investigations
and
there is no reasonable basis, to the knowledge of NeoStem, for any action,
suit,
proceeding or investigation, whether or not threatened or
contemplated.
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4.22 Insurance.
NeoStem
and its Subsidiaries have insurance policies covering it and its Subsidiaries’
assets, business, equipment, properties, operations, employees, officers and
directors which NeoStem reasonably and in good faith believes are adequate
to
conduct the business of NeoStem and its Subsidiaries. All premiums due and
payable under all such policies have been paid, and NeoStem is otherwise in
full
compliance with the terms and conditions of all such policies, except where
the
failure to have made payment or to be in full compliance would not, individually
or in the aggregate with all such other failures, have a NeoStem Material
Adverse Effect. NeoStem reasonably believes that the reserves established by
NeoStem and its Subsidiaries in respect of all matters as to which NeoStem
or
any of its Subsidiaries self-insures or carries retention and/or deductibles,
including without limitation workers’ medical coverage and workers’
compensation, are adequate and appropriate, and NeoStem is not aware of any
facts or circumstances existing as of the date hereof that would reasonably
be
expected to cause such reserves to be materially inadequate or
inappropriate.
4.23 Title
to and Condition of Properties. NeoStem
and its Subsidiaries have good title to all of the real property and personal
property reflected on NeoStem’s June 30, 2008 unaudited consolidated balance
sheet contained in NeoStem’s Quarterly Report on Form 10-Q for the quarter ended
June 30, 2008 filed with the SEC (the “NeoStem
Balance Sheet”),
except for property since sold or otherwise disposed of in the ordinary course
of business and consistent with past practice and except for defects of title
which are not material to NeoStem and its Subsidiaries taken as a whole. Neither
NeoStem nor any of its Subsidiaries owns any material real property. Except
as
set forth in Section 4.23 of the NeoStem Disclosure Statement, no real or
personal property owned or leased by NeoStem or any of its Subsidiaries is
subject to claims, liens or other encumbrances of any kind or character,
including, without limitation, mortgages, pledges, liens, conditional sale
agreements, charges, security interests, easements, restrictive covenants,
rights of way or options, except for (i) liens for taxes not yet delinquent
or
which are being contested in good faith by appropriate proceedings and in
respect of which NeoStem or its appropriate Subsidiary has set aside on its
books adequate reserves in accordance with generally accepted accounting
principles; (ii) mechanics’, carriers’, workers’, repairers’, materialmen’s,
landlords’ and other similar statutory or common law liens incurred in the
ordinary course of business for obligations not yet delinquent or the validity
of which is being contested in good faith by appropriate proceedings and in
respect of which NeoStem or its appropriate Subsidiary has set aside on its
books adequate reserves in accordance with generally accepted accounting
principles; (iii) in the case of real property, easements, rights of way,
restrictions, minor defects or irregularities in title that do not individually
or in the aggregate have a material adverse effect on the value or use of the
real property encumbered thereby as currently used in the operation of the
business of NeoStem or its Subsidiaries; (iv) those which would not materially
interfere with the conduct of the business of NeoStem and its Subsidiaries
(the
encumbrances described in clauses (i) through (iv) of this sentence,
collectively, the “NeoStem
Permitted Encumbrances”);
(v)
those securing liabilities reflected in the NeoStem Balance Sheet; or (vi)
those
described in Section 4.23 of the NeoStem Disclosure Statement.
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4.24 Leases.
There
have been delivered or made available to CBH true and complete copies of each
lease pursuant to which Real Property or personal property is held under lease
by NeoStem or any of its Subsidiaries (limited, in the case of personal
property, to leases pursuant to which annual rentals are reasonably expected
to
be at least $100,000 per year), and true and complete copies of each lease
pursuant to which NeoStem or any of its Subsidiaries leases real or personal
property to others (limited in the case of personal property, to leases pursuant
to which annual rentals are reasonably expected to be at least $100,000 per
year). Section 4.24 of the NeoStem Disclosure Statement sets forth a true and
complete list of all such leases, and such leases are the only leases that
are
material to the business conducted by NeoStem and its Subsidiaries taken as
a
whole. All of the leases so listed (i) are, in all material respects, valid
and
subsisting and in full force and effect with respect to NeoStem and its
Subsidiaries, as the case may be, and, to NeoStem’s knowledge, with respect to
any other party thereto and (ii) were entered into as a result of bona fide
arm’s length negotiations with the other party or parties thereto. NeoStem or
its Subsidiaries, as the case may be, have valid leasehold interests in all
properties leased thereunder free and clear of all material liens and
encumbrances other than NeoStem Permitted Encumbrances. The real properties
leased by NeoStem and its Subsidiaries are, in all material respects, in good
operating order and condition, subject to ordinary wear and tear. To NeoStem’s
knowledge, there are no material structural, mechanical or other defects in
any
improvements located on such real properties.
4.25 Contracts
and Commitments. Except
as
set forth in Section 4.25 of the NeoStem Disclosure Statement, as described
in a
NeoStem SEC Report or as set forth as an exhibit in a NeoStem SEC Report,
neither NeoStem nor any of its Subsidiaries is a party to any existing contract,
obligation or commitment of any type in any of the following
categories:
4.25.1 contracts
for the purchase by NeoStem or any of its Subsidiaries of medicines, materials,
supplies or equipment which are not cancelable upon 90 days’ or less notice and
which either (i) have not been entered into in the ordinary course of business
and consistent with past practice or (ii) provide for purchase prices
substantially greater than those presently prevailing for such materials,
supplies or equipment, or (iii) contracts obligating NeoStem or its Subsidiaries
to make capital expenditures in excess of $50,000;
4.25.2 contracts
under which NeoStem or any of its Subsidiaries has, except by way of endorsement
of negotiable instruments for collection in the ordinary course of business
and
consistent with past practice, become absolutely or contingently or otherwise
liable for (i) the performance of any other person, firm or corporation under
a
contract, or (ii) the whole or any part of the indebtedness or liabilities
of
any other person, firm or corporation;
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4.25.3 powers
of
attorney outstanding from NeoStem or any of its Subsidiaries other than as
issued in the ordinary course of business and consistent with past practice
with
respect to customs, insurance, patent, trademark or tax matters, or to agents
for service of process;
4.25.4 contracts
under which any amount payable by NeoStem or any of its Subsidiaries is
dependent upon, or calculated in accordance with, the revenues or earnings
(or
any component thereof of NeoStem or any of its Subsidiaries;
4.25.5 contracts
with any director, officer, employee or affiliate of NeoStem or any of its
Subsidiaries other than in such person’s capacity as a director, officer or
employee of NeoStem or any of its Subsidiaries;
4.25.6 contracts
which limit or restrict where NeoStem or any of its Subsidiaries may conduct
its
business or the type or line of business in which NeoStem or any of its
Subsidiaries may engage;
4.25.7 contracts
with any party for the loan of money or availability of credit to or from
NeoStem or any of its Subsidiaries (except credit extended by NeoStem or any
of
its Subsidiaries to its customers in the ordinary course of business and
consistent with past practice);
4.25.8 any
material hedging, option, derivative or other similar transaction;
or
4.25.9
any
contract with any Governmental Authority or, to NeoStem's knowledge, any
Government Authority contractor, with regard to any product or service sold
or
provided by NeoStem.
True
and
complete copies of all contracts, obligations and commitments listed in Section
4.25 of the NeoStem Disclosure Statement have been delivered or made available
to CBH. Except as set forth in Section 4.25 of the NeoStem Disclosure Statement,
none of NeoStem or its Subsidiaries or, to the knowledge of NeoStem, any other
party is in breach of or default under any of the contracts, obligations and
commitments listed in Section 4.25 of the NeoStem Disclosure Statement or under
any other NeoStem Contracts (and, to the knowledge of NeoStem, no facts or
circumstances exist which could reasonably support the assertion of any such
breach or default) except for breaches and defaults which would not, singly
or
in the aggregate with all other such breaches, have a NeoStem Material Adverse
Effect.
4.26 Employees;
Labor Matters. Except
as
set forth in Section 4.26 of the NeoStem Disclosure Statement, neither NeoStem
nor any Subsidiary thereof is a party to or bound by any collective bargaining
agreement, and there are no labor unions or other organizations representing,
purporting to represent or attempting to represent any employees employed by
NeoStem or any Subsidiary thereof. Since December 31, 2007, there has not
occurred or been threatened any material strike, slowdown, picketing, work
stoppage, concerted refusal to work overtime or other similar labor activity
with respect to any employees of NeoStem or any Subsidiary thereof. Except
as
set forth in Section 4.26 of the NeoStem Disclosure Statement, there are no
labor disputes currently subject to any grievance procedure, arbitration or
litigation and there is no representation petition pending or threatened with
respect to any employee of NeoStem or any Subsidiary thereof. Each of NeoStem
and its Subsidiaries has complied with all Applicable Laws pertaining to the
employment or termination of employment of their respective employees,
including, without limitation, all such Applicable Laws relating to labor
relations, equal employment opportunities, fair employment practices, prohibited
discrimination or distinction and other similar employment activities, except
for any failure so to comply that, individually and in the aggregate, could
not
result in any material liability or obligation on the part of NeoStem or any
of
its Subsidiaries.
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4.27 Put
Rights. Except
as
described in Section 4.27 of the NeoStem Disclosure Statement, neither the
execution and delivery by NeoStem of this Agreement nor the consummation of
the
Merger or any other transaction contemplated hereby gives rise to any obligation
of NeoStem or any of its Subsidiaries to, or any right of any holder of any
security of NeoStem or any of its Subsidiaries to require NeoStem to, purchase,
offer to purchase, redeem or otherwise prepay or repay any such security, or
deposit any funds to effect the same.
4.28 Employment
and Labor Contracts. Except
as
set forth in Section 4.28 of the NeoStem Disclosure Statement, as described
in a
NeoStem SEC Report or as set forth as an exhibit in a NeoStem SEC Report,
neither NeoStem nor any of its Subsidiaries is a party to any employment,
management services, consultation or other contract or agreement with any past
or present officer, director or employee or, to the knowledge of NeoStem, any
entity affiliated with any past or present officer, director or employee, other
than the agreements executed by employees generally, the forms of which have
been provided or made available to CBH.
4.29 Intellectual
Property Rights. NeoStem
or its Subsidiaries own or have the right to use all material NeoStem
Intellectual Property Rights (as defined herein) necessary to conduct their
respective businesses. Subject to obtaining any associated consents with respect
to agreements or licenses listed in Section 4.29 of the NeoStem Disclosure
Statement, each NeoStem Intellectual Property Right owned or used by NeoStem
or
any of its Subsidiaries immediately prior to the Effective Time will be owned
or
available for use, in all material respects, by NeoStem or its Subsidiaries
on
substantially the same terms and conditions immediately subsequent to the
Effective Time. Section 4.29 of the NeoStem Disclosure Statement contains a
list
of all material patents, trade names, registered copyrights, trademarks and
service marks, mask works and applications for the foregoing owned or used
by
NeoStem or its Subsidiaries. Except as set forth in Section 4.29 of the NeoStem
Disclosure Statement, (i) NeoStem and/or its Subsidiaries have valid and
unencumbered (except for NeoStem Permitted Encumbrances) title to the NeoStem
Intellectual Property Rights set forth in such Section 4.29 and, to NeoStem’s
knowledge, such title has not been challenged (pending or threatened) by others
except for the encumbrances listed therein; (ii) no material rights or licenses
to use NeoStem Intellectual Property Rights have been granted or acquired by
NeoStem or its Subsidiaries; (iii) there have been no claims or assertions
made
by others that NeoStem or its Subsidiaries has infringed any Intellectual
Property Rights of others by the sale of products, the rendering of services
or
any other activity since December 31, 2007; (iv) to the knowledge of NeoStem,
there has been no such infringement by NeoStem or any of its Subsidiaries since
December 31, 2007; (v) NeoStem has no knowledge of any infringement of NeoStem
Intellectual Property Rights of NeoStem or any of its Subsidiaries by others;
and (vi) all NeoStem Intellectual Property Rights owned by NeoStem or its
Subsidiaries are in good standing with the registration authority therefor,
if
any, and, to the extent recorded on the public record, are recorded in the
name
of NeoStem or its Subsidiaries. True and complete copies of all material listed
in Section 4.29 of the NeoStem Disclosure Statement have been delivered or
made
available to CBH. For purposes of this Agreement, the phrase “NeoStem
Intellectual Property Rights”
shall
mean the Intellectual Property Rights of NeoStem and its
Subsidiaries.
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4.30 Taxes.
4.30.1 Except
as
set forth in Section 4.30 in the NeoStem Disclosure Statement, (i) all Returns
required to be filed by, or with respect to any activities or assets of, each
of
NeoStem and its Subsidiaries have been duly and timely filed and are correct
and
complete in all material respects, (ii) all Taxes shown as owing on such Returns
have been paid and (iii) none of NeoStem or its Subsidiaries is currently the
beneficiary of any extension of time within which to file any
Return.
4.30.2 Except
as
set forth in Section 4.30 of the NeoStem Disclosure Statement, (i) all Taxes
that are or may become payable by any of NeoStem or its Subsidiaries or
chargeable as an Encumbrance upon its assets for which the filing of a Return
is
not required have been duly and timely paid and (ii) each of NeoStem and its
Subsidiaries has duly and timely withheld all Taxes required to be withheld
in
connection with the business or assets of such entity, and such withheld Taxes
have been either duly and timely paid to the proper governmental authorities
or
properly set aside in accounts for such purpose.
4.30.3 Except
as
set forth in Section 4.30 of the NeoStem Disclosure Statement, there has been
no
claim or issue (other than a claim or issue that has been finally settled)
concerning any liability for Taxes of NeoStem or any Subsidiary thereof
asserted, raised or threatened by any taxing authority and, to the knowledge
of
NeoStem and its Subsidiaries, no circumstances exist to form the basis for
such
a claim or issue.
4.30.4 Section
4.30 of the NeoStem Disclosure Statement lists all Income Tax Returns that
have
been filed with respect to each of NeoStem and its Subsidiaries for taxable
periods ended on or after January 1, 2006 and that have not yet been audited
or
are currently the subject of audit.
4.30.5 Except
as
set forth in Section 4.30 of the NeoStem Disclosure Statement, none of NeoStem
or its Subsidiaries has (i) waived any statute of limitations, (ii) agreed
to
any extension of the period for assessment or collection or (iii) executed
or
filed any power of attorney with respect to Taxes, which waiver, agreement
or
power of attorney is currently in force.
4.30.6 Except
as
set forth in Section 4.30 of the NeoStem Disclosure Statement, (i) there are
no
outstanding adjustments for Income Tax purposes applicable to NeoStem or any
of
its Subsidiaries required as a result of changes in methods of accounting
effected on or before the date of this Agreement and (ii) no material elections
for Income Tax purposes have been made by any of NeoStem or its Subsidiaries
that are currently in force or by which any of NeoStem or its Subsidiaries
is
bound.
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4.30.7 Except
as
set forth in Section 4.30 of the NeoStem Disclosure Statement, none of NeoStem
or its Subsidiaries (i) is a party to or bound by or has any obligation under
any Tax allocation, sharing, indemnity or similar agreement or arrangement
or
(ii) is or has been a member of any group of companies filing a consolidated,
combined or unitary Income Tax Return.
4.31 Employee
Benefit Plans.
4.31.1 Except
as
set forth in Section 4.31 of the NeoStem Disclosure Statement, with respect
to
any employee or former employee of NeoStem or any Subsidiary thereof, none
of
NeoStem or any Subsidiary thereof, or any affiliated company presently
maintains, contributes to or has any liability under: (i) any bonus, incentive
compensation, profit sharing, retirement, pension, group insurance, death
benefit, cafeteria, medical expense reimbursement, dependent care, stock option,
stock purchase, stock appreciation rights, deferred compensation, consulting,
severance pay or termination pay, vacation pay, welfare or other employee
benefit or fringe benefit plan, program or arrangement; or (ii) any plan,
program or arrangement which is an employee pension benefit plan, or an
“employee welfare benefit plan” as defined under relevant laws. Each plan,
program and arrangement set forth in Section 4.31 of the NeoStem Disclosure
Statement is herein referred to as a “NeoStem
Employee Benefit Plan.”
The
term “affiliated company” means any organization that would be aggregated with
any of NeoStem or any Subsidiary thereof under Section 414(b), (c), (m) or
(o)
of the Code.
4.31.2 There
is
no pending or threatened legal action, claim, proceeding or investigation
against or involving any NeoStem Employee Benefit Plan (other than routine
claims for benefits) and there is no basis for any facts which could give rise
to any such condition, legal action, claim, proceeding or
investigation.
4.31.3 Except
as
set forth in Section 4.31.3 of the NeoStem Disclosure Statement, none of NeoStem
or any Subsidiary thereof nor any of its Affiliates is a party to any employment
agreement, whether written or oral, or agreement with change in control or
similar provisions, or a collective bargaining agreement or contract with any
labor union relating to any employees or former employees of NeoStem or any
Subsidiary thereof.
4.32 Environmental
Matters.
4.32.1 Each
of
NeoStem and its Subsidiaries has complied and is in compliance in all material
respects with all applicable Environmental Laws pertaining to any of the
properties and assets of NeoStem and its Subsidiaries (including all real
property owned by NeoStem or any of its Subsidiaries, together with all
structures, facilities, improvements, fixtures, systems, equipment and items
of
property presently or hereafter located thereon or attached or appurtenant
thereto or owned by NeoStem or any of its Subsidiaries and located on real
property leased by NeoStem or any of its Subsidiaries, and all easements,
licenses, rights and appurtenances relating to the foregoing (collectively
the
“NeoStem
Real Property”))
and
the use and ownership thereof, and to the operation of their respective
businesses. No material violation by NeoStem or any of its Subsidiaries is
being
alleged of any applicable Environmental Law relating to any of the properties
and assets of NeoStem or any of its Subsidiaries including (the NeoStem Real
Property) or the use or ownership thereof, or to the operation of their
respective businesses.
-41-
4.32.2 None
of
NeoStem or its Subsidiaries or any other Person (including any tenant or
subtenant) has caused or taken any action that will result in, nor is NeoStem
or
any Subsidiary thereof subject to, any material liability or obligation on
the
part of NeoStem or any Subsidiary thereof or any of its Affiliates, relating
to
(x) the environmental conditions on, under, or about the NeoStem Real Property
or other properties or assets owned, leased, operated or used by NeoStem or
any
of its Subsidiaries or any predecessor thereto at the present time or in the
past, including without limitation, the air, soil and groundwater conditions
at
such properties or (y) the past or present use, management, handling, transport,
treatment, generation, storage, disposal or Release of any Hazardous
materials.
4.32.2.1 NeoStem
has disclosed and made available to CBH all information, including, without
limitation, all studies, analyses and test results, in the possession, custody
or control of or otherwise known to NeoStem relating to (x) the environmental
conditions on, under or about the Real Property or other properties or assets
owned, leased, operated or used by NeoStem or any of its Subsidiaries any
predecessor in interest thereto at the present time or in the past, and (y)
any
Hazardous materials used, managed, handled, transported, treated, generated,
stored or Released by NeoStem or any of its Subsidiaries or any other Person
on,
under, about or from any of the NeoStem Real Property, or otherwise in
connection with the use or operation of any of the properties and assets of
NeoStem or any of its Subsidiaries or their respective businesses.
4.33 Disclosure.
All
information disclosed by or on behalf of NeoStem or its Subsidiaries to CBH
or
its advisers on or prior to the date hereof is true and accurate in all material
aspects, and NeoStem is not aware of any other fact or matter which renders
any
such information misleading because of any omission, ambiguity or for any other
reason. All information contained in the Disclosure Statement is true and
accurate in all aspects and fairly presented and there is no fact or matter
which has not been disclosed in the NeoStem Disclosure Statement which renders
any such information untrue or misleading and there is no fact or matter
concerning NeoStem or its Subsidiaries which has not on the basis of the utmost
good faith been disclosed in the NeoStem Disclosure Statement which would
reasonably be expected to influence the decision of CBH to proceed with the
Merger on the terms and conditions thereof.
4.34 NeoStem
is currently listed on the American Stock Exchange, Inc.
(the
“AMEX”) and will get the
shares of NeoStem Common Stock required to be issued pursuant to this Agreement
listed on the AMEX,
the New
York Stock Exchanges, Inc. or the NASDAQ Stock Market (each, an
“Exchange”)
at the
time of the Closing.
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ARTICLE
V.
COVENANTS
OF THE PARTIES
5.1 Access
and Information.
5.1.1 Prior
to
the Closing, and except for disclosures which would cause CBH or any of its
Subsidiaries to waive the attorney-client privilege or otherwise violate
Applicable Law or any material confidentiality agreement, NeoStem shall be
entitled to make or cause to be made such investigation of CBH and its
Subsidiaries, and the financial and legal condition thereof, as NeoStem deems
necessary or advisable, and CBH and its Subsidiaries shall cooperate with any
such investigation. In furtherance of the foregoing, but not in limitation
thereof, CBH shall (a) permit NeoStem and its agents and representatives or
cause them to be permitted to have full and complete access to the premises,
operating systems, computer systems (hardware and software) and books and
records of CBH and its Subsidiaries upon reasonable notice during regular
business hours, (b) furnish or cause to be furnished to NeoStem such financial
and operating data, projections, forecasts, business plans, strategic plans
and
other data relating to CBH and its Subsidiaries and their businesses as NeoStem
shall request from time to time (including the plant re-location and capacity
expansion plan of Erye) and (c) cause its accountants to furnish to NeoStem
and
its accountants access to all work papers relating to any of the periods covered
by financial statements provided by CBH or Erye to NeoStem hereunder.
5.1.2 Prior
to
the Closing, and except for disclosures which would cause NeoStem or any of
its
Subsidiaries to waive the attorney-client privilege or otherwise violate
Applicable Law or any material confidentiality agreement, NeoStem shall (a)
provide complete and accurate information to CBH and its representatives in
response to reasonable requests for information made in order to enable CBH
to
confirm the accuracy of the representations set forth in Article IV (including
the continuing accuracy of those representations which are not made as of a
particular date) and the fulfillment of the covenants of this Article V and
the
closing conditions in Sections 6.1 and 6.3 and (b) furnish to CBH complete
and
accurate information comparable to the types of information heretofore furnished
by NeoStem to CBH in connection with the transactions contemplated hereby and
such other information as CBH may reasonably request (in light of prevailing
circumstances).
5.1.3 Prior
to
the Closing, NeoStem shall not use any information provided to it in confidence
by CBH for any purposes unrelated to this Agreement. CBH shall not use any
information provided to it in confidence by NeoStem for any purposes unrelated
to this Agreement. Except with respect to publicly available documents, in
the
event that this Agreement is terminated, (a) NeoStem will return to CBH all
documents obtained by it from CBH and its Subsidiaries in confidence and any
copies thereof in the possession of NeoStem or its agents and representatives
or, at the option of NeoStem, NeoStem shall cause all of such documents and
all
of such copies to be destroyed and shall certify the destruction thereof to
CBH
and (b) CBH will return to NeoStem all documents obtained by it from NeoStem
and
its Subsidiaries in confidence and any copies thereof in the possession of
CBH
or its agents and representatives or, at the option of CBH, CBH shall cause
all
of such documents and all of such copies to be destroyed and shall certify
the
destruction thereof to NeoStem. No investigation by NeoStem or CBH heretofore
or
hereafter made shall modify or otherwise affect the conditions to the obligation
of NeoStem and CBH to consummate the transactions contemplated
hereby.
-43-
5.2 CBH’s
Affirmative Covenants. Prior
to
the Closing, except as otherwise expressly provided herein, CBH shall (and
CBH
shall cause each of Erye and its other Subsidiaries to):
5.2.1 conduct
its business only in the ordinary and regular course of business consistent
with
past practices;
5.2.2 use
commercially reasonable efforts to keep in full force and effect its corporate
existence and all material rights, franchises, Intellectual Property Rights
and
goodwill relating or pertaining to its businesses;
5.2.3 endeavor
to retain its employees and preserve its present relationships with customers,
suppliers, contractors, distributors and employees, and continue to compensate
its employees consistent with past practices;
5.2.4 use
commercially reasonable efforts to maintain the CBH Intellectual Property Rights
so as not to affect adversely the validity or enforcement thereof; maintain
its
other assets in customary repair, order and condition and maintain insurance
reasonably comparable to that in effect on the date of this
Agreement;
5.2.5 maintain
its books, accounts and records in accordance with generally accepted accounting
principles;
5.2.6 use
commercially reasonable efforts to obtain all authorizations, consents, waivers,
approvals or other actions and to make all filings and applications necessary
or
desirable to consummate the transactions contemplated hereby, including, without
limitation, applications to the Suzhou Bureau of Foreign Trade and Economic
Cooperation Foreign Investment Administration Department (the "SBFTEC")
for
the SBFTEC's approval of the transfer of stock equity in Erye contemplated
by
this Agreement, and to cause the other conditions to NeoStem’s obligation to
close to be satisfied;
5.2.7 promptly
notify NeoStem in writing if, prior to the consummation of the Closing, to
its
knowledge (a) any of the representations and warranties contained in Article
III
cease to be accurate and complete in all material respects (except for any
representation and warranty (i) which is qualified hereunder as to materiality,
as to which such notification shall be given if CBH or its Subsidiaries obtain
knowledge that such representation and warranty is inaccurate in any respect,
or
(ii) that addresses matters only as of a particular date, which need only be
true and correct as of such date) or (b) CBH fails to comply with or satisfy
any
material covenant, condition or agreement to be complied with or satisfied
by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 5.2.7 shall not limit or otherwise affect the remedies available
hereunder to NeoStem; and
5.2.8 cause
the
consolidated balance sheets and the related consolidated statements of income
and cash flows (including the related notes thereto) of CBH included in CBH
SEC
Reports filed after the date hereof to comply, in all material respects, with
applicable accounting requirements and the published rules and regulations
of
the SEC with respect thereto, to be prepared, in accordance with U.S. generally
accepted accounting principles applied on a basis consistent with prior periods
(except as otherwise noted therein), and to present fairly, in all material
respects, the consolidated financial position of CBH and its consolidated
Subsidiaries as of their respective dates, and the consolidated results of
their
operations and their cash flows for the periods presented therein (subject,
in
the case of the unaudited interim financial statements, to notes and normal
year-end adjustments that are not reasonably expected to be, material in amount
or effect).
-44-
5.3 NeoStem’s Affirmative
Covenants. Prior
to
the Closing, except as otherwise expressly provided herein, NeoStem shall (and
NeoStem shall cause each of its Subsidiaries to):
5.3.1 Conduct
its business only in the ordinary and regular course of business consistent
with
past practices;
5.3.2 use
commercially reasonable efforts to keep in full force and effect its corporate
existence and all material rights, franchises, the NeoStem Intellectual Property
rights and goodwill relating or obtaining to its businesses;
5.3.3 endeavor
to retain its employees and preserve its present relationships with customers,
suppliers, contractors, distributors and employees, and continue to compensate
its employees consistent with past practice, which has included equity
compensation particularly where available cash has been limited;
5.3.4 maintain
its books, accounts and records in accordance with generally accepted accounting
principles;
5.3.5 use
commercially reasonable efforts to obtain all authorizations, consents, waivers,
approvals or other actions and to make all filings and applications necessary
or
desirable to consummate the transactions contemplated hereby and to cause the
other conditions to CBH’s obligation to close to be satisfied; and
5.3.6 promptly
notify CBH in writing if, prior to the consummation of the Closing, to its
knowledge (a) any of the representations and warranties contained in Article
IV
cease to be accurate and complete in all material respects (except for any
representation and warranty (i) which is qualified hereunder as to materiality,
as to which such notification shall be given if NeoStem or its Subsidiaries
obtain knowledge that such representation and warranty is inaccurate in any
respect, or (ii) that addresses matters only as of a particular date, which
need
only be true and correct as of such date) or (b) NeoStem fails to comply with
or
satisfy any material covenant, condition or agreement to be complied with or
satisfied by it hereunder; provided, however, that the delivery of any notice
pursuant to this Section 5.3.5 shall not limit or otherwise affect the remedies
available hereunder to CBH;
5.3.7 cause
the
consolidated balance sheets and the related consolidated statements of income
and cash flows (including the related notes thereto) of NeoStem included in
NeoStem SEC Reports filed after the date hereof to comply, in all material
respects, with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, to be prepared, in accordance
with
U.S. generally accepted accounting principles applied on a basis consistent
with
prior periods (except as otherwise noted therein), and to present fairly, in
all
material respects, the consolidated financial position of NeoStem and its
consolidated Subsidiaries as of their respective dates, and the consolidated
results of their operations and their cash flows for the periods presented
therein (subject, in the case of the unaudited interim financial statements,
to
notes and normal year-end adjustments that are not reasonably expected to be,
material in amount or effect).
-45-
5.4 CBH’s
Erye’s Negative Covenants. Prior
to
the Closing, without the prior written consent of NeoStem or as otherwise
expressly provided herein, CBH will not, and CBH will cause Erye and its other
Subsidiaries not to:
5.4.1 take
any
action or omit to take any action which would result in CBH’s or any of its
Subsidiaries’ (a) incurring any trade accounts payable outside of the ordinary
course of Business or making any commitment to purchase quantities of any item
of inventory in excess of quantities normally purchased in the ordinary course
of business; (b) increasing any of its indebtedness for borrowed money except
in
the ordinary course of business; (c) guaranteeing the obligations of any entity
other than CBH’s Subsidiaries, (d) merging or consolidating with, purchasing
substantially all of the assets of, or otherwise acquiring any business or
any
proprietorship, firm, association, limited liability company, corporation or
other business organization; (e) making any representation to anyone indicating
any intention of NeoStem or its Subsidiaries to retain, institute, or provide
any employee benefit plans; (f) after the Registration Statement and/or Joint
Proxy Statement is filed, issuing any shares of the capital stock of any kind
of
CBH or its Subsidiaries, transferring from the treasury of CBH or its
Subsidiaries any shares of the capital stock of CBH or its Subsidiaries, except
for CBH Common Stock issuable upon exercise of a CBH Stock Option, CBH Warrant
or RimAsia CBH Warrant outstanding on December 31, 2007; (g) issuing or granting
any subscriptions, options, rights, warrants, convertible securities or other
agreements or commitments to issue, or contracts or any other agreements
obligating CBH or its Subsidiaries to issue, or to transfer from treasury,
any
shares of capital stock of any class or kind, or securities convertible into
any
such shares; (h) modifying, amending or terminating any material CBH Contract
other than in the ordinary course of business that is consistent with past
practices; (i) entering into any other transaction outside of the ordinary
course of business, except that CBH may extend the terms of or enter into new
management and consulting agreements and vendor relationships, or make strategic
investments; (j) declaring or paying any dividend or making any distribution
with respect to, or purchasing or redeeming, shares of the capital stock of
CBH;
or (k) selling or disposing of any assets otherwise than in the ordinary course
of business of CBH and its Subsidiaries;
5.4.2 change
any method or principle of accounting in a manner that is inconsistent with
past
practice, except to the extent required by generally accepted accounting
principles as advised by CBH’s regular independent accountants;
5.4.3 take
any
action that would likely result in the representations and warranties set forth
in Article III (other than representations made as of a particular date)
becoming false or inaccurate in any material respect (or, as to representations
and warranties, which, by their terms, are qualified as to materiality, becoming
false or inaccurate in any respect);
-46-
5.4.4 incur
or
create any encumbrances, liens, pledges or security interests on assets other
than CBH Permitted Encumbrances;
5.4.5 except
as
contemplated herein, take any action or omit to take any action which would
materially interfere with NeoStem’s rights to compel performance of each of the
obligations of CBH under this Agreement;
5.4.6 take
or
omit to be taken any action, or permit any of its affiliates to take or to
omit
to take any action, which would reasonably be expected to result in a CBH
Material Adverse Effect;
5.4.7 grant
or
otherwise issue any option, warrant or other securities exercisable for or
convertible into shares of CBH Common Stock or other capital stock of CBH;
or
5.4.8 agree
or
commit to take any action precluded by this Section 5.4.
5.5 NeoStem’s
Negative Covenants. Prior
to
the Closing, without the prior written consent of CBH or as otherwise expressly
provided herein, NeoStem will not and NeoStem will cause its Subsidiaries not
to:
5.5.1 except
as
set forth in the last paragraph of this Section 5.5, take any action or omit
to
take any action which would result in NeoStem’s or any of its Subsidiaries’ (a)
incurring any trade accounts payable outside of the ordinary course of Business
or making any commitment to purchase quantities of any item of inventory in
excess of quantities normally purchased in the ordinary course of business,
other than costs associated with research and development of very small
embryonic-like (VSEL) stem cell technology and the establishment of a new
research and development laboratory; (b) increasing any of its indebtedness
for
borrowed money except in the ordinary course of business; (c) guaranteeing
the
obligations of any entity other than NeoStem’s Subsidiaries; (d) declaring or
paying any dividend or making any distribution with respect to, or purchasing
or
redeeming, shares of the capital stock of NeoStem; (e) selling or disposing
of
any assets otherwise than in the ordinary course of business of NeoStem and
its
Subsidiaries; (f) making any capital expenditures other than in the ordinary
course of business consistent with past practices and in no event in excess
of
$100,000 individually, excluding capital expenditures associated with the
purchase of a flowcytometer and/or cryopreservation tanks; or (g) entering
into
any other transaction outside of the ordinary course of business, except that
NeoStem may extend the terms of or enter into new management and consulting
agreements and vendor relationships, or make strategic investments; or (h)
merging or consolidating with, purchasing substantially all of the assets of,
or
otherwise acquiring any business or any proprietorship, firm, association,
limited liability company, corporation or other business organization, except
for the merger contemplated by this Agreement and the acquisition with Red
Cross;
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5.5.2 change
any method or principle of accounting in a manner that is inconsistent with
past
practice, except to the extent required by generally accepted accounting
principles as advised by NeoStem’s regular independent accountants;
5.5.3 take
any
action that would likely result in the representations and warranties set forth
in Article IV (other than representations made as of a particular date) becoming
false or inaccurate in any material respect (or, as to representations and
warranties, which, by their terms, are qualified as to materiality, becoming
false or inaccurate in any respect);
5.5.4 except
as
contemplated herein, take any action or omit to take any action which would
materially interfere with CBH’s rights to compel performance of each of the
obligations of NeoStem under this Agreement;
5.5.5 take
or
omit to be taken any action, or permit any of its affiliates to take or to
omit
to take any action, which would reasonably be expected to result in a NeoStem
Material Adverse Effect;
5.5.6 amend
NeoStem’s certificate of incorporation or by-laws, each as amended, in any
material manner that does not generally apply to all of NeoStem’s stockholders;
or
5.5.7 agree
or
commit to take any action precluded by this Section 5.5.
Notwithstanding
any provision to the contrary contained in this Agreement, in no event shall
NeoStem be prohibited from engaging in or otherwise effecting, and shall be
expressly permitted to engage in or otherwise effect, any of the following
transactions: (i) the transactions contemplated by this Agreement, including,
without limitation, the Merger, the change in the composition of the NeoStem
Board of Directors and the entrance into the Employment Agreements, the
Consultant Agreement and the CBC Non-Compete Agreement (each, as defined
herein); (ii) the merger or consolidation with, purchase of substantially all
of
the assets of, or other acquisition of any business or any proprietorship,
firm,
association, limited liability company, corporation or other business
organization so that that parties can move forward with an acquisition of the
business of Shangdong Institute (as defined herein), if appropriate; (iii)
a
stock split, reclassification, combination or other change with respect to
shares of NeoStem Common Stock that may be necessary or appropriate for NeoStem
to comply with any Exchange listing standards; provided, that the Exchange
Ratio
shall be adjusted to reflect any such stock split, reclassification, combination
or other change; (iv) the amendment, cancelation and reissuance or other
modification of any and all outstanding options to purchase shares of NeoStem
Common Stock and/or warrants to purchase shares of NeoStem Common Stock
immediately prior to the Closing, so that (a) any and all outstanding options
to
purchase shares of NeoStem Common Stock and/or warrants to purchase shares
of
NeoStem Common immediately prior to the Closing, may be amended, canceled and
reissued, or otherwise modified by NeoStem's Board of Directors (or an
appropriate committee thereof) so that the exercise price of each such option
and/or warrant shall be as set forth in Section 4.19 of the NeoStem Disclosure
Statement, and (b) simultaneously with the Closing, any and all outstanding
options to purchase shares of NeoStem Common Stock held by employees, officers,
directors or consultants providing services to NeoStem immediately prior to
the
Closing shall be amended so that vesting is based on the achievement of certain
milestones; (v) a financing transaction, whether through the private placement
of securities of NeoStem or otherwise; (vi) the adoption of the Equity
Compensation Plan or (vii) at the discretion of the Compensation Committee
of
the NeoStem Board of Directors, the grant or other issuance of options to
purchase up to an aggregate of 1,000,000 shares of NeoStem Common Stock under
the Equity Compensation Plan or any other equity compensation plan as bonuses
in
connection with the closing of the transactions contemplated by this
Agreement.
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5.6 Closing
Documents.
CBH
shall, prior to or on the Closing Date, execute and deliver, or cause to be
executed and delivered, to NeoStem the documents or instruments described in
Section 5.2. NeoStem shall, prior to or on the Closing Date, execute and
deliver, or cause to be executed and delivered, to CBH the documents or
instruments described in Section 5.3.
5.7 Further
Actions. Each
of
the parties hereto agrees to use all reasonable efforts to take, or cause to
be
taken, all actions, and to do, or cause to be done, and to assist and cooperate
with the other parties in doing, all things necessary, proper or advisable
to
consummate and make effective, in the most expeditious manner practicable in
light of the circumstances, the Merger and the other transactions contemplated
by this Agreement, including without limitation (A) the obtaining of all other
necessary actions or nonactions, waivers, consents, licenses, permits,
authorizations, orders and approvals from Governmental Authorities and the
making of all other necessary registrations and filings, (B) the obtaining
of
all consents, approvals or waivers from third parties related to or required
in
connection with the Merger that are necessary to consummate the Merger and
the
transactions contemplated by this Agreement or required to prevent a NeoStem
Material Adverse Effect or a CBH Material Adverse Effect from occurring prior
to
or after the Effective Time, (C) the preparation of the Prospectus/Joint Proxy
Statement and the Registration Statement, the declaration of effectiveness
of
the Registration Statement by the SEC and the mailing of the Prospectus/Joint
Proxy Statement to the stockholders of NeoStem and CBH, (D) if necessary as
a
result of the circumstances, the amendment of the Registration Statement and
Prospectus/Joint Proxy Statement as required by law and (E) the execution and
delivery of any additional instruments necessary to consummate the transactions
contemplated by, and to fully carry out the purposes of, this
Agreement.
5.8 Board
of Directors and Officers of NeoStem.
(i) NeoStem
shall use its reasonable best efforts to cause the members of the Board of
Directors to consist of the following five members promptly following the
Effective Time: Robin Smith, Madam Zhang Jian, Richard Berman, Steven S. Myers
and Joseph Zuckerman (the latter three to be independent directors, as defined
under the American Stock Exchange listing standards). Within four months
following the Effective Time, NeoStem’s Board of Directors shall, in accordance
with NeoStem’s bylaws, as amended, cause the number of members constituting the
Board of Directors of NeoStem to be increased from five to seven and to fill
the
two vacancies created thereby with a designee of RimAsia, who shall initially
be
Eric Wei, and with an independent director (as defined under the American Stock
Exchange listing standards) to be selected by a nominating committee of the
Board of Directors of NeoStem.
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(ii) It
is
anticipated that the key members of NeoStem's management team will remain in
place following the Effective Time.
5.9 Public
Announcements. Unless
otherwise required by Applicable Laws or requirements of any Exchange on which
the NeoStem Common Stock is quoted or listed (and in that event only if time
does not permit), at all times prior to the earlier of the Effective Time or
termination of this Agreement pursuant to Section 7.1, NeoStem and CBH shall
consult with each other before issuing any press release with respect to the
Merger and shall not issue any such press release prior to such
consultation.
5.10 Stockholders’
Meetings.
5.10.1 NeoStem
Annual Meeting. Subject
to Article VII, NeoStem shall take all action in accordance with the federal
securities law, the DGCL, the applicable rules of the Exchange on which the
NeoStem Common Stock is listed or quoted, NeoStem’s certificate of
incorporation, as amended, and NeoStem’s by-laws, as amended, necessary to
convene the NeoStem Annual Meeting to be held on the earliest practical date
as
reasonably determined by NeoStem in light of the circumstances, and to obtain
the consent and approval of NeoStem’s stockholders with respect to the issuance
of the Exchanged Securities pursuant to the Merger, including (in the absence
of
conditions that would justify the termination of this Agreement) recommending
such approval to NeoStem’s stockholders.
5.10.2 CBH
Special Meeting. Subject
to Article VII, CBH shall take all action in accordance with the federal
securities laws, the DGCL, CBH’s certificate of incorporation, as amended, and
CBH’s by-laws, as amended, necessary to convene the CBH Special Meeting to be
held on the earliest practical date as reasonably determined by NeoStem in
light
of the circumstances, and to obtain the consent and approval of CBH’s
stockholders with respect to this Agreement and the transactions contemplated
hereby, including (in the absence of conditions that would justify the
termination of this Agreement) recommending such approval to CBH’s
stockholders.
5.11 Preparation
of the Prospectus/Joint Proxy Statement and the Registration
Statement.
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5.11.1 NeoStem,
CBH and CBC shall, as soon as is reasonably practicable, cooperate to prepare
the Prospectus/Joint Proxy Statement to be included in the Registration
Statement. Once NeoStem, CBH and CBC consent to the filing of the
Prospectus/Joint Proxy Statement with the SEC (which consent shall not be
unreasonably withheld), NeoStem shall file the Prospectus/Joint Proxy Statement
with the SEC, which filing shall be made on a confidential basis to the extent
permitted by the regulations of the SEC with respect to such filings. Consistent
with the timing for the NeoStem Annual Meeting and the CBH Special Meeting
as
determined by NeoStem in accordance with Section 5.10, NeoStem shall, subject
to
the consent of CBH and CBC (which shall not be unreasonably withheld), prepare
and file the Registration Statement with the SEC as soon as is reasonably
practicable following clearance of the Prospectus/Joint Proxy Statement by
the
SEC and reasonable approval of the Prospectus/Joint Proxy Statement by CBH,
CBC
and NeoStem and shall use all reasonable efforts to have the Registration
Statement declared effective by the SEC as promptly as practicable thereafter
and to maintain the effectiveness of the Registration Statement through the
Effective Time. If, at any time prior to the Effective Time, NeoStem, CBH or
CBC
shall obtain knowledge of any information contained in or omitted from the
Registration Statement that would require an amendment or supplement to the
Registration Statement or the Prospectus/Joint Proxy Statement, the party
obtaining such knowledge will promptly so advise the other parties in writing
and each of CBH, CBC and NeoStem will promptly take such action as shall be
required to amend or supplement the Registration Statement and/or the
Prospectus/Joint Proxy Statement. Each of CBH and CBC shall promptly furnish
to
NeoStem all financial and other information concerning it as may be required
for
the Prospectus/Joint Proxy Statement and any supplements or amendments thereto.
NeoStem, CBH and CBC shall cooperate in the preparation of the Prospectus/Joint
Proxy Statement in a timely fashion and shall use all reasonable efforts to
clear the Prospectus/Joint Proxy Statement and the Registration Statement with
the Staff of the SEC. Promptly after the Registration Statement is declared
effective by the SEC, each of CBH, CBC and NeoStem shall use all reasonable
efforts to mail at the earliest practicable date to its stockholders the
Prospectus/Joint Proxy Statement, which shall include all information required
under Applicable Law to be furnished to CBH’s stockholders and NeoStem’s
stockholders in connection with the Merger, the Spin-Off and the transactions
contemplated thereby and shall include the CBH Board Recommendation. NeoStem
also shall take such other reasonable actions (other than qualifying to do
business in any jurisdiction in which it is not so qualified or submitting
to
taxation in any jurisdiction in which it is not subject to taxation) required
to
be taken under any applicable state securities laws in connection with the
issuance of NeoStem Common Stock and NeoStem Series C Preferred Stock in the
Merger. Notwithstanding any provision herein to the contrary, prior to the
time
that the Registration Statement is declared effective, the Prospectus/Joint
Proxy Statement shall contain the audited consolidated financial statements
described in clause “a” of Section 5.16.1.
5.11.2 (a) Notwithstanding
anything contained in this Agreement to the contrary, NeoStem shall not be
obligated to take any action under Section 5.11.1 unless and until the following
conditions shall have been met: (i) NeoStem shall have received the audited
financial statements of CBH and Erye and any other financial information of
CBH
or its Subsidiaries required for inclusion in the Registration Statement, (ii)
NeoStem shall have received pro forma financial statements approved by CBH,
Erye
and its auditors required to be included in the Registration Statement, under
SEC rules, (iii) NeoStem shall have received such auditor comfort letters from
its, CBH’s and Erye’s auditors, tax and other legal opinions from CBH’s counsel,
the PRC Opinion (as defined herein) and (iv) NeoStem shall have received the
opinion of vFinance to the effect that the terms of the Merger are fair to
NeoStem’s stockholders from a financial point of view (the “NeoStem
Fairness Opinion”),
each
in form and substance reasonably satisfactory to NeoStem.
(b) While
it
is the Parties' understanding that the joint preparation and filing with the
SEC
of the Prospectus/Joint Proxy Statement and Registration Statement by NeoStem,
CBH and CBC is permissible under the Securities Act and the Exchange Act and
the
rules and regulations promulgated thereunder, there can be no assurance that
the
SEC will permit such joint filings. Accordingly, notwithstanding anything
contained in this Agreement to the contrary, NeoStem shall not be obligated
to
take any action under Section 5.11.1 with respect to the registration under
the
Securities Act of shares of CBC Common Stock to be issued pursuant to the
Spin-Off if and to the extent the inclusion in the Prospectus/Joint Proxy
Statement and/or Registration Statement of such registration is not permitted
by
the SEC. In such event, CBC shall file a separate registration statement under
the Securities Act relating to the registration of the shares of CBC Common
Stock to be issued pursuant to the Spin-Off.
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5.12 Merger
Subsidiary. Prior
to
the Effective Time, Subco shall not conduct any business or make any investments
other than as specifically contemplated by this Agreement and will not have
any
assets (other than a de minimis amount of cash paid to Subco for the issuance
of
its stock to NeoStem) or any material liabilities.
5.13 Exchange Listing.
NeoStem
shall use its reasonable efforts to cause the NeoStem Common Stock issuable
pursuant to the Merger (including, without limitation, the NeoStem Common Stock
issuable upon conversion of the NeoStem Series C Preferred Stock or the exercise
of the Series B or C Warrants) to be approved for listing on an Eligible Market,
subject to official notice of issuance, prior to the Effective
Time.
5.14 CBH
Lock-Up and Voting Agreement and Support Agreement.
Concurrently herewith, NeoStem, CBH, each director and officer of CBH, RimAsia,
Erye, EET and Dr. Wang Taihua and the holder of CBH Series A Preferred stock
has
entered into the CBH Lock-Up and Voting Agreement. Concurrently herewith CBH
shall deliver to NeoStem a Support Agreement, in the form attached hereto as
Exhibit
E
(the
“Support
Agreement”),
pursuant to which each of EET and Erye has agreed to take certain actions in
support and furtherance of the transactions contemplated hereby.
5.15 Subsequent
Financial Statements. CBH
shall
consult with NeoStem prior to making publicly available its financial results
for any period after the date of this Agreement and prior to filing any CBH
SEC
Reports after the date of this Agreement.
5.16 Financial
Statements for a Current Report on Form 8-K.
5.16.1 Prior
to
the Closing, CBH shall provide, and shall cause Erye to provide, to NeoStem
(a)
regardless of when the Closing occurs, (i) audited consolidated balance sheets
of each of CBH and Erye and its Subsidiaries as of December 31, 2007 and 2006,
(ii) audited consolidated statements of income, cash flows and changes in
shareholders’ equity of each of CBH and Erye and its Subsidiaries for the years
ended December 31, 2007, 2006 and 2005, and (iii) an unqualified report with
respect to such audited financial statements by Moore Stephens Wurth Frazer
& Torbet, LLP, which report shall be in form and substance reasonably
satisfactory to NeoStem, and (b) if the Closing occurs on or after November
14,
2008, in addition to the items referred to in clause “a” of this Section 5.16.1,
(i) unaudited consolidated balance sheets of each of CBH and Erye and its
respective Subsidiaries as of September 30, 2008 and 2007, (ii) unaudited
consolidated statements of income, cash flows and changes in shareholders’
equity of each of CBH and Erye and its respective Subsidiaries for the three
and
nine months ended September 30, 2008 and 2007, and (iii) all other financial
statements of CBH or Erye required for any SEC filing to be filed by NeoStem,
including, without limitation, pro forma financial statements that give effect
to the Spin-Off. Such financial statements shall be prepared in accordance
with
generally accepted accounting principles, consistently applied, and shall
conform in all material respects to all provisions of the SEC’s Regulation S-X,
so that such financial statements meet the requirements for filing by NeoStem
with the SEC as required by the SEC’s Current Report on Form 8-K. Prior to the
Closing, CBC shall provide to NeoStem all financial statements of CBC required
for any SEC filing to be filed by NeoStem.
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5.16.2 At
the
Closing, CBH shall cause Moore Stephens Wurth Frazer & Torbet, LLP to
deliver to NeoStem an executed consent, in form and substance reasonably
satisfactory to NeoStem and suitable for filing by NeoStem with the SEC, which
consent shall authorize NeoStem to file with the SEC the reports delivered
pursuant to Section 5.16.1.
5.16.3 Upon
NeoStem’s request, contemporaneous with the delivery of the consolidated
financial statements described in clause “a” of Section 5.16.1, CBH shall cause
Moore Stephens Wurth Frazer & Torbet, LLP to make available to NeoStem and
its representatives the work papers generated in connection with such accounting
firm’s audit of the audited consolidated financial statements delivered pursuant
to Section 5.16.1.
5.16.4 Prior
to
the Closing, CBH and CBC shall cooperate, and CBH shall cause Erye to cooperate,
with NeoStem in providing to NeoStem such consolidated financial statements,
financial data and accountants’ reports as NeoStem shall reasonably request with
respect to any filing that NeoStem shall make under the Securities Act or the
Exchange Act.
5.17 CBC
Spin-Off.
5.17.1 CBH
has
represented that any and all CBH Payable Obligations are less than $450,000
and
will be less than $450,000 as of the Closing Date. The parties have agreed
that
at or prior to Closing, CBH shall have satisfied all of the CBH Payable
Obligations, except that CBH Payable Obligations in the aggregate amount of
not
more than $225,000 may remain at or after the Closing to be paid, satisfied
or
otherwise provided for by NeoStem including within such $225,000 to be satisfied
by NeoStem (a) NeoStem shall satisfy $97,000 of liabilities due to Globus and
Mao by the issuance of shares pursuant to Section 2.7 and (b) NeoStem may
negotiate with any other creditor listed on Schedule 3.14(b) of the CBH
Disclosure Statement to attempt to settle such liability with NeoStem shares
rather than cash and to have such liability be part of its maximum $225,000
obligation hereunder. Neither NeoStem nor the Surviving Company will have any
responsibility for CBH Payable Obligations in excess of $225,000. CBH shall
take
any and all action necessary or appropriate to obtain a release, in the form
attached hereto as Exhibit
F
(each, a
“CBH
Liability Release”),
from
each Person to whom any CBH Payable Obligations is, or as of the Closing Date
will be, owed (each, a "CBH
Creditor"),
pursuant to which each such CBH Creditor shall release NeoStem, Subco, CBH
and
Erye from any and all CBH Payable Obligations except as provided in the prior
sentence.
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5.17.2 CBH
shall
take any and all action necessary or appropriate to obtain any and all
authorizations, consents, waivers, approvals or other actions required to be
obtained for the Spin-Off.
5.18 Erye
Revenues. Prior
to
the Closing, CBH shall cause Erye to agree to contribute to NeoStem 6% of the
net annual income received by Erye, commencing with the year ending December
31,
2009, in order to fund NeoStem's costs and expenses.
ARTICLE
VI.
CONDITIONS
6.1 Conditions
to the Obligations of Each Party. The
obligations of CBH, NeoStem and Subco to consummate the Merger shall be subject
to the satisfaction (or waiver by each party, to the extent permitted by law)
of
the following conditions:
6.1.1 (i)
This
Agreement, the Merger and the transactions contemplated hereby shall have been
approved and adopted by CBH’s stockholders in the manner required by any
Applicable Law, and (ii) this Agreement, the amendment of the charter to
increase the authorized preferred stock and the issuance of the shares of the
Exchanged Securities to be issued in the Merger shall have been approved by
NeoStem’s stockholders and NeoStem in the manner required by any Applicable Law
and the applicable rules of the Exchange on which the NeoStem Common Stock
is
quoted or listed.
6.1.2 No
Governmental Authority of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, judgment,
decree, injunction or other order which is in effect, which would prohibit
consummation of the transactions contemplated by this Agreement or which would
have a NeoStem Material Adverse Effect after the Effective Time and after giving
effect to consummation of the transactions contemplated by this
Agreement.
6.1.3 The
SEC
shall have declared the Registration Statement effective under the Securities
Act, and no stop order or similar restraining order suspending the effectiveness
of the Registration Statement shall be in effect and no proceedings for such
purpose shall be pending before or threatened by the SEC or any state securities
administrator.
6.1.4 The
shares of NeoStem Common Stock required to be issued pursuant to the Merger
(including, without limitation, the NeoStem Common Stock issuable upon the
exercise of the Class C Warrants or conversion of the NeoStem Series C Preferred
Stock) shall have been approved for listing on the Exchange on which the NeoStem
Common Stock is listed or quoted, subject to official notice of
issuance.
6.1.5 Each
of
Robin Smith and Madam Zhang Jian shall have entered into employment agreements
with NeoStem, effective as of the Effective Time, in substantially form and
substance reasonably acceptable to NeoStem and each of them of (each, an
“Employment
Agreement”).
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6.1.6 This
Agreement, the Erye Letter of Intent to Enter into Amended and Restated Joint
Venture Agreement, dated as of the date hereof, among NeoStem, Subco and Erye
Economy and Trading Co. Ltd., a Sino-Foreign joint venture with limited
liability organized under the laws of the PRC ("EET"),
a
copy of which is attached hereto as Exhibit
G
(the
"Erye
Letter of Intent to Enter into Amended and Restated Joint Venture
Agreement"),
the
Amended and Restated Erye Joint Venture Agreement, in the form attached hereto
as Exhibit
H
(the
"Amended
and Restated Erye Joint Venture Agreement"),
to
replace all existing agreements between CBH and EET, and the Articles of
Incorporation of Erye, as amended in accordance with Section 6.1.7, shall have
been prepared in or translated into Chinese by Erye, and such Chinese versions
as shall be legally required shall have been delivered to the relevant PRC
and
other governmental organizations for inspection and approval, and all such
approvals have been obtained. NeoStem, Subco and EET shall have entered into
the
Amended and Restated Erye Joint Venture Agreement simultaneously with Closing
and after such approvals, and the Amended and Restated Erye Joint Venture
Agreement shall be in full force and effect. NeoStem, Subco and EET shall have
performed all of its obligations under this Agreement, the Erye Letter of Intent
to Enter into Amended and Restated Joint Venture Agreement and under the Amended
and Restated Erye Joint Venture Agreement.
6.1.7 The
organizational documents of Erye shall be amended in a manner satisfactory
as to
form and substance to NeoStem, and copies of the amended organizational
documents of Erye shall have been provided to NeoStem.
6.1.8 The
result of any and all due diligence, including, but not limited to, legal due
diligence, financial due diligence and business due diligence, shall be
satisfactory to NeoStem, in its sole discretion. In furtherance of, but without
limiting the foregoing, there shall have been a review by NeoStem of (i) the
plant relocation and capacity expansion plan of Erye and (ii) financial
projections (together with supporting assumptions) of Erye, both of which shall
be satisfactory to NeoStem, in its sole discretion.
6.2 Conditions
to NeoStem’s and Subco’s Obligations. The
obligations of NeoStem and Subco to consummate the transactions contemplated
by
this Agreement shall be subject to the fulfillment (or waiver by NeoStem) prior
to or at Closing of each of the following conditions:
6.2.1 The
representations and warranties of CBH set forth in Article III shall be true
and
correct in all material respects (other than representations and warranties
which are qualified as to materiality, which representations and warranties
shall be true in all respects) on the date hereof and on and as of the Closing
Date as though made on and as of the Closing Date (except for representations
and warranties made as of a specified date, which shall be measured only as
of
such specified date), except where the failure of such representations and
warranties to be so true and correct (without giving effect to any limitations
as to “materiality” or a CBH Material Adverse Effect set forth therein) does not
have, and is not reasonably likely to have, individually or in the aggregate,
a
CBH Material Adverse Effect, provided that the representations and warranties
set forth in Sections 3.1, 3.2, 3.5 and 3.19 shall be true and correct in all
material respects (other than representations and warranties which are qualified
as to materiality, which representations and warranties shall be true in all
respects) on the date hereof and on and as of the Closing Date as though made
on
and as of the Closing Date (except for representations and warranties made
as of
a specified date, which shall be measured as of such specified
date).
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6.2.2 CBH
and
CBC shall have performed in all material respects each of its obligations under
this Agreement and shall have complied in all material respects with each
covenant to be performed and complied with by it under this Agreement at or
prior to the Closing.
6.2.3 Since
the
date of this Agreement, there shall not have occurred any act, event or omission
having or reasonably likely to have a CBH Material Adverse Effect.
6.2.4 CBH,
CBC
and Erye shall have obtained all authorizations, consents, waivers, approvals
or
other actions described in Section 6.2.4 of the CBH Disclosure Statement
required in connection with the execution, delivery and performance of this
Agreement by CBH and its Subsidiaries (the “CBH
Approvals”)
and
the CBH Approvals shall be in full force and effect as of the Closing Date.
NeoStem shall have obtained all authorizations, consents, waivers, approvals
or
other actions described in Section 6.2.4 of the NeoStem Disclosure Statement
(the “NeoStem
Approvals”)
and
the NeoStem Approvals shall be in full force and effect as of the Closing
Date.
6.2.5 NeoStem
will receive at Closing $550,000 of unencumbered cash from the LXB litigation
settlement.
6.2.6 There
shall not be pending any legal proceeding by any Governmental Authority or
other
third party which (a) in the reasonable judgment of NeoStem’s Board of
Directors, is reasonably likely to cause a NeoStem Material Adverse Effect
after
the Effective Time giving effect to consummation of the transactions
contemplated by this Agreement and (b) either (i) challenges or seeks to
restrain or prohibit the consummation of the Merger or any of the other
transactions contemplated by this Agreement, (ii) seeks to prohibit or limit
the
ownership or operation by NeoStem, CBH or any of their respective subsidiaries
of, or to compel NeoStem, CBH or any of their respective subsidiaries to dispose
of or hold separate, any material portion of the business or assets of NeoStem,
CBH or any of their respective subsidiaries, as a result of the Merger or any
of
the other transactions contemplated by this Agreement, (iii) seeks to impose
limitations on the ability of NeoStem to acquire or hold, or exercise full
rights of ownership of, any shares of capital stock of the Surviving Company
or
the Erye Ownership, including the right to vote such capital stock of the
Surviving Company and Erye on all matters properly presented to the stockholders
of the Surviving Company or Erye, or (iv) seeks to prohibit NeoStem or any
subsidiary of NeoStem from effectively controlling in any material respect
the
business or operations of NeoStem or the subsidiaries of NeoStem including
the
Surviving Company and Erye.
6.2.7 Prior
to
or at the Closing, CBH shall have delivered to NeoStem the
following:
6.2.7.1
a
certificate of the Chairman of CBH and Erye (executed on behalf of CBH and
Erye), dated the Closing Date, to the effect that (1) the person signing such
certificate is familiar with this Agreement and (2) to such person’s knowledge,
the conditions specified in Sections 6.2.1, 6.2.2 and 6.2.3 have been
satisfied;
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6.2.7.2
a
certificate of the Secretary or Assistant Secretary of CBH and Erye, dated
the
Closing Date, as to the incumbency of any officer of such entity executing
this
Agreement or any document related hereto; and
6.2.7.3
(a) a copy of (1) the certificate of incorporation, as amended, of CBH,
certified by the Delaware Secretary of State and dated not earlier than fifteen
days prior to the Closing, (2) a certificate of the Delaware Secretary of State,
dated not earlier than fifteen days prior to the Closing and confirming that
CBH
is in good standing in the State of Delaware, (3) the by-laws, as amended,
of
CBH, certified by the Secretary or Assistant Secretary of CBH as of the Closing
Date, and (4) the resolutions of CBH’s Board of Directors authorizing the
execution, delivery and consummation of this Agreement and the transactions
contemplated hereby, certified by the Secretary or Assistant Secretary of CBH
as
of the Closing Date and (b) comparable documentation for Erye.
6.2.8 All
reports of CBH’s independent accountants relating to CBH’s and Erye’s audited
consolidated financial statements filed with (or incorporated by reference
in
any document filed with) the SEC subsequent to the date hereof and prior to
the
Effective Time shall certify, without qualification or exception, that such
financial statements (a) have been prepared in accordance with generally
accepted accounting principles consistently applied during the periods involved
and (b) fairly present, in all material respects, the consolidated financial
position of the entities described therein as of the dates thereof and the
consolidated results of operations and consolidated cash flows of such entities
for the periods presented.
6.2.9 NeoStem
shall have received opinions of PRC counsel to CBH and its Subsidiaries (the
“PRC
Opinion”)
and
tax counsel to CBH and its Subsidiaries (the “Tax
Opinion”),
in
the form and substance reasonably satisfactory to NeoStem, including without
limitation, with respect to the Merger, the tax-free status of the
reorganization, the spin-off, the regulatory status of Erye and the disclosure
in the Registration Statement, respectively. Such counsel shall also provide
NeoStem with appropriate opinion letters prior to the filing of the Registration
Statement and/or Joint Proxy Statement.
6.2.10 NeoStem
shall have received the NeoStem Fairness Opinion prior to the filing of the
Registration Statement and/or Joint Proxy Statement and a re-affirmation of
such
NeoStem Fairness Opinion prior to Closing.
6.2.11 NeoStem
shall have received proof satisfactory to it that CBH has not less than $550,000
in unencumbered cash available for distribution to NeoStem and has settled
any
and all CBH Payable Obligations subject to Section 5.17.1.
6.2.12 NeoStem
shall have received proof satisfactory to it that the Spin-Off has been
consummated or is being consummated simultaneously with the Merger, and that
all
regulatory, stockholder and other approvals for the Spin-Off have been received
by CBH.
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6.2.13 NeoStem
shall have received proof satisfactory to it that all CBH Warrants, RimAsia
CBH
Warrants and shares of CBH Series A Preferred Stock have been terminated and
cancelled.
6.2.14
NeoStem shall have received (i) a true and complete list of any and all CBH
Payable Obligations immediately prior to the Closing Date and the name and
address of each CBH Creditor thereof; (ii) proof satisfactory to it that all
CBH
Payable Obligations have been paid, satisfied or otherwise provided for or
transferred to CBC; and (iii) a CBH Liability Release from each CBH
Creditor.
6.2.15.
The CBH
Lock-Up and Voting Agreement shall be in full force and effect, and each
director and officer of each of CBH, holder of shares of CBH Series A Preferred
Stock, RimAsia, Erye and EET shall have performed all of his, her or its
obligations under, and shall not have breached any provision of, the CBH Lock-Up
and Voting Agreement. The Support Agreement shall be in full force and effect,
and each of EET and Erye shall have performed all of its obligations under,
and
shall not have breached any provision of, the Support Agreement.
6.2.16.
The Escrow Agreement shall have been executed and delivered by CBC and the
Escrow Agent.
6.2.17. All
personnel of each of CBH and Erye who will be personnel of NeoStem, Subco or
Erye immediately following the Closing, shall have executed and delivered to
NeoStem a Confidentiality, Invention Assignment and Non-Compete Agreement,
substantially in form and substance signed by NeoStem's current personnel (the
"NeoStem
Confidentiality Agreement").
6.2.18. Mao
shall
have executed and delivered to NeoStem a consulting agreement, effective as
of
the Effective Time, in form and substance reasonably acceptable to NeoStem
and
Mao, which shall include, without limitation a NeoStem Confidentiality Agreement
(the “Consulting
Agreement”).
6.2.19. CBC
shall
have executed and delivered to NeoStem a non-competition agreement, effective
as
of the Effective Time, in form and substance reasonably acceptable to NeoStem
and CBC, pursuant to which CBC shall agree, for a period of two (2) years,
not
to engage in stem cell collection, storage or therapies. ( the "CBC
Non-Compete Agreement").
6.2.20. All
of
the holders of CBH Common Stock Purchase Warrants shall have agreed in writing
to accept the Class C Warrants in exchange thereof pursuant to a Class C Warrant
Agreement.
6.2.21. NeoStem
shall have received evidence satisfactory to NeoStem, in its sole discretion,
of
the satisfaction in full of any and all (i) indebtedness for borrowed money
payable by CBH to Globus, including, without limitation, indebtedness in the
principal amount of $50,000, plus any and all accrued but unpaid interest
thereon or other obligations of CBH to Globus, including expense reimbursement
(collectively, the "Globus
Obligation")
and
(ii) indebtedness for borrowed money payable by CBH to Mao, including, without
limitation, indebtedness in the principal amount of $40,000, plus any and all
accrued but unpaid interest thereon or other obligations (the "Mao
Obligation").
NeoStem also shall have received evidence satisfactory to it, in its sole
discretion, of the cancelation of the CBH Series A Preferred
Stock.
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6.2.22.
NeoStem shall have received evidence satisfactory to it that the transfer of
stock equity in Erye contemplated by this Agreement shall have been approved
by
the SBFTEC; that the Merger shall have been approved by Except for the approval
of the competent authorities of commerce under the Law on Sino-Foreign Equity
Joint Ventures and its implementation regulations; and that any and all
requisite registrations with the China State Administration of Foreign Exchange
shall have been made.
6.2.23.
NeoStem shall have received evidence reasonably satisfactory to it from each
relevant PRC Governmental Authority that CBH and its Subsidiaries are in
compliance in all material respects with all applicable Tax Laws and
Environmental Laws.
6.2.24. CBH
shall
have purchased a six-year prepaid “tail policy” on terms and conditions (in both
amount and scope) providing substantially equivalent benefits as the current
policies of directors’ and officers’ liability insurance maintained by CBH and
its Subsidiaries with respect to matters arising on or before the Effective
Time, the cost of which shall not exceed 150% of the last annual premium paid
by
CBH prior to the date of this Agreement with respect to its current policies
of
directors’ and officers’ liability insurance.
6.2.25. Erye
shall have agreed to contribute to NeoStem 6% of the net annual income received
by Erye, commencing with the year ending December 31, 2009, in order to fund
NeoStem's costs and expenses, including, without limitation the costs and
expenses incurred by NeoStem in connection with the transactions contemplated
hereby.
6.2.26 NeoStem
shall have received proof satisfactory to it that PRC national candidates for
NeoStem board seats reasonably acceptable to NeoStem have been identified by
CBH
or Erye and have indicated a willingness to serve.
6.2.27 Neostem
shall be able to consolidate the financial statements of Erye under
GAAP.
6.3 Conditions
to CBH’s Obligations. The
obligations of CBH to consummate the transactions contemplated by this Agreement
shall be subject to the fulfillment (or waiver by CBH) at or prior to the
Closing of each of the following conditions:
6.3.1 The
representations and warranties of NeoStem and Subco set forth in Article IV
shall be true and correct in all material respects (other than representations
and warranties which are qualified as to materiality, which representations
and
warranties shall be true in all respects) on the date hereof and on and as
of
the Closing Date as though made on and as of the Closing Date (except for
representations and warranties made as of a specified date, which shall be
measured only as of such specified date), except where the failure of such
representations and warranties to be so true and correct (without giving effect
to any limitations as to “materiality” or a NeoStem Material Adverse Effect set
forth therein) does not have, and is not reasonably likely to have, individually
or in the aggregate, a NeoStem Material Adverse Effect, provided that the
representations and warranties set forth in Sections 4.1, 4.2 and 4.19 shall
be
true and correct in all material respects (other than representations and
warranties which are qualified as to materiality, which representations and
warranties shall be true in all respects) on the date hereof and on and as
of
the Closing Date as though made on and as of the Closing Date (except for
representations and warranties made as of a specified date, which shall be
measured as of such specified date).
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6.3.2 NeoStem
and Subco shall have performed in all material respects each of its obligations
under this Agreement and shall have complied in all material respects with
each
covenant to be performed and complied with by NeoStem and Subco under this
Agreement at or prior to the Closing.
6.3.3 NeoStem
shall have obtained all of the NeoStem Approvals and the NeoStem Approvals
shall
be in full force and effect as of the Closing Date.
6.3.4 Prior
to
or at the Closing, NeoStem and Subco shall have delivered to CBH the
following:
6.3.4.1
a
certificate of the Chief Executive Officer of NeoStem (executed on behalf of
NeoStem), dated the Closing Date, to the effect that (1) the person signing
such
certificate is familiar with this Agreement and (2) to such person’s knowledge,
the conditions specified in Sections 6.3.1, 6.3.2 and 6.3.5 have been
satisfied;
6.3.4.2
a
certificate of the Secretary or Assistant Secretary of each of NeoStem and
Subco, dated the Closing Date, as to the incumbency of any officer of NeoStem
and Subco executing this Agreement or any document related hereto;
6.3.4.3
a
copy of (1) the certificate of incorporation, as amended, of NeoStem, certified
by the Delaware Secretary of State and dated not earlier than fifteen days
prior
to the Closing, (2) a certificate of the Delaware Secretary of State, dated
not
earlier than fifteen days prior to the Closing and confirming that NeoStem
is in
good standing in the State of Delaware, (3) the by-laws, as amended, of NeoStem,
certified by the Secretary or Assistant Secretary of NeoStem as of the Closing
Date, and (4) the resolutions of NeoStem’s Board of Directors (or committee
thereof) authorizing the execution, delivery and consummation of this Agreement
and the transactions contemplated hereby, certified by the Secretary or
Assistant Secretary of NeoStem as of the Closing Date; and
6.3.4.4
a
copy of (1) the certificate of incorporation, as amended, of Subco, certified
by
the Delaware Secretary of State and dated not earlier than fifteen days prior
to
the Closing, (2) a certificate of the Delaware Secretary of State, dated not
earlier than fifteen days prior to the Closing and confirming that Subco is
in
good standing in the State of Delaware, (3) the by-laws, as amended, of Subco,
certified by the Secretary or Assistant Secretary of Subco as of the Closing
Date, and (4) the resolutions of Subco’s Board of Directors authorizing the
execution, delivery and consummation of this Agreement and the transactions
contemplated hereby, certified by the Secretary or Assistant Secretary of Subco
as of the Closing Date.
6.3.4.5.
CBH shall have received opinions of US counsel to NeoStem and its Subsidiaries
(the “Legal
Opinion”)
and
tax counsel to NeoStem and its Subsidiaries (the “Tax
Opinion”),
in
the form and substance reasonably satisfactory to CBH, including without
limitation, with respect to the Merger, the tax-free status of the
reorganization, and the disclosure in the Registration Statement, but not with
respect to the spin-off or the preferred stock. Such counsel shall also provide
CBH with appropriate opinion letters prior to the filing of the Registration
Statement and/or Joint Proxy Statement.
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6.3.5 Since
the
date of this Agreement, there shall not have occurred any act, event or omission
having or reasonably likely to have a NeoStem Material Adverse
Effect.
6.3.6 All
reports of NeoStem’s independent accountants relating to NeoStem’s audited
consolidated financial statements filed with (or incorporated by reference
in
any document filed with) the SEC subsequent to the date hereof and prior to
the
Effective Time shall certify, without qualification or exception, that such
financial statements (a) have been prepared in accordance with generally
accepted accounting principles consistently applied during the periods involved
and (b) fairly present, in all material respects, the consolidated financial
position of the entities described therein as of the dates thereof and the
consolidated results of operations and consolidated cash flows of such entities
for the periods presented.
6.3.7 NeoStem’s
Board of Directors and stockholders shall have adopted an equity incentive
compensation plan reasonably satisfactory to the Parties.
6.3.8 NeoStem
shall have delivered evidence, satisfactory to CBH, of the filing of the NeoStem
Certificate of Designations with the Delaware Secretary of State.
6.3.9 The
Escrow Agreement shall have been executed and delivered by NeoStem and the
Escrow Agent and the Escrow Certificates shall have been deposited with the
Escrow Agent.
6.3.10 The
NeoStem Lock-Up and Voting Agreement, dated as of the date hereof, among
NeoStem, Inc. and each director and officer of NeoStem, a copy of which is
attached hereto as Exhibit I (the "NeoStem
Lock-Up and Voting Agreement"),
shall
be in full force and effect, and each director and officer of NeoStem shall
have
performed all of his, her or its obligations under, and shall not have breached
any provision of, the NeoStem Lock-Up and Voting Agreement.
6.3.11
The
Transaction Expenses. NeoStem or the Surviving Company shall pay for all the
reasonable Transaction Expenses.
ARTICLE
VII.
TERMINATION
AND AMENDMENT
7.1 Termination.
This
Agreement may be terminated and the Merger may be abandoned at any time prior
to
the Effective Time (notwithstanding any approval of this Agreement by CBH’s
stockholders and/or NeoStem’s stockholders):
7.1.1 by
mutual
written consent of NeoStem and CBH;
7.1.2 by
either
NeoStem or CBH if there shall be any law or regulation that, as supported by
the
written opinion of outside legal counsel, makes consummation of the Merger
illegal or otherwise prohibited, or if any judgment, injunction, order or decree
of a court or other competent Governmental Authority enjoining NeoStem or CBH
from consummating the Merger shall have been entered and such judgment,
injunction, order or decree shall have become final and
nonappealable;
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7.1.3 by
either
NeoStem or CBH if the Merger shall not have been consummated before the Outside
Date (as hereinafter defined), provided, however, that the right to terminate
this Agreement under this Section 7.1.3 shall not be available to any party
whose failure or whose affiliate’s failure to perform any material covenant or
obligation under this Agreement has been the cause of or resulted in the failure
of the Merger to occur on or before such date;
7.1.4 by
either
NeoStem or CBH if at the CBH Special Meeting (including any adjournment or
postponement thereof) the requisite vote (under all Applicable Laws) of CBH’s
stockholders to approve the Merger and the transactions contemplated hereby
shall not have been obtained;
7.1.5 by
either
NeoStem or CBH if at the NeoStem Annual Meeting (including any adjournment
or
postponement thereof) the requisite vote (under all Applicable Laws and the
rules and regulations of the Exchange on which the NeoStem Common Stock is
listed or quoted) of NeoStem’s stockholders to authorize the issuance of NeoStem
Common Stock in the Merger shall not have been obtained;
7.1.6 by
NeoStem if vFinance, acting in good faith and in accordance with recognized
professional standards consistent with prior practices, declines to provide
NeoStem with opinions, in form and substance satisfactory to NeoStem, and based
on reasonable and customary analyses as of the date of any Prospectus/Joint
Proxy Statement, and an updated Opinion as of the Closing Date, to the effect
that the Merger Consideration is fair to NeoStem and its stockholders from
a
financial point of view (with such opinions to be delivered immediately prior
to
the filing of the Registration Statement and the Closing, respectively);
7.1.7 by
either
NeoStem or CBH if any representation or warranty made in this Agreement
(including without limitation the CBH Disclosure Statement and the NeoStem
Disclosure Statement) for its benefit is untrue in any material respect (other
than representations and warranties which are qualified as to materiality,
which
representations and warranties will give rise to termination if untrue in any
respect); provided that, in each case, (a) the party seeking to terminate this
Agreement is not then in material breach of any material representation or
warranty contained in this Agreement, (b) such untrue representation or warranty
cannot be or has not been cured within 30 days after receipt of written notice
of such breach and (c) in the case of CBH, except for the representations and
warranties contained in Sections 3.1, 3.2, 3.5 and 3.19 and in the case of
NeoStem, except for the representations and warranties contained in Sections
4.1, 4.2 and 4.19, such untrue representation and warranty has, or is reasonably
likely to have, a CBH Material Adverse Effect or a NeoStem Material Adverse
Effect, as the case may be and in each case after the Effective Time and after
giving effect to consummation of the transactions contemplated by this
Agreement;
7.1.8 by
either
NeoStem or CBH if the other party shall have defaulted in the performance of
any
material covenant or agreement under this Agreement; provided that, in each
case, (a) the party seeking to terminate this Agreement has complied with its
covenants and agreements under this Agreement in all material respects and
(b)
such failure to comply cannot be or has not been cured within 30 days after
receipt of written notice of such default;
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7.1.9 by
NeoStem if any authorization, consent, waiver or approval required for the
consummation of the transactions contemplated hereby shall require the
divestiture or cessation of any of the present business or operations conducted
by NeoStem or its Subsidiaries or CBH or its Subsidiaries or shall impose any
other material condition or requirement, which divestiture, cessation, condition
or requirement, in the reasonable judgment of NeoStem’s Board of Directors (or a
committee thereof), would be reasonably likely to have a NeoStem Material
Adverse Effect after the Effective Time giving effect to consummation of the
transactions contemplated by this Agreement;
7.1.10 by
NeoStem, in the event that the conditions to its obligations set forth in
Article VI have not been satisfied or waived by the date set for the Closing
or
in the event that such conditions cannot possibly be satisfied prior to the
Outside Date, provided that NeoStem is not then in material breach of any
material representation, warranty, covenant or other agreement contained in
this
Agreement;
7.1.11 by
CBH,
in the event that the conditions to its obligations set forth in Article VI
have
not been satisfied or waived by the date set for the Closing or in the event
that such conditions cannot possibly be satisfied prior to the Outside Date,
provided that CBH is not then in material breach of any material representation,
warranty, covenant or other agreement contained in this Agreement;
or
7.1.12 by
NeoStem, upon election by its Board of Directors (or a committee thereof),
in
the event that the Dissenting Shares represent more than five (5%) of the shares
of CBH Common Stock or CBH Preferred Stock held by holders thereof who are
entitled to vote on the Merger.
7.1.13 by
NeoStem, if the Spin-Off has not been fully consummated by CBH prior to the
Outside Date. For purposes of this Agreement, the “Outside Date” shall mean
March 1, 2009.
7.2 Effect
of Termination.
7.2.1 In
the
event of the termination of this Agreement pursuant to Section 7.1, this
Agreement, except for any provisions relating to the confidentiality obligations
of the parties hereto to each other and the provisions of this Section 7.2
and
Section 8.12, shall become void and have no effect, without any liability on
the
part of any party or its directors, officers or stockholders. Notwithstanding
the foregoing, nothing in this Section 7.2 shall relieve any party to this
Agreement of liability for a material breach of any material provision of this
Agreement.
7.3 Amendment.
This
Agreement may be amended by the parties hereto, by action taken or authorized
by
their respective Boards of Directors (or committees thereof), at any time before
or after adoption of this Agreement by CBH’s stockholders, but after any such
approval, no amendment shall be made which by law requires further approval
or
authorization by CBH’s stockholders without such further approval or
authorization. Notwithstanding the foregoing, this Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
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7.4 Extension;
Waiver. At
any
time prior to the Effective Time, NeoStem (with respect to CBH and CBC) and
CBH
(with respect to NeoStem and Subco) by action taken or authorized by their
respective Boards of Directors (or committee thereof), may, to the extent
legally allowed, (a) extend the time for the performance of any of the
obligations or other acts of such party, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to
any
such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party.
ARTICLE
VIII.
MISCELLANEOUS
8.1 No
Survival of Representations and Warranties. The
representations and warranties made herein by NeoStem and CBH shall not survive
the Effective Time and the representations and warranties. This Section 8.1
shall not limit any covenant or agreement of the parties hereto which by its
terms contemplates performance after the Effective Time or after the termination
of this Agreement.
8.2 Notices.
All
notices or other communications required or permitted hereunder shall be in
writing and shall be delivered personally, by facsimile, by overnight courier
or
sent by certified or registered mail, postage prepaid, and shall be deemed
given
when so delivered personally, or when so received by facsimile or courier,
or if
mailed, three calendar days after the date of mailing, as follows (or at such
other address for a party as shall be specified by like notice):
8.2.1 if
to
NeoStem or Subco:
NeoStem,
Inc.
420
Lexington Avenue, Suite 450
New
York,
New York 10170
Attention:
Catherine Vaczy
Telecopy:
(646) 514-7787
with
a
copy (which shall not constitute notice) to:
Lowenstein,
Sandler PC
65
Livingston Avenue
Roseland,
New Jersey 07068
Attention:
Alan Wovsaniker, Esq.
Telecopy
No.: (973) 597-2565
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8.2.2 if
to CBH
or CBC:
China
Biopharmaceuticals, Inc.
No.
859,
Pan Xu Road
Suzhou,
Jiangsu Province, China, 215000
Attention:
Chris Mao
Telecopy:
_______________
with
a
copy (which shall not constitute notice) to:
Troutman
Sanders LLP
The
Chrysler Building
405
Lexington Avenue
New
York,
New York 10174
Attention:
Howard H. Jiang, Esq.
Telecopy:
(212) 704-6288
8.3 Interpretation.
8.3.1 When
a
reference is made in this Agreement to an Article or Section, such reference
shall be to an Article or Section of this Agreement unless otherwise indicated.
The headings and the table of contents contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.3.2 For
purposes of this Agreement, “knowledge” of a party shall mean the actual
knowledge of all officers of such party with a title of executive vice president
or higher.
8.4 Counterparts.
This
Agreement may be executed in counterparts, which together shall constitute
one
and the same Agreement. The parties may execute more than one copy of the
Agreement, each of which shall constitute an original.
8.5 Entire
Agreement. This
Agreement (including the documents and the instruments referred to herein)
and
any and all confidentiality agreements previously entered into between NeoStem
and CBH or any Subsidiary thereof (collectively, the “Confidentiality
Agreements”)
constitute the entire agreement among the parties and supersede all prior
agreements and understandings, agreements or representations by or among the
parties, written and oral, with respect to the subject matter hereof and
thereof.
8.6 Third-Party
Beneficiaries. Nothing
in this Agreement, express or implied, is intended or shall be construed to
create any third-party beneficiaries.
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8.7 Governing
Law. Except
to
the extent that the laws of the jurisdiction of organization of any party
hereto, or any other jurisdiction, are mandatorily applicable to the Merger
or
to matters arising under or in connection with this Agreement, this Agreement
shall be governed by the laws of the State of Delaware. All actions and
proceedings arising out of or relating to this Agreement shall be heard and
determined exclusively in any state or federal court sitting in the State of
Delaware.
8.8 Consent
to Jurisdiction; Venue.
8.8.1 Each
of
the parties hereto irrevocably submits to the exclusive jurisdiction of the
state courts of Delaware and the United States District Court for the District
of Delaware, for the purpose of any action or proceeding arising out of or
relating to this Agreement and each of the parties hereto irrevocably agrees
that all claims in respect to such action or proceeding shall be heard and
determined exclusively in any Delaware state or federal court. Each of the
parties hereto agrees that a final judgment in any action or proceeding shall
be
conclusive and may be enforced in other jurisdictions by suit on the judgment
or
in any other manner provided by law.
8.8.2 Each
of
the parties hereto irrevocably consents to the service of any summons and
complaint and any other process in any other action or proceeding relating
to
the Merger, on behalf of itself or its property, by the delivery of copies
of
such process to such party in the same manner as notice is to be provided
pursuant to Section 8.3. Nothing in this Section 8.9 shall affect the right
of
any party hereto to serve legal process in any other manner permitted by
law.
8.9 Specific
Performance. The
transactions contemplated by this Agreement are unique. Accordingly, each of
the
parties acknowledges and agrees that, in addition to all other remedies to
which
it may be entitled, each of the parties hereto is entitled to a decree of
specific performance, provided such party is not in material default
hereunder.
8.10 Assignment.
Neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other parties. Subject
to
the preceding sentence, this Agreement shall be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors
and
assigns.
8.11 Expenses.
Subject
to the provisions of Section 8.2, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid
by
the party incurring such expenses, except that those expenses incurred in
connection with filing, printing and mailing the Registration Statement and
the
Prospectus/Joint Proxy Statement (including filing fees related thereto but
excluding legal and accounting fees and expenses) and the fees and disbursements
of any Third Party Firm will be shared equally by NeoStem and
CBH.
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8.12 Severability.
The
invalidity of any portion hereof shall not affect the validity, force or effect
of the remaining portions hereof. If it is ever held that any restriction
hereunder is too broad to permit enforcement of such restriction to its fullest
extent, such restriction shall be enforced to the maximum extent permitted
by
law.
8.13 No
Strict Construction. Each
Party acknowledges that this Agreement has been prepared jointly by the parties
hereto, and shall not be strictly construed against any Party.
8.14 Language
Translations. Each
Party acknowledges that this Agreement has been prepared in English. In the
event of a conflict between different translations of these terms, the English
translation will govern.
8.15 Disbursement
of the Escrow Shares.
For a
period of no more than six (6) months after the Effective Time, in case the
CBH
Payable Obligations, excluding the Transaction Expenses, exceed a total of
$450,000, such excess shall be paid out of the Escrow Shares (valued at one
dollar per share) with a notice provided according to the terms of the Escrow
Agreement. CBC shall not be responsible for any payable obligations in excess
beyond $450,000 and the Escrow Shares.
[Remainder
of Page Intentionally Left Blank]
-67-
IN
WITNESS WHEREOF, NeoStem, Subco, CBH and CBC have signed this Agreement as
of
the date first written above.
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By:
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/s/ Robin L. Smith |
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Name:
Robin L. Smith
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Title:
Chief Executive Officer
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CBH
ACQUISITION LLC
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By:
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/s/ Robin L. Smith |
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Name:
Robin L. Smith
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Title:
Chief Executive Officer
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CHINA
BIOPHARMACEUTICALS HOLDINGS, INC.
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By:
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/s/ Chris Peng Mao |
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Name:
Chris Peng Mao
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Title:
Chief Executive Officer
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CHINA
BIOPHARMACEUTICALS CORP.
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By:
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/s/ Chris Peng Mao |
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Name:
Chris Peng Mao
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Title:
Chief Executive
Officer
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[Signature
Page to Agreement and Plan of Merger]
-68-
Exhibit
99.1
NeoStem
Signs Definitive Agreement to Acquire Controlling Interest in a Leading Chinese
Pharmaceutical Company
NEW
YORK,
Nov. 3 /PRNewswire-FirstCall/ -- NeoStem, Inc. (Amex: NBS),
which
is pioneering the pre-disease collection, processing and long-term storage
of
adult stem cells for future medical need, announced today that it has agreed
to
acquire China Biopharmaceuticals Holdings, Inc. (OTC Bulletin Board - CHBP).
It
is
anticipated that this acquisition will expand the capabilities and worldwide
reach of NeoStem. Suzhou Erye Pharmaceutical Co. Ltd. (“Erye”), the primary
subsidiary of China Biopharmaceuticals is located in Suzhou, China and is
currently tracking to generate revenues of approximately $50 million (US) and
net over $7 million (US) in 2008. NeoStem will have a 51% controlling interest
in Erye who currently manufactures over 100 drugs on seven GMP lines, including
small molecule drugs. Erye has been in business for more than 50 years and
is
respected for its quality, service and reliability. Erye has begun its three
year expansion and relocation program which is anticipated to enhance revenues,
profits, and manufacturing capabilities in one of the fastest growing medical
markets, the Peoples Republic of China.
“We
are
excited to work with NeoStem to bring new technologies and enhance our drug
pipeline. Our facility relocation will allow us to expand manufacturing of
small
molecule drugs and distribute into China realizing what could be a tremendous
market potential,” said Madame Jiang, General Manager of Erye.
Robin
Smith, MD, CEO of NeoStem further commented, “We are excited about our
collaboration with Suzhou Erye Pharmaceutical Co. Ltd. as it will open new
markets, distribution channels and capabilities for production of stem cell
related products in the world’s fastest growing economy.”
The
consideration to be paid by NeoStem to effect the merger consists of the
issuance of a combination of 13.0 million shares of common stock, up to 4.4
million warrants to purchase shares of common stock and 7.0 million shares
of
convertible preferred stock. This acquisition is subject to the approval of
the
shareholders of NeoStem, Inc. and China Biopharmaceuticals Holdings, Inc.,
regulatory approvals, as well as the satisfaction of other customary conditions
and is expected to close in the 1st
calendar
quarter of 2009. The merger will be more fully described in a Current Report
on
Form 8-K to be filed with the Securities and Exchange Commission within four
business days of the signing of the definitive agreement.
About
NeoStem, Inc.
NeoStem
is developing a network of adult stem cell collection centers that are focused
on enabling people to donate and store their own (autologous) stem cells when
they are young and healthy for their personal use in times for future medical
need. The Company has also recently entered into research and development
through the acquisition of a worldwide exclusive license to technology to
identify and isolate VSELs (very small embryonic-like stem cells), which have
been shown to have several physical characteristics that are generally found
in
embryonic stem cells.
About
China Biopharmaceuticals Holdings, Inc.
China
Biopharmaceuticals Holdings, Inc is a vertically integrated pharmaceutical
company dedicated to the discovery, development, manufacturing and marketing
of
small and large molecule pharmaceutical products, including medicines, vaccines,
and active pharmaceutical ingredients for various categories of diseases. CHBP
is a U.S.-listed public company with operating subsidiaries and senior
management based in China.
For
more
information, please visit: www.neostem.com.
Forward-Looking
Statements
This
press release contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
reflect management's current expectations, as of the date of this press release,
and involve certain risks and uncertainties. The Company's actual results,
including the successful closing of the acquisition transaction, could differ
materially from those anticipated in these forward-looking statements as a
result of various factors. Factors that could cause future results to materially
differ from the recent results or those projected in forward-looking statements
include the "Risk Factors" described in the Company's periodic filings with
the
Securities and Exchange Commission. The Company's further development is highly
dependent on future medical and research developments and market acceptance,
which is outside its control.
Contact:
NeoStem,
Inc.
Robin
Smith, Chief Executive Officer
T:
212-584-4180
E:
rsmith@neostem.com
www.neostem.com
CONTACT:
Robin Smith, Chief Executive Officer of NeoStem, Inc., +1-212-584-4180,
rsmith@neostem.com